FAIRMARKET, INC.
SERIES D PREFERRED
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
PAGE
1. Purchase and Sale of Stock . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Sale and Issuance of Series D Preferred Stock . . . . . . . . 1
1.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Subsequent Sale of Series D Preferred Stock . . . . . . . . . 1
2. Representations and Warranties of the Company. . . . . . . . . . . . . . 2
2.1 Organization, Good Standing and Qualification . . . . . . . . 2
2.2 Capitalization and Voting Rights. . . . . . . . . . . . . . . 2
2.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Authorization . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Valid Issuance of Preferred and Common Stock. . . . . . . . . 3
2.6 Governmental Consents . . . . . . . . . . . . . . . . . . . . 3
2.7 Offering. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 Proprietary Information and Employee Stock
Purchase Agreements . . . . . . . . . . . . . . . . . . . . 4
2.10 Patents and Trademarks . . . . . . . . . . . . . . . . . . . 4
2.11 Compliance with Other Instruments. . . . . . . . . . . . . . 5
2.12 Agreements; Action . . . . . . . . . . . . . . . . . . . . . 5
2.13 Related-Party Transactions . . . . . . . . . . . . . . . . . 6
2.14 Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.15 Environmental and Safety Laws. . . . . . . . . . . . . . . . 6
2.16 Manufacturing and Marketing Rights . . . . . . . . . . . . . 6
2.17 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.18 Registration Rights. . . . . . . . . . . . . . . . . . . . . 7
2.19 Corporate Documents. . . . . . . . . . . . . . . . . . . . . 7
2.20 Title to Property and Assets . . . . . . . . . . . . . . . . 7
2.21 Small Business Concern . . . . . . . . . . . . . . . . . . . 7
2.22 Financial Statements . . . . . . . . . . . . . . . . . . . . 7
2.23 Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.24 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . 9
2.25 Tax Returns, Payments and Elections. . . . . . . . . . . . . 9
2.26 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . .10
2.27 Minute Books . . . . . . . . . . . . . . . . . . . . . . . .10
2.28 Labor Agreements and Actions; Employee Compensation. . . . .10
2.29 Section 83(b) Elections. . . . . . . . . . . . . . . . . . .10
2.30 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . .10
2.31 Significant Customers and Suppliers. . . . . . . . . . . . .10
2.32 Qualified Small Business Stock . . . . . . . . . . . . . . .10
3. Representations and Warranties of the Investors. . . . . . . . . . . . .11
3.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . .11
3.2 Purchase Entirely for Own Account . . . . . . . . . . . . . .11
3.3 Disclosure of Information . . . . . . . . . . . . . . . . . .11
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3.4 Investment Experience . . . . . . . . . . . . . . . . . . . .11
3.5 Accredited Investor . . . . . . . . . . . . . . . . . . . . .12
3.6 Restricted Securities . . . . . . . . . . . . . . . . . . . .12
3.7 Further Limitations on Disposition. . . . . . . . . . . . . .12
3.8 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . .12
4. Conditions of Investors' Obligations at Closing. . . . . . . . . . . . .13
4.1 Representations and Warranties. . . . . . . . . . . . . . . .13
4.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . .13
4.3 Compliance Certificate. . . . . . . . . . . . . . . . . . . .13
4.4 Qualifications. . . . . . . . . . . . . . . . . . . . . . . .13
4.5 Proceedings and Documents . . . . . . . . . . . . . . . . . .13
4.6 Proprietary Information and Employee Stock
Purchase Agreements . . . . . . . . . . . . . . . . . . . .13
4.7 Opinion of Company Counsel. . . . . . . . . . . . . . . . . .13
4.8 Investors' Rights Agreement . . . . . . . . . . . . . . . . .13
5. Conditions of the Company's Obligations at Closing . . . . . . . . . . .14
5.1 Representations and Warranties. . . . . . . . . . . . . . . .14
5.2 Payment of Purchase Price . . . . . . . . . . . . . . . . . .14
5.3 Qualifications. . . . . . . . . . . . . . . . . . . . . . . .14
6. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
6.1 Survival of Warranties. . . . . . . . . . . . . . . . . . . .14
6.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . .14
6.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . .14
6.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . .14
6.5 Titles and Subtitles. . . . . . . . . . . . . . . . . . . . .14
6.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . .14
6.7 Finder's Fee. . . . . . . . . . . . . . . . . . . . . . . . .15
6.8 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . .15
6.9 Amendments and Waivers. . . . . . . . . . . . . . . . . . . .15
6.10 Severability . . . . . . . . . . . . . . . . . . . . . . . .15
6.11 Aggregation of Stock . . . . . . . . . . . . . . . . . . . .16
6.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . . .16
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SCHEDULE A Schedule of Investors
EXHIBIT A Restated Certificate of Incorporation
EXHIBIT B List of Stockholders
EXHIBIT C Legal Opinion of Counsel to the Company
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FAIRMARKET, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 15th day of September, 1999, by
and among FairMarket, Inc., a Delaware corporation (the "Company"), and the
investors listed on SCHEDULE A hereto, each of which is herein referred to as an
"Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF SERIES D PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary of
State of Delaware on or before the Closing (as defined below) the Restated
Certificate of Incorporation in the form attached hereto as EXHIBIT A (the
"Restated Certificate").
(b) On or prior to the Closing (as defined below), the
Company shall have authorized (i) the sale and issuance to the Investors of the
Series D Preferred Stock and (ii) the issuance of the shares of Common Stock to
be issued upon conversion of the Series D Preferred Stock (the "Conversion
Shares"). The Series D Preferred Stock and the Conversion Shares shall have the
rights, preferences, privileges and restrictions set forth in the Restated
Certificate.
(c) Subject to the terms and conditions of this Agreement,
each Investor agrees, severally and not jointly, to purchase at the Closing and
the Company agrees to sell and issue to each Investor at the Closing, that
number of shares of the Company's Series D Preferred Stock set forth opposite
such Investor's name on SCHEDULE A hereto for the purchase price set forth
thereon.
1.2 CLOSING. The purchase and sale of the Series D Preferred
Stock shall take place at the offices of Xxxxxxx, Procter & Xxxx LLP, Exchange
Place, Boston, Massachusetts, at 11:00 A.M., on the date hereof, or at such
other time and place as the Company and Investors acquiring in the aggregate
more than half the shares of Series D Preferred Stock to be sold pursuant hereto
mutually agree upon orally or in writing (which time and place are designated as
the "Closing"). At the Closing the Company shall deliver to each Investor a
certificate representing the Series D Preferred Stock that such Investor is
purchasing against payment of the purchase price therefor by check, wire
transfer of immediately available funds, cancellation of indebtedness, or any
combination thereof, or as the parties may otherwise agree.
1.3 SUBSEQUENT SALE OF SERIES D PREFERRED STOCK. The Company may
sell up to the balance of the authorized number of shares of Series D Preferred
Stock not sold at the Closing to such purchasers as it shall select at a price
not less than $7.00 per share. Any such purchaser shall become a party to this
Agreement and that certain Investors' Rights Agreement dated February 25, 1999,
as amended, by and among the Company and its preferred stockholders
(the "Investors' Rights Agreement") and shall have the rights and obligations
hereunder and thereunder, unless such purchaser enters into an acquisition
agreement that provides otherwise.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to each Investor that, except as set forth on a
Schedule of Exceptions (the "Schedule of Exceptions") furnished each Investor,
specifically identifying the relevant subparagraph hereof, which exceptions
shall be deemed to be representations and warranties as if made hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties.
2.2 CAPITALIZATION AND VOTING RIGHTS. After giving effect to the
Restated Certificate the authorized capital of the Company consists of:
(a) PREFERRED STOCK. 20,000,000 shares of Preferred Stock,
par value $.001 (the "Preferred Stock"), (i) of which 754,603 shares have been
designated Series A Preferred Stock (the "Series A Preferred Stock"), 754,603
shares of which are issued and outstanding; (ii) 1,890,000 shares have been
designated Series B Preferred Stock (the "Series B Preferred Stock"), 1,890,000
shares of which are issued and outstanding, (iii) 6,168,282 shares have been
designated Series C Preferred Stock (the "Series C Preferred Stock"), 6,168,282
shares of which are issued and outstanding, and (iv) 10,000,000 shares have been
designated Series D Preferred Stock ("Series D Preferred Stock"), 5,250,000
shares of which are issued and outstanding. The rights, privileges and
preferences of the Preferred Stock will be as stated in the Company's Restated
Certificate and Amended and Restated Bylaws ("Bylaws").
(b) COMMON STOCK. 36,000,000 shares of common stock, par
value $.001 ("Common Stock"), of which 5,044,097 shares are issued and
outstanding.
(c) The outstanding shares of Preferred Stock and Common
Stock are owned by the stockholders and in the numbers specified in EXHIBIT B
hereto.
(d) The outstanding shares of Common Stock are all duly and
validly authorized and issued, fully paid and nonassessable, and were issued in
accordance with the registration or qualification provisions of the Securities
Act of 1933, as amended (the "Act") and any relevant state securities laws, or
pursuant to valid exemptions therefrom.
(e) Except for (A) the conversion privileges of the
Preferred Stock, (B) the rights provided in Section 2.4 of the Investors' Rights
Agreement, (C) currently outstanding options to purchase 3,140,744 shares of
Common Stock granted to employees and other service providers pursuant to the
Company's Amended and Restated 1997 Stock Option Plan and 1999 Stock Option Plan
(the "Option Plans") and (D) (1) warrants issued to Lycos, Inc. exercisable for
a total of 1,320,000 shares of Common Stock and (2) warrants issued to Microsoft
Corporation exercisable for a total of 4,500,000 shares of Common Stock, there
are
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not outstanding any options, warrants, rights (including conversion or
preemptive rights) or agreements for the purchase or acquisition from the
Company of any shares of its capital stock. In addition to the
aforementioned options, the Company has reserved an additional 896,987 shares
of its Common Stock for purchase upon exercise of options to be granted in
the future under the Option Plans or a similar plan approved by the Board of
Directors of the Company. The Company is not a party or subject to any
agreement or understanding, and, to the best of the Company's knowledge,
except for the Amendment to Investors' Rights Agreement being entered into
simultaneously with this Agreement, there is no agreement or understanding
between any persons and/or entities, which affects or relates to the voting
or giving of written consents with respect to any security or by a director
of the Company.
2.3 SUBSIDIARIES. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement.
2.4 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement and the Amendment to
Investors' Rights Agreement (the "Transaction Documents"), the performance of
all obligations of the Company hereunder and thereunder, and the authorization,
issuance (or reservation for issuance), sale and delivery of the Series D
Preferred Stock being sold hereunder and the Common Stock issuable upon
conversion of the Series D Preferred Stock has been taken or will be taken prior
to the Closing, and this Agreement and the Investors' Rights Agreement
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (iii) to the extent the indemnification
provisions contained in the Investors' Rights Agreement may be limited by
applicable federal or state securities laws.
2.5 VALID ISSUANCE OF PREFERRED AND COMMON STOCK. The Series D
Preferred Stock that is being purchased by the Investors hereunder, when issued,
sold and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Investors' Rights
Agreement and under applicable state and federal securities laws. The Common
Stock issuable upon conversion of the Series D Preferred Stock purchased under
this Agreement has been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Restated Certificate, will be duly
and validly issued, fully paid, and nonassessable and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement and the Investors' Rights Agreement and under applicable state and
federal securities laws.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except the filing of the Restated Certificate
with the Secretary of State of Delaware.
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2.7 OFFERING. Subject in part to the truth and accuracy of each
Investor's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Series D Preferred Stock as contemplated by this
Agreement are exempt from the registration requirements of any applicable state
and federal securities laws, and neither the Company nor any authorized agent
acting on its behalf will take any action hereafter that would cause the loss of
such exemption.
2.8 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company that questions the validity of the Transaction Documents, or
the right of the Company to enter into such agreements, or to consummate the
transactions contemplated hereby or thereby, or that might result, either
individually or in the aggregate, in any material adverse changes in the assets,
condition, affairs or prospects of the Company, financially or otherwise, or any
change in the current equity ownership of the Company, nor is the Company aware
that there is any basis for the foregoing. The foregoing includes, without
limitation, actions, suits, proceedings or investigations pending or threatened
(or any basis therefor known to the Company) involving the prior employment of
any of the Company's employees, their use in connection with the Company's
business of any information or techniques allegedly proprietary to any of their
former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or that the Company intends to initiate.
2.9 PROPRIETARY INFORMATION AND EMPLOYEE STOCK PURCHASE
AGREEMENTS. Each employee, officer and consultant of the Company has executed a
Proprietary Information and Inventions Agreement and an Employee Stock Purchase
Agreement in a form customary in the Company's industry. The Company is not
aware that any of its employees, officers or consultants are in violation
thereof, and the Company will use its best efforts to prevent any such
violation.
2.10 PATENTS AND TRADEMARKS. The Company has sufficient title and
ownership of all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes necessary for its
business as now conducted and as proposed to be conducted without any conflict
with or infringement of the rights of others. The Schedule of Exceptions
contains a complete list of patents and pending patent applications of the
Company. There are no outstanding options, licenses, or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity,
except, in either case, for standard end-user, object code, internal-use
software license and support/maintenance agreements. The Company has not
received any communications alleging that the Company has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. The Company is not aware that
any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
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interfere with the use of his or her best efforts to promote the interests of
the Company or that would conflict with the Company's business as proposed to
be conducted. Neither the execution nor delivery of the Transaction
Documents, nor the carrying on of the Company's business by the employees of
the Company, nor the conduct of the Company's business as proposed, will, to
the best of the Company's knowledge, conflict with or result in a breach of
the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now
obligated. The Company does not believe it is or will be necessary to
utilize any inventions of any of its employees (or people it currently
intends to hire) made prior to or outside the scope of their employment by
the Company.
2.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any provision of its Restated Certificate or Bylaws,
or of any instrument, judgment, order, writ, decree or contract to which it
is a party or by which it is bound, or, to the best of its knowledge, of any
provision of any federal or state statute, rule or regulation applicable to
the Company. The execution, delivery and performance of the Transaction
Documents, and the consummation of the transactions contemplated hereby and
thereby will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either
a default under any such provision, instrument, judgment, order, writ, decree
or contract or an event that results in the creation of any lien, charge or
encumbrance upon any assets of the Company or the suspension, revocation,
impairment, forfeiture, or nonrenewal of any material permit, license,
authorization, or approval applicable to the Company, its business or
operations or any of its assets or properties.
2.12 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated by the
Transaction Documents, there are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof except in their capacities as
stockholders of the Company.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to
which the Company is a party or by which it is bound that may involve (i)
obligations (contingent or otherwise) of, or payments to the Company in
excess of, $25,000, or (ii) the license of any patent, copyright, trade
secret or other proprietary right to or from the Company (other than the
license of the Company's software and products in the ordinary course of
business), or (iii) provisions restricting or affecting the development,
manufacture or distribution of the Company's products or services, or (iv)
indemnification by the Company with respect to infringements of proprietary
rights.
(c) The Company has not (i) declared or paid any
dividends or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for
money borrowed or any other liabilities individually in excess of $10,000 or,
in the case of indebtedness and/or liabilities individually less than
$10,000, in excess of $30,000 in the aggregate, (iii) made any loans or
advances to any person, other than ordinary advances for travel expenses, or
(iv) sold, exchanged or otherwise disposed of any of its assets or rights,
other than the sale of its inventory in the ordinary course of business.
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(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Restated Certificate or Bylaws that adversely affects its business as now
conducted or as proposed to be conducted, its properties or its financial
condition.
(f) The Company has not engaged in the past three (3) months
in any discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company or a
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, or (iii) regarding any
other form of acquisition, liquidation, dissolution or winding up of the
Company.
2.13 RELATED-PARTY TRANSACTIONS. No employee, officer, or director
of the Company or member of his or her immediate family is indebted to the
Company, nor is the Company indebted (or committed to make loans or extend or
guarantee credit) to any of them. To the best of the Company's knowledge, none
of such persons has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation that competes with the
Company, except that employees, officers, or directors of the Company and
members of their immediate families may own stock in publicly traded companies
that may compete with the Company. No member of the immediate family of any
officer or director of the Company is directly or indirectly interested in any
material contract with the Company.
2.14 PERMITS. The Company has all franchises, permits, licenses,
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company, and the
Company believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. The
Company is not in default in any material respect under any of such franchises,
permits, licenses, or other similar authority.
2.15 ENVIRONMENTAL AND SAFETY LAWS. To the best of its knowledge,
the Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
2.16 MANUFACTURING AND MARKETING RIGHTS. The Company has not
granted rights to manufacture, produce, assemble, license, market, or sell its
products to any other person
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and is not bound by any agreement that affects the Company's exclusive right
to develop, manufacture, assemble, distribute, market or sell its products.
2.17 DISCLOSURE. The Company has fully provided each Investor with
all the information that such Investor has requested for deciding whether to
purchase the Series D Preferred Stock and all information that the Company
believes is reasonably necessary to enable such Investor to make such decision.
Neither the Transaction Documents, nor any other statements or certificates made
or delivered in connection herewith or therewith contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements herein or therein not misleading.
2.18 REGISTRATION RIGHTS. Except as provided in the Investors'
Rights Agreement, as amended, and except for the registration rights granted to
Lycos, Inc. pursuant to the Warrant Agreement, dated May 12, 1999, the Company
has not granted or agreed to grant any registration rights, including piggyback
rights, to any person or entity.
2.19 CORPORATE DOCUMENTS. Except for amendments necessary to
satisfy representations and warranties or conditions contained herein (the
form of which amendments has been approved by the Investors), the Restated
Certificate and Bylaws of the Company are in the form previously provided to
special counsel for the Investors.
2.20 TITLE TO PROPERTY AND ASSETS. The Company owns its
property and assets free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens that arise in the ordinary
course of business and do not materially impair the Company's ownership or
use of such property or assets. With respect to the property and assets it
leases, the Company is in compliance with such leases and, to the best of its
knowledge, holds a valid leasehold interest free of any liens, claims or
encumbrances.
2.21 SMALL BUSINESS CONCERN. The Company is a "Small Business
Concern" as that term is defined in the Small Business Investment Act of
1958, as amended, and in the regulations of the Small Business Administration
(the "S.B.A.") promulgated thereunder.
2.22 FINANCIAL STATEMENTS. The Company has delivered to each
Investor its financial statements at June 30, 1999 and for the six months
then ended (the "Financial Statements"). The Financial Statements have been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis throughout the periods indicated and with each other,
except that the Financial Statements may not contain all footnotes required
by generally accepted accounting principles. The Financial Statements fairly
present the financial condition and operating results of the Company as of
the dates, and for the periods, indicated therein, subject to normal year-end
audit adjustments. Except as set forth in the Financial Statements, the
Company has no material liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to June
30, 1999 and (ii) obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally accepted
accounting principles to be reflected in the Financial Statements, which, in
both cases, individually or in the aggregate, are not material to the
financial condition or operating results of the Company. Except as disclosed
in the Financial Statements, the Company is not a guarantor or indemnitor of
any indebtedness of any other
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person, firm or corporation. The Company maintains and will continue to
maintain a standard system of accounting established and administered in
accordance with generally accepted accounting principles.
2.23 CHANGES. Since June 30, 1999 there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the Company (as
such business is presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the assets, properties, financial
condition, operating results or business of the Company (as such business is
presently conducted and as it is proposed to be conducted);
(e) any material change or amendment to a material contract
or arrangement by which the Company or any of its assets or properties is bound
or subject;
(f) any material change in any compensation arrangement or
agreement with any employee;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any key
officer of the Company; and the Company, to the best of its knowledge, does not
know of the impending resignation or termination of employment of any such
officer;
(i) receipt of notice that there has been a loss of, or
material order cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security interest
in, or lien, created by the Company, with respect to any of its material
properties or assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by the Company to or for
the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
8
(l) any declaration, setting aside or payment or other
distribution in respect of any of the Company's capital stock, or any direct
or indirect redemption, purchase or other acquisition of any of such stock by
the Company;
(m) to the best of the Company's knowledge, any other
event or condition of any character that might materially and adversely
affect the assets, properties, financial condition, operating results or
business of the Company (as such business is presently conducted and as it is
proposed to be conducted); or
(n) any agreement or commitment by the Company to do any
of the things described in this Section 2.23.
2.24 EMPLOYEE BENEFIT PLANS. The Company does not have any
Employee Benefit Plan as defined in the Employee Retirement Income Security
Act of 1974.
2.25 TAX RETURNS, PAYMENTS AND ELECTIONS. The Company has filed
all tax returns and reports (including information returns and reports) as
required by law. These returns and reports are true and correct in all
material respects. The Company has paid all taxes and other assessments due,
except those contested by it in good faith that are listed in the Schedule of
Exceptions. The provision for taxes of the Company as shown in the Financial
Statements is adequate for taxes due or accrued as of the date thereof. The
Company has not elected pursuant to the Internal Revenue Code of 1986, as
amended (the "Code"), to be treated as a collapsible corporation pursuant to
Section 1362(a) or Section 341(f) of the Code, nor has it made any other
elections pursuant to the Code (other than elections that relate solely to
methods of accounting, depreciation or amortization) that would have a
material effect on the Company, its financial condition, its business as
presently conducted or proposed to be conducted or any of its properties or
material assets. The Company elected pursuant to the Internal Revenue Code
of 1986, as amended (the "Code"), to be treated as an "S" corporation
pursuant to Subchapter S of the Code (the "Subchapter S Election"),
commencing February 20, 1997, and the Company and its shareholders reported
income and filed tax returns consistently therewith from February 20, 1997 to
November 17, 1997, whereupon the Company terminated its Subchapter S
Election. The Company does not have any liability or any potential or
deferred liability for taxes pursuant to Section 1371(d)(2), Section 1374 or
Section 1375 of the Code, nor is the Company liable for any other taxes
imposed pursuant to or resulting from its Subchapter S Election. The Company
has never had any tax deficiency proposed or assessed against it and has not
executed any waiver of any statute of limitations on the assessment or
collection of any tax or governmental charge. None of the Company's federal
income tax returns and none of its state income or franchise tax or sales or
use tax returns has ever been audited by governmental authorities. Since the
date of the Financial Statements, the Company has not incurred any taxes,
assessments or governmental charges other than in the ordinary course of
business and the Company has made adequate provisions on its books of account
for all taxes, assessments and governmental charges with respect to its
business, properties and operations for such period. The Company has
withheld or collected from each payment made to each of its employees, the
amount of all taxes (including, but not limited to, federal income taxes,
Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act
taxes) required to be withheld or collected therefrom, and has paid the same
to the proper tax receiving officers or authorized depositories.
9
2.26 INSURANCE. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed. The Company has applied for term life
insurance, payable to the Company, on the life Xxxxx Xxxxxxx in the amount of
$1,000,000.
2.27 MINUTE BOOKS. The minute books of the Company provided to the
Investors contain a complete summary of all meetings of directors and
stockholders since the time of incorporation and reflect all transactions
referred to in such minutes accurately in all material respects.
2.28 LABOR AGREEMENTS AND ACTIONS; EMPLOYEE COMPENSATION. The
Company is not bound by or subject to (and none of its assets or properties is
bound by or subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union has requested
or, to the best of the Company's knowledge, has sought to represent any of the
employees, representatives or agents of the Company. There is no strike or
other labor dispute involving the Company pending, or to the best of the
Company's knowledge, threatened, that could have a material adverse effect on
the assets, properties, financial condition, operating results, or business of
the Company (as such business is presently conducted and as it is proposed to be
conducted), nor is the Company aware of any labor organization activity
involving its employees. The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate their
employment with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing. The employment of each
officer and employee of the Company is terminable at the will of the Company.
To the best of its knowledge, the Company has complied in all material respects
with all applicable state and federal equal employment opportunity and other
laws related to employment. The Company is not a party to or bound by any
currently effective employment contract, deferred compensation agreement, bonus
plan, incentive plan, profit sharing plan, retirement agreement, or other
employee compensation agreement.
2.29 SECTION 83(b) ELECTIONS. To the best of the Company's
knowledge, all individuals who have purchased unvested shares of the
Company's Common Stock have timely filed elections under Section 83(b) of the
Code and any analogous provisions of applicable state tax laws.
2.30 BROKERS. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
2.31 SIGNIFICANT CUSTOMERS AND SUPPLIERS. No customer or
supplier that was significant to the Company during the period covered by the
financial statements referred to in Section 2.23 or that has been significant
to the Company thereafter, has terminated, materially reduced or threatened
to terminate or materially reduce its purchases from or provision of products
or services to the Company, as the case may be.
2.32 QUALIFIED SMALL BUSINESS STOCK. As of the Closing: (i) the
Company will be an eligible corporation as defined in Section 1202(e)(4) of the
Internal Revenue Code of 1986,
10
as amended (the "Code"), (ii) the Company will not have made any purchases of
its own stock during the one-year period proceeding the Closing having an
aggregate value exceeding 5% of the aggregate value of all its stock as of
the beginning of such period and (iii) the Company's aggregate gross assets,
as defined by Code Section 1202(d)(2), at no time between February 20, 1997
and through the Closing have exceeded or will exceed $50 million, taking into
account the assets of any corporations required to be aggregated with the
Company in accordance with Code Section 1202(d)(3).
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each
Investor hereby represents and warrants that:
3.1 AUTHORIZATION. Such Investor has full power and authority to
enter into this Agreement and the Investors' Rights Agreement, and each such
Agreement constitutes its valid and legally binding obligation, enforceable in
accordance with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent the indemnification provisions
contained in the Investors' Rights Agreement may be limited by applicable
federal or state securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with such Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Series D Preferred Stock to be received by such
Investor and the Common Stock issuable upon conversion thereof (collectively,
the "Securities") will be acquired for investment for such Investor's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, such Investor further represents that
such Investor does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Securities.
3.3 DISCLOSURE OF INFORMATION. Such Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Series D Preferred Stock. Such Investor further
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Series D Preferred Stock and the business, properties, prospects and financial
condition of the Company. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this Agreement or
the right of the Investors to rely thereon.
3.4 INVESTMENT EXPERIENCE. Such Investor is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and
has such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series D
Preferred Stock. If other than an individual, Investor also represents it
has not been organized for the purpose of acquiring the Series D Preferred
Stock.
11
3.5 ACCREDITED INVESTOR. Such Investor is an "accredited
investor" within the meaning of Securities and Exchange Commission ("SEC") Rule
501 of Regulation D, as presently in effect.
3.6 RESTRICTED SECURITIES. Such Investor understands that the
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Securities unless and until
the transferee has agreed in writing for the benefit of the Company to be bound
by this Section 3 and the Investors' Rights Agreement provided and to the extent
this Section and such agreement are then applicable, and:
(a) There is then in effect a Registration Statement under
the Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company that
such disposition will not require registration of such shares under the Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of Paragraphs (a) and (b)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by an Investor that is a partnership to a partner of such
partnership or a retired partner of such partnership who retires after the date
hereof, or to the estate of any such partner or retired partner or the transfer
by gift, will or intestate succession of any partner to his or her spouse or to
the siblings, lineal descendants or ancestors of such partner or his or her
spouse, or for a transfer by an Investor to a corporate subsidiary or affiliate
of such Investor if the transferee agrees in writing to be subject to the terms
hereof to the same extent as if he or she were an original Investor hereunder.
3.8 LEGENDS. It is understood that the certificates evidencing
the Securities may bear substantially the following legend:
"These securities have not been registered under the Securities Act
of 1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 of such Act."
12
4. CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING. The
obligations of each Investor under subsection 1.1(b) of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions, any of which may be waived by Investors acquiring in the
aggregate more than half of the Series D Preferred Stock to be sold pursuant
hereto:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of
the Closing with the same effect as though such representations and
warranties had been made on and as of the date of such Closing.
4.2 PERFORMANCE. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement
that are required to be performed or complied with by it on or before the
Closing.
4.3 COMPLIANCE CERTIFICATE. The President or Chief Financial
Officer of the Company shall deliver to Investors purchasing more than
200,000 shares of Series D Preferred Stock hereunder (the "Major Investors")
at the Closing a certificate stating that the conditions specified in
Sections 4.1 and 4.2 have been fulfilled and stating that there has been no
adverse change in the business, affairs, prospects, operations, properties,
assets or condition of the Company since the date of the Financial Statements.
4.4 QUALIFICATIONS. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of the United States
or of any state that are required in connection with the lawful issuance and
sale of the Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
4.5 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
and all documents incident thereto shall be reasonably satisfactory in form
and substance to the Major Investors' special counsel, and they shall have
received all such counterpart original and certified or other copies of such
documents as they may reasonably request. This may include, without
limitation, good standing certificates and certification by the Company's
Secretary regarding the Company's Certificate of Incorporation and Bylaws and
Board of Directors and stockholder resolutions relating to this transaction.
4.6 PROPRIETARY INFORMATION AND EMPLOYEE STOCK PURCHASE
AGREEMENTS. Each employee of and consultant to the Company shall have
entered into a Proprietary Information and Inventions Agreement in the form
previously provided to special counsel for the Major Investors.
4.7 OPINION OF COMPANY COUNSEL. Each Major Investor shall have
received from Xxxxxxx, Procter & Xxxx LLP, counsel for the Company, an
opinion, dated as of the Closing, in the form attached hereto as EXHIBIT C.
4.8 INVESTORS' RIGHTS AGREEMENT. Each Investor shall have
become a party to the Investors' Rights Agreement.
13
4.9 AUCTION SERVICES AGREEMENT AND LICENSE AGREEMENT. The
Auction Services Agreement and License Agreement between the Company and the
Investor shall have been executed and delivered by the parties thereto.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to each Investor under this Agreement are subject
to the fulfillment on or before the Closing of each of the following
conditions by that Investor:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Investors contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
5.2 PAYMENT OF PURCHASE PRICE. The Investors shall have
delivered the purchase price specified in Section 1.2.
5.3 QUALIFICATIONS. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of the United States
or of any state that are required in connection with the lawful issuance and
sale of the Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
6. MISCELLANEOUS.
6.1 SURVIVAL OF WARRANTIES. The warranties, representations
and covenants of the Company and Investors contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement and
the Closing and shall in no way be affected by any investigation of the
subject matter thereof made by or on behalf of the Investors or the Company.
6.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
(including transferees of any Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the
parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
6.3 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Delaware as applied to agreements
among Delaware residents entered into and to be performed entirely within
Delaware.
6.4 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
6.5 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.6 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed
14
to be given (a) five (5) days after deposit with the U.S. Postal Service or
other applicable postal service, if delivered by first class mail, postage
prepaid, (b) upon delivery, if delivered by hand, (c) one business day after
the business day of deposit with Federal Express or similar overnight
courier, freight prepaid, or (d) one day after the business day of delivery
by facsimile transmission, if deliverable by facsimile transmission, with
copy by first class mail, postage prepaid, and shall be addressed, if to
Investor, at each Investor's address as set forth on the Schedule of
Purchasers to this Agreement, and, if to the Company, at the address of its
principal corporate offices (attention: Secretary), or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties hereto.
6.7 FINDER'S FEE. Except as set forth in the Schedule of
Exceptions, each party represents that it neither is nor will be obligated
for any finders' fee or commission in connection with this transaction. Each
Investor agrees to indemnify and to hold harmless the Company from any
liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible.
Except as set forth in the Schedule of Exceptions, the Company
agrees to indemnify and hold harmless each Investor from any liability for
any commission or compensation in the nature of a finders' fee (and the costs
and expenses of defending against such liability or asserted liability) for
which the Company or any of its officers, employees or representatives is
responsible.
6.8 EXPENSES. Irrespective of whether the Closing is effected,
the Company shall pay all costs and expenses that it incurs with respect to
the negotiation, execution, delivery and performance of this Agreement. If
the Closing is effected, the Company shall, at the Closing, reimburse the
reasonable fees of special counsel for the Major Investors. If any action at
law or in equity is necessary to enforce or interpret the terms of this
Agreement, the Investors' Rights Agreement or the Restated Certificate, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which such party
may be entitled.
6.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders
of a majority of the Common Stock issuable or issued upon conversion of the
Series D Preferred Stock. Any amendment or waiver effected in accordance
with this paragraph shall be binding upon each holder of any securities
purchased under this Agreement at the time outstanding (including securities
into which such securities are convertible), each future holder of all such
securities, and the Company; provided, that no amendment or waiver that
disproportionately and adversely affects any holder of Series D Preferred
Stock shall be effective as against such holder unless signed by such holder.
The Company shall promptly provide to each Investor a copy of any amendment
or waiver effected in accordance with this paragraph.
6.10 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and
15
the balance of the Agreement shall be interpreted as if such provision were
so excluded and shall be enforceable in accordance with its terms.
6.11 AGGREGATION OF STOCK. All shares of the Preferred Stock
held or acquired by affiliated entities or persons shall be aggregated
together for the purpose of determining the availability of any rights under
this Agreement.
6.12 ENTIRE AGREEMENT. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein or therein.
16
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
FAIRMARKET, INC.
By: /S/ XXXXX XXXXXXX
---------------------------------
Xxxxx Xxxxxxx, President
Address: 000 Xxxxxxx Xxxx Xxxxx
Xxxxxx, XX 00000
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
INVESTORS:
TICKETMASTER ONLINE-CITYSEARCH, INC.
By: /s/ Xxxxxxx X. Xxxxxx
---------------------------------
Name: Xxxx X. Xxxxxx
Title: Vice President
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
SCHEDULE A
SCHEDULE OF INVESTORS
NUMBER OF TOTAL PURCHASE
NAME AND ADDRESS SHARES PURCHASED PRICE OF SHARES
---------------- ---------------- ---------------
Ticketmaster Online-CitySearch, Inc.
000 X. Xxxxxxxx Xxxx. 750,000 $5,250,000
Xxxxx 000
Xxxxxxxx, XX 00000 1,500,000 $10,500,000
(Consideration for execution
and delivery of the Auction
Services Agreement and the
related License Agreement of
even date herewith)
TOTAL 2,250,000 $15,750,000
