\n 1.3(i) – Certificate of Merger
\n 1.3(ii) – Agreement of Merger, including Officers’ Certificate
\n 1.7.1 – Key Employees
\n 1.7.2 – Form of Escrow Agreement
\n 1.7.3 – Letter of Transmittal
\n 2 – Disclosure Memorandum
\n 2.27 – Form of Voting Agreement
\n 4.3 – Opinion of Counsel for the Company
\n 4.7 – Real Property Tax Affidavit
\n 4.11 – Form of Confidentiality, Noncompetition and Invention
\n Assignment Agreement
\n 4.12 – Form of Affiliate Letter
\n 5.3 – Opinion of Counsel for Amazon.com and the Purchaser
\n<\/c><\/s><\/table>\n -v-<\/p>\n
7
\n AGREEMENT AND PLAN OF MERGER<\/p>\n
This Agreement and Plan of Merger (this “Agreement”) is made and entered
\ninto as of April 25, 1999, by and among Amazon.com, a Delaware corporation
\n(“Amazon.com”), ADC Acquisitions, Inc., a Delaware corporation and wholly owned
\nsubsidiary of Amazon.com (the “Purchaser”), and Accept.com Financial Services
\nCorporation, a California corporation (the “Company”).<\/p>\n
RECITALS<\/p>\n
A. The Company, Amazon.com and the Purchaser believe it advisable and in
\ntheir respective best interests to effect a merger of the Company and the
\nPurchaser pursuant to this Agreement (the “Merger”).<\/p>\n
B. The Board of Directors of the Company has approved this Agreement and
\nthe Merger as required by applicable law.<\/p>\n
C. The Boards of Directors of Amazon.com and the Purchaser and the sole
\nstockholder of the Purchaser have approved this Agreement and the Merger as
\nrequired by applicable law.<\/p>\n
D. It is intended that the Merger will qualify as a reorganization under
\nSection 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”).<\/p>\n
E. It is intended that certain shareholders of the Company will enter
\ninto voting agreements with Amazon.com in connection with the Merger
\nconcurrently herewith.<\/p>\n
AGREEMENT<\/p>\n
In consideration of the terms hereof, the parties hereto agree as
\nfollows:<\/p>\n
ARTICLE I – THE MERGER<\/p>\n
1.1 THE MERGER<\/p>\n
Upon the terms and subject to the conditions hereof, (a) at the
\nEffective Time (as defined in Section 1.3 hereof) the separate existence of the
\nPurchaser shall cease and the Purchaser shall be merged with and into the
\nCompany (the Company as the surviving corporation after the Merger is sometimes
\nreferred to herein as the “Surviving Corporation”), and (b) from and after the
\nEffective Time, the Merger shall <\/p>\n
-1-<\/p>\n
8
\nhave all the effects of a merger under the laws of the State of Delaware, the
\nState of California and other applicable law.<\/p>\n
1.2 THE CLOSING<\/p>\n
Subject to the terms and conditions of this Agreement, the closing of
\nthe Merger pursuant to this Agreement (the “Closing”) shall take place on the
\nearliest practicable business day (the “Closing Date”) after the satisfaction or
\nwaiver of the conditions set forth in Articles IV and V at 10:00 a.m. local time
\nat the offices of Perkins Coie LLP, 1201 Third Avenue, 48th Floor, Seattle,
\nWashington, or such other date, time or location as Amazon.com and the Company
\nshall agree.<\/p>\n
1.3 EFFECTIVE DATE AND TIME<\/p>\n
On the Closing Date and subject to the terms and conditions hereof, (i)
\na certificate of merger complying with the applicable provisions of the Delaware
\nGeneral Corporation Law (“Delaware Law”), substantially in the form attached as
\nExhibit 1.3(i) (the “Certificate of Merger”), shall be delivered for filing to
\nthe Secretary of State of the State of Delaware (the “Delaware Secretary of
\nState”), and (ii) an agreement of merger, together with an officers’
\ncertificate, complying with the applicable provisions of the California
\nCorporations Code (“California Law”), substantially in the form attached as
\nExhibit 1.3(ii) (the “Agreement of Merger”), shall be delivered for filing to
\nthe Secretary of State of the State of California (the “California Secretary of
\nState”). The Merger shall become effective on the date (the “Effective Date”)
\nand at the time (the “Effective Time”) of the filing of the Agreement of Merger
\nwith the California Secretary of State or at such other time as may be specified
\nin the Agreement of Merger as filed. If the Delaware Secretary of State or the
\nCalifornia Secretary of State requires any changes in the Certificate of Merger
\nor Agreement of Merger, respectively, as a condition to filing or to issuing its
\ncertificate to the effect that the Merger is effective, Amazon.com, the
\nPurchaser and the Company will execute any necessary revisions incorporating
\nsuch changes, provided such changes are not inconsistent with and do not result
\nin any material change in the terms of this Agreement.<\/p>\n
1.4 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION<\/p>\n
At the Effective Time, the Articles of Incorporation of the Surviving
\nCorporation shall be amended and restated in their entirety to conform to the
\nsubstantive portions of the Certificate of Incorporation of the Purchaser in
\neffect immediately prior to the Effective Time. Thereafter, the Articles of
\nIncorporation of <\/p>\n
-2-<\/p>\n
9
\nthe Surviving Corporation may be amended in accordance with their terms and as
\nprovided by law.<\/p>\n
1.5 BYLAWS OF THE SURVIVING CORPORATION<\/p>\n
At the Effective Time, the Bylaws of the Purchaser, as in effect
\nimmediately prior to the Effective Time, shall become the Bylaws of the
\nSurviving Corporation. Thereafter, the Bylaws may be amended or repealed in
\naccordance with their terms and the Articles of Incorporation of the Surviving
\nCorporation and as provided by law.<\/p>\n
1.6 DIRECTORS AND OFFICERS<\/p>\n
At the Effective Time, the directors and officers of the Surviving
\nCorporation shall be the directors and officers of the Purchaser immediately
\nprior to the Effective Time, and such directors and officers shall hold office
\nin accordance with and subject to the Articles of Incorporation and Bylaws of
\nthe Surviving Corporation.<\/p>\n
1.7 MERGER CONSIDERATION AND CONVERSION OF SHARES<\/p>\n
1.7.1. MERGER CONSIDERATION<\/p>\n
For purposes of this Agreement, the term “Merger Consideration” shall
\nmean the number of shares of common stock, par value $0.01 per share, of
\nAmazon.com (“Amazon.com Common Stock”) determined by dividing the Base Amount
\n(as defined below) by $184.4375, the closing price of Amazon.com Common Stock as
\nreported on the Nasdaq National Market on April 12, 1999 (the “Closing Price”).
\nThe term “Base Amount” shall mean $175,000,000; provided, however, if any of the
\nindividuals listed on Exhibit 1.7.1 as “Primary Key Employees” (the “Primary Key
\nEmployees”) or “Secondary Key Employees” (the “Secondary Key Employees”) have
\nnot accepted Amazon.com’s offer of continued employment with Surviving
\nCorporation, as set forth in Section 6.13, the Base Amount shall be reduced by
\nthe amount set forth opposite the name of the individual or individuals on
\nExhibit 1.7.1 who have not accepted such continued employment as of the Closing.<\/p>\n
1.7.2 EXCHANGE RATIO; ESCROW SHARES<\/p>\n
As of the Effective Time, by virtue of the Merger and without any action
\non the part of the holders thereof:<\/p>\n
(a) All shares of any class of capital stock of the Company held
\nby the Company as treasury shares shall be canceled.<\/p>\n
-3-<\/p>\n
10
\n (b) Each issued and outstanding share of Common Stock of the
\nCompany (the “Company Common Stock”), including each share of Company Common
\nStock issued upon conversion of each issued and outstanding share of the
\nCompany’s Series A Preferred Stock, no par value (the “Company Series A Stock”
\nand, collectively with the Company Common Stock, the “Company Capital Stock”),
\nother than shares of Company Capital Stock, if any, for which dissenters’ rights
\nare perfected in compliance with applicable law, shall be converted into the
\nright to receive from Amazon.com a number of shares of Amazon.com Common Stock
\ndetermined by dividing (i) the number of shares comprising the Merger
\nConsideration by (ii) the Fully Diluted Common Stock Number. The “Fully Diluted
\nCommon Stock Number” shall mean the total number of shares of Company Common
\nStock outstanding immediately prior to the Effective Time on a fully diluted
\nbasis, which calculation assumes (x) the exercise of all outstanding rights,
\nwarrants or options, vested or unvested, to acquire Company Capital Stock,
\nregardless of restrictions on exercise, and (y) the conversion of all
\noutstanding securities (including, without limitation, Company Series A Stock)
\nand notes convertible at any time into Company Common Stock, regardless of
\nrestrictions on conversion (such rights, warrants, options and convertible
\nsecurities referenced in clauses (x) and (y) being referred to herein as “Stock
\nPurchase Rights”). The quotient as derived above shall be referred to herein as
\nthe “Exchange Ratio.” The number of shares of Amazon.com Common Stock to be
\nissued to each holder of Company Capital Stock in existence immediately prior to
\nthe Effective Time (collectively, the “Shareholders”) under this Section
\n1.7.2(b) shall be calculated by aggregating all shares of Company Common Stock
\nheld by each such Shareholder, so that such number of shares of Amazon.com
\nCommon Stock to be issued shall be equal to the number of shares of Company
\nCommon Stock held by such Shareholder multiplied by the Exchange Ratio, with
\ncash paid in lieu of any fractional share of Amazon.com Common Stock pursuant to
\nSection 1.7.5 hereof.<\/p>\n
(c) Notwithstanding the foregoing, 15% of that number of shares
\ncomprising the Merger Consideration (the “Escrow Shares”) shall be deposited in
\nescrow (the “Escrow”) with ChaseMellon Shareholder Services L.L.C.
\n(“ChaseMellon” or the “Escrow Agent”), to be held and administered in accordance
\nwith an Escrow Agreement, in substantially the form attached hereto as Exhibit
\n1.7.2 (the “Escrow Agreement”), such Escrow Shares to be withheld and deducted,
\npro rata, from the shares of Amazon.com Common Stock otherwise issuable to each
\nShareholder. With respect to each Shareholder subject to a Restricted Stock
\nAgreement (as defined herein), the Escrow Shares deposited in the Escrow by such
\nShareholder shall be prorated between such Shareholder’s Vested Shares and
\nUnvested Shares (each, as defined in the respective Restricted Stock
\nAgreements), and the vesting of such Escrow Shares shall be at a prorated rate
\nof the total vesting of shares <\/p>\n
-4-<\/p>\n
11
\nof such Shareholder subject to such Restricted Stock Agreement. By approving the
\nMerger at a special meeting of the shareholders or by written consent or by
\ndelivering their certificates representing shares of Company Capital Stock to
\nChaseMellon in accordance with the provisions of Section 1.7.3, the Shareholders
\nshall agree to be bound with respect to the indemnification obligations of the
\nShareholders and the procedures set forth in Article VIII. Fractional shares of
\nAmazon.com Common Stock shall not be deposited in escrow. In lieu thereof, each
\nShareholder shall round up such fractional share to the nearest whole number and
\ndeposit into escrow a full share of Amazon.com Common Stock for such fractional
\nshare. The Escrow Shares shall be held by the Escrow Agent in book entry form.
\nNotwithstanding the escrow of the Escrow Shares, dividends or other
\ndistributions declared and paid on such shares shall continue to be paid by
\nAmazon.com to the holders of Escrow Shares and all voting rights with respect to
\nsuch shares shall inure to the benefit of and be enjoyed by such stockholders.
\nAny securities received by the Escrow Agent in respect of any Escrow Shares held
\nin escrow as a result of any stock split or combination of shares of Amazon.com
\nCommon Stock, payment of a stock dividend or other stock distribution in or on
\nshares of Amazon.com Common Stock, or change of Amazon.com Common Stock into any
\nother securities pursuant to or as a part of a merger, consolidation,
\nacquisition of property or stock, separation, reorganization or liquidation of
\nAmazon.com, or otherwise, shall be held by the Escrow Agent as, and shall be
\nincluded within the definition of, Escrow Shares. The Escrow Shares shall be
\navailable to satisfy any indemnification obligations pursuant to Article VIII
\nfor the Survival Period (as defined in Section 8.1).<\/p>\n
(d) Each issued and outstanding share of capital stock of the
\nPurchaser shall continue to remain outstanding as a share of capital stock of
\nthe Surviving Corporation.<\/p>\n
(e) Amazon.com shall assume the Company’s 1998 Stock Plan (the
\n“Company Plan”), and each outstanding option to purchase shares of Company
\nCommon Stock set forth on Appendix A to Schedule 2.3(c) to the Disclosure
\nMemorandum, whether or not vested or exercisable (each, an “Option”), shall be
\nassumed by Amazon.com and shall constitute an option to acquire, on the same
\nvesting terms, and on substantially the same other terms and conditions as were
\napplicable under such assumed Option, that number of shares of Amazon.com Common
\nStock equal to the product of the Common Stock Exchange Ratio and the number of
\nshares of Company Common Stock subject to such Option, at a price per share
\n(rounded to the nearest $0.01) equal to the aggregate exercise price for the
\nshares of Company Common Stock subject to such Option divided by the number of
\nfull shares of Amazon.com Common Stock deemed to be purchasable pursuant to such
\nOption; <\/p>\n
-5-<\/p>\n
12
\nprovided, however, that (i) subject to the provisions of clause (ii) below, the
\nnumber of shares of Amazon.com Common Stock that may be purchased upon exercise
\nof such Option shall not include any fractional shares, and, at the time of such
\nassumption, Amazon.com shall pay to the holder thereof as soon as practicable
\nafter the assumption thereof an amount of cash equal to such fraction multiplied
\nby the average of the high and low selling price of Amazon.com Common Stock on
\nthe assumption date, and (ii) in the case of any Option to which Section 421 of
\nthe Code applies by reason of its qualification under Section 422 of the Code,
\nthe option price, the number of shares purchasable pursuant to such Option and
\nthe terms and conditions of exercise of such Option shall be determined in order
\nto comply with Section 424 of the Code. Amazon.com shall assume the obligations
\nof the Company under the Company Plan and shall comply with the terms of such
\nplan as they apply to the Options assumed as set forth above.<\/p>\n
(f) Holders of shares of Company Capital Stock who have complied
\nwith all the requirements for perfecting dissenters’ rights, as required under
\nCalifornia Law, shall be entitled to their rights under California Law with
\nrespect to such shares (the “Dissenting Shares”). Notwithstanding the foregoing,
\nif any holder of Dissenting Shares shall effectively withdraw or lose (through
\nfailure to perfect or otherwise) the right to dissent, then, as of the later of
\nthe Effective Time and the occurrence of such event, such holder’s shares shall
\nautomatically be converted into and represent only the right to receive the
\nshares of Amazon.com Common Stock to which such holder is then entitled under
\nthis Agreement and California Law, without interest thereon and upon surrender
\nof the certificate representing such shares. Notwithstanding any provision of
\nthis Agreement to the contrary, any Dissenting Shares held by a Shareholder who
\nhas perfected dissenter’s rights for such shares in accordance with California
\nLaw shall not be converted in Amazon.com Common Stock pursuant to this Section
\n1.7.2.<\/p>\n
(g) If, prior to the Effective Time, Amazon.com recapitalizes
\nthrough a split-up of its outstanding shares of capital stock into a greater
\nnumber, or a combination of its outstanding shares of capital stock into a
\nlesser number, reorganizes, reclassifies or otherwise changes its outstanding
\nshares of capital stock into the same or a different number of shares of other
\nclasses of capital stock, or declares a dividend on its outstanding shares of
\ncapital stock payable in shares or securities convertible into shares, the
\nnumber of shares of Amazon.com Common Stock into which the shares of Company
\nCapital Stock are to be converted, and the number of shares of Amazon.com Common
\nStock issuable upon the exercise of each assumed Option, will be adjusted
\nappropriately so as to maintain the proportionate interests of the holders of
\nthe Company Capital Stock and Options and the holders of shares of capital stock
\nof Amazon.com.<\/p>\n
-6-<\/p>\n
13
\n 1.7.3 EXCHANGE OF CERTIFICATES<\/p>\n
(a) As soon as practicable after the Effective Date, ChaseMellon, as
\nexchange agent (the “Exchange Agent”), shall make available, and each
\nShareholder will be entitled to receive, in no event more than five business
\ndays after surrender to the Exchange Agent of a letter of transmittal in the
\nform set forth as Exhibit 1.7.3 hereto (the “Letter of Transmittal”) together
\nwith documents delivered as required therein, including certificates
\nrepresenting shares of Company Capital Stock for cancellation, certificates
\nrepresenting the number of shares of Amazon.com Common Stock that such
\nShareholder is entitled to receive pursuant to Section 1.7.2 hereof; provided,
\nhowever, that the Escrow Shares shall (i) be retained by ChaseMellon in
\naccordance with the provisions of the Escrow Agreement, (ii) not be issued in
\ncertificated form and (iii) be held by ChaseMellon in book entry form. In the
\nevent that any certificates representing shares of Company Capital Stock shall
\nhave been lost, stolen or destroyed, upon the making of an affidavit of that
\nfact by the Shareholder claiming such certificate to be lost, stolen or
\ndestroyed, Amazon.com shall issue in exchange for such lost, stolen or destroyed
\ncertificate the shares of Amazon.com Common Stock that such Shareholder is
\nentitled to receive pursuant to Section 1.7.2 hereof; provided, however, that
\nAmazon.com may in its discretion and as a condition precedent to the issuance
\nthereof, require such Shareholder to provide Amazon.com with an indemnity
\nagreement against any claim that may be made against Amazon.com with respect to
\nthe certificate alleged to have been lost, stolen or destroyed. The shares of
\nAmazon.com Common Stock that each Shareholder shall be entitled to receive in
\nconnection with the Merger pursuant to Section 1.7.2 and the Escrow Shares shall
\nbe deemed to have been issued at the Effective Time. No interest shall accrue on
\nthe Merger Consideration. If the Merger Consideration (or any portion thereof)
\nis to be delivered to any person other than the person in whose name the
\ncertificate or certificates representing shares of Company Capital Stock
\nsurrendered in exchange therefor is registered, it shall be a condition to such
\nexchange that the person requesting such exchange shall pay to Amazon.com any
\ntransfer or other taxes required by reason of the payment of the Merger
\nConsideration to a person other than the registered holder of the certificate or
\ncertificates so surrendered, or shall establish to the satisfaction of
\nAmazon.com that such tax has been paid or is not applicable. Notwithstanding
\nanything to the contrary, neither Amazon.com nor any other party hereto shall be
\nliable to a holder of shares of Company Capital Stock for any Merger
\nConsideration delivered to a public official pursuant to applicable law,
\nincluding, without limitation, abandoned property, escheat and similar laws.<\/p>\n
(b) Amazon.com or the Exchange Agent will be entitled to deduct and
\nwithhold from the Merger Consideration such amounts as Amazon.com or the<\/p>\n
-7-<\/p>\n
14
\nExchange Agent are required to deduct and withhold with respect to the making of
\nsuch payment under the Code, or any provision of state, local or foreign tax
\nlaw. To the extent that amounts are so withheld, such amounts will be treated
\nfor all purposes of this Agreement as having been paid to the former holder of
\nthe Company Capital Stock in respect of whom such deduction and withholding were
\nmade by Amazon.com or the Exchange Agent.<\/p>\n
1.7.4 NO FRACTIONAL SHARES<\/p>\n
No certificates or scrip representing fractional shares of Amazon.com
\nCommon Stock shall be issued by virtue of the Merger, and no dividend, stock
\nsplit or other distribution with respect to Amazon.com Common Stock shall relate
\nto any such fractional interest, and any such fractional interests shall not
\nentitle the owner thereof to vote or to any rights of a security holder. In lieu
\nthereof, Amazon.com shall pay to the holder of shares of Company Capital Stock
\nwho would otherwise be entitled to a fraction of a share of Amazon.com Common
\nStock, as soon as practicable after the Effective Date (and in the same timely
\nmanner required for delivery of certificates of Amazon.com Common Stock provided
\nin Section 1.7.3), an amount in cash equal to such fraction multiplied by the
\nClosing Price.<\/p>\n
1.7.5 NO FURTHER TRANSFERS<\/p>\n
After the Effective Time, there shall be no transfers of any shares of
\nCompany Capital Stock on the stock transfer books of the Surviving Corporation.
\nIf, after the Effective Time, certificates formerly representing shares of
\nCompany Capital Stock are presented to the Surviving Corporation, they shall be
\nforwarded to Amazon.com and be canceled and exchanged in accordance with this
\nSection 1.7, subject to applicable law in the case of Dissenting Shares.<\/p>\n
1.8 SHAREHOLDER REPRESENTATIVE<\/p>\n
(a) By approving the Merger at a special meeting of shareholders or by
\nwritten consent of the shareholders, each Shareholder shall have irrevocably
\nauthorized and appointed Eric Hahn (the “Shareholder Representative”), with full
\npower of substitution and resubstitution, as such Shareholder’s representative
\nand true and lawful attorney-in-fact and agent to act in such Shareholder’s
\nname, place and stead as contemplated by Article VIII and to execute in the name
\nand on behalf of such Shareholder the Escrow Agreement and any other agreement,
\ncertificate, instrument or document to be delivered by such Shareholder in
\nconnection with the Escrow Agreement.<\/p>\n
-8-<\/p>\n
15
\n (b) The Shareholder Representative shall not be liable for any act done
\nor omitted hereunder or under the Escrow Agreement as the Shareholder
\nRepresentative while acting in good faith and in the exercise of reasonable
\njudgment. The Shareholders on whose behalf the Escrow Shares were contributed to
\nthe Escrow shall indemnify the Shareholder Representative and hold the
\nShareholder Representative harmless against any loss, liability or expense
\nincurred without gross negligence or bad faith on the part of the Shareholder
\nRepresentative and arising out of or in connection with the acceptance or
\nadministration of the Shareholder Representative’s duties hereunder and under
\nthe Escrow Agreement, including the reasonable fees and expenses of any legal
\ncounsel retained by the Shareholder Representative.<\/p>\n
(c) A decision, act, consent or instruction of the Shareholder
\nRepresentative shall constitute a decision of the Shareholders and shall be
\nfinal, binding and conclusive upon the Shareholders; and the Escrow Agent and
\nthe Indemnified Parties (as defined herein) may rely upon any such decision,
\nact, consent or instruction of the Shareholder Representative as being the
\ndecision, act, consent or instruction of the Shareholders. The Escrow Agent and
\nthe Indemnified Parties are hereby relieved from any liability to any person for
\nany acts done by them in accordance with such decision, act, consent or
\ninstruction of the Shareholder Representative.<\/p>\n
1.9 AMENDMENT TO PROVIDE FOR ALTERNATIVE MERGER STRUCTURES<\/p>\n
If at any time prior to the Closing Date, Amazon.com elects to have the
\nPurchaser be the Surviving Corporation or elects to have the Company merge with
\nand into Amazon.com or have a different subsidiary of Amazon.com merge with the
\nCompany in a forward or reverse triangular merger, the parties shall promptly
\nenter into an amendment to this Agreement to so provide, so long as such action
\ndoes not result in a breach of a representation or warranty set forth in Article
\nII hereof or the inability to satisfy any of the conditions set forth in
\nArticles IV and V hereof. Section 1.10(b) and (c) shall be amended as necessary
\nto reflect any amendment under this Section 1.9.<\/p>\n
1.10 TAX FREE REORGANIZATION<\/p>\n
(a) Except as otherwise required by the Internal Revenue Service (the
\n“IRS”) pursuant to a determination (as defined in Section 1313 of the Code) or
\notherwise, or by applicable law, the parties shall not take a position on any
\ntax returns inconsistent with the treatment of the Merger for tax purposes as a
\nreorganization within the meaning of Section 368(a)(1)(A) of the Code by reason
\nof Section 368(a)(2)(D) of the <\/p>\n
-9-<\/p>\n
16
\nCode, in the case of the merger of the Company with and into the Purchaser with
\nthe Purchaser being the surviving corporation, by reason of Section 368(a)(2)(E)
\nof the Code, in the case of any merger of the Purchaser with and into the
\nCompany with the Company being the surviving corporation, or by reason of
\nSection 368(a)(1)(A) itself, in the case of the merger of the Company with and
\ninto Amazon.com.<\/p>\n
(b) In addition, Amazon.com represents, solely for tax purposes, now,
\nand as of the Closing Date, the following: (i) prior to the Merger, it will be
\nin “control” of Purchaser within the meaning of Section 368(c) of the Code; (ii)
\nexcept for reorganizations under Section 368(a)(1)(F) of the Code or a merger
\nwith Amazon.com, it has no present plan or intention to liquidate the Company or
\nto merge the Company with or into another corporation, to sell, distribute or
\notherwise dispose of the Company Capital Stock, except for transfers of stock
\ndescribed in Section 368(a)(2)(C) of the Code or Treasury Regulation Section
\n1.368-2(k)(2), or to cause the Company to sell or otherwise dispose of any of
\nits assets except for dispositions made in the ordinary course of business or
\ntransfers described in Section 368(a)(2)(C) or Treasury Regulation Section
\n1.368-2(k)(2); and (iii) that it presently intends to continue the Company’s
\nhistoric business or use a significant portion of the Company’s business assets
\nin business in a manner that satisfies the continuity of business enterprise
\nrequirement set forth in Treasury Regulation Section 1.368-1(d). Notwithstanding
\nthe foregoing, neither Amazon.com nor the Purchaser makes any representation or
\nwarranty with respect to any Tax consequences to the Company or its shareholders
\narising under this Agreement or as a result of the transactions contemplated
\nhereby.<\/p>\n
(c) The Company represents that it has not taken any action that would
\nprevent the Merger from meeting the requirement under Section 368(a)(2)(E) of
\nthe Code that “substantially all of the assets” of the Company must be acquired
\nin the Merger.<\/p>\n
ARTICLE II – REPRESENTATIONS AND WARRANTIES OF THE COMPANY<\/p>\n
Except as is otherwise set forth with appropriate Section references in
\nthe Disclosure Memorandum attached as Exhibit 2 (the “Disclosure Memorandum”),
\nand in order to induce Amazon.com and the Purchaser to enter into and perform
\nthis Agreement and the other agreements and certificates that are required to be
\nexecuted pursuant to this Agreement (collectively, the “Operative Documents”),
\nthe Company represents and warrants to Amazon.com and the Purchaser as of the
\ndate of this Agreement and as of the Closing as follows in this Article II.<\/p>\n
-10-<\/p>\n
17
\n2.1 ORGANIZATION<\/p>\n
The Company is a corporation duly organized, validly existing and in
\ngood standing under the laws of the State of California. The Company has all
\nrequisite corporate power and authority to own, operate and lease its properties
\nand assets, to carry on its business as now conducted and as currently proposed
\nto be conducted, and to enter into and perform its obligations under this
\nAgreement and the other Operative Documents to which the Company is a party, and
\nto consummate the transactions contemplated hereby and thereby. The Company is
\nduly qualified and licensed as a foreign corporation to do business and is in
\ngood standing in each jurisdiction in which the character of the Company’s
\nproperties occupied, owned or held under lease or the nature of the business
\nconducted by the Company makes such qualification or licensing necessary, except
\nwhere the failure to be so qualified or in good standing would not have a
\nCompany Material Adverse Effect. For purposes of this Agreement, the term
\n“Company Material Adverse Effect” shall mean any change, event or effect that is
\nor is reasonably likely to be materially adverse to the Company’s business,
\noperations, assets, liabilities, condition (financial or otherwise) or
\nprospects; provided, however, that a Company Material Adverse Effect shall not
\ninclude any change, event or effect that relates to or results from (i) the
\nannouncement or other disclosure or consummation of the transactions
\ncontemplated by this Agreement; (ii) a general economic downturn; or (iii) an
\neconomic downturn in the Company’s industry which does not disproportionately
\naffect the Company.<\/p>\n
2.2 ENFORCEABILITY<\/p>\n
The Company has full corporate power and authority to execute, deliver
\nand perform its obligations under this Agreement and each of the other Operative
\nDocuments to which it is a party and each of the certificates, instruments and
\ndocuments executed or delivered by it pursuant to the terms of this Agreement.
\nAll corporate action on the part of the Company and its officers, directors and
\nshareholders necessary for the authorization, execution, delivery and
\nperformance of this Agreement and the other Operative Documents to which the
\nCompany is a party, the consummation of the Merger, and the performance of all
\nthe Company’s obligations under this Agreement and the other Operative Documents
\nto which the Company is a party has been taken or will be taken as of or prior
\nto the Effective Time. All such corporate action on the part of the Company’s
\nBoard of Directors has been taken. This Agreement has been, and each of the
\nother Operative Documents to which the Company is a party at the Closing will
\nhave been, duly executed and delivered by the Company, and this Agreement is,
\nand each of the other Operative Documents to which the Company is a party will
\nbe at the Closing, a legal, valid and binding obligation of the Company,
\nenforceable against the Company in accordance with its terms, except as <\/p>\n
-11-<\/p>\n
18
\nto the effect, if any, of (a) applicable bankruptcy and other similar laws
\naffecting the rights of creditors generally, (b) rules of law governing specific
\nperformance, injunctive relief and other equitable remedies, and (c) the
\nenforceability of provisions requiring indemnification in connection with the
\noffering, issuance or sale of securities.<\/p>\n
2.3 CAPITALIZATION<\/p>\n
(a) The authorized capital stock of the Company consists of 20,000,000
\nshares of Company Common Stock and 9,202,400 shares of preferred stock, all of
\nwhich shares are designated as Series A Preferred Stock.<\/p>\n
(b) As of the date of this Agreement, the issued and outstanding capital
\nstock of the Company consists solely of 7,236,740 shares of Company Common Stock
\nand 9,031,600 shares of Company Series A Stock, all of which shares are held of
\nrecord on the date of this Agreement and, to the knowledge of the Company,
\nbeneficially by the Shareholders as set forth on Schedule 2.3(b) to the
\nDisclosure Memorandum. Schedule 2.3(b) to the Disclosure Memorandum also
\nseparately indicates the number of shares of Company Common Stock into which the
\noutstanding Company Series A Stock is convertible. Such outstanding shares are,
\nand immediately prior to the Closing will be (and immediately prior to the
\nClosing all shares of Company Common Stock issued upon the conversion of
\noutstanding Company Series A Stock will be), duly authorized and validly issued,
\nfully paid and nonassessable, and issued in compliance with all applicable
\nfederal and state securities laws. True and correct copies of the stock records
\nof the Company, showing all issuances and transfers of shares of capital stock
\nof the Company since inception, have been provided to Amazon.com or its counsel.<\/p>\n
(c) As of the date of this Agreement, other than (i) Options to purchase
\nup to 1,798,250 shares of Company Common Stock which have been granted under the
\nCompany Plan, (ii) a warrant to purchase 170,800 shares of Company Series A
\nStock or (iii) other Stock Purchase Rights set forth on Schedule 2.3(c) to the
\nDisclosure Memorandum, there are no outstanding rights of first refusal or
\noffer, preemptive rights, Stock Purchase Rights or other agreements, either
\ndirectly or indirectly, for the purchase or acquisition from the Company or any
\nof its shareholders of any shares of Company Capital Stock or any securities
\nconvertible into or exchangeable for shares of Company Capital Stock. Schedule
\n2.3(c) to the Disclosure Memorandum accurately reflects the number of such
\nOptions and other Stock Purchase Rights outstanding as of the date of this
\nAgreement, the grant or issue dates, vesting schedules and exercise or
\nconversion prices thereof, and, in each case, the identities of the holders and
\nan indication of their relationships to the Company (if any exist other than as
\na security <\/p>\n
-12-<\/p>\n
19
\nholder). The Company has delivered to Amazon.com or its counsel true and correct
\ncopies of the Company Plan, the stock option agreements relating to Options
\ngranted thereunder, all other agreements with respect to Stock Purchase Rights,
\nand all material deviations therefrom. Schedule 2.3(c) to the Disclosure
\nMemorandum also identifies all Options or Stock Purchase Rights that have been
\noffered in connection with any employee or consulting agreement but that, as of
\nthe date hereof, have not been issued or granted.<\/p>\n
(d) Except as set forth on Schedule 2.3(d) to the Disclosure Memorandum,
\nthe Company is not a party or subject to any agreement or understanding, and, to
\nthe knowledge of the Company, there is no agreement or understanding between any
\nPersons that affects or relates to the voting or giving of written consents with
\nrespect to any securities of the Company or the voting by any director of the
\nCompany. Except as set forth on Schedule 2.3(d) of the Disclosure Memorandum, no
\nShareholder or any affiliate thereof is indebted to the Company, and the Company
\nis not indebted to any Shareholder or any affiliate thereof. Except as set forth
\non Schedule 2.3(d) to the Disclosure Memorandum, the Company is not under any
\ncontractual or other obligation to register any of its presently outstanding
\nsecurities or any of its securities that may hereafter be issued.<\/p>\n
(e) All rights of refusal, co-sale rights and registration rights
\ngranted by the Company with respect to the Company Capital Stock or Stock
\nPurchase Rights of the Company are described on Schedule 2.3(e) to the
\nDisclosure Memorandum.<\/p>\n
(f) All Options and Stock Purchase Rights have been granted or issued at
\nfair market value, as determined by the Company’s Board of Directors at the date
\nof grant or issuance.<\/p>\n
2.4 SUBSIDIARIES AND AFFILIATES<\/p>\n
Except as set forth in Schedule 2.4 to the Disclosure Memorandum, the
\nCompany does not own and has not in the past owned, directly or indirectly, any
\nownership, equity, or voting interest in, or otherwise control or controlled,
\nany corporation, partnership, limited liability company, joint venture or other
\nentity, and has no agreement or commitment to purchase any such interest. The
\nCompany is, directly or indirectly, the record and beneficial owner of all of
\nthe outstanding shares of capital stock or other equity securities, as the case
\nmay be, of each of the entities listed on Schedule 2.4 to the Disclosure
\nMemorandum (collectively, the “Company Subsidiaries”), no equity securities of
\nany Company Subsidiary are or may become required to be issued by reason of any
\noptions, warrants, rights to subscribe to, calls or commitments of any character
\nwhatsoever relating to, or securities or rights convertible <\/p>\n
-13-<\/p>\n
20
\ninto or exchangeable or exercisable for, shares of any capital stock of any
\nCompany Subsidiary, and there are no contracts, commitments, understandings or
\narrangements by which the Company or any Company Subsidiary is or may be bound
\nto either sell any outstanding securities of any Company Subsidiary or issue
\nadditional shares of capital sock of any Company Subsidiary or securities
\nconvertible into or exchangeable or exercisable for any such shares. All of such
\nshares so owned by the Company are duly authorized and validly issued, fully
\npaid and nonassessable and are owned free and clear of any liens, mortgages,
\npledges, security interests, encumbrances, claims or charges of any kind.<\/p>\n
2.5 NO APPROVALS; NO CONFLICTS<\/p>\n
Except as set forth in Schedule 2.5 to the Disclosure Memorandum, the
\nexecution, delivery and performance by the Company of this Agreement and the
\nother Operative Documents to which the Company is a party and the consummation
\nof the transactions contemplated hereby and thereby will not (a) constitute a
\nviolation (with or without the giving of notice or lapse of time, or both) of
\nany provision of law or any judgment, decree, order, regulation or rule of any
\ncourt or other governmental authority applicable to the Company, (b) require any
\nconsent, approval or authorization of, or declaration, filing or registration
\nwith, any person, corporation, partnership, joint venture, association,
\norganization, other entity or governmental or regulatory authority (a “Person”),
\nexcept (i) compliance with applicable securities laws, (ii) the filing of all
\ndocuments necessary to consummate the Merger with the Delaware Secretary of
\nState and the California Secretary of State, (iii) the approval by the
\nShareholders of the transactions contemplated hereby, as provided under
\nCalifornia Law and the Articles of Incorporation and Bylaws of the Company, (iv)
\nthe notification requirements of the Hart-Scott-Rodino Act (as defined below),
\nand (v) the filing of all documents necessary to roll-up each Company
\nSubsidiary, (c) result in a default (with or without the giving of notice or
\nlapse of time, or both) under, or acceleration or termination of, or the
\ncreation in any party of the right to accelerate, terminate, modify or cancel,
\nany agreement, lease, note or other restriction, encumbrance, obligation or
\nliability to which the Company is a party or by which it is bound or to which
\nany assets of the Company are subject, (d) result in the creation of any
\nEncumbrance (as defined in Section 2.9(d)) upon any material assets of the
\nCompany or, to the knowledge of the Company, upon any outstanding shares or
\nother securities of the Company, (e) conflict with or result in a breach of or
\nconstitute a default under any provision of the Articles of Incorporation or
\nBylaws of the Company, or (f) invalidate or adversely affect any permit, license
\nor authorization currently material to the conduct of the business of the
\nCompany.<\/p>\n
-14-<\/p>\n
21
\n2.6 FINANCIAL STATEMENTS<\/p>\n
The Company has delivered to Amazon.com (a) unaudited balance sheets and
\nstatements of income and expense of the Company as of or for the fiscal years
\nended December 31, 1997 and 1998, and (b) an unaudited balance sheet, statement
\nof income and expense and statement of cash flow of the Company as of and for
\nthe three-month period ended March 31, 1999. All the foregoing financial
\nstatements are herein referred to as the “Financial Statements.” The balance
\nsheet of the Company as of March 31, 1999 is herein referred to as the “Company
\nBalance Sheet.” Except as set forth in Schedule 2.6 to the Disclosure
\nMemorandum, the Financial Statements have been prepared in conformity with
\ngenerally accepted accounting principles in the United States (“GAAP”) on a
\nbasis consistent with prior accounting periods and fairly present the financial
\nposition, results of operations and changes in financial position of the Company
\nas of the dates and for the periods indicated. The Company has no liabilities or
\nobligations of any nature (absolute, contingent or otherwise) that are not fully
\nreflected or reserved against in the Company Balance Sheet and that would be
\nrequired under GAAP to be reflected or reserved, except liabilities or
\nobligations incurred since the date of the Company Balance Sheet in the ordinary
\ncourse of business and consistent with past practice that are not in excess of
\n$50,000 in the aggregate or $20,000 individually. The Company maintains standard
\nsystems of accounting that are adequate for its business. The Company is not a
\nguarantor, indemnitor, surety or other obligor of any indebtedness of any other
\nPerson. The Company’s practices with respect to capitalizing software
\ndevelopment costs, as reflected in the Financial Statements, are reasonable, in
\naccordance with industry standards and consistent with the advice of the
\nCompany’s independent accountants.<\/p>\n
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS<\/p>\n
Except (i) as set forth in Schedule 2.7 to the Disclosure Memorandum and
\n(ii) for transactions specifically contemplated in this Agreement, since the
\ndate of the Company Balance Sheet, neither the Company nor any of its officers
\nor directors in their representative capacities on behalf of the Company have:<\/p>\n
(a) taken any action or entered into or agreed to enter into any
\ntransaction, agreement or commitment other than in the ordinary course of the
\nCompany’s business as currently conducted and as proposed to be conducted;<\/p>\n
(b) forgiven or canceled any indebtedness or waived any claims or
\nrights of material value (including, without limitation, any indebtedness owing
\nby any shareholder, officer, director, employee or affiliate of the Company);<\/p>\n
-15-<\/p>\n
22
\n (c) granted, other than in the ordinary course of business and
\nconsistent with past practice, any increase in the compensation of directors,
\nofficers, employees or consultants who already held such positions at that time
\n(including any such increase pursuant to any employment agreement or bonus,
\npension, profit-sharing, lease payment or other plan or commitment) or any
\nincrease in the compensation payable or to become payable to any director,
\nofficer, employee or consultant;<\/p>\n
(d) suffered any change having or reasonably likely to have a
\nCompany Material Adverse Effect;<\/p>\n
(e) borrowed or agreed to borrow any funds, incurred or become
\nsubject to, whether directly or by way of assumption or guarantee or otherwise,
\nany obligations or liabilities (absolute, accrued, contingent or otherwise)
\nindividually in excess of $20,000 or in excess of $50,000 in the aggregate,
\nexcept liabilities and obligations (i) that are incurred in the ordinary course
\nof business and consistent with past practice or (ii) that would not be required
\nto be reflected or reserved against in a balance sheet prepared in accordance
\nwith GAAP, or increased, or experienced any change in any assumptions underlying
\nor methods of calculating, any bad debt, contingency or other reserves;<\/p>\n
(f) paid, discharged or satisfied any material claims,
\nliabilities or obligations (absolute, accrued, contingent or otherwise) other
\nthan the payment, discharge or satisfaction in the ordinary course of business
\nand consistent with past practice of claims, liabilities and obligations
\nreflected or reserved against in the Company Balance Sheet or incurred in the
\nordinary course of business and consistent with past practice since the date of
\nthe Company Balance Sheet, or prepaid any obligation having a fixed maturity of
\nmore than 90 days from the date such obligation was issued or incurred;<\/p>\n
(g) knowingly permitted or allowed any of its property or assets
\n(real, personal or mixed, tangible or intangible) to be subjected to any
\nmortgage, pledge, lien, security interest, encumbrance, restriction or charge,
\nexcept in the ordinary course of business and consistent with past practice;<\/p>\n
(h) purchased or sold, transferred or otherwise disposed of any
\nof its material properties or assets (real, personal or mixed, tangible or
\nintangible);<\/p>\n
(i) disposed of or permitted to lapse any rights to the use of
\nany trademark, trade name, patent or copyright, or disposed of or disclosed to
\nany Person without obtaining an appropriate confidentiality agreement from any
\nsuch Person any <\/p>\n
-16-<\/p>\n
23
\ntrade secret, formula, process or know-how not theretofore a matter of public
\nknowledge;<\/p>\n
(j) made any single capital expenditure or commitment in excess
\nof $20,000 for additions to property, plant, equipment or intangible capital
\nassets or made aggregate capital expenditures in excess of $50,000 for additions
\nto property, plant, equipment or intangible capital assets;<\/p>\n
(k) made any change in accounting methods or practices or
\ninternal control procedure;<\/p>\n
(l) issued any capital stock or other securities, or declared,
\npaid or set aside for payment any dividend or other distribution in respect of
\nits capital stock, or redeemed, purchased or otherwise acquired, directly or
\nindirectly, any shares of capital stock or other securities of the Company, or
\notherwise permitted the withdrawal by any of the holders of Company Capital
\nStock of any cash or other assets (real, personal or mixed, tangible or
\nintangible), in compensation, indebtedness or otherwise, other than payments of
\ncompensation in the ordinary course of business and consistent with past
\npractice;<\/p>\n
(m) paid, loaned or advanced any amount to, or sold, transferred
\nor leased any properties or assets (real, personal or mixed, tangible or
\nintangible) to any of the Company’s shareholders, officers, directors or
\nemployees or any affiliate of any of the Company’s shareholders, officers,
\ndirectors or employees, except compensation paid to officers and employees at
\nrates not exceeding the rates of compensation paid during the fiscal year last
\nended and except for advances for travel and other business-related expenses; or<\/p>\n
(n) agreed, whether in writing or otherwise, to take any action
\ndescribed in this Section 2.7.<\/p>\n
2.8 TAXES<\/p>\n
(a) (i) All Tax Returns (as defined below) required to be filed by or on
\nbehalf of the Company have been filed on a timely basis with the appropriate
\ngovernmental authority in all jurisdictions in which such Tax Returns are
\nrequired to be filed, and all such Tax Returns were (at the time they were
\nfiled) true, correct and complete in all material respects; (ii) all Taxes (as
\ndefined below) of the Company (whether or not reflected on any Tax Return) have
\nbeen fully and timely paid; (iii) no waivers of statutes of limitation have been
\ngiven or requested with respect to the Company in connection with any Tax
\nReturns covering the Company with respect to <\/p>\n
-17-<\/p>\n
24
\nany Taxes payable by it; (iv) no taxing authority in a jurisdiction where the
\nCompany does not file Tax Returns has made a claim, assertion, or threat to the
\nCompany that the Company is or may be subject to taxation by such jurisdiction;
\n(v) the Company has duly and timely withheld from employee salaries, wages and
\nother compensation and paid over to the appropriate governmental authority all
\namounts required to be so withheld and paid over for all periods under all
\napplicable laws; and no amounts have been or would be required to be withheld
\nwith respect to the lapse of restrictions on Company Capital Stock; (vi) there
\nare no liens with respect to Taxes on any of the Company’s property or assets
\nother than liens for current Taxes not yet payable; (vii) there are no Tax
\nrulings, requests for rulings, or closing agreements relating to the Company
\nwhich could affect the liability for Taxes or the amount of taxable income of
\nthe Company for any period (or portion of a period) after the date hereof; and
\n(viii) any adjustment of Taxes of the Company made by the IRS in any examination
\nwhich is required to be reported to the appropriate state, local or foreign
\ntaxing authorities has been reported, and any additional Taxes due with respect
\nthereto have been paid.<\/p>\n
(b) Neither the Company nor any other Person on behalf of the Company
\n(i) has filed a consent pursuant to Section 341(f) of the Code or agreed to have
\nSection 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
\n(as such term is defined in Section 341(f)(4) of the Code) owned by the Company;
\n(ii) has executed or entered into a closing agreement pursuant to Section 7121
\nof the Code or any predecessor provision thereof or any similar provision of
\nstate, local or foreign law; or (iii) has agreed to or is required to make any
\nadjustments pursuant to Section 481 (a) of the Code or any similar provision of
\nstate, local or foreign law by reason of a change in accounting method initiated
\nby the Company or has notice that a governmental authority has proposed any such
\nadjustment or change in accounting method.<\/p>\n
(c) There is no dispute or claim concerning any Tax liability of the
\nCompany either (i) claimed or raised by any authority in writing or (ii) as to
\nwhich any of the directors and officers (and employees responsible for Tax
\nmatters) of the Company have knowledge based on contact or correspondence with
\nany agent of such authority. Schedule 2.8(c) to the Disclosure Memorandum lists
\nall Tax Returns filed with respect to the Company for taxable periods ended on
\nor after the Company’s inception or the inception of any predecessor that have
\nbeen audited, and indicates those Tax Returns that currently are the subject of
\naudit. The Company has delivered to Amazon.com or its counsel correct and
\ncomplete copies of all Tax Returns, examination reports and statements of
\ndeficiencies assessed against or agreed to by the Company since the Company’s
\ninception.<\/p>\n
-18-<\/p>\n
25
\n (d) Except as set forth on Schedule 2.8(d) to the Disclosure Memorandum,
\nthe Company has not made any payments, is not obligated to make any payments and
\nis not a party to any agreement that under certain circumstances could obligate
\nit to make any payments that will not be deductible under Section 280G of the
\nCode (or any similar provision of state, local or foreign law).<\/p>\n
(e) The Company has not been a United States real property holding
\ncorporation within the meaning of Section 897(c)(2) of the Code during the
\napplicable period specified in Section 897(c)(1)(A)(ii) of the Code.<\/p>\n
(f) The Company is not a party to any Tax allocation or sharing
\nagreement. The Company (i) has not been a member of a Tax Group (as defined
\nbelow) filing a consolidated income Tax Return under Section 1501 of the Code
\n(or any similar provision of state, local or foreign law) and (ii) does not have
\nany liability for Taxes of any Person under Treasury Regulations Section
\n1.1502-6 (or any similar provision of state, local or foreign law) as a
\ntransferee or successor by contract or otherwise.<\/p>\n
(g) Except as set forth on Schedule 2.8(g), the unpaid Taxes of the
\nCompany (i) did not, as of March 31, 1999, exceed the reserve for Tax liability
\nset forth on the face (rather than any reserve for deferred Taxes established to
\nreflect timing differences between book and Tax income) of the Company Balance
\nSheet and (ii) do not exceed that reserve as adjusted for the passage of time
\nand operations in the ordinary course of business through the Closing Date.<\/p>\n
(h) Except as set forth on Schedule 2.8(h), there has been no ownership
\nchange, as defined in Section 382(g) of the Code (or any comparable provision of
\nstate, local or foreign law), with respect to the Company during or after any
\ntaxable period in which the Company incurred a net operating loss. The
\nDisclosure Memorandum sets forth the maximum amount of any net operating loss at
\nthe time of any such ownership change.<\/p>\n
(i) All Options that the Company has treated as incentive stock options
\nunder Section 421 of the Code meet the requirements of Section 422 of the Code.<\/p>\n
As used in this Agreement, the following terms shall have the following
\nmeanings:<\/p>\n
“Taxes” means all foreign, federal, state, county or local taxes,
\ncharges, fees, levies, imposts, duties, and other assessments, including, but
\nnot limited to, any income, alternative minimum or add-on tax, estimated, gross
\nincome, gross receipts, sales, use, transfer, transactions, intangibles, ad
\nvalorem, value-added, franchise, <\/p>\n
-19-<\/p>\n
26
\nregistration, title, license, capital, paid-up capital, profits, withholding,
\npayroll, employment, excise, severance, stamp, occupation, premium, real
\nproperty, recording, personal property, federal highway use, commercial rent,
\nenvironmental (including, but not limited to, taxes under Section 59A of the
\nCode) or windfall profit tax, custom, duty or other tax, governmental fee or
\nother like assessment or charge of any kind whatsoever, together with any
\ninterest, penalties or additions to tax; and “Tax” means any of the foregoing
\nTaxes.<\/p>\n
“Tax Group” means any federal, state, local or foreign consolidated,
\naffiliated, combined, unitary or other similar group of which the Company is now
\nor was formerly a member.<\/p>\n
“Tax Returns” means any return, declaration, report, claim or refund,
\ninformation return, statement, or other similar document relating to Taxes,
\nincluding any schedule or attachment thereto, and including any amendment
\nthereof.<\/p>\n
2.9 PROPERTY<\/p>\n
(a) The Company owns no real property other than the leasehold interests
\ndescribed on Schedule 2.9(a) to the Disclosure Memorandum, which contains a
\ncomplete and accurate list of all real property owned, leased or currently being
\nused by the Company (the “Real Property”). The Company has delivered to
\nAmazon.com or its counsel true and complete copies of all written leases,
\nsubleases, rental agreements, contracts of sale, tenancies or licenses relating
\nto the Real Property and written summaries of the terms of any oral leases,
\nsubleases, rental agreements, contracts of sale, tenancies or licenses to which
\nthe Real Property is subject.<\/p>\n
(b) Schedule 2.9(b) to the Disclosure Memorandum contains a complete and
\naccurate list of each item of personal property having a value in excess of
\n$20,000 which is owned, leased, rented or used by the Company (the “Personal
\nProperty”); provided that such list need not describe the Technology or the IP
\nRights (as defined in Sections 2.14.2 and 2.14.5, respectively) listed on
\nSchedule 2.14 to the Disclosure Memorandum. The Company has delivered to
\nAmazon.com or its counsel true and complete copies of all leases, subleases,
\nrental agreements, contracts of sale, tenancies or licenses to which the
\nPersonal Property is subject.<\/p>\n
(c) The Real Property and the Personal Property include all the
\nproperties and assets (whether real, personal or mixed, tangible or intangible)
\n(other than, in the case of the Personal Property, property rights with an
\nindividual value of less than $20,000 and the Technology and IP Rights)
\nreflected in the Company Balance Sheet (except for such properties or assets
\nsold since the date of the Company Balance Sheet <\/p>\n
-20-<\/p>\n
27
\nin the ordinary course of business and consistent with past practice) and all
\nthe properties and assets purchased by the Company since the date of the Company
\nBalance Sheet (other than, in the case of the Personal Property, property rights
\nwith an individual value of less than $20,000 and the Technology and the IP
\nRights). The Real Property and the Personal Property include all material
\nproperty used in the business of the Company, other than the Technology and IP
\nRights. The Company’s offices and other structures and its Personal Property are
\nof a quality consistent with industry standards, are in good operating condition
\nand repair, normal wear and tear excepted, are adequate for the uses to which
\nthey are being put, and comply in all material respects with applicable safety
\nand other laws and regulations.<\/p>\n
(d) The Company’s leasehold interest in each parcel of the Real Property
\nis free and clear of all liens, mortgages, pledges, deeds of trust, security
\ninterests, charges, encumbrances and other adverse claims or interests of any
\nkind (each, an “Encumbrance”), except for Encumbrances related to Taxes not yet
\ndue and payable. Each lease of any portion of the Real Property is valid,
\nbinding and enforceable in accordance with its terms against the parties thereto
\nand, to the Company’s knowledge, any other Person with an interest in such Real
\nProperty, the Company has performed in all material respects all obligations
\nimposed upon it thereunder, and neither the Company nor, to the Company’s
\nknowledge, any other party thereto is in default thereunder, nor is there any
\nevent which with notice or lapse of time, or both, would constitute a default
\nthereunder by the Company or, to the Company’s knowledge, by any other party.
\nThe Company has not granted any lease, sublease, tenancy or license of, or
\nentered into any rental agreement or contract of sale with respect to, any
\nportion of the Real Property.<\/p>\n
(e) The Personal Property is free and clear of all Encumbrances, and,
\nother than leased Personal Property which is so noted on Schedule 2.9(b) to the
\nDisclosure Memorandum, the Company owns such Personal Property. Each lease,
\nlicense, rental agreement, contract of sale or other agreement to which the
\nPersonal Property is subject is valid, binding and enforceable in accordance
\nwith its terms against the parties thereto, the Company has performed in all
\nmaterial respects all obligations imposed upon it thereunder, and neither the
\nCompany nor, to the Company’s knowledge, any other party thereto is in default
\nthereunder, nor is there any event which with notice or lapse of time, or both,
\nwould constitute a default by the Company or, to the Company’s knowledge, any
\nother party thereunder. The Company has not granted any lease, sublease, tenancy
\nor license of any portion of the Personal Property, except in the ordinary
\ncourse of business.<\/p>\n
-21-<\/p>\n
28
\n2.10 CONTRACTS<\/p>\n
2.10.1 MATERIAL CONTRACTS<\/p>\n
Schedule 2.10.1 to the Disclosure Memorandum contains a complete and
\naccurate list (other than the IP Rights listed on Schedule 2.14 to the
\nDisclosure Memorandum) of all contracts, agreements and understandings, oral or
\nwritten, to which the Company is currently a party or by which the Company is
\ncurrently bound providing for potential payments by or to the Company in excess
\nof $20,000, including, without limitation, security agreements, license
\nagreements, software development agreements, distribution agreements, joint
\nventure agreements, reseller agreements, credit agreements and instruments
\nrelating to the borrowing of money (collectively, the “Material Contracts”). All
\nMaterial Contracts are valid, binding and enforceable in accordance with their
\nterms against the Company and, to the Company’s knowledge, each other party
\nthereto (except as to the effect, if any, of (a) applicable bankruptcy and other
\nsimilar laws affecting the rights of creditors generally, (b) rules of law
\ngoverning specific performance, injunctive relief and other equitable remedies,
\nand (c) the enforceability of provisions requiring indemnification in connection
\nwith the offering, issuance or sale of securities), and are in full force and
\neffect, the Company has performed in all material respects all obligations
\nimposed on it thereunder, and neither the Company nor, to the Company’s
\nknowledge, any other party thereto is in default thereunder, nor to the
\nCompany’s knowledge is there any event which with notice or lapse of time, or
\nboth, would constitute a default by the Company or, to the Company’s knowledge,
\nany other party thereunder. True and complete copies of each written Material
\nContract (or written summaries of the terms of any oral Material Contract) have
\nbeen delivered to Amazon.com or its counsel by the Company. Except as set forth
\non Schedule 2.10.1 to the Disclosure Memorandum, the Company has no<\/p>\n
(a) contracts with directors, officers, shareholders, employees,
\nagents, consultants, advisors, salespeople, sales representatives, distributors
\nor dealers that cannot be canceled by the Company within 30 days’ notice without
\nliability, penalty or premium, any agreement or arrangement providing for the
\npayment of any bonus or commission based on sales or earnings, or any
\ncompensation agreement or arrangement affecting or relating to former employees
\nof the Company;<\/p>\n
(b) employment agreement, whether express or implied, or any
\nother agreement for services that contains severance or termination pay
\nliabilities or obligations;<\/p>\n
-22-<\/p>\n
29
\n (c) noncompetition agreement or other arrangement that would
\nprevent the Company from carrying on its business anywhere in the world;<\/p>\n
(d) notice that any party to a Material Contract intends to
\ncancel, terminate or refuse to renew such contract (if such contract is
\nrenewable);<\/p>\n
(e) material dispute with any of its suppliers, customers,
\ndistributors, licensors or licensees;<\/p>\n
(f) product distribution agreement, development agreement, or
\nlicense agreement as licensor or licensee (except for standard nonexclusive
\nsoftware licenses granted to end-user customers in the ordinary course of
\nbusiness, the form of which has been provided to Amazon.com, or standard
\nlicenses purchased by the Company for off-the-shelf software);<\/p>\n
(g) joint venture contract or arrangement or any other agreement
\nthat involves a sharing of profits with other persons;<\/p>\n
(h) instrument evidencing indebtedness for borrowed money by way
\nof a direct loan, sale of debt securities, purchase money obligation,
\nconditional sale or guarantee, or otherwise, except for trade indebtedness
\nincurred in the ordinary course of business, and except as disclosed in the
\nFinancial Statements; and<\/p>\n
(i) agreements or commitments to provide indemnification.<\/p>\n
2.10.2 REQUIRED CONSENTS<\/p>\n
The execution and delivery of this Agreement and the performance of the
\nobligations of the Company hereunder will not constitute a default under any
\nMaterial Contract and do not require the consent of any other party to any
\nMaterial Contract, except for those consents listed on Schedule 2.10.2 to the
\nDisclosure Memorandum, all of which will be obtained on or prior to the Closing.<\/p>\n
2.11 CLAIMS AND LEGAL PROCEEDINGS<\/p>\n
Except as set forth on Schedule 2.11 to the Disclosure Memorandum, there
\nare no claims, actions, suits, arbitrations, investigations or proceedings
\npending or involving or, to the Company’s knowledge, threatened against the
\nCompany before or by any court or governmental or nongovernmental department,
\ncommission, board, bureau, agency or instrumentality, or any other Person.
\nExcept as set forth on Schedule 2.11 to the Disclosure Memorandum, to the
\nCompany’s knowledge, there is no valid basis for any claim, action, suit,
\narbitration, proceeding or investigation before <\/p>\n
-23-<\/p>\n
30
\nor by any Person. There are no outstanding or unsatisfied judgments, orders,
\ndecrees or stipulations to which the Company is a party. Schedule 2.11 to the
\nDisclosure Memorandum sets forth a description of any material disputes that
\nhave been settled or resolved by litigation or arbitration since the Company’s
\ninception.<\/p>\n
2.12 LABOR AND EMPLOYMENT MATTERS<\/p>\n
There are no material labor disputes, employee grievances or
\ndisciplinary actions pending or, to the Company’s knowledge, threatened against
\nor involving the Company or any of its present or former employees. The Company
\nhas complied with all provisions of law relating to employment and employment
\npractices, terms and conditions of employment, wages and hours. The Company is
\nnot engaged in any unfair labor practice and has no liability for any arrears of
\nwages or Taxes or penalties for failure to comply with any such provisions of
\nlaw. There is no labor strike, dispute, slowdown or stoppage pending or, to the
\nCompany’s knowledge, threatened against or affecting the Company, and the
\nCompany has not experienced any work stoppage or other labor difficulty since
\nits incorporation. No collective bargaining agreement is binding on the Company.
\nThe Company has no knowledge of any organizational efforts presently being made
\nor threatened by or on behalf of any labor union with respect to employees of
\nthe Company. Each employee, officer and consultant of the Company has executed a
\nnondisclosure agreement substantially in the form provided to Amazon.com. To the
\nCompany’s knowledge, no employee (or person performing similar functions) of the
\nCompany is in material violation of any such agreement or any employment
\nagreement, noncompetition agreement, patent disclosure agreement, invention
\nassignment agreement, proprietary information agreement or other contract or
\nagreement relating to the relationship of such employee with the Company or any
\nother party. Schedule 2.12 to the Disclosure Memorandum lists (a) the names and
\ncurrent compensation amounts of all directors and officers of the Company; (b)
\nthe names of and wage rates for all nonsalaried and nonofficer salaried
\nemployees of the Company by classification, and all union contracts (if any);
\n(c) all group insurance programs in effect for employees of the Company; and (d)
\nthe names and current compensation packages of all independent contractors and
\nconsultants of the Company. The Company is not in default with respect to any of
\nits obligations referred to in clause (b) above and has no, and will not incur
\nany, material obligation or liability for severance or back pay owed through or
\nby virtue of the Merger. Except as disclosed on Schedule 2.12 to the Disclosure
\nMemorandum, all employees of the Company are employed on an “at will” basis.<\/p>\n
-24-<\/p>\n
31
\n2.13 EMPLOYEE BENEFIT PLANS<\/p>\n
2.13.1 EMPLOYEE BENEFIT PLAN LISTING<\/p>\n
Schedule 2.13.1 to the Disclosure Memorandum accurately lists and
\ndescribes all retirement, pension, profit sharing, deferred compensation,
\nsavings, bonus, incentive, cafeteria, flexible benefits, medical, dental,
\nvision, hospitalization, life insurance, group insurance, medical expense
\nreimbursement, dependent care assistance, tuition reimbursement, disability,
\naccident, sick pay, holiday, vacation, severance, stock purchase, stock option,
\nstock appreciation rights, fringe benefit and other employee benefit plans,
\nfunds, policies, programs, contracts, arrangements and payroll practices
\n(including, but not limited to, all “employee benefit plans,” as defined in
\nSection 3(3) of the Employee Retirement Income Security Act of 1974, as amended
\n(“ERISA”)) and all employment, consulting and personal service contracts and
\nagreements (a) sponsored, maintained or contributed to by the Company, (b)
\ncovering or benefiting any current or former officer, employee, agent, director
\nor independent contractor of the Company (or any dependent or beneficiary of any
\nsuch individual), or (c) with respect to which the Company has (or could have)
\nany obligation or liability (such plans, funds, policies, programs, contracts,
\narrangements and payroll practices are hereinafter referred to collectively as
\n“Employee Benefit Plans” and each individually as an “Employee Benefit Plan”).
\nThe Company does not have any agreement, arrangement, commitment or obligation
\nto create (or contribute to) any additional employee benefit plan, fund, policy,
\nprogram, contract, arrangement or payroll practice or to modify or amend any
\nexisting Employee Benefit Plan. There has been no amendment, written
\ninterpretation or announcement (whether or not written) by the Company relating
\nto, or change in participation or coverage under, any Employee Benefit Plan
\nthat, either alone or together with other such items or events, could materially
\nincrease the expense of maintaining the Employee Benefit Plans above the level
\nof expense incurred with respect thereto for the most recent fiscal year
\nincluded in the Financial Statements.<\/p>\n
2.13.2 DOCUMENTS PROVIDED<\/p>\n
The Company has delivered to Amazon.com or its counsel true, correct and
\ncomplete copies (or, in the case of unwritten Employee Benefit Plans,
\ndescriptions) of all Employee Benefit Plans (and all amendments thereto), along
\nwith, to the extent applicable to the particular Employee Benefit Plan, the
\nfollowing information: (a) copies of the last three annual reports (Form 5500
\nseries) filed with respect to such Employee Benefit Plan; (b) copies of the
\nsummary plan descriptions, summaries of material modifications and all material
\nemployee manuals or communications filed or distributed with respect to such
\nEmployee Benefit Plan during the last three years; <\/p>\n
-25-<\/p>\n
32
\n(c) copies of all contracts (and any amendments thereto) relating to such
\nEmployee Benefit Plan, including, but not limited to, service provider
\nagreements, administrative service agreements, insurance contracts, annuity
\ncontracts, investment management agreements and record-keeping agreements; and
\n(d) the most recent determination, opinion, notification or advisory letter
\nissued by the IRS with respect to such Employee Benefit Plan.<\/p>\n
2.13.3 COMPLIANCE<\/p>\n
With respect to each Employee Benefit Plan, (a) such Employee Benefit
\nPlan is, and at all times since its inception has been, maintained, administered
\nand operated in all material respects in accordance with its terms and in
\ncompliance with all applicable laws, statutes, orders, rules and regulations,
\nand all requirements prescribed thereby, including, but not limited to, ERISA
\nand the Code; (b) all amendments and actions required to bring such Employee
\nBenefit Plan into conformity with the applicable provisions of ERISA, the Code
\nand other applicable laws and regulations have been made or taken within the
\ntime prescribed by law, except to the extent that such amendments or actions are
\nnot required by law to be made or taken until after the Closing Date; (c) the
\nCompany, each fiduciary of such Employee Benefit Plan and all other Persons
\nhave, at all times, properly performed all obligations, whether arising by
\noperation of law or by contract, required to be performed by each of them in
\nconnection with such Employee Benefit Plan; (d) all returns, reports and other
\ndisclosures relating to such Employee Benefit Plan required to be filed with any
\ngovernmental entity or agency or furnished to any participant or beneficiary
\nhave been properly completed or prepared and timely filed or furnished in
\naccordance with applicable law; (e) neither the Company nor any other fiduciary
\nof such Employee Benefit Plan has engaged in any transaction or acted or failed
\nto act in a manner that violates the fiduciary requirements of ERISA or any
\nother applicable law; and (f) no event has occurred or is threatened or about to
\noccur that constitutes or could constitute a nonexempt prohibited transaction
\nunder Section 406 or 407 of ERISA or under Section 4975 of the Code. Each
\nEmployee Benefit Plan that constitutes a “group health plan,” as defined in
\nSection 607(1) or 733(a)(1) of ERISA or Section 4980B(g)(2) of the Code, has
\nbeen maintained, administered and operated at all times since its inception in
\ncompliance in all material respects with (and the Company has never violated, in
\nany material respect, any of) the requirements of Parts 6 and 7 of Subtitle B of
\nTitle I of ERISA, Section 4980B(f) of the Code, any regulations under such ERISA
\nand Code sections and any other applicable federal, state, local or foreign law
\nregarding the provision or continuation of health insurance coverage or other
\nwelfare benefits (within the meaning of Section 3(1) of ERISA). Each Employee
\nBenefit Plan that is intended to be qualified under Section 401(a) of <\/p>\n
-26-<\/p>\n
33
\nthe Code is, and at all times since its inception has been, so qualified and its
\nrelated trust or annuity contract is, and at all times since its inception has
\nbeen, exempt from taxation under Section 501(a) of the Code, and each such
\nEmployee Benefit Plan (and its related trust(s) and\/or annuity contract(s)) is
\nthe subject of an unrevoked favorable determination, opinion, notification or
\nadvisory letter from the IRS to that effect or has remaining a period of time
\nunder applicable Treasury regulations or IRS pronouncements in which to apply
\nfor such a letter and to make any amendments necessary to obtain it. Nothing has
\noccurred since the most recent favorable determination, opinion, notification or
\nadvisory letter issued with respect to each such Employee Benefit Plan, and no
\ncircumstances exist or are reasonably expected by the Company to occur, that
\ncould cause the Company (or such Employee Benefit Plan) to lose its ability to
\nrely on such determination letter or could cause the IRS to revoke such
\ndetermination letter. No event or omission has occurred, or is reasonably
\nexpected by the Company to occur (including, but not limited to, any of the
\ntransactions contemplated in or by this Agreement), with respect to any Employee
\nBenefit Plan that has or could subject, directly or indirectly, the Company or
\nany other Person to a tax under Chapter 43 of Subtitle D of the Code or a
\npenalty under Part 5 of Subtitle B of Title I of ERISA.<\/p>\n
2.13.4 CONTRIBUTIONS AND PREMIUM PAYMENTS<\/p>\n
All contributions, premiums and other payments due or required to be
\nmade to each Employee Benefit Plan under the terms of such Employee Benefit
\nPlan, ERISA, the Code or other applicable law have been timely paid, or, if not
\nyet due, have been properly recorded on the books of the Company.<\/p>\n
2.13.5 RELATED EMPLOYERS<\/p>\n
The Company is not, and has never been, a member of (a) a controlled
\ngroup of corporations, within the meaning of Section 414(b) of the Code, (b) a
\ngroup of trades or businesses under common control, within the meaning of
\nSection 414(c) of the Code, (c) an affiliated service group, within the meaning
\nof Section 414(m) of the Code, or (d) any other group of Persons treated as a
\nsingle employer under Section 414(o) of the Code.<\/p>\n
2.13.6 MULTIEMPLOYER AND TITLE IV PLANS<\/p>\n
The Company does not maintain or contribute to, and has never maintained
\nor contributed to (or been obligated to contribute to), any multiemployer plan
\nas defined in Section 3(37) or Section 4001(a)(3) of ERISA or 414(f) of the
\nCode, any multiple employer plan within the meaning of Section 4063 or 4064 of
\nERISA or <\/p>\n
-27-<\/p>\n
34
\nSection 413(c) of the Code, or any employee benefit plan, fund, program,
\ncontract or arrangement that is subject to Section 412 of the Code, Section 302
\nof ERISA or Title IV of ERISA.<\/p>\n
2.13.7 POST-TERMINATION WELFARE BENEFITS<\/p>\n
Except as set forth on Schedule 2.13.7 to the Disclosure Memorandum,
\nneither the Company nor any Employee Benefit Plan provides or has any obligation
\nto provide (or contribute toward the cost of) health, severance or any other
\nwelfare benefits (within the meaning of Section 3(1) of ERISA) with respect to
\nany current or former officer, employee, agent, director or independent
\ncontractor of the Company or any other entity beyond such individual’s
\nretirement or other termination of service, other than continuation coverage
\nmandated by Sections 601 through 608 of ERISA or Section 4980B(f) of the Code.<\/p>\n
2.13.8 SUITS, CLAIMS AND INVESTIGATIONS<\/p>\n
There are no actions, suits or claims (other than routine claims for
\nbenefits) pending or, to the Company’s knowledge, threatened with respect to (or
\nagainst the assets of) any Employee Benefit Plan, nor, to the Company’s
\nknowledge, is there a basis for any such action, suit or claim. No Employee
\nBenefit Plan is currently under investigation, audit or review, directly or
\nindirectly, by the IRS, the Department of Labor (the “DOL”) or any other
\ngovernmental entity or agency, and, to the Company’s knowledge, no such action
\nis contemplated or under consideration by the IRS, the DOL or any other
\ngovernmental entity or agency.<\/p>\n
2.13.9 PAYMENTS RESULTING FROM TRANSACTIONS<\/p>\n
Neither the execution and delivery of this Agreement or any of the other
\nOperative Documents nor the consummation of the transactions contemplated in (or
\nby) this Agreement or any of the other Operative Documents will (a) entitle any
\ncurrent or former officer, employee, agent, director or independent contractor
\nof the Company to severance pay, unemployment compensation or any other payment
\nfrom the Company or any other Person, or otherwise increase the amount of
\ncompensation due to any such individual, or (b) result in any benefit or right
\nbecoming established or increased, or accelerate the time of payment or vesting
\nof any benefit, under any Employee Benefit Plan, whether or not some other
\nsubsequent action or event would be required to trigger any of the items
\nspecified in (a) or (b) above.<\/p>\n
-28-<\/p>\n
35
\n2.14 INTELLECTUAL PROPERTY<\/p>\n
2.14.1 GENERAL<\/p>\n
The Company owns or is licensed or otherwise possesses the right to use
\nthe following as required to conduct its business as now conducted and as
\nproposed to be conducted except where the failure to own, license or possess the
\nright to use would not have a Company Material Adverse Effect, individually or
\nin the aggregate: (a) all products, tools, computer programs, specifications,
\nsource code, object code, graphics, devices, techniques, algorithms, methods,
\nprocesses, procedures, packaging, trade dress, formulae, drawings, designs,
\nimprovements, discoveries, concepts, user interfaces, “look and feel,” software,
\ndevelopment and other tools, content, inventions (whether or not patentable or
\ncopyrightable and whether or not reduced to practice), designs, logos, themes,
\nknow-how, concepts and other technology that are now, or during the two years
\nprior to the date of this Agreement have been, developed, produced, used,
\nmarketed or sold by the Company (collectively, the “Technology-Related Assets”);
\nand (b) all intellectual property and other proprietary rights in the
\nTechnology-Related Assets, including, without limitation, all trade names,
\ntrademarks, domain names, service marks, logos, brand names and other
\nidentifiers, trade secrets, copyrights, and domestic and foreign letters patent,
\nand the registrations, applications, renewals, extensions and continuations (in
\nwhole or in part) thereof, all goodwill associated therewith, and all rights and
\ncauses of action for infringement, misappropriation, misuse, dilution or unfair
\ntrade practices associated therewith.<\/p>\n
2.14.2 COMPANY TECHNOLOGY<\/p>\n
Schedule 2.14.2 to the Disclosure Memorandum sets forth a list that is
\ncomplete in all material respects of all products and tools developed, produced,
\nused, marketed or sold by the Company during the two years prior to the date of
\nthis Agreement (collectively, the “Products”). Except for the Third Party
\nTechnologies (as defined in Section 2.14.3), the Company owns all right, title
\nand interest in and to the following technology used to conduct its business as
\ncurrently conducted or as proposed to be conducted (collectively, the
\n“Technology”), free and clear of all Encumbrances (other than interests in
\nlicenses granted by the Company, all of which are either disclosed in the
\nDisclosure Memorandum or, under the terms of this Agreement, are not required to
\nbe so disclosed): (a) the Products, together with any and all codes, techniques,
\nsoftware tools, formats, designs, user interfaces, content and “look and feel”
\nembodied therein prior to the date of Closing; (b) any and all updates,
\nenhancements, corrections, modifications, improvements and new releases
\ndeveloped or obtained by or for the Company to the items set forth in clause (a)
\nabove prior to the date of Closing; (c) any and all technology and work in
\nprogress developed or obtained by or for the Company <\/p>\n
-29-<\/p>\n
36
\nrelated to the items set forth in clauses (a) and (b) above prior to the date of
\nClosing; and (d) all inventions, discoveries, processes, designs, trade secrets,
\nknow-how and other confidential or proprietary information developed or obtained
\nby or for the Company related to the items set forth in clauses (a), (b) and (c)
\nabove prior to the date of Closing. The Technology, excluding the Third Party
\nTechnologies, is sometimes referred to herein as the “Company Technology.”<\/p>\n
2.14.3 THIRD PARTY TECHNOLOGY<\/p>\n
Schedule 2.14.3 to the Disclosure Memorandum sets forth a list that is
\ncomplete in all material respects, subject to the exception(s) set forth
\ntherein, of all Technology used in the Company’s business as currently conducted
\nor as proposed to be conducted for which the Company does not own all right,
\ntitle and interest (collectively, the “Third Party Technologies”), and all
\nmaterial license agreements or other material contracts pursuant to which the
\nCompany has the right to use (in the manner used by the Company in its business
\nas currently conducted or as proposed to be conducted) the Third Party
\nTechnologies (the “Third Party Licenses”), indicating, with respect to each of
\nthe Third Party Technologies listed therein, the licensor thereof, if any, and
\nthe Third Party License applicable thereto. The Company has the right to use (to
\nthe full extent permitted by the terms of such licenses) all Third Party
\nTechnology that is used in the Company’s business as currently conducted or as
\nproposed to be conducted. All Third Party Licenses are in full force and effect
\nand are valid and binding against the Company and, to the Company’s knowledge,
\nare valid and binding against each other party thereto (but, with respect to
\nsuch other parties only, subject to bankruptcy and similar laws, general
\nprinciples of equity or similar legal theories of unenforceability), and the
\nCompany and, to the Company’s knowledge, each other party thereto have performed
\nin all material respects their obligations thereunder as required as of the date
\nof the Closing, and neither the Company nor, to the Company’s knowledge, any
\nother party thereto is in material default thereunder, nor to the Company’s
\nknowledge has there occurred any event or circumstance which with notice or
\nlapse of time or both would constitute a material default or material event of
\ndefault on the part of the Company or, to the Company’s knowledge, any other
\nparty thereto or give to any other party thereto the right to terminate or
\nmodify any Third Party License for default, except where the failure to have the
\nright to use the Third Party Technology or the failure of any Third Party
\nLicense to be in full force and effect, valid, or binding, or the occurrence of
\nany event of default or other event giving the other party the right to
\nterminate or modify any Third Party License for default would not have a Company
\nMaterial Adverse Effect, individually or in the aggregate. The Company has not
\nreceived notice that any party to any Third Party License intends to cancel,
\nterminate or elect not to renew (if renewable by its terms) such Third Party
\nLicense, except <\/p>\n
-30-<\/p>\n
37
\nwhere the occurrence of such cancellation, termination or non-renewal would not
\nhave a Company Material Adverse Effect, individually or in the aggregate.<\/p>\n
2.14.4 TRADEMARKS<\/p>\n
Schedule 2.14.4 to the Disclosure Memorandum sets forth a list that is
\ncomplete in all material respects of (a) all trademarks, trade names, brand
\nnames, service marks, logos or other identifiers used on or in connection with
\nProducts or otherwise used by the Company in its business as currently conducted
\nor as proposed to be conducted and which are owned or claimed to be owned by the
\nCompany (collectively, the “Company Marks”), and (b) all trademarks, trade
\nnames, brand names, service marks, logos or other identifiers used on or in
\nconnection with Products or otherwise used by the Company in its business as
\ncurrently conducted or as proposed to be conducted and which are not owned or
\nclaimed to be owned by the Company (the “Licensed Marks”). The Company has full
\nlegal and beneficial ownership, free and clear of any Encumbrances (other than
\ninterests in licenses granted by the Company, all of which are either disclosed
\nin the Disclosure Memorandum or, under the terms of this Agreement, are not
\nrequired to be so disclosed), of all rights conferred by use of the Company
\nMarks in connection with the Products or otherwise in the Company’s business as
\ncurrently conducted and, as to those Company Marks that have been registered by
\nor for the Company in the United States Patent and Trademark Office, by federal
\nregistration of the Company Marks, except where the failure to own or be free
\nand clear of Encumbrances would not have a Company Material Adverse Effect,
\nindividually or in the aggregate. The Company has the right to use the Licensed
\nMarks as required to conduct its business as now conducted, except where the
\nfailure to have such right would not have a Company Material Adverse Effect,
\nindividually or in the aggregate.<\/p>\n
2.14.5 INTELLECTUAL PROPERTY RIGHTS<\/p>\n
Schedule 2.14.5 to the Disclosure Memorandum sets forth all patents,
\npatent applications, copyright registrations (and applications therefor) and
\ntrademark registrations (and applications therefor) filed or obtained by or for
\nthe Company with respect to the Company Technology and the Company Marks
\n(collectively, the “IP Registrations”). The Company owns all right, title and
\ninterest, free and clear of any Encumbrances (other than interests in licenses
\ngranted by the Company, all of which are either disclosed in the Disclosure
\nMemorandum or, under the terms of this Agreement, are not required to be so
\ndisclosed), in and to the IP Registrations, and the Company owns all right,
\ntitle and interest, or otherwise possesses sufficient legally enforceable rights
\nto conduct its business as currently conducted and as proposed to be conducted,
\nfree and clear of any Encumbrances (other than interests in licenses granted <\/p>\n
-31-<\/p>\n
38
\nby the Company, all of which are either disclosed in the Disclosure Memorandum
\nor, under the terms of this Agreement, are not required to be so disclosed) in
\nand to any other rights in or to any copyrights (registered or unregistered),
\nrights in the Company Marks (registered or unregistered), trade secret rights
\nand other intellectual property rights (including, without limitation, rights of
\nenforcement) contained or embodied in the Company Technology and the Company
\nMarks (collectively, the “IP Rights”).<\/p>\n
2.14.6 MAINTENANCE OF RIGHTS<\/p>\n
Except as set forth on Schedule 2.14.6 to the Disclosure Memorandum,
\nwithout any implication that Company shall have had or have any obligation to
\nfile or maintain any registrations or applications of IP Rights, the Company has
\nnot conducted its business, and has not used or enforced (or, to its knowledge,
\nfailed to use or enforce) the IP Rights, in a manner that has resulted or will
\nresult in the abandonment, cancellation or unenforceability of any material item
\nof the IP Rights or the IP Registrations, and to the Company’s knowledge the
\nCompany has not taken (or, to its knowledge, failed to take) any action that has
\nresulted or will result in the forfeiture or relinquishment of any material item
\nof the IP Rights or IP Registrations, except where such abandonment,
\ncancellation, unenforceability, forfeiture or relinquishment would not have a
\nCompany Material Adverse Effect, individually or in the aggregate. Except as set
\nforth in Schedule 2.14.6 of the Disclosure Memorandum, the Company has not
\nentered into any material agreements granting to any third party any rights or
\npermissions to use any of the Technology or the IP Rights. To the Company’s
\nknowledge, except pursuant to a written nondisclosure agreement or other
\nreasonably prudent safeguards, (a) no third party has received from the Company
\nany information maintained or required to be maintained as confidential by the
\nCompany relating to the Technology or the IP Rights, and (b) the Company is not
\nunder any contractual or other obligation to disclose to any third party any
\ninformation maintained or required to be maintained as confidential by the
\nCompany relating to the Company Technology.<\/p>\n
2.14.7 THIRD PARTY INFRINGEMENT<\/p>\n
Except as set forth on Schedule 2.14.7 to the Disclosure Memorandum, (a)
\nno claim has been made (whether written, oral or otherwise) challenging the
\nCompany’s ownership or rights in any material item of the Company Technology or
\nthe IP Rights or claiming that any other person or entity has any legal or
\nbeneficial ownership with respect thereto; (b) all the IP Rights are legally
\nvalid and enforceable without any material qualification, limitation or
\nrestriction on their use (to the fullest extent permitted by law and except for
\nlicenses granted by the Company which are either disclosed in the Disclosure
\nMemorandum or, under the terms of this Agreement, are not required to be so
\ndisclosed) and no claim has been made (whether written, oral or <\/p>\n
-32-<\/p>\n
39
\notherwise) challenging the validity or enforceability of any material item of
\nthe IP Rights; and (c) to the Company’s knowledge, no other person or entity is
\ninfringing or misappropriating any part of the IP Rights or otherwise making any
\nunauthorized use of the Company Technology.<\/p>\n
2.14.8 INFRINGEMENT BY THE COMPANY<\/p>\n
Except as set forth on Schedule 2.14.8 to the Disclosure Memorandum, (a)
\nthe use of any of the Company Technology in the Company’s business as currently
\nconducted or as proposed to be conducted does not and will not infringe, violate
\nor constitute a misappropriation of any right, title or interest (including,
\nwithout limitation, any patent, copyright, trademark or trade secret right) held
\nby any other person or entity, and no claims have been made with respect
\nthereto; (b) the use of any of the Company Marks, and other IP Rights in the
\nCompany’s business as currently conducted or as proposed to be conducted does
\nnot and will not infringe, violate or constitute a misappropriation of any
\nright, title or interest (including, without limitation, any patent, copyright,
\ntrademark or trade secret right) held by any other person or entity, and no
\nclaims have been made with respect thereto; and (c) no claims have been made
\n(whether written, oral or otherwise) regarding any infringement,
\nmisappropriation, misuse, or abuse of, or other interference with, any third
\nparty intellectual property or proprietary rights (including, without
\nlimitation, infringement of any patent, copyright, trademark or trade secret
\nright of any third party) by the Company, the Company Technology, the Company
\nMarks, the IP Rights, or the Company’s use of the Licensed Marks or claiming
\nthat any other entity has any claim of infringement with respect thereto.<\/p>\n
2.14.9 CONFIDENTIALITY<\/p>\n
Except as set forth on Schedule 2.14.9 to the Disclosure Memorandum, (a)
\nthe Company has not disclosed any source code regarding the Technology to any
\nperson or entity other than an employee of the Company or under a written
\nnondisclosure agreement; (b) the Company has at all times maintained and
\ndiligently enforced commercially reasonable procedures to protect all
\ninformation maintained or required to be maintained as confidential by Company
\nrelating to the Technology, and the Company’s use of the Company Technology in
\nits business as currently conducted or proposed to be conducted does not and
\nwill not breach any agreement between the Company and a third party to maintain
\ninformation as confidential; (c) neither the Company nor any escrow agent is
\nunder any contractual or other obligation to disclose the source code or any
\nother information maintained or required to be maintained as confidential by the
\nCompany included in or relating to the Technology, except, as to such
\nconfidential information only, where such disclosure of confidential information<\/p>\n
-33-<\/p>\n
40
\nis made pursuant to written nondisclosure agreements or covenants entered in the
\nordinary course of its business and which are disclosed in Section 2.14.6 of the
\nDisclosure Memorandum or, under the terms of this Agreement, are not required to
\nbe so disclosed therein; and (d) the Company has not deposited any source code
\nrelating to the Technology into any source code escrows or similar arrangements.
\nIf, as disclosed on Schedule 2.14.9, the Company has deposited any source code
\nto the Technology into source code escrows or similar arrangements, no event has
\noccurred that has formed or could reasonably form the basis for a release of
\nsuch source code from such escrows or arrangements.<\/p>\n
2.14.10 WARRANTY AGAINST DEFECTS<\/p>\n
Except as set forth in Schedule 2.14.10 to the Disclosure Memorandum or
\nas otherwise set forth in this Section 2.14.10, and except where such failure to
\nconform would not have a Company Material Adverse Effect, individually or in the
\naggregate, and solely with respect to the Company Technology, the Company has
\nused reasonable commercial efforts to design the Technology to substantially
\nconform to the specifications set forth in such Schedule (“Specifications”), but
\nthe Technology is not functionally complete and has not been tested or operated
\nin a production or pre-production environment, and there can be no assurance the
\nTechnology conforms to the specifications in whole or in part, or that the
\nTechnology will function in whole or in part when tested or operated in a
\nproduction or pre-production environment. THE COMPANY TECHNOLOGY IS NEWLY
\nDEVELOPED AND UNTESTED AND EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS
\nAGREEMENT, THE TECHNOLOGY IS PROVIDED ON AN AS-IS BASIS WITH ALL DEFECTS AND
\nWITHOUT ANY EXPRESS OR IMPLIED WARRANTY, AND COMPANY EXPRESSLY DISCLAIMS ANY
\nIMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY OR
\nOTHERWISE. WITHOUT LIMITING THE FOREGOING, EXCEPT AS OTHERWISE EXPRESSLY SET
\nFORTH IN THIS AGREEMENT, THE COMPANY DOES NOT WARRANT THAT THE TECHNOLOGY IS
\nFREE FROM DEFECTS OR OTHER DEFICIENCIES, INCLUDING WITHOUT LIMITATION DESIGN
\nDEFECTS, THAT THE TECHNOLOGY WILL FUNCTION WITHOUT ERROR OR INTERRUPTION, OR AT
\nALL, OR IN COMBINATION WITH THIRD-PARTY SOFTWARE, HARDWARE OR SYSTEMS, INCLUDING
\nWITHOUT LIMITATION THIRD-PARTY BANKING, PAYMENT AND\/OR RISK ASSESSMENT SYSTEMS,
\nTHAT THE TECHNOLOGY CONFORMS TO ANY APPLICABLE REGULATORY OR LEGAL REQUIREMENTS;
\nOR THAT THE TECHNOLOGY WILL OPERATE IN ANY PRE-PRODUCTION OR PRODUCTION
\nENVIRONMENT OR AT ANY <\/p>\n
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41
\nVOLUME LEVELS OR BE SUITABLE FOR SURVIVING CORPORATION’S PURPOSES.<\/p>\n
2.14.11 DOMAIN NAMES<\/p>\n
Schedule 2.14.11 to the Disclosure Memorandum sets forth a list of all
\nInternet domain names used by the Company in its business as presently conducted
\nor proposed to be conducted (collectively, the “Domain Names”). The Company has
\na valid registration with the domain name authority or authorities with which
\nthe Domain Names are registered, and to the Company’s knowledge, after the date
\nof the Closing the Surviving Corporation will have, subject to any transfer
\nrequirements or restrictions imposed by InterNIC or any other domain name
\nregistration authorities having jurisdiction, and the payment of any fees and
\nexecution of all transfer documents as required by such authorities, and subject
\nto the transferability or nontransferability of any agreement with such
\nauthorities relating to the Domain Names, a valid registration with the domain
\nname authority or authorities with which the Domain Names are registered.<\/p>\n
2.14.12 YEAR 2000<\/p>\n
Except as set forth in Schedule 2.14.10 to the Disclosure Memorandum or
\nas otherwise set forth in this Section 2.14.12, and except where such failure to
\nconform would not have a Company Material Adverse Effect, individually or in the
\naggregate, to the extent Year 2000 Compliance of the Company Technology is
\nexpressly set forth in the Specifications, and solely with respect to the
\nCompany Technology, the Company has used reasonable commercial efforts to design
\nthe Company Technology to substantially conform to the Specifications for the
\nCompany Technology for Year 2000 Compliance, but the Technology is not
\nfunctionally complete and has not been tested or operated in a production or
\npre-production environment, and there can be no assurance the Technology
\nconforms to the specifications regarding Year 2000 Compliance in whole or in
\npart, or that the Technology will function in whole or in part in a manner that
\nis in Year 2000 Compliance when tested or operated in a production or
\npre-production environment. As used herein, “Year 2000 Compliance” means: (i)
\naccurately process date data (including, but not limited to, calculating,
\ncomparing and sequencing) from, into and between the twentieth and twenty-first
\ncenturies, including, without limitation, leap year calculations, without a
\nmaterial decrease in the functionality of the Software due to the processing of
\nsuch date-related data, (ii) use prior to, during and after the calendar year
\n2000 and will operate during each such time period without error relating to
\ndate data, specifically including any error relating to, or the product of, date
\ndata which represents or references different centuries or more than one
\ncentury; (iii) not abnormally end or provide invalid or <\/p>\n
-35-<\/p>\n
42
\nincorrect results as a result of date data, specifically including date data
\nwhich represents or references different centuries or more than one century;
\n(iv) accommodate date data century recognition, calculations which accommodate
\nsame century and multi-century formulas and date values, and date data interface
\nvalues that reflect the century; and (v) manage and manipulate data involving
\ndates, including single century formulas and multicentury formulas, and will not
\ncause an abnormally ending scenario within the application or generate incorrect
\nvalues or invalid results involving such dates; (vi) provide that all
\ndate-related user interface functionalities and data fields include the
\nindication of century; and (viii) provide that all date-related data interface
\nfunctionalities include the indication of century. THE COMPANY TECHNOLOGY IS
\nNEWLY DEVELOPED AND UNTESTED AND EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS
\nAGREEMENT THE TECHNOLOGY IS PROVIDED ON AN AS-IS BASIS WITH ALL YEAR 2000
\nCOMPLIANCE DEFECTS AND OTHER DEFECTS AND WITHOUT ANY EXPRESS OR IMPLIED
\nWARRANTY, AND COMPANY EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES OF FITNESS FOR
\nA PARTICULAR PURPOSE, MERCHANTABILITY OR OTHERWISE. WITHOUT LIMITING THE
\nFOREGOING, EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, THE
\nCOMPANY DOES NOT WARRANT THAT THE TECHNOLOGY IS FREE FROM YEAR 2000 COMPLIANCE
\nDEFECTS OR OTHER YEAR 2000 COMPLIANCE DEFICIENCIES, INCLUDING WITHOUT LIMITATION
\nDESIGN DEFECTS, THAT THE TECHNOLOGY AS PERTAINING TO YEAR 2000 COMPLIANCE WILL
\nFUNCTION WITHOUT ERROR OR INTERRUPTION, OR AT ALL, OR IN COMBINATION WITH
\nTHIRD-PARTY SOFTWARE, HARDWARE OR SYSTEMS, INCLUDING WITHOUT LIMITATION
\nTHIRD-PARTY BANKING, PAYMENT AND\/OR RISK ASSESSMENT SYSTEMS, THAT THE TECHNOLOGY
\nAS PERTAINING TO YEAR 2000 COMPLIANCE CONFORMS TO ANY APPLICABLE REGULATORY OR
\nLEGAL REQUIREMENTS; OR THAT THE TECHNOLOGY AS PERTAINING TO YEAR 2000 COMPLIANCE
\nWILL OPERATE IN ANY PRE-PRODUCTION OR PRODUCTION ENVIRONMENT OR AT ANY VOLUME
\nLEVELS OR BE SUITABLE FOR SURVIVING CORPORATION’S PURPOSES.<\/p>\n
2.14.13 INDEMNIFICATION<\/p>\n
Except as set forth in Schedule 2.14.6 of the Disclosure Memorandum, the
\nCompany has not entered into any agreement to indemnify any Person (other than
\nshareholders, directors and\/or officers of the Company) against any claim of
\ninfringement by the Technology or IP Rights or any other third party
\nintellectual property right relating to the Technology. Except as set forth in
\nSchedule 2.14.6 of the <\/p>\n
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43
\nDisclosure Memorandum, the Company has not entered into any material agreement
\ngranting any Person the right to bring any infringement action with respect to,
\nor otherwise to enforce, any of the Technology or IP Rights.<\/p>\n
2.14.14 RESTRICTIONS ON INTELLECTUAL PROPERTY<\/p>\n
To the Company’s knowledge, except in their capacity on behalf of the
\nCompany, none of the Company’s officers or employees has entered into any
\nagreement inconsistent with the Company’s rights to the Company Technology
\nregarding know-how, trade secrets, assignment of rights in inventions, or
\nprohibition or restriction of competition or solicitation of customers, or any
\nother similar restrictive agreement or covenant, inconsistent with the Company’s
\nrights to the Company Technology, whether written or oral, with any Person other
\nthan the Company during the period in which such officer or employee was
\nemployed with or engaged by the Company.<\/p>\n
2.15 CORPORATE BOOKS AND RECORDS<\/p>\n
Except as set forth on Schedule 2.15 to the Disclosure Memorandum, the
\nCompany has furnished to Amazon.com or its representatives for their examination
\ntrue and complete copies of (a) the Articles of Incorporation and Bylaws of the
\nCompany as currently in effect, including all amendments thereto, (b) the minute
\nbooks of the Company, and (c) the stock transfer books of the Company. Such
\nminutes reflect all meetings of the Company’s shareholders, Board of Directors
\nand any committees thereof since the Company’s inception, and such minutes
\naccurately reflect in all material respects the events of and actions taken at
\nsuch meetings. Such stock transfer books accurately reflect all issuances and
\ntransfers of shares of capital stock of the Company since its inception.<\/p>\n
2.16 LICENSES, PERMITS, AUTHORIZATIONS, ETC.<\/p>\n
Except as identified on Schedules 2.1 and 2.5 to the Disclosure
\nMemorandum, the Company has received all currently required governmental
\napprovals, authorizations, consents, licenses, orders, registrations and permits
\nof all agencies, whether federal, state, local or foreign, the failure to obtain
\nof which would have a Company Material Adverse Effect. The Company has not
\nreceived any notifications of any asserted present failure by it to have
\nobtained any such governmental approval, authorization, consent, license, order,
\nregistration or permit, or past and unremedied failure to obtain such items.<\/p>\n
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44
\n2.17 COMPLIANCE WITH LAWS<\/p>\n
Except as described on Schedule 2.17 to the Disclosure Memorandum, the
\nCompany is in compliance with all federal, state, local and foreign laws, rules,
\nregulations, ordinances, decrees and orders applicable to it, to its employees
\nor to the Real Property and the Personal Property, including, without
\nlimitation, all such laws, rules, regulations, ordinances, decrees and orders
\nrelating to intellectual property protection, antitrust matters, consumer
\nprotection, currency exchange, environmental protection, equal employment
\nopportunity, health and occupational safety, pension and employee benefit
\nmatters, securities and investor protection matters, labor and employment
\nmatters and trading-with-the-enemy matters, except where the failure of the
\nCompany to so comply would not have a Company Material Adverse Effect. The
\nCompany has not received any notification of any asserted present or past
\nunremedied failure by the Company to comply with any of such laws, rules,
\nregulations, ordinances, decrees or orders.<\/p>\n
2.18 INSURANCE<\/p>\n
Schedule 2.18 to the Disclosure Memorandum sets forth a true and correct
\nlist of all insurance policies maintained by the Company. The Company maintains
\ncommercially reasonable levels of (a) insurance on its property (including
\nleased premises) that insures against loss or damage by fire or other casualty
\nand (b) insurance against liabilities, claims and risks of a nature and in such
\namounts as are normal and customary in the Company’s industry for companies of
\nsimilar size and financial condition. All insurance policies of the Company are
\nin full force and effect, all premiums with respect thereto covering all periods
\nup to and including the date this representation is made have been paid, and no
\nnotice of cancellation or termination has been received with respect to any such
\npolicy or binder. Such policies or binders are sufficient for compliance with
\nall requirements of law currently applicable to the Company and of all
\nagreements to which the Company is a party, will remain in full force and effect
\nthrough the respective expiration dates of such policies or binders without the
\npayment of additional premiums, and will not in any way be affected by, or
\nterminate or lapse by reason of, the transactions contemplated by this
\nAgreement. The Company has not been refused any insurance with respect to its
\nassets or operations, nor has its coverage been limited, by any insurance
\ncarrier to which it has applied for any such insurance or with which it has
\ncarried insurance.<\/p>\n
2.19 BROKERS OR FINDERS<\/p>\n
The Company has not incurred, and will not incur, directly or
\nindirectly, as a result of any action taken by or on behalf of the Company, any
\nliability for brokerage <\/p>\n
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45
\nor finders’ fees or agents’ commissions or any similar charges in connection
\nwith the Merger, this Agreement or any transaction contemplated hereby.<\/p>\n
2.20 ABSENCE OF QUESTIONABLE PAYMENTS<\/p>\n
Neither the Company nor any director, officer, agent, employee or other
\nPerson acting on behalf of the Company has used any Company funds for improper
\nor unlawful contributions, payments, gifts or entertainment, or made any
\nimproper or unlawful expenditures relating to political activity to domestic or
\nforeign government officials or others. The Company has reasonable financial
\ncontrols to prevent such improper or unlawful contributions, payments, gifts,
\nentertainment or expenditures. Neither the Company nor any current director,
\nofficer, agent, employee or other Person acting on behalf of the Company has
\naccepted or received any improper or unlawful contributions, payments, gifts or
\nexpenditures. The Company has at all times complied, and is in compliance, in
\nall respects with the Foreign Corrupt Practices Act and all foreign laws and
\nregulations relating to prevention of corrupt practices and similar matters.<\/p>\n
2.21 BANK ACCOUNTS<\/p>\n
Schedule 2.21 to the Disclosure Memorandum sets forth the names and
\nlocations of all banks, trust companies, savings and loan associations and other
\nfinancial institutions at which the Company maintains safe deposit boxes or
\naccounts of any nature and the names of all Persons authorized to draw thereon,
\nmake withdrawals therefrom or have access thereto.<\/p>\n
2.22 INSIDER INTERESTS<\/p>\n
Except as set forth on Schedule 2.22 to the Disclosure Memorandum, no
\nShareholder or officer or director of the Company has any interest (other than
\nas a Shareholder) (a) in any Real Property, Personal Property, Technology or IP
\nRights used in or pertaining to the business of the Company, including, without
\nlimitation, inventions, patents, trademarks or trade names, or (b) in any
\nagreement, contract, arrangement or obligation relating to the Company, its
\npresent or prospective business or its operations. Except as set forth on
\nSchedule 2.22 to the Disclosure Memorandum, there are no agreements,
\nunderstandings or proposed transactions between the Company and any of its
\nofficers, directors, shareholders, affiliates or any affiliate thereof. The
\nCompany and its officers and directors and, to the knowledge of the Company, its
\nshareholders have no interest, either directly or indirectly, in any entity,
\nincluding, without limitation, any corporation, partnership, joint venture,
\nproprietorship, firm, licensee, business or association (whether as an employee,
\nofficer, <\/p>\n
-39-<\/p>\n
46
\ndirector, shareholder, agent, independent contractor, security holder, creditor,
\nconsultant or otherwise) that presently (i) provides any services, produces
\nand\/or sells any products or product lines, or engages in any activity that is
\nthe same, similar to or competitive with any activity or business in which the
\nCompany is now engaged or proposes to engage; (ii) is a supplier, customer or
\ncreditor; or (iii) has any direct or indirect interest in any asset or property,
\nreal or personal, tangible or intangible, of the Company or any property, real
\nor personal, tangible or intangible, that is necessary or desirable for the
\npresent or currently anticipated future conduct of the Company’s business.<\/p>\n
2.23 COMPLIANCE WITH ENVIRONMENTAL LAWS<\/p>\n
Neither the Company nor, to the Company’s knowledge, any other Person
\n(including, without limitation, any previous owner, lessee or sublessee) has
\ntreated, stored or disposed of any material amounts of petroleum products,
\nhazardous waste, hazardous substances, pollutants or contaminants on the Real
\nProperty, or any real property previously owned, leased, subleased or used by
\nthe Company in the operation of its business, in violation of any applicable
\nforeign, federal, state or local statutes, regulations or ordinances, or common
\nlaw, in each case as in existence at or prior to the Closing. To the Company’s
\nknowledge, there have been no releases of any material amounts of petroleum,
\npetroleum products, hazardous waste, hazardous substances, pollutants or
\ncontaminants on, at or from any assets or properties, including, without
\nlimitation, the Real Property, owned, leased, subleased or used by the Company
\nin the operation of its business during the time such assets or properties were
\nowned, leased, subleased or used by the Company (or, to the Company’s knowledge,
\nprior to such time), including, without limitation, any releases of any material
\namounts of petroleum, petroleum products, hazardous waste, hazardous substances,
\npollutants or contaminants in violation of any law.<\/p>\n
2.24 FULL DISCLOSURE<\/p>\n
Except as set forth in Schedule 2.24 of the Disclosure Memorandum, no
\ninformation furnished by the Company to Amazon.com or its representatives in
\nconnection with this Agreement (including, but not limited to, the Financial
\nStatements and all information in the Disclosure Memorandum and the other
\nExhibits hereto) or the other Operative Documents contains any untrue statement
\nof a material fact or omits to state a material fact necessary in order to make
\nthe statements so made or information so delivered not misleading.<\/p>\n
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47
\n2.25 HART-SCOTT-RODINO<\/p>\n
The Company is its own ultimate parent entity as defined under the rules
\nand regulations promulgated under the Hart-Scott-Rodino Antitrust Improvements
\nAct of 1976, as amended (the “Hart-Scott-Rodino Act”). The Company is not a $10
\nmillion person as defined thereunder.<\/p>\n
2.26 EMPLOYMENT OF REQUIRED EMPLOYEES<\/p>\n
Each of the Required Employees (as defined in Section 4.11) has agreed
\nto accept the Parent’s offer of employment pursuant to Section 6.13, which
\nemployment will be effective as of the Closing.<\/p>\n
2.27 VOTING AGREEMENTS<\/p>\n
As of the date hereof, holders of not less than two-thirds of the
\noutstanding shares of Company Series A Stock and not less than a majority of the
\noutstanding shares of Company Common Stock have executed and delivered to
\nAmazon.com a voting agreement, substantially in the form attached hereto as
\nExhibit 2.27 (the “Voting Agreement”).<\/p>\n
ARTICLE III – REPRESENTATIONS AND WARRANTIES OF
\n AMAZON.COM AND THE PURCHASER<\/p>\n
In order to induce the Company to enter into and perform this Agreement
\nand the other Operative Documents, Amazon.com and the Purchaser jointly and
\nseverally represent and warrant to the Company as follows in this Article III:<\/p>\n
3.1 ORGANIZATION<\/p>\n
Amazon.com is a corporation duly organized validity existing and in good
\nstanding under the laws of the state of Delaware. The Purchaser is a corporation
\nvalidly existing and in good standing under the laws of the State of Delaware.
\nEach of Amazon.com and the Purchaser has all requisite corporate power and
\nauthority to own, operate and lease its respective properties and assets, to
\ncarry on its respective business as now conducted, and as proposed to be
\nconducted and to enter into and perform its obligations under this Agreement and
\nthe other applicable Operative Documents to which Amazon.com or the Purchaser is
\na party, and to consummate the transactions contemplated hereby and thereby.
\nEach of Amazon.com and the Purchaser is duly qualified and licensed as a foreign
\ncorporation to do business and is in good standing in each jurisdiction in which
\nthe character of properties occupied, owned or held under lease by Amazon.com or
\nthe Purchaser, as applicable, or the nature of the business <\/p>\n
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48
\nconducted by Amazon.com or the Purchaser, as applicable, makes such
\nqualification or licensing necessary, except where the failure to be so
\nqualified or in good standing would not have a material adverse effect on the
\nbusiness, operations, assets, liabilities, condition (financial or other) or
\nprospects of Amazon.com (an “Amazon.com Material Adverse Effect”); provided,
\nhowever, that a Amazon.com Material Adverse Effect shall not include any change,
\nevent or effect that relates to or results from (i) the announcement or other
\ndisclosure or consummation of the transactions contemplated by this Agreement,
\n(ii) a general economic downturn, (iii) an economic downturn in Amazon.com’s
\nindustry which does not disproportionately affect Amazon.com, or (iv) changes in
\nthe trading prices of Amazon.com Common Stock. Each of Amazon.com and the
\nPurchaser has full corporate power and authority to execute, deliver and perform
\nthis Agreement and the other Operative Documents to which it is a party, and to
\ncarry out the transactions contemplated hereby and thereby. All the issued and
\noutstanding shares of capital stock of the Purchaser are held of record and
\nbeneficially by Amazon.com.<\/p>\n
3.2 ENFORCEABILITY<\/p>\n
Amazon.com and the Purchaser each have full corporate power and
\nauthority to execute, deliver and perform their obligations under this Agreement
\nand each of the other Operative Documents to which they are a party and each of
\nthe certificates, instruments and documents executed or delivered by them
\npursuant to the terms of this Agreement. All corporate action on the part of
\nAmazon.com and the Purchaser and their respective officers, directors and
\nstockholders necessary for the authorization, execution, delivery and
\nperformance of this Agreement and the other applicable Operative Documents to
\nwhich Amazon.com or the Purchaser is a party, the consummation of the Merger and
\nthe performance of all of their respective obligations under this Agreement and
\nthe other applicable Operative Documents to which Amazon.com or the Purchaser is
\na party has been taken or will be taken prior to the Effective Time. This
\nAgreement has been, and each of the other Operative Documents to which
\nAmazon.com is a party will have been at the Closing, duly executed and delivered
\nby Amazon.com, and this Agreement is, and each of the other Operative Documents
\nto which Amazon.com is a party will be at the Closing, a legal, valid and
\nbinding obligation of Amazon.com, enforceable against Amazon.com in accordance
\nwith its terms, except as to the effect, if any, of (a) applicable bankruptcy
\nand other similar laws affecting the rights of creditors generally, (b) rules of
\nlaw governing specific performance, injunctive relief and other equitable
\nremedies, and (c) the enforceability of provisions requiring indemnification in
\nconnection with the offering, sale or issuance of securities. This Agreement has
\nbeen, and each of the other Operative Documents to which the Purchaser is a
\nparty will have been at the Closing, <\/p>\n
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49
\nduly executed and delivered by the Purchaser, and this Agreement is, and each of
\nthe other Operative Documents to which the Purchaser is a party will be at the
\nClosing, a legal, valid and binding obligation of the Purchaser, enforceable
\nagainst the Purchaser in accordance with its terms, except as to the effect, if
\nany, of (i) applicable bankruptcy and other similar laws affecting the rights of
\ncreditors generally, (ii) rules of law governing specific performance,
\ninjunctive relief and other equitable remedies, and (iii) the enforceability of
\nprovisions requiring indemnification in connection with the offering, sale or
\nissuance of securities.<\/p>\n
3.3 SECURITIES<\/p>\n
The Amazon.com Common Stock to be issued pursuant to this Agreement has
\nbeen, or will be prior to the Effective Time, duly authorized for issuance, and
\nsuch Amazon.com Common Stock, when issued and delivered to the Shareholders
\npursuant to this Agreement, shall be validly issued, fully paid and
\nnonassessable.<\/p>\n
3.4 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICTS WITH INSTRUMENTS<\/p>\n
The execution, delivery and performance of this Agreement and the other
\nOperative Documents by the Purchaser and Amazon.com, as applicable, and the
\nconsummation by them of the transactions contemplated hereby and thereby will
\nnot (a) constitute a violation (with or without the giving of notice or lapse of
\ntime, or both) of any provision of law applicable to Amazon.com or the
\nPurchaser; (b) require any consent, approval or authorization of any Person,
\nexcept (i) compliance with applicable securities laws, (ii) the filing of all
\ndocuments necessary to consummate the Merger with the Delaware Secretary of
\nState and the California Secretary of State and (iii) the notification
\nrequirements of the Hart-Scott-Rodino Act; (c) result in a default (with or
\nwithout the giving of notice or lapse of time, or both) under, or acceleration
\nor termination of, or the creation in any party of the right to accelerate,
\nterminate, modify or cancel, any agreement, lease, note or other restriction,
\nencumbrance, obligation or liability to which Amazon.com or the Purchaser is a
\nparty or by which it is bound or to which any assets of Amazon.com or the
\nPurchaser are subject; or (d) conflict with or result in a breach of or
\nconstitute a default under any provision of the Certificate of Incorporation or
\nBylaws of Amazon.com or of the Purchaser.<\/p>\n
3.5 CAPITALIZATION<\/p>\n
The authorized capital stock of Amazon.com consists of 300,000,000
\nshares of Amazon.com Common Stock, of which 161,371,398 shares were issued and
\noutstanding as of March 31, 1999, and 10,000,000 shares of preferred stock, par
\nvalue $0.01 per share, none of which is issued or outstanding. Such issued and
\noutstanding <\/p>\n
-43-<\/p>\n
50
\nshares of Amazon.com Common Stock are validly issued, fully paid and
\nnonassessable.<\/p>\n
3.6 SEC DOCUMENTS<\/p>\n
Amazon.com has furnished the Shareholders with true and complete copies
\nof its Annual Report on Form 10-K for the fiscal year ended December 31, 1998,
\nall Forms 8-K filed after the date of such Form 10-K, and its Proxy Statement
\nrelating to its 1999 Annual Meeting of Shareholders (collectively, the “SEC
\nDocuments”). As of their respective filing dates, each of the SEC Documents
\ncomplied in all material respects with the requirements of the Securities
\nExchange Act of 1934, as amended (the “Exchange Act”), and the rules and
\nregulations of the Securities and Exchange Commission (the “Commission”)
\npromulgated thereunder.<\/p>\n
3.7 ABSENCE OF CERTAIN CHANGES<\/p>\n
Since the December 31, 1998 financial statements included in the SEC
\nDocuments, there has not been any change which by itself or in conjunction with
\nall other such changes, has had or could reasonably be expected to have an
\nAmazon.com Material Adverse Effect, except as disclosed in the SEC Documents.<\/p>\n
3.8 INFORMATION SUPPLIED BY AMAZON.COM<\/p>\n
None of the information supplied or to be supplied by Amazon.com for
\ninclusion in the proxy statement to be delivered to the Shareholders in
\nconnection with any written consent by or meeting of such Shareholders
\n(collectively, “Shareholder Materials”), including the SEC Documents, at the
\ndate such information was supplied prior to the time the Shareholders were
\nrequested to approve the Merger at either a special meeting of shareholders or
\nby executing a written consent, contained or will contain any untrue statement
\nof a material fact or omitted or will omit to state any material fact required
\nto be stated therein or necessary in order to make the statements therein, in
\nlight of the circumstances under which they are made, not materially misleading;
\nprovided, however, that Amazon.com makes no representations or warranties
\nregarding information furnished by or related to the Company.<\/p>\n
3.9 FULL DISCLOSURE<\/p>\n
No information furnished by Amazon.com or the Purchaser to the Company
\nor its representatives in connection with this Agreement or the other Operative
\nDocuments contains any untrue statement of a material fact or omits to state a
\nmaterial fact necessary in order to make the statements so made or information
\nso delivered not misleading.<\/p>\n
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51
\n ARTICLE IV – CONDITIONS PRECEDENT TO OBLIGATIONS
\n OF AMAZON.COM AND THE PURCHASER<\/p>\n
The obligations of Amazon.com and the Purchaser to perform and observe
\nthe covenants, agreements and conditions hereof to be performed and observed by
\nthem at or before the Closing shall be subject to the satisfaction of the
\nfollowing conditions, which may be expressly waived only in writing signed by
\nAmazon.com:<\/p>\n
4.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES<\/p>\n
The representations and warranties of the Company contained herein
\n(including, without limitation, applicable Exhibits or Schedules to the
\nDisclosure Memorandum) and in the other Operative Documents shall have been true
\nand correct in all material respects when made and, except (a) for changes
\ncontemplated by this Agreement and the other Operative Documents and (b) to the
\nextent that such representations and warranties speak as of an earlier date,
\nshall be true and correct as of the Closing Date in all material respects as
\nthough made on that date.<\/p>\n
4.2 PERFORMANCE OF AGREEMENTS<\/p>\n
The Company shall have performed in all material respects all
\nobligations and agreements and complied in all material respects with all
\ncovenants contained in this Agreement or any other Operative Document to be
\nperformed and complied with by it at or prior to the Closing.<\/p>\n
4.3 OPINION OF COUNSEL FOR THE COMPANY<\/p>\n
Amazon.com shall have received the opinion letter of Wilson Sonsini
\nGoodrich & Rosati PC, counsel for the Company, dated the Closing Date,
\nsubstantially in the form of Exhibit 4.3.<\/p>\n
4.4 COMPLIANCE CERTIFICATE<\/p>\n
Amazon.com shall have received a certificate of the President and the
\nChief Financial Officer of the Company, dated the Closing Date, in form and
\nsubstance satisfactory to Amazon.com, certifying that the conditions to the
\nobligations of Amazon.com and the Purchaser in Sections 4.1, 4.2 and 4.5 have
\nbeen fulfilled.<\/p>\n
4.5 APPROVALS AND CONSENTS<\/p>\n
All transfers of material permits or material licenses and all material
\napprovals of or notices to public agencies, federal, state, local or foreign,
\nthe granting or delivery <\/p>\n
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52
\nof which is necessary for the consummation of the transactions contemplated
\nhereby and by the other Operative Documents, or for the continued operation of
\nthe Company as now operated, shall have been obtained, and all waiting periods
\nspecified by law shall have passed. All consents listed on Schedules 2.5 and
\n2.10.2 to the Disclosure Memorandum required in connection with a reverse
\ntriangular merger shall have been obtained and delivered.<\/p>\n
4.6 PROCEEDINGS AND DOCUMENTS; SECRETARY’S CERTIFICATE<\/p>\n
Amazon.com shall have received a certificate of the Secretary of the
\nCompany, in form and substance satisfactory to Amazon.com, as to the
\nauthenticity and effectiveness of the actions of the Board of Directors and
\nShareholders authorizing the Merger and the transactions contemplated by this
\nAgreement and the other Operative Documents. Copies of the Company’s Articles of
\nIncorporation, certified by the California Secretary of State, and Bylaws,
\ncertified by the Secretary of the Company, shall be attached to such
\ncertificate.<\/p>\n
4.7 NONFOREIGN AFFIDAVIT<\/p>\n
Amazon.com shall have received from the Company, pursuant to Section
\n1445 of the Code, a Foreign Investment in Real Property Tax Act Affidavit,
\nsubstantially in the form of Exhibit 4.7.<\/p>\n
4.8 COMPLIANCE WITH LAWS<\/p>\n
The consummation of the transactions contemplated by this Agreement and
\nthe other Operative Documents shall be legally permitted by all laws and
\nregulations to which Amazon.com, the Purchaser or the Company is subject.<\/p>\n
4.9 SHAREHOLDER APPROVAL<\/p>\n
The principal terms of this Agreement shall have been approved by the
\nCompany’s shareholders as required by the Company’s Articles of Incorporation
\nand applicable law.<\/p>\n
4.10 LEGAL PROCEEDINGS<\/p>\n
No order of any court or administrative agency shall be in effect which
\nenjoins, restrains, conditions or prohibits consummation of the transactions
\ncontemplated by this Agreement or any other Operative Document, and no
\nlitigation, investigation or administrative proceeding shall be pending which
\nwould enjoin, restrain, condition or <\/p>\n
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53
\nprevent consummation of the transactions contemplated by this Agreement or any
\nother Operative Document.<\/p>\n
4.11 EMPLOYMENT AND NONCOMPETITION ARRANGEMENTS<\/p>\n
Each of the individuals listed on Exhibit 1.7.1 as “Required Employees”
\n(the “Required Employees”) shall have remained employees of the Surviving
\nCorporation subsequent to the Merger in accordance with Section 6.13 and shall
\nhave executed the Amazon.com standard form of Confidentiality, Noncompetition
\nand Invention Assignment Agreement, in the form attached hereto as Exhibit 4.11.<\/p>\n
4.12 AFFILIATE LETTERS<\/p>\n
The Company shall have delivered or caused to be delivered to Amazon.com
\nan Affiliate Letter substantially in the form of Exhibit 4.12 from each of those
\nPersons who were, on the date on which the requisite number of consents or votes
\nhas been obtained to approve the Merger, “affiliates” of the Company within the
\nmeaning of Rule 145 of the rules and regulations promulgated under the
\nSecurities Act.<\/p>\n
4.13 TERMINATION OF CERTAIN AGREEMENTS<\/p>\n
Any and all rights of refusal, co-sale rights and registration rights,
\nif any, for the benefit of the holders of Company Capital Stock or Stock
\nPurchase Rights of the Company shall have terminated.<\/p>\n
4.14 EXERCISE OF STOCK PURCHASE RIGHTS; CONVERSION OF CONVERTIBLE SECURITIES<\/p>\n
Any and all Stock Purchase Rights and any and all securities and notes
\nconvertible at any time into Company Common Stock, vested and unvested, and
\nregardless of restrictions on exercise or conversion, shall have been exercised
\nor converted, as the case may be, for shares of Company Capital Stock prior to
\nthe Effective Time, except for Options assumed by Amazon.com pursuant to Section
\n1.7.2.<\/p>\n
4.15 DISSENTER RIGHTS<\/p>\n
No holders of Company Series A Stock shall have delivered to the Company
\nbefore the Effective Time timely written notice of such holder’s intent to
\ndemand payment for such shares in accordance with California Law, unless such
\nholder shall have withdrawn or otherwise lost his, her or its right to such
\npayment as a dissenting shareholder. Holders of not more than 10% of the
\noutstanding shares of Company Common Stock shall have not voted in favor of the
\nMerger or not consented thereto in <\/p>\n
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54
\nwriting and shall have delivered before the Effective Time timely written notice
\nof such holders’ intent to demand payment as dissenting shareholders for such
\nshares in accordance with California Law.<\/p>\n
4.16 TRANSMITTAL LETTERS<\/p>\n
All holders of the Company Series A Stock and holders of at least 90% of
\nthe outstanding shares of Company Common Stock shall have executed Letters of
\nTransmittal in the form attached hereto as Exhibit 1.7.4.<\/p>\n
4.17 AMENDMENT OF OPTIONS AND RESTRICTED STOCK AGREEMENTS<\/p>\n
All holders of Options or shares of Company Common Stock subject to a
\nrestricted stock purchase agreement with the Company (collectively, the
\n“Restricted Stock Agreements”) who will be employed by the Surviving Corporation
\nor an affiliate of Amazon.com after the Closing shall have entered into
\namendments to, or waived in writing applicable provisions of, (i) the option
\nagreements related to their respective Options to provide that the vesting of
\nsuch Options and (ii) the respective Restricted Stock Agreements to provide that
\nthe vesting of the shares of Company Common Stock subject to such Restricted
\nStock Agreements, shall not be accelerated or become immediately exercisable at
\nthe Closing.<\/p>\n
4.18 ESCROW AGREEMENT<\/p>\n
The Shareholder Representative, on behalf of the Shareholders, and the
\nEscrow Agent shall have executed and delivered the Escrow Agreement to
\nAmazon.com.<\/p>\n
ARTICLE V – CONDITIONS PRECEDENT TO OBLIGATIONS
\n OF THE COMPANY<\/p>\n
The obligations of the Company to perform and observe the covenants,
\nagreements and conditions hereof to be performed and observed by them at or
\nbefore the Closing shall be subject to the satisfaction of the following
\nconditions, which may be expressly waived only in writing signed by the Company.<\/p>\n
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES<\/p>\n
The representations and warranties of Amazon.com and the Purchaser
\ncontained herein and in the other Operative Documents shall have been true and
\ncorrect in all material respects when made and, except for (a) changes
\ncontemplated by this Agreement and the other Operative Documents and (b) to the
\nextent that such <\/p>\n
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55
\nrepresentations and warranties speak as of an earlier date, shall be true and
\ncorrect in all material respects as of the Closing Date as though made on that
\ndate.<\/p>\n
5.2 PERFORMANCE OF AGREEMENTS<\/p>\n
Amazon.com and the Purchaser shall have performed in all material
\nrespects all obligations and agreements and complied in all material respects
\nwith all covenants contained in this Agreement or any other Operative Document
\nto be performed and complied with by them at or prior to the Closing.<\/p>\n
5.3 OPINION OF COUNSEL<\/p>\n
The Company shall have received the opinion letter of Perkins Coie LLP,
\ncounsel for Amazon.com and the Purchaser, dated the Closing Date, substantially
\nin the form of Exhibit 5.3.<\/p>\n
5.4 COMPLIANCE CERTIFICATE<\/p>\n
The Company shall have received a certificate of an officer of
\nAmazon.com, dated the Closing Date, substantially in form and substance
\nreasonably satisfactory to the Company, certifying that the conditions to the
\nobligations of the Company in Sections 5.1, 5.2, 5.6 and 5.7 have been
\nfulfilled.<\/p>\n
5.5 LEGAL PROCEEDINGS<\/p>\n
No order of any court or administrative agency shall be in effect which
\nenjoins, restrains, conditions or prohibits consummation of the transactions
\ncontemplated by this Agreement or any other Operative Document, and no
\nlitigation, investigation or administrative proceeding shall be pending which
\nwould enjoin, restrain, condition or prevent consummation of the transactions
\ncontemplated by this Agreement or any other Operative Document.<\/p>\n
5.6 APPROVALS AND CONSENTS<\/p>\n
All transfers of material permits or material licenses and all material
\napprovals of or notices to public agencies, federal, state, local or foreign,
\nthe granting or delivery of which is necessary for the consummation of the
\ntransactions contemplated hereby and by the other Operative Documents or for the
\ncontinued operation of the Company as now operated, shall have been obtained,
\nand all waiting periods specified by law shall have passed. All consents listed
\non Schedules 2.5 and 2.10.2 to the Disclosure Memorandum required in connection
\nwith a reverse triangular merger shall have been obtained and delivered.<\/p>\n
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56
\n5.7 COMPLIANCE WITH LAWS<\/p>\n
The consummation of the transactions contemplated by this Agreement and
\nthe other Operative Documents shall be legally permitted by all laws and
\nregulations to which Amazon.com, the Purchaser or the Company is subject.<\/p>\n
5.8 ESCROW AGREEMENT<\/p>\n
The Escrow Agreement shall have been executed and delivered by
\nAmazon.com and the Escrow Agent.<\/p>\n
ARTICLE VI – COVENANTS<\/p>\n
Between the date of this Agreement and the Effective Time, or such later
\nperiod as set forth in Sections 6.5, 6.8 and 6.9, the parties covenant and agree
\nas set forth in this Article VI.<\/p>\n
6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER<\/p>\n
Unless Amazon.com shall otherwise agree in writing, the business of the
\nCompany shall be conducted in and only in, and the Company shall not take any
\naction except in, the ordinary course of business and in a manner consistent
\nwith past practice and in accordance with applicable law; and the Company shall
\nuse commercially reasonable efforts to preserve intact the business organization
\nof the Company, to keep available the services of the current officers,
\nemployees and consultants of the Company and to preserve the current
\nrelationships of the Company with, and the goodwill of, customers, suppliers and
\nother Persons with which the Company has significant business relations. By way
\nof amplification and not limitation, except as otherwise contemplated by this
\nAgreement, the Company shall not, between the date of this Agreement and the
\nEffective Time, directly or indirectly do any of the following without the prior
\nwritten consent of Amazon.com:<\/p>\n
(a) amend or otherwise change its Articles of Incorporation or
\nBylaws, other than to effect a change in the Company’s corporate name;<\/p>\n
(b) except for the issuance of shares of Company Capital Stock
\nupon the exercise or conversion of currently outstanding Stock Purchase Rights,
\nissue, sell, contract to issue or sell, pledge, dispose of, grant, encumber or
\nauthorize the issuance, sale, pledge, disposition, grant or Encumbrance of (i)
\nany assets of the Company, except in the ordinary course of business and in a
\nmanner consistent with past practice, (ii) any shares of capital stock of any
\nclass of the Company, or (iii) any options, warrants, convertible securities or
\nother rights of any kind to acquire any shares of <\/p>\n
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57
\nsuch capital stock, or any other ownership interest (including, without
\nlimitation, any phantom interest) of the Company;<\/p>\n
(c) declare, set aside, make or pay any dividend or other
\ndistribution, payable in cash, stock or other securities, property or otherwise,
\nwith respect to any of its capital stock;<\/p>\n
(d) reclassify, combine, split, subdivide, redeem, purchase or
\notherwise acquire, directly or indirectly, any of its capital stock or other
\nsecurities;<\/p>\n
(e) (i) acquire (including, without limitation, by merger,
\nconsolidation, or acquisition of stock or assets) any corporation, partnership,
\nother business organization or division thereof or any material amount of
\nassets; (ii) incur any indebtedness for borrowed money or issue any debt
\nsecurities or assume, guarantee or endorse, or otherwise as an accommodation
\nbecome responsible for, any obligations of any Person, or make any loans or
\nadvances, except in the ordinary course of business and consistent with past
\npractice; (iii) enter into any contract or agreement other than in the ordinary
\ncourse of business, consistent with past practice; (iv) authorize any single
\ncapital expenditure which is in excess of $20,000 or capital expenditures which
\nare, in the aggregate, in excess of $50,000 for the Company taken as a whole;
\n(v) enter into any agreement in which the obligation of the Company exceeds
\n$10,000 or which shall not terminate or be subject to termination for
\nconvenience within 30 days following execution; (vi) license any Technology or
\nIP Rights; or (vii) enter into or amend any contract, agreement, commitment or
\narrangement with respect to any matter set forth in this subsection (e);<\/p>\n
(f) enter into or amend any employment, consulting or agency
\nagreement, or increase the compensation payable or to become payable to any of
\nits officers, employees, agents or consultants, or grant any severance or
\ntermination pay to, or enter into any employment or severance agreement with,
\nany director, officer or other employee of the Company, or establish, adopt,
\nenter into or amend any collective bargaining, bonus, profit sharing, thrift,
\ncompensation, stock option, restricted stock, pension, retirement, deferred
\ncompensation, employment, termination, severance, benefit, Employee Benefit Plan
\nor other plan, agreement, trust, fund, policy or arrangement for the benefit of
\nany director, officer or employee; provided, however, that the Company shall
\nterminate prior to any enrollment thereunder and prior to the Closing Date its
\nCode section 401(k) plan;<\/p>\n
(g) take any action, other than reasonable and usual actions in
\nthe ordinary course of business and consistent with past practice, with respect
\nto <\/p>\n
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58
\naccounting methods, policies or procedures (including, without limitation,
\nprocedures with respect to the payment of accounts payable and collection of
\naccounts receivable);<\/p>\n
(h) make any Tax election or settle or compromise any Tax
\nliability;<\/p>\n
(i) pay, discharge or satisfy any claim, liability or obligation
\n(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
\nthe payment, discharge or satisfaction in the ordinary course of business and
\nconsistent with past practice;<\/p>\n
(j) take any action that would or is reasonably likely to result
\nin any of the representations or warranties of the Company set forth in this
\nAgreement being untrue in any material respect, or in any covenant of the
\nCompany set forth in this Agreement being breached, or in any of the conditions
\nto the Merger specified in Article IV hereof not being satisfied; or<\/p>\n
(k) agree to do any of the foregoing.<\/p>\n
6.2 ACCESS TO INFORMATION; CONFIDENTIALITY<\/p>\n
From the date hereof to the Effective Time, the Company shall, and shall
\ncause the officers, directors, employees and agents of the Company to, afford
\nthe officers, employees and agents of Amazon.com access at all reasonable times
\nto the officers, employees, agents, properties, offices, plants and other
\nfacilities, books and records of the Company and shall furnish Amazon.com with
\nall financial, operating and other data and information as Amazon.com, through
\nits officers, employees or agents, may reasonably request. From the date hereof
\nuntil the Effective Time, the Company shall provide Amazon.com with monthly and
\nother financial statements of the Company as they become available internally at
\nthe Company, all of which financial statements shall fairly present the
\nfinancial position and results of operations of the Company as of the dates and
\nfor the periods therein specified. No investigation pursuant to this Section 6.2
\nshall affect any representation or warranty in this Agreement of any party
\nhereto or any condition to the obligations of the parties hereto. The parties
\nshall continue to comply with and to perform their respective obligations under
\nthe Mutual Nondisclosure Agreement between Amazon.com and the Company entered
\ninto as of December 11, 1998.<\/p>\n
6.3 NO ALTERNATIVE TRANSACTIONS<\/p>\n
Unless this Agreement shall have been terminated in accordance with its
\nterms, the Company shall not, directly or indirectly, through any officer,
\ndirector, agent or otherwise, solicit, initiate or encourage the submission of
\nany proposal or offer from <\/p>\n
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59
\nany Person relating to any acquisition or purchase of all or any material
\nportion of the assets of, or any equity interest in, the Company or any business
\ncombination with the Company or participate in any negotiations regarding, or
\nfurnish to any other Person any information with respect to, or otherwise
\ncooperate or negotiate in any way with, or assist or participate in, facilitate
\nor encourage, any effort or attempt by any other Person to do or seek any of the
\nforegoing. The Company shall notify Amazon.com promptly if any such proposal or
\noffer, or any inquiry or contact with any Person with respect thereto, is made
\nand shall, in any such notice to Amazon.com, indicate in reasonable detail the
\nidentity of the Person making such proposal, offer, inquiry or contact and the
\nterms and conditions of such proposal, offer, inquiry or contact. The Company
\nagrees not to release any third party from, or waive any provision of, any
\nconfidentiality or standstill agreement (e.g. agreement not to invest in or seek
\nchange of control of the Company) to which the Company is a party.<\/p>\n
6.4 NOTIFICATION OF CERTAIN MATTERS<\/p>\n
Each party shall give prompt notice to the other parties of (a) the
\noccurrence or nonoccurrence of any event which would be likely to cause any
\nrepresentation or warranty made by such party contained in this Agreement to be
\nuntrue or inaccurate in any material respect and (b) any material failure by
\nsuch party to comply with or satisfy any covenant, condition or agreement to be
\ncomplied with or satisfied by such party hereunder; provided, however, that the
\ndelivery of any notice pursuant to this Section 6.4 shall not limit or otherwise
\naffect the rights or remedies available to the parties hereunder.<\/p>\n
6.5 FURTHER ACTION; COMMERCIALLY REASONABLE EFFORTS<\/p>\n
Upon the terms and subject to the conditions hereof, each of the parties
\nhereto shall use commercially reasonable efforts to take, or cause to be taken,
\nall appropriate action, and to do, or cause to be done, all things necessary,
\nproper or advisable under applicable laws and regulations to consummate and make
\neffective the transactions contemplated hereby, including, without limitation,
\nusing its commercially reasonable efforts to obtain all waivers, licenses,
\npermits, consents, approvals, authorizations, qualifications and orders of
\ngovernmental authorities and of other Persons as are necessary for the
\nconsummation of the transactions contemplated hereby and to fulfill the
\nconditions to the Merger. In case at any time after the Effective Time any
\nfurther action is necessary or desirable to carry out the purposes of this
\nAgreement or the other Operative Documents, each party to this Agreement shall
\nuse commercially reasonable efforts to promptly take all such action. After the
\nClosing, each party hereto, at the request of and without any further cost or
\nexpense to the other parties, will take any further actions necessary or
\ndesirable to carry out the purposes of this Agreement or <\/p>\n
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60
\nany other Operative Document, to vest in the Surviving Corporation full title to
\nall properties, assets and rights of the Company, and to effect the issuance of
\nthe Amazon.com Common Stock to the Shareholders pursuant to the terms and
\nconditions hereof.<\/p>\n
6.6 SHAREHOLDER APPROVAL<\/p>\n
The Company will seek the approval at a special meeting of its
\nshareholders or the written consent of such shareholders at the earliest
\npracticable date approving this Agreement, the other Operative Documents, the
\nMerger and related matters, which approval will be recommended by the Board of
\nDirectors of the Company.<\/p>\n
6.7 PROXY STATEMENT<\/p>\n
The Company will send the Shareholder Materials to the Shareholders, in
\na timely manner, for the purposes of considering approval of the Merger, either
\nat a special meeting of such Shareholders or by their execution of a written
\nconsent. The Company and Amazon.com each will promptly provide all information
\nrelating to its respective business or operations necessary for inclusion in the
\nShareholder Materials to satisfy all requirements of applicable state and
\nfederal securities laws. The Company and Amazon.com each shall be solely
\nresponsible for any statement, information or omission in the Shareholder
\nMaterials relating to it or its affiliates based on written information
\nfurnished by it. The Company and Amazon.com will not provide or publish to the
\nShareholders any material concerning them or their affiliates that violates the
\nSecurities Act or the Exchange Act with respect to the transactions contemplated
\nhereby.<\/p>\n
6.8 AMAZON.COM COMMON STOCK<\/p>\n
Amazon.com agrees to authorize for listing on the Nasdaq National Market
\nthe shares comprising the Merger Consideration, and those required to be
\nreserved for issuance upon exercise of Options assumed in connection with the
\nMerger, by filing with the Nasdaq National Market a Notification of Listing of
\nAdditional Shares (or such other form as may be required by the Nasdaq National
\nMarket) in a timely manner prior to the Closing or otherwise in accordance with
\nthe rules and regulations of the Nasdaq National Market.<\/p>\n
6.9 SECURITIES ACT COMPLIANCE<\/p>\n
Amazon.com represents and warrants that the issuance of the shares
\ncomprising the Merger Consideration will have been registered, on or prior to
\nthe Closing under the Securities Act, pursuant to a registration statement on
\nForm S-4, which shall be <\/p>\n
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61
\neffective as of the Closing. As a result, the shares of Amazon.com Common Stock
\nissuable in the Merger will be freely tradable, without restriction under the
\nSecurities Act, other than those restrictions imposed on affiliates of the
\nCompany pursuant to Rule 145 under the Securities Act and those restrictions
\nimposed on affiliates of Amazon.com pursuant to Rule 144 under the Securities
\nAct. Amazon.com agrees to use commercially reasonable efforts to cause such
\nregistration statement with respect to the shares comprising the Merger
\nConsideration to remain effective as of the Effective Date, and to prepare and
\nfile with the Commission such amendments to such registration statements and
\namendments or supplements to the prospectuses used in connection therewith as
\nmay be necessary to comply with the provisions of the Securities Act with
\nrespect to the sale of Amazon.com Common Stock at the Closing. For so long as
\nany shares of Amazon.com Common Stock issued in connection with the Merger
\nremain subject to Rule 145 of the Securities Act, Amazon.com agrees to use
\ncommercially reasonable efforts to timely file all required reports under the
\nExchange Act, and otherwise satisfy the requirements of Rule 144(c) under the
\nSecurities Act.<\/p>\n
6.10 DISSENTING SHARES<\/p>\n
Prior to the Closing Date, the Company shall furnish Amazon.com with the
\nname and address of each Shareholder who, prior to the Closing, has requested
\nappraisal rights pursuant to California Law and the number of Dissenting Shares
\nowned by such Shareholder.<\/p>\n
6.11 PUBLICITY<\/p>\n
No party hereto shall issue any press release or otherwise make any
\nstatements to any third party with respect to this Agreement or the transactions
\ncontemplated hereby, other than the issuance by Amazon.com and the Company of a
\njoint press release announcing this Agreement and the transactions contemplated
\nhereby or as required by law.<\/p>\n
6.12 OPTION SHARES; REGISTRATION<\/p>\n
Amazon.com shall take all corporate action necessary to reserve for
\nissuance a sufficient number of Amazon.com Common Stock for delivery upon
\nexercise of the Options assumed in accordance with Section 1.7.2. Amazon.com
\nshall use commercially reasonable efforts to cause to be filed with respect to
\nAmazon.com Common Stock subject to such Options a registration statement on Form
\nS-8 (or any successor form) with respect to those shares eligible to be
\nregistered on a primary basis on such form to be effective within 10 business
\ndays of the date on which the <\/p>\n
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62
\nrequirements of Items 2, 5 and 7 of Form 8-K have been satisfied and the
\nresponsive Current Report on Form 8-K, as it may be amended, with respect to the
\nMerger has been filed with the Commission. Amazon.com shall use all commercially
\nreasonable efforts to maintain the effectiveness of such registration statement
\nor registration statements (and maintain the current status of the prospectus or
\nprospectuses contained therein) for so long as such Options remain outstanding.<\/p>\n
6.13 EMPLOYEE MATTERS<\/p>\n
Amazon.com, on behalf of the Surviving Corporation, shall offer
\ncontinued employment to each Required Employee, Primary Key Employee and
\nSecondary Key Employee and, as Surviving Corporation or Amazon.com may elect in
\ntheir sole discretion, to such other employees of the Company, such employment
\nto commence as soon as is practically possible but in any event primarily in
\nSeattle, Washington within two weeks after the Closing and fully in Seattle,
\nWashington within six weeks after the Closing. The Required Employees, Primary
\nKey Employees and Secondary Key Employees and any other employees offered
\ncontinued employment pursuant to this Section 6.13 shall evidence acceptance of
\nSurviving Corporation’s employment offer by executing the Amazon.com standard
\nform of Confidentiality, Noncompetition and Inventions Agreement, in the form
\nattached hereto as Exhibit 4.12.<\/p>\n
6.14 AUDITED FINANCIAL STATEMENTS<\/p>\n
At least 10 business days prior to the Closing Date, the Company shall
\ndeliver to Amazon.com an audited balance sheet, an audited statement of income
\nand expenses, an audited statement of cash flow and an audited statement of
\nshareholders equity of the Company as of and for the fiscal year ended December
\n31, 1998. Except as set forth on Schedule 2.6 to the Disclosure Memorandum,
\nthese audited financial statements shall not reflect any material adverse change
\nfrom the Financial Statements as, at and for the same periods.<\/p>\n
6.15 REPAYMENT OF INDEBTEDNESS TO COMPANY<\/p>\n
The Company shall cause the employees listed on Schedule 2.3(d) under
\n“Indebtedness” to repay the amounts owed to the Company under the promissory
\nnotes set forth opposite their names on such Schedule within 10 business days
\nafter the sale of any of their respective shares of Amazon.com Common Stock
\nreceived in the Merger.<\/p>\n
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63
\n6.16 REAL PROPERTY<\/p>\n
Prior to the Closing Date, the Company shall use commercially reasonable
\nefforts to terminate the leases related to the Real Property; provided, however,
\nthat the Company shall not, without the prior written consent of Amazon.com,
\nenter into any agreement in connection with any such termination that would
\nobligate the Company or Amazon.com to pay any amount over $5,000 with respect to
\nany such lease, other than those amounts arising under such lease prior to the
\ntime of termination.<\/p>\n
6.17 SUBSIDIARY ROLL-UP<\/p>\n
At the request of Purchaser, which request must occur, if at all, within
\na reasonable time prior to the Closing Date, the Company shall effect a roll-up
\nof each Company Subsidiary, resulting in the termination, dissolution and
\nwinding-up of all such Company Subsidiaries.<\/p>\n
6.18 RELEASE OF LIENS<\/p>\n
Prior to the Closing, the Company shall use commercially reasonable
\nefforts to cause AT&T Ventures Fund, L.P. to release all Encumbrances in its
\nfavor with respect to any of the Company’s assets.<\/p>\n
ARTICLE VII – TERMINATION, AMENDMENT AND WAIVER<\/p>\n
7.1 TERMINATION<\/p>\n
This Agreement may be terminated and the Merger may be abandoned at any
\ntime prior to the Effective Time (notwithstanding any approval of this Agreement
\nby the Shareholders):<\/p>\n
(a) by mutual written consent;<\/p>\n
(b) by either the Company or Amazon.com, if the Merger has not
\nbeen consummated by June 30, 1999; provided, however, that the right to
\nterminate this Agreement under this subsection (b) shall not be available to any
\nparty (i) whose failure to fulfill or cause to be fulfilled any obligation under
\nthis Agreement has been the cause of, or resulted in, the failure of the
\nEffective Time to occur on or before such date or (ii) for a period of 10
\nbusiness days after the expiration by its terms of any temporary restraining
\norder (“TRO”) prohibiting or enjoining the Merger or a ruling on any preliminary
\ninjunction motion relating to such TRO;<\/p>\n
-57-<\/p>\n
64
\n (c) by either the Company or Amazon.com, if there shall be any
\nlaw or regulation that makes consummation of the Merger illegal or if any
\njudgment, injunction, order or decree enjoining Amazon.com, the Purchaser or the
\nCompany from consummating the Merger is entered and such judgment, injunction,
\norder or decree shall become final and nonappealable; provided, however, that
\nthe party seeking to terminate this Agreement pursuant to this subsection (c)
\nshall have used all reasonable efforts to remove such judgment, injunction,
\norder or decree;<\/p>\n
(d) by the Company, in the event of a material breach by
\nAmazon.com of any representation, warranty or agreement contained herein which
\nhas not been cured or is not curable by June 30, 1999;<\/p>\n
(e) by Amazon.com, (i) in the event of a material breach by the
\nCompany of any representation, warranty or agreement contained herein which has
\nnot been cured or is not curable by June 30, 1999 or (ii) in the event
\nacceptance of the Surviving Corporation’s offer of continued employment pursuant
\nto Section 6.13 is terminated by any Required Employee prior to the Effective
\nTime.<\/p>\n
7.2 EFFECT OF TERMINATION<\/p>\n
In the event of the termination of this Agreement pursuant to Section
\n7.1 hereof, there shall be no further obligation on the part of any party
\nhereto, except that nothing herein shall relieve any party from liability for
\nany willful breach hereof.<\/p>\n
7.3 AMENDMENT<\/p>\n
This Agreement may not be amended except by an instrument in writing
\nsigned by Amazon.com, the Purchaser and the Company; provided, however, that
\nafter approval of this Agreement by the Company’s shareholders, no amendment
\nwill be made which by applicable law requires the further approval of the
\nCompany’s shareholders without obtaining such further approval.<\/p>\n
7.4 WAIVER<\/p>\n
At any time prior to the Effective Time, Amazon.com may (a) extend the
\ntime for the performance of any obligation or other act of the Company , (b)
\nwaive any inaccuracy in the representations and warranties of the Company
\ncontained herein or in any document delivered pursuant hereto, or (c) waive
\ncompliance with any agreement of the Company or any condition to the obligations
\nof Amazon.com and the Purchaser contained herein. At any time prior to the
\nEffective Time, the Company may (a) extend the time for the performance of any
\nobligation or other act of Amazon.com or the Purchaser, (b) waive any inaccuracy
\nin the representations and warranties of <\/p>\n
-58-<\/p>\n
65
\nAmazon.com or the Purchaser contained herein or in any document delivered
\npursuant hereto, or (c) waive compliance with any agreement of Amazon.com or the
\nPurchaser or any condition to the obligations of the Company contained herein.
\nAny such extension or waiver shall be valid only if set forth in an instrument
\nin writing signed by the party or parties to be bound thereby.<\/p>\n
ARTICLE VIII – SURVIVAL AND INDEMNIFICATION<\/p>\n
8.1 SURVIVAL<\/p>\n
All representations and warranties contained in this Agreement or in the
\nother Operative Documents or in any certificate delivered pursuant hereto or
\nthereto shall survive the Closing for a period of 12 months after the Effective
\nTime (the “Survival Period”), and shall not be deemed waived or otherwise
\naffected by any investigation made or any knowledge acquired with respect
\nthereto, or by any notice delivered pursuant to Section 6.4 hereof; provided,
\nhowever, that any claim based on fraud shall survive the Closing indefinitely.
\nThe covenants and agreements contained in this Agreement or in the other
\nOperative Documents shall survive the Closing and shall continue until all
\nobligations with respect thereto shall have been performed or satisfied or shall
\nhave been terminated in accordance with their terms. The waiver of any condition
\nbased on the accuracy of any representation or warranty, or on the performance
\nof or compliance with any covenant or obligation, will not affect the right to
\nindemnification or any other remedy based on such representations, warranties,
\ncovenants and obligations.<\/p>\n
8.2 INDEMNIFICATION BY THE HOLDERS OF COMPANY CAPITAL STOCK<\/p>\n
Subject to the limitations set forth in this Article VIII, from and
\nafter the Closing, each Shareholder shall indemnify and hold Amazon.com, its
\nofficers, directors and affiliates (as “affiliate” is defined in Rule 12b-2 of
\nthe Exchange Act) (the “Indemnified Parties”) harmless from and against, and
\nshall reimburse the Indemnified Parties for, any and all losses, damages, debts,
\nliabilities, obligations, judgments, orders, awards, writs, injunctions,
\ndecrees, fines, penalties, Taxes, costs or expenses (including, but not limited
\nto, any reasonable legal or accounting fees or expenses and any Taxes or other
\ncosts or damages arising under, caused by or related to Section 280G of the Code
\nor any comparable provision of state, local or foreign law) (“Losses”) arising
\nout of (i) any inaccuracy or misrepresentation in, or breach of, any
\nrepresentation or warranty made by the Company or such Shareholder in this
\nAgreement or in any other Operative Document or (ii) any failure by the Company
\nor such Shareholder to perform or comply, in whole or in part, with any covenant
\nor agreement in this Agreement or in any other Operative Document.<\/p>\n
-59-<\/p>\n
66
\n8.3 THRESHOLD AND LIMITATIONS; ADJUSTMENT OF MERGER CONSIDERATION<\/p>\n
(a) The Indemnified Parties shall not be entitled to receive any
\nindemnification payment with respect to any claims for indemnification under
\nthis Article VIII (“Claims”) until the aggregate Losses for which the
\nIndemnified Parties would otherwise be entitled to receive indemnification
\nexceed $100,000 (the “Threshold”); provided, however, that once such aggregate
\nLosses exceed the Threshold, the Indemnified Parties shall be entitled to
\nindemnification for the aggregate amount of all Losses without regard to the
\nThreshold.<\/p>\n
(b) (i) Except for Losses based upon a claim of fraud, the obligation of
\nthe Shareholders to indemnify the Indemnified Parties under Section 8.2 shall be
\nthe Indemnified Parties’ sole remedy under this Agreement or under any other
\nOperative Document against the Shareholders. Except as otherwise provided in
\nSections 8.3(b)(ii) and 8.3(b)(iii) such indemnity obligations shall be limited
\nto 10% of the Base Amount in the aggregate (the “Initial Loss Limit”), and at no
\ntime shall such indemnity obligations of any Shareholder exceed such
\nShareholder’s pro rata portion of the Escrow Shares constituting the Initial
\nLoss Limit (as determined in accordance with Section 8.3(d) below).<\/p>\n
(ii) Notwithstanding any other provision of this Agreement to the
\ncontrary, the indemnity obligations of the Shareholders under Section 8.2 for
\nLosses (A) based upon claims arising in connection with Section 2.14 and (B)
\nrelating to any third party with whom the Company has executed a nondisclosure
\nor similar agreement shall be limited to the Escrow Shares, and at no time shall
\nany Shareholder’s indemnity obligations under Section 8.2 exceed such
\nShareholder’s pro rata portion of the Escrow Shares (as determined in accordance
\nwith Section 8.3(d) below).<\/p>\n
(iii) Notwithstanding any other provision of this Agreement to
\nthe contrary, the indemnity obligations of the Shareholders under Section 8.2
\nfor Losses based upon claims of fraud shall not be limited.<\/p>\n
(c) An indemnifying party shall not be obligated to defend and hold
\nharmless an Indemnified Party, or otherwise be liable to such party, with
\nrespect to any claims made by the Indemnified Party after the expiration of the
\napplicable time period as set forth in Section 8.1 hereof. Notwithstanding the
\nforegoing, indemnity may be sought after the expiration of the Survival Period
\npursuant to this Article VIII if a Claim Notice (as defined in Section 8.4(a)
\nhereof) shall have been delivered to the Shareholder Representative prior to the
\nexpiration of the Survival Period.<\/p>\n
-60-<\/p>\n
67
\n (d) The indemnification obligations of the Shareholders under this
\nArticle VIII shall be satisfied by means of the release from escrow to
\nAmazon.com of Escrow Shares in accordance with the provisions of the Escrow
\nAgreement. The number of Escrow Shares to be released from escrow to Amazon.com
\nin payment of any Claims shall be determined by dividing (x) the aggregate
\ndollar amount of such Claims by (y) the Closing Price. The aggregate value of
\nClaims paid by means of such release to Amazon.com of Escrow Shares shall be
\ndeemed to reduce the total Merger Consideration otherwise payable to the
\nShareholders pursuant to Section 1.7 of this Agreement. Any such Claims shall be
\ndeemed to reduce the Escrow Shares, pro rata with respect to each Shareholder,
\nas determined by reference to the number of shares comprising the Merger
\nConsideration such Shareholder is entitled to receive in the Merger as compared
\nto all other Shareholders; provided, however, that any Claims paid with respect
\nto any Loss related to any representation, warranty, covenant or agreement of a
\nShareholder shall not result in a pro rata reduction of the Escrow Shares but
\nshall reduce only the Escrow Shares of such Shareholder.<\/p>\n
8.4 PROCEDURE FOR INDEMNIFICATION<\/p>\n
(a) An Indemnified Party shall give written notice (the “Claim Notice”)
\nof any Claim for indemnification under this Article VIII to the Shareholder
\nRepresentative, on behalf of the indemnifying party, reasonably promptly after
\nthe assertion against an Indemnified Party of any claim by a third party (a
\n“Third Party Claim”) or, if such Claim is not in respect of a Third Party Claim,
\nreasonably promptly after the discovery of facts upon which the Indemnified
\nParty intends to base a Claim for indemnification pursuant to this Article VIII;
\nprovided, however, that the failure or delay to so notify the Shareholder
\nRepresentative shall not relieve the indemnifying party of any obligation or
\nliability that the indemnifying party may have to the Indemnified Party except
\nto the extent that the indemnifying party demonstrates that his, her or its
\nability to defend or resolve such Claim is adversely affected thereby. Any such
\nClaim Notice shall describe the items set forth in the Escrow Agreement.<\/p>\n
(b) The procedures to be followed by the Shareholder Representative with
\nrespect to contesting whether a Claim is an indemnifiable Claim shall be as set
\nforth in the Escrow Agreement.<\/p>\n
(c) (i) Subject to the rights of or duties to any insurer or other third
\nparty having potential liability therefor, the Shareholder Representative, on
\nbehalf of the indemnifying party, shall have the right, upon written notice
\ngiven by the Shareholder Representative to the Indemnified Party within 30 days
\nafter receipt by the Shareholder Representative of the notice from the
\nIndemnified Party of any Third Party Claim, to assume the defense or handling of
\nsuch, Third Party Claim, at the indemnifying party’s <\/p>\n
-61-<\/p>\n
68
\nsole expense, in which case the provisions of Section 8.4(c)(ii) hereof shall
\ngovern; provided, however, that, notwithstanding the foregoing, Amazon.com may
\nelect to assume the defense and handle any such Third Party Claim if it
\ndetermines in good faith that the resolution of such Third Party Claim could
\nresult in an adverse impact on the business, operations, assets, liabilities
\n(absolute, accrued, contingent or otherwise), condition (financial or otherwise)
\nor prospects of Amazon.com, in which case the provisions of Section 8.4(d)(ii)
\nhereof shall govern.<\/p>\n
(ii) The Shareholder Representative, on behalf of the
\nindemnifying party, shall select counsel reasonably acceptable to the
\nIndemnified Party in connection with conducting the defense or handling of such
\nThird Party Claim, and the Shareholder Representative shall defend or handle the
\nsame in consultation with the Indemnified Party and shall keep the Indemnified
\nParty timely apprised of the status of such Third Party Claim. The Shareholder
\nRepresentative shall not, without the prior written consent of the Indemnified
\nParty, agree to a settlement of any Third Party Claim, unless (A) the settlement
\nprovides an unconditional release and discharge of the Indemnified Party and the
\nIndemnified Party is reasonably satisfied with such discharge and release and
\n(B) the Indemnified Party shall not have reasonably objected to any such
\nsettlement on the ground that the circumstances surrounding the settlement could
\nresult in an adverse impact on the business, operations, assets, liabilities
\n(absolute, accrued, contingent or otherwise), condition (financial or otherwise)
\nor prospects of the Indemnified Party. The Indemnified Party shall cooperate
\nwith the Shareholder Representative and shall be entitled to participate in the
\ndefense or handling of such Third Party Claim with its own counsel and at its
\nown expense.<\/p>\n
(d) (i) If (A) the Shareholder Representative does not give written
\nnotice to the Indemnified Party pursuant to Section 8.4(c)(i) within 30 days
\nafter receipt of the notice from the Indemnified Party of any Third Party Claim
\nof the Shareholder Representative’s election to assume the defense or handling
\nof such Third Party Claim or (B) Amazon.com elects to assume the defense and the
\nhandling of such Third Party Claim pursuant to Section 8.4(c)(i), the provisions
\nof Section 8.4(d)(ii) hereof shall govern.<\/p>\n
(ii) The Indemnified Party may, at the indemnifying party’s
\nexpense (which shall be paid from time to time by the Shareholder
\nRepresentative, on behalf of the indemnifying party, as such expenses are
\nincurred by the Indemnified Party), select counsel, after consultation with the
\nShareholder Representative, in connection with conducting the defense or
\nhandling of such Third Party Claim and defend or handle such Third Party Claim
\nin such manner as the Indemnified Party may deem appropriate; provided, however,
\nthat the Indemnified Party shall keep the Shareholder Representative timely
\napprised of the status of such Third Party Claim and shall not <\/p>\n
-62-<\/p>\n
69
\nsettle such Third Party Claim without the prior written consent of the
\nShareholder Representative, which consent shall not be unreasonably withheld. If
\nthe Indemnified Party defends or handles such Third Party Claim, the Shareholder
\nRepresentative shall cooperate with the Indemnified Party and shall be entitled
\nto participate in the defense or handling of such Third Party Claim with its own
\ncounsel and at its own expense.<\/p>\n
8.5 REMEDIES; SPECIFIC PERFORMANCE<\/p>\n
Except as otherwise provided, the indemnification provisions of this
\nArticle VIII are the sole and exclusive remedy of any party to this Agreement
\nfor a breach of any representation, warranty or covenant contained herein.
\nNotwithstanding the preceding sentence, each of the parties acknowledges and
\nagrees that the other parties hereto would be damaged irreparably in the event
\nany of the provisions of this Agreement are not performed in accordance with
\ntheir specific terms or otherwise are breached. Accordingly, each of the parties
\nhereto agrees that the other parties hereto shall be entitled to an injunction
\nto prevent breaches of the provisions of this Agreement and to enforce
\nspecifically this Agreement and the terms and provisions hereof (including the
\nindemnification provisions hereof) in any competent court having jurisdiction
\nover the parties, in addition to any other remedy to which they may be entitled
\nat law or in equity.<\/p>\n
ARTICLE IX – GENERAL<\/p>\n
9.1 EXPENSES<\/p>\n
Regardless of whether the transactions contemplated by this Agreement
\nare consummated, each party shall pay its own fees and expenses (including,
\nwithout limitation, legal and accounting fees and expenses) incident to the
\nnegotiation, preparation and execution of this Agreement and the other Operative
\nDocuments; provided, however, that all fees and expenses incurred by or on
\nbehalf of the Company in excess of $250,000 in connection with the transactions
\ncontemplated by this Agreement or the other Operative Documents (the
\n“Transaction Expenses”) shall be the sole responsibility of the Shareholders on
\na joint and several basis; and, provided further, that, should any action be
\nbrought hereunder, the attorneys’ fees and expenses of the prevailing party
\nshall be paid by the other party to such action.<\/p>\n
9.2 NOTICES<\/p>\n
Any notice, request or demand desired or required to be given hereunder
\nshall be in writing given by personal delivery, confirmed facsimile
\ntransmission, or overnight courier service, in each case addressed as
\nrespectively set forth below or to <\/p>\n
-63-<\/p>\n
70
\nsuch other address as any party shall have previously designated by such a
\nnotice. The effective date of any notice, request or demand shall be the date of
\npersonal delivery, the date on which successful facsimile transmission is
\nconfirmed or the date actually delivered by a reputable overnight courier
\nservice, as the case may be, in each case properly addressed as provided herein
\nand with all charges prepaid.<\/p>\n
TO AMAZON.COM OR THE PURCHASER:<\/p>\n
Amazon.com
\n 1516 Second Avenue
\n Seattle, WA 98101
\n Fax: (206) 834-7010
\n Attention: Legal<\/p>\n
with a copy to:<\/p>\n
Perkins Coie LLP
\n 1201 Third Avenue, 48th Floor
\n Seattle, Washington 98101-3099
\n Fax: (206) 583-8500
\n Attention: Scott L. Gelband<\/p>\n
TO THE COMPANY:<\/p>\n
Accept.com Financial Services Corporation
\n 3 Twin Dolphin Drive, Suite 200
\n Redwood City, CA 94065
\n Fax: (650) 598-1212
\n Attention: President<\/p>\n
with a copy to:<\/p>\n
Wilson Sonsini Goodrich & Rosati
\n 650 Page Mill Road
\n Palo Alto, CA 94304-1050
\n Fax: (650) 493-6811
\n Attention: James N. Strawbridge<\/p>\n
9.3 SEVERABILITY<\/p>\n
If any term or other provision of this Agreement is invalid, illegal or
\nincapable of being enforced by any rule of law, or public policy, all other
\nconditions and <\/p>\n
-64-<\/p>\n
71
\nprovisions of this Agreement shall nevertheless remain in full force and effect
\nso long as the economic or legal substance of the transactions contemplated
\nhereby is not affected in any manner adverse to any party. Upon such
\ndetermination that any term or other provision is invalid, illegal or incapable
\nof being enforced, the parties hereto shall negotiate in good faith to modify
\nthis Agreement so as to effect the original intent of the parties as closely as
\npossible in a mutually acceptable manner in order that the transactions
\ncontemplated hereby be consummated as originally contemplated to the fullest
\nextent possible.<\/p>\n
9.4 ENTIRE AGREEMENT<\/p>\n
This Agreement, the Mutual Nondisclosure Agreement and the other
\nOperative Documents constitute the entire agreement among the parties with
\nrespect to the subject matter hereof and thereof and supersede all prior
\nagreements and undertakings, both written and oral, among the parties, or any of
\nthem, with respect to the subject matter hereof and thereof.<\/p>\n
9.5 ASSIGNMENT<\/p>\n
This Agreement shall not be assigned prior to the Closing by operation
\nof law or otherwise; provided, however, that the Purchaser’s rights and
\nobligations may be assigned to and assumed by any other corporation wholly owned
\n(directly or through intermediate wholly-owned subsidiaries) by Amazon.com.<\/p>\n
9.6 PARTIES IN INTEREST<\/p>\n
This Agreement shall be binding upon and inure solely to the benefit of
\nthe parties hereto and their respective successors, heirs, legal representatives
\nand permitted assigns, and nothing in this Agreement, express or implied, is
\nintended to or shall confer upon any other Person any right, benefit or remedy
\nof any nature whatsoever under or by reason of this Agreement.<\/p>\n
9.7 GOVERNING LAW<\/p>\n
This Agreement shall be governed by, and construed in accordance with,
\nthe laws of the State of Washington applicable to contracts executed in and to
\nbe performed in that state. All actions and proceedings arising out of or
\nrelating to this Agreement shall be heard and determined in any Washington state
\nor federal court.<\/p>\n
-65-<\/p>\n
72
\n9.8 HEADINGS<\/p>\n
The descriptive headings contained in this Agreement are included for
\nconvenience of reference only and shall not affect in any way the meaning or
\ninterpretation of this Agreement.<\/p>\n
9.9 COUNTERPARTS<\/p>\n
This Agreement may be executed and delivered (including by facsimile
\ntransmission) in one or more counterparts, and by the different parties hereto
\nin separate counterparts, each of which when executed and delivered shall be
\ndeemed to be an original but all of which taken together shall constitute one
\nand the same agreement. To expedite the process of entering into this Agreement,
\nthe parties acknowledge that Transmitted Copies of this Agreement will be
\nequivalent to original documents until such time as original documents are
\ncompletely executed and delivered. “Transmitted Copies” will mean copies that
\nare reproduced or transmitted via photocopy, facsimile or other process of
\ncomplete and accurate reproduction and transmission.<\/p>\n
9.10 WAIVER OF JURY TRIAL<\/p>\n
Each of Amazon.com, the Company and the Purchaser hereby irrevocably
\nwaives all right to trial by jury in any action, proceeding or counterclaim
\n(whether based on contract, tort or otherwise) arising out of or relating to
\nthis Agreement, the transactions contemplated hereby or the actions of such
\nparties in the negotiation, administration, performance and enforcement hereof.<\/p>\n
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73
\n IN WITNESS WHEREOF, the parties hereto have entered into and signed this
\nAgreement and Plan of Merger as of the date and year first above written.<\/p>\n
AMAZON.COM<\/p>\n
By \/s\/ Randy Tinsley
\n ——————————-
\n Randy Tinsley,
\n Treasurer and Vice President
\n of Corporate Development<\/p>\n
ADC ACQUISITIONS, INC.<\/p>\n
By \/s\/ Randy Tinsley
\n ——————————-
\n Randy Tinsley, Treasurer<\/p>\n
ACCEPT.COM FINANCIAL SERVICES CORPORATION<\/p>\n
By \/s\/ Daniel J. Shader
\n ——————————-
\n Its President and CEO
\n ——————————-<\/p>\n
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