Agreement and Plan of Merger

AGREEMENT AND PLAN OF MERGER


by and among


CYBERSHOP INTERNATIONAL, INC.,


MG ACQUISITION CORP.,


THE MAGELLAN GROUP, INC.,


IAN S. PHILLIPS


and


HOWARD J. KUNTZ III


--------------------------------------------------------------------------------


Dated as of June 1, 1999


AGREEMENT AND PLAN OF MERGER


AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of June 1, 1999 by and among CYBERSHOP INTERNATIONAL, INC., a Delaware corporation ("Cybershop"); MG ACQUISITION CORP., a Delaware corporation and wholly-owned subsidiary of Cybershop ("MergerSub"); THE MAGELLAN GROUP, INC., a Connecticut corporation (the "Company"); IAN S. PHILLIPS ("Phillips") and HOWARD J. KUNTZ III ("Kuntz" and together with Phillips, the "Stockholders" and individually a "Stockholder").


W I T N E S S E T H :


WHEREAS, the respective Boards of Directors of Cybershop, MergerSub and the Company have determined that it is advisable and in the best interests of their respective corporations and, in the case of the Company, the Stockholders, to consummate, and have approved, the business combination transaction provided for herein in which the Company would merge with and into MergerSub (the "Merger") upon the terms and subject to the conditions of this Agreement;


WHEREAS, Phillips owns 102 shares of common stock, par value $.01 per share, of the Company ("Company Stock") and Kuntz owns 98 shares of Company Stock, representing in the aggregate 100% of the issued and outstanding shares of the capital stock of the Company.


WHEREAS, Cybershop, MergerSub, the Stockholders and the Company desire to make certain covenants and agreements in connection with the Merger, and to prescribe various conditions to the Merger;


NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements set forth herein, Cybershop, MergerSub, the Stockholders and the Company hereby agree as follows:


ARTICLE I


THE MERGER


Section 1.1 The Merger. Subject to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 1.2), the Company shall be merged with and into MergerSub (the "Surviving Corporation") and the separate corporate existence of the Company shall thereupon cease. MergerSub (i) shall be the successor or surviving corporation in the


Merger (sometimes herein referred to as the "Surviving Corporation"), (ii) shall continue to be governed by the laws of the State of Delaware, and (iii) the separate corporate existence of MergerSub with all its rights, privileges, immunities, powers and franchises shall continue unaffected by the Merger. The Merger shall have the effects specified in Section 33-820 of the Connecticut Business Corporation Act and Section 259 of the Delaware General Corporation Law.


Section 1.2 Effective Time. Cybershop, MergerSub, the Stockholders and the Company will cause an executed original of a Certificate of Merger (a "Certificate of Merger") to be filed with the Secretary of State of the State of Delaware, and upon receipt of a Certificate of Merger issued by the Secretary of State of Delaware, Cybershop and the Surviving Corporation shall file such Certificate of Merger with the Secretary of State of the State of Connecticut together with duplicate executed originals of the Certificate of Merger as required by the laws of the state to consummate the Merger. The Merger shall become effective on the date on which the respective Certificates of Merger have been duly filed with the Secretary of State of Delaware and Connecticut and such time is hereinafter referred to as the "Effective Time."


Section 1.3 Certificate of Incorporation and By-Laws of the Surviving Corporation.


1.3.1 Certificate of Incorporation. The Certificate of Incorporation of the Surviving Corporation in the form of Exhibit A hereto shall be at and as of the Effective Time the Certificate of Incorporation of MergerSub immediately prior to the Effective Time.


1.3.2 By-Laws. The By-Laws of the Surviving Corporation in the form of Exhibit B hereto shall be at and as of the Effective Time the By-Laws of MergerSub immediately prior to the Effective Time.


Section 1.4 Directors and Officers of the Surviving Corporation.


1.4.1 Directors of the Surviving Corporation. The directors of the Surviving Corporation at the Effective Time shall, from and after the Effective Time, be the Persons (as defined in Section 9.3 below) listed on Schedule 1.4.1 until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Surviving Corporation's Certificate of Incorporation and By-Laws.


1.4.2 Officers of the Surviving Corporation. The officers of the Surviving Corporation shall, from and after the Effective Time, be the Persons listed on Schedule 1.4.2 until their successors have been duly elected or appointed and qualified or until their death, resignation or removal in accordance with the Surviving Corporation's Certificate of Incorporation and By-Laws.


2


ARTICLE II


CANCELLATION OF STOCK IN THE MERGER;
PURCHASE PRICE AND CLOSING


Section 2.1 Cancellation of Stock in the Merger. The manner of canceling the shares of the Company in the Merger shall be as follows: At the Effective Time, each share of Company Stock issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, be canceled and converted into and represent the right to receive the Purchase Price (as defined in Section 2.3). All of such shares of Company Stock shall no longer be outstanding and shall automatically be retired and cease to exist, and the Stockholders shall cease to have any rights with respect thereto, except the right to receive the Purchase Price. Each issued and outstanding share of the common stock, par value $0.01 per share, of MergerSub ("MergerSub Common Stock") shall be unchanged and remain as one fully paid and non-assessable share of common stock, $0.01 par value per share, of the Surviving Corporation ("Surviving Corporation Common Stock"). Each certificate representing outstanding shares of MergerSub Common Stock shall at the Effective Time represent an equal number of shares of the Surviving Corporation Common Stock.


Section 2.2 Surrender of Stock Certificates. At the Closing (as defined in Section 2.5 below), the Stockholders shall surrender the certificate(s) representing its shares of Company Stock, and in exchange therefor it shall be entitled to receive the Purchase Price.


Section 2.3 Purchase Price.


2.3.1 Purchase Price. In full consideration for the conversion and cancellation of the Company Stock in connection with the Merger, the purchase price (the "Purchase Price") shall be calculated and paid as follows by Cybershop to the Stockholders:


(i) Closing Payments. At the Closing, an aggregate amount (the "CP") equal
to (x) $5,000,000 in cash and (y) 1,000,000 shares of the common stock,
par value $0.001 per share, of Cybershop ("Cybershop Stock") . In the
event that, based upon the closing sale price of Cybershop Stock on the
last trading day preceding the Closing Date on the Nasdaq National Market,
the value of the Cybershop Stock is less than the aggregate of $5,000,000
plus the estimated value of the payments under Section 2.3.1(ii), the
amount of the $5,000,000 cash payment shall be reduced and the number of
shares of Cybershop Stock increased so that the value of the Cybershop
Stock is greater than 50% of the CP. If such reduction would be greater
than $300,000, the Stockholders may elect to terminate the Agreement at
such time. The additional shares of Cybershop Stock issued shall be added
to the 150,000 shares to be registered pursuant to Section 7.1(b) of this
Agreement.


3


(ii) Periodic Payment. Within 10 days after the end of each Periodic
Determination Period (as defined herein) the Periodic Payment shall be
calculated and paid as follows:


Periodic Payment = Estimated Earnout Profit for the Periodic Determination
Period x 75%


2.3.2 Earnout Profit. Earnout Profit shall mean profits from products manufactured by Crystal Care International, LLC, which are calculated on a basis consistent with "contributions to Fixed Expense" on the Comparative Income Statement of the Company for the period ended May 1, 1999. Such method shall be consistent with Schedule 2.3.2 hereof.


2.3.3 Periodic Determination Period The Periodic Determination Period shall be each quarterly period ended as follows (except for the shorter periods noted):


(i) June 30, 1999 (one month period)
(ii) September 30, 1999
(iii) December 31, 1999
(iv) March 31, 2000
(v) June 30, 2000
(vi) September 30, 2000
(vii) December 31, 2000
(viii) March 31, 2001
(ix) May 31, 2001 (two month period)


2.3.4 Accounting Procedures.


(i) Within 10 days after the end of each Periodic Determination Period, the Chief Financial Officer of Cybershop shall prepare a report calculating Earnout Profit using the same method as that used in the Comparative Income Statement of the Company for the period ended May 1, 1999. The report shall set forth for such Measuring Period the calculation of the Periodic Payment (the "Periodic Determination"). A copy of each Periodic Determination shall be delivered within 10 days after each of the dates set forth in Section 2.3.3 above to the Stockholders. At the end of the next Periodic Termination Period a final statement for the prior period shall be made and any credit or debit shall be made for the account of the Stockholders or Cybershop, as the case may be.


(ii) If the Stockholders do not agree that any final statement for a Periodic Determination Period correctly states the calculation of the Periodic Payment for the period under examination, the Stockholders shall within 10 days after their receipt of the calculation give written notice to Cybershop of any exceptions thereto (in reasonable detail describing the nature of the disagreement asserted). If the Stockholders and Cybershop reconcile their differences, the Periodic Determination shall be adjusted accordingly and shall thereupon become binding final and conclusive upon all of the parties hereto and enforceable in a court of


4


law. If the Stockholders and Cybershop are unable to reconcile their differences in writing within 20 days after written notice of exceptions is delivered to Cybershop (the "Reconciliation Period")., the items in dispute shall be submitted to independent auditors selected by Cybershop and the Stockholders or if they cannot agree by a third independent auditor selected by such respective designees (the "Independent Auditors"), for final determination, and the Periodic Determination shall be deemed adjusted in accordance with the determination of the Independent Auditors and shall become binding, final and conclusive upon all of the parties hereto and enforceable in a court of law. The Independent Auditors shall consider only the items in dispute and shall be instructed to act within 10 days (or such longer period as the Stockholders and Cybershop may agree) to resolve all items in dispute. All amounts not in dispute shall be paid when due. If the Stockholders do not give notice of any exception promptly after the delivery of a Periodic Determination or if the Stockholders give written notification of their acceptance of a Periodic Determination, such Periodic Determination shall thereupon become binding, final and conclusive upon all the parties hereto and enforceable in a court of law.


(iii) The Independent Auditors shall determine the party (i.e., Cybershop or the Stockholders, as the case may be) whose asserted position as to the amount of Periodic Payment, for the Periodic Determination Period under examination before the Independent Auditors is furthest from the determination of such Periodic Payment by the Independent Auditors, which non-prevailing party shall pay the fees and expenses of the Independent Auditors as well as all other expenses, such as legal costs, related thereto.


2.3.5 Examination of Books and Records. The books and records of the Surviving Corporation and its subsidiaries (if any) shall be made available during normal business hours upon reasonable advance notice at the principal office of the Surviving Corporation, to the parties and the Independent Auditors to the extent required to determine the calculations required under this Section 2.3. The parties hereto shall cause the Surviving Corporation to make arrangements to make available to Cybershop, the Stockholders and their representatives (including auditors) any back-up materials generated by the Surviving Corporation with respect to any adjustments made by them to the financial statements in the process of preparing any Periodic Payment. In addition, the Stockholders, on the one hand, and Cybershop, on the other hand, shall make available to the other party and their representatives (including auditors) any back-up materials generated by them to support a position which is contrary to the position taken by the other party.


Section 2.4 Payment of the Purchase Price.


2.4.1 Purchase Price. Payment of each component of the Purchase Price under Section 2.3.1(i) and 2.3.1(ii) above shall be paid to the Stockholders and shall be made by the Surviving Corporation as follows: (i) 51% of each payment to Phillips and (ii) 49% of each payment to Kuntz. Cash payments shall be made by wire transfer to the account(s) designated by each Stockholder in writing to the Surviving Corporation. Payments of Cybershop Stock


5


shall be registered in the name of the respective Stockholder and, except as set forth in Section 7.1(b), shall not be registered for sale to the public pursuant to the Securities Act of 1933, as amended (the "Act"). Such unregistered shares shall only be salable pursuant to future registration under the Act or the availability of an exemption from registration under the Act such as Rule 144.


2.4.2 Imputed Interest. The Periodic Payments shall be deemed to include imputed interest, to the extent required by the Internal Revenue Code of 1986, as amended.


Section 2.5 Closing. The Closing under this Agreement (the "Closing") is taking place simultaneously with the execution and delivery of this Agreement at 2:00 P.M. on June 4, 1999, at the offices of Davis & Gilbert LLP, 1740 Broadway, New York, New York 10019, or such other date and place as agreed to the parties hereto. Such date is herein referred to as the "Closing Date".


ARTICLE III


REPRESENTATIONS OF THE STOCKHOLDERS


A. Each of the Stockholders, severally, represents and warrants with Cybershop and MergerSub, as follows:


Section 3.1 Execution and Validity of Agreements.


3.1.1 Execution and Validity. Such Stockholder has the full legal right and capacity to enter into this Agreement and to perform his obligations hereunder. This Agreement has been duly and validly executed and delivered by such Stockholder and, assuming due authorization, execution and delivery by Cybershop and MergerSub, constitutes a legal, valid and binding obligation of such Stockholder, enforceable against such Stockholder in accordance with its terms.


3.1.2 Stock Ownership. Such Stockholder is the true and lawful owner of the shares of Company Stock set forth opposite his name on Schedule 3.1.2 and all of such shares of Company Stock have been duly and validly authorized and issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof, except as such liability may be imposed pursuant to applicable laws, and such ownership is free and clear of all mortgages, liens, security interests, encumbrances, claims, charges and restrictions of any kind or character (collectively, "Liens").


3.1.3 No Options. There are no outstanding subscriptions, options, rights (including "phantom stock rights"), warrants, calls, commitments, understandings, arrangements, plans or other agreements of any kind to acquire any shares of Company Stock from such Stockholder


6


and there are no agreements or understandings with respect to the sale or transfer of any shares of Company Stock by such Stockholder.


3.1.4 No Restrictions. There is no suit, action, claim, investigation or inquiry by any Governmental or Regulatory Authority (as defined in Section 3.1.5 below), and no legal, administrative or arbitration proceeding pending or, to such Stockholder's knowledge, threatened against such Stockholder or any of such Stockholder's shares of Company Stock, with respect to the execution, delivery and performance of this Agreement and the employment agreements of the Stockholder.


3.1.5 Non-Contravention. The execution, delivery and performance by such Stockholder of his obligations hereunder and the consummation of the transactions contemplated hereby, will not (a) result in the violation by such Stockholder of any statute, law, rule, regulation or ordinance (collectively, "Laws"), or any judgment, decree, order, writ, permit or license (collectively, "Orders"), of any court, tribunal, arbitrator, authority, agency, commission, official or other instrumentality of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision (a "Governmental or Regulatory Authority"), applicable to such Stockholder or any of his shares of Company Stock, or (b) if the consents and notices set forth in Schedule 3.1.6 are obtained, given or waived, conflict with, result in a violation or breach of, constitute (with or without notice or lapse of time or both) a default under, or (except as set forth in Schedule 3.1.6) require such Stockholder to obtain any consent, approval or action of, make any filing with or give any notice to, or result in or give to any Person (as defined in Section 9.3 below) any right of payment or reimbursement, termination, cancellation, modification or acceleration of, or result in the creation or imposition of any Lien upon any of the shares of Company Stock of such Stockholder, under any of the terms, conditions or provisions of any agreement, commitment, lease, license, evidence of indebtedness, mortgage, indenture, security agreement, instrument, note, bond, franchise, permit, concession, or other instrument, obligation or agreement of any kind to which such Stockholder is a party or by which such Stockholder or any of his assets or properties are bound.


3.1.6 Approvals and Consents. Except as disclosed on Schedule 3.1.6, no consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority or Person is necessary or required under any of the terms, conditions or provisions of any Law or Order of any Governmental or Regulatory Authority or any Contract to which such Stockholder is a party or his shares of Company Stock are bound for the execution and delivery of this Agreement by such Stockholder, the performance by such Stockholder of his obligations hereunder or the consummation by such Stockholder of the transactions contemplated hereby.


Section 3.2 Capital Stock; Existence and Good Standing.


3.2.1 Capital Stock. The Company has an authorized capitalization consisting of 200 shares of common stock, $.01 par value, of which 200 shares are issued and outstanding, and no


7


shares are held in the treasury of the Company. No other class of capital stock of the Company is authorized or outstanding. There are no outstanding subscriptions, options, warrants, rights (including "phantom stock rights"), calls, commitments, understandings, conversion rights, rights of exchange, plans or other agreements of any kind providing for the purchase, issuance or sale of any shares of the capital stock of the Company by the Company.


3.2.2 Existence and Good Standing. The Company is duly organized and validly existing and in corporate and tax good standing under the laws of Connecticut, with the full corporate power and authority to own its property and to carry on its business all as and in the places where such properties are now owned or operated or such business is now being conducted. The Company is duly qualified, licensed or admitted to do business and is in good standing in those jurisdictions set forth on Schedule 3.2, which are the only jurisdictions in which the ownership, use or leasing of its assets and properties, or to the best of the knowledge of Stockholders the conduct or nature of its business, makes such qualification, licensing or admission necessary.


Section 3.3 No Subsidiaries. The term "Subsidiary" as used in this Agreement in the case of the Company, shall mean any Person in which the Company, directly or indirectly through subsidiaries or otherwise, beneficially owns or controls fifty percent or more of either the equity interests in, or the voting control of, such Person. The Company has no Subsidiary.


Section 3.4 Financial Statements and No Material Changes. Schedule 3.4 sets forth the following: (a) audited balance sheets of the Company as at December 31, 1998 and the related audited statements of income, retained earnings and cash flow for the years then ended, and (b) unaudited balance sheet of the Company as at May 1, 1999 (the "Balance Sheet") and the related unaudited statement of income, retained earnings and cash flow for the four months then ended. Such financial statements have been prepared in accordance with GAAP throughout the periods indicated except as set forth on Schedule 3.4.1. Each balance sheet fairly presents the financial condition of the Company at the respective date thereof and reflects all material claims against and all material debts and material liabilities of the Company , fixed or contingent, as at the date thereof, required to be shown thereon under GAAP. Each statement of income, retained earnings and cash flow fairly presents the results of operations of the Company for the periods indicated. Since May 1, 1999 (the "Balance Sheet Date"), there has been no material adverse change in the assets or liabilities, or in the business or condition, financial or otherwise, or in the consolidated results of operations of the Company taken as a whole. Subsequent to the Closing the Stockholders will cause the delivery to Cybershop of audited financial statements as at December 27, 1997.


Section 3.5 Books and Records. All accounts, books, ledgers and other records material to the Company of whatsoever kind have been properly and accurately kept and are complete in all material respects, and there are no material inaccuracies or discrepancies of any kind contained or reflected therein. Except as set forth on Schedule 3.5, the Company has no records, systems, controls, data or information recorded, stored, maintained, operated or


8


otherwise wholly or partly dependent on or held by any means (including any electronic, mechanical or photographic process, whether computerized or not) which (including all means of access thereto and therefrom) are not under the exclusive ownership and possession of the Company. The Stockholders have delivered to the Purchaser complete and correct copies of the Articles of Incorporation and By-Laws of the Company, with all amendments thereto, currently in effect, and its minute books and stock transfer records.


Section 3.6 Title to Properties; Encumbrances. The Company has good and valid title to, or enforceable leasehold interests in or valid rights under contract to use all the properties and assets owned or used by it (real and personal, tangible and intangible), including, without limitation (a) all the properties and assets reflected in the Balance Sheet, and (b) all the properties and assets purchased or otherwise contracted for by the Company since the Balance Sheet Date (except for properties and assets reflected in the Balance Sheet or acquired or otherwise contracted for since the Balance Sheet Date that have been sold or otherwise disposed of in the ordinary course of business), in each case free and clear of all Liens, except for Liens set forth on Schedule 3.6. The property, plant and equipment owned or otherwise contracted for by the Company is in a state of good maintenance and repair (ordinary wear and tear excepted) and is adequate and suitable for the purposes for which they are presently being used.


Section 3.7 Real Property.


3.7.1 Owned Real Property. The Company does not own any real property or hold any option or right of first refusal or first offer to acquire any real property. The Company is not obligated by Contract or otherwise to purchase any real property.


3.7.2 Leased Real Property. Schedule 3.7.2 contains an accurate and complete list of all real property leases, subleases, licenses and other occupancy agreements, including without limitation, any modification, amendment or supplement thereto and any other related document or agreement executed or entered into by the Company (each individually, a "Real Property Lease" and collectively, the "Real Property Leases") to which the Company is a party (including, without limitation, Real Property Leases which the Company has subleased or assigned to another Person and as to which the Company remains liable). Each Real Property Lease set forth on Schedule 3.7.2 (or required to be set forth on Schedule 3.7.2): (a) is valid, binding and in full force and effect; (b) all rents and additional rents and other sums, expenses and charges due to date have been paid; (c) the lessee has been in peaceable possession since the commencement of the original term thereof; (d) no waiver, indulgence or postponement of the lessee's obligations thereunder has been granted by the lessor; (e) there exists no default or event of default by the Company or, to the knowledge of the Stockholders, by any other party thereto; (f) to the best of Stockholders' knowledge there exists no occurrence, condition or act which, with the giving of notice, the lapse of time or the happening of any further event or condition, would become a default or event of default by the Company thereunder; and (g) there are no outstanding claims of breach or indemnification or notice of default or termination


9


thereunder. The Company holds the leasehold estate on all Real Property Leases, free and clear of all Liens, except as set forth on Schedule 3.6 and the liens of mortgagees of the real property in which such leasehold estate is located. The real property leased by the Company is in a state of good maintenance and repair and is adequate and suitable for the purposes for which it is presently being used, and to the best of Stockholder's knowledge there are no material repair or restoration works likely to be required in connection with any of the leased real properties. The Company is in physical possession and actual and exclusive occupation of its leased properties. The Company does not owe any brokerage commission with respect to any Real Property Lease.


Section 3.8 Contracts. Schedule 3.8 hereto contains an accurate and complete list of the following material written agreements, commitments, leases, licenses, evidences of indebtedness, mortgages, indentures, security agreements, instruments, notes, bonds, franchise, pe ...