-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SLIwokeG57m4tiaeV7W80wcLaGgyew5D04m9Fc3KFWrr0Kh+jJN6rBXSDp3/MkxO PPnrNa1PkWS00AtMCZ4HvQ== 0000912057-99-006013.txt : 19991117 0000912057-99-006013.hdr.sgml : 19991117 ACCESSION NUMBER: 0000912057-99-006013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TICKETMASTER ONLINE CITYSEARCH INC CENTRAL INDEX KEY: 0001006637 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 954546874 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25041 FILM NUMBER: 99754510 BUSINESS ADDRESS: STREET 1: 790 E COLORADO BLVD STREET 2: STE 200 CITY: PASADENA STATE: CA ZIP: 91101 BUSINESS PHONE: 6264050050 MAIL ADDRESS: STREET 1: 790 E COLORADO BLVD STREET 2: SUITE 200 CITY: PASADENA STATE: CA ZIP: 91101 FORMER COMPANY: FORMER CONFORMED NAME: CITYSEARCH INC DATE OF NAME CHANGE: 19980617 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM 10-Q ----------------------- (Mark One) [ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the period ended September 30, 1999 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number: 0-25041 --------- TICKETMASTER ONLINE - CITYSEARCH, INC. (Exact name of registrant as specified in its charter) DELAWARE 95-4546874 (State or other (I.R.S. Employer jurisdiction of Identification Incorporation or Number) organization) 790 E. COLORADO BOULEVARD, SUITE 200, PASADENA, CA 91101 ------------------------ (Address of principal executive offices) TELEPHONE NUMBER (626) 405-0050 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ As of October 29, 1999, there were 27,942,287 shares of the Registrant's Class B Common Stock outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TICKETMASTER ONLINE - CITYSEARCH, INC. FORM 10-Q INDEX
Page No. ---- PART I-FINANCIAL INFORMATION............................................. 3 Item 1. Financial Statements (unaudited)....................... 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk...................................... 13 PART II-OTHER INFORMATION................................................ 14 Item 2. Changes in Securities and Use of Proceeds.............. 14 Item 6. Exhibits and Reports on Form 8-K....................... 14 SIGNATURES............................................................... 15
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TICKETMASTER ONLINE-CITYSEARCH, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data)
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ----------------- (unaudited) (see note 1) ASSETS Current assets: Cash and cash equivalents................................................... $ 67,962 $ 106,910 Accounts receivable (net of allowance for doubtful accounts of $485 and $58,respectively)................................................... 3,123 1,249 Related party receivable.................................................... 1,793 813 Due from licensees.......................................................... 1,274 1,440 Prepaid expenses............................................................ 1,632 777 ------------- ------------- Total current assets.................................................... 75,784 111,189 Computers, software, equipment and leasehold improvements, net................... 13,467 5,893 Investments...................................................................... 5,285 -- Goodwill and other intangibles, net.............................................. 700,966 299,643 ------------- ------------- Total assets............................................................ $ 795,502 $ 416,725 ------------- ------------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................................ $ 3,011 $ 2,734 Accrued expenses............................................................ 6,713 4,551 Deferred revenue............................................................ 4,122 1,882 Current portion of capital lease obligations................................ 1,057 1,331 ------------- ------------- Total current liabilities............................................... 14,903 10,498 Other long-term liabilities...................................................... 1,312 1,557 Capital lease obligations, net of current portion................................ 533 1,082 Stockholders' equity: Class A Common Stock, $0.01 par value: Authorized shares --100,000,000 at September 30, 1999 Issued and outstanding--55,321,556 and 63,291,653 at September 30, 1999 and December 31, 1998, respectively............... 553 633 Class B Common Stock--$0.01 par value: Authorized shares--250,000,000 at September 30, 1999 Issued and outstanding--27,755,851 and 8,167,000 at September 30, 1999 and December 31, 1998, respectively.................. 278 82 Class C Common Stock--$0.01 par value: Authorized shares--2,883,506 at September 30, 1999 Issued and outstanding--none............................................ -- -- Additional paid-in capital.................................................. 866,385 418,918 Accumulated deficit......................................................... (88,482) (16,038) Foreign Currency Translation................................................ 20 (7) ------------- ------------- Total stockholders' equity.............................................. 778,754 403,588 ------------- ------------- Total liabilities and stockholders' equity.......................... $ 795,502 $ 416,725 ------------- ------------- ------------- -------------
See accompanying notes. TICKETMASTER ONLINE-CITYSEARCH, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------- -------------------- 1999 1998 1999 1998 --------- -------- --------- ------- (unaudited) (unaudited) Revenues: Ticketing operations.................................. $ 16,634 $ 4,624 $ 43,812 $10,571 Sponsorship and advertising........................... 1,800 2,111 4,009 4,555 City guide and related................................ 8,977 112 21,089 112 --------- -------- --------- ------- Total revenues...................................... 27,411 6,847 68,910 15,238 Operating costs and expenses: Ticketing operations.................................. 12,305 2,496 32,612 5,947 City guide and related................................ 8,582 97 19,052 97 Sales and marketing................................... 13,990 362 29,569 832 Research and development.............................. 2,051 38 5,589 38 General and administrative............................ 4,087 460 9,994 1,467 Amortization of goodwill and other intangibles........ 18,606 4,027 44,294 4,027 Merger and other transactions costs................... 514 -- 3,285 -- --------- -------- --------- ------- Total costs and expenses............................ 60,135 7,480 144,395 12,408 --------- -------- --------- ------- Income (loss) from operations........................... (32,724) (633) (75,485) 2,830 Interest income (expense) net........................... 986 (1) 3,223 (1) --------- -------- --------- ------- Income (loss) before income taxes....................... (31,738) (634) (72,262) 2,829 Income tax provision.................................... 49 1,482 182 2,993 --------- -------- --------- ------- Net (loss)............................................. $ (31,787) $ (2,116) $ (72,444) $ (164) --------- -------- --------- ------- --------- -------- --------- ------- Basic and diluted net (loss) per share................. $ (0.41) $ (0.06) $ (0.99) $ -- --------- -------- --------- ------- --------- -------- --------- ------- Shares used to compute basic and diluted net (loss) per share........................................ 76,908 37,238 73,537 37,238 --------- -------- --------- ------- --------- -------- --------- -------
See accompanying notes. TICKETMASTER ONLINE-CITYSEARCH, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------- 1999 1998 --------- --------- (unaudited) Operating activities Net (loss)................................................................ $ (72,444) $ (164) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................................... 47,075 4,175 Changes in operating assets and liabilities: Accounts receivable................................................ (1,693) (262) Related party receivable........................................... (980) -- Due from licensees................................................. 167 -- Prepaid expenses................................................... (286) 58 Accounts payable................................................... (763) 441 Accrued expenses................................................... 1,683 312 Deferred revenue................................................... 404 1,278 --------- --------- Net cash provided by (used in) operating activities............ (26,837) 5,838 Investing activities Capital expenditures............................................................. (7,123) (405) Investment in Fairmarket, Inc. .................................................. (5,285) -- Acquisition transaction costs.................................................... (285) -- Deferred purchase price of subsidiary............................................ (223) -- --------- --------- Net cash used in investing activities.......................... (12,916) (405) Financing activities Net distributions to Ticketmaster Corp...................................... -- (5,433) Net proceeds from exercise of options and warrants.......................... 2,471 -- Payment of costs of initial public offering................................. (861) -- Payments on capital leases.................................................. (1,027) -- --------- --------- Net cash provided by (used in) financing activities............ 583 (5,433) Effect of exchange rate changes on cash & cash equivalents....................... 39 -- Net cash acquired in CitySearch Merger.......................................... -- 57,877 Net cash acquired in CityAuction Merger.......................................... 13 -- Net cash acquired in Match.com Merger............................................ 18 -- Net cash acquired in Web Media Ventures Merger................................... 152 -- --------- --------- Net decrease in cash and cash equivalents........................................ (38,948) 57,877 Cash and cash equivalents at beginning of period................................. 106,910 -- --------- --------- Cash and cash equivalents at end of period....................................... $ 67,962 $ 57,877 --------- --------- --------- ---------
See accompanying notes. TICKETMASTER ONLINE-CITYSEARCH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Ticketmaster Online-CitySearch, Inc. (the "Company") combined CitySearch and Ticketmaster Online to create a leading provider of local city guides, local advertising and live event ticketing on the Internet. The Company has integrated its local CitySearch city guides with its Ticketmaster Online live events ticketing and merchandise distribution capabilities to offer online ticketing, merchandise, electronic coupons and other transactions to a broader audience of consumers. In 1999, the Company acquired CityAuction, Inc., an online auction company and Match.com, Inc. and Web Media Ventures, L.L.C. both online personals companies. The Company has integrated these acquisitions into its other online offerings. BASIS OF PRESENTATION Prior to the Merger (as defined below), Ticketmaster Multimedia Holdings, Inc. (the predecessor company) ("Ticketmaster Online") was a wholly owned subsidiary of Ticketmaster Corporation ("Ticketmaster Corp."). Ticketmaster Corp. is a wholly owned subsidiary of Ticketmaster Group, Inc. ("Ticketmaster Group"), which is a wholly owned subsidiary of USA Networks, Inc. ("USAi"). In July 1997, USAi acquired a controlling interest in Ticketmaster Group through the issuance of shares of USAi common stock (the "Ticketmaster Acquisition"). In June 1998, USAi completed its acquisition of Ticketmaster Group in a tax-free merger (collectively with the Ticketmaster Acquisition, the "Ticketmaster Transaction"), pursuant to which each outstanding share of Ticketmaster Group common stock not owned by USAi was exchanged for 1.126 shares of USAi common stock. A portion of the Ticketmaster Group acquisition cost has been allocated to the assets acquired and liabilities assumed of Ticketmaster Online based on the fair value of the respective portion of Ticketmaster Online acquired in the Ticketmaster Transaction. On September 28, 1998, pursuant to an Amended and Restated Agreement and Plan of Reorganization dated as of August 12, 1998 (the "Merger Agreement"), by and among CitySearch, Inc. ("CitySearch"), USAi, Ticketmaster Group, Ticketmaster Online and Tiberius, Inc., a wholly-owned subsidiary of CitySearch, Tiberius was merged with and into Ticketmaster Online, with Ticketmaster Online continuing as the surviving corporation and as a wholly-owned subsidiary of CitySearch (the "Merger"). In connection with the Merger Agreement, all issued and outstanding shares of Ticketmaster Online's Common Stock held by Ticketmaster Corp. were converted into an aggregate of 37,238,000 shares of CitySearch Common Stock and such shares were subsequently reclassified as Class A Common Stock of the Company. The Merger was accounted for using the "reverse purchase" method of accounting, pursuant to which Ticketmaster Online was treated as the acquiring entity for accounting purposes, and the assets acquired and liabilities assumed of CitySearch were recorded at their respective fair values. The accompanying financial statements prior to the Merger reflect the financial position, results of operations and cash flows of Ticketmaster Online. The accompanying financial statements, subsequent to the Merger, include the assets and liabilities of CitySearch and the results of operations of CitySearch from September 29, 1998. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. The balance sheet at December 31, 1998 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the eleven months ended December 31, 1998. PRO FORMA FINANCIAL DATA (UNAUDITED) The following unaudited pro forma information presents a summary of the results of the Company assuming the Merger, the Ticketmaster Transaction and the tender offer by USAi to purchase shares of Common Stock from CitySearch stockholders in connection with the Merger had all occurred as of January 1, 1998, with pro forma adjustments to give effect to amortization of goodwill, certain other adjustments to conform to the terms of the License and Services Agreement dated August 12, 1998 by and among Ticketmaster Corp., Ticketmaster Online and USAi (the "Ticketmaster License Agreement"), and the related income tax effects. The pro forma information also gives effect to the Company's change in year end from January 31 to December 31. The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions occurred as of January 1, 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1998 ------------------ (in thousands) Revenues............................................... $ 26,555 Net loss............................................... $ (56,802) Basic and diluted net loss per share................... $ (.92)
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share are determined by dividing the net earnings (loss) by the weighted average shares of Common Stock outstanding during the period. Diluted earnings (loss) per share are determined by dividing the net earnings (loss) by the weighted average shares of Common Stock outstanding plus the dilutive effects of stock options, warrants and other convertible securities. Basic and diluted earnings (loss) per share are the same for the nine months ended September 30, 1999 because the effects of outstanding stock options are antidilutive. Basic and dilutive earnings (loss) per share are the same for the nine months ended September 30, 1998 because there were no dilutive securities outstanding during those periods. The number of shares used in computing basic and diluted earnings (loss) per share for the nine months ended September 30, 1998 represent the number of shares of CitySearch Common Stock exchanged in the Merger. RECLASSIFICATIONS Certain reclassifications have been made to the prior year's balances to conform to the current year presentation. NOTE 2 -- BUSINESS COMBINATIONS Acquisition of CityAuction, Inc. On March 29, 1999, the Company completed the acquisition of CityAuction, Inc. ("CityAuction"), a person-to-person online auction community. In connection with the acquisition, the Company issued an aggregate of approximately 800,000 shares of its Class B Common Stock for all the outstanding capital stock of CityAuction, Inc. representing an aggregate purchase price of $27.2 million. The acquisition was accounted for using the purchase method of accounting which resulted in approximately $28.1 million of goodwill which is amortized over five years. The results of operations of CityAuction are included in the accompanying statement of operations from the date of acquisition. Acquisition of Match.com, Inc. On June 14, 1999, the Company completed the acquisition of Match.com, Inc ("Match.com"), an Internet personals company. In connection with the acquisition, the Company issued 1,924,777 shares of Class B Common Stock to the former owners of Match.com representing a total purchase price of approximately $43.3 million. The acquisition was accounted for using the purchase method of accounting which resulted in approximately $42.6 million of goodwill which is being amortized over five years. The results of operations of Match.com are included in the accompanying statement of operations from the date of acquisition. Acquisition of Web Media On September 13, 1999, the Company purchased all the outstanding limited liability company units ("Units") of Web Media Ventures, L.L.C. ("Web Media"). Web Media is an Internet personals company distributing its services through a network of affiliated Internet sites. In connection with the acquisition, the Company issued 1,204,215 million shares of Class B Common Stock in exchange for all of the Web Media Units and became obligated to issue $2.2 million of Class B Common Stock payable in two quarterly installments and an additional number of shares of Class B Common Stock no later than 270 days after the closing of the transaction. The number of shares to be issued upon payment of the quarterly installments and contingent consideration will be determined by dividing the value of the consideration required to be issued by the stock price at the time of issuance subject to certain minimum and maximum prices. The last installment is subject to adjustment based on the achievement of certain 1999 calendar revenue targets by Web Media. The maximum number of shares to be issued in the quarterly installments and upon the achievement of certain revenue targets is 1,131,924. The total purchase price recorded at September 13, 1999 was $36.6 million, representing the consideration value attributed to the initial issuance of 1,204,215 million shares of Class B Common Stock, the two quarterly installments and that portion of the final payment which is certain. The purchase price will be increased to reflect the additional shares to be issued upon achievement of the revenue targets based on the stock price at that time. The acquisition was accounted for using the purchase method of accounting. The acquisition has resulted in $36.4 million of goodwill being recorded initially with adjustments to be made at the issuance of additional shares if the revenue targets are achieved. The total amount of goodwill to be recorded will approximate the purchase price which is being amortized by the Company over a period of five years. The results of operations of Web Media are included in the accompanying statement of operations from the date of acquisition. Web Media conducts operations under the name of One and Only Networks. Transaction Regarding Sidewalk.com On September 18, 1999, the Company acquired certain assets associated with the entertainment city guide (A&E) portion of the Sidewalk.com web site ("Sidewalk") from Microsoft Corporation ("Microsoft"). The Company also entered into a four year distribution agreement with Microsoft pursuant to which the Company will become the exclusive provider of local city guide content on the Microsoft Network ("MSN") and the Company's internet personals Web sites will become the premier provider of personals content to MSN. In addition, the Company and Microsoft entered into additional cross-promotional arrangements. In connection with these transactions, the Company issued to Microsoft 7,000,000 shares of its Class B Common Stock and two warrants to purchase an aggregate of 4,500,000 shares of its Class B Common Stock. The first warrant for 3,000,000 shares has an initial exercise price of $30 per share, which adjusts downward by $1/16 for each $1/16 increase in the price of the Class B Common Stock over $30 at the time the warrant is exercised. The second warrant for 1,500,000 shares has a fixed exercise price of $60 per share of Class B Common Stock. The Company granted Microsoft certain registration rights in connection with the transaction. The impact of the Company's ownership of the Sidewalk assets is included in the accompanying statement of operations from the date the transaction closed. The fair value of the consideration provided in exchange for the Sidewalk assets and distribution agreement amounted to $338 million and has been recorded in goodwill and other intangibles in the accompanying condensed consolidated balance sheet. The Sidewalk intangible is being amortized over five years. The distribution agreement is being amortized over four years with the amortization expense included in sales and marketing. Investments In September 1999, the Company purchased a minority equity position in FairMarket, Inc., a privately-held, online auction company in exchange for cash and other consideration consisting of a license to FairMarket of the CityAuction auction technology and the Company's agreement to a multi-year Auction Services Agreement with FairMarket, Inc. The FairMarket investment will be accounted for using the cost method of accounting. NOTE 3-- SUBSEQUENT EVENT Investment in foodline.com In October 1999, the Company purchased a minority equity position in foodline.com, Inc., a privately-held, online restaurant reservations company in exchange for $5,000,000 cash. The Company and foodline.com also entered into a multi-year content sharing and distribution agreement. The foodline.com investment will be accounted for using the equity method of accounting. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH BELOW AND ELSEWHERE IN THIS REPORT. CAPITALIZED TERMS USED BELOW HAVE THE MEANING ASCRIBED TO THEM IN THE SECTIONS ABOVE. OVERVIEW The Company combined CitySearch and Ticketmaster Online to create a leading provider of local city guides, local advertising and live event ticketing on the Internet. The Company has integrated its local CitySearch city guides with its Ticketmaster Online live events ticketing and merchandise distribution capabilities to offer online ticketing, merchandise, electronic coupons and other transactions to a broader audience of consumers. CitySearch was founded in September 1995 and Ticketmaster Online launched its online ticketing services in November 1996 as a wholly-owned subsidiary of Ticketmaster Corp. On September 28, 1998, pursuant to the Merger, a wholly-owned subsidiary of CitySearch merged into Ticketmaster Online, with Ticketmaster Online continuing as the surviving corporation and as a wholly-owned subsidiary of CitySearch. The Merger was accounted for using the "reverse purchase" method of accounting pursuant to which Ticketmaster Online was treated as the acquiring entity for accounting purposes. In 1999, the Company acquired CityAuction, Inc., an online auction company and Match.com, Inc. and Web Media Ventures, L.L.C. both online personals companies. The Company has integrated these acquisitions into its other online offerings. OPERATING LOSSES The Company incurred net losses of $72.4 million and $0.2 million for the nine months ended September 30, 1999 and 1998, respectively. At September 30, 1999, the Company had an accumulated deficit of $88.5 million. RESULTS OF OPERATIONS TICKETING OPERATIONS REVENUES. Ticketing operations revenues were $16.6 million and $43.8 million for the three months and nine months ended September 30, 1999, respectively, as compared to $4.6 million and $10.6 million for the corresponding periods of the preceding year. The increase is primarily attributable to a significant increase in the number of tickets sold (from 858,000 to 2,536,000 tickets for the three months ended September 30, 1998 and 1999, respectively and from 1,967,000 to 6,755,000 tickets for the nine months ended September 30, 1998 and 1999, respectively). Additionally, the average convenience charge increased 20.8% in the three months ended September 30, 1999 over the corresponding period in 1998 and increased 19.5% in the nine months ended September 30,1999 over the same period in 1998, respectively. The convenience charge increased due to generally higher ticket prices. SPONSORSHIP AND ADVERTISING REVENUES. Sponsorship and advertising revenues were $1.8 million and $4.0 million for the three months and nine months ended September 30, 1999, respectively, as compared to $2.1 million and $4.6 million for the corresponding periods of the preceding year. The decrease was primarily attributable to a decrease in sponsorship and promotion activity with one strategic marketing partner with which our relationship ended in December 1998. CITY GUIDE AND RELATED REVENUES. City guide and related revenues were $9.0 million and $21.1 million for the three months and nine months ended September 30, 1999, respectively, representing the CitySearch city guide and related revenues of the CitySearch business acquired and the additional revenues represented by the acquisitions of the auction and personals businesses. TICKETING OPERATIONS EXPENSES. Ticketing operations expenses consist primarily of expenses associated with ticket fulfillment, licenses and royalties, Web site design and layout, service and network infrastructure maintenance and data communications. Ticketing operations expenses were $12.3 million and $32.6 million for the three months and nine months ended September 30, 1999, respectively, as compared to $2.5 million and $5.9 million for the corresponding periods of the preceding year. Ticketing operations expenses are primarily variable in nature and have increased during the periods presented in conjunction with the increase in ticketing operations revenue and the payment of the license fee to Ticketmaster Corp. and can be expected to increase in future periods to the extent ticketing operations revenues increase during such periods. CITY GUIDE AND RELATED EXPENSES. City guide and related expenses consist primarily of the expenses associated with the design, layout, photography, customer service and editorial resources used in the production and maintenance of business Web sites and editorial content and network infrastructure maintenance. This category also includes the costs of consulting services in partner-led markets and customer service, network infrastructure and affiliate referral costs for the auction and personals businesses. City guide and related expenses were $8.6 million and $19.1 million for the three months and nine months ended September 30, 1999, respectively. City guide and related expenses are expensed as incurred. City guide and related expenses can be expected to increase in future periods as city guide and related sales increase, as new cities are added to the city guide network in future periods and as the full impact of the personals acquisitions are included in future periods. SALES AND MARKETING EXPENSES. Sales and marketing expenses consist primarily of costs related to the compensation of sales and marketing personnel, advertising and travel. Sales and marketing expenses were $14.0 million and $29.6 million for the three months and nine months ended September 30, 1999, respectively, as compared to $0.4 million and $0.8 million for the corresponding periods of the preceding year. The increase for the nine months ended September 30, 1999 as compared to the nine months ended September 30, 1998 is due primarily to the sales and marketing costs of CitySearch amounting to $28.2 million and increased salary related and operating support costs associated with the growth in sales and marketing activities. The Company expects that sales and marketing expenses will increase in absolute dollars as the Company continues to roll out its nationwide network of city guide cities and the full impact of the personals acquisitions are included in future periods. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses include the costs to develop, test and upgrade the Company's online service and the enterprise management systems. These costs consist primarily of salaries for product development personnel, contract labor expense, consulting fees, software licenses, hardware costs and recruiting fees. Research and development expenses were $2.1 million and $5.6 million for the three months and nine months ended September 30, 1999, respectively, which represents primarily the research and development cost of CitySearch. The Company believes that timely deployment of new and enhanced products and technology is critical to attaining its strategic objectives and to remaining competitive. Accordingly, the Company intends to continue recruiting and hiring experienced research and development personnel and making other investments in research and development. As such, the Company expects that research and development expenditures can be expected to increase in absolute dollars in future periods. In accordance with applicable accounting requirements, the Company has expensed research and development costs as incurred for product maintenance and has capitalized such costs for new product functionality. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist primarily of administrative and senior management personnel costs. General and administrative expenses were $4.1 million and $10.0 million for the three months and nine months ended September 30, 1999, respectively, as compared to $0.5 and $1.5 million in the corresponding periods of the preceding year. The substantial increase for the nine month period ended September 30, 1999 was due primarily to general and administrative expenses of CitySearch amounting to $9.3 million. The Company expects that general and administrative expenses will increase in absolute dollars to support the Company's growth. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill and other intangibles consists of goodwill associated with the Ticketmaster Acquisition, the Merger and the acquisitions of CityAuction, Match.com, Web Media and the Sidewalk assets. Amortization of goodwill and other intangibles was $18.6 million and $44.3 million for the three months and nine months ended September 30, 1999 as compared to $4.0 million for both the three months and nine months ended September 30, 1998, respectively, primarily relating to the Merger and Ticketmaster Acquisition. Amortization of goodwill in the prior year periods began during the three month period ending September 30, 1998 as the Ticketmaster Acquisition did not occur until the end of June 1998. MERGER AND OTHER TRANSACTIONS COSTS. Merger and other transaction costs were $0.5 million and $3.3 million for the three month and nine month periods ended September 30, 1999, respectively. These costs are primarily a result of advisory fees, regulatory filing fees and legal and accounting costs related to the terminated merger between the Company, certain assets owned by the Company's majority shareholder and Lycos, Inc., as well as certain expenses related to the operation of Sidewalk city guides before the integration of these properties into the CitySearch network. INTEREST INCOME, NET. Net interest income consists primarily of interest earned on the Company's cash and cash equivalents, less interest expense on capital lease obligations. The Company had net interest income of $1.0 million and $3.2 million for the three months and nine months ended September 30, 1999, respectively, and had no interest expense in the corresponding periods of the preceding year. The Company invests its cash balances in short-term, investment grade, interest-bearing securities. INCOME TAXES. The provision for income taxes was $0.04 million and $0.2 million for the three months and nine months ended September 30, 1999, respectively as compared to $1.5 million and $3.0 million for the corresponding periods in the preceding year. The Company's effective tax rate differs from the statutory federal income tax rate, primarily as a result of state income taxes, operating losses not benefited and non-deductible goodwill. The Company expects that its tax provision will remain nominal for the balance of 1999 and 2000 due to the availability of net operating losses of CitySearch. However, certain net operating loss carryforwards, existing at the Merger date, will not be available to further offset taxable income of the Company. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities of $26.8 million for the nine months ended September 30, 1999 arose primarily from the difference between net loss from operations, the change in working capital and the amortization of goodwill relating to the Ticketmaster Acquisition and Merger. The cash provided by operating activities of $5.8 million for the nine month period ended September 30, 1998 arose primarily from the income from operations before depreciation and amortization and the prepayment of revenue associated with advertising activities. Net cash used in investing activities was $12.9 million and $0.4 million for the nine months ended September 30, 1999 and September 30, 1998, respectively, and consisting primarily of capital expenditures for computers, purchased software and software development, equipment and leasehold improvements and the investment in Fairmarket, Inc. Net cash provided in financing activities was $0.6 million and net cash used in financing activities was $5.4 million for the nine month periods ended September 30, 1999 and 1998, respectively. The $6.0 million reduction in the cash used in financing activities arose as the relationship between Ticketmaster Online and Ticketmaster Corp. changed as a result of the Merger. Prior to the Merger Ticketmaster Online did not operate as an independent company therefore all financing activities were accounted for through intercompany means. At September 30, 1999, the Company's cash and cash equivalents were $68.0 million. Existing cash and cash equivalents are expected to be sufficient to meet working capital and capital expenditure requirements for at least the next six to nine months. The Company is currently considering various alternatives to raise additional funds, including without limitation, through a private sale of equity, a public sale of equity and debt financing. If additional funds are raised through the issuance of equity securities, stockholders of the Company may experience significant dilution. Furthermore, there can be no assurance that additional financing will be available when needed or that if available, such financing will include terms favorable to the Company or its stockholders. If such financing is not available when required or is not available on acceptable terms, the Company may be unable to develop or enhance its products and services, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. YEAR 2000 The widespread use of computer programs that rely on two-digit dates to perform computation and decision-making functions may cause computer systems, including systems and software used by the Company and its Web services, to malfunction prior to or in the Year 2000 and lead to significant business delays and disruptions in the Company's business and operations in the United States and internationally. The Company has developed a plan to minimize the impact of this Year 2000 problem. Pursuant to such plan, the Company has established a Year 2000 Committee consisting of senior managers from relevant functional areas and an independent Year 2000 professional consultant. The Year 2000 Committee has reviewed all areas of the Company's business and operations that may be affected and has assigned responsibility for each area to individuals knowledgeable about their respective areas. The Year 2000 Committee has made these individuals responsible for the initial assessment of risk and initial estimate of hardware cost, software cost and time required to achieve compliance. The Company concluded its initial assessment in the fourth quarter of 1998 and is implementing remediation necessary to achieve compliance. Remediation will continue through year-end 1999. The Company estimates that the dollar cost of Year 2000 compliance is approximately $350,000 through the end of 1999. However, the Company continues to review and update its assessment of remediation requirements and costs including those associated with its recent and pending acquisitions and actual costs could materially differ. Several systems provided by third parties are required for the operation of the Company's services, any of which may contain software code that is not Year 2000 compliant. These systems include server software used to operate the Company's network servers, software controlling routers, switches and other components of the Company's data network, disk management software used to control the Company's data disk arrays, firewall, security, monitoring and back- up software used by the Company, as well as desktop PC applications software. In most cases, the Company employs widely available software applications and other products from leading third party vendors, and expects that such vendors will provide any required upgrades or modifications in a timely fashion. However, any failure of third party suppliers to provide Year 2000 compliant versions of the products used by the Company could result in a temporary disruption of the Company's services or otherwise disrupt the Company's operations. In addition, the Company's partners may operate their city guide sites in proximity to other applications that may not be Year 2000 compliant. While the Company has assigned an individual to coordinate each partner's compliance efforts to ensure uninterrupted operations, the Company has limited ability to influence decisions by its partners. Non-compliant systems that adjoin partners' city guide applications could result in interruption or disruption of the city guide service, which in turn could reduce royalties or other amounts due to the Company and could tarnish the Company's public image as a technology company. There can be no assurance that the Company, its third party suppliers or its partners will be Year 2000 compliant at the end of the millennium. Failure to achieve compliance could result in complete failure or inaccessibility of the Company's or its partners' services, and could adversely affect the Company's business, financial condition and results of operations. Year 2000 compliance problems could also undermine the general infrastructure necessary to support the Company's operations. For instance, the Company depends on third party Internet service providers for connectivity to the Internet. Any interruption of service from the Company's Internet service providers could result in a temporary interruption of the Company's services. Moreover, the effects of Year 2000 compliance deficiencies on the integrity and stability of the Internet are difficult to predict. A significant disruption in the ability of businesses and consumers to reliably access the Internet or portions of it would have an adverse effect on demand for the Company's services and adversely impact the Company's business, financial condition and results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's exposure to market risk for changes in interest rates relates primarily to the Company's investment portfolio. The Company has not used derivative financial instruments in its investment portfolio. The Company invests its excess cash in debt instruments of the U.S. Government and its agencies, and in high-quality corporate issuers and, by policy, limits the amount of credit exposure to any one issuer. The Company protects and preserves its invested funds by limiting default, market and reinvestment risk. Investments in both fixed rate and floating rate interest earning instruments carries a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, the Company's future investment income may fall short of expectations due to changes in interest rates or the Company may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates. PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (c) Sales of Unregistered Securities In September 1999, the Company issued 7,000,000 shares of Class B Common Stock as consideration for the acquisition of the Sidewalk assets. The Company also issued two warrants to purchase an aggregate of 4,500,000 shares in connection with such transaction. The shares and warrants were issued to the former owner of the Sidewalk assets. In September 1999, the Company issued an aggregate of 1,204,000 shares of Class B Common Stock as partial consideration for the Web Media acquisition. The shares were issued to the former owners of Web Media. The issuances of these securities were deemed to be exempt from registration under the Securities Act of 1933 (the "Securities Act") in reliance on Section 4(2) of the Securities Act, or Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.39 FairMarket, Inc. Series D Preferred Stock Purchase Agreement dated as of September 15, 1999 between FairMarket, Inc. and the Registrant. 10.40 Series A Preferred Stock Purchase Agreement by and between foodline.com, Inc. and the Registrant dated as of October 25, 1999. 27.1 Financial Data Schedule (b) Reports on Form 8-K On September 29, 1999, the Company filed a Report on Form 8-K relating to the Acquisition of the Sidewalk assets. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 15, 1999 TICKETMASTER ONLINE - CITYSEARCH, INC. By: /s/ CHARLES CONN ----------------------------------------------- Charles Conn Chief Executive Officer (Principal Executive Officer) By: /s/ THOMAS MCINERNEY ----------------------------------------------- Thomas McInerney Chief Financial Officer and Executive Vice President (Principal Financial and Accounting Officer) EX-10.39 2 EXHIBIT 10.39 FAIRMARKET, INC. SERIES D PREFERRED STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS PAGE 1. Purchase and Sale of Stock . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Sale and Issuance of Series D Preferred Stock . . . . . . . . 1 1.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 Subsequent Sale of Series D Preferred Stock . . . . . . . . . 1 2. Representations and Warranties of the Company. . . . . . . . . . . . . . 2 2.1 Organization, Good Standing and Qualification . . . . . . . . 2 2.2 Capitalization and Voting Rights. . . . . . . . . . . . . . . 2 2.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 3 2.4 Authorization . . . . . . . . . . . . . . . . . . . . . . . . 3 2.5 Valid Issuance of Preferred and Common Stock. . . . . . . . . 3 2.6 Governmental Consents . . . . . . . . . . . . . . . . . . . . 3 2.7 Offering. . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.8 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.9 Proprietary Information and Employee Stock Purchase Agreements . . . . . . . . . . . . . . . . . . . . 4 2.10 Patents and Trademarks . . . . . . . . . . . . . . . . . . . 4 2.11 Compliance with Other Instruments. . . . . . . . . . . . . . 5 2.12 Agreements; Action . . . . . . . . . . . . . . . . . . . . . 5 2.13 Related-Party Transactions . . . . . . . . . . . . . . . . . 6 2.14 Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.15 Environmental and Safety Laws. . . . . . . . . . . . . . . . 6 2.16 Manufacturing and Marketing Rights . . . . . . . . . . . . . 6 2.17 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.18 Registration Rights. . . . . . . . . . . . . . . . . . . . . 7 2.19 Corporate Documents. . . . . . . . . . . . . . . . . . . . . 7 2.20 Title to Property and Assets . . . . . . . . . . . . . . . . 7 2.21 Small Business Concern . . . . . . . . . . . . . . . . . . . 7 2.22 Financial Statements . . . . . . . . . . . . . . . . . . . . 7 2.23 Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.24 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . 9 2.25 Tax Returns, Payments and Elections. . . . . . . . . . . . . 9 2.26 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . .10 2.27 Minute Books . . . . . . . . . . . . . . . . . . . . . . . .10 2.28 Labor Agreements and Actions; Employee Compensation. . . . .10 2.29 Section 83(b) Elections. . . . . . . . . . . . . . . . . . .10 2.30 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . .10 2.31 Significant Customers and Suppliers. . . . . . . . . . . . .10 2.32 Qualified Small Business Stock . . . . . . . . . . . . . . .10 3. Representations and Warranties of the Investors. . . . . . . . . . . . .11 3.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . .11 3.2 Purchase Entirely for Own Account . . . . . . . . . . . . . .11 3.3 Disclosure of Information . . . . . . . . . . . . . . . . . .11
i 3.4 Investment Experience . . . . . . . . . . . . . . . . . . . .11 3.5 Accredited Investor . . . . . . . . . . . . . . . . . . . . .12 3.6 Restricted Securities . . . . . . . . . . . . . . . . . . . .12 3.7 Further Limitations on Disposition. . . . . . . . . . . . . .12 3.8 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . .12 4. Conditions of Investors' Obligations at Closing. . . . . . . . . . . . .13 4.1 Representations and Warranties. . . . . . . . . . . . . . . .13 4.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . .13 4.3 Compliance Certificate. . . . . . . . . . . . . . . . . . . .13 4.4 Qualifications. . . . . . . . . . . . . . . . . . . . . . . .13 4.5 Proceedings and Documents . . . . . . . . . . . . . . . . . .13 4.6 Proprietary Information and Employee Stock Purchase Agreements . . . . . . . . . . . . . . . . . . . .13 4.7 Opinion of Company Counsel. . . . . . . . . . . . . . . . . .13 4.8 Investors' Rights Agreement . . . . . . . . . . . . . . . . .13 5. Conditions of the Company's Obligations at Closing . . . . . . . . . . .14 5.1 Representations and Warranties. . . . . . . . . . . . . . . .14 5.2 Payment of Purchase Price . . . . . . . . . . . . . . . . . .14 5.3 Qualifications. . . . . . . . . . . . . . . . . . . . . . . .14 6. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 6.1 Survival of Warranties. . . . . . . . . . . . . . . . . . . .14 6.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . .14 6.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . .14 6.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . .14 6.5 Titles and Subtitles. . . . . . . . . . . . . . . . . . . . .14 6.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . .14 6.7 Finder's Fee. . . . . . . . . . . . . . . . . . . . . . . . .15 6.8 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . .15 6.9 Amendments and Waivers. . . . . . . . . . . . . . . . . . . .15 6.10 Severability . . . . . . . . . . . . . . . . . . . . . . . .15 6.11 Aggregation of Stock . . . . . . . . . . . . . . . . . . . .16 6.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . . .16
ii SCHEDULE A Schedule of Investors EXHIBIT A Restated Certificate of Incorporation EXHIBIT B List of Stockholders EXHIBIT C Legal Opinion of Counsel to the Company
iii FAIRMARKET, INC. SERIES D PREFERRED STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT is made as of the 15th day of September, 1999, by and among FairMarket, Inc., a Delaware corporation (the "Company"), and the investors listed on SCHEDULE A hereto, each of which is herein referred to as an "Investor." THE PARTIES HEREBY AGREE AS FOLLOWS: 1. PURCHASE AND SALE OF STOCK. 1.1 SALE AND ISSUANCE OF SERIES D PREFERRED STOCK. (a) The Company shall adopt and file with the Secretary of State of Delaware on or before the Closing (as defined below) the Restated Certificate of Incorporation in the form attached hereto as EXHIBIT A (the "Restated Certificate"). (b) On or prior to the Closing (as defined below), the Company shall have authorized (i) the sale and issuance to the Investors of the Series D Preferred Stock and (ii) the issuance of the shares of Common Stock to be issued upon conversion of the Series D Preferred Stock (the "Conversion Shares"). The Series D Preferred Stock and the Conversion Shares shall have the rights, preferences, privileges and restrictions set forth in the Restated Certificate. (c) Subject to the terms and conditions of this Agreement, each Investor agrees, severally and not jointly, to purchase at the Closing and the Company agrees to sell and issue to each Investor at the Closing, that number of shares of the Company's Series D Preferred Stock set forth opposite such Investor's name on SCHEDULE A hereto for the purchase price set forth thereon. 1.2 CLOSING. The purchase and sale of the Series D Preferred Stock shall take place at the offices of Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts, at 11:00 A.M., on the date hereof, or at such other time and place as the Company and Investors acquiring in the aggregate more than half the shares of Series D Preferred Stock to be sold pursuant hereto mutually agree upon orally or in writing (which time and place are designated as the "Closing"). At the Closing the Company shall deliver to each Investor a certificate representing the Series D Preferred Stock that such Investor is purchasing against payment of the purchase price therefor by check, wire transfer of immediately available funds, cancellation of indebtedness, or any combination thereof, or as the parties may otherwise agree. 1.3 SUBSEQUENT SALE OF SERIES D PREFERRED STOCK. The Company may sell up to the balance of the authorized number of shares of Series D Preferred Stock not sold at the Closing to such purchasers as it shall select at a price not less than $7.00 per share. Any such purchaser shall become a party to this Agreement and that certain Investors' Rights Agreement dated February 25, 1999, as amended, by and among the Company and its preferred stockholders (the "Investors' Rights Agreement") and shall have the rights and obligations hereunder and thereunder, unless such purchaser enters into an acquisition agreement that provides otherwise. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to each Investor that, except as set forth on a Schedule of Exceptions (the "Schedule of Exceptions") furnished each Investor, specifically identifying the relevant subparagraph hereof, which exceptions shall be deemed to be representations and warranties as if made hereunder: 2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties. 2.2 CAPITALIZATION AND VOTING RIGHTS. After giving effect to the Restated Certificate the authorized capital of the Company consists of: (a) PREFERRED STOCK. 20,000,000 shares of Preferred Stock, par value $.001 (the "Preferred Stock"), (i) of which 754,603 shares have been designated Series A Preferred Stock (the "Series A Preferred Stock"), 754,603 shares of which are issued and outstanding; (ii) 1,890,000 shares have been designated Series B Preferred Stock (the "Series B Preferred Stock"), 1,890,000 shares of which are issued and outstanding, (iii) 6,168,282 shares have been designated Series C Preferred Stock (the "Series C Preferred Stock"), 6,168,282 shares of which are issued and outstanding, and (iv) 10,000,000 shares have been designated Series D Preferred Stock ("Series D Preferred Stock"), 5,250,000 shares of which are issued and outstanding. The rights, privileges and preferences of the Preferred Stock will be as stated in the Company's Restated Certificate and Amended and Restated Bylaws ("Bylaws"). (b) COMMON STOCK. 36,000,000 shares of common stock, par value $.001 ("Common Stock"), of which 5,044,097 shares are issued and outstanding. (c) The outstanding shares of Preferred Stock and Common Stock are owned by the stockholders and in the numbers specified in EXHIBIT B hereto. (d) The outstanding shares of Common Stock are all duly and validly authorized and issued, fully paid and nonassessable, and were issued in accordance with the registration or qualification provisions of the Securities Act of 1933, as amended (the "Act") and any relevant state securities laws, or pursuant to valid exemptions therefrom. (e) Except for (A) the conversion privileges of the Preferred Stock, (B) the rights provided in Section 2.4 of the Investors' Rights Agreement, (C) currently outstanding options to purchase 3,140,744 shares of Common Stock granted to employees and other service providers pursuant to the Company's Amended and Restated 1997 Stock Option Plan and 1999 Stock Option Plan (the "Option Plans") and (D) (1) warrants issued to Lycos, Inc. exercisable for a total of 1,320,000 shares of Common Stock and (2) warrants issued to Microsoft Corporation exercisable for a total of 4,500,000 shares of Common Stock, there are 2 not outstanding any options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company of any shares of its capital stock. In addition to the aforementioned options, the Company has reserved an additional 896,987 shares of its Common Stock for purchase upon exercise of options to be granted in the future under the Option Plans or a similar plan approved by the Board of Directors of the Company. The Company is not a party or subject to any agreement or understanding, and, to the best of the Company's knowledge, except for the Amendment to Investors' Rights Agreement being entered into simultaneously with this Agreement, there is no agreement or understanding between any persons and/or entities, which affects or relates to the voting or giving of written consents with respect to any security or by a director of the Company. 2.3 SUBSIDIARIES. The Company does not presently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity. The Company is not a participant in any joint venture, partnership, or similar arrangement. 2.4 AUTHORIZATION. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement and the Amendment to Investors' Rights Agreement (the "Transaction Documents"), the performance of all obligations of the Company hereunder and thereunder, and the authorization, issuance (or reservation for issuance), sale and delivery of the Series D Preferred Stock being sold hereunder and the Common Stock issuable upon conversion of the Series D Preferred Stock has been taken or will be taken prior to the Closing, and this Agreement and the Investors' Rights Agreement constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Investors' Rights Agreement may be limited by applicable federal or state securities laws. 2.5 VALID ISSUANCE OF PREFERRED AND COMMON STOCK. The Series D Preferred Stock that is being purchased by the Investors hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid, and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and the Investors' Rights Agreement and under applicable state and federal securities laws. The Common Stock issuable upon conversion of the Series D Preferred Stock purchased under this Agreement has been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Restated Certificate, will be duly and validly issued, fully paid, and nonassessable and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and the Investors' Rights Agreement and under applicable state and federal securities laws. 2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement, except the filing of the Restated Certificate with the Secretary of State of Delaware. 3 2.7 OFFERING. Subject in part to the truth and accuracy of each Investor's representations set forth in Section 3 of this Agreement, the offer, sale and issuance of the Series D Preferred Stock as contemplated by this Agreement are exempt from the registration requirements of any applicable state and federal securities laws, and neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption. 2.8 LITIGATION. There is no action, suit, proceeding or investigation pending or, to the Company's knowledge, currently threatened against the Company that questions the validity of the Transaction Documents, or the right of the Company to enter into such agreements, or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any material adverse changes in the assets, condition, affairs or prospects of the Company, financially or otherwise, or any change in the current equity ownership of the Company, nor is the Company aware that there is any basis for the foregoing. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened (or any basis therefor known to the Company) involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or that the Company intends to initiate. 2.9 PROPRIETARY INFORMATION AND EMPLOYEE STOCK PURCHASE AGREEMENTS. Each employee, officer and consultant of the Company has executed a Proprietary Information and Inventions Agreement and an Employee Stock Purchase Agreement in a form customary in the Company's industry. The Company is not aware that any of its employees, officers or consultants are in violation thereof, and the Company will use its best efforts to prevent any such violation. 2.10 PATENTS AND TRADEMARKS. The Company has sufficient title and ownership of all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes necessary for its business as now conducted and as proposed to be conducted without any conflict with or infringement of the rights of others. The Schedule of Exceptions contains a complete list of patents and pending patent applications of the Company. There are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity, except, in either case, for standard end-user, object code, internal-use software license and support/maintenance agreements. The Company has not received any communications alleging that the Company has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would 4 interfere with the use of his or her best efforts to promote the interests of the Company or that would conflict with the Company's business as proposed to be conducted. Neither the execution nor delivery of the Transaction Documents, nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as proposed, will, to the best of the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated. The Company does not believe it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to or outside the scope of their employment by the Company. 2.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation or default of any provision of its Restated Certificate or Bylaws, or of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound, or, to the best of its knowledge, of any provision of any federal or state statute, rule or regulation applicable to the Company. The execution, delivery and performance of the Transaction Documents, and the consummation of the transactions contemplated hereby and thereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event that results in the creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the Company, its business or operations or any of its assets or properties. 2.12 AGREEMENTS; ACTION. (a) Except for agreements explicitly contemplated by the Transaction Documents, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, affiliates, or any affiliate thereof except in their capacities as stockholders of the Company. (b) There are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company is a party or by which it is bound that may involve (i) obligations (contingent or otherwise) of, or payments to the Company in excess of, $25,000, or (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company (other than the license of the Company's software and products in the ordinary course of business), or (iii) provisions restricting or affecting the development, manufacture or distribution of the Company's products or services, or (iv) indemnification by the Company with respect to infringements of proprietary rights. (c) The Company has not (i) declared or paid any dividends or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or any other liabilities individually in excess of $10,000 or, in the case of indebtedness and/or liabilities individually less than $10,000, in excess of $30,000 in the aggregate, (iii) made any loans or advances to any person, other than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. 5 (d) For the purposes of subsections (b) and (c) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections. (e) The Company is not a party to and is not bound by any contract, agreement or instrument, or subject to any restriction under its Restated Certificate or Bylaws that adversely affects its business as now conducted or as proposed to be conducted, its properties or its financial condition. (f) The Company has not engaged in the past three (3) months in any discussion (i) with any representative of any corporation or corporations regarding the consolidation or merger of the Company with or into any such corporation or corporations, (ii) with any corporation, partnership, association or other business entity or any individual regarding the sale, conveyance or disposition of all or substantially all of the assets of the Company or a transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of, or (iii) regarding any other form of acquisition, liquidation, dissolution or winding up of the Company. 2.13 RELATED-PARTY TRANSACTIONS. No employee, officer, or director of the Company or member of his or her immediate family is indebted to the Company, nor is the Company indebted (or committed to make loans or extend or guarantee credit) to any of them. To the best of the Company's knowledge, none of such persons has any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation that competes with the Company, except that employees, officers, or directors of the Company and members of their immediate families may own stock in publicly traded companies that may compete with the Company. No member of the immediate family of any officer or director of the Company is directly or indirectly interested in any material contract with the Company. 2.14 PERMITS. The Company has all franchises, permits, licenses, and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties, prospects, or financial condition of the Company, and the Company believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. The Company is not in default in any material respect under any of such franchises, permits, licenses, or other similar authority. 2.15 ENVIRONMENTAL AND SAFETY LAWS. To the best of its knowledge, the Company is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to the best of its knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. 2.16 MANUFACTURING AND MARKETING RIGHTS. The Company has not granted rights to manufacture, produce, assemble, license, market, or sell its products to any other person 6 and is not bound by any agreement that affects the Company's exclusive right to develop, manufacture, assemble, distribute, market or sell its products. 2.17 DISCLOSURE. The Company has fully provided each Investor with all the information that such Investor has requested for deciding whether to purchase the Series D Preferred Stock and all information that the Company believes is reasonably necessary to enable such Investor to make such decision. Neither the Transaction Documents, nor any other statements or certificates made or delivered in connection herewith or therewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading. 2.18 REGISTRATION RIGHTS. Except as provided in the Investors' Rights Agreement, as amended, and except for the registration rights granted to Lycos, Inc. pursuant to the Warrant Agreement, dated May 12, 1999, the Company has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. 2.19 CORPORATE DOCUMENTS. Except for amendments necessary to satisfy representations and warranties or conditions contained herein (the form of which amendments has been approved by the Investors), the Restated Certificate and Bylaws of the Company are in the form previously provided to special counsel for the Investors. 2.20 TITLE TO PROPERTY AND ASSETS. The Company owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens that arise in the ordinary course of business and do not materially impair the Company's ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and, to the best of its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances. 2.21 SMALL BUSINESS CONCERN. The Company is a "Small Business Concern" as that term is defined in the Small Business Investment Act of 1958, as amended, and in the regulations of the Small Business Administration (the "S.B.A.") promulgated thereunder. 2.22 FINANCIAL STATEMENTS. The Company has delivered to each Investor its financial statements at June 30, 1999 and for the six months then ended (the "Financial Statements"). The Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated and with each other, except that the Financial Statements may not contain all footnotes required by generally accepted accounting principles. The Financial Statements fairly present the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein, subject to normal year-end audit adjustments. Except as set forth in the Financial Statements, the Company has no material liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to June 30, 1999 and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements, which, in both cases, individually or in the aggregate, are not material to the financial condition or operating results of the Company. Except as disclosed in the Financial Statements, the Company is not a guarantor or indemnitor of any indebtedness of any other 7 person, firm or corporation. The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with generally accepted accounting principles. 2.23 CHANGES. Since June 30, 1999 there has not been: (a) any change in the assets, liabilities, financial condition or operating results of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not been, in the aggregate, materially adverse; (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, prospects or business of the Company (as such business is presently conducted and as it is proposed to be conducted); (c) any waiver by the Company of a valuable right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and that is not material to the assets, properties, financial condition, operating results or business of the Company (as such business is presently conducted and as it is proposed to be conducted); (e) any material change or amendment to a material contract or arrangement by which the Company or any of its assets or properties is bound or subject; (f) any material change in any compensation arrangement or agreement with any employee; (g) any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets; (h) any resignation or termination of employment of any key officer of the Company; and the Company, to the best of its knowledge, does not know of the impending resignation or termination of employment of any such officer; (i) receipt of notice that there has been a loss of, or material order cancellation by, any major customer of the Company; (j) any mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its material properties or assets, except liens for taxes not yet due or payable; (k) any loans or guarantees made by the Company to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business; 8 (l) any declaration, setting aside or payment or other distribution in respect of any of the Company's capital stock, or any direct or indirect redemption, purchase or other acquisition of any of such stock by the Company; (m) to the best of the Company's knowledge, any other event or condition of any character that might materially and adversely affect the assets, properties, financial condition, operating results or business of the Company (as such business is presently conducted and as it is proposed to be conducted); or (n) any agreement or commitment by the Company to do any of the things described in this Section 2.23. 2.24 EMPLOYEE BENEFIT PLANS. The Company does not have any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974. 2.25 TAX RETURNS, PAYMENTS AND ELECTIONS. The Company has filed all tax returns and reports (including information returns and reports) as required by law. These returns and reports are true and correct in all material respects. The Company has paid all taxes and other assessments due, except those contested by it in good faith that are listed in the Schedule of Exceptions. The provision for taxes of the Company as shown in the Financial Statements is adequate for taxes due or accrued as of the date thereof. The Company has not elected pursuant to the Internal Revenue Code of 1986, as amended (the "Code"), to be treated as a collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the Code, nor has it made any other elections pursuant to the Code (other than elections that relate solely to methods of accounting, depreciation or amortization) that would have a material effect on the Company, its financial condition, its business as presently conducted or proposed to be conducted or any of its properties or material assets. The Company elected pursuant to the Internal Revenue Code of 1986, as amended (the "Code"), to be treated as an "S" corporation pursuant to Subchapter S of the Code (the "Subchapter S Election"), commencing February 20, 1997, and the Company and its shareholders reported income and filed tax returns consistently therewith from February 20, 1997 to November 17, 1997, whereupon the Company terminated its Subchapter S Election. The Company does not have any liability or any potential or deferred liability for taxes pursuant to Section 1371(d)(2), Section 1374 or Section 1375 of the Code, nor is the Company liable for any other taxes imposed pursuant to or resulting from its Subchapter S Election. The Company has never had any tax deficiency proposed or assessed against it and has not executed any waiver of any statute of limitations on the assessment or collection of any tax or governmental charge. None of the Company's federal income tax returns and none of its state income or franchise tax or sales or use tax returns has ever been audited by governmental authorities. Since the date of the Financial Statements, the Company has not incurred any taxes, assessments or governmental charges other than in the ordinary course of business and the Company has made adequate provisions on its books of account for all taxes, assessments and governmental charges with respect to its business, properties and operations for such period. The Company has withheld or collected from each payment made to each of its employees, the amount of all taxes (including, but not limited to, federal income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be withheld or collected therefrom, and has paid the same to the proper tax receiving officers or authorized depositories. 9 2.26 INSURANCE. The Company has in full force and effect fire and casualty insurance policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its properties that might be damaged or destroyed. The Company has applied for term life insurance, payable to the Company, on the life Scott Randall in the amount of $1,000,000. 2.27 MINUTE BOOKS. The minute books of the Company provided to the Investors contain a complete summary of all meetings of directors and stockholders since the time of incorporation and reflect all transactions referred to in such minutes accurately in all material respects. 2.28 LABOR AGREEMENTS AND ACTIONS; EMPLOYEE COMPENSATION. The Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the best of the Company's knowledge, has sought to represent any of the employees, representatives or agents of the Company. There is no strike or other labor dispute involving the Company pending, or to the best of the Company's knowledge, threatened, that could have a material adverse effect on the assets, properties, financial condition, operating results, or business of the Company (as such business is presently conducted and as it is proposed to be conducted), nor is the Company aware of any labor organization activity involving its employees. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with the Company, nor does the Company have a present intention to terminate the employment of any of the foregoing. The employment of each officer and employee of the Company is terminable at the will of the Company. To the best of its knowledge, the Company has complied in all material respects with all applicable state and federal equal employment opportunity and other laws related to employment. The Company is not a party to or bound by any currently effective employment contract, deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement, or other employee compensation agreement. 2.29 SECTION 83(b) ELECTIONS. To the best of the Company's knowledge, all individuals who have purchased unvested shares of the Company's Common Stock have timely filed elections under Section 83(b) of the Code and any analogous provisions of applicable state tax laws. 2.30 BROKERS. The Company has no contract, arrangement or understanding with any broker, finder or similar agent with respect to the transactions contemplated by this Agreement. 2.31 SIGNIFICANT CUSTOMERS AND SUPPLIERS. No customer or supplier that was significant to the Company during the period covered by the financial statements referred to in Section 2.23 or that has been significant to the Company thereafter, has terminated, materially reduced or threatened to terminate or materially reduce its purchases from or provision of products or services to the Company, as the case may be. 2.32 QUALIFIED SMALL BUSINESS STOCK. As of the Closing: (i) the Company will be an eligible corporation as defined in Section 1202(e)(4) of the Internal Revenue Code of 1986, 10 as amended (the "Code"), (ii) the Company will not have made any purchases of its own stock during the one-year period proceeding the Closing having an aggregate value exceeding 5% of the aggregate value of all its stock as of the beginning of such period and (iii) the Company's aggregate gross assets, as defined by Code Section 1202(d)(2), at no time between February 20, 1997 and through the Closing have exceeded or will exceed $50 million, taking into account the assets of any corporations required to be aggregated with the Company in accordance with Code Section 1202(d)(3). 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor hereby represents and warrants that: 3.1 AUTHORIZATION. Such Investor has full power and authority to enter into this Agreement and the Investors' Rights Agreement, and each such Agreement constitutes its valid and legally binding obligation, enforceable in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Investors' Rights Agreement may be limited by applicable federal or state securities laws. 3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with such Investor in reliance upon such Investor's representation to the Company, which by such Investor's execution of this Agreement such Investor hereby confirms, that the Series D Preferred Stock to be received by such Investor and the Common Stock issuable upon conversion thereof (collectively, the "Securities") will be acquired for investment for such Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, such Investor further represents that such Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. 3.3 DISCLOSURE OF INFORMATION. Such Investor believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Series D Preferred Stock. Such Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Series D Preferred Stock and the business, properties, prospects and financial condition of the Company. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of the Investors to rely thereon. 3.4 INVESTMENT EXPERIENCE. Such Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Series D Preferred Stock. If other than an individual, Investor also represents it has not been organized for the purpose of acquiring the Series D Preferred Stock. 11 3.5 ACCREDITED INVESTOR. Such Investor is an "accredited investor" within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of Regulation D, as presently in effect. 3.6 RESTRICTED SECURITIES. Such Investor understands that the Securities it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Act, only in certain limited circumstances. In this connection, such Investor represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Act. 3.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the representations set forth above, such Investor further agrees not to make any disposition of all or any portion of the Securities unless and until the transferee has agreed in writing for the benefit of the Company to be bound by this Section 3 and the Investors' Rights Agreement provided and to the extent this Section and such agreement are then applicable, and: (a) There is then in effect a Registration Statement under the Act covering such proposed disposition and such disposition is made in accordance with such Registration Statement; or (b) (i) Such Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (ii) if reasonably requested by the Company, such Investor shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company that such disposition will not require registration of such shares under the Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in unusual circumstances. (c) Notwithstanding the provisions of Paragraphs (a) and (b) above, no such registration statement or opinion of counsel shall be necessary for a transfer by an Investor that is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner or the transfer by gift, will or intestate succession of any partner to his or her spouse or to the siblings, lineal descendants or ancestors of such partner or his or her spouse, or for a transfer by an Investor to a corporate subsidiary or affiliate of such Investor if the transferee agrees in writing to be subject to the terms hereof to the same extent as if he or she were an original Investor hereunder. 3.8 LEGENDS. It is understood that the certificates evidencing the Securities may bear substantially the following legend: "These securities have not been registered under the Securities Act of 1933, as amended. They may not be sold, offered for sale, pledged or hypothecated in the absence of a registration statement in effect with respect to the securities under such Act or an opinion of counsel satisfactory to the Company that such registration is not required or unless sold pursuant to Rule 144 of such Act." 12 4. CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING. The obligations of each Investor under subsection 1.1(b) of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, any of which may be waived by Investors acquiring in the aggregate more than half of the Series D Preferred Stock to be sold pursuant hereto: 4.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in Section 2 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing. 4.2 PERFORMANCE. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 4.3 COMPLIANCE CERTIFICATE. The President or Chief Financial Officer of the Company shall deliver to Investors purchasing more than 200,000 shares of Series D Preferred Stock hereunder (the "Major Investors") at the Closing a certificate stating that the conditions specified in Sections 4.1 and 4.2 have been fulfilled and stating that there has been no adverse change in the business, affairs, prospects, operations, properties, assets or condition of the Company since the date of the Financial Statements. 4.4 QUALIFICATIONS. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be duly obtained and effective as of the Closing. 4.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Major Investors' special counsel, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. This may include, without limitation, good standing certificates and certification by the Company's Secretary regarding the Company's Certificate of Incorporation and Bylaws and Board of Directors and stockholder resolutions relating to this transaction. 4.6 PROPRIETARY INFORMATION AND EMPLOYEE STOCK PURCHASE AGREEMENTS. Each employee of and consultant to the Company shall have entered into a Proprietary Information and Inventions Agreement in the form previously provided to special counsel for the Major Investors. 4.7 OPINION OF COMPANY COUNSEL. Each Major Investor shall have received from Goodwin, Procter & Hoar LLP, counsel for the Company, an opinion, dated as of the Closing, in the form attached hereto as EXHIBIT C. 4.8 INVESTORS' RIGHTS AGREEMENT. Each Investor shall have become a party to the Investors' Rights Agreement. 13 4.9 AUCTION SERVICES AGREEMENT AND LICENSE AGREEMENT. The Auction Services Agreement and License Agreement between the Company and the Investor shall have been executed and delivered by the parties thereto. 5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of the Company to each Investor under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions by that Investor: 5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Investors contained in Section 3 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 5.2 PAYMENT OF PURCHASE PRICE. The Investors shall have delivered the purchase price specified in Section 1.2. 5.3 QUALIFICATIONS. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be duly obtained and effective as of the Closing. 6. MISCELLANEOUS. 6.1 SURVIVAL OF WARRANTIES. The warranties, representations and covenants of the Company and Investors contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Investors or the Company. 6.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 6.3 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents entered into and to be performed entirely within Delaware. 6.4 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6.5 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 6.6 NOTICES. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed 14 to be given (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one day after the business day of delivery by facsimile transmission, if deliverable by facsimile transmission, with copy by first class mail, postage prepaid, and shall be addressed, if to Investor, at each Investor's address as set forth on the Schedule of Purchasers to this Agreement, and, if to the Company, at the address of its principal corporate offices (attention: Secretary), or at such other address as such party may designate by ten (10) days' advance written notice to the other parties hereto. 6.7 FINDER'S FEE. Except as set forth in the Schedule of Exceptions, each party represents that it neither is nor will be obligated for any finders' fee or commission in connection with this transaction. Each Investor agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which such Investor or any of its officers, partners, employees, or representatives is responsible. Except as set forth in the Schedule of Exceptions, the Company agrees to indemnify and hold harmless each Investor from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 6.8 EXPENSES. Irrespective of whether the Closing is effected, the Company shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement. If the Closing is effected, the Company shall, at the Closing, reimburse the reasonable fees of special counsel for the Major Investors. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the Investors' Rights Agreement or the Restated Certificate, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 6.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Common Stock issuable or issued upon conversion of the Series D Preferred Stock. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of all such securities, and the Company; provided, that no amendment or waiver that disproportionately and adversely affects any holder of Series D Preferred Stock shall be effective as against such holder unless signed by such holder. The Company shall promptly provide to each Investor a copy of any amendment or waiver effected in accordance with this paragraph. 6.10 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and 15 the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 6.11 AGGREGATION OF STOCK. All shares of the Preferred Stock held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 6.12 ENTIRE AGREEMENT. This Agreement and the documents referred to herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein. 16 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. FAIRMARKET, INC. By: /S/ SCOTT RANDALL --------------------------------- Scott Randall, President Address: 400 Unicorn Park Drive Woburn, MA 01801 SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT INVESTORS: TICKETMASTER ONLINE-CITYSEARCH, INC. By: /s/ Bradley K. Serwin --------------------------------- Name: Brad K. Serwin Title: Vice President SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT SCHEDULE A SCHEDULE OF INVESTORS
NUMBER OF TOTAL PURCHASE NAME AND ADDRESS SHARES PURCHASED PRICE OF SHARES ---------------- ---------------- --------------- Ticketmaster Online-CitySearch, Inc. 790 E. Colorado Blvd. 750,000 $5,250,000 Suite 200 Pasadena, CA 91101 1,500,000 $10,500,000 (Consideration for execution and delivery of the Auction Services Agreement and the related License Agreement of even date herewith) TOTAL 2,250,000 $15,750,000
EX-10.40 3 EXHIBIT 10.40 SERIES A PREFERRED STOCK PURCHASE AGREEMENT BY AND BETWEEN FOODLINE.COM, INC. AND TICKETMASTER ONLINE-CITYSEARCH, INC. DATED AS OF OCTOBER 25, 1999 TABLE OF CONTENTS
PAGE ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II AGREEMENT TO PURCHASE AND SELL STOCK . . . . . . . . . . . . . . 3 2.1. Authorization. . . . . . . . . . . . . . . . . . . . . . 3 2.2. Agreement to Purchase and Sell Stock.. . . . . . . . . . 3 ARTICLE III CLOSING; DELIVERY . . . . . . . . . . . . . . . . . . . . . . . 3 3.1. The Closing. . . . . . . . . . . . . . . . . . . . . . . 3 3.2. Delivery.. . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . 3 4.1. Organization, Good Standing and Qualification. . . . . . 3 4.2. Capitalization.. . . . . . . . . . . . . . . . . . . . . 4 4.3. Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . 4 4.4. Due Authorization. . . . . . . . . . . . . . . . . . . . 4 4.5. Valid Issuance of Stock. . . . . . . . . . . . . . . . . 5 4.6. Liabilities. . . . . . . . . . . . . . . . . . . . . . . 5 4.7. Title to Properties and Assets.. . . . . . . . . . . . . 5 4.8. Intellectual Property; Software. . . . . . . . . . . . . 6 4.9. Material Contracts and Obligations.. . . . . . . . . . .10 4.10. Litigation. . . . . . . . . . . . . . . . . . . . . . .10 4.11. Required Consents.. . . . . . . . . . . . . . . . . . .10 4.12. Compliance with Other Instruments.. . . . . . . . . . .11 4.13. Disclosure. . . . . . . . . . . . . . . . . . . . . . .11 4.14. Registration Rights.. . . . . . . . . . . . . . . . . .11 4.15. Insurance.. . . . . . . . . . . . . . . . . . . . . . .11 4.16. Financial Statements. . . . . . . . . . . . . . . . . .11 4.17. Certain Actions.. . . . . . . . . . . . . . . . . . . .12 4.18. Activities Since Balance Sheet Date.. . . . . . . . . .12 4.19. Tax Matters.. . . . . . . . . . . . . . . . . . . . . .13 4.20. Tax Elections.. . . . . . . . . . . . . . . . . . . . .13 4.21. Environmental Matters.. . . . . . . . . . . . . . . . .14 4.22. Employee Benefits.. . . . . . . . . . . . . . . . . . .14 4.23. Interested Party Transactions.. . . . . . . . . . . . .15 4.24. Stock Restriction Agreements. . . . . . . . . . . . . .15 4.25. Minute Books. . . . . . . . . . . . . . . . . . . . . .15 4.26. Labor Agreements and Actions. . . . . . . . . . . . . .15 4.27. Year 2000 Compliance. . . . . . . . . . . . . . . . . .15 4.28. No Restrictions on Shares.. . . . . . . . . . . . . . .16 ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . . . . . .16 5.1. Organization; Due Authorization; No Conflicts. . . . . .16
i 5.2. Investigation; Economic Risk.. . . . . . . . . . . . . .16 5.3. Purchase for Own Account.. . . . . . . . . . . . . . . .17 5.4. Exempt from Registration; Restricted Securities. . . . .17 5.5. Restrictive Legends. . . . . . . . . . . . . . . . . . .17 5.6. Removal of Restrictive Legend. . . . . . . . . . . . . .17 5.7. Status of Purchaser. . . . . . . . . . . . . . . . . . .17 ARTICLE VI CERTAIN COVENANTS. . . . . . . . . . . . . . . . . . . . . . . .18 6.1. Use of Proceeds. . . . . . . . . . . . . . . . . . . . .18 6.2. Expenses.. . . . . . . . . . . . . . . . . . . . . . . .18 6.3. Conduct of the Business. . . . . . . . . . . . . . . . .18 6.4. Further Assurances.. . . . . . . . . . . . . . . . . . .19 6.5. Confidentiality; Public Announcements. . . . . . . . . .19 6.6. Inspection.. . . . . . . . . . . . . . . . . . . . . . .20 6.7. Other Investments. . . . . . . . . . . . . . . . . . . .20 ARTICLE VII CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . .21 7.1. Conditions to Each Party's Obligations.. . . . . . . . .21 7.2. Conditions to Obligation of Purchaser. . . . . . . . . .21 7.3. Conditions to Obligation of the Company. . . . . . . . .22 ARTICLE VIII INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . .23 8.1. Agreement to Indemnify.. . . . . . . . . . . . . . . . .23 8.2. Survival of Representations, Warranties and Covenants. .23 8.3. Limitation.. . . . . . . . . . . . . . . . . . . . . . .24 8.4. Claims for Indemnification.. . . . . . . . . . . . . . .24 8.5. Defense of Claims. . . . . . . . . . . . . . . . . . . .24 ARTICLE IX MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . .25 9.1. Governing Law. . . . . . . . . . . . . . . . . . . . . .25 9.2. Captions.. . . . . . . . . . . . . . . . . . . . . . . .25 9.3. Successors and Assigns.. . . . . . . . . . . . . . . . .26 9.4. Entire Agreement.. . . . . . . . . . . . . . . . . . . .26 9.5. Notices. . . . . . . . . . . . . . . . . . . . . . . . .26 9.6. Amendments and Waivers.. . . . . . . . . . . . . . . . .27 9.7. Delays or Omissions. . . . . . . . . . . . . . . . . . .27 9.8. Finder's Fees. . . . . . . . . . . . . . . . . . . . . .28 9.9. Counterparts; Effectiveness. . . . . . . . . . . . . . .28 9.10. Severability. . . . . . . . . . . . . . . . . . . . . .28 9.11. Construction. . . . . . . . . . . . . . . . . . . . . .28 9.12. Cumulative Remedies.. . . . . . . . . . . . . . . . . .28 9.13. Third-Party Beneficiaries.. . . . . . . . . . . . . . .28
ii EXHIBITS Exhibit A Amended and Restated Certificate of Incorporation Exhibit B Distribution Agreement Exhibit C Investor Rights Agreement Exhibit D Co-Sale and First Refusal Rights Agreement Exhibit E Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
SCHEDULES Schedule 4.2(c). . . . . . . .Options, Warrants, Reserved Shares Schedule 4.2(d) . . . . . . .Outstanding Security Holders Schedule 4.6 . . . . . . . . .Liabilities Schedule 4.7(a) . . . . . . .Title to Properties and Assets Schedule 4.7(a) . . . . . . .Real Property Schedule 4.8(b). . . . . . . .Intellectual Property Rights Schedule 4.8(d). . . . . . . .Intellectual Property Schedule 4.8(g) . . . . . . .Software Schedule 4.8(h). . . . . . . .Licensed Software Schedule 4.8(i). . . . . . . .Software Agreements Schedule 4.9 . . . . . . . . .Material Contracts Schedule 4.14. . . . . . . . .Registration Rights Schedule 4.15 . . . . . . . .Insurance Schedule 4.16. . . . . . . . .Financial Statements Schedule 4.20. . . . . . . . .Tax Elections Schedule 4.23. . . . . . . . .Interested Party Transactions Schedule 6.3 . . . . . . . . .Capital Expenditures
SERIES A PREFERRED STOCK PURCHASE AGREEMENT This Series A Preferred Stock Purchase Agreement (the "AGREEMENT") is entered into as of October 25, 1999 (the "EFFECTIVE DATE") by and between foodline.com, Inc., a Delaware corporation (the "COMPANY"), and Ticketmaster Online-CitySearch, Inc., a Delaware corporation ("PURCHASER"). R E C I T A L S WHEREAS, Purchaser desires to purchase from the Company and the Company desires to sell to Purchaser 4,300,153 shares of the Company's Series A Preferred Stock (the "SHARES"), representing 30.3% of the Company's issued and outstanding capital stock on a fully-diluted basis (treating (i) all outstanding options, warrants and rights to purchase or receive stock as fully exercised, and (ii) all securities convertible into shares of the Company's common stock, including, without limitation, the shares of Series A Preferred Stock to be issued to the Additional Holders (as defined below), as converted) in exchange for cash consideration in an amount equal to Five Million Dollars ($5,000,000); and WHEREAS, the Company has agreed to issue additional shares of Series A Preferred Stock to (a) certain additional investors (the "ADDITIONAL INVESTORS"), on terms and conditions set forth in Subscription Agreements to be entered into between the Company and each of the Additional Investors and (b) certain holders (collectively with the Additional Investors, the "ADDITIONAL HOLDERS") of convertible promissory notes of the Company which will be converted into shares of Series A Preferred Stock simultaneously with the consummation of the transactions contemplated by this Agreement. A G R E E M E N T NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS The following terms shall have the respective meanings given thereto in the sections indicated below:
DEFINED TERM SECTION PAGE Act. . . . . . . . . . . . . . . . . . .Section 4.5(b). . . 5 Additional Holders . . . . . . . . . . .Preamble. . . . . . 1 Additional Investors . . . . . . . . . .Preamble. . . . . . 1 Aggregate Purchase Price . . . . . . . .Section 2.2 . . . . 3 Aggregate Threshold. . . . . . . . . . .Section 8.3 . . . . 23 Agreement. . . . . . . . . . . . . . . .Preamble. . . . . . 1 Balance Sheet Date . . . . . . . . . . .Section 4.16. . . . 11 CERCLA . . . . . . . . . . . . . . . . .Section 4.21. . . . 13 Certificate. . . . . . . . . . . . . . .Section 2.1 . . . . 3 Closing Date . . . . . . . . . . . . . .Section 3.1 . . . . 3 Closing. . . . . . . . . . . . . . . . .Section 3.1 . . . . 3 Code . . . . . . . . . . . . . . . . . .Section 4.20. . . . 13 Common Stock . . . . . . . . . . . . . .Section 4.2(a). . . 4 Company Intellectual Property Assets . .Section 4.8(b). . . 6 Company Marks. . . . . . . . . . . . . .Section 4.8(d). . . 7 Company Required Consents. . . . . . . .Section 4.11. . . . 10 Company. . . . . . . . . . . . . . . . .Preamble. . . . . . 1 Conversion Shares. . . . . . . . . . . .Section 4.2(c). . . 4 Copyrights . . . . . . . . . . . . . . .Section 4.8(a). . . 6 Damages. . . . . . . . . . . . . . . . .Section 8.1(a). . . 22 Designated Software Agreements . . . . .Section 4.8(i). . . 9 Effective Date . . . . . . . . . . . . .Preamble. . . . . . 1 Employee Pension Benefit Plan. . . . . .Section 4.22(a) . . 14 ERISA. . . . . . . . . . . . . . . . . .Section 4.22(a) . . 14 Financial Statements . . . . . . . . . .Section 4.16. . . . 11 GAAP . . . . . . . . . . . . . . . . . .Section 4.16. . . . 11 Hazardous Materials. . . . . . . . . . .Section 4.21. . . . 13 Indemnifying Party . . . . . . . . . . .Section 8.1(c). . . 22 Indemnitee . . . . . . . . . . . . . . .Section 8.1(c). . . 22 Intellectual Property Rights . . . . . .Section 4.8(a). . . 5 Intellectual Property. . . . . . . . . .Section 4.8(a). . . 6 Investment Transactions. . . . . . . . .Section 6.7 . . . . 19 Investor Rights Agreement. . . . . . . .Section 4.14. . . . 11 Licensed Software Agreements . . . . . .Section 4.8(h). . . 8 Licensed Software. . . . . . . . . . . .Section 4.8(g). . . 8 Marks. . . . . . . . . . . . . . . . . .Section 4.8(a). . . 6 Material Contracts . . . . . . . . . . .Section 4.9 . . . . 10 Multiemployer Plan . . . . . . . . . . .Section 4.22(a) . . 14 Notes. . . . . . . . . . . . . . . . . .Preamble. . . . . . 1 Other Licensed Technology. . . . . . . .Section 4.8(h). . . 8 Owned Software . . . . . . . . . . . . .Section 4.8(g). . . 8 Patents. . . . . . . . . . . . . . . . .Section 4.8(a). . . 6 Proceedings. . . . . . . . . . . . . . .Section 4.10. . . . 10 Purchaser. . . . . . . . . . . . . . . .Preamble. . . . . . 1 Real Property. . . . . . . . . . . . . .Section 4.7(c). . . 5 SEC. . . . . . . . . . . . . . . . . . .Section 4.14. . . . 11 Shares . . . . . . . . . . . . . . . . .Preamble. . . . . . 1 Software . . . . . . . . . . . . . . . .Section 4.8(a). . . 6 Tax Returns. . . . . . . . . . . . . . .Section 4.19(a) . . 13 Taxes. . . . . . . . . . . . . . . . . .Section 4.19(a) . . 12 Trade Secrets. . . . . . . . . . . . . .Section 4.8(a). . . 6
2 ARTICLE II AGREEMENT TO PURCHASE AND SELL STOCK 2.1 AUTHORIZATION. As of the Closing (as defined below), the Company will have authorized the issuance, pursuant to the terms and conditions of this Agreement, of 6,978,359 shares of the Company's Series A Preferred Stock, having the rights, preferences, privileges and restrictions set forth in the Amended and Restated Certificate of Incorporation of the Company attached to this Agreement as EXHIBIT A (the "CERTIFICATE"). 2.2 AGREEMENT TO PURCHASE AND SELL STOCK. Subject to the terms and conditions hereof, the Company will issue and sell to Purchaser, and Purchaser agrees to purchase from the Company, the Shares, for an aggregate purchase price of Five Million Dollars ($5,000,000) (the "AGGREGATE PURCHASE PRICE"). ARTICLE III CLOSING; DELIVERY 3.1 THE CLOSING. The closing (the "CLOSING") of the transactions contemplated by this Agreement shall be held at the offices of Gibson, Dunn & Crutcher LLP at 333 South Grand Avenue, Los Angeles, California 90071, on October 28, 1999, or at such other time and place as to which the Company and Purchaser may agree (the "CLOSING DATE"). 3.2 DELIVERY. At the Closing, the Company will deliver to Purchaser a certificate representing the Shares and Purchaser will deliver to the Company by wire transfer (to a bank account designated by the Company in writing at least one (1) business day prior to the Closing) an amount in cash equal to the Aggregate Purchase Price. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Purchaser as follows: 4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a corporation duly organized, validly existing and in good standing under, and by virtue of, the laws of its state of incorporation, and has all requisite corporate power and authority to own its properties and assets and to carry on its business as now conducted and as presently proposed to be conducted. The Company is qualified to do business as a foreign corporation in each jurisdiction where failure to be so qualified would have a material adverse effect on its condition (financial or otherwise), business, assets, properties or operations. 4.2 CAPITALIZATION. Immediately prior to the Closing, the authorized capital stock of the Company will consist of the following: 3 (a) COMMON STOCK. A total of 19,000,000 authorized shares of Common Stock, $0.01 par value (the "COMMON STOCK"), of which 5,174,800 shares are issued and outstanding. (b) PREFERRED STOCK. A total of 11,000,000 authorized shares of Preferred Stock, $0.01 par value, of which 6,978,359 shares will be designated Series A Preferred Stock, none of which will be issued and outstanding. (c) OPTIONS, WARRANTS AND RESERVED SHARES. The Company has reserved an aggregate of 6,978,359 shares of its Common Stock for possible issuance upon conversion of the shares of Series A Preferred Stock to be issued hereunder (the "CONVERSION SHARES"). Except as set forth on SCHEDULE 4.2(c), there are no options, warrants, conversion privileges or other rights, or agreements, obligations or other commitments, whether written or oral, contingent or otherwise, with respect to the issuance thereof, presently outstanding to purchase any of the capital stock of the Company. Except as set forth on SCHEDULE 4.2(c), no shares (including the Shares and the Conversion Shares) of the Company's outstanding capital stock, or stock issuable upon exercise or exchange of any outstanding options or other stock issuable by the Company, are subject to any rights of first refusal, preemptive rights or other rights to purchase such stock (whether in favor of the Company or any other person), pursuant to any agreement, commitment or other obligation of the Company, whether written or oral, contingent or otherwise. Except as set forth on SCHEDULE 4.2(c) and except for the transactions contemplated by this Agreement, the Company is not currently engaged in, nor does it currently intend to engage in, any discussions or negotiations which could reasonably be expected to lead to the issuance of any capital stock of the Company. (d) OUTSTANDING SECURITY HOLDERS. SCHEDULE 4.2(d) sets forth a complete list of all outstanding shareholders, option holders and other security holders of the Company as of the Effective Date. SCHEDULE 4.2(d) lists, for each option holder of the Company, such option holder's name, the exercise price(s) of all option(s) granted to such optionholder, the term(s) of such option(s), the vesting period(s) of such option(s), and any contingencies applicable to such option(s). 4.3 SUBSIDIARIES. Except as set forth on SCHEDULE 4.3, the Company does not presently own or control, directly or indirectly, any interest in any other corporation, partnership, trust, joint venture, association, or other entity. 4.4 DUE AUTHORIZATION. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization, execution and delivery of, and the performance of all obligations of the Company under, this Agreement and the authorization, issuance, reservation for issuance and delivery of all of the Shares being sold under this Agreement and of the Conversion Shares has been taken or will be taken prior to the Closing. This Agreement is a valid and binding obligation of the Company, enforceable in accordance with its terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors' rights generally and to general equitable principles. 4 4.5 VALID ISSUANCE OF STOCK. (a) The Shares, when issued, sold and delivered in accordance with the terms of this Agreement, will be duly and validly issued, fully paid and non-assessable. The Conversion Shares have been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Certificate, will be duly and validly issued, fully paid and non assessable. (b) The outstanding shares of the capital stock of the Company are duly and validly issued, fully paid and non-assessable, and shares of such capital stock, and all outstanding stock, options and other securities of the Company have been issued in full compliance with the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the "ACT"), and the registration and qualification requirements of all applicable state securities laws, or in compliance with applicable exemptions therefrom, and all other provisions of applicable federal and state securities laws, including, without limitation, anti-fraud provisions. 4.6 LIABILITIES. Except as set forth on SCHEDULE 4.6, he Company has no indebtedness for borrowed money that the Company has, directly or indirectly, created, incurred, assumed or guaranteed, or with respect to which Company has otherwise become directly or indirectly liable. 4.7 TITLE TO PROPERTIES AND ASSETS. (a) Except as set forth on SCHEDULE 4.7(a), (i) the Company has, or will have, as of the Closing, a good and valid title to or, in the case of leased properties or properties held under license, a good and valid leasehold or license interest in, all of its properties and assets and (ii) the Company holds title to each such property and asset which it purports to own, free and clear of all liens, adverse claims, mortgages, pledges, encumbrances, security interest or charge of any kind. The representations in this SECTION 4.7 do not apply to the Marks or Intellectual Property Rights as to which only the representations in SECTION 4.8 shall apply. (b) All of the tangible assets of the Company, are, or will be as of the Closing, in all material respects in reasonably serviceable operating condition and repair and are adequate for the conduct of the business of the Company in substantially the same manner as has heretofore been conducted. (c) SCHEDULE 4.7(c) sets forth a true and complete list of all real property owned or leased by the Company (collectively, the "REAL PROPERTY"), including the location of, and a brief description of the nature of the activities conducted on, such Real Property. 4.8 INTELLECTUAL PROPERTY; SOFTWARE. (a) For all purposes of this Agreement, (i) "INTELLECTUAL PROPERTY RIGHTS" means intellectual property rights arising from or in respect of the following, whether protected, created or arising under the laws of the United States or any other jurisdiction: (A) fictional business names, trade 5 names, service names, registered and unregistered trademarks and service marks and logos (including any Internet domain names), and applications therefor (collectively, "MARKS"); (B) patents, patent rights and all applications therefor, including any and all continuation, divisional, continuation-in-part, or reissue patent applications or patents issuing thereon (collectively, "PATENTS"); (C) copyrights and all registrations and applications therefor (collectively, "COPYRIGHTS"); and (D) know-how, trade secrets, inventions, discoveries, concepts, ideas, methods, processes, designs, formulae, technical data, drawings, specifications, data bases and other proprietary and confidential information, including customer lists, in each case to the extent not included in the foregoing clauses (B) or (C) (collectively, "TRADE SECRETS"; Marks, Patents, Copyrights and Trade Secrets are, collectively, "INTELLECTUAL PROPERTY"). (ii) "SOFTWARE" means any and all (A) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code, (B) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (C) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, and (D) all documentation, including user manuals and training materials, relating to any of the foregoing, in each case developed or licensed by the Company, or used in or necessary for the conduct of its business, specifically excluding those items prepared for customers in the operation of the Company's business for which the customer contractually has vested title. (b) SCHEDULE 4.8(b) sets forth a complete and correct list of all Intellectual Property Rights owned, licensed or used by the Company in the conduct of its business (other than any Intellectual Property Rights consisting of "shrink-wrap" licensed software), together with a listing of all material licenses, franchises, licensing agreements (whether as licensor or licensee) to which the Company is a party, and any other arrangement with respect to such Intellectual Property Rights. All Intellectual Property Rights owned, licensed or used by the Company or used or exercised in or necessary to the conduct of the Company's business, are referred to herein, collectively, as the "COMPANY INTELLECTUAL PROPERTY ASSETS." (c) The Company has not, during the three years preceding the date of this Agreement, been a party to any Proceeding, nor, to the knowledge of the Company, is any Proceeding threatened that involved or is likely to involve a claim of infringement or misappropriation by any person (including any governmental authority) of any Intellectual Property Right of such person. No Company Intellectual Property Asset is subject to any outstanding order, judgment, decree, or stipulation to which the Company is subject in any proceeding to which the Company is a party or, to its knowledge, any other proceeding, restricting the use thereof by the Company, or restricting the licensing thereof by the Company or any person. The current use and exploitation of the Intellectual Property Assets by the Company (including without limitation the licensing or other distribution of Software to third parties by the Company) does not conflict with, infringe upon, violate or result in the misappropriation of Intellectual Property Right of any person. 6 (d) Except as set forth on SCHEDULE 4.8(d): (i) The Company owns no right, title or interest in any Patent. The Company owns all right, title and interest in each of the Marks listed in SCHEDULE 4.8(b) (collectively, the "COMPANY MARKS"), free and clear of any and all liens and encumbrances, and the Company has not received any notice or claim (whether written or oral) challenging the Company's exclusive and complete ownership of any Company Marks or suggesting that any other Person has any claim of legal or beneficial ownership or other claim or interest with respect thereto; (ii) The Company Marks are legally valid and enforceable without any material qualification, limitation or restriction on their use and the Company has not received any notice or claim (whether written or oral) challenging the validity or enforceability of any Company Marks; (iii) The Company has not taken any action (or failed to take any action), or used or enforced (or failed to use or enforce) any of the Company Marks, in each case in a manner that would result in the abandonment, cancellation, forfeiture, relinquishment, or unenforceability of any of the Owned Marks or any of the Company's rights therein; (iv) The Company has taken reasonable steps to protect the Company's rights in and to each of the Company Marks and to prevent the unauthorized use thereof by any other Person, in each case in accordance with standard industry practice, and has adequately policed the Company Marks against third party infringement of which it is aware; (v) The Company has not granted to any Person any right, license or permission to use any of the Company Marks; (vi) All Company Marks that have been registered have been effectively registered in accordance with all applicable legal requirements and are currently in compliance with all legal requirements; (vii) All maintenance fees, annuities, and the like due on Company Marks have been timely paid; and (viii) No Mark that constitutes a Company Mark has been or is now involved in any opposition or cancellation proceeding and, to the Company's knowledge, no such action is threatened with the respect to any of the Company Marks. (e) The Company has taken reasonable precautions (as determined by the Company's management) to protect the secrecy of any of its Trade Secrets that derive commercial value from not being generally known to the public. The Company has the absolute and unrestricted right to use all of the Trade Secrets and none of the Trade Secrets owned by the Company is subject to any liens or encumbrances, and the Company has not received any notice 7 or claim challenging the Company's absolute and unrestricted right to use any of the Trade Secrets or suggesting that any other person has any claim with respect thereto. None of the Trade Secrets has been, or is alleged to have been, misappropriated from any other person. Except under appropriate confidentiality obligations, to its best knowledge, there has been no disclosure by the Company of material confidential information or other Trade Secrets that derive commercial value from not being generally known to the public. (f) The Company either owns the entire right, title and interest in, to and under, or has acquired a license to use, any and all Company Intellectual Property Assets which are material to the conduct of its business in the manner that the business has heretofore been or is presently being conducted or as contemplated to be conducted pursuant to the Company's current business plans, and no other Intellectual Property Rights are necessary for the unimpaired continued operation of such businesses after the Effective Time in the manner that such businesses have heretofore been or are presently being conducted. (g) SCHEDULE 4.8(g) sets forth a complete and accurate list of all of the material Software (excluding Software that is available in consumer retail stores and subject to "shrink-wrap" agreements). SCHEDULE 4.8(g) specifically identifies all material Software that is owned exclusively by the Company (the "OWNED SOFTWARE") and all material Software that is used by the Company in the conduct of its business that is not exclusively owned by the Company (excluding software that is available in consumer retail stores and subject to "shrink-wrap" agreements) (the "LICENSED SOFTWARE"). The Company is the owner of all right, title and interest in and to all Owned Software, including without limitation all Copyrights, Trade Secrets and other Intellectual Property Rights relating thereto, free and clear of any and all liens and encumbrances, and the Company has not received any notice or claim (whether written, oral or otherwise) challenging the Company's complete and exclusive ownership of all Owned Software and all such Intellectual Property Rights relating thereto or claiming that any other person has any claim of legal or beneficial ownership with respect thereto. The Company has not assigned, licensed, transferred or encumbered any of its rights in or to any Owned Software, including without limitation any Copyrights, Trade Secrets or other Intellectual Property Rights with respect thereto, to any person, excluding any non-exclusive licenses granted to distributors or customers in the ordinary course of business. The Company has lawfully acquired the right to use the Licensed Software, as it is used in the conduct of its business as presently conducted, and has not exercised any rights in respect of any Licensed Software, including without limitation any reproduction, distribution or derivative work rights, outside the scope of any license expressly granted by the person from which the right to use such Licensed Software was obtained. (h) SCHEDULE 4.8(h) contains a complete and accurate specific list of all agreements and arrangements pertaining to the Licensed Software (excluding software that is available in consumer retail stores and subject to "shrink-wrap" agreements) (collectively, "LICENSED SOFTWARE AGREEMENTS") and a complete and accurate list of all agreements and arrangements pertaining to any other technology used or practiced by the Company as to which a person other than the Company owns the applicable Intellectual Property Rights (collectively, "OTHER LICENSED TECHNOLOGY AGREEMENTS" and, together with Licensed Software Agreements, 8 the "Licensed Technology Agreements"). SCHEDULE 4.8(h) sets forth a complete and accurate list of all royalty obligations of the Company under any Licensed Technology Agreements. All Licensed Technology Agreements are in full force and effect, and the Company is not in material breach thereof, nor is it aware of any claim or basis for any claim to the contrary. All Licensed Technology Agreements will be maintained by the Company in full force and effect through the Effective Time. There are no outstanding, and, to the Company's knowledge, no threatened disputes with respect to any Licensed Technology Agreement. The rights licensed under each Licensed Technology Agreement shall be exercisable by the Company on and after the Effective Time to the same extent as prior to the Effective Time. The Licensed Technology Agreements together expressly confer on the Company valid and enforceable rights under or in respect of all of the Intellectual Property Rights that are not owned exclusively by the Company and that are used or practiced in the Company's business. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in the impairment of any rights under, any Licensed Technology Agreement. (i) SCHEDULE 4.8(i) contains a complete and accurate list of all agreements and arrangements involving the grant by the Company to any person of any right to distribute, prepare derivative works based on, support or maintain or otherwise commercially exploit any Software, including without limitation any value-added reseller agreements, joint development or marketing agreements or strategic alliance agreements involving any Software (collectively, "DESIGNATED SOFTWARE AGREEMENTS"). All Designated Software Agreements are in full force and effect, and the Company is not in material breach thereof, nor is it aware of any claim or basis for a claim to the contrary. All Designated Software Agreements will be maintained by the Company in full force and effect through the Effective Time. There are no outstanding and, to the Company's knowledge, no threatened disputes or disagreements with respect to any Designated Software Agreement. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in any impairment of rights under any Designated Software Agreement. (j) To the Company's knowledge, the Company has taken commercially reasonable actions in accordance with industry practice to protect its Intellectual Property Rights in relation to employees, independent contractors and consultants, including entering into agreements with such persons that assign to the Company all of the employee's, contractor's or consultant's rights, including all Intellectual Property Rights, in any Intellectual Property created or developed thereby that is used in connection with, or that relates to, the business of the Company. To the knowledge of the Company, no employee of the Company has entered into any contract or other agreement with any person (other than the Company) that restricts or limits in any way the scope or type of work in which the employee may be engaged for the Company or requires the employee to transfer, assign, or disclose information concerning the employee's work with the Company to any other person. 4.9 MATERIAL CONTRACTS AND OBLIGATIONS. All agreements, contracts, leases, licenses, instruments, commitments (oral or written), indebtedness, liabilities and other obligations to which the Company is a party or by which it is bound that (a) are material to the conduct and operations of its business and properties, (b) involve any of the officers, consultants, directors, 9 employees or shareholders of the Company or (c) obligate the Company to share, license or develop any product or technology (the "MATERIAL CONTRACTS") are listed in SCHEDULE 4.9 and have been made available for inspection by Purchaser and its counsel. For purposes of this SECTION 4.9, "material" shall mean any agreement, contract, indebtedness, liability or other obligation either (i) having an aggregate value, cost or amount in excess of U.S. $10,000 or (ii) not terminable upon thirty days' notice. 4.10. LITIGATION. There is no action, suit, proceeding, claim, arbitration or investigation ("PROCEEDING") pending (or, to the Company's knowledge, currently threatened) against the Company, its activities, properties or assets or, to the Company's knowledge, against any officer, director or employee of the Company in connection with such officer's, director's or employee's relationship with, or actions taken on behalf of; the Company. To the Company's knowledge, there is no factual or legal basis for any such Proceeding that might result, individually or in the aggregate, in any material adverse change in the business, properties, assets, condition (financial or otherwise) or operations of the Company. The Company is not a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality and there is no Proceeding by the Company currently pending or which the Company intends to initiate. 4.11 REQUIRED CONSENTS. All consents, approvals, orders, authorizations or registrations, qualifications, designations, declarations or filings on the part of the Company with any federal, state or local governmental authority or otherwise required in connection with the consummation of the transactions contemplated herein (the "COMPANY REQUIRED CONSENTS"), shall have been obtained prior to and be effective as of the Closing. Based in part on the representations of Purchaser set forth in ARTICLE V below, the offer, sale and issuance of the Shares in conformity with the terms of this Agreement are exempt from the registration and prospectus delivery requirements of the Act. 4.12 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in any violation, breach or default of any term of the Company's charter or bylaws or in any material respect of any term or provision of any mortgage, indenture, contract, agreement or instrument to which Company is a party or by which it may be bound, or of any provision of any foreign or domestic state or federal judgment, decree, order, statute, rule or regulation applicable to or binding upon Company. The execution, delivery and performance of and compliance with this Agreement and the consummation of the transactions contemplated hereby will not result in any such violation or default, or be in conflict with or constitute, with or without the passage of time or the giving of notice or both, either a default under Company's charter or bylaws, or any agreement or contract of Company, or, to the best of the Company's knowledge, a violation of any statutes, laws, regulations or orders, or an event which results in the creation of any lien, charge or encumbrance upon any of the Company's assets. 4.13. DISCLOSURE. No representation or warranty by the Company in this Agreement or in any statement or certificate signed by any officer of the Company furnished or to be furnished to the Purchaser pursuant to this Agreement contains or will contain any untrue statement of a material fact or omits or will omit to state any material fact required to be stated therein or 10 necessary in order to make the statements therein, in light of the circumstances in which they are made, not misleading. 4.14. REGISTRATION RIGHTS. Except as set forth on SCHEDULE 4.14 hereto or as granted pursuant to the Investor Rights Agreement to be entered into substantially in the form of EXHIBIT C hereto ("INVESTOR RIGHTS AGREEMENT"), the Company has not granted or agreed to grant any person or entity any rights (including "piggyback" registration rights) to have any securities of the Company registered with the U.S. Securities and Exchange Commission ("SEC") or any other governmental authority. 4.15. INSURANCE. Set forth on SCHEDULE 4.15 is a complete and correct list of all insurance policies of the Company of any kind currently in force and also sets forth for each insurance policy the type of coverage, the name of the insureds, the insurer, the premium, the expiration date, the deductibles and loss retention amounts and the amounts of coverage. 4.16. FINANCIAL STATEMENTS. SCHEDULE 4.16 sets forth the Company's unaudited balance sheet dated September 30, 1999 (the "BALANCE SHEET DATE") and the income statements and statements of changes in cash flows of the Company for the year ended December 31, 1998 and for each of the three-month periods ended March 31, June 30 and September 30, 1999 (the "FINANCIAL STATEMENTS"), in each case as reviewed by Cooper & Company, the Company's independent auditors. Such Financial Statements (a) were prepared in accordance with the books and records of the Company, (b) are true, correct and complete and present fairly the financial condition of the Company as of the dates therein indicated and the results of operations for the periods therein specified and (c) have been prepared in accordance with Generally Accepted Accounting Principles ("GAAP") applied on a consistent basis, except for the omission of notes thereto and normal year-end audit adjustments. Specifically, but not by way of limitation, the balance sheet of the Financial Statements discloses all of the Company's material debts, liabilities and obligations of any nature, whether due or to become due, as of the Balance Sheet Date (including, without limitation, absolute liabilities, accrued liabilities and contingent liabilities) to the extent such debts, liabilities and obligations are required to be disclosed in accordance with GAAP. The Company has good and marketable title to all assets set forth on the balance sheet of the Financial Statements, except for such assets as have been spent, sold or transferred in the ordinary course of business since the Balance Sheet Date. 4.17. CERTAIN ACTIONS. Since the Balance Sheet Date, the Company has not: (a) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock; (b) incurred any indebtedness for money borrowed or incurred any other liabilities individually in excess of $5,000 or in excess of $10,000 in the aggregate; (c) made any loans or advances to any person, other than ordinary advances for travel expenses; (d) sold, exchanged or otherwise disposed of any material assets or rights other than the sale of inventory in the ordinary course of its business; or (e) entered into any transactions with any of its officers, directors or employees or any entity controlled by any of such individuals (other than employment, stock option, confidentiality, non-competition and intellectual property rights agreements entered into in the ordinary course of business and disclosed on SCHEDULE 4.9 hereto). 11 4.18. ACTIVITIES SINCE BALANCE SHEET DATE. Since the Balance Sheet Date, there has not been: (a) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, prospects or business of the Company (as presently conducted and as presently proposed to be conducted); (b) any waiver by the Company of a valuable right or of a material debt owed to it; (c) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company, except such a satisfaction, discharge or payment made in the ordinary course of business that is not material to the assets, properties, financial condition, operating results or business of the Company; (d) any material change or amendment to a material contract or arrangement by which the Company or any of its assets or properties is bound or subject, except for changes or amendments which are expressly provided for or disclosed in this Agreement; (e) any material change in any compensation arrangement or agreement with any present or prospective employee, contractor or director not approved by the Company's Board of Directors; or (f) to the Company's knowledge, any other event or condition of any character which would materially and adversely affect the assets, properties, financial condition, operating results or business of the Company. 4.19. TAX MATTERS. (a) Definitions. For purposes of this Agreement: (i) the term "TAXES" means (A) all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto, (B) any liability for payment of amounts described in clause (A) whether as a result of transferee liability, of being a member of an affiliated, consolidated, combined or unitary group for any period, or otherwise through operation of law and (C) any liability for the payment of amounts described in clauses (A) or (B) as a result of any tax sharing, tax indemnity or tax allocation agreement or any other express or implied agreement to indemnify any other person; and 12 (ii) the term "TAX RETURNS" means all returns, declarations, reports, statements and other documents required to be filed in respect of Taxes. (b) There have been no examinations or audits of any Tax Returns of the Company by any applicable federal, state or local governmental agency, and there are in effect no waivers of applicable statutes of limitations with respect to Taxes of the Company for any year. (c) The Company has accurately completed and timely filed in correct form all Tax Returns required to have been filed by it, and the Company has paid all Taxes required to be paid by it. (d) There are no liens for Taxes (other than for current Taxes not yet due and payable) upon the assets of the Company. 4.20. TAX ELECTIONS. The Company has not filed a consent pursuant to the collapsible corporation provisions of Section 341(f) of the Internal Revenue Code of 1986, as amended (the "CODE") (or any corresponding provision of state, local or foreign Tax law). SCHEDULE 4.20 sets forth all elections with respect to Taxes that would have a material effect on the Company, its financial condition, its business as presently conducted or presently proposed to be conducted, or any of its properties or material assets. 4.21. ENVIRONMENTAL MATTERS. During the period that the Company has owned or leased its properties and facilities, (a) there have been no disposals, releases or threatened releases of Hazardous Materials (as defined below) on, from or under such properties or facilities and (b) neither the Company, nor, to the Company's knowledge, any third party, has used, generated, manufactured or stored on, under or about such properties or facilities or transported to or from such properties or facilities any Hazardous Materials. The Company has no knowledge of any presence, disposals, releases or threatened releases of Hazardous Materials on, from or under any of such properties or facilities, which may have occurred prior to the Company having taken possession of any of such properties or facilities. For purposes of this Agreement, the terms "disposal," "release" and "threatened release" shall have the definitions assigned thereto by the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as amended ("CERCLA"). For the purposes of this SECTION 4.21, "HAZARDOUS MATERIALS" shall mean any hazardous or toxic substance, material or waste which is regulated under, or defined as a "hazardous substance," "pollutant," "contaminant," "toxic chemical," "hazardous material," "toxic substance" or "hazardous chemical" under (i) CERCLA; (ii) the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Section 11001 ET SEQ.; (iii) the U.S. Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, ET SEQ.; (iv) the U.S. Toxic Substances Control Act, 15 U.S.C. Section 2601 ET SEQ.; (v) the U.S. Occupational Safety and Health Act of 1970, 29 U.S.C. Section 651 ET SEQ.; (vi) regulations promulgated under any of the above statutes or (vii) any applicable state or local statute, ordinance, rule, or regulation that has a scope or purpose similar to those statutes identified above. 4.22 EMPLOYEE BENEFITS. 13 (a) For all purposes of this Agreement, (i) "EMPLOYEE PENSION BENEFIT PLAN" means any employee pension benefit plan, as defined in Section 3(2) of ERISA, that is subject to Title IV of ERISA, other than a Multiemployer Plan. (ii) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. (iii) "MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in Section 3(37) and 4001(a)(3) of ERISA. (b) The Company does not currently sponsor and has not ever sponsored, maintained, contributed to, or incurred an obligation to contribute to, any Employee Pension Benefit Plan on behalf of or with respect to any employee of the Company. The Company does not currently sponsor, maintain or contribute to any Multiemployer Plan covering its employees. 4.23. INTERESTED PARTY TRANSACTIONS. Except as set forth SCHEDULE 4.23, no officer or director of any of the Company or any "affiliate" or "associate" (as those terms are defined in Rule 405 promulgated under the Act) of any such person has had, either directly or indirectly, a material interest in: (a) any person or entity which purchases from or sells, licenses or furnishes to the Company any goods, property, technology, intellectual or other property rights or (b) any contract or agreement to which the Company is a party or by which it may be bound or affected. 4.24. STOCK RESTRICTION AGREEMENTS. Each person who, pursuant to any benefit, bonus or incentive plan of the Company, holds any currently outstanding shares of common stock or other securities of Company or any option, warrant or right to acquire such shares or other securities, has entered into or is otherwise bound by, an agreement granting the Company (a) the right to repurchase the shares, or to cancel the option, warrant or right, in the event the holder's employment or services with the Company terminate for any reason, subject to release of such repurchase or cancellation right pursuant to such agreement or on terms and conditions specified by the Board of Directors of the Company and (b) a right of first refusal with respect to all such shares. The Company has furnished to Purchaser true and complete copies of the forms of all such stock restriction agreements. 4.25 MINUTE BOOKS. The minute books of the Company provided to Purchaser contain a complete summary of all meetings of directors and stockholders since the time of incorporation and reflect all transactions referred to in such minutes accurately in all material respects. 4.26 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Company, has sought to represent any of the employees, representatives or agents of Company. There is no strike or other labor dispute involving the Company pending, or to the knowledge of the Company, threatened, which could have a material adverse effect on the assets, properties, financial condition, operating results or business of the Company, nor is 14 the Company aware of any labor organization involving its employees. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate his or her employment with the Company, nor does the Company have a present intention to terminate the employment of any of the foregoing. The employment of each officer and employee is terminable at the will of the Company, subject to the severance payment obligations contained in agreements disclosed on SCHEDULE 4.9 hereof. 4.27 YEAR 2000 COMPLIANCE. The Company's information technology, including the Company's internal computer systems and all software and other products designed by and/or sold by the Company, is Year 2000 compliant. "Year 2000 compliant" means the information technology is designed to be used prior to, during, and after the calendar Year 2000 A.D., and the information technology used during each such time period will accurately receive, provide and process date/time data (including, but not limited to, calculating, comparing and sequencing) from, into and between the twentieth and twenty-first centuries, including the years 1999 and 2000, and leap year calculations and will not malfunction, cease to function, or provide invalid or incorrect results as a result of date/time data. 4.28 NO RESTRICTIONS ON SHARES. Other than as set forth in this Agreement, the Certificate, the Investor Rights Agreement and the Co-Sale and First Refusal Rights Agreement to be entered into in substantially the form attached hereto as EXHIBIT D, there are no restrictions on the Shares or Conversion Shares. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser represents and warrants to the Company as follows: 5.1 ORGANIZATION; DUE AUTHORIZATION; NO CONFLICTS. (a) The Purchaser is a corporation duly organized, validly existing and in good standing under, and by virtue of, the laws of its state of incorporation, and has all requisite corporate power and authority to enter into and consummate this Agreement and the transactions and agreements contemplated hereby. All corporate action on the part of the Purchaser, its officers, directors and shareholders necessary for the authorization, execute and delivery of, and the performance of all obligations of the Purchaser under this Agreement has been taken or will be taken prior to the Closing. This Agreement when executed and delivered by Purchaser will constitute a valid and legally binding obligation of Purchaser, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors' rights generally and to general equitable principles. (b) The Purchaser is not in any violation, breach or default of any term of the Purchaser's charter or bylaws or in any material respect of any term or provision of any mortgage, indenture, contract, agreement or instrument to which the Purchaser is a party or by which it may be bound, or of any provision of any foreign or domestic state or federal judgment, decree, order, statute, rule or regulation applicable to or binding upon the Purchaser. The 15 execution, delivery and performance of and compliance with this Agreement and the consummation of the transactions contemplated hereby will not result in any such violation or default, or be in conflict with or constitute, with or without the passage of time or the giving of notice or both, either a default under the Purchaser's charter or bylaws, or any agreement or contract of Purchaser, or, to the best of the Purchaser's knowledge, a violation of any statutes, laws, regulations or orders, or an event which results in the creation of any lien, charge or encumbrance upon any of the Purchaser's assets. 5.2 INVESTIGATION; ECONOMIC RISK. Purchaser acknowledges that it has had an opportunity to discuss the business, affairs and current prospects of the Company with its officers. Purchaser further acknowledges having had access to information about the Company that it has requested. Purchaser acknowledges that it is able to fend for itself in the transactions contemplated by this Agreement and has the ability to bear the economic risks of its investment pursuant to this Agreement. 5.3 PURCHASE FOR OWN ACCOUNT. The Shares and the Conversion Shares will be acquired for its own account, not as a nominee or agent, and not with a view to or in connection with the sale or distribution of any part thereof; PROVIDED, HOWEVER, that the parties agree that Purchaser may transfer a portion of its investment in the Company to American Express or a subsidiary thereof in connection with other business arrangements among the Company, Purchaser and American Express. In the event that the Purchaser agrees to so transfer a portion of its investment, it will only do so in compliance with applicable law. 5.4 EXEMPT FROM REGISTRATION; RESTRICTED SECURITIES. Purchaser understands that the Shares and the Conversion Shares will not be registered under the Act, on the ground that the sale provided for in this Agreement is exempt from registration under the Act, and that the reliance of the Company on such exemption is predicated in part on Purchaser's representations set forth in this Agreement. 5.5 RESTRICTIVE LEGENDS. It is understood that each certificate representing (a) the Share, (b) the Conversion Shares and (c) any other securities issued in respect of the any of the foregoing upon any stock split, stock dividend, recapitalization, merger or similar event shall be stamped or otherwise imprinted with a legend substantially in the following form: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. 5.6 REMOVAL OF RESTRICTIVE LEGEND. The legend set forth above shall be removed by the Company from any certificate evidencing Shares or Conversion Shares upon delivery to the 16 Company of an opinion by counsel, reasonably satisfactory to the Company, that a registration statement under the Act is at that time in effect with respect to the legended security or that such security can be freely transferred in a public sale without such a registration statement being in effect and that such transfer will not jeopardize the exemption or exemptions from registration pursuant to which the Company issued the Shares or Conversion Shares. 5.7 STATUS OF PURCHASER. Purchaser is an "accredited investor" as that term is defined in Rule 501(a) of Regulation D of the Act. ARTICLE VI CERTAIN COVENANTS 6.1 USE OF PROCEEDS. The Company will use the proceeds from the purchase of the Shares under this Agreement for working capital and general corporate purposes. 6.2 EXPENSES. All costs and expenses incurred in connection with this Agreement and in closing and carrying out the transactions contemplated hereby shall be paid by the party incurring such cost or expense. This section shall survive the termination of this Agreement. 6.3 CONDUCT OF THE BUSINESS. From the date hereof until the Closing Date, the Company will conduct its business in the ordinary course and use its commercially reasonable efforts, without paying or increasing the compensation, payments, remuneration or fees payable to any person other than in the ordinary course of business, to preserve intact its business organizations and relationships and goodwill with third parties. Without limiting the generality of the foregoing, from the date hereof until the Closing Date: (a) Without the Purchaser's prior consent (which consent shall not be unreasonably withheld or delayed), the Company will not and will not agree to: (i) purchase or otherwise acquire assets from any other person, or sell or transfer any assets of its business, other than in the ordinary course of business; (ii) incur any liability, except liabilities (A) incurred in the ordinary course of business where the aggregate dollar amount of all such liabilities incurred does not exceed Ten Thousand Dollars ($10,000), (B) incurred pursuant to existing obligations of the Company that are disclosed in the Schedules hereto or (C) expressly contemplated by the terms of this Agreement; (iii) amend or modify in any material respect or terminate any Material Contract or any other contract entered into by the Company after the date hereof which, if in existence on the date hereof, would be considered a Material Contract; or (iv) make or commit to make any capital expenditure, or group of related capital expenditures, in excess of Ten Thousand Dollars ($10,000), other than 17 (A) capital expenditures set forth on SCHEDULE 6.3 and (B) capital expenditures expressly required under any Material Contract. (b) The Company will: (i) (A) maintain its assets in the ordinary course of business in reasonably serviceable operating order and condition, reasonable wear and tear, damage by fire and other casualty excepted, (B) promptly repair, restore or replace any material assets in the ordinary course of business and (C) upon any damage, destruction or loss to any of such assets, apply any and all insurance proceeds received with respect thereto to the prompt repair, replacement and restoration thereof to the condition of such assets before such event to the extent reasonably practicable; (ii) comply with all material applicable laws; (iii) not allow any liens for taxes to be placed on any of its assets, except for liens arising from taxes which are due but not yet payable; (iv) use its commercially reasonable efforts to obtain, prior to the Closing Date, all Company Required Consents; (v) promptly notify Purchaser in writing if it has knowledge of any action, event, condition or circumstance, or group of actions, events, conditions or circumstances that materially affect the business of the Company, other than changes in general economic conditions; (vi) promptly notify Purchaser in writing of the commencement of any Proceeding by or against the Company, or of becoming aware of any material claim, action, suit, inquiry, proceeding, notice of violation, subpoena, government audit or disallowance that could reasonably be expected to result in a Proceeding; and (vii) pay accounts payable and pursue collection of its accounts receivable in the ordinary course of business. 6.4 FURTHER ASSURANCES. The parties hereto shall execute and deliver such other documents, certificates, agreements and other writings and shall take such other actions as may be reasonably necessary or desirable (including, without limitation, obtaining the Required Consents and making necessary filings with all governmental authorities) in order to consummate or implement expeditiously the transactions contemplated by this Agreement. Notwithstanding the foregoing, no party hereto shall have any obligation to expend any funds or to incur any other obligation in connection with the consummation of the transactions contemplated hereby (including, by way of illustration only, any payment in connection with obtaining the Required Consents) other than normal out-of-pocket expenses (such as fees and expenses of counsel and accountants) reasonably necessary to consummate such transactions. 18 6.5 CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS. The parties hereto shall use their best efforts to keep this Agreement and the execution and terms hereof confidential, and shall consult with each other before issuing any press release or making any public statement with respect to this Agreement or the transactions contemplated hereby. The parties may, however, disclose such matters to its directors, officers, executive employees and professional advisors and those of prospective financing sources to such extent as may be reasonable for the negotiation, execution and consummation of this Agreement. Each party shall keep confidential all information concerning the other obtained pursuant to this Agreement and shall not use such information except in connection with the transactions set forth herein. If for any reason such transactions shall not be consummated, each party will return all such information (including all copies thereof) regarding the other, to the other party. The foregoing obligations of confidentiality in this SECTION 6.5 do not pertain to the disclosure of information which is available publicly, is required to be disclosed by any court or any party discloses, upon advice of counsel, in order to comply with applicable law. The parties hereto recognize and agree that in the event of a breach by a party of this section, money damages would not be an adequate remedy to the injured party for such breach and, even if money damages were adequate, it would be impossible to ascertain or measure with any degree of accuracy the damages sustained by such injured party therefrom. Accordingly, if there should be a breach or threatened breach by a party of the provisions of this section, the injured party shall be entitled to an injunction restraining the breaching party from any breach without showing or proving actual damage sustained by the injured party. Nothing in the preceding sentence shall limit or otherwise affect any remedies that a party may otherwise have under applicable law. 6.6 INSPECTION. Subject to confidentiality obligations and similar restrictions that may be applicable to information furnished to the Company by third parties that may be in the Company's possession from time to time (including restrictions on the disclosure of government-classified information), prior to the Closing, the Company shall allow Purchaser and its accountants, counsel and other representatives reasonable access, during normal business hours, by advance arrangement with the Company's management and in the presence of representatives of the Company and in such manner so as not to interfere unduly with the Company's operations, to all of the properties, books, contracts, commitments, tax returns and records of its business and appropriate officers and employees, and shall furnish such representatives, at Purchaser's expense for copying only, with all financial and operating data and other information concerning its affairs as Purchaser may reasonably request. 6.7 OTHER INVESTMENTS. The Company and each of its officers and other employees with managerial responsibilities, directors, representatives and agents shall immediately cease any discussions or negotiations with any parties with respect to any investment by such parties in the securities of the Company ("INVESTMENT TRANSACTIONS"). Until the transactions contemplated by this Agreement have been consummated, the Company shall not and none of its officers, directors, employees representatives or agents will, directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with or provide any non-public information to any person or group (other than Purchaser or any designees of Purchaser) concerning any Investment Transactions; PROVIDED, HOWEVER, that nothing herein shall prevent the Company from conducting such "due diligence" inquiries (which shall be in writing to the 19 extent possible) in response to any Investment Transaction proposal as the directors of the Company in their good faith judgment, after consultation with and based upon the advice of legal counsel, may be required in order to comply with its fiduciary duties. The Company shall promptly notify Purchaser in the event it receives any proposal or inquiry concerning an Investment Transaction, including the material terms and conditions thereof and the identity of the party submitting such proposal, and shall advise Purchaser time to time of the status and any material developments concerning the same, including the nature and content of any "due diligence" inquiries made by it concerning any such proposal and furnishing copies of any such written inquiries. ARTICLE VII CONDITIONS TO CLOSING 7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The obligations of each of the Company and Purchaser to consummate the Closing are subject to the satisfaction of each of the following conditions: (a) DISTRIBUTION AGREEMENT. The Company and Purchaser shall have entered into the Distribution Agreement in substantially the form attached as EXHIBIT B. (b) INVESTOR RIGHTS AGREEMENT. The Company and Purchaser shall have entered into an Investor Rights Agreement in substantially the form attached as EXHIBIT C. (c) CO-SALE AGREEMENT. The Company, Purchaser and certain stockholders of the Purchaser shall have entered into an Co-Sale and First Refusal Rights Agreement in substantially the form attached as EXHIBIT D. 7.2 CONDITIONS TO OBLIGATION OF PURCHASER. The obligation of Purchaser to purchase the Shares at the Closing is subject to the satisfaction of the following conditions: (a) REPRESENTATIONS AND WARRANTIES CORRECT. The representations and warranties made by the Company in ARTICLE IV shall be true and correct in all material respects when made, and shall be true and correct in all material respects as of the date of Closing with the same force and effect as if they had been made on and as of such date, subject to changes contemplated by this Agreement; and the Company shall have performed all obligations and conditions herein required to be performed or observed by it on or prior to the Closing. (b) PERFORMANCE OF OBLIGATIONS. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing and shall have obtained all approvals, consents and qualifications necessary to complete the purchase and sale described herein. 20 (c) CONSENTS AND WAIVERS. The Company shall have obtained any and all consents and waivers necessary or appropriate for consummation by it of the transactions contemplated by this Agreement. (d) COMPLIANCE CERTIFICATE. At the Closing, the Company shall deliver to Purchaser a certificate, dated the date of Closing, signed by the Company's President certifying that the conditions specified in SECTION 7.2(a), (b), (c) and (f) have been fulfilled. (e) SECURITIES LAWS. The offer and sale of the Shares to Purchaser pursuant to this Agreement shall be exempt from the registration requirements of the Act and the registration and/or qualification requirements of all applicable state securities laws. (f) AMENDMENT TO CERTIFICATE. The Certificate shall have been duly adopted by the Company by all necessary corporate action of its Board of Directors and shareholders and shall have been duly filed with and accepted by the Secretary of State of the State of Delaware. (g) OPINION OF COUNSEL. The Company shall have furnished Purchaser with a legal opinion, dated as of the date of Closing, of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. substantially in the form set forth in EXHIBIT E attached hereto. (h) NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there shall have been no material adverse change in the business, operations, prospects, condition (financial or otherwise) or results of operations of the Company. (i) OWNERSHIP OF TECHNOLOGY. Purchaser shall have received from the Company all documents and other materials requested by Purchaser for the purpose of examining and determining the Company's rights in and to any technology, products and proprietary assets now used, proposed to be used in, or necessary to, the Company's business as now conducted and proposed to be conducted, and the status of the Company's ownership rights in and to all such technology, products and proprietary assets shall be reasonably satisfactory to Purchaser. 7.3 CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the Company to sell the Shares at the Closing is subject to the satisfaction of the following conditions: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Purchaser contained in ARTICLE V hereof shall be true and correct in all material respects as of the Closing. (b) CONSENTS AND WAIVERS. The Purchaser shall have obtained any and all consents and waivers necessary or appropriate for consummation by it of the transactions contemplated by this Agreement. (c) PAYMENT OF PURCHASE PRICE. Purchaser shall have delivered to the Company the Aggregate Purchase Price in accordance with the provisions of ARTICLE III. 21 (d) CERTIFICATE EFFECTIVE. The Certificate shall have been duly adopted by the Company by all necessary corporate action of its Board of Directors and shareholders, and shall have been duly filed with and accepted by the Secretary of State of the State of Delaware. (e) SECURITIES EXEMPTIONS. The offer and sale of the Shares and the Conversion Shares to Purchaser pursuant to this Agreement shall be exempt from the registration requirements of the Act, and the registration and/or qualification requirements of all applicable state securities laws. ARTICLE VIII INDEMNIFICATION 8.1 AGREEMENT TO INDEMNIFY. (a) Purchaser shall be indemnified and held harmless to the extent set forth in this ARTICLE VIII by the Company in respect of any and all demands, claims, actions or causes of action, assessments, losses, damages, costs, expenses, liabilities, judgments, awards, fines, sanctions, penalties, charges and amounts paid in settlement (net of insurance proceeds actually received), including (i) interest on cash disbursements in respect of any of the foregoing at the per annum rate of interest publicly announced from time to time by the Bank of America as its prime rate (or reference rate), compounded quarterly, from the date each such cash disbursement is made until the person incurring the same shall have been indemnified in respect thereof and (ii) reasonable costs, fees and expenses of attorneys, accountants and other agents of such person (collectively, "DAMAGES") reasonably and proximately incurred by Purchaser as a result of any inaccuracy or misrepresentation in or breach of any representation, warranty, covenant or agreement made by the Company in this Agreement as of the Closing; and (b) The Company shall be indemnified and held harmless to the extent set forth in this ARTICLE VIII by Purchaser in respect of any and all Damages reasonably and proximately incurred by the Company as a result of any inaccuracy or misrepresentation in or breach of any representation, warranty, covenant or agreement made by the Purchaser in this Agreement. (c) Except as set forth in SECTIONS 8.1(a), and (b) and except to the extent of confidentiality provisions in this Agreement, no person shall have any claim or cause of action as a result of any inaccuracy or misrepresentation in or breach of or failure to perform any representation, warranty, covenant, agreement or obligation of a party providing indemnification (each, an "INDEMNIFYING PARTY") against any affiliate, stockholder, director, officer, employee, consultant or agent of such Indemnifying Party. Nothing set forth in this ARTICLE VIII shall be deemed to prohibit or limit the right of a party entitled to indemnification (each, an "INDEMNITEE") at any time before, on or after the Closing Date, to seek injunctive or other equitable relief for the failure of any Indemnifying Party to perform any covenant or agreement contained herein. 22 8.2 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations, warranties, covenants, agreements and obligations of each Indemnifying Party contained herein and all claims of any party in respect of any breach of any representation, warranty, covenant, agreement or obligation of any Indemnifying Party contained in this Agreement, shall survive the Closing and shall expire on the second anniversary of the Closing Date, except for (a) covenants or obligations which by their terms shall be performed after the Closing, which shall survive the Closing and not expire unless otherwise provided in this Agreement, (b) (i) the inaccuracy or misrepresentation in or breach of any representation, warranty, covenant or agreement made by the Company at any time in this Agreement arising out of fraud or (ii) any inaccuracy or misrepresentation in or breach of any representation or warranty made in SECTIONS 4.2, 4.19 or 4.20, which shall survive the Closing Date until the thirty (30) days after the expiration of any applicable statute of limitations, including extensions thereof and (c) the representations and warranties of the Company made in SECTION 4.8, which shall survive the Closing Date until the fifth anniversary of the Closing Date. Notwithstanding anything herein to the contrary, indemnification for claims for which written notice as provided in SECTION 8.5 has been timely given shall not expire until the final resolution of such claim in accordance with SECTION 9.13. 8.3 LIMITATION. The Purchaser shall be entitled to indemnification pursuant to SECTION 8.1(a) only if the total aggregate Damages under SECTION 8.1(a) exceeds One Hundred Thousand Dollars ($100,000) (the "AGGREGATE THRESHOLD"); PROVIDED, HOWEVER, that once such aggregate Damages reach the Aggregate Threshold, the Purchaser shall be entitled to receive the amount of all Damages in excess of the Aggregate Threshold. The aggregate amount which the Purchaser shall be entitled to be indemnified for under SECTION 8.1(a) will not exceed the Aggregate Purchase Price. 8.4 CLAIMS FOR INDEMNIFICATION. If any Indemnitee shall believe that such Indemnitee is entitled to indemnification pursuant to this ARTICLE VIII in respect of any Damages, such Indemnitee shall give the appropriate Indemnifying Party prompt written notice thereof. Any such notice shall set forth in reasonable detail and to the extent then known the basis for such claim for indemnification. The failure of such Indemnitee to give notice of any claim for indemnification promptly, but within the periods specified by SECTION 8.2 shall not adversely affect such Indemnitee's right to indemnity hereunder except to the extent that such failure adversely affects the right of the Indemnifying Party to assert any reasonable defense to such claim. Each such claim for indemnity shall expressly state that the Indemnifying Party shall have only the twenty (20) Business Day period referred to in the next sentence to dispute or deny such claim. The Indemnifying Party shall have twenty (20) Business Days following its receipt of such notice either (a) to acquiesce in such claim and its respective responsibilities to indemnify the Indemnitee in respect thereof in accordance with the terms of this ARTICLE VIII by giving such Indemnitee written notice of such acquiescence or (b) to object to the claim by giving such Indemnitee written notice of the objection. If the Indemnifying Party does not object thereto within such twenty (20) Business Day period, such Indemnifying Party shall be deemed to have acquiesced in such claim and their respective responsibilities to indemnify the Indemnitee in respect thereof in accordance with the terms of this ARTICLE VIII. 23 8.5 DEFENSE OF CLAIMS. In connection with any claim which may give rise to indemnity under this ARTICLE VIII resulting from or arising out of any claim or Proceeding against an Indemnitee by a person that is not a party hereto, the Indemnifying Party may (unless such Indemnitee elects not to seek indemnity hereunder for such claim), upon written notice sent at any time to the relevant Indemnitee, assume the defense of any such claim or Proceeding if the Indemnifying Party with respect to such claim or Proceeding acknowledges to the Indemnitee the Indemnitee's right to indemnity pursuant hereto in respect of the entirety of such claim (as such claim may have been modified through written agreement of the parties or arbitration hereunder) and provide assurances, reasonably satisfactory to such Indemnitee, that the Indemnifying Party will be financially able to satisfy such claim in full if such claim or Proceeding is decided adversely. If the Indemnifying Party assumes the defense of any such claim or Proceeding, the Indemnifying Party shall select counsel reasonably acceptable to such Indemnitee to conduct the defense of such claim or Proceeding, shall take all steps reasonably necessary in the defense or settlement thereof and shall at all times diligently and promptly pursue the resolution thereof. If the Indemnifying Party shall have assumed the defense of any claim or Proceeding in accordance with this SECTION 8.5, the Indemnifying Party shall be authorized to consent to a settlement of, or the entry of any judgment arising from, any such claim or Proceeding, without the prior written consent of such Indemnitee; PROVIDED, HOWEVER, that the Indemnifying Party shall pay or cause to be paid all amounts arising out of such settlement or judgment either concurrently with the effectiveness thereof or shall obtain and deliver to such Indemnitees prior to the execution of such settlement a general release executed by the person not a party hereto, which general release shall release such Indemnitee from any liability in such matter; PROVIDED, FURTHER, that the Indemnifying Party shall not be authorized to encumber any of the assets of any Indemnitee or to agree to any restriction that would apply to any Indemnitee or to its conduct of business; and PROVIDED, FURTHER, that a condition to any such settlement shall be a complete release of such Indemnitee and its affiliates, officers, employees, consultants and agents with respect to such claim. Such Indemnitee shall be entitled to participate in (but not control) the defense of any such action, with its own counsel and at its own expense. Each Indemnitee shall, and shall cause each of its affiliates, officers, employees, consultants and agents to, cooperate fully with the Indemnifying Party in the defense of any claim or Proceeding being defended by the Indemnifying Party pursuant to this SECTION 8.5. If the Indemnifying Party does not assume the defense of any claim or Proceeding resulting therefrom in accordance with the terms of this SECTION 8.5, such Indemnitee may defend against such claim or Proceeding in such manner as it may deem appropriate, including settling such claim or Proceeding after giving notice of the same to the Indemnifying Party, on such terms as such Indemnitee may deem appropriate. If the Indemnifying Party seeks to question the manner in which such Indemnitee defended such claim or Proceeding or the amount of or nature of any such settlement, the Indemnifying Party shall have the burden to prove by a preponderance of the evidence that such Indemnitee did not defend such claim or Proceeding in a reasonably prudent manner. 24 ARTICLE IX MISCELLANEOUS 9.1 GOVERNING LAW. This Agreement shall be construed in accordance with and governed by the internal laws (without reference to choice or conflict of laws) of the State of Delaware. 9.2 CAPTIONS. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. 9.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto whose rights or obligations hereunder are affected by such amendments. This Agreement and the rights and obligations therein may not be assigned by Purchaser without the written consent of the Company except to a parent corporation, a subsidiary or affiliate and except for American Express or any subsidiary of American Express, as provided in SECTION 5.3. This Agreement and the rights and obligations therein may not be assigned by the Company without the written consent of Purchaser. 9.4 ENTIRE AGREEMENT. This Agreement (including the Schedules and the other agreements executed by the parties simultaneously herewith, including the agreements and instruments forms of which are attached as Exhibits hereto) constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior or contemporaneous agreements, understandings and negotiations, both written and oral, between the parties with respect to the subject matter of this Agreement; PROVIDED, HOWEVER, that nothing in this Agreement shall be deemed to terminate or supersede the provisions of any confidentiality and nondisclosure agreements executed by the parties hereto prior to the date hereof, which agreements shall continue in full force and effect until terminated in accordance with their respective terms. Neither this Agreement nor any provision hereof is intended to confer upon any person other than the parties hereto any rights or remedies hereunder. 9.5 NOTICES. Except as may be otherwise provided herein, all notices, requests, waivers and other communications made pursuant to this Agreement shall be in writing and shall be conclusively deemed to have been duly given (a) when hand delivered to the other party, (b) when received when sent by facsimile at the address and number set forth below, subject to receipt of confirmation, (c) three business days after deposit in the United States mail, registered or certified mail, return receipt requested, postage prepaid and addressed to the other party as set forth below or (d) the next business day after deposit with a national overnight delivery service, postage prepaid, addressed to the parties as set forth below with next-business-day delivery guaranteed, PROVIDED that the sending party receives a confirmation of delivery from the delivery service provider. 25 To the Company: foodline.com, Inc. 135 Fifth Avenue, 10th Floor New York, New York Attention: President Fax No.: (212) 420-9963 With copies to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. One Financial Center Boston, Massachusetts 02111 Attention: Richard R. Kelly, Esq. Fax No.: (617) 542-2241 To Purchaser: Ticketmaster Online-CitySearch, Inc. 790 E. Colorado Blvd., Suite 200 Pasadena, California Attention: Bradley K. Serwin, Esq. Fax No.: (626) 405-9929 With copies to: Gibson, Dunn & Crutcher LLP 333 South Grand Avenue Los Angeles, California 90071 Attention: Kenneth M. Doran, Esq. Fax No.: (213) 229-7520 Each person making a communication hereunder by facsimile shall promptly confirm by telephone to the person to whom such communication was addressed each communication made by it by facsimile pursuant hereto but the absence of such confirmation shall not affect the validity of any such communication. A party may change or supplement the addresses given above, or designate additional addresses, for purposes of this SECTION 9.5 by giving the other party written notice of the new address in the manner set forth above. 9.6 AMENDMENTS AND WAIVERS. (a) Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by all parties hereto, or in the case of a waiver, by the party against whom the waiver is to be effective. (b) No waiver by a party of any default, misrepresentation or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent occurrence. No failure or delay by a party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise 26 thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. 9.7 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to the Company or to Purchaser, upon any breach or default of any party hereto under this Agreement, shall impair any such right, power or remedy of the Company or Purchaser, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach of default thereafter occurring; nor shall any waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of the Company or Purchaser of any breach of default under this Agreement or any waiver on the part of the Company or Purchaser of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, or by law or otherwise afforded to the Company or Purchaser shall be cumulative and not alternative. 9.8 FINDER'S FEES. Each party hereby agrees to indemnify and to hold harmless the other party hereto from and against any liability for any commission or compensation in the nature of a finder's fee of any broker or other person or firm (and the costs and expenses of defending against such liability or asserted liability) for which the indemnifying party or any of its employees or representatives are responsible. 9.9 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any number of counterparts and the signatures delivered by telecopy, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument and delivered in person. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other parties hereto. 9.10 SEVERABILITY. If any provision of this Agreement, or the application thereof to any person, place or circumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable or void, the remainder of this Agreement and such provisions as applied to other persons, places and circumstances shall remain in full force and effect only if, after excluding the portion deemed to be unenforceable, the remaining terms shall provide for the consummation of the transactions contemplated hereby in substantially the same manner as originally set forth at the later of the date this Agreement was executed or last amended.. 9.11 CONSTRUCTION. The parties hereto intend that each representation, warranty, and covenant contained herein shall have independent significance. If any party has breached any representation, warranty or covenant contained herein in any respect, the fact that there exists another representation, warranty or covenant relating to the same subject matter (regardless of the relative levels of specificity) that the party has not breached shall not detract from or mitigate the fact that the party is in breach of the first representation, warranty or covenant. 9.12 CUMULATIVE REMEDIES. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 27 9.13 THIRD-PARTY BENEFICIARIES. No provision of this Agreement shall create any third-party beneficiary rights in any person, including any employee of Purchaser or employee or former employee of the Company (including any beneficiary or dependent thereof). [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 28 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year herein above first written. FOODLINE.COM, INC., a Delaware corporation By: /s/ PAUL LIGHTFOOT --------------------------- Paul Lightfoot Chief Executive Officer TICKETMASTER ONLINE-CITYSEARCH, INC., a Delaware corporation By: /s/ BRADLEY K. SERWIN --------------------------- Name: Brad Serwin --------------------------- Title: V.P. --------------------------- 29 EX-27 4 EXHIBIT 27
5 1,000 9-MOS 9-MOS DEC-31-1999 DEC-31-1998 JAN-01-1999 JAN-01-1998 SEP-30-1999 SEP-30-1998 67,962 106,910 0 0 6,190 3,502 (485) (58) 0 0 75,784 111,189 22,528 11,487 (9,061) (5,594) 795,502 416,725 14,903 10,498 0 0 0 0 0 0 831 715 777,923 402,953 795,502 416,725 68,910 15,238 68,910 15,238 51,664 6,044 144,395 12,408 0 0 0 2,830 (3,223) 1 (72,262) 2,829 182 2,993 (72,444) (164) 0 0 0 0 0 0 (72,444) (164) (.99) 0 (.99) 0
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