MERGER AGREEMENT AND PLAN OF REORGANIZATION

THIS MERGER AGREEMENT AND PLAN OF REORGANIZATION (this “Agreement”) is made and entered as of December 29, 2005, by and among Cape Coastal Trading Corporation, a Delaware corporation (“Parent”), uBid Acquisition Co., Inc., a Delaware corporation (“Acquisition Subsidiary”), which is a wholly owned subsidiary of Parent, and uBid, Inc., a Delaware corporation (the “Company”). Certain capitalized terms used in this Agreement are defined in the glossary contained in Article 7 hereof.

A. The Company operates an online marketplace.

B. Parent has proposed:

(i) That the Merger (as defined below) be consummated concurrently with the First Closing (as defined below) of the PPO (as defined below) by and between Acquisition Subsidiary and the Company (Acquisition Subsidiary having been formed by Parent solely for that purpose), so that as a result of the Merger, among other things: (A) the Company will survive and become a wholly-owned subsidiary of Parent; (B) the stockholders of the Company immediately prior to the Merger Effective Time (“Existing Company Stockholders”) will own shares of Parent Common Stock (as defined below); (C) the Existing Company Stockholders will receive the Contingent Shares (as defined below) as additional merger consideration if certain conditions are met, but otherwise the Contingent Shares would be issued to Calico Capital Partners, LLC (“Calico”) as consideration for financial services rendered, and (E) certain of the Existing Company Stockholders will receive, in certain events, the rights to have certain shares of Parent Common Stock redeemed by the Parent.

(ii) To raise at a minimum of $45,000,000 (the “Minimum Amount”) and a maximum of $58,500,000 (the “Maximum Amount”) through a private placement offering of units of its securities at $4.50 per unit consisting of one share of Parent Common Stock, and a warrant to purchase ¼ share of Parent Common Stock for five years exercisable at $5.85 per share (the “PPO”) as described in that certain supplemental confidential offering memorandum dated December 15, 2005 (the “Offering Memorandum”) and Securities Purchase Agreement among Parent, the Company and the Investors party thereto (the “Securities Purchase Agreement”), the first closing (the “First Closing”) of which shall occur after receipt of the Minimum Amount, and the Second Closing (as defined below) which shall occur not later than 40 days after the First Closing.

C. The respective Parent Board, the Acquisition Subsidiary Board and the Company Board (each as defined below) have each determined that it is fair to, and in the best interests of, their respective corporations and stockholders for Acquisition Subsidiary to be merged with and into the Company upon the terms and subject to the conditions set forth in this Agreement.

D. The respective Parent Board, Acquisition Subsidiary Board and the Company Board have each approved this Agreement and the merger of Acquisition Subsidiary with and into the Company in accordance with the DGCL, and upon the terms and subject to the conditions set forth herein and in the Certificate of Merger.

E. The Parent Board has also approved the Merger and the PPO and the consummation of the transactions contemplated hereby.

F. Parent, Acquisition Subsidiary, and the Company desire that the Merger, together with the PPO, qualify as a tax-free contribution of the Rollover Shares (as defined below) under the Code and not subject the Existing Company Stockholders to tax under the Code with respect to the Rollover Shares.

NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby expressly and mutually acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows:

ARTICLE 1.

THE MERGER

1.1 Merger. Subject to the terms and conditions of this Agreement and the Certificate of Merger, Acquisition Subsidiary shall be merged with and into the Company (the “Merger”) in accordance with the DGCL. At the Merger Effective Time (as defined below), the separate legal existence of Acquisition Subsidiary shall cease, and the Company shall be the surviving corporation in the Merger (sometimes hereinafter referred to as the “Surviving Corporation”) and shall continue its corporate existence under the laws of the State of Delaware. With respect to references in this Agreement relating to any obligations or duties of the Company accruing after the Merger Effective Date, the usage of the defined term “Company” as opposed to “Surviving Corporation” shall not operate to negate any such obligation or duties.

1.2 Merger Effective Time. The Merger shall become effective on the date and at the time the Certificate of Merger substantially in the form attached as Exhibit 1.2 hereto (the “Certificate of Merger”) is filed with the Secretary of State of the State of Delaware in accordance with Section 252(c) of the DGCL. The time at which the Merger shall become effective as aforesaid is referred to hereinafter as the “Merger Effective Time.” Subject to the terms and conditions of this Agreement, the Company shall duly execute and file the Certificate of Merger with the Secretary of State of the State of Delaware as part of the Closing as contemplated by this Agreement.

1.3 Certificate of Incorporation, By-laws, Directors and Officers.

(a) Certificate of Incorporation. The Certificate of Incorporation of the Company, as in effect immediately prior to the Merger Effective Time shall be the Certificate of Incorporation of the Surviving Corporation from and after the Merger Effective Time until further amended in accordance with applicable Law.

(b) By-Laws. The By-laws of the Company, as in effect immediately prior to the Merger Effective Time shall be the By-laws of the Surviving Corporation from and after the Merger Effective Time until amended in accordance with applicable Law, the Certificate of Incorporation and such By-laws.

(c) Directors and Officers. The directors and officers of the Company immediately prior to the Merger Effective Time shall be the directors and officers of the Surviving Corporation, and each shall hold his or her respective office or offices from and after the Merger Effective Time until his successor shall have been elected and shall have qualified in accordance with applicable Law, or as otherwise provided in the Certificate of Incorporation or By-laws of the Surviving Corporation.

1.4 Assets and Liabilities. At the Merger Effective Time, the Surviving Corporation shall possess all the rights, privileges, powers and franchises of a public as well as of a private nature, and be subject to all the restrictions, disabilities and duties of each of the constituent corporations; and all and singular, the rights, privileges, powers and franchises of each of the constituent corporations, and all property, real, personal and mixed, and all debts due to any of the constituent corporations on whatever account, as well for stock subscriptions as all other things in action or belonging to each of the constituent corporations shall be vested in the Surviving Corporation; and all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter as effectively the property of the Surviving Corporation as they were of the several and respective constituent corporations, and the title to any real estate vested by deed or otherwise in any of such constituent corporations shall not revert or be in any way impaired by the Merger; but all rights of creditors and all liens upon any property of any of the constituent corporations shall be preserved unimpaired, and all debts, liabilities and duties of the respective constituent corporations shall thenceforth attach to the Surviving Corporation, and may be enforced against it to the same extent as if such debts, liabilities and duties had been incurred or contracted by it.

1.5 Manner and Basis of Converting Shares. 

(a) Acquisition Subsidiary Common Stock Conversion. At the Merger Effective Time, each share of common stock of Acquisition Subsidiary that shall be outstanding immediately prior to the Merger Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive one share of common stock of the Surviving Corporation, so that at the Merger Effective Time, Parent shall be the holder of all of the issued and outstanding shares of the Surviving Corporation.

(b) Conversion of Company Capital Stock. 

(i) At the Merger Effective Time, subject to the provisions of Sections 1.5(d) hereof, each share of Voting Common Stock and Non-Voting Common Stock of the Company (“Company Common Stock”), each share of Series A Convertible Preferred Stock of the Company (“Company Preferred Stock”, and together with the Company Common Stock, “Company Capital Stock”), in each case as issued and outstanding prior to the Merger Effective Time (other than shares of Company Common Stock cancelled in accordance with Section 1.5(d) hereof) shall be converted into the right to receive 2,320.0637 (the “Exchange Ratio”) shares of Parent Common Stock for each share of Company Capital Stock (the “Merger Shares”), or a total of 8,800,000 shares of Parent Common Stock, provided, however, that the Existing Company Stockholders may be entitled to receive the Contingent Shares as additional Merger Shares in accordance with Section 1.5(b)(ii).

(ii) On the Second Closing, (A) if the Maximum Amount has not been sold, Parent shall issue an additional 600,667 shares of Parent Common Stock (the “Contingent Shares”) shall be issued as additional Merger Shares to the Existing Company Stockholders, pro rata among them based on the number of shares of Company Common Stock owned by them prior to the Merger, and (B) if the Maximum Amount has been sold, then Parent shall issue the Contingent Shares to Calico.

(c) Bridge Warrants. At the Merger Effective Time the two outstanding warrants issued as of October 3, 2005 in connection with notes issued by the Company on such date (each a “Bridge Warrant”), shall be, in connection with the Merger, assumed by Parent, provided, however, that in compliance with the terms of each Bridge Warrant, such Bridge Warrant shall be replaced with a warrants for 333,333 shares of Parent Common Stock in total, or 166,666 per Bridge Warrant, with terms and conditions of such replacement warrants to be the same as the warrants issued in the PPO other than the initial exercise price shall be $4.50 per share and the warrant term shall terminate on October 3, 2008.

(d) Other Securities. Each share of Company Capital Stock held in the treasury of the Company, if any, each share of any other class of capital stock of the Company (other than Company Capital Stock), if any, and any debt or other securities convertible into or exercisable for the purchase of Company Capital Stock, if any, issued and outstanding immediately prior to the Effective Time shall, except as provided in Section 1.5(c), be canceled without payment of any consideration therefor and without any conversion thereof. 

(e) Cessation of Transfers of Company Capital Stock. After the Merger Effective Time, there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of Company Capital Stock that were outstanding immediately prior to the Effective Time.

(f) Contribution. At the Merger Effective Time, and pursuant to the Merger, (a) the Existing Company Stockholders shall be deemed to have contributed the Company Capital Stock to Parent (the “Rollover Shares”), and (b) Parent be shall be deemed to have issued the Merger Shares in exchange therefor.

1.6 Surrender and Exchange of Securities.

(a) Certificates. As soon as practicable after the Merger Effective Time, and upon (i) surrender of a certificate or certificates representing shares of Company Capital Stock that were outstanding immediately prior to the Merger Effective Time to the Parent (or, in case such certificates shall be lost, stolen or destroyed, an affidavit of that fact by the holder thereof) and (ii) delivery to the Parent of an executed Letter of Transmittal (as described in Section 4.10 hereof), Parent shall deliver to the record holder of the Company Capital Stock surrendering such certificate or certificates, a certificate or certificates registered in the name of such stockholder representing the number of shares of Parent Common Stock to which such holder is entitled under Section 1.5. As of the Merger Effective Time, each share of Company Capital Stock issued and outstanding immediately prior to the Merger Effective Time shall no longer be outstanding and shall automatically be canceled and retired and until the certificate or certificates evidencing such shares are surrendered, each certificate that immediately prior to the Merger Effective Time represented any outstanding shares of Company Capital Stock shall be deemed at and after the Merger Effective Time to represent only the right to receive upon surrender as aforesaid the consideration specified in Section 1.5 hereof for the holder thereof. 

(b) Bridge Warrants. As soon as practicable, at or after the Merger Effective Time and upon surrender of the each original Bridge Warrant to the Parent (or, in case either such Bridge Warrant shall be lost, stolen or destroyed, an affidavit of that fact by the holder thereof) Parent shall deliver to the holder thereof the replacement warrant that the holder thereof shall be entitled to receive pursuant to Section 1.5 hereof. As of the Merger Effective Time, the Bridge Warrant shall no longer be outstanding and shall automatically be canceled and terminated, shall be deemed at and after the Merger Effective Time to represent only the right to receive upon surrender as aforesaid the replacement warrant consideration specified in Section 1.5 hereof.

1.7 Parent Common Stock. Parent agrees that it will cause the Merger Shares into which the Company Capital Stock is converted at the Merger Effective Time pursuant to Section 1.5 hereof and the Contingent Shares to be issued pursuant to Section 1.5 to be available for such purposes. All Merger Shares issued pursuant to the Merger, and the Contingent Shares, will be “restricted” stock as defined by, and be subject to all applicable re-sale restrictions specified by, federal and state securities Laws.

1.8 Redemption Shares. To the extent that the Parent receives gross proceeds from the sale of its securities in the PPO in excess of the Minimum Amount on or before the Second Closing (a “Redemption Event”), Parent shall be required to redeem up to 2,666,667 Merger Shares or other shares of the Parent acquired in the PPO (the “Redemption Shares”) from certain of the Existing Company Stockholders or their affiliates at the redemption price of $4.50 per Redemption Share, or an aggregate total of up to $12,000,000, as provided in this Section.

(a) Amount. In the event that the Redemption Event occurs, on the Second Closing, from any proceeds received by Parent in excess of the Minimum Amount, less any placement agent fees or other offering costs or expenses related to the PPO, the Merger or the transactions related thereto, Parent shall use any such net proceeds to redeem certain Redemption Shares from those Existing Company Stockholders or their affiliates identified on Schedule 1.8, and only those Existing Company Stockholders or their affiliates in the priority set forth therein (the “Redeeming Stockholders”).

(b) Payment. As soon as practicable, on or after the Second Closing, (ii) surrender of a certificate or certificates representing the Redemption Shares to be redeemed (or, in case such certificates shall be lost, stolen or destroyed, an affidavit of that fact by the Redemption Stockholder) and (iii) delivery of an executed letter of transmittal, Parent shall pay to the applicable Redeeming Stockholder the applicable redemption price. 

1.9 Further Assurances. From time to time, from and after the Merger Effective Time, as and when requested by Parent, Acquisition Subsidiary or their respective successors or assigns, the proper officers and directors of the Company in office immediately prior to the Merger Effective Time shall, for and on behalf and in the name of the Company or otherwise, execute and deliver all such deeds, bills of sale, assignments and other instruments and take or cause to be taken such further actions as Parent, Acquisition Subsidiary or their respective successors or assigns may deem necessary or desirable in order to confirm or record or otherwise transfer to the Surviving Corporation title to and possession of all of the properties, rights, privileges, powers, franchises and immunities of the Company or otherwise to carry out fully the provisions and purposes of this Agreement and the Certificate of Merger.

1.10 Post-Closing Adjustment. In the event that, during the period commencing from the Closing Date and ending on the second anniversary of the Closing Date, the Existing Company Stockholders incur any Section 1.10 Loss with respect to, in connection with, or arising from any Section 1.10 Parent Liabilities, then promptly following the filing by Parent with the SEC of a quarterly report relating to the most recent completed quarter for which such determination has been made, Parent shall issue to the Existing Company Stockholders and/or their designees such number of shares of Parent Common Stock as would result from dividing (x) the whole dollar amount representing such Section 1.10 Losses by (y) $4.50 (subject to equitable adjustment in the event of a stock split or the like after the Merger Effective Time). The limit on the aggregate number of shares Parent Common Stock issuable under this Section 1.10 shall be a number of shares of Parent Common Stock equal to five percent (5%) of the number of shares of Parent Common Stock outstanding immediately after the Merger Effective Date as determined on an Adjusted Fully Diluted Basis (subject to equitable adjustment in the event of a stock split or the like after the Merger Effective Time). As used in this Section 1.10: (a) “Section 1.10 Loss” shall mean any and all diminution in value, costs and expenses, including reasonable attorneys’ fees, court costs, reasonable accountants’ fees, and damages and losses, net of any insurance proceeds actually received by the party suffering the Section 1.10 Loss with respect thereto a a result of Section 1.10 Parent Liabilities; (b) “Section 1.10 Claims” shall include, but are not limited to, any claim, notice, suit, action, investigation, other proceedings (whether actual or threatened); and (c) “Section 1.10 Parent Liabilities” shall mean all Section 1.10 Claims and all other liabilities, obligations or indebtedness of any nature whatsoever, whenever accruing, arising or accruing on or before the Closing Date (whether primary, secondary, direct, indirect, liquidated, unliquidated or contingent, matured or unmatured), including, but not limited to (i) any breach by the Parent or Acquisition Subsidiary of any of their respective representations or warranties set forth in ARTICLE 3 herein or any of the Transaction Documents, (ii) any litigation threatened, pending or for which a basis exists, that has resulted or may result in the entry of judgment in damages or otherwise against the Parent or any Parent Subsidiary; (iii) any and all outstanding debts owed by Parent or any Parent Subsidiary; (iv) any and all disputes, arbitrations or administrative proceedings threatened, pending or otherwise outstanding, (v) any and all Liens, foreclosures, settlements, or other threatened, pending or otherwise outstanding financial, legal or similar obligations of Parent or any Parent Subsidiary, as such liabilities are determined by the Parent’s independent auditors, on a quarterly basis, and (vi) all fees and expenses incurred in connection with effecting the adjustments contemplated by this Section 1.10.

ARTICLE 2.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

2.1 Representations and Warranties of the Company. The Company hereby represents and warrants to Parent and Acquisition Subsidiary that the statements contained in this Article 2 are true and correct, except as set forth in the disclosure schedule provided by the Company to the Parent and Acquisition Subsidiary on the date hereof and accepted in writing by the Parent (the “Company Disclosure Schedule”). The Company Disclosure Schedule shall be arranged in sections corresponding to the numbered and lettered sections contained in this Article 2, and the disclosures in any section of the Company Disclosure Schedule shall qualify only the corresponding section in this Article 2. For purposes of this Article 2, the phrase “to the knowledge of the Company” or any phrase of similar import shall be deemed to refer to the actual knowledge of the executive officers of the Company, as well as any other knowledge which such executive officers would have possessed had they made reasonable inquiry of appropriate employees and agents of the Company with respect to the matter in question.

(a) Subsidiaries. The Company has no direct or indirect Subsidiaries other than those listed in Schedule 2.1(a) hereto. Except as disclosed in Schedule 2.1(a) hereto, the Company owns, directly or indirectly, all of the capital stock or comparable equity interests of each Subsidiary free and clear of any Lien and all the issued and outstanding shares of capital stock or comparable equity interest of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights.

(b) Organization and Qualification. The Company is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite legal authority to own and use its properties and assets and to carry on its business as currently conducted. The Company is not in violation of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. The Company is duly qualified to do business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, (i) materially and adversely affect the legality, validity or enforceability of any Transaction Document, (ii) have or result in a material adverse effect on the results of operations, assets, business or financial condition of the Company, or (iii) materially and adversely impair the Company's ability to perform fully on a timely basis its obligations under any of the Transaction Documents (any of (i), (ii) or (iii), a “Material Adverse Effect”).

(c) Authorization; Enforcement. The Company has the requisite corporate authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of the Transaction Documents to which it is a party by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further consent or action is required by the Company, its Board of Directors or its stockholders. Each of the Transaction Documents to which it is a party has been (or upon delivery will be) duly executed by the Company and is, or when delivered in accordance with the terms hereof, will constitute, the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors rights generally, and (ii) the effect of rules of law governing the availability of specific performance and other equitable remedies.

(d) No Conflicts. The execution, delivery and performance of the Transaction Documents to which it is a party by the Company and the consummation by the Company of the transactions contemplated hereby and thereby do not, and will not, (i) conflict with or violate any provision of the Company's certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company debt or otherwise) or other understanding to which the Company is a party or by which any property or asset of the Company is bound, or affected, except to the extent that such conflict, default, termination, amendment, acceleration or cancellation right could not reasonably be expected to have a Material Adverse Effect, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject (including federal and state securities laws and regulations and the rules and regulations of any self-regulatory organization to which the Company or its securities are subject, including all applicable Trading Markets), or by which any property or asset of the Company is bound or affected, except to the extent that such violation could not reasonably be expected to have a Material Adverse Effect.

(e) Capitalization. The aggregate number of shares and type of all authorized, issued and outstanding classes of capital stock, options and other securities of the Company (whether or not presently convertible into or exercisable or exchangeable for shares of capital stock of the Company) is set forth in Schedule 2.1(e) hereto. All outstanding shares of capital stock are duly authorized, validly issued, fully paid and non-assessable and have been issued in compliance with all applicable securities laws. Except as disclosed in Schedule 2.1(e) hereto and as set forth in the Merger Agreement, the Company has not issued any other options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or entered into any agreement giving any Person any right to subscribe for or acquire, any shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock. Except as set forth on Schedule 2.1(e) hereto, and except for customary adjustments as a result of stock dividends, stock splits, combinations of shares, reorganizations, recapitalizations, reclassifications or other similar events, there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) and the issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Parent and Acquisition Subsidiary) and will not result in a right of any holder of securities to adjust the exercise, conversion, exchange or reset price under such securities. To the knowledge of the Company, except as specifically disclosed in Schedule 2.1(e) hereto, no Person or group of related Persons beneficially owns (as determined pursuant to Rule 13d-3 under the Exchange Act), or has the right to acquire, by agreement with or by obligation binding upon the Company, beneficial ownership of in excess of 5% of the outstanding Common Stock, ignoring for such purposes any limitation on the number of shares of Common Stock that may be owned at any single time.

(f) Absence of Changes. Since the date of the latest audited financial statements , except as specifically disclosed in Schedule 2.1(f) hereto or incident to the transactions contemplated hereby or in connection with the Merger, (i) there has been no event, occurrence or development that, individually or in the aggregate, has had or that could result in a Material Adverse Effect, (ii) the Company has not incurred any material liabilities other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company's financial statements pursuant to GAAP, (iii) the Company has not altered its method of accounting or the identity of its auditors, except as disclosed in its audited financial statements, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders, in their capacities as such, or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock (except for repurchases by the Company of shares of capital stock held by employees, officers, directors, or consultants pursuant to an option of the Company to repurchase such shares upon the termination of employment or services), and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock-based plans. The Company has not taken any steps to seek protection pursuant to any bankruptcy law nor does the Company have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact that would reasonably lead a creditor to do so. The Company is not Insolvent (as defined below) as of the date hereof, and after giving effect to the transactions contemplated hereby to occur at the applicable Closing, will not be Insolvent. For purposes of this Section 2.1(f), “Insolvent” means (i) the present fair saleable value of the Company's assets is less than the amount required to pay the Company's total Indebtedness (as defined in Section 2.1(s), (ii) the Company is unable to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured, (iii) the Company intends to incur or believes that it will incur debts that would be beyond its ability to pay as such debts mature or (iv) the Company has unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted.

(g) Absence of Litigation. Except as set forth on Schedule 2.1(g) hereto, there is no action, suit, claim, arbitration or proceeding, or, to the Company's knowledge, inquiry or investigation, before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company that could, individually, or in the aggregate, have a Material Adverse Effect.  

(h) Compliance. The Company, except in each case as could not, individually or in the aggregate, reasonably be expected to have or result in a Material Adverse Effect, (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company under), nor has the Company received written notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority.

(i) Title to Assets. The Company has good and marketable title in fee simple to all real property owned by them that is material to the business of the Company and good and marketable title in all personal property owned by them that is material to the business of the Company, in each case free and clear of all Liens, except for Liens that do not, individually or in the aggregate, have or result in a Material Adverse Effect. Any real property and facilities held under lease by the Company are held by the Company under valid, subsisting and enforceable leases of which the Company is in material compliance.

(j) Application of Takeover Protections. Except as described in Schedule 2.1(j), there is no control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s charter documents or the laws of its state of incorporation (“Takeover Protections”) that is or could become applicable to the Parent and Acquisition Subsidiary as a result of the Parent and Acquisition Subsidiary and the Company fulfilling their obligations or exercising their rights under the Agreement, including, without limitation, as a result of the Company’s issuance of the Securities and the Parent’s and Acquisition Subsidiary’s ownership of the Securities.

(k) Patents and Trademarks. The Company owns, or possesses adequate rights or licenses to use, all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights (“Intellectual Property Rights”) necessary to conduct their respective businesses as presently conducted. Except as set forth on Schedule 2.1(k), there is no current claim, action or proceeding, or to the knowledge of the Company, being threatened or brought, against the Company regarding its Intellectual Property Rights. The Company is unaware of any facts or circumstances, which might give rise to any of the foregoing infringements or claims, actions or proceedings. The Company has taken reasonable security measures to protect the secrecy, confidentiality, and value of all of their intellectual properties. Except as set forth in Schedule 2.1(k), since April 2003, none of the uBid's Intellectual Property Rights have expired, terminated or have been abandoned, or, except as discussed with Designated Investor Counsel, are expected to expire, terminate or be abandoned, within three years from the date of this Agreement, except for such expirations, terminations or abandonments which would not, individually or in the aggregate have a Material Adverse Effect.

(l) Insurance. The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses and location in which the Company is engaged. The Company does not have any knowledge that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

(m) Regulatory Permits. The Company possesses all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits does not, individually or in the aggregate, have or result in a Material Adverse Effect (“Material Permits”), and the Company has not received any written notice of proceedings relating to the revocation or modification of any Material Permit.

(n) Transactions With Affiliates and Employees. Except as set forth in Schedule 2.1(n), none of the officers, directors or employees of the Company is a party to any transaction that would be required to be reported on Form 10-KSB with the Company (other than for ordinary course services as employees, officers or directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director or employee or, to the Company's knowledge, any corporation, partnership, trust or other entity in which any such officer, director, or employee has a substantial interest or is an officer, director, trustee or partner.

(o) Internal Accounting Controls. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

(p) Foreign Corrupt Practices. Neither the Company nor any director, officer, agent, employee or other Person acting on behalf of the Company has, in the course of its actions for, or on behalf of, the Company (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee

(q) OFAC. The Company (i) is not a Person whose property or interest in property is blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), (ii) does not engage in any dealings or transactions prohibited by Section 2 of such executive order, or is otherwise associated with any such Person in any manner violative of Section 2 of such executive order, or (iii) is not a Person on the list of Specially Designated Nationals and Blocked Persons or subject to the limitations or prohibitions under any other U.S. Department of Treasury’s Office of Foreign Assets Control regulation or executive order.

(r) Patriot Act. To the extent applicable, the Company is in compliance, in all material respects, with the (i) Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto, and (ii) Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act of 2001).

(s) Indebtedness. Except as disclosed in Schedule 2.1 (s), neither the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness (as defined below), (ii) is in violation of any term of or in default under any contract, agreement or instrument relating to any Indebtedness, except where such violations and defaults would not result, individually or in the aggregate, in a Material Adverse Effect, or (iii) is a party to any contract, agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of the Company's officers, has or is expected to have a Material Adverse Effect. Schedule 2.1(s) provides a detailed description of the material terms of any such outstanding Indebtedness. For purposes of this Agreement: (a) “Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above; (b) “Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; and (c) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.

(t) Employee Relations. The Company is not a party to any collective bargaining agreement or employs any member of a union. The Company believes that its relations with their employees are good. No executive officer of the Company (as defined in Rule 501(f) of the Securities Act) has notified the Company that such officer intends to leave the Company or otherwise terminate such officer's employment with the Company. No executive officer of the Company, to the knowledge of the Company Subsidiary, is now, or expects to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract, agreement or any restrictive covenant, and the continued employment of each such executive officer does not subject the Company to any liability with respect to any of the foregoing matters. The Company is in compliance with all federal, state, local and foreign laws and regulations respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. There are no material complaints or charges against the Company pending or, to the knowledge of the Company, threatened to be filed with any Governmental Authority or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by the Company of any individual.

(u) Environmental Laws. The Company (i) is in compliance with any and all Environmental Laws (as hereinafter defined), (ii) has received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) is in compliance with all terms and conditions of any such permit, license or approval where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.

(v) Subsidiary Rights. Except as set forth in Schedule 2.1(v), the Company or one of its Subsidiaries has the unrestricted right to vote, and (subject to limitations imposed by applicable law) to receive dividends and distributions on, all capital securities of its Subsidiaries as owned by the Company or such Subsidiary.

(w) Tax Status. The Company (i) has made or filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.

(x) No Undisclosed Events, Liabilities, Developments or Circumstances. No event, liability, development or circumstance has occurred or exists, or is contemplated to occur with respect to the Company or its respective business, properties, prospects, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws on a registration statement on Form S-1 filed with the SEC relating to an issuance and sale by the Company of its Common Stock and which has not been publicly announced.

(y) Manipulation of Price. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company or to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company.

REPRESENTATIONS AND WARRANTIES OF PARENT AND
ACQUISITION SUBSIDIARY 

3.1 Representations and Warranties of the Company. The Parent and Acquisition Subsidiary represent and warrant to the Company that the statements contained in this ARTICLE 3 are true and correct, except as set forth in the disclosure schedule provided by the Parent and the Acquisition Subsidiary to the Company on the date hereof (the “Parent Disclosure Schedule”). The Parent Disclosure Schedule shall be arranged in sections corresponding to the numbered and lettered sections contained in this ARTICLE 3, and the disclosures in any section of the Parent Disclosure Schedule shall qualify only the corresponding section in this ARTICLE 3. For purposes of this ARTICLE 3, the phrase “to the knowledge of the Parent” or any phrase of similar import shall be deemed to refer to the actual knowledge of the executive officers of the Parent, as well as any other knowledge which such executive officers would have possessed had they made reasonable inquiry of appropriate employees and agents of the Parent with respect to the matter in question.

(a) Subsidiaries. The Parent and Acquisition Subsidiary has no direct or indirect Subsidiaries other than those listed in Schedule 3.1(a) hereto. Except as disclosed in Schedule 3.1(a) hereto, Parent and Acquisition Subsidiary each owns, directly or indirectly, all of the capital stock or comparable equity interests of each Subsidiary free and clear of any Lien and all the issued and outstanding shares of capital stock or comparable equity interest of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights.

(b) Organization and Qualification. Each of the Parent and Acquisition Subsidiary is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite legal authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Parent nor the Acquisition Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Parent and the Acquisition Subsidiary is duly qualified to do business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, cause a Material Adverse Effect.

(c) Authorization; Enforcement. Each of the Parent and Acquisition Subsidiary has the requisite corporate authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of the Transaction Documents to which it is a party by the Parent and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Parent and no further consent or action is required by the Parent, its Board of Directors or its stockholders. Each of the Transaction Documents to which it is a party has been (or upon delivery will be) duly executed by the Parent and Acquisition Subsidiary, and is, or when delivered in accordance with the terms hereof, will constitute, the valid and binding obligation of the Parent and Acquisition Subsidiary enforceable against the Parent and Acquisition Subsidiary in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors rights generally, and (ii) the effect of rules of law governing the availability of specific performance and other equitable remedies.

(d) No Conflicts. The execution, delivery and performance of the Transaction Documents to which it is a party by the Parent and the consummation by the Parent and of the transactions contemplated hereby and thereby do not, and will not, (i) conflict with or violate any provision of the Parent’s or the Acquisition Subsidiary's certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Parent debt or otherwise) or other understanding to which the Parent is a party or by which any property or asset of the Parent is bound, or affected, except to the extent that such conflict, default, termination, amendment, acceleration or cancellation right could not reasonably be expected to have a Material Adverse Effect, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Parent is subject (including federal and state securities laws and regulations and the rules and regulations of any self-regulatory organization to which the Parent or its securities are subject, including all applicable Trading Markets), or by which any property or asset of the Parent is bound or affected, except to the extent that such violation could not reasonably be expected to have a Material Adverse Effect.

(e) Authorized Securities. The Merger Shares and the Securities (including the Warrant Shares) (as defined in the Securities Purchase Agreem