PURCHASE AGREEMENT
This PURCHASE AGREEMENT (the "Agreement") is dated as of June 8,
2000 (the "Signing Date") and is entered into by and among eParties, Inc., a
Delaware corporation (the "Seller"), eCompanies Enterprises LLC, a Delaware
limited liability company and the sole shareholder of Seller (the
"Stockholder") and eToys, Inc., a Delaware corporation (the "Buyer" or
"eToys").
WHEREAS, the Buyer desires to acquire, and the Seller desires to
sell, substantially all of the Seller's assets (other than the Excluded
Assets (as defined below)).
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and such other consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and
conditions of this Agreement, at the Closing (as defined in SECTION 1.7), the
Seller shall transfer and deliver to the Buyer, and Buyer shall purchase and
accept from the Seller all right, title and interest of the Seller, as of the
Closing Date (as defined in SECTION 1.7), in and to the assets of the Seller
listed below (collectively, the "Purchased Assets"):
(a) the United States and foreign patents, know-how, trade
secrets, trademarks, service marks, trade names, brand names, copyrights,
logos, slogans and trade references, in each case whether registered, under
application or otherwise, any other intangible property used in connection
with the conduct of Seller's business, and the applications therefor and the
licenses with respect thereto, together with the goodwill and the business
appurtenant thereto and any rights, claims or choses in action relating to or
deriving from any of the foregoing listed on SCHEDULE 1.1 (a);
(b) the Uniform Resource Locators ("URLs") listed on
SCHEDULE 1.1(b), including, without limitation, (i) all goodwill associated
therewith and inhering therein, (ii) originals of all files, correspondence
and other records relating to or reflecting Seller's ownership of the URLs or
right, title or interest therein, (iii) all claims of Seller against third
parties relating to the URLs, (iv) any and all intellectual property and
other proprietary rights associated therewith existing at any time under the
laws of any jurisdiction, including, without limitation, any trademark,
service xxxx, trade name, brand name and/or copyright rights relating
thereto, all registrations and pending applications to register such rights,
together with all such rights inhering in or protecting names and marks
derivative of or similar to the URLs and the right to register any of the
foregoing anywhere
in the world, and (v) any and all rights of Seller pertaining to the URLs
arising under any agreement, contract, commitment or other arrangement;
(c) all technology (owned or licensed) used in connection with
the operation of the xXxxxxxx.xxx Web-site (the "Site") other than the "Party
Store" portion of the Site, including, without limitation, all computer
software (including all source code, object code, firmware, development
tools, files, records and data and all media on which any of the foregoing is
recorded) related thereto; all techniques, methods, applications and other
technology relating thereto; the brands, names, logos, trademarks and service
marks used in or in connection therewith; the eParties user interface and the
copyrights in the design of the eParties user interfaces; all Derivative
Works (as defined below); and any reference materials or other documentation,
whether in printed or machine readable form relating to the operation of the
Site( collectively with the assets set forth in subsections (a) and (b), the
"Intellectual Property"). For purposes of this section 1 (c), "Derivative
Works" means (i) without limitation, any computer program, work product,
service, improvement, supplement, modification, alteration, addition,
revision, enhancement, new version, new edition, remake, sequel, translation,
adaptation, design, plot, theme, character, story line, concept, scene,
audio-visual display, interface element or aspect, in any medium, format, use
or form whatsoever, whether interactive or linear and whether now known or
unknown, that is derived in any manner, directly or indirectly, from the
applications used in the operation of the Site, or any part or aspect
thereof, and (ii) any material or documentation related to any of the
foregoing;
(d) the agreements and contracts listed on SCHEDULE 1.1(d)
(the "Contracts"), subject to the provisions of SECTIONS 1.2(b); and
(e) all technical literature, information, records, files,
books and records listed on Schedule 1.1(e).
1.2 EXCLUDED ASSETS; CONSENTS TO ASSIGNMENT.
(a) Notwithstanding any other provision of this Agreement,
the Buyer shall not acquire any (i) of Seller's cash and cash equivalents;
(ii) of Seller's bank accounts or other similar accounts; (iii) of Seller's
machinery, equipment, supplies and furniture; (iv) all assets relating to the
"Party Store" portion of the Site or (v) all other books, records, contracts
and other assets of the Seller not specifically listed in SECTION 1.1 above
(collectively, the "Excluded Assets").
(b) To the extent that the assignment of any Contract shall
require the consent of any other party, this Agreement shall not constitute a
contract to transfer the same if any attempted transfer would constitute a
breach thereof. The Seller and the Buyer shall use their reasonable efforts
to obtain any consent necessary to the assignment of a Contract in accordance
with SECTION 5.2.
1.3 CONSIDERATION. In consideration for the sale and delivery of
the Purchased Assets the Buyer shall:
2
(a) deliver 250,000 shares of its common stock (the
"Shares") to Seller, represented by two (2) eToys stock certificates of
175,000 shares and 75,000 shares, respectively (the "eToys Stock
Certificates"), which Seller may assign or transfer to its affiliates, the
Stockholder and eCompanies Venture Group, L.P. ("eVG").
(b) assume the Assumed Liabilities (as such term is defined
in SECTION 1.4), and
(c) perform the promises and covenants contained herein
(collectively with the consideration set forth in subsections (a) and (b),
the "Purchase Price").
1.4 ASSUMPTION OF LIABILITIES.
(a) The Buyer shall assume and thereafter shall pay and
perform, satisfy and otherwise discharge. all obligations and liabilities
that arise out of the use and operation of the Purchased Assets after the
Closing Date (the "Assumed Liabilities")
(b) Buyer shall not assume, and shall not at any time
hereafter become liable for any liabilities of the Seller other than the
Assumed Liabilities.
1.5 ALLOCATION OF PURCHASE PRICE. The Buyer and the Seller agree
that the Purchase Price shall be allocated among the Purchased Assets in
accordance with the allocation set forth on SCHEDULE 1.5. The Buyer and the
Seller agree that each will report the federal, state and local income and
other tax consequences of the purchase and sale contemplated hereby in a
manner consistent with such allocation and that neither will take any
position inconsistent therewith upon examination of any tax return, in any
refund claim, in any litigation, or otherwise.
1.6 EMPLOYEES.
(a) Seller shall have sole and complete responsibility for
payment of all wages and other remuneration due to all employees, agents,
independent contractors and representatives who work for Seller (the
"Employees") as of the Closing Date, including without limitation, overtime,
expense reimbursement, severance, accrued vacation time, sick leave and any
other paid time off.
(b) The parties to this Agreement acknowledge and agree
that, although Buyer currently intends to employ, from and after the Closing
Date, certain of the Employees, Buyer shall be under no obligation to do so.
Each such Employee's compensation, benefits and any other terms and
conditions of employment of such Employees shall be determined by Buyer and
such Employee, in their respective discretion, in the event that Buyer elects
to offer employment to such Employees.
(c) Notwithstanding clause (b), to the extent permitted
under Buyer's group medical plan, the Buyer shall immediately offer all hired
Employees coverage under its group medical plan without the imposition of any
waiting period requirement or pre-existing condition
3
limitation (except to the extent that those limitations would have applied if
the Employee had remained covered by the Seller's medical plan).
Furthermore, the Employees shall be credited with the amount of their
payments made on or prior to the Closing Date for purposes of satisfying any
deductibles and out-of-pocket maximum payments under the Buyer's health plan,
to the extent Buyer's health plan will credit any such previous payments.
Buyer shall incur no liability if Buyer's health plan will not credit any
such previously made payments.
1.7 CLOSING. The Closing for the sale of the Purchased Assets
(the "Closing") will be held at Xxxxxxx & XxXxxxxx , 000 Xxxxx Xxxxx Xxxxxx,
00xx Xxxxx, Xxx Xxxxxxx, Xxxxxxxxxx , at 10:00 a.m. on June 9, 2000, or such
other place or date as the parties hereto mutually agree to (the "Closing
Date").
1.8 DELIVERIES AT CLOSING.
(a) SELLER DELIVERIES. At the Closing, the Seller will
deliver to the Buyer:
(i) bills of sale or other documents to transfer
title to the Purchased Assets; and
(ii) the certificate described in SECTION 6.1.
(b) BUYER DELIVERIES. At the Closing, the Buyer will
deliver to the Seller:
(i) any assumption agreements necessary for the Buyer
to take title to the Purchased Assets and assume the Assumed
Liabilities;
(ii) the certificate described in SECTION 7.1; and
(iii) the eToys Stock Certificates evidencing the
Shares, issued in the Seller's name.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Each of the Seller and the Stockholder, jointly and severally,
represent and warrant to the Buyer as follows:
2.1 INVESTMENT. The Shares are being acquired for investment for
the Seller's own account, not as a nominee or agent, and not with a view to
the sale or distribution of all or any part thereof in violation of the
securities laws.
2.2 NOT REGISTERED. Seller understands that the Shares are not
(a) registered under the
4
Securities Act of 1933, as amended (the "Act"), on the ground that the
issuance of the Shares is exempt from registration under the Act pursuant to
Section 4(2) thereof, or (b) qualified or registered under the California
Corporate Securities Law of 1968 (the "Law"), on the ground that the issuance
of the Shares is exempt from qualification under the Law pursuant to Section
25102(f) thereof, and that Buyer's reliance on such exemptions is predicated
on Seller's representations set forth herein. Seller understands that the
Shares are "restricted securities" under Rule 144 and are subject to
restrictions on resale.
2.3 NO PUBLIC MARKET. Intentionally omitted.
2.4 ACCESS TO INFORMATION. Seller represents and warrants that it
has the requisite knowledge and experience to assess the relative merits and
risks of an investment in the Shares.
2.5 ORGANIZATION AND STANDING; CERTIFICATE AND BYLAWS. The
Seller is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. The Seller has all requisite
corporate power and authority to own and operate its properties and assets,
and to carry on its business as presently conducted and as proposed to be
conducted. The Seller is qualified to do business as a foreign corporation
in each jurisdiction where failure to be so qualified would have a material
adverse effect on the Seller's business as presently conducted (a "Material
Adverse Effect"). The Seller has furnished the Buyer with copies of its
Certificate of Incorporation, as amended to date (the "Certificate") and
Bylaws. These copies are true, correct and complete and contain all
amendments through the date hereof.
2.6 CORPORATE POWER. At the Closing, the Seller shall have all
requisite corporate power and authority to execute and deliver this
Agreement, and to sell the Purchased Assets hereunder.
2.7 SUBSIDIARIES. The Seller has no subsidiaries or affiliated
companies and does not own or otherwise control, directly or indirectly, any
interest in any corporation, association or business entity.
2.8 AUTHORIZATION; NO BREACH. At the Closing, the execution,
delivery and performance of this Agreement and the consummation of all
transactions contemplated hereby have been duly authorized by all required
corporate actions of the Seller and its stockholders. This Agreement
constitutes a valid and binding obligation of the Seller, enforceable against
the Seller in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable
remedies. Except as set forth on SCHEDULE 2.8 or as would not have a
Material Adverse Effect, the execution and delivery by the Seller of this
Agreement and the consummation of the transactions contemplated hereby do not
and will not (with or without due notice, lapse of time, or both) (i)
conflict with or result in a breach of the terms, conditions or provisions
of, (ii) constitute a default under, (iii) result in the creation of any
lien, security interest, charge or encumbrance upon the Purchased Assets
pursuant to, (iv) give any third party the right to accelerate any obligation
under, (v) result in a violation of, or (vi) require any authorization,
consent, qualification, approval, exemption, filing or other action by or
notice to any
5
court or administrative or governmental body pursuant to, the Certificate or
Bylaws of the Seller, or any law, statute, rule, regulation, instrument,
order, judgment or decree to which the Seller, or any of its respective
properties is subject, or any other material agreement or instrument which is
a Purchased Asset.
2.9 FINANCIAL INFORMATION. Attached hereto as SCHEDULE 2.9 is
the Seller's financial statement consisting of (i) its unaudited balance
sheet (the "Balance Sheet") at May 31, 2000 and (ii) a schedule of assets and
costs each of which has been prepared in accordance with generally accepted
accounting principles.
2.10 CONTRACTS. Listed on SCHEDULE 1.1(d) are all written
contracts, agreements, leases or other commitments to which the Seller is
party relating to the Purchased Assets.
2.11 CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 2.11,
no officer, director, significant employee, consultant or holder of any of
its capital stock or any member of their immediate families, directly or
indirectly, is interested in any contract with the Seller.
2.12 LITIGATION, ETC. Except as set forth on SCHEDULE 2.12, there
are no actions, suits, proceedings or investigations pending or threatened,
or to the Seller's knowledge, claims asserted, to which the Seller or any of
its directors or officers, as such, is a party, or to which property of the
Seller is subject, that might result in any Material Adverse Effect, and none
which question the validity of this Agreement or any action taken or to be
taken in connection herewith or therewith.
2.13 CONSENTS. Except as set forth on SCHEDULE 2.13, no material
consent, approval, qualification, order or authorization of, or filing with,
any governmental authority or any other person or entity required on the part
of the Seller is required in connection with the Seller's valid execution,
delivery or performance of this Agreement, or the consummation of the
transactions contemplated on the part of the Seller hereby.
2.14 OWNERSHIP OF PURCHASED ASSETS. Except as set forth on
SCHEDULE 2.15, Seller has good and marketable title to all of the Purchased
Assets free and clear of any claim, lien, charge, security interest or
encumbrance. Upon Seller's transfer and sale of such Purchased Assets to
Buyer pursuant to this Agreement, Buyer will have good and marketable title
to all of such Purchased Assets, free and clear of any claim, lien, charge,
security interest or encumbrance other than as set forth on SCHEDULE 2.15.
Seller does not hold or use any of the Purchased Assets pursuant to any
lease, conditional sales contract, franchise or license.
2.15 INTELLECTUAL PROPERTY. Except as would not have a Material
Adverse Effect, the Seller has sufficient title and interest in, or the right
to use, all Intellectual Property of the Seller in its business as now
conducted. Except as set forth on SCHEDULE 2.15, no claim has been made or
to the best of the Seller's knowledge, is threatened with regard to any third
party intellectual property, including any allegation of intellectual
property infringement or misappropriation or of any breach or default of an
intellectual property license or similar agreement. Each of the Seller's (i)
patents and patent applications, (ii) registered copyrights and copyright
applications, (iii) trademarks and service
6
marks and applications for trademarks and service marks, and (iv) mask work
registrations and mask work registration applications are set forth on
SCHEDULE 1.1(a) OR 1.1(b).
2.16 TAXES. The Seller has filed all tax returns that are
required to have been filed on or before the Closing Date with appropriate
federal, state, county and local governmental agencies or instrumentalities.
All such tax returns, in all material respects, are complete and accurate and
in accordance with all legal requirements applicable thereto. The Seller has
paid or established adequate reserves for all income, franchise and other
taxes, assessments, governmental charges, penalties, interest and liens due
and payable by it on or before the Closing Date. There is no pending dispute
with any taxing authority relating to any of the Seller's tax returns, and
the Seller has no knowledge of any proposed liability for any tax to be
imposed upon the properties or assets of the Seller for which there is not an
adequate reserve reflected on the Balance Sheet. The Seller (i) has neither
agreed to make nor is required to make any adjustment under Section 481 of
the Internal Revenue Code of 1986, as amended (the "Code") by reason of a
change in accounting method and (ii) is not a "consenting corporation" within
the meaning of Section 341(f)(1) of the Code. The Seller is not involved in,
subject to, or a party to any joint venture, partnership, contract or other
arrangement that is treated as a partnership for federal, state, local or
foreign income tax purposes. The Seller has not made any payments, is not
obligated to make any payments, nor is a party to any contract that under
certain circumstances could require it to make any payments that are not
deductible as a result of the provisions set forth in Section 280G of the
Code or the treasury regulations thereunder or would result in an excise tax
to the recipient of any such payment under Section 4999 of the Code. For
periods prior to the Signing Date, there is currently no limitation on the
utilization of the net operating losses, built-in losses, capital losses, tax
credits or other similar items of the Seller under (i) Section 382 of the
Code, (ii) Section 383 of the Code and (iii) Section 384 of the Code. For
periods prior to the Signing Date, Seller has not joined in filing any
consolidated tax returns.
2.17 BROKERS OR FINDERS. The Seller has not incurred, and will
not incur, directly or indirectly, as a result of any agreement entered into
or action taken by the Seller, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this
Agreement.
2.18 COMPLIANCE WITH LAW. The operations of the Seller have not
violated any federal, state or local laws, regulations or orders, to the
extent any such violation would have a Material Adverse Effect. The Seller
has all licenses, permits, certificates and authority from governmental
agencies necessary for the conduct of its business, except for those which if
not obtained would not have a Material Adverse Effect.
2.19 EMPLOYEE MATTERS. All Employees who, as of the Closing Date,
will be employed by Buyer have been terminated by Seller in accordance with
any employment agreements with such Employees.
2.20 NO OTHER AGREEMENTS TO SELL THE PURCHASED ASSETS . Seller,
has no legal obligation, to any other person or entity to sell the Purchased
Assets, to sell a majority of the capital stock of
7
Seller or to effect any merger, consolidation or other reorganization of
Seller or to enter into any agreement with respect to any transaction
described in this sentence.
2.21 NO WARRANTIES. Except as specifically set forth otherwise in
this Agreement, all of the Purchased Assets are purchased by the Buyer in an
"AS IS" CONDITION, "WITH ALL FAULTS, INCLUDING BUT NOT LIMITED TO BOTH LATENT
AND PATENT DEFECTS." NO WARRANTIES, EXPRESS OR IMPLIED, ARE MADE BY THE
SELLER, AND THE BUYER WAIVES ALL SUCH WARRANTIES, OTHER THAN AS SET FORTH
EXPRESSLY IN THIS AGREEMENT, REGARDING THE TITLE, CONDITION AND USE OF THE
PURCHASED ASSETS, INCLUDING, BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BUYER
The Buyer represents, warrants and covenants to the Seller:
3.1 ORGANIZATION AND POWER; FOREIGN QUALIFICATION. The Buyer is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Buyer is duly qualified to transact
business and is in good standing in every jurisdiction in which the character
of its business makes such qualification necessary, except for such
jurisdictions where the failure to so qualify would not have a material
adverse effect on the business of the Buyer. The Buyer has all necessary
corporate power and authority to own, lease and operate its properties, and
to carry on its business, as such is now being conducted.
3.2 AUTHORIZATION AND ENFORCEABILITY OF AGREEMENTS. As of the
Closing, the Buyer will have all requisite corporate power and authority to
enter into this Agreement and to perform its obligations hereunder. At the
Closing, this Agreement will be duly and validly authorized by and approved
by all requisite corporate action (including stockholder approval) on the
part of the Buyer. This Agreement has been duly executed and delivered by the
Buyer and constitutes the legal, valid and binding obligation of the Buyer,
enforceable in accordance with its terms, except as may be limited by
bankruptcy, reorganization, insolvency, moratorium or other laws relating to
or affecting the enforcement of creditors' rights and remedies generally and
except as enforcement may be limited by general principles of equity. No
further approvals or consents by, or filings with, any federal, state,
municipal, foreign or other court or governmental or administrative body,
agency or other third party is required in connection with the execution and
delivery by the Buyer of this Agreement, or the consummation by the Buyer of
the transactions contemplated hereby including the issuance of the Shares.
3.3 NO CONFLICTS. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the issuance of the Shares) will (a) violate any provisions of the
charter or bylaws of the Buyer, (b) violate, or be in conflict with,
8
or constitute a default (or other event which, with the giving of notice or
lapse of time or both, would constitute a default) under, or give rise to any
right of termination, cancellation or acceleration under any of the terms,
conditions or provisions of any material lease, license, promissory note,
contract, agreement, mortgage, deed of trust or other instrument or document
to which the Buyer is a party or by which the Buyer or any of its properties
or assets may be bound, (c) violate any order, writ, injunction, decree, law,
statute, rule or regulation of any court or governmental authority applicable
to the Buyer or any of its properties or assets or (d) give rise to a
declaration or imposition of any claim, lien, charge, security interest or
encumbrance of any nature whatsoever upon any of the assets of the Buyer's
business.
3.4 LITIGATION. There are no actions, suits, proceedings or
investigations, pending or threatened, or the Buyer's knowledge, claims
asserted, to which Buyer or any of its directors or officers is a party, to
which the property of Buyer is subject or which relates to or affects the
transactions contemplated by this Agreement.
3.5 PURCHASE PRICE. The issuance of the Shares to Seller has
been duly authorized. When issued in accordance with this Agreement, the
Shares will be duly and validly issued, fully paid and nonassessable and free
and clear of all liens, charges and encumbrances. As soon as reasonably
practicable but no later than thirty (30) days from the Signing Date, Buyer
shall file a registration statement ( the "Shelf Registration Statement") on
Form S-3 (or any successor form to S-3) in respect of 175,000 of the Shares,
shall use reasonable efforts to cause the Shelf Registration Statement to be
declared effective under the Act on or prior to 90 days from the Signing
Date, and shall use reasonable efforts to keep effective the Shelf
Registration Statement until the first anniversary of the Closing Date.
Notwithstanding the foregoing, if after the filing of the Shelf Registration
Statement, Buyer is notified by the Securities and Exchange Commission (the
"Commission") that the Commission will not be reviewing the Shelf
Registration Statement, Buyer agrees to file with the Commission, within
three (3) business days of the receipt of such notification an acceleration
request letter (the "Acceleration Request Letter") requesting that the Shelf
Registration Statement be declared effective as soon as possible but in no
event later than two (2) business days after the date of the Acceleration
Request Letter. The Shelf Registration Statement may be used to sell the
Shares to the public by Seller, it affiliates, Stockholders or eVG. Such
Shares may be freely transferred by Seller at any time thereafter subject to
a volume restriction of no more than 35,000 shares per trading day. In
connection with such registration, Buyer shall indemnify Seller, its
officers, directors, stockholders and any transferees of the Shares
("Indemnified Parties") against any claim, loss, damage, liability, cost or
expense (including costs of investigation, defense or settlement) arising out
of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in the Shelf Registration Statement, or related
prospectus, or any amendment or supplement thereto, or based on any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any violation by
the Buyer of the Act or any rule or regulation promulgated under the Act
applicable to the Buye in connection with such registration. Buyer will
reimburse each Indemnified Party for any legal and any other expenses
reasonably incurred, as incurred in connection with investigating, preparing
or defending any such claim, loss, damage, liability or action. If the
indemnification provided for in this section shall for any reason be
unavailable to an
9
Indemnified Party in respect of any loss, claim, damage, liability, cost or
expense or any action in respect thereof then Buyer shall in lieu of
indemnifying such Indemnified Party, contribute to the amount paid or payable
by such Indemnified Party (including costs of investigation, defense or
settlement) as a result of such loss, claim, damage of liability, or action
in respect thereof, in such proportion as shall be appropriate to reflect the
relative fault of the Buyer on the one had and the Indemnified party on the
other with respect to the statements or omission which resulted in such loss,
claim, damage or liability, or action in respect thereof, as well as any
other relevant equitable considerations. Within twelve (12) months of the
Closing Date, the remaining 75,000 Shares may be sold, at the discretion of
Seller or its Stockholders or assignees, pursuant to Rule 144 without
compliance with the registration requirement of the Act.
ARTICLE IV
LEGENDS
4.1 LEGENDS. The Shares shall bear the following legends:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). SUCH SECURITIES MAY NOT BE TRANSFERRED UNLESS A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT IS IN EFFECT AS TO
SUCH TRANSFER OR, IN THE OPINION OF COUNSEL FOR THE COMPANY, SUCH
TRANSFER MAY BE PURSUANT TO RULE 144 OR REGISTRATION UNDER THE
SECURITIES ACT IS OTHERWISE UNNECESSARY IN ORDER FOR SUCH TRANSFER TO
COMPLY WITH THE SECURITIES ACT.
ARTICLE V
COVENANTS
5.1 COVENANTS PENDING CLOSING. The Seller agrees that from the
date hereof to the Closing Date, it will:
(a) operate its business substantially as now operated and
only in the ordinary course and, to the extent of and consistent with such
operation, use reasonable efforts to preserve intact the present business
organization and the relationships with persons having business dealings with
the Seller;
(b) maintain its books, accounts and records, in the usual,
regular and ordinary manner and consistent with past practice;
(c) refrain from disposing of or encumbering any of the
Purchased Assets; or
10
(d) not amend, adversely modify or terminate any Contract.
5.2 CONSENTS AND APPROVALS; FULFILLMENT OF CONDITIONS. The
Seller and the Buyer will use their reasonable efforts (a) to obtain all
necessary consents and approvals of governmental and regulatory authorities
to the consummation of the transactions contemplated by this Agreement, (b)
to obtain all other consents necessary or advisable in connection with the
transactions contemplated by this Agreement, including consents to the
assignment of the Contracts, and (c) to perform, comply with and fulfill all
obligations, covenants and conditions required by this Agreement to be
performed, complied with and fulfilled by them prior to or at the Closing
Date. All regulatory filings or consent payments shall be at Buyer's expense.
5.3 ACCESS. Prior to the Closing, the Seller agrees to permit
the Buyer and its employees, agents and representatives to have reasonable
access to the properties, assets, books and records, contracts and other
documents of the Seller, on reasonable prior notice to and approval of the
Seller, during regular business hours
5.4 DISCLOSURE OF BREACH DISCOVERED. In the course of their due
diligence whether before, upon or following the date first above written and
prior to the Closing Date, should a party discover any material fact or
omission to disclose a material fact that they believe to constitute a breach
of a representation or warranty hereunder, such party shall promptly disclose
such fact or omission to all other parties hereto. In the event that the
discovering party proceeds with signing this Agreement and/or a Closing
despite actual knowledge of any such fact or omission, for all purposes such
actual knowledge shall result in a waiver of the applicable breach of this
Agreement.
5.5 PUBLICITY. Prior to the Closing, neither the Seller or
Stockholder, on the one hand, nor the Buyer, on the other hand, nor any of
their agents or affiliates, shall either directly or indirectly make any
press release or other public communication after the date hereof with
respect to the transaction contemplated hereby without the prior written
consent of all other parties hereto (which shall not be unreasonably
withheld) unless required by applicable law, rule or regulation (including
the rules and regulations of any securities exchange) to make such a
communication.
5.6 DISCHARGE OF LIABILITIES. The Buyer shall fully, faithfully
and promptly discharge each of the Assumed Liabilities as and when due and
dischargable, according to the terms of the respective Assumed Liability.
5.7 MAINTENANCE OF RECORDS. The Buyer shall: (i) protect,
preserve and maintain all books and other records constituting Purchased
Assets (the "Records") for five (5) years after the Closing using the same
duty of care as the Buyer uses for its own records, (ii) not dispose of any
Record earlier than the time period stated in clause (i) without first giving
the Seller at least three months advance written notice of such destruction
and obtaining the Seller's written consent thereto, and (iii) grant the
Seller access to the Records at any reasonable time, and from time to time,
upon request by the Seller.
11
5.8 MAINTENANCE OF THE SITE. The Seller and Buyer hereby agree
to continue to operate the Site for a period from the Closing Date through
August 31, 2000 unless mutually agreed otherwise. Buyer agrees to pay to
Seller a flat fee of $5,500.00 per month (on June 6, July 1 and August 1) to
cover all costs and expenses relating to the hardware, software and real
estate required to operate the Site. For purposes of clarification, in the
event the actual costs and expenses of operating the Site are greater than
$5,500, Seller shall pay such costs and expenses and in the event the actual
costs and expenses of operating the Site are less than $5,500, Buyer shall
not be reimbursed or credited for any such excess amounts.
5.9 NO SALE OF PURCHASED ASSETS. The Seller hereby agrees that
it shall not sell, lease, dispose of or encumber any of the Purchased Assets
or any copies or duplicates thereof other than pursuant to this Agreement.
5.10 ON-GOING BUSINESS OPERATIONS. The Seller hereby agrees that
it shall not conduct on-going business operations and shall notify Buyer if
it liquidates, distributes its assets and dissolves or otherwise reclassifies
its corporate identity.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE BUYER
The obligations of the Buyer hereunder are subject to the
fulfillment or satisfaction at or prior to the Closing of each of the
following conditions (any one or more of which may be waived by the Buyer):
6.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER. All
representations and warranties of the Seller contained in this Agreement
shall be true and correct in all material respects as of the Closing with the
same effect as though such representations and warranties were made at and as
of the Closing (unless such representation speaks as of an earlier date, in
which case it shall be true and correct as of such date); the Seller shall
have performed and satisfied in all material respects all covenants,
conditions and agreements required or contemplated by this Agreement to be
performed prior to the Closing; and at the Closing, there shall be delivered
to the Buyer a certificate to such effect signed by an authorized officer of
the Seller, which certificate shall have attached thereto (a) a certificate
of good standing in respect of the Seller dated on or about the date hereof,
and (b) a certified copy of the Certificate of Incorporation of the Seller.
6.2 ABSENCE OF LITIGATION OR INVESTIGATION. No preliminary or
permanent injunction or other order of any court or governmental agency or
instrumentality shall have issued or been entered and remain in effect which
prohibits the consummation of the transactions contemplated by this Agreement.
12
6.3 TRANSFER OF URLS. The Seller shall have completed and
delivered to Buyer a Network Solutions, Inc Registrant Name Change Agreement
in favor of Buyer, duly executed and notarized, for each URL listed on
SCHEDULE 1.1(b).
6.4 EMPLOYMENT OFFER/NON-COMPETITION AGREEMENT. Xxxxx Xxxxxx
shall have (i) accepted Buyer's offer of employment, and (ii) entered into a
Non-Competition Agreement with the Buyer substantially in the form attached
hereto as EXHIBIT A.
6.5 DELIVERY OF DOCUMENTS. The documents described in SECTION
1.8(a) hereof shall have been delivered to the Buyer.
6.6 CONSENTS. The Seller shall have obtained all necessary
consents to transfer the Purchased Assets other than the Consent to
Assignment of the Connect Services Agreement, effective as of October 25,
1999, between XxxXxxxx.xxx, Inc. and Seller, which consent Seller shall use
reasonable efforts to obtain.
6.7 APPROVAL OF BUYER'S BOARD OF DIRECTORS. The Board of
Directors of Buyer shall have authorized and approved of each of (a) the
terms and conditions of this Agreement, (ii) the transactions contemplated
under this Agreement and (iii) the execution of this Agreement by a duly
authorized officer of Buyer.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE SELLER
The obligations of the Seller hereunder are subject to the
fulfillment or satisfaction at or prior to the Closing of each of the
following conditions (any one or more of which may be waived by the Seller):
7.1 REPRESENTATIONS AND WARRANTIES OF THE BUYER. All
representations and warranties of the Buyer contained in this Agreement shall
be true and correct as of the date made and shall be true and correct in all
material respects as of the Closing with the same effect as though such
representations and warranties were made at and as of the Closing (unless
such representation speaks as of an earlier date, in which case it shall be
true and correct as of such date); the Buyer shall have performed and
satisfied in all material respects all covenants, conditions and agreements
required or contemplated by this Agreement to be performed and satisfied by
it at or prior to the Closing; and at the Closing, the Buyer shall deliver to
the Seller, a certificate to such effect signed by an authorized officer of
the Buyer.
7.2 ABSENCE OF LITIGATION OR INVESTIGATION. No preliminary or
permanent injunction or other order of any court or governmental agency or
instrumentality shall have issued or been entered and remain in effect which
prohibits the consummation of the transactions contemplated by this Agreement.
13
7.3. DELIVERY OF DOCUMENTS. The documents and Purchase Price
described in SECTION 1.8(b) hereof shall have been delivered to the Seller.
ARTICLE VIII
TERMINATION
8.1 INDEMNIFICATION. Subject to SECTION 8.4, Seller and
Stockholder, jointly and severally, shall indemnify and hold harmless Buyer
against any loss, cost or damage, including but not limited to reasonable
attorneys' fees and costs ("Losses"), incurred by Buyer in any action or
claim resulting from (i) any inaccuracy in, or breach of, any
representations, warranties or covenants of Seller or Stockholder contained
in this Agreement, and (ii) any use of the Purchased Assets by Seller prior
to the Closing Date.
8.2 NOTICE. Buyer shall give timely written notice to Seller and
Stockholder as soon as practical after Buyer becomes aware of any condition
or event that gives rise to Losses for which indemnification is sought under
this Section. The failure of Buyer to give timely notice shall not affect
Buyer's rights to indemnification hereunder except to the extent that Seller
or Stockholder demonstrates actual damage caused by such failure.
8.3 REIMBURSEMENT OF LOSSES; NOTICE OF ARBITRATION. Subject to
Section 8.4 within thirty (30) days of receipt of the notice specified in
SECTION 8.2 above, Seller and Stockholder shall either (i) reimburse Buyer,
by certified or bank cashier's check, for the Losses for which
indemnification is sought by such notice, or (ii) provide written notice to
Buyer of its objection to the indemnification sought by Buyer and their
election to arbitrate the dispute pursuant to the provisions set forth in
SECTION 9.4 below. The failure of Seller to provide Buyer with the notice
specified in (ii) above within the allotted time shall constitute a waiver of
any objection to the indemnification then sought by Buyer. The resolution of
any third party claim giving rise to indemnification hereunder shall be
controlled by Seller.
8.4 LIMITATION ON INDEMNIFIED LOSSES. Neither Seller nor
Stockholder shall have any obligations (i) with regard to indemnification
claims made after Xxxxx 00, 0000, (xx) to reimburse Buyer for Losses
aggregating less than $50,000, (iii) with respect to Seller, to reimburse
Buyer for Losses in excess of the proceeds of the sale of Shares on the
public market received by Seller less all amounts paid to employees, lenders
and other creditors of Seller or (iv) with respect to Stockholder, to
reimburse Buyer for Losses in excess of (A) $1,500,000 with respect to the
representations and warranties contained in Sections 2.1, 2.2, 2.4, 2.5, 2.6,
2.8, 2.16, 2.17, 2.20 and 10.9, and with respect to the representations and
warranties contained in Sections 2.13, 2.14 and 2.15 solely in the event
written notice of a potential requirement, title defect or infringement, as
applicable was received by an officer of Seller or Shareholder prior to the
Signing Date or (B) $150,000 with respect to all other Losses, provided that
Stockholder's obligation to reimburse Buyer in connection herewith shall not
exceed $100,000.
14
ARTICLE IX
TERMINATION
9.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date, as follows, and in no other manner:
(a) By agreement of the Buyer on the one hand, and the
Seller on the other hand, approved by the respective Boards of Directors of
the Buyer and the Seller.
(b) By the Board of Directors of the Buyer if (i) at any
time there has been a material misrepresentation, breach of warranty or
breach of covenant on the part of the Seller in any of the representations,
warranties or covenants under this Agreement which breach is not curable, or,
if curable, is not cured within 30 days after written notice of such breach
is given to the Seller; (ii) any of the conditions set forth in ARTICLE V
hereof shall not have been met in all material respects by June 30, 2000.
(c) By the Board of Directors of the Seller if (i) there
has been a material misrepresentation, breach of warranty or breach of
covenant on the part of the Buyer in any of the representations, warranties
or covenants under this Agreement which breach is not curable, or if curable,
is not cured within 30 days after written notice of such breach is given to
the Buyer; or (ii) any of the conditions set forth in ARTICLE VI hereof shall
not have been met in all material respects by June 30, 2000.
9.2 EFFECT OF TERMINATION. In the event that this Agreement
shall be terminated pursuant to SECTION 7.1, all obligations of the parties
hereto under this Agreement shall terminate without further liability or
obligation of either party to another, except for the obligations set forth
in SECTION 8.1, PROVIDED, HOWEVER, that the parties shall remain obligated
for any breach of this Agreement.
ARTICLE X
GENERAL PROVISIONS
10.1 EXPENSES. Except as otherwise provided in this Agreement,
all expenses incurred pursuant to this Agreement and the transactions
contemplated hereby shall be paid by the party incurring the expense. All
external costs of transferring the Purchased Assets in accordance with this
Agreement, including recordation, transfer and documentary taxes and fees,
and any excise, sales or use taxes shall be paid by the Buyer.
10.2 SURVIVAL. The representations and warranties of the Seller,
in this Agreement shall survive the Closing Date until March 31, 2001. The
representations and warranties of the Buyer
15
shall survive until the September 9, 2001. The covenants contained in this
Agreement shall survive until performed in accordance with their respective
terms.
10.3 FURTHER ASSURANCES. Each party hereto agrees to use such
party's reasonable best efforts to cause the conditions to such party's
obligations herein set forth to be satisfied at or prior to the Closing
insofar as such matters are within its control. Each of the parties agrees
to execute and deliver any and all further agreements, documents or
instruments necessary to effectuate this Agreement and the transactions
referred to herein or contemplated hereby or reasonably requested by any
other party to evidence its rights hereunder.
10.4 NOTICES. Any notices hereunder shall be deemed sufficiently
given by one party to another only if in writing and if and when delivered or
tendered by personal delivery or as of five (5) business days after deposit
in the United States mail in a sealed envelope, registered or certified, with
postage prepaid, twenty-four (24) hours after deposit with an overnight
courier, or five (5) hours after confirmation of delivery by facsimile,
addressed as follows:
If to the Buyer: eToys, Inc.
0000 Xxxxx Xxxx Xxxxxxxxx, Xxxxx 000
Xxxxx Xxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx
Telephone: 000 000 0000
Telecopy: 000 000 0000
If to the Seller: eParties, Inc.
0000 Xxxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxx Xxxxxx, XX 00000
Attention: Legal Department
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
or to such other address as the party addressed shall have previously
designated by written notice to the serving party, given in accordance with
this SECTION 8.4. A notice not given as provided above shall, if it is in
writing, be deemed given if and when actually received by the party to whom
it is given. Any party may unilaterally change any one or more of the
addresses to which a notice to the party or its representative is to be
delivered or mailed, by written notice to the other party hereto given in the
manner stated above.
10.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of each of the parties hereto and their
successors and assigns. Notwithstanding the foregoing, the rights and
obligations of the parties hereunder are not assignable to another person
without the prior written consent of all other parties hereto.
10.6 ENTIRE AGREEMENT; MODIFICATIONS; WAIVER. This Agreement and
the agreements ancillary hereto, supersede any and all agreements heretofore
made, written or oral, relating to the
16
subject matter hereof, and constitute the entire agreement of the parties
relating to the subject matter hereof. This Agreement may be amended only by
an instrument in writing signed by the Buyer on the one hand and the Seller
on the other hand. No waiver shall be binding unless executed in writing by
the party making such waiver.
10.7 SEVERABILITY. Any provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall be ineffective to the
extent of such invalidity or unenforceability without invalidating or
rendering unenforceable the remaining provisions hereof, and any such
invalidity or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. If any
provision is held to be invalid or unenforceable, such provision shall be
construed by the appropriate judicial body by limiting or reducing it to the
minimum extent necessary to make it legally enforceable.
10.8 GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with, and governed by, the laws of the State of
California, without regard to its conflict of laws provisions.
10.9 BULK SALES COMPLIANCE. The Buyer, the Seller and Stockholder
waive compliance with the provisions of the applicable statutes relating to
bulk transfers or bulk sales and Seller shall indemnify and hold Buyer
harmless from any claims of Seller's creditors as a result of such waiver.
10.10 INTERPRETATION. As used anywhere in this Agreement, any
representation or warranty given to the knowledge of the Seller shall mean to
the actual knowledge of the chief executive officer and chief financial
officer of the Seller.
10.11 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.
10.12 RECITALS, SCHEDULES AND EXHIBITS. The recitals, schedules
and exhibits to this Agreement are incorporated herein and, by this
reference, made a part hereof as if fully set forth at length herein.
10.13 SECTION HEADINGS. The section headings used herein are
inserted for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
10.14 ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, its enforcement or interpretation, or because of
an alleged breach, default or misrepresentation in connection with any of its
provisions, or arising out of or relating in any way to the relationship
between the parties, shall be determined by binding arbitration. The
arbitration proceedings shall be held and conducted in accordance with
California Code of Civil Procedure Section 1282-1284.2, with the power to
grant equitable relief, including injunctions and temporary restraining
orders. California Code of Civil Procedure Section 1283.05, which provides
for certain discovery rights, shall apply to any such arbitration, and said
code section is hereby incorporated by reference. In reaching a decision,
the arbitrator shall have no authority to change, extend, modify or suspend
any of the terms of this Agreement. The arbitration shall be commenced and
heard in Los Angeles
17
County, California. The arbitrator shall apply the substantive law (and the
law of remedies, if applicable) of California or federal law, or both, as
applicable to the claim(s) asserted. Judgment on the award may be entered in
any court of competent jurisdiction. The parties may seek, from a court of
competent jurisdiction, provisional remedies or injunctive relief in support
of their respective rights and remedies hereunder without waiving any right
to arbitration. However, the merits of any action that involves such
provisional remedies or injunctive relief, including, without limitation, the
terms of any permanent injunction, shall be determined by arbitration under
this paragraph. If the parties do not agree upon an arbitrator within ten
(10) days after a written demand for arbitration is served upon one party by
the other, the arbitrator shall be appointed pursuant to Section 1281.6 of
the California Code of Civil Procedure; provided, however that only persons
who are retired Superior Court, California Appellate Court or federal judges
or lawyers admitted to the bar for at least twenty (20) years and classified
as "A-v" by the Martindale Xxxxxxx Law Directory shall be eligible to be
selected as an arbitrator.
8.15 ATTORNEYS FEES. If any legal action, arbitration or other
proceeding is brought for the enforcement of this Agreement, or because of
any alleged dispute, breach, default or misrepresentation in connection with
any of the provisions of this Agreement, the successful or prevailing party
shall be entitled to recover reasonable attorneys' fees and other costs
incurred therein, in addition to any other relief to which it or they may be
entitled. The court or arbitrator shall consider, in determining the
prevailing party, (a) which party obtains relief which most nearly reflects
the remedy or relief which the parties sought, and (b) any settlement offers
made prior to commencement of the trial in the proceeding.
18
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first written above.
"BUYER" eToys Inc., a Delaware corporation
By:
------------------------------------
Name:
Title:
"SELLER" eParties, Inc., a Delaware corporation
By:
------------------------------------
Name:
Title:
"STOCKHOLDER" eCompanies Enterprises LLC, a Delaware
limited liability company
By:
------------------------------------
Name:
Title:
SCHEDULES
SCHEDULE 1.1(a):
Trademark registration number for "eParties" - 75-813953
Trademark registration number for "eParty" - 75-813954
SCHEDULE 1.1(b):
Registered owner for the following URLs
xXxxxxxx.xxx
x-xxxxxxx.xxx
xxxxx.xxx
xxxxxxxxx.xxx
xxxxxxxxxxx.xxx
xxxxx.xxx
xxxxxxxxxxxx.xxx
xxxxxxx.xxx
x-xxxxxxxxxx.xxx
xxxxxxxxx.xxx
xxxxxxxxx.xxx
xxxxxxxxx.xxx
x-xxxxxx.xxx
SCHEDULE 1.1(d):
Connect Services Agreement, effective as of October 25, 1999, between
XxxXxxxx.xxx, Inc. and eParties, Inc.
Priority Support Agreement, executed on October 25, 1999 by Xxxxxxx &
Associates and eParties, Inc.
Master Agreement for Professional Services dated October 13, 1999 between
eCompanies Enterprises LLC and WebEasy, Inc., to which eParties, Inc. succeeded
as beneficiary of such agreement
SCHEDULE 1.1(e):
Customer Service Manual
List of Frequently Asked Questions
Summary of email inquiries
List of Customer Comments
Business Logic -- Java class file documentation
Website Architecture: directory tree structure of the application server and
description of corresponding subdirectories and database schema (eParties
application)
Weasel Template files -- documentation of WEASEL Template files
Server Configuration
Hosting Facility Information -- Exodus
Site Down Procedures
SCHEDULE 1.5: TO BE PROVIDED BY SELLER POST-CLOSING
SCHEDULE 2.8:
Consent to Assignment of Connect Services Agreement, effective as of October 25,
1999, between XxxXxxxx.xxx, Inc. and eParties, Inc.
SCHEDULE 2.9: SEE ATTACHED DOCUMENTS
SCHEDULE 2.11:
Services Agreement by and between eCompanies Enterprises LLC and the Company
dated December 13, 1999, and related promissory notes.
Promissory Note made by eCompanies Enterprises LLC in favor of the Company
(equity purchase).
Promissory Note made by the Company dated May 2000 in favor of eCompanies
Enterprises LLC.
Convertible Promissory Note made by the Company in favor of eCompanies Venture
Group, L.P. dated February 10, 2000.
Convertible Promissory Note made by the Company in favor of eCompanies Venture
Group, L.P. dated March 10, 2000.
SCHEDULE 2.12: See Schedule 2.15
ii
SCHEDULE 2.13:
Consent to Assignment of Connect Services Agreement, effective as of October 25,
1999, between XxxXxxxx.xxx, Inc. and eParties, Inc.
SCHEDULE 2.15: A claim has been made by 411 Unlimited, LLC with respect to its
alleged trademark rights in the xxxx "E-Party" and Seller's use of the "eParty"
and "eParties" marks. Seller currently is seeking to resolve the matter.
iii
