EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
Dated as of January 3, 2000
TABLE OF CONTENTS
Page
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SECTION 1 - THE MERGER.................................................................................. 1
1.1 Merger; Effective Time...................................................................... 1
1.2 Closing..................................................................................... 1
1.3 Effects of the Merger....................................................................... 1
1.4 Certificate of Incorporation; Bylaws; Directors; Officers................................... 2
1.5 Tax-Free Reorganization..................................................................... 2
SECTION 2 - EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE............................................ 2
2.1 Effect on Capital Stock..................................................................... 2
2.2 Exchange of Certificates.................................................................... 4
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SOLE SHAREHOLDER...................... 5
3.1 Organization, Standing and Corporate Power.................................................. 6
3.2 Company Capital Structure................................................................... 6
3.3 Subsidiaries................................................................................ 6
3.4 Authority/Noncontravention.................................................................. 6
3.5 Financial Statements; No Undisclosed Liabilities............................................ 7
3.6 Absence of Certain Changes or Events........................................................ 8
3.7 Litigation.................................................................................. 8
3.8 Contracts................................................................................... 8
3.9 Compliance With Laws........................................................................ 9
3.10 Absence of Changes in Benefit Plans; Employment Agreements; Labor Relations................. 10
3.11 ERISA Compliance............................................................................ 10
3.12 Taxes....................................................................................... 11
3.13 No Excess Parachute Payments................................................................ 13
3.14 Title to Properties......................................................................... 13
3.15 Intellectual Property....................................................................... 13
3.16 Year 2000 Compliance........................................................................ 14
3.17 Voting Requirements......................................................................... 15
3.18 Payments.................................................................................... 15
3.19 Transactions with Related Parties........................................................... 15
3.20 Restrictions on Business Activities......................................................... 16
3.21 Accounts Receivable; Inventory.............................................................. 16
3.22 Minute Books................................................................................ 16
3.23 Environmental Matters....................................................................... 16
3.24 Insurance................................................................................... 17
3.25 Warranties; Indemnities..................................................................... 17
3.26 Representations Complete.................................................................... 17
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TABLE OF CONTENTS
(continued)
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SECTION 4 - REPRESENTATIONS AND WARRANTIES OF PARENT.................................................... 18
4.1 Organization, Standing and Corporate Power.................................................. 18
4.2 Authority/Noncontravention.................................................................. 18
4.3 SEC Documents; Parent Financial Statements.................................................. 18
4.4 Parent Common Stock......................................................................... 19
SECTION 5 - COVENANTS................................................................................... 19
5.1 Conduct of Business of the Company.......................................................... 19
5.2 No Solicitation............................................................................. 21
5.3 Shareholder Approval........................................................................ 22
5.4 Access to Information....................................................................... 22
5.5 Confidentiality............................................................................. 22
5.6 Expenses.................................................................................... 22
5.7 Public Disclosure........................................................................... 22
5.8 Consents.................................................................................... 22
5.9 FIRPTA Compliance........................................................................... 23
5.10 Reasonable Efforts.......................................................................... 23
5.11 Notification of Certain Matters............................................................. 23
5.12 Blue Sky Laws............................................................................... 23
5.13 Noncompetition and Employment Agreements.................................................... 23
5.14 Investment Representation Agreements........................................................ 23
SECTION 6 - CONDITIONS TO THE MERGER.................................................................... 24
6.1 Conditions to the Obligations of Parent and Sub............................................. 24
6.2 Additional Conditions to Obligations of Company............................................. 25
SECTION 7 - INDEMNIFICATION............................................................................. 26
7.1 General Indemnification..................................................................... 26
7.2 Limitation and Expiration................................................................... 27
7.3 Escrow Fund................................................................................. 27
7.4 Indemnification Procedures.................................................................. 28
7.5 Survival of Representations, Warranties and Covenants....................................... 31
SECTION 8 - TERMINATION, AMENDMENT AND WAIVER........................................................... 31
8.1 Termination................................................................................. 31
8.2 Effect of Termination....................................................................... 32
8.3 Amendment................................................................................... 32
8.4 Extension; Waiver........................................................................... 32
8.5 Notice of Termination....................................................................... 32
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TABLE OF CONTENTS
(continued)
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SECTION 9 - MISCELLANEOUS.............................................................................. 32
9.1 Notices.................................................................................... 32
9.2 Interpretation............................................................................. 33
9.3 Counterparts............................................................................... 34
9.4 Entire Agreement; Assignment............................................................... 34
9.5 Severability............................................................................... 34
9.6 Other Remedies............................................................................. 35
9.7 Governing Law.............................................................................. 35
9.8 Further Assurances......................................................................... 35
9.9 Absence of Third Party Beneficiary Rights.................................................. 35
9.10 Mutual Drafting............................................................................ 35
9.11 Further Representations.................................................................... 35
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INDEX OF EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Form of Noncompetition Agreement
Exhibit C Form of Investment Representation Agreement
Exhibit D Form of Legal Opinion of Counsel to the Company
Exhibit E Form of Registration Rights Agreement
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of January 3, 2000 between Talk City, Inc., a Delaware
corporation ("Parent"), and Research Connections, Inc., a New Jersey corporation
(the "Company"), and ▇▇▇ ▇. ▇▇▇▇▇▇, an individual and sole shareholder of the
Company (the "Sole Shareholder").
RECITAL
The Boards of Directors of each of the Company and Parent believe it is in
the best interests of each company and their respective shareholders that the
Company and Parent combine into a single company through the merger of the
Company with and into Parent (the "Merger") pursuant to the terms of this
Agreement and, in furtherance thereof, have approved the Merger.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
SECTION 1
THE MERGER
1.1 Merger; Effective Time. Subject to the terms and conditions of this
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Agreement, the Company will be merged into Parent (the "Merger") in accordance
with the New Jersey Business Corporation Act (the "New Jersey Act") and the
Delaware General Corporation Law (the "DGCL", and together with the New Jersey
Act, the "State Corporation Law").
Subject to the provisions of this Agreement, a Certificate of Merger (the
"Certificate of Merger") shall be filed in accordance with the State Corporation
Law on the Closing Date (as defined in Section 1.2). The Merger shall become
effective upon confirmation of such filing of the Certificate of Merger (the
date of confirmation of such filing is referred to as the "Effective Date" and
the time of confirmation of such filing is referred to as the "Effective Time").
1.2 Closing. The closing of the Merger (the "Closing") will take place as
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soon as practicable on the first business day after satisfaction or waiver of
the latest to occur of the conditions set forth in Section 6 (the "Closing
Date"), at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇,
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, unless a different date or place is agreed to
in writing by the parties hereto.
1.3 Effects of the Merger. At the Effective Time, the separate existence
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of the Company shall cease and the Company shall be merged with and into Parent,
and the effects of the Merger shall be as provided in this Agreement and the
applicable provisions of the State Corporation Law. Parent after the Merger is
sometimes referred to as the "Surviving Corporation." Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of the Company shall vest in
the Surviving Corporation, and all
debts, liabilities, obligations and duties of the Company shall become the
debts, liabilities, obligations and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws; Directors; Officers. At the
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Effective Time, (i) the Certificate of Incorporation of Parent shall be the
Certificate of Incorporation of the Surviving Corporation; (ii) the Bylaws of
Parent as in effect immediately prior to the Effective Time shall be the Bylaws
of the Surviving Corporation until altered, amended or repealed; (iii) the
directors of Parent shall be the initial directors of the Surviving Corporation
and will hold office from the Effective Time until their respective successors
are duly elected or appointed and qualified in the manner provided in the
Certificate of Incorporation and Bylaws of the Surviving Corporation, as the
same may be amended from time to time or otherwise as provided by law; and (iv)
the officers of Parent shall be the initial officers of the Surviving
Corporation.
1.5 Tax-Free Reorganization. The Merger is intended to be a reorganization
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within the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code"). The parties have consulted with their own tax advisors
regarding the tax consequences of the Merger.
SECTION 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
-----------------------
Merger and without any action on the part of the holder of any shares of capital
stock of the Company:
(a) Cancellation of Certain Shares of Capital Stock of the Company.
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All shares of capital stock of the Company that are owned directly or indirectly
by the Company shall be canceled and no stock of Parent or other consideration
shall be delivered in exchange therefor.
(b) Conversion of Capital Stock of the Company. Subject to Sections
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2.1(c), (d) and (e) below, all issued and outstanding shares of common stock of
the Company, no par value ("Company Common Stock") (other than shares to be
canceled pursuant to Section 2.1(a)), that are issued and outstanding
immediately prior to the Effective Time shall automatically be canceled and
extinguished and converted, without any action on the part of the holder
thereof, into the right to receive an aggregate of 242,424 shares of common
stock of Parent (the "Parent Common Stock") and $500,000 in cash (the "Cash
Consideration", and together with the Parent Common Stock, the "Merger
Consideration"). All such shares of Company Common Stock, when so converted,
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the right to
receive the Merger Consideration to be issued or paid in consideration therefor
upon the surrender of such certificate in accordance with Section 2.2 of this
Agreement. The ratio pursuant to which each share of Company Common Stock will
be exchanged for shares of Parent Common Stock, determined in accordance with
the foregoing provisions, is referred to as the "Exchange Ratio."
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(c) Payment Schedule and Escrow.
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(i) The Merger Consideration will be paid as follows: $250,000
of the Cash Consideration will be paid on the Closing, $125,000 of the Cash
Consideration will be paid three (3) months after the Closing and the remaining
$125,000 of the Cash Consideration will be paid six (6) months after the
Closing. The Parent Common Stock will be distributed as follows:
(A) 121,212 shares of Parent Common Stock will be
distributed on Closing; and
(B) 121,212 shares of Parent Common Stock will be
distributed on Closing and placed in an escrow account to be released over four
(4) years, with 25% released twelve (12) months after the Closing (the "First
Anniversary") and the remainder released evenly over the 36 months following the
First Anniversary.
(ii) As collateral security for the payment of any
indemnification obligations of the Sole Shareholder pursuant to Section 7 of
this Agreement, at the Closing the Company and the Sole Shareholder shall, and
by execution hereof does hereby, transfer, pledge and assign to Parent, for the
benefit of Parent, a security interest in the following assets:
(A) 121,212 shares of Parent Common Stock issuable by
Parent in the Merger pursuant to Section 2.1(c)(i)(B) (the "Pledged Shares"), as
well as the certificates and instruments representing or evidencing the Pledged
Shares, and all non-cash dividends and other property at any time received or
otherwise distributed in respect of or in exchange or substitution for any or
all of the Pledged Shares; and in the event the Company or the Sole Shareholder
receives any such property, the Company and the Sole Shareholder shall
immediately deliver such property to Parent as part of the Pledged Shares;
(B) $1.5 million in cash paid by Parent to the Sole
Shareholder pursuant to a supplemental employment letter of even date herewith
from Parent to the Sole Shareholder (the "Supplemental Cash"); and
(C) all rights, titles, interests, privileges and
preferences appertaining or incident to the foregoing property, except as
provided for in Section 2.1(c)(iv).
(iii) Each certificate evidencing the Pledged Shares issued in
the name of the Sole Shareholder in the Merger, shall, at the Closing, be
delivered to Parent, together with an undated stock power duly signed in blank
by the Sole Shareholder, such certificate bearing no restrictive or cautionary
legend other than those imprinted by the transfer agent at Parent's request.
(iv) The Sole Shareholder shall be entitled to exercise any
voting powers incident to the Pledged Shares until such time, if ever, that they
are demanded to be transferred to Parent to satisfy the indemnification
obligations of the Sole Shareholder pursuant to Section 7 hereof.
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(d) Adjustment of Exchange Ratio. If, between the date of this
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Agreement and the Effective Time, the outstanding shares of Parent Common Stock
(or, subject to Section 5.1 below, Company Common Stock) shall have been changed
into a different number of shares or a different class by reason of any
reclassification, split-up, stock dividend, stock combination, then the Exchange
Ratio shall be correspondingly adjusted.
(e) Fractional Shares. No fractional shares of Parent Common Stock
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shall be issued, but in lieu thereof each holder of shares of Company Common
Stock who would otherwise be entitled to receive a fraction of a share of Parent
Common Stock shall receive from Parent an amount of cash equal to the per share
market value of Parent Common Stock (based on the last sales price of Parent
Common Stock, as published in the Wall Street Journal, on December 15, 1999)
multiplied by the fraction of a share of Parent Common Stock to which such
holder would otherwise be entitled. The fractional share interests of each
shareholder of the Company shall be aggregated, so that no Company shareholder
shall receive cash in an amount greater than the value of one full share of
Parent Common Stock.
2.2 Exchange of Certificates.
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(a) Exchange Agent. Prior to the Effective Time, Parent shall
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designate its transfer agent or a bank or trust company, reasonably acceptable
to the Company, to act as exchange agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Cash Consideration and Common Stock. Promptly
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after the Effective Time, Parent shall deliver to the Exchange Agent in
accordance with this Section 2 and the Merger Agreement, the Cash Consideration
payable by federal wire transfer of immediately available funds pursuant to wire
transfer instructions provided by the Sole Shareholder at least two business
days prior to Closing and the shares of Parent Common Stock issuable pursuant to
Section 2.1 and the Merger Agreement in exchange for outstanding shares of
capital stock of the Company (including cash in an amount sufficient for payment
in lieu of fractional shares pursuant to Section 2.1(e)).
(c) Exchange Procedures. As soon as practicable after the Effective
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Time, the Surviving Corporation shall cause to be mailed to the Sole Shareholder
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (the "Certificates") shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Parent may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by Parent, together
with such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor the Merger Consideration to
which the Sole Shareholder is entitled pursuant to Section 2.1. The Certificate
so surrendered shall forthwith be canceled. In the event of a transfer of
ownership of Company Common Stock which is not registered on the transfer
records of the Company, the appropriate number of shares of Parent Common Stock
may be delivered to a
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transferee if the Certificate representing such capital stock of the Company is
presented to the Exchange Agent and accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
2.2, each Certificate shall be deemed at any time after the Effective Time to
represent the right to receive upon such surrender the Merger Consideration as
provided by this Section 2 and the provisions of the State Corporation Law.
(d) No Further Ownership Rights in Capital Stock of the Company. The
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Merger Consideration to be delivered upon the surrender for exchange of shares
of Company Common Stock in accordance with the terms hereof shall be deemed to
have been delivered in full satisfaction of all rights pertaining to such shares
of Company Common Stock, and following the Effective Time, the Certificates
shall have no further rights to, or ownership in, shares of capital stock of the
Company. There shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of Company Common
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Section 2.
(e) Lost, Stolen or Destroyed Certificates. In the event any
--------------------------------------
certificates evidencing shares of Company Common Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall make payment in exchange for such
lost, stolen or destroyed certificates, upon the making of an affidavit of that
fact by the holder thereof, such Merger Consideration and cash for fractional
shares, if any, as may be required pursuant to Section 2.1(e); provided,
--------
however, that Parent may, in its discretion and as a condition precedent to the
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issuance thereof, require the owner of such lost, stolen or destroyed
certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the certificates alleged to have been lost, stolen or
destroyed.
(f) No Liability. Notwithstanding anything to the contrary in this
------------
Section 2.2, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of shares of Company Common Stock for any
amount paid to a public official pursuant to any applicable abandoned property,
escheat or similar law.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SOLE SHAREHOLDER
Except as disclosed in writing in a disclosure letter referring
specifically to the representations and warranties in this Agreement that
specifically identifies the section and subsection to which such disclosure
relates and that is delivered to Parent by the Company and the Sole Shareholder
and certified by a duly authorized officer of the Company and the Sole
Shareholder prior to the date of this Agreement (the "Company Schedules"), each
of the Company and the Sole Shareholder represents and warrants to Parent as set
forth below.
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3.1 Organization, Standing and Corporate Power. The Company is a
------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization and has all requisite corporate power
and authority to carry on its business as now being conducted. The Company is
duly qualified to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary. The Company has
delivered to Parent complete and correct copies of its Articles of Incorporation
and Bylaws.
3.2 Company Capital Structure. The authorized capital stock of the Company
-------------------------
consists of 100,000 shares of Common Stock, of which 100 shares are issued and
outstanding. All of such outstanding shares have been duly authorized, validly
issued, fully paid and non-assessable and have been issued in compliance with
all applicable federal and state securities laws. The outstanding shares of
capital stock of the Company are not subject to preemptive rights created by
statute, the Articles of Incorporation or Bylaws of the Company, or any
agreement to which the Company is a party or by which it may be bound. There are
no voting agreements or voting trusts with respect to any of the outstanding
shares of capital stock of the Company. The outstanding shares of capital stock
of the Company are held by the persons and in the amounts set forth in Section
3.2 of the Company Schedules.
3.3 Subsidiaries. The Company does not have and has never had any
------------
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
3.4 Authority/Noncontravention. The Company has the requisite corporate
--------------------------
power and authority to execute and deliver this Agreement and, subject to the
approval and adoption of this Agreement and approval of the Merger by the Sole
Shareholder, to consummate the transactions contemplated by this Agreement. The
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate action on the part of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby, subject, in each case, to the approval and adoption of this
Agreement and approval of the Merger by the Sole Shareholder. This Agreement has
been duly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms. The execution and delivery of this Agreement do not, and subject
to the approval and adoption of this Agreement and approval of the Merger by the
Sole Shareholder as required in connection with this Agreement and the
transactions contemplated by this Agreement, the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
of this Agreement will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
loss of a material benefit or require any consent, approval or authorization
under, or result in the creation of any pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens") in or upon any of the properties or assets of the
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Company under, any provision of (a) the Articles of Incorporation or Bylaws of
the Company, (b) any loan or credit agreement, bond, debenture, note, mortgage,
indenture, lease or other material contract, commitment, agreement, arrangement,
obligation, undertaking, instrument, permit, concession, franchise or license
applicable to the Company or its properties or assets (including, without
limitation, any of the contracts of the Company set forth in the Company
Schedules) or (c) subject to the governmental filings and other matters referred
to in the following sentence, any statute, law, ordinance, rule or regulation or
judgment, order or decree, in each case, applicable to the Company or its
properties or assets, other than, in the case of clauses (b) and (c), any such
conflicts, violations, defaults, rights, or Liens or other occurrences that
individually or in the aggregate would not have a Material Adverse Effect (as
defined in Section 9.2) on the Company. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Federal,
state or local, domestic or foreign, government or any court, administrative
agency or commission or other governmental authority or agency, domestic or
foreign (a "Governmental Entity"), is required by or with respect to the Company
in connection with the execution and delivery of this Agreement by the Company
or the consummation by the Company of the Merger or the other transactions
contemplated by this Agreement, except for (a) the receipt of a valid exemption
from the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act"), (b) the filing of the Certificate of Merger as required
by the State Corporation Law and appropriate documents with the relevant
authorities of other states in which the Company is qualified to do business and
(c) such other consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made
individually or in the aggregate would not have a Material Adverse Effect on the
Company or impair the ability of the Company to perform its obligations under
this Agreement.
3.5 Financial Statements; No Undisclosed Liabilities.
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(a) The unaudited compiled balance sheet (the "Company Balance Sheet")
of the Company as of September 30, 1999 (the "Balance Sheet Date") and the
related profit and loss statement for the year ended September 30, 1999 (the
"Company Financial Statements") are in accordance with the books and records of
the Company and are complete and correct in all material respects, have each
been prepared in accordance with GAAP (with the exception that no statement of
cash flows or footnotes have been included) in conformity with the practices
consistently applied by the Company throughout the periods involved and, to the
best of the Company's and the Sole Shareholder's knowledge, present fairly the
financial position and results of operations of the Company as of the dates and
for the periods specified. True and complete copies of the Company Financial
Statements have previously been supplied to Parent.
(b) As of the Balance Sheet Date, the Company did not have any
indebtedness, obligations or liabilities of any kind (whether accrued, absolute,
contingent or otherwise, and whether due or to become due or asserted or
unasserted), which were not fully reflected in, reserved against or otherwise
described in the Company Balance Sheet that would be required to be disclosed on
a balance sheet prepared as of the Balance Sheet Date in conformity with GAAP
applied on a basis consistent with the Company Financial Statements. Since the
Balance Sheet Date, the Company has not incurred any indebtedness, obligations
or liabilities of any kind (whether accrued,
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absolute, contingent or otherwise, and whether due or to become due or asserted
or unasserted) that would be required to be disclosed on a balance sheet
prepared as of the date hereof in conformity with GAAP applied on a basis
consistent with the Company Financial Statements, other than those incurred in
the ordinary course of business consistent with past practice, none of which
would have a Material Adverse Effect on the Company.
3.6 Absence of Certain Changes or Events. Except as set forth in Section
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3.6 of the Company Schedules, since the Balance Sheet Date and until the date
hereof, the Company has conducted its business only in the ordinary course
consistent with past practice, and there has not been (a) any Material Adverse
Effect with respect to the Company, (b) any declaration, setting aside or
payment of any dividend on, or other distribution (whether in cash, stock or
property) with respect to any of the Company's capital stock, (c) any split,
combination, reclassification or repurchase of any of the Company's capital
stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of the
Company's capital stock, (d) (i)any granting by the Company to any officer of
the Company of any increase in compensation, except in the ordinary course of
business consistent with past practice or as required under employment
agreements in effect as of the date hereof, (ii) any granting by the Company to
any officer of the Company of any increase in severance or termination pay,
except as was required under any employment, severance or termination agreement
in effect as of the date hereof, or (iii) any entry by the Company into (A) any
currently effective employment, severance, termination or indemnification
agreement, or consulting agreement (other than in the ordinary course of
business consistent with past practice), with any current or former officer,
director, employee or consultant or (B) any agreement with any current or former
officer, director, employee or consultant the benefits of which are contingent,
or the terms of which are materially altered, upon the occurrence of a
transaction involving the Company of the nature contemplated by this Agreement,
(e) any damage, destruction or loss, whether or not covered by insurance, that
individually or in the aggregate would exceed $25,000, (f) any change in
accounting methods, principles or practices by the Company, except insofar as
may have been required by a change in GAAP or (g) any tax election that
individually or in the aggregate would have an adverse effect on the Company.
3.7 Litigation. There is no suit, claim, action, proceeding or
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investigation, pending or threatened, against or affecting the Company, nor is
there any judgment, order, decree or injunction of any Governmental Entity or
arbitrator outstanding against, or, to the best knowledge of the Company,
investigation by any Governmental Entity involving, the Company.
3.8 Contracts. Except as set forth in Section 3.8 of the Company
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Schedules, as of the date hereof, the Company is not a party to, nor are any of
their properties or assets bound by, any currently binding (i) contracts,
licenses or agreements, with respect to any intellectual property with a value
or cost in excess of $50,000, (ii) any employment or consulting agreement or
contract (or commitment to enter into any such agreement or contract) with an
employee or individual consultant or salesperson or consulting or sales
agreement or contract (or commitment to enter into any such agreement or
contract) with a firm or other organization in excess of $50,000 annually, (iii)
any agreement or plan, including, without limitation, any stock option plan,
stock appreciation rights plan or stock purchase plan, any of the benefits of
which will be increased, or the vesting of benefits
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of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement, (iv) any fidelity or surety bond or completion bond, (v) any lease of
personal property having a value individually in excess of $50,000, (vi) any
agreement of indemnification, agreement providing for reimbursement of payments
or providing a right of rescission, hold harmless or guaranty, or any obligation
or liability with respect to infringement of the intellectual property rights of
another person, in excess of, or entered into in connection with a transaction
in excess of, $50,000, (vii) any agreement, contract or commitment containing
any covenant limiting the freedom of such party, any of its subsidiaries or the
Surviving Corporation to engage in any line of business or to compete with any
person, (viii) any agreement, contract or commitment relating to capital
expenditures and involving future payments by such party or any of its
subsidiaries in excess of $50,000 in one or in a series of transactions, (ix)
any agreement, contract or commitment relating to the disposition or acquisition
of assets or any interest in any business enterprise outside the ordinary course
of business, (x) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of money
or extension of credit, (xi) any purchase order or contract for the purchase of
materials involving in excess of $50,000, (xii) any construction contracts,
(xiii) contracts that relate to corporate governance, the voting or transfer of
any equity securities of such party, the registration of any securities of such
party under the Securities Act or that grants any redemption or preemptive
rights or (xiv) any other agreement, contract or commitment that involves
$50,000 or more or is not cancelable without penalty within thirty (30) days
(collectively, the "Contracts"). The Company has delivered or otherwise made
available to Parent true, correct and complete copies of the Contracts listed in
Section 3.8 of the Company Schedules, together with all amendments,
modifications and supplements thereto and all side letters to which the Company
is a party affecting the obligations of any party thereunder. The Company is not
in violation of or in default (with or without notice or lapse of time, or both)
under any lease, permit, concession, franchise, license or any other Contract,
commitment, agreement, arrangement, obligation or understanding to which it is a
party or by which it or any of its properties or assets is bound. As of the
Closing, after giving effect to the Merger and the transactions contemplated
hereby, the Surviving Corporation shall be entitled to all of the benefits under
the agreements (as the same may be amended) set forth on Section 3.8 of the
Company Schedules to which the Company is entitled on the date hereof.
3.9 Compliance With Laws. The Company is in compliance with all statutes,
--------------------
laws, ordinances, rules, regulations, judgments, orders and decrees of any
Governmental Entity applicable to its business or operations, except for
instances of possible noncompliance that individually or in the aggregate would
not impair in any material respect the ability of the Company to perform its
obligations under this Agreement or prevent or materially delay the consummation
of any of the transactions contemplated by this Agreement. The Company has in
effect all Federal, state and local, domestic and foreign, governmental
consents, approvals, orders, authorizations, certificates, filings, notices,
permits, franchises, licenses and rights (collectively "Permits") necessary for
it to own, lease or operate its properties and assets and to carry on its
business as now conducted and there has occurred no violation of, or default
under, any such Permit.
-9-
3.10 Absence of Changes in Benefit Plans; Employment Agreements; Labor
-----------------------------------------------------------------
Relations. Since the Balance Sheet Date and until the date hereof, there has not
---------
been any termination, adoption, amendment or agreement to amend in any material
respect by the Company any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
appreciation, restricted stock, stock option, phantom stock, performance,
retirement, vacation, severance, disability, death benefit, hospitalization,
medical or other material plan, arrangement or understanding providing benefits
to any current or former officer, director or employee of such party or any of
its subsidiaries (collectively, "Benefit Plans"). Except as set forth in Section
3.10 of the Company Schedules, as of the date hereof there exist no currently
binding employment, severance or termination agreements or consulting agreements
between the Company and any current or former officer of the Company. There are
no collective bargaining or other labor union agreements to which the Company is
a party or by which it is bound. The Company has not encountered any labor union
organizing activity, nor had any actual or threatened employee strikes, work
stoppages, slowdowns or lockouts.
3.11 ERISA Compliance.
----------------
(a) Section 3.11(a) of the Company Schedules contains a list of all
"employee pension benefit plans" (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) (sometimes
referred to herein as "Pension Plans"), "employee welfare benefit plans" (as
defined in Section 3(1) of ERISA) and all other Benefit Plans maintained or
contributed to by the Company or any person or entity that, together with the
Company, is treated as a single employer under Section 414(b), (c), (m) or (o)
of the Code (a "Commonly Controlled Entity") for the benefit of any current or
former officers, directors or employees of the Company. The Company has made
available to Parent true, complete and correct copies of (i) each Benefit Plan
(or, in the case of any unwritten Benefit Plans, descriptions thereof), (ii) the
most recent annual report on Form 5500 required to be filed with the Internal
Revenue Service (the "IRS") with respect to each Benefit Plan (if any such
report was required), (iii) the most recent summary plan description for each
Benefit Plan for which such summary plan description is required and (iv) each
trust agreement and group annuity contract relating to any Benefit Plan. Each
Benefit Plan has been administered in accordance with its terms. The Company
and all the Benefit Plans are all in compliance with applicable provisions of
ERISA and the Code.
(b) Each of the Pension Plans has been the subject of a determination
letter (or its equivalent) from the IRS to the effect that such Pension Plan is
qualified and exempt from United States Federal income taxes under Sections
401(a) and 501(a), respectively, of the Code, and no such determination letter
(or its equivalent) has been revoked nor has any event occurred since the date
of its most recent determination letter (or its equivalent) or application
therefor that would adversely affect its qualification or materially increase
its costs.
(c) Neither the Company nor any Commonly Controlled Entity of the
Company has maintained, contributed to or been obligated to contribute to any
Benefit Plan that is subject to Title IV of ERISA.
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(d) No officer or employee of the Company will be entitled to any
additional compensation or benefits or any acceleration of the time of payment
or vesting of any compensation or benefits under any Benefit Plan as a result of
the transactions contemplated by this Agreement or any benefits under any
Benefits Plan the value of which will be calculated on the basis of any of the
transactions contemplated by this Agreement.
3.12 Taxes.
-----
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
-------------------
or, collectively, "Taxes", means (i) any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts; (ii) any liability for the payment of any amounts of
the type described in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period; and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) as a
result of any express or implied obligation to indemnify any other person or as
a result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) Tax Returns and Audits.
----------------------
(i) The Company as of the Closing will have prepared and
timely filed all required federal, state, local and foreign returns, estimates,
information statements and reports ("Returns") relating to any and all Taxes
concerning or attributable to the Company or its operations and such Returns are
true and correct and have been completed in accordance with applicable law.
(ii) The Company as of the Closing (A) will have paid all Taxes
it is required to pay and will have withheld with respect to its employees all
federal and state income taxes, Federal Insurance Contribution Act ("FICA"),
Federal Unemployment Tax Act ("FUTA") and other Taxes required to be withheld,
and (B) will have accrued on the Current Balance Sheet all Taxes attributable to
the periods covered by the Current Balance Sheet and will not have incurred any
liability for Taxes for the period prior to the Closing other than in the
ordinary course of business.
(iii) The Company has not been delinquent in the payment of any
Tax, nor is there any Tax deficiency outstanding, assessed or proposed against
the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of the Company
is presently in progress, nor has the Company been notified of any request for
such an audit or other examination.
-11-
(v) The Company has no liabilities for unpaid federal, state,
local and foreign Taxes which have not been accrued or reserved against in
accordance with GAAP on the Current Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and the Company has not incurred any
liability for Taxes since the date of the Current Balance Sheet other than in
the ordinary course of business.
(vi) The Company has made available to Parent or its legal
counsel, copies of all foreign, federal, state and local income and all state
and local sales and use Returns for the Company filed for all periods since its
inception.
(vii) There are (and immediately following the Closing there
will be) no liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort (collectively,
"Tax Liens") on the assets of the Company relating to or attributable to Taxes
other than Tax Liens for Taxes not yet due and payable.
(viii) Neither the Company nor any Shareholder has knowledge
of any basis for the assertion of any claim relating or attributable to Taxes
which, if adversely determined, would result in any Tax Lien on the assets of
the Company.
(ix) None of the Company's assets is treated as "tax exempt use
property," within the meaning of Section 168(h) of the Code.
(x) As of the Closing, there will not be any contract,
agreement, plan or arrangement, including, but not limited to, the provisions of
this Agreement, covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount to
such employee or former employee that would not be deductible by the Company as
an expense under applicable law.
(xi) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(4) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(xii) The Company is not a party to any tax sharing,
indemnification or allocation agreement nor does the Company owe any amount
under any such agreement.
(xiii) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income Tax
deductions is accurately reflected on the Company's tax books and records.
(xiv) The Company is not, and has not been at any time, a
"United States Real Property Holding Corporation" within the meaning of Section
897(c)(2) of the Code.
(xv) No adjustment relating to any Return field by the Company
has been proposed formally or informally by any tax authority to the Company or
any representative thereof.
-12-
(c) Executive Compensation Tax. There is no contract, agreement, plan
--------------------------
or arrangement to which the Company is a party as of the dates hereof, including
but not limited to the provisions of this Agreement, covering any employee or
former employee of the Company, which, individually or collectively, could give
rise to the payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the Code.
(d) Subchapter C Corporation Status. The Company is, and at all times
-------------------------------
during its existence has been, an C Corporation under and within the meaning of
the Code, and under all applicable state Tax laws and regulations.
3.13 No Excess Parachute Payments. No amount that could be received
----------------------------
(whether in cash or property or the vesting of property) in connection with any
of the transactions contemplated by this Agreement by any employee, officer or
director of the Company who is a "disqualified individual" (as such term is
defined in proposed Treasury Regulation Section 1.280G-1) under any employment,
severance or termination agreement, other compensation arrangement or Benefit
Plan currently in effect would be an "excess parachute payment" (as such term is
defined in Section 280G(b)(1) of the Code). No such person is entitled to
receive any additional payment from the Company, the Surviving Corporation or
any other person (a "Parachute Gross-Up Payment") in the event that the excise
tax of Section 4999(a) of the Code is imposed on such person. The Board of
Directors of the Company has not granted to any officer, director or employee of
the Company any right to receive any Parachute Gross-Up Payment.
3.14 Title to Properties.
-------------------
(a) Except for those personal items of the Sole Shareholder set forth
in Section 3.14 of the Company Schedules, the Company has good and marketable
title to, or valid leasehold interests in, all of its properties and assets
except for such as are no longer used or useful in the conduct of its business
or as have been disposed of in the ordinary course of business. All such
material assets and properties, other than assets and properties in which the
Company has a leasehold interest, are free and clear of all Liens (other than
Liens for current taxes not yet due and payable).
(b) The Company has complied in all material respects with the terms
of all leases to which it is a party and under which it is in occupancy, all
such leases are in full force and effect and have been made available to Parent.
The Company enjoys peaceful and undisturbed possession under all such leases.
3.15 Intellectual Property.
---------------------
(a) The Company owns, or has the right to use, sell or license all
intellectual property necessary or required for the conduct of its business as
presently conducted and as presently contemplated (such intellectual property
and the rights thereto are collectively referred to as the "Company IP Rights").
(b) Section 3.15 of the Company Schedules sets forth with respect to
the intellectual property of the Company: (i) for each patent and patent
application, the number, normal
-13-
expiration date, title and priority information for each country in which such
patent has been issued, or, the application number, date of filing, title and
priority information for each country, (ii) for each trademark, trade name or
service ▇▇▇▇, whether or not registered, the date first used, and, if
registered, the application serial number or registration number, the class of
goods covered, the nature of the goods or services, the countries in which the
names or ▇▇▇▇ is used and the expiration date for each country in which a
trademark has been registered and (iii) for each copyright for which
registration has been sought, whether or not registered, the date of creation
and first publication of the work, the number and date of registration for each
country in which a copyright application has been registered.
(c) The Company has taken all reasonable steps necessary or
appropriate (including, entering into appropriate confidentiality, nondisclosure
agreements with officers, directors, subcontractors, independent contractors,
full-time and part-time employees, licensees and customers) to safeguard and
maintain the secrecy and confidentiality of, and the proprietary rights in, the
Company IP Rights.
(d) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
breach of any instrument or agreement governing any Company IP Right (the
"Company IP Rights Agreements"), will not cause the forfeiture or termination or
give rise to a right of forfeiture or termination of any Company IP Right or
impair the right of the Company, the Surviving Corporation or Parent to use,
sell or license any Company IP Right or portion thereof.
(e) (i) Neither the manufacture, marketing, license, sale or intended
use of any product or technology currently licensed or sold by the Company
violates any license or agreement between the Company and any third party or
infringes any proprietary right of any other party; and (ii) there is no pending
or, to the best knowledge of the Company, threatened claim or litigation
contesting the validity, ownership or right to use, sell, license or dispose of
any Company IP Right or operate the Company's Web service.
3.16 Year 2000 Compliance.
--------------------
(a) All of the current or past products and services offered by the
Company, including each item of hardware, software, or firmware, any system,
equipment, or products consisting of or containing one or more thereof, any and
all enhancements, upgrades, customizations, modifications, maintenance and the
like are Year 2000 Compliant (as defined below). The Company is not subject to
any pending or threatened claim, regulatory action, processing or investigation
concerning the Year 2000 Compliance of its respective products, services or
operations, and, to the best knowledge of the Company, there is no basis for any
such claim, regulatory action, investigation or proceeding. To the best
knowledge of the Company, all of the internal management information systems
(including hardware, firmware, operating system software, utilities, and
applications software) and all facilities and systems used in the ordinary
course of business by or on behalf of the Company, including payroll,
accounting, billing/receivables, customer service, human resources, and e-mail
systems used by the Company, are Year 2000 Compliant. To the best of the
Company's knowledge, all vendors of products or
-14-
services to the Company, and its respective products, services and operations,
are Year 2000 Compliant, and each such vendor will continue to furnish its
products or services to the Company, without interruption or material delay, on
and after January 1, 2000.
(b) For purposes of this Agreement, "Year 2000 Compliant" means that
(i) the products, services, or other items (s) at issue accurately process,
provide and/or receive all date/time data (including calculating, comparing, and
sequencing) within, from, into, and between centuries (including the twentieth
and twenty-first centuries and the years 1999 and 2000), including leap year
calculations, and (ii) neither the performance nor the functionality nor the
Company's provision of the products, services, and other item (s) at issue will
be affected by any dates/times prior to, on, after, or spanning January 1, 2000.
The design of the products, services, and other item (s) at issue includes
proper date/time data century recognition and recognition of 1999 and 2000,
calculations that accommodate single century and multi-century formulae and
date/time values before, on, after spanning January 1, 2000, and date/time data
interface values that reflect the century, 1999, and 2000.
3.17 Voting Requirements. The affirmative vote of the holders of a
-------------------
majority of the outstanding shares of Company Common Stock are the only votes of
the holders of any capital stock of the Company necessary to approve and adopt
this Agreement and approve the Merger.
3.18 Payments. Neither the Company nor any of its representatives acting
--------
on its behalf have, directly or indirectly, paid or delivered any fee,
commission or other sum of money or property, however characterized, to any
finder, agent, government official or other party, in the U.S. or any other
country which the Company knows or has reason to believe to have been illegal
under any federal, state or local laws of the U.S. or any other country having
jurisdiction. Neither the Company nor any of its representatives acting on its
behalf, have accepted or received any unlawful contributions, payments, gifts or
expenditures.
3.19 Transactions with Related Parties. Except for compensation
---------------------------------
arrangements in the ordinary course of business, as disclosed on Section 3.19 of
the Company Schedules or for amounts less than $10,000, no Related Party (as
defined below) of the Company has (a) borrowed or loaned money or other property
to the Company which has not been repaid or returned, (b) any currently
enforceable contractual or other claims, express or implied, of any kind
whatsoever against the Company or (c) has or had any material economic interest
in any property currently used by the Company or any subsidiary thereof. For
purposes of this Agreement, (i) "Related Party" means as to any person, any of
such person's officers and directors, any Affiliate thereof or the respective
officers and directors of any such Affiliate, or any other person in which any
of the foregoing persons have any direct or material indirect interest, (ii)
"Affiliate" of a person means any other person which directly or indirectly
controls, is controlled by, or is under common control with, such person and
(iii) "control" (including, with correlative meaning, the terms "controlled by"
and "under common control with"), as used with respect to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities, by contract or otherwise.
-15-
3.20 Restrictions on Business Activities. There is no agreement
-----------------------------------
(noncompete, grant of exclusivity or otherwise), commitment, judgment,
injunction, order or decree to which the Company is a party or otherwise binding
upon the Company which has or reasonably could be expected to have the effect of
prohibiting or impairing any business practice of the Company, any acquisition
of property (tangible or intangible) by the Company or the conduct of business
by the Company.
3.21 Accounts Receivable; Inventory.
------------------------------
(a) The Company has made available to Parent a list of all accounts
receivable of the Company reflected on the Balance Sheet ("Accounts Receivable")
along with a range of days elapsed since invoice.
(b) All Accounts Receivable of the Company are collectible except to
the extent of reserves therefor set forth in the Balance Sheet. No person has
any Lien on any of such Accounts Receivable and no request or agreement for
deduction or discount has been made with respect to any of such Accounts
Receivable.
(c) All of the inventories of the Company reflected on the Balance
Sheet and the Company's books and records on the date of this Agreement were
purchased, acquired or produced in the ordinary and regular course of business
and in a manner consistent with the Company's regular inventory practices and
are set forth on the Company's books and records in accordance with the
practices and principles of the Company consistent with the method of treating
said items in prior periods.
3.22 Minute Books. The minute books of the Company made available to
------------
counsel for Parent are the only minute books of the Company and contain an
accurate summary of all meetings of directors (or committees thereof) and
shareholders or actions by written consent since the date of incorporation of
the Company.
3.23 Environmental Matters.
---------------------
(a) Except as set forth in Section 3.23 of the Company Schedules, to
the best knowledge of the Company, no underground storage tanks and no amount of
any substance that has been designated by any Governmental Entity or by
applicable federal, state, local or other applicable law to be radioactive,
toxic, hazardous or otherwise a danger to health or the environment, including,
without limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all
substances listed as hazardous substances pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, or
defined as a hazardous waste pursuant to the United States Resource Conservation
and Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said laws, but excluding office and janitorial supplies properly and safely
maintained (a "Hazardous Material"), are present in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that the Company has at any time owned, operated, occupied or leased.
-16-
(b) The Company has not transported, stored, used, manufactured,
disposed of, released or exposed its employees or others to Hazardous Materials
in violation of any law in effect on or before the Closing, nor has the Company
disposed of, transported, sold, or manufactured any product containing a
Hazardous Material (collectively, "Company Hazardous Materials Activities") in
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) To the best knowledge of the Company, the Company currently holds
all environmental approvals, permits, licenses, clearances and consents (the
"Environmental Permits") necessary for the conduct of the Company's Hazardous
Material Activities and other business of the Company as such activities and
business are currently being conducted. All Environmental Permits are in full
force and effect. The Company (A) is in compliance with all material terms and
conditions of the Environmental Permits and (B) is in compliance in all material
respects with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
the laws of all Governmental Entities relating to pollution or protection of the
environment or contained in any regulation, code, plan, order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved thereunder.
(d) No action, proceeding, revocation proceeding, amendment
procedure, writ, injunction or claim is pending, or to the best knowledge of the
Company, threatened, concerning any Environmental Permit, Hazardous Material or
any Company Hazardous Materials Activity. The Company is not aware of any fact
or circumstance which could involve the Company in any environmental litigation
or impose upon the Company any material environmental liability.
3.24 Insurance. Section 3.24 of the Company Schedules lists all insurance
---------
policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company. There
is no claim by the Company pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and the Company is otherwise in material compliance with
the terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage). The Company has not received any
notice that the insurers intend to terminate or materially increase the premiums
payable under any of such policies.
3.25 Warranties; Indemnities. Section 3.25 of the Company Schedules sets
-----------------------
forth a list of all agreements containing warranties and indemnities relating to
products sold or services rendered by the Company, and no warranty or indemnity
has been given by the Company which differs therefrom in any material respect.
Section 3.25 of the Company Schedules also indicates all warranty and indemnity
claims in excess of $5,000 made against the Company.
3.26 Representations Complete. None of the representations or warranties
------------------------
made by the Company, nor any document, written information, statement, financial
statement, certificate, schedule or exhibit prepared or furnished by the Company
or its representatives pursuant to this Agreement or in connection with the
transactions contemplated hereby contains or will contain at the
-17-
Effective Time, any untrue statement of a material fact, or omits or will omit
at the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading. To the best knowledge of the Company, there is no
event, fact or condition that has resulted in, or could reasonably be expected
to result in, a Material Adverse Effect that has not been set forth in this
Agreement or in the Company Schedules.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as disclosed in writing in a disclosure letter referring
specifically to the representations and warranties in this Agreement that
specifically identifies the section and subsection to which such disclosure
relates and that is delivered to the Company by Parent certified by a duly
authorized officer of Parent prior to the date of this Agreement, Parent
represents and warrants to the Company as follows:
4.1 Organization, Standing and Corporate Power. Parent is a corporation
------------------------------------------
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has all requisite corporate power and
authority to carry on its business as now being conducted. Parent is duly
qualified to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed or be in good
standing individually or in the aggregate would not have a Material Adverse
Effect on Parent.
4.2 Authority/Noncontravention. Parent has the requisite corporate power
--------------------------
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated by this Agreement. The execution, delivery and
performance of this Agreement by the Company and the consummation by Parent of
the transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of each of Parent and no other corporate
proceedings on the part of each of Parent are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by each of Parent and constitutes valid and
binding obligations of Parent, enforceable against in accordance with its terms.
No consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity is required by or with respect to Parent in
connection with the execution and delivery of this Agreement by Parent or the
consummation by Parent of the Merger or the other transactions contemplated by
this Agreement, except for (a) the receipt of a valid exemption from the
registration requirements of the Securities Act and (b) the filing of the
Certificate of Merger as required by the State Corporation Law and appropriate
documents with the relevant authorities of other states in which Parent is
qualified to do business.
4.3 SEC Documents; Parent Financial Statements. Parent has furnished or
------------------------------------------
made available to the Company a true and complete copy of its Registration
Statement on Form S-1 dated July 19, 1999 and its Quarterly Reports on Form 10-Q
for the periods ending June 30, 1999 and
-18-
September 30, 1999 (collectively, the "SEC Documents") which Parent filed under
the Securities Act with the Securities and Exchange Commission (the "SEC"). As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading. The financial statements
of Parent, including the notes thereto, included in the SEC Documents (the
"Parent Financial Statements") comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
consistently applied (except as may be indicated in the notes thereto or, in the
case of unaudited statements, as permitted by applicable rules and regulations
of the SEC) and fairly present the consolidated financial position of Parent at
the dates thereof and of its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal, recurring audit
adjustments). There has been no change in Parent accounting policies except as
described in the notes to the Parent Financial Statements. Parent has no
material obligations other than (i) those set forth in the Parent Financial
Statements and (ii) those not required to be set forth in the Parent Financial
Statements under generally accepted accounting principles.
4.4 Parent Common Stock. The shares of Parent Common Stock, when issued in
-------------------
the Merger in compliance with this Agreement, will be validly issued, fully paid
and nonassessable. Such shares will be issued in compliance with applicable
state and federal securities laws.
SECTION 5
COVENANTS
5.1 Conduct of Business of the Company. During the period from the date of
----------------------------------
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company shall carry on its business in the
usual, regular and ordinary course in substantially the same manner as conducted
prior to the date of this Agreement and, to the extent consistent with such
business, use all commercially reasonable efforts consistent with past practice
and policies to preserve intact its present business organization, keep
available the services of its present officers and key employees and preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, with the objective that its
goodwill and ongoing business shall be unimpaired at the Effective Time. The
Company shall promptly notify Parent of any event or occurrence not in the
ordinary course of business of the Company. Except as expressly contemplated by
this Agreement or disclosed in the Company Schedules, the Company shall not,
without the prior written consent of Parent:
(a) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock, or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or repurchase or otherwise acquire, directly or
indirectly, any shares of its capital stock;
-19-
(b) Issue, deliver or sell, authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities or
authorize or propose any change in its equity capitalization;
(c) Solicit approval for or effect any amendments to the Company's
Articles of Incorporation or Bylaws;
(d) Acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the Company;
(e) Sell, lease, license, pledge or otherwise dispose of or encumber
any of its properties or assets except in the ordinary course of business
consistent with past practice (including without limitation any indebtedness
owed to it or any claims held by it);
(f) Except in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee, endorse or
otherwise become responsible for the obligations of others, or make loans or
advances;
(g) Pay, discharge or satisfy in an amount in excess of $10,000 in any
one case any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business consistent with past practice of
liabilities reflected or reserved against in the Company's Financial Statements
or those incurred after the Balance Sheet in the ordinary course of business;
(h) Adopt or amend any employee benefit or employee stock purchase or
employee option plan, or enter into any employment contract, pay any special
bonus or special remuneration to any director or employee, or increase the
salaries or wage rates of its officers or employees other than in the ordinary
course of business, consistent with past practice, or change in any material
respect any management policies or procedures;
(i) Commence a lawsuit other than for the routine collection of bills;
(j) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the Company IP Rights or
enter into grants to future patent rights, other than in the ordinary course of
business;
(k) Except in the ordinary course of business with prior notice to
Parent, violate, amend or otherwise modify the terms of any of the Company's
contracts binding on the Company as set forth in Section 3.8 of the Company
Schedules;
-20-
(l) Revalue any of its assets, including without limitation, writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business and consistent with past practice;
(m) Make any material tax election other than in the ordinary course
of business and consistent with past practice, change any material tax election,
adopt any material tax accounting method other than in the ordinary course of
business and consistent with past practice, change any material tax accounting
method, file any material tax return (other than any estimated tax returns,
payroll tax returns or sale tax returns) or any amendment to a material tax
return, enter into any closing agreement, settle any tax claim or assessment, or
consent to any tax claim or assessment, without the prior written consent of
Parent, which consent will not be reasonably withheld;
(n) Engage in any activities or transactions that are outside the
ordinary course of its business consistent with past practice;
(o) Fail to pay or otherwise satisfy its monetary obligations as they
become due, except such as are being contested in good faith; or waive or commit
to waive any rights of substantial value; or cancel, materially amend or renew
any insurance policy; or
(p) Take, or agree (in writing or otherwise) to take, any of the
actions described in Sections 5.1(a) through (o) above, or any action which
would make any of the representations or warranties of the Company contained in
this Agreement untrue or incorrect or result in any of the conditions to the
Merger set forth in Section 6 not being satisfied.
5.2 No Solicitation. Until the earlier of the Effective Time or the
---------------
termination of this Agreement pursuant to the provisions of Section 8.1, neither
the Company nor the Sole shareholder will (nor will the Company permit any of
the Company's officers, directors, agents, representatives or affiliates to)
directly or indirectly, take any of the following actions with any party other
than Parent and its designees: (a) solicit, conduct discussions with or engage
in negotiations with any person or take any other action intended or designed to
facilitate the efforts of any person, other than Parent, relating to the
possible acquisition of the Company (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any portion of its capital
stock or assets, (b) provide information with respect to it to any person, other
than Parent, relating to the possible acquisition of the Company (whether by way
of merger, purchase of capital stock, purchase of assets or otherwise) or any
portion of its or their capital stock or assets, (c) enter into an agreement
with any person, other than Parent, providing for the acquisition of the Company
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise) or any portion of its capital stock or assets or (d) make or
authorize any statement, recommendation or solicitation in support of any
possible acquisition of the Company (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any portion of its capital
stock or assets by any person, other than by Parent. In addition to the
foregoing, if the Company or the Sole shareholder receives any unsolicited bona
fide offer or proposal relating to any of the above, the Company or the Sole
shareholder (as the case may be) shall immediately notify Parent thereof,
including information as to the identity of the offeror or the party making any
such offer or proposal and the specific terms of such offer or proposal, as the
case may be.
-21-
5.3 Shareholder Approval. The Sole Shareholder agrees to vote in favor of
--------------------
the Merger, this Agreement and the transactions contemplated hereby, and agrees
to take all actions and execute all documents necessary to effect the foregoing.
5.4 Access to Information. Upon reasonable notice, the Company shall
---------------------
afford Parent and its accountants, counsel and other representatives, reasonable
access during normal business hours during the period prior to the Effective
Time to (a) all of the Company's properties, books, contracts, commitments and
records, and (b) all other information concerning the business, properties and
personnel (subject to restrictions imposed by applicable law) of the Company as
Parent may reasonably request, including without limitation access upon
reasonable request to the Company's employees, customers and vendors for due
diligence inquiry. The Company agrees to provide to Parent and its accountants,
counsel and other representatives copies of internal financial statements,
business plans and projections promptly upon request. No information or
knowledge obtained in any investigation pursuant to this Section 5.4 shall
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the Merger.
5.5 Confidentiality. Each of the parties agrees to keep such information
---------------
or knowledge obtained in any investigation pursuant to Section 5.4, or pursuant
to the negotiation and execution of this Agreement or the effectuation of the
transactions contemplated hereby, confidential pursuant to a mutual
Nondisclosure Agreement dated as of January 3, 2000 by and between Parent and
the Company (the "Confidentiality Agreement").
5.6 Expenses. Whether or not the Merger is consummated, all reasonable and
--------
customary fees and expenses incurred in connection with the Merger including,
without limitation, all legal, accounting, financial advisory, consulting and
all other fees and expenses of third parties incurred by a party in connection
with the negotiation and effectuation of the terms and conditions of this
Agreement and the transactions contemplated hereby, shall be the obligation of
the respective party incurring such fees and expenses. Such fees and expenses of
the Company and the Sole Shareholder shall be incurred entirely by the Company,
and after the Merger shall be paid for by the Sole Shareholder.
5.7 Public Disclosure. Unless otherwise required by law, prior to the
-----------------
Effective Time, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by Parent and the Company prior to release, provided that such approval
--------
shall not be unreasonably withheld, subject, in the case of Parent, to Parent's
obligation to comply with applicable securities laws.
5.8 Consents. Each of Parent and the Company shall promptly apply for or
--------
otherwise seek, and use its reasonable efforts to obtain, all consents and
approvals required to be obtained by it for the consummation of the Merger, and
the Company shall use all reasonable efforts to obtain all consents, waivers and
approvals under any of the Company's agreements, contracts, licenses or leases
in order to preserve the benefits thereunder for the Surviving Corporation and
otherwise in connection with the Merger. All of such Company consents and
approvals are set forth in Section 5.8 of the Company Schedules.
-22-
5.9 FIRPTA Compliance. On the Closing Date, the Company shall deliver to
-----------------
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.10 Reasonable Efforts. Subject to the terms and conditions provided in
------------------
this Agreement, each of the parties hereto shall use all reasonable efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby to obtain all necessary waivers, consents and approvals and to effect all
necessary registrations and filings and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided that Parent shall not be required to agree to any divestiture by Parent
--------
or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or the Company or its affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
5.11 Notification of Certain Matters. The Company shall give prompt notice
-------------------------------
to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which may cause any representation or warranty of the Company and Parent,
respectively, contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time and (ii) any failure of the
Company or Parent, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 5.11
-------- -------
shall not limit or otherwise affect any remedies available to the party
receiving such notice.
5.12 Blue Sky Laws. Parent shall take such steps as may be necessary to
-------------
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of Parent Common Stock pursuant hereto. The Company
shall use its best efforts to assist Parent as may be necessary to comply with
the securities and blue sky laws of all jurisdictions which are applicable in
connection with the issuance of Parent Common Stock pursuant hereto.
5.13 Noncompetition and Employment Agreements. Prior to the Effective Time
----------------------------------------
(a) Parent and the Sole Shareholder shall enter into a noncompetition agreement
substantially in the form attached as Exhibit B (the "Noncompetition Agreement")
---------
and (b) the Sole Shareholder shall enter into an employment agreement with
Parent in a form satisfactory to the parties thereto (the "Employment
Agreement"). The Noncompetition Agreement and the Employment Agreement shall
become effective as of the Effective Time.
5.14 Investment Representation Agreements. All of the holders of
------------------------------------
outstanding shares of capital stock of the Company shall execute and deliver to
Parent Investment Representation Agreements in the form attached as Exhibit C.
---------
-23-
SECTION 6
CONDITIONS TO THE MERGER
6.1 Conditions to the Obligations of Parent and Sub. The obligations of
-----------------------------------------------
Parent to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing,
exclusively by Parent:
(a) Shareholder Approval. This Agreement, the agreements contemplated
--------------------
hereunder and the Merger and other transactions contemplated hereby and thereby
shall have been approved and adopted by the affirmative vote or consent of the
Sole Shareholder, in compliance with applicable law and the Company's Articles
of Incorporation and Bylaws.
(b) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of the Company and the Sole Shareholder in this Agreement shall
be true and correct on and as of the date of this Agreement and as of the
Closing Date as though such representations and warranties were made on and as
of such time and the Company and the Sole Shareholder shall have performed and
complied with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by each of them as of the Closing
Date. Parent shall have been provided with a certificate dated as of the
Closing Date executed on behalf of the Company by its Chief Executive Officer
and Chief Financial Officer to such effect.
(c) Legal Opinion. Parent shall have received a legal opinion from
-------------
▇▇▇▇ ▇▇▇▇ San ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLC, legal counsel to the Company, substantially
in the form of Exhibit D.
---------
(d) No Injunctions or Restraints on Conduct of Business. No temporary
---------------------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
provision challenging Parent's proposed acquisition of the Company, or limiting
or restricting Parent's conduct or operation of the business of the Company (or
its own business) following the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending.
(e) Litigation. There shall be no action, suit, claim or proceeding
----------
of any nature pending, or overtly threatened, against Parent or the Company,
their respective properties or any of their officers or directors, arising out
of, or in any way connected with, the Merger or the other transactions
contemplated by the terms of this Agreement, or that could materially and
adversely affect the business, assets, liabilities, financial condition, results
of operations or prospects of the Company.
(f) Due Diligence. Parent shall be satisfied with the results of its
-------------
due diligence review of the Company.
-24-
(g) Investment Representations. Parent shall have received from the
--------------------------
Sole Shareholder an executed Investment Representation Agreement which shall be
in full force and effect.
(h) Employment Agreement; Employment Generally. The Employment
------------------------------------------
Agreement shall have been executed and delivered by the parties thereto, Parent
shall have received reasonable assurances from ▇▇▇▇▇▇▇▇ ▇▇▇▇, which assurances
are satisfactory to Parent, that ▇▇. ▇▇▇▇ will continue her employment with
Parent, and all officers of the Company shall have resigned from their
respective positions.
(i) Escrow Agreement. The Escrow Agreement shall have been duly
-----------------
executed and delivered by the parties thereto.
(j) Noncompetition Agreement. The Noncompetition Agreement shall have
------------------------
been duly executed and delivered by the parties thereto.
(k) Confidentiality Agreement. The Confidentiality Agreement shall
-------------------------
have been duly executed and delivered by the Sole Shareholder.
(l) Vesting of Stock Options or Warrants. There shall be no
--------------------------------------
acceleration of vesting of stock options or warrants as a result of the Merger
except upon the termination without cause of the Sole Shareholder by Parent or
the death or disability of the Sole Shareholder.
(m) Financial Condition. Parent shall be satisfied that the
-------------------
liabilities of the Company as of the date hereof do not exceed the liabilities
set forth on the Company Balance Sheet as of September 30, 1999, except as set
forth in the Company Schedules.
(n) Securities Law Compliance. Parent shall have received from Sole
-------------------------
Shareholder an executed investment representation statement and completed
questionnaire in form and substance satisfactory to Parent that the issuance of
the shares of Parent Common Stock pursuant to the Merger is exempt from the
registration requirements of the Securities Act and is exempt from registration
under applicable state securities laws.
(o) Board of Directors' Approval. The Board of Directors of Parent
----------------------------
shall have approved the Merger.
6.2 Additional Conditions to Obligations of Company. The obligations of
-----------------------------------------------
the Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of Parent in this Agreement shall be true and correct in all
material respects on and as of the date of this Agreement and as of the Closing
Date as though such representations and warranties were made on and as of such
time and each of Parent shall have performed and complied with all
-25-
covenants, obligations and conditions of this Agreement required to be performed
and complied with by it as of the Closing Date. The Company shall have been
provided with a certificate dated as of the Closing Date and executed on behalf
of Parent by an executive officer of Parent to such effect.
(b) Registration Rights Agreement. The Registration Rights Agreement
-----------------------------
in the form of Exhibit E shall have been executed and delivered by Parent.
---------
(c) Employment Agreement. The Employment Agreement shall have been
--------------------
executed and delivered by the parties thereto.
SECTION 7
INDEMNIFICATION
7.1 General Indemnification. The Sole Shareholder covenants and agrees to
-----------------------
indemnify, defend, protect and hold harmless Parent and the Surviving
Corporation and their respective officers, directors, employees, shareholders,
assigns, successors and affiliates (individually, an "Indemnified Party" and
collectively, "Indemnified Parties") from, against and in respect of:
(a) all liabilities, losses, claims, damages, punitive damages,
courses of actions, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments, adjustments,
judgments, settlement payments, deficiencies, penalties, fines, interest
(including interest from the date of such damages) and costs and expenses
(including without limitation reasonable attorneys' fees and disbursements of
every kind, nature and description) (collectively, "Damages") suffered,
sustained or incurred by the Indemnified Persons in connection with, resulting
from or arising out of, directly or indirectly:
(i) any breach of any representation or warranty of the Company
or the Sole Shareholder set forth in this Agreement or any certificate, document
or instrument delivered by or on behalf of the Company or the Sole Shareholder
in connection herewith;
(ii) any nonfulfillment of any covenant or agreement on the part
of the Company or the Sole Shareholder in this Agreement;
(iii) the business, operations or assets of the Company prior to
the Closing Date, including without limitation all taxes due and payable prior
to the Closing Date, except as otherwise disclosed in the Company Financial
Statements or the Company Schedules; or
(iv) the actions or omissions of the Company's directors,
officers, shareholders, employees or agents prior to the Closing Date; and
(b) any and all Damages incident to any of the foregoing or to the
enforcement of this Section 7.1.
-26-
7.2 Limitation and Expiration. Notwithstanding the above:
-------------------------
(a) There shall be no liability for indemnification under Section 7.1
unless the aggregate amount of Damages exceeds $25,000 (the "Indemnification
Threshold"), in which event the liability for indemnification will apply to the
entire aggregate amount of Damages. For purposes of satisfying indemnification
obligations pursuant to Section 7.1, the Pledged Shares shall be valued at
$12.375 per share (subject to adjustment for stock splits, recapitalizations and
the like).
(b) From and after the Effective Date, the Escrow Fund (as defined in
Section 7.3) shall be Parent's and the other Indemnified Parties' exclusive
remedy for any breach of a representation, warranty or covenant made by the
Company or the Sole Shareholder in this Agreement (except in the case of (i)
fraud, (ii) willful misrepresentation or (iii) willful failure to disclose in
breach of this Agreement).
(c) The indemnification obligations under this Section 7 shall
terminate as follows:
(i) with respect to claims or demands (a "Claim") relating to a
breach of the representations and warranties set forth in Section 3.12 (Taxes)
and 3.23 (Environmental Matters) or fraud or willful misconduct, upon the later
of the expiration of the applicable statute of limitations period or the final
resolution of any and all such Claims pending as of such date; and
(ii) with respect to all other Claims for indemnification under
this Section 7, upon the later of the second anniversary of the Closing Date or
the final resolution of any such claims pending as of the second anniversary.
The term "Indemnification Deadline Date" refers to the expiration date of
the applicable statute of limitations period with respect to Claims under clause
(i) above and the second anniversary with respect to claims under clause (ii)
above. The term "Pending Claims" refers to the pending claims described in
clauses (i) and (ii) above. From and after the applicable Indemnification
Deadline Date, the indemnification obligations under this Section 7 shall
survive only to the extent of Pending Claims and all remaining Supplemental Cash
as provided in Section 7.4(h), Pledged Shares and other property in the Escrow
Fund (except as otherwise provided in the Escrow Agreement) shall be released to
the Sole Shareholder pursuant to the terms of the Escrow Agreement.
7.3 Escrow Fund. The deposit of the Pledged Shares and Supplemental Cash
-----------
(collectively, the "Escrow Amount") pursuant to Section 2.1(c)(ii), together
with all interest accruing thereon, shall constitute the "Escrow Fund" and shall
be governed by the terms set forth in this Agreement and in the Escrow
Agreement. The Escrow Fund shall be available to satisfy the indemnification
obligations to Indemnified Persons pursuant to the terms of this Section 7.
-27-
7.4 Indemnification Procedures. All Claims for indemnification under this
--------------------------
Section 7 shall be asserted and resolved as follows:
(a) In the event the Indemnified Party has a Claim hereunder which
does not involve a Claim being asserted against or sought to be collected by a
third party, the Indemnified Party shall with reasonable promptness send a Claim
Notice (as defined in Section 7.4(c) below) with respect to such Claim to the
Sole Shareholder. If the Sole Shareholder does not notify the Indemnified Party
within 45 days from the date of receipt of such Claim Notice that the Sole
Shareholder disputes such Claim, the amount of such Claim shall be conclusively
deemed a liability of the Sole Shareholder hereunder. In case the Sole
Shareholder shall object in writing to any Claim made in accordance with this
Section 7.4(a), the Indemnified Party shall have fifteen (15) days to respond in
a written statement to the objection of the Sole Shareholder. If after such
fifteen (15) day period there remains a dispute as to any Claims, the parties
shall attempt in good faith for sixty (60) days to agree upon the rights of the
respective parties with respect to each of such Claims. If the parties should
so agree, a memorandum setting forth such agreement shall be prepared and signed
by both parties. If no such agreement can be reached after good faith
negotiation, either party may demand arbitration of the matter unless the amount
of the damage or loss is at issue in pending litigation with a third party, in
which event arbitration shall not be commenced until such amount is ascertained
or both parties agree to arbitration; and in either such event the matter shall
be settled by arbitration conducted by three arbitrators. Parent and the Sole
Shareholder shall each select one arbitrator, and the two arbitrators so
selected shall select a third arbitrator, each of which arbitrators shall be
independent and have at least ten years relevant experience. The arbitrators
shall set a limited time period and establish procedures designed to reduce the
cost and time for discovery while allowing the parties an opportunity, adequate
in the sole judgment of the arbitrators, to discover relevant information from
the opposing parties about the subject matter of the dispute. The arbitrators
shall rule upon motions to compel or limit discovery and shall have the
authority to impose sanctions, including attorneys fees and costs, to the extent
as a court of competent law or equity, should the arbitrators determine that
discovery was sought without substantial justification or that discovery was
refused or objected to without substantial justification. The decision of a
majority of the three arbitrators as to the validity and amount of any Claim in
such Claim Notice shall be binding and conclusive upon the parties to this
Agreement. Such decision shall be written and shall be supported by written
findings of fact and conclusions which shall set forth the award, judgment,
decree or order awarded by the arbitrators.
(b) Judgment upon any award rendered by the arbitrators may be entered
in any court having jurisdiction. Any such arbitration shall be held in Santa
▇▇▇▇▇ County, California under the rules then in effect of the American
Arbitration Association. For purposes of this Section 7.4, in any arbitration
hereunder in which any claim or the amount thereof stated in the Claim Notice is
at issue, the Indemnified Party shall be deemed to be the Non-Prevailing Party
in the event that the arbitrators award such Indemnified Party less than the sum
of one-half (1/2) of the disputed amount plus any amounts not in dispute;
otherwise, the Indemnifying Party shall be deemed to be the Non-Prevailing
Party. The Non-Prevailing Party to an arbitration shall pay its own expenses,
the fees of each arbitrator, the administrative costs of the arbitration, and
the expenses, including without limitation, reasonable attorneys' fees and
costs, incurred by the other party to the arbitration.
-28-
(c) In the event that any Claim for which the Sole Shareholder would
be liable to an Indemnified Party hereunder is asserted against an Indemnified
Party by a third party, the Indemnified Party shall with reasonable promptness
notify the Sole Shareholder of such Claim, including a copy of the Claim made if
the Claim was made in writing, specifying the nature of such claim and the
amount or the estimated amount thereof to the extent then feasible (which
estimate shall not be conclusive of the final amount of such Claim) (the "Claim
Notice"). The Sole Shareholder shall have 30 days from the receipt of the Claim
Notice (the "Notice Period") to notify the Indemnified Party (i) whether or not
the Sole Shareholder disputes her liability to the Indemnified Party hereunder
with respect to such Claim and (ii) if the Sole Shareholder does not dispute
such liability, whether or not the Sole Shareholder desires, at her sole cost
and expense, to defend against such Claim, provided that the Sole Shareholder is
hereby authorized (but not obligated) prior to and during the Notice Period to
file any motion, answer or other pleading and to take any other action which the
Sole Shareholder shall deem necessary or appropriate to protect her interests.
In the event that the Sole Shareholder notifies the Indemnified Party within the
Notice Period that the Sole Shareholder does not dispute her obligation to
indemnify hereunder and desires to defend the Indemnified Party against such
Claim and except as hereinafter provided, the Sole Shareholder shall have the
right to defend by appropriate proceedings, which proceedings shall be
diligently settled or prosecuted by the Sole Shareholder to a final conclusion;
provided that, unless the Indemnified Party otherwise agrees in writing, the
--------
Sole Shareholder may not settle any matter (in whole or in part) unless such
settlement includes a complete and unconditional release of the Indemnified
Party. If the Indemnified Party desires to participate in, but not control, any
such defense or settlement the Indemnified Party may do so at the Indemnified
Party's sole cost and expense. If the Sole Shareholder elects not to defend the
Indemnified Party against such Claim, whether by failure of the Sole Shareholder
to give the Indemnified Party timely notice as provided above or otherwise, then
the Indemnified Party, without waiving any rights against the Sole Shareholder,
may settle or defend against any such Claim in the Indemnified Party's sole
discretion and the Indemnified Party shall be entitled to recover from the Sole
Shareholder the amount of any settlement or judgment and, on an ongoing basis,
all indemnifiable costs and expenses of the Indemnified Party with respect
thereto, including interest from the date such costs and expenses were incurred.
(d) Notwithstanding Section 7.4(b) above, the Indemnified Party shall
have the right to control or assume (as the case may be) the defense of any
Claim and the amount of any judgment or settlement and the reasonable costs and
expenses of defense shall be included as part of the indemnification obligations
of the Sole Shareholder hereunder if any Claim seeks material prospective relief
which, in the reasonable opinion of the Indemnified Party, could have a material
adverse effect on the assets, liabilities, financial condition, results of
operations or business prospects of Parent and the Indemnified Party shall have
given the Sole Shareholder written notice of the same. If the Indemnified Party
should elect to exercise such right, the Sole Shareholder shall have the right
to participate in, but not control, the defense of such claim or demand at the
sole cost and expense of the Sole Shareholder. Notwithstanding the foregoing,
the Indemnified Party shall not settle any Claim without the written consent of
the Sole Shareholder, which consent shall not be unreasonably withheld.
-29-
(e) Nothing herein shall be deemed to prevent the Indemnified Party
from making a Claim, and an Indemnified Party may make a Claim hereunder, for
potential or contingent claims or demands provided the Claim Notice sets forth
the specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such a claim or demand may be made.
(f) The Indemnified Party's failure to give reasonably prompt notice
to the Sole Shareholder of any actual, threatened or possible claim or demand
which may give rise to a right of indemnification hereunder shall not relieve
the Sole Shareholder of any liability which she may have to the Indemnified
Party unless the failure to give such notice materially and adversely prejudices
the Sole Shareholder.
(g) The parties will make appropriate adjustments for any tax
benefits, tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under Section 7, provided that the Sole Shareholder
--------
shall not be obligated to seek any payment pursuant to the terms of any
insurance policy.
(h) The Supplemental Cash and Pledged Shares shall be available to
satisfy the indemnification obligations of the Sole Shareholder pursuant to this
Section 7 through the second anniversary of this Agreement; provided, however,
-------- -------
that in the event that any Pending Claims are outstanding as of such date, an
amount of Pledged Shares and Supplemental Cash equal to 125% of such Pending
Claims shall remain available to satisfy such Pending Claims until the
resolution of such Pending Claims (the "Escrow Amount Expiration Date"). As
soon as reasonably practicable following the Escrow Amount Expiration Date,
Parent shall distribute all Supplemental Cash and Pledged Shares not required to
satisfy indemnification obligations under this Section 7 to the Sole
Shareholder. The Pledged Shares shall bear a restrictive legend preventing
their transfer pending expiration of such indemnification obligations in
substantially the form set forth below:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN PLEDGED AS
COLLATERAL PURSUANT TO THAT CERTAIN AGREEMENT AND PLAN OF
REORGANIZATION DATED JANUARY 3, 2000 BY AND AMONG TALK CITY,
INC., RESEARCH CONNECTIONS, INC. AND ▇▇▇ ▇. ▇▇▇▇▇▇. PRIOR TO THE
EXPIRATION OF THE PLEDGE AS SET FORTH IN SUCH AGREEMENT, SUCH
SHARES MAY NOT BE OFFERED, SOLD, EXCHANGED, TRANSFERRED OR
OTHERWISE DISPOSED OF."
Within three (3) business days following the Indemnification Deadline Date,
Parent shall use its reasonable commercial efforts to remove any stop transfer
orders made to its transfer agent, shall authorize the transfer agent to remove
the restrictive legend relating to the obligations of this Section 7 and shall
release the number of Pledged Shares referred to above in this clause (h). Upon
final resolution of all Pending Claims, Parent shall remove any stop transfer
orders made to the transfer agent, shall authorize its transfer agent to remove
the restrictive legend relating to the indemnification obligations of this
Section 7 and shall release the number of Pledged Shares then to
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be released. For purposes of this Agreement, the term "Value" per Pledged Share
shall mean $12.375 per share (subject to stock splits, recapitalizations and the
like).
7.5 Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
representations, warranties and covenants made by the Company and the Sole
Shareholder in or pursuant to this Agreement or in any document delivered
pursuant hereto will survive the Closing and will remain in effect until, and
will expire upon the Indemnification Deadline Date, provided, however, that the
-------- -------
indemnification obligations with respect to any Pending Claim (and the related
representations, warranties and covenants) will survive until the final
resolution of such Pending Claim.
SECTION 8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated and the Merger abandoned
-----------
at any time prior to the Effective Time, whether before or after approval of the
Merger by the Sole Shareholder of the Company:
(a) by mutual written consent of the Company and Parent;
(b) by Parent or the Company if the Closing has not occurred by
February 28, 2000; provided, however, that the right to terminate this Agreement
-------- -------
under this Section 8.1(b) shall not be available to any party whose action or
failure to act has been the principal cause of the failure of the Merger to
occur on or before such date and such action or failure to act constitutes a
material breach of this Agreement;
(c) by Parent or the Company if there shall be a final nonappealable
order of a federal or state court in effect preventing consummation of the
Merger; or there shall be any action taken, or any statute, rule, regulation or
order enacted, promulgated or issued or deemed applicable to the Merger by any
Governmental Entity which would make the consummation of the Merger illegal;
(d) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any Governmental Entity, which would: (i) prohibit Parent's or
the Company's ownership or operation of all or a portion of the business of the
Company or (ii) compel Parent or the Company to dispose of or hold separate all
or a portion of the business or assets of the Company or Parent as a result of
the Merger;
(e) by Parent if it is not in breach of its obligations under this
Agreement and there has been a breach of any representation, warranty, covenant
or agreement contained in this Agreement on the part of the Company or the Sole
Shareholder and such breach has not been cured within five (5) business days
after written notice to the Company and the Sole Shareholder (provided that no
--------
cure period shall be required for a breach which by its nature cannot be cured);
or
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(f) by the Company if it is not in breach of its obligations under
this Agreement and there has been a breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of Parent and such
breach has not been cured within five (5) business days after written notice to
Parent (provided that no cure period shall be required for a breach which by its
--------
nature cannot be cured).
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Sub, the Company or
the Sole Shareholder, or their respective officers, directors or shareholders,
provided that each party shall remain liable for any breaches of this Agreement
--------
prior to its termination; and provided further that, the provisions of Sections
-------- -------
5.5, 5.6, 7 and 8 of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
8.3 Amendment. This Agreement may be amended by the parties hereto at any
---------
time prior to the Closing by execution of an instrument in writing signed on
behalf of each of the parties hereto, provided, however, that no amendment shall
-------- -------
be made which by law requires the further approval of the Sole Shareholders
without obtaining such approval.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent, on
-----------------
the one hand, and the Company, on the other, may, to the extent legally allowed,
(i) extend the time for the performance of any of the obligations of the other
party hereto, (ii) waive any inaccuracies in the representations and warranties
made to such party contained herein or in any document delivered pursuant
hereto, and (iii) waive compliance with any of the agreements or conditions for
the benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
8.5 Notice of Termination. Any termination of this Agreement under Section
---------------------
8.1 above will be effective immediately upon the delivery of written notice of
the terminating party to the other parties hereto.
SECTION 9
MISCELLANEOUS
9.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
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(a) if to Parent, to:
Talk City, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Page ▇▇▇▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Company, to:
Research Connections, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇ ▇▇▇▇ San ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(c) if to the Sole Shareholder, to:
▇▇▇ ▇. ▇▇▇▇▇▇
c/o: Research Connections, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
9.2 Interpretation.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this
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Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise indicated. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When reference is made herein to "the business
of" an entity, such reference shall be deemed to include the business of all
direct and indirect subsidiaries of such entity.
(b) For purposes of this Agreement the term "knowledge" means with
respect to a party hereto, with respect to any matter in question, that any of
the chief executive officer, chief operating officer, president, chief financial
officer, general counsel or controller of such party, has actual knowledge of
such matter.
(c) For purposes of this Agreement, the term "Material Adverse Effect"
when used in connection with an entity means any change, event, violation,
inaccuracy, circumstance or other matter, if such change, event, violation,
inaccuracy, circumstance or other matter would have a material adverse effect on
the business, assets (including intangible assets), capitalization, financial
condition, results of operations or prospects of (i) such entity and its
subsidiaries taken as a whole, or (ii) the Surviving Corporation.
(d) For purposes of this Agreement, the term "subsidiary" of any
entity means any other entity of which securities or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are directly or indirectly owned or
controlled by such entity.
9.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the schedules and
----------------------------
Exhibits hereto, the Confidentiality Agreement and the documents and instruments
and other agreements among the parties hereto referenced herein: (a) constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof; (b) are not
intended to confer upon any other person any rights or remedies hereunder; and
(c) shall not be assigned by operation of law or otherwise except as otherwise
specifically provided, except that Parent may assign its rights and delegate its
obligations hereunder to its affiliates. This Agreement is binding upon and will
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
9.5 Severability. In the event that any provision of this Agreement or the
------------
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably
-34-
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
9.8 Further Assurances. Each party agrees to cooperate fully with the
------------------
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
9.9 Absence of Third Party Beneficiary Rights. No provision of this
-----------------------------------------
Agreement is intended, nor will be interpreted, to provide to create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, employee, partner of any party hereto or any
other person or entity.
9.10 Mutual Drafting. This Agreement is the joint product of the parties
---------------
hereto, and each provision hereof has been subject to the mutual consultation,
negotiation and agreement of each of the parties, and shall not be construed for
or against any party hereto.
9.11 Further Representations. Each party to this Agreement acknowledges and
-----------------------
represents that it has been represented by its own legal counsel in connection
with the transactions contemplated by this Agreement, with the opportunity to
seek advice as to its legal rights from such counsel. Each party further
represents that it is being independently advised as to the tax consequences of
the transactions contemplated by this Agreement and is not relying on any
representation or statements made by the other party as to such tax
consequences.
-35-
IN WITNESS WHEREOF, Parent, the Company and the Sole Shareholder have entered
into this Agreement as of the date first written above.
RESEARCH CONNECTIONS, INC. TALK CITY, INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------- -------------------------------------
Name: ▇▇▇ ▇. ▇▇▇▇▇▇ Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------- -----------------------------------
Title: President Title: Sr Vice President
--------------------------- ----------------------------------
Chief Financial & Admin. Officer
SOLE SHAREHOLDER
By /s/ ▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------
Name: ▇▇▇ ▇. ▇▇▇▇▇▇
[Signature page to Reorganization Agreement]
-36-
EXHIBIT A
FORM OF ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Escrow Agreement") is made and entered into as
of February 11, 2000 by and among Talk City, Inc., a Delaware corporation ("Talk
City"), Research Connections, Inc., a New Jersey corporation ("Research
Connections"), ▇▇▇ ▇. ▇▇▇▇▇▇ (the "Sole Shareholder") and Firstar Bank, N.A., as
escrow agent (the "Escrow Agent").
RECITALS
--------
A. Talk City, Research Connections and the Sole Shareholder are parties
to that certain Agreement and Plan of Reorganization dated as of January 3, 2000
(the "Reorganization Agreement"), providing for the merger (the "Merger") of
Research Connections with and into Talk City. Capitalized terms used but not
defined herein shall have the meanings set forth in the Reorganization
Agreement.
B. One of the conditions to the closing of the Merger, as set forth in
the Reorganization Agreement, is the execution and delivery of this Escrow
Agreement.
C. Pursuant to Section 2.1(c)(ii) of the Reorganization Agreement, Talk
City shall deposit with the Escrow Agent (i) 121,212 shares of Talk City Common
Stock (the "Pledged Shares") and (ii) $1.5 million in cash (the "Supplemental
Cash," and together with the Pledged Shares, the "Escrow Amount") into an escrow
fund (the "Escrow Fund") to be used to satisfy any potential indemnification
obligations of Research Connections or the Sole Shareholder to any Indemnified
Party for Damages under Section 7 of the Reorganization Agreement.
D. This Escrow Agreement sets forth the basis on which the Escrow Agent
will receive and hold, and make distributions from, the Escrow Fund and the
duties for which the Escrow Agent will be responsible.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
agree as follows:
1. Appointment. Talk City and the Sole Shareholder hereby appoint the
-----------
Escrow Agent as escrow agent to serve in such capacity in accordance with the
terms and conditions set forth in this Escrow Agreement. The Escrow Agent
hereby accepts such appointment.
2. Reorganization Agreement. The Escrow Agent acknowledges receipt of a
------------------------
copy of the Reorganization Agreement; however, except for reference thereto for
definitions of certain words or terms not defined herein, the Escrow Agent is
not charged with any duties or responsibilities with respect to the
Reorganization Agreement.
3. Escrow Amount. Immediately following the Effective Time, Talk City
--------------
shall deposit the Supplemental Cash and stock certificates evidencing the
Pledged Shares directly with the Escrow Agent, the receipt of which shall be
acknowledged, and the same accepted, by the Escrow Agent as escrow agent
hereunder. The Escrow Fund, as such term is used herein, shall include the
Escrow Amount deposited pursuant to this Section 3, less any distributions made
hereunder.
4. Investment.
-----------
(a) The Supplemental Cash placed in the Escrow Fund, together with all
interest accruing thereon, shall be invested by the Escrow Agent, without
distinction as to principal and income, in one or more of the following
investments: (i) interest bearing open-ended or time deposits of any domestic
bank (including deposit in the Escrow Agent's bank money market deposit
accounts), including one or more accounts maintained in the commercial banking
department (if any) of the Escrow Agent; provided, however, that any amount not
-------- -------
invested in the Escrow Agent's bank money market deposit accounts shall be
invested, to the extent reasonably possible, in accounts that are insured by the
Federal Deposit Insurance Corporation ("FDIC") or (ii) short-term U.S.
Department of Treasury bills, or any short-term government obligation money
market fund that includes similar investments. Talk City shall indemnify and
hold the Escrow Agent harmless from any and all liability for acting upon the
investment instructions given in this Section 4.
(b) For the purpose of investing funds held in escrow, the Escrow
Agent may accept and act upon the oral instructions of Talk City. The Escrow
Agent will confirm all oral investment instructions in writing within three (3)
business days. If there is any discrepancy between any oral instructions and a
written confirmation of those instructions, the Escrow Agent's records of oral
investment instructions shall govern. Talk City shall indemnify and hold the
Escrow Agent harmless from any and all liability for acting on any oral
investment instructions purported to be given by Talk City. The Escrow Agent
shall not be responsible for the authenticity of any such instructions, whether
or not the person giving the instructions was, in fact, an authorized
representative of Talk City. In no event shall the Escrow Agent be liable to
Talk City hereunder for any consequential, special or exemplary damages,
including, but not limited to lost profits, from any cause whatsoever arising
out of, or in any way connected with acting upon oral instructions believed by
the Escrow Agent to be genuine. The Escrow Agent will act upon investment
instructions the day such instructions are received, provided the requests are
communicated within a sufficient amount of time to allow the Escrow Agent to
make the specified investment. Instructions received after an applicable
investment cutoff deadline will be treated as being received by the Escrow Agent
on the next business day, and the Escrow Agent shall not be liable for any loss
arising directly or indirectly, in whole or in part, from the inability to
invest funds on the day the instructions are received. The Escrow Agent shall
not be liable for any loss incurred by the actions of third parties or for any
loss arising by error, failure or delay in making an investment that is caused
by circumstances beyond the Escrow Agent's reasonable control.
(c) All interest earned pursuant to this Section 4 shall be
distributed quarterly by the Escrow Agent to Talk City, unless otherwise agreed
to by the Escrow Agent and Talk City. Talk City acknowledges that payment of any
interest earned on the funds invested in the Escrow Fund will be subject to
backup withholding penalties unless either a properly completed Internal Revenue
Service Form W8 or W9 certification is submitted to the Escrow Agent.
-2-
5. Release of Escrow Amount. Subject to Sections 5(c) and 6 below, the
------------------------
Escrow Amount shall be released to the Sole Shareholder as follows:
(a) 121,212 shares of Parent Common Stock will be distributed on
Closing and placed in the Escrow Fund to be released over four (4) years, with
25% released twelve (12) months after the Closing (the "First Anniversary") and
the remainder released evenly over the 36 months following the First
Anniversary.
(b) $1.5 million in cash will be placed in the Escrow Fund on Closing
to be released over four (4) years, with 25% released on the First Anniversary
and the remainder released evenly over the 36 months following the First
Anniversary. Notwithstanding the foregoing, the Supplemental Cash is subject to
the Sole Shareholder's continued employment by Talk City at the time of the
distributions. In the event the Sole Shareholder is terminated for cause (as
defined below) or voluntarily leaves the employment of Talk City, then all
remaining cash in the Escrow Fund shall be forfeited to Talk City and the Sole
Shareholder shall have no further right to such cash. The Sole Shareholder's
death, disability or termination by Talk City other than for cause shall not be
grounds for forfeiture of the Supplemental Cash. Amounts released from the
Escrow Fund will be subject to all applicable withholding taxes. The term
"cause" shall mean (i) the conviction of, plea of nolo contendere, a guilty plea
or confession by the Sole Shareholder to a felony or the commission of any act
of fraud or material dishonesty against, or the embezzlement, theft or
misappropriation of property belonging to Talk City or its affiliates, (ii) the
continuous failure by the Sole Shareholder to perform the material duties and
responsibilities that are reasonably consistent with the Sole Shareholder's
position which remain uncured for a period of fifteen (15) days after receipt of
notice thereof from Talk City, (iii) the use of illegal substances by the Sole
Shareholder, (iv) engaging in conduct that is seriously injurious to the
business of Talk City or its affiliates (it being understood that business
decisions made by the Sole Shareholder in good faith are not to be considered
grounds for termination for cause) or (v) the material breach by the Sole
Shareholder of the Confidentiality Agreement, the Noncompetition Agreement or
any agreement related thereto which is not cured fifteen (15) days after receipt
of notice thereof from Talk City. Termination for cause or voluntary
resignation, without the Sole Shareholder's consent, shall not include the
forced relocation of the Sole Shareholder's principal place of business to more
than 20 miles from its present location in Westfield, New Jersey. A date of
delivery of any Escrow Amount is referred to as a "Delivery Date."
(c) Notwithstanding the above, any Escrow Amount to be delivered on a
Delivery Date shall not be delivered to the Sole Shareholder in the event and to
the extent that there is a Pending Claim then outstanding pursuant to Section 7
of the Reorganization Agreement.
6. Claims Upon Escrow Fund.
-----------------------
(a) Upon receipt by the Escrow Agent at any time prior to the
Indemnification Deadline Date of a certificate signed by an officer of Talk City
(an "Officer's Certificate") providing notice of a Claim and specifying in
reasonable detail the date the Damages relating to such Claim were paid,
incurred or otherwise arose, and the nature of the misrepresentation or breach
to which such Damages are related, the Escrow Agent shall, subject to the
provisions of Section 6(b) below, deliver to Talk City, as promptly as
practicable, the amount in cash or the number of shares out of
-3-
the Escrow Fund equal to such Damages as indemnity; provided, however, that
-------- -------
payment shall not be made unless and until the aggregate amount of Damages
exceeds $25,000, at which point payment shall be made from the first dollar of
Damages. Pledged Shares shall only be delivered as payment for Damages after all
Supplemental Cash has been delivered as payment for Damages. For purposes of
this Escrow Agreement, the Pledged Shares shall be valued at $12.375 per share
(subject to adjustments for stock splits, recapitalizations and the like).
(b) At the time of delivery of any Officer's Certificate to the Escrow
Agent, a duplicate copy of such Officer's Certificate shall be delivered to the
Sole Shareholder and for a period of forty-five (45) days after such delivery,
the Escrow Agent shall make no delivery of Supplemental Cash or Pledged Shares
from the Escrow Fund pursuant to Section 6(a) above unless the Escrow Agent
shall have received written authorization from the Sole Shareholder to make such
delivery. After the expiration of such forty-five (45) day period, the Escrow
Agent shall make delivery of Supplemental Cash and/or Pledged Shares equal to
the amount of Damages from the Escrow Fund in accordance with Section 6(a)
above, provided that no such payment or delivery shall be made if the Sole
--------
Shareholder delivers written notice to the Escrow Agent and to Talk City prior
to the expiration of such forty-five (45) day period that the Sole Shareholder
disputes in good faith the Claim set forth in the Officer's Certificate, with
the basis for such dispute set forth in reasonable detail.
7. Resolution of Conflicts; Arbitration.
------------------------------------
(a) In case the Sole Shareholder shall object in writing to any Claim
made in any Officer's Certificate as described in Section 6(b), Talk City shall
have fifteen (15) days to respond in a written statement to the objection of the
Sole Shareholder. If after such fifteen (15) day period there remains a dispute
as to any Claim, the Sole Shareholder and Talk City shall attempt in good faith
for sixty (60) days to agree upon the rights of the respective parties with
respect to each of such Claim. If the Sole Shareholder and Talk City should so
agree, a memorandum setting forth such agreement shall be prepared and signed by
both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall
be entitled to rely on any such memorandum and shall make the distributions from
the Escrow Fund only in accordance with the terms thereof or of the Escrow
Agreement.
(b) If no such agreement can be reached after good faith negotiation,
either Talk City or the Sole Shareholder may, by written notice to the other,
demand arbitration of the matter in accordance with Section 7.4 of the
Reorganization Agreement, unless the amount of the damage or loss is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to arbitration.
The decision of the arbitrators as to the validity and amount of any Claim in
such Officer's Certificate shall be binding and conclusive upon the parties to
this Agreement, and, notwithstanding anything in Section 6 hereof, the Escrow
Agent shall be entitled to act in accordance with such decision and make or
withhold payments out of the Escrow Fund in accordance therewith.
-4-
8. Escrow Provisions.
-----------------
(a) The Escrow Agent shall be protected in acting upon any written
notice, request, waiver, consent, receipt or other paper or document from any
duly authorized officer or agent of Talk City or any other Indemnified Party or
from the Sole Shareholder, not only as to its due execution and the validity and
effectiveness of its provisions, but also as to the truth of any information
therein contained, that the Escrow Agent in good faith believes to be genuine
and as to which the Escrow Agent shall have no actual notice of invalidity, lack
of authority or other deficiency.
(b) The Escrow Agent shall not be liable for any error of judgment, or
for any act done or step taken or omitted by it in good faith, or for any
mistake of fact or law, or for anything which it may do or refrain from doing in
connection therewith, except for any liability arising from its own negligence,
willful misconduct or bad faith.
(c) The Escrow Agent shall be entitled to consult with competent and
responsible counsel of its choice with respect to the interpretation of the
provisions hereof, and any other legal matters relating hereto, and shall be
fully protected in taking any action or omitting to take any action in good
faith in accordance with the advice of such counsel.
(d) Talk City and the Sole Shareholder jointly and severally agree to
indemnify and hold the Escrow Agent harmless for any and all claims,
liabilities, costs, payments and expenses, including fees of counsel (who may be
selected by the Escrow Agent) for court actions, for anything done or omitted by
it in the performance of this Escrow Agreement, except as a result of the Escrow
Agent's own negligence, willful misconduct or bad faith.
(e) All fees and related expenses of the Escrow Agent for its services
hereunder shall be paid by Talk City. Such fees and expenses shall be determined
in accordance with the fee schedule attached hereto as Schedule A or as
----------
otherwise provided to Talk City.
9. Successor Escrow Agent. The Escrow Agent, or any successor, may resign
----------------------
at any time upon giving written notice to Talk City and the Sole Shareholder
thirty (30) days before such resignation shall take effect. In addition, Talk
City and the Sole Shareholder may terminate the Escrow Agent's appointment as
escrow agent upon giving written notice (jointly signed by Talk City and the
Sole Shareholder) to the Escrow Agent thirty (30) days before such termination
shall take effect. If the Escrow Agent shall resign, be terminated or be unable
to serve, then it shall be succeeded by such bank or trust company jointly named
by Talk City and the Sole Shareholder in such thirty (30) day period, or if no
such appointment is made by that time, then by a bank or trust company appointed
by a court of competent jurisdiction upon petition by either Talk City or the
Sole Shareholder (in which action the other party shall be afforded a reasonable
opportunity to participate) to appoint a successor escrow agent. The Escrow
Agent shall transfer the Pledged Shares to its successor and shall thereupon be
discharged, and the successor shall thereupon succeed to all of the rights,
powers and duties and shall assume all of the obligations of the Escrow Agent
originally named in this Escrow Agreement.
-5-
10. Payment of Taxes. The Sole Shareholder shall be treated as the owner
----------------
of the Pledged Shares for all tax purposes while and to the extent that the
Pledged Shares are held by the Escrow Agent. The Escrow Agent shall cause all
information statements to be prepared in accordance with this Section 10 and all
parties shall prepare their tax returns accordingly.
11. Termination.
-----------
(a) Unless extended in writing by the parties hereto, the escrow
provided for in this Escrow Agreement shall expire upon the Indemnification
Deadline Date; provided, however, that Research Connections' indemnification
-------- -------
obligations with respect to any Pending Claim will survive until the final
resolution of such Pending Claim (the "Termination Date").
(b) Promptly following the Indemnification Deadline Date and receipt
of instructions from Talk City and the Sole Shareholder, the Escrow Agent shall,
to the extent Supplemental Cash and/or Pledged Shares are available therefor in
the Escrow Fund and in the following order of priority:
(i) withhold Supplemental Cash and/or Pledged Shares in the
Escrow Fund in sufficient amount, or to the extent funds are available therefor,
to satisfy 125% of the maximum amount of Damages estimated by Talk City and the
Sole Shareholder relating to any and all Pending Claims as set forth in Section
7.4(h) of the Reorganization Agreement; and
(ii) distribute any Supplemental Cash and/or Pledged Shares
remaining after the allocations and distributions provided for in clause (i)
above to the Sole Shareholder in accordance with her interest in the Escrow
Fund.
(c) Promptly following the Termination Date and receipt of
instructions from the Sole Shareholder, the Escrow Agent shall, to the extent
Supplemental Cash and/or Pledged Shares are available therefor in the Escrow
Fund, distribute such remaining Supplemental Cash and/or Pledged Shares to the
Sole Shareholder in accordance with her interest in the Escrow Fund.
12. Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given or delivered if delivered personally or by
express courier, mailed by registered or certified mail (return receipt
requested) or sent by telecopy, confirmation received, to the parties at the
following addresses and telecopy numbers (or at such other address or number for
a party as shall be specified by like notice):
(a) If to Talk City or Sub, to:
TALK CITY, INC.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
-6-
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: Page ▇▇▇▇▇▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to Research Connections, to:
Research Connections, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇ ▇▇▇▇ San ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(c) If to the Sole Shareholder:
▇▇▇ ▇. ▇▇▇▇▇▇
c/o Research Connections
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
with a copy to:
▇▇▇▇ ▇▇▇▇ San ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(d) If to the Escrow Agent:
-7-
Firstar Bank, N.A.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇. ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇
Telecopy No.: ▇▇▇-▇▇▇-▇▇▇▇
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
13. Nonassignability. Notwithstanding anything to the contrary contained
----------------
herein, no Pledged Shares or any beneficial interest therein may be sold,
assigned or otherwise transferred, including by operation of law, by the Sole
Shareholder or be taken or reached by any legal or equitable process in
satisfaction of any debt or other liability of the Sole Shareholder. Any such
attempted transfer in violation of this Section shall be null and void.
14. Successors and Assigns. This Escrow Agreement and all action taken
----------------------
hereunder in accordance with its terms shall be binding upon and inure to the
benefit of Talk City, its subsidiaries, and their respective successors and
assigns, the Escrow Agent and its successors, and the Sole Shareholder and her
successors.
15. Entire Agreement. This Escrow Agreement constitutes the entire
----------------
agreement among the parties with the Escrow Agent, and among the other parties
with respect to this particular escrow except as set forth under the
Reorganization Agreement, and it supersedes all prior or concurrent arrangements
or understandings with respect thereto. The other parties hereby acknowledge and
agree that Escrow Agent's duties and obligations hereunder are limited, and that
Escrow Agent shall have no duties or obligations except as clearly specified
herein, nor shall Escrow Agent have any responsibility for the enforcement of
the obligations of any parties hereto.
16. Waivers. No waiver by any party hereto of any condition or of any
-------
breach of any provision of this Escrow Agreement shall be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, shall be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained herein.
17. Counterparts. This Escrow Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute one and the same instrument.
18. Governing Law. This Escrow Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware.
-8-
IN WITNESS WHEREOF, the parties have executed or caused this Escrow
Agreement to be duly executed as of the day and year first above written.
TALK CITY, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------------
Title: SR VP, CHIEF FINANCIAL OFFICER
-------------------------------
RESEARCH CONNECTIONS, INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Title: President
-------------------------------
▇▇▇ ▇. ▇▇▇▇▇▇
("Sole Shareholder")
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Title: President
-------------------------------
FIRSTAR BANK, N.A.
("Escrow Agent")
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------
Title: Vice President
-------------------------------
-9-
SCHEDULE A
----------
ESCROW AGENT FEE SCHEDULE
$2,500 per year (plus out-of-pocket expenses)
EXHIBIT B
---------
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (the "Agreement") is made as of February 11,
2000 by and among Talk City, Inc., a Delaware corporation ("Talk City"),
Research Connections, Inc., a New Jersey corporation ("Research Connections"),
and ▇▇▇ ▇. ▇▇▇▇▇▇ ("Shareholder").
Background
----------
A. Talk City, Research Connections and ▇▇▇ ▇. ▇▇▇▇▇▇ have entered into an
Agreement and Plan of Reorganization dated as of January 3, 2000 (the
"Reorganization Agreement"), which provides for the merger (the "Merger") of
Research Connections with and into Talk City whereby Talk City will be the
surviving corporation ("Surviving Corporation").
B. Shareholder is receiving significant consideration pursuant to the
terms of the Reorganization Agreement.
C. As a condition to the closing of the Merger, to preserve the value and
goodwill of the business being acquired by Talk City, Shareholder has agreed
with Talk City to enter into this Agreement effective upon the closing of the
Merger.
NOW THEREFORE, in consideration of the mutual promises made herein, Talk
City and Shareholder (collectively referred to as the "Parties") hereby agree as
follows:
1. Covenant Not to Compete or Solicit.
----------------------------------
(a) For the period beginning on the date hereof and ending on the
earlier of (i) four years after the date of the Reorganization Agreement and
(ii) the date one (1) year after the termination of Shareholder's employment
with Talk City or any subsidiary of Talk City, voluntary or involuntary, for any
reason (the "Non-Compete Period"), Shareholder shall not directly or indirectly,
without the prior written consent of Talk City, (A) engage anywhere in the world
in (whether as an employee, consultant, proprietor, partner, director or
otherwise), or have any ownership interest in (except for ownership of five
percent (5%) or less of the outstanding shares of any entity whose securities
are listed on a national securities exchange), or participate in the financing,
operation, management or control of, any firm, corporation or business that
provides or conducts market research in online communities or interactive
services for businesses and consumers unless agreed to by Talk City in writing;
or (B) approach, contact or solicit any customer of Talk City or any subsidiary
of Talk City or interfere with the business of any customer of Talk City or any
subsidiary of Talk City regarding the provision or conduct of market research in
online communities or interactive services.
(b) During the Non-Compete Period, Shareholder shall not, directly or
indirectly, without the prior written consent of Talk City, (i) solicit,
encourage, hire or take any other action which is intended to induce any
employee of Talk City or any subsidiary of Talk City to terminate his or her
employment with Talk City or any subsidiary of Talk City, or (ii) interfere in
any manner with the contractual or employment relationship between Talk City or
any subsidiary of Talk City and any employee of Research Connections.
Notwithstanding anything to the contrary in the preceding sentence, nothing in
this Section 1(b) shall prohibit Shareholder from hiring a former employee of
Talk City or any of its subsidiaries.
(c) The covenants contained in the preceding paragraphs shall be
construed as a series of separate covenants, one for each county, city and state
(U.S. or foreign) of any geographic area where any business is presently carried
on by Research Connections. Except for geographic coverage, each such separate
covenant shall be identical in terms to the covenant contained in the preceding
paragraphs. If, in any judicial proceeding, a court refuses to enforce any of
such separate covenants (or any part thereof), then such unenforceable covenant
(or such part) shall be eliminated from this Agreement to the extent necessary
to permit the remaining separate covenants (or portions thereof) to be enforced.
In the event that the provisions of this Section 1 are deemed to exceed the
time, geographic or scope limitations permitted by applicable law, then such
provisions shall be reformed to the maximum time, geographic or scope
limitations, as the case may be, permitted by applicable laws.
(d) Shareholder acknowledges that her services are needed by virtue of
the Merger, and that Shareholder's covenant not to compete or solicit contained
in this Section 1 is given in conjunction with such Merger. Shareholder also
acknowledges that the business of Talk City is worldwide and therefore, any
actions taken by the Shareholder in violation of this Agreement anywhere in the
world would harm Talk City's business.
(e) Shareholder acknowledges that breach of this Section 1 would cause
irreparable injury to Surviving Corporation and agrees that in the event of such
breach, Surviving Corporation shall have available, in addition to any other
right or remedy available (including any award of ascertainable damages) the
right to seek injunctive relief without the necessity of proving actual damages.
2. Arbitration. All disputes or controversies (whether of law or fact)
-----------
of any nature whatsoever arising from or relating to this Agreement and the
transactions contemplated hereby shall be decided by arbitration by the American
Arbitration Association (the "Association") in accordance with the rules and
regulations of the Association.
The parties shall, within 30 days of the date of demand by either
party for arbitration, mutually select one independent, qualified arbitrator.
Each party reserves the right to object to any individual arbitrator who shall
be employed by or affiliated with a competing organization. In the event
objection is made, the Association shall resolve any dispute regarding the
propriety of an individual arbitrator acting in that capacity. The parties
shall each bear one-half of the expenses of the arbitrator. Hearings in the
proceeding shall commence within 120 days of the selection of the arbitrator.
-2-
Arbitration shall take place in San Francisco, California. At the
request of either party, arbitration proceedings will be conducted
confidentially; in such case all documents, testimony and records shall be
received, heard and maintained by the arbitrators in confidence under seal,
available for the inspection only by the Association, the parties and their
respective attorneys and their respective experts who shall agree in advance and
in writing to receive all such information confidentially and to maintain such
information in confidence. The arbitrator shall be able to decree any and all
relief of an equitable and legal nature, including but not limited to such
relief as a temporary restraining order, a temporary and/or a permanent
injunction, and shall also be able to award damages, with or without an
accounting and costs. The decree or award rendered by the arbitrator may be
entered as a final and binding judgment in any court having jurisdiction
thereof.
Reasonable notice of the time and place of arbitration shall be given
to all persons, other than the parties, as shall be required by law, in which
case such persons or those authorized representatives shall have the right to
attend and/or participate in all the arbitration hearings in such manner as the
law shall require.
3. Miscellaneous.
-------------
(a) Severability. If any portion of this Agreement is held by a court
------------
of competent jurisdiction to conflict with any federal, state or local law, and
is not reformed, such portion of this Agreement shall be of no force or effect
and this Agreement shall otherwise remain in full force and effect and be
construed as if such portion had not been included in this Agreement.
(b) No Assignment. Shareholder shall not assign this Agreement or any
-------------
rights or obligations under this Agreement without the prior written consent of
Talk City and Surviving Corporation.
(c) Notice. Any notice or communication required or permitted under
------
this Agreement shall be made in writing and shall be deemed given if delivered
personally or mailed by certified or registered mail, return receipt requested
and postage prepaid or sent by telecopy, confirmation received, to the parties
at the following addresses and telecopy numbers (or at such other address or
number for a party as shall be specified by like notice):
(i) If to Talk City, to:
TALK CITY, INC.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
-3-
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Wilson, Sonsini, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Page ▇▇▇▇▇▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(ii) if to Research Connections, to:
RESEARCH CONNECTIONS, INC.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Foss, Bowe, San Filippo & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(iii) if to Surviving Corporation, to:
TALK CITY, INC.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Wilson, Sonsini, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
-▇-
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Page ▇▇▇▇▇▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(iv) if to Shareholder, to:
▇▇▇ ▇. ▇▇▇▇▇▇
c/o Research Connections
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
with a copy to:
▇▇▇▇ ▇▇▇▇ San ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(d) Entire Agreement. This Agreement contains the entire agreement
----------------
and understanding of the parties and supersedes all prior discussions,
agreements and understandings relating to the subject matter of this Agreement.
This Agreement may not be changed or modified, except by an agreement in writing
executed by Talk City, by Research Connections and/or Surviving Corporation and
by Shareholder.
(e) Waiver of Breach. The waiver of a breach of any term or provision
----------------
of this Agreement shall not operate as or be construed to be a waiver of any
other previous or subsequent breach of this Agreement.
(f) Governing Law. This Agreement shall be governed in all respects,
-------------
including validity, interpretation and effect, by the laws of the State of
Delaware (without giving effect to its choice of law principles).
(g) Headings. All captions and section headings used in this
--------
Agreement are for convenient reference only and do not form a part of this
Agreement.
(h) Counterparts. This Agreement may be executed in counterparts, and
------------
each counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.
(i) Jurisdiction. All parties hereto agree to submit to the
------------
jurisdiction of the federal and state courts of the State of California.
-5-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
TALK CITY, INC. SHAREHOLDER
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ /s/ ▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------- ----------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇. ▇▇▇▇▇▇
Title: SR VP, CHIEF FINANCIAL OFFICER
RESEARCH CONNECTIONS, INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------
Name: ▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
[Signature Page to Noncompetition Agreement]
-6-
EXHIBIT C
---------
INVESTMENT REPRESENTATION AGREEMENT
The undersigned is aware that pursuant to an Agreement and Plan of
Reorganization, dated as of January 3, 2000, (the "Reorganization Agreement"),
entered into by and among Talk City, Inc., a Delaware corporation ("Parent"),
Research Connections, Inc., a New Jersey corporation (the "Company"), and ▇▇▇ ▇.
▇▇▇▇▇▇, an individual and sole shareholder of the Company (the "Sole
Shareholder"), the Company will merge (the "Merger") with and into Parent and
all shares of Company Capital Stock will be exchanged for cash and shares of
Parent Common Stock as set forth in the Reorganization Agreement (the "Merger
Consideration"). Unless otherwise indicated, capitalized terms not defined
herein have the meanings set forth in the Reorganization Agreement.
The undersigned understands that the execution of this Certificate is a
condition precedent to Parent's obligation to consummate the Merger and to the
receipt of the shares of Parent Common Stock in connection with the Merger
(pursuant to the terms and conditions of the Reorganization Agreement).
The undersigned hereby represents and warrants as follows:
1. The Parent Common Stock issued to the undersigned will be acquired for
investment for the undersigned's own account, not as a nominee or agent, and not
with a view to the sale or distribution of any part thereof in violation of the
Securities Act of 1933, as amended (the "1933 Act"), and the undersigned has no
present intention of selling, granting any participation in, or otherwise
distributing the same. The undersigned represents that the entire legal and
beneficial interest of the Parent Common Stock will be held for the
undersigned's account only, and neither in whole or in part for any other person
other than a wholly owned subsidiary of the undersigned. By executing this
Agreement, the undersigned further represents that the undersigned has no
present contract, undertaking, agreement or arrangement with any person to sell,
transfer, or grant participation to such person or to any third person, with
respect to any of the Parent Common Stock.
2. The undersigned represents that (without limiting or affecting the
representations and warranties of Parent under the Reorganization Agreement) it:
(i) has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of the undersigned's prospective
investment in the shares of Parent Common Stock; (ii) has received copies of
Parent's Registration Statement on Form S-1 dated July 19, 1999; (iii) has
received all the information it has requested from the Parent and the Company it
considers necessary or appropriate for deciding whether to accept the Parent
Common Stock; (iv) has the ability to bear the economic risks of the
undersigned's prospective investment; and (v) is able, without materially
impairing its financial condition, to hold the Parent Common Stock for an
indefinite period of time and to suffer complete loss on its investment.
3. Each certificate representing Parent Company Stock issued pursuant
hereto to the undersigned and any shares issued or issuable in respect of any
such Parent Common Stock upon any
stock split, stock dividend, recapitalization, or similar event, shall be
stamped or otherwise imprinted with legends in the following form (in addition
to any legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE
SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE
PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
CORPORATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER, AS SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION
AND THE REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THE CORPORATION. SUCH TRANSFER RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE
SHARES.
4. The certificates evidencing the Parent Common Stock shall also bear
any legend required pursuant to any state, local or foreign law governing such
securities or the Reorganization Agreement.
5. The undersigned understands and acknowledges that the Parent Common
Stock has not been registered under the 1933 Act and Parent Common Stock must be
held indefinitely unless subsequently registered under the 1933 Act or an
exemption from such registration is available and that the Parent is obligated
to register the Parent Common Stock only in accordance with the terms of the
Registration Rights Agreement.
6. The undersigned acknowledges that the Parent Common stock shall not be
transferable except upon the conditions specified in this Agreement and the
Reorganization Agreement.
7. Prior to any proposed transfer of any Parent Common Stock, unless
there is in effect a registration statement under the 1933 Act covering the
proposed transfer, the undersigned shall give written notice to the Company of
its intention to effect such transfer. Each such notice shall describe the
manner and circumstances of the proposed transfer in sufficient detail, and
shall, if the Parent so requests, be accompanied by either (i) a written opinion
of legal counsel who shall be satisfactory to Parent, addressed to Parent and
satisfactory in form and substance to Parent's counsel, to the effect that the
proposed transfer of Parent Common Stock may be effected without registration
under the 1933 Act, or (ii) a "No Action" letter from the Securities and
Exchange Commission (the "Commission") to the effect that the transfer of such
securities without registration will not result in a recommendation by the staff
of the Commission that action be taken with respect thereto, whereupon the
holder of such Parent Common Stock shall be entitled to transfer such shares of
Parent Common Stock in accordance with the terms of the notice delivered by the
holder to Parent.
-2-
Each certificate evidencing the shares of Parent Common Stock transferred as
above provided shall bear the appropriate restrictive legend set forth in
Section (c) above, except that such certificate shall not bear such restrictive
legend if in the opinion of counsel for Parent such legend is not required in
order to establish compliance with any provisions of the 1933 Act.
8. The undersigned is familiar with the provisions of Rule 144,
promulgated under the 1933 Act, which in substance, permits limited public
resale of "restricted securities" acquired, directly or indirectly from the
issuer thereof (or from an affiliate of such issuer) in a non-public offering
subject to the satisfaction of certain conditions, including, among other
things: (i) a public trading market then exists for the Parent Common Stock;
(ii) the availability of certain public information about Parent; (iii) the
resale occurring not less than one (1) year after the party has purchased, and
made full payment for, within the meaning of Rule 144, the securities to be
sold; and (iv) the sale being made through a broker in an unsolicited "broker
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934) and the amount of securities
being sold during any three (3) month period not exceeding the specified
limitations stated therein, if applicable. The undersigned further understands
that at the time the undersigned wishes to sell the shares of Parent Common
Stock received from Parent there may be no public market upon which to make such
a sale, and that, even if such a public market then exists, Parent may not be
satisfying the current public information requirements of Rule 144, and that, in
such event, the undersigned would be precluded from selling the shares of Parent
Common Stock received from Parent under Rule 144 even if the one (1) year
minimum holding period had been satisfied. The undersigned further understands
that in the event all of the applicable requirements of Rule 144 are not
satisfied, registration under the 1933 Act, compliance with Regulation A, or
some other registration exemption would be required to sell the shares of Parent
Common Stock received from Parent.
9. The undersigned is the sole record and beneficial owner of capital
stock of the Company in the amount set forth next to its name on the signature
page hereto. Such capital stock is not subject to any claim, lien, pledge,
charge, security interest or other encumbrance or to any rights of first refusal
of any kind, and the undersigned has not granted any rights to purchase such
shares to any other person or entity. The undersigned has the sole right to
transfer such shares. Such shares constitute all of the capital stock owned,
beneficially or of record, by the undersigned, and the undersigned has no other
rights to acquire any capital stock of the Company except as set forth on the
signature page hereto.
10. The undersigned has had an opportunity to review with its own tax
advisors the tax consequences to the undersigned of the Merger and the
transactions contemplated by the Reorganization Agreement. The undersigned
understands that it must rely solely on its advisors and not on any statements
or representations by Parent, the Company or any of their agents with respect to
tax matters. The undersigned understands that it (and not Parent or the
Company) shall be responsible for its own tax liability that may arise as a
result of the Merger or the transactions contemplated by the Reorganization
Agreement.
-3-
11. The undersigned will have sufficient assets, after completion of the
Merger, to satisfy all of the undersigned's obligations to its creditors, as the
same become due and payable.
12. This Agreement shall be governed in all respects, including validity,
interpretation and effect, by the laws of the State of Delaware.
13. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one agreement.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
11th day of February, 2000.
▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------
Print Name of Stockholder
/s/ ▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
Signature of Authorized Signatory
Number of Shares and Type of
Capital Stock of the Company:
(indicate class of stock,
i.e., common, preferred)
242,424 shares of Common Stock
[SIGNATURE PAGE TO INVESTMENT REPRESENTATION STATEMENT]
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EXHIBIT ▇
▇▇▇▇ ▇▇▇▇ San ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLC
COUNSELLORS AT LAW
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇ Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Lakewood Office
▇▇▇▇▇▇ ▇. SAN ▇▇▇▇▇▇▇ E-Mail: ▇-▇@▇▇▇▇▇▇▇▇.▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇ Cross River Mill Mall
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
NJ & PA BARS Please Reply To: Red Bank
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
____________
▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
NJ & PA BARS
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
NJ & NY BARS
____________
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Of Counsel
0056/0003
February 11, 2000
Talk City, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Re: Agreement and Plan of Reorganization
Talk City, Inc./Research Connections, Inc.
Gentlemen:
We have acted as counsel to Research Connections, Inc. a New Jersey
corporation ("Company"), in connection with the transactions contemplated by the
Agreement and Plan of Reorganization dated as of January 3, 2000 by and between
the Company and Talk City, Inc. a Delaware corporation (the "Parent")
("Reorganization Agreement"). This letter is being delivered to you pursuant to
Section 6.1 (c) of the Reorganization Agreement. Terms defined in the
Reorganization Agreement and not otherwise defined herein are used herein as
defined therein.
As a basis for the opinions set forth herein, we have reviewed all of the
documents listed on Schedule A attached hereto and made a part hereof (the
"Transaction Documents" collectively with the Reorganization Agreement, the
"Agreements").
We have relied upon certain certificates of the Company and the Sole
Shareholder executed on the date hereof and which have been delivered to you. We
have assumed, without independent investigation, that such statements and
representations are true, correct and complete, but are not aware of any falsity
or incompleteness. We have not examined any records of any court, administrative
tribunal or other similar entity in connection with our opinions.
We have made no investigation as to whether the Parent is authorized to
perform its obligations under the Agreements or whether any person or entity,
other than the Company is
Talk City, Inc.
Attention: Chief Executive Officer
February 11, 2000
Page 2
authorized to do business in New Jersey. We express no opinion as to whether any
such authorization is required in connection therewith. We assume that if any
such authorization is required, that the parties are so authorized.
In connection with the rendering of this opinion, we have assumed:
(a) that each of the parties thereto (other than the Company and the
Sole Shareholder) has duly and validly executed and delivered each of the
Agreements to which such party is a signatory, each such party's obligations
(other than the obligations of the Company and the Sole Shareholder) set forth
therein are its legal, valid and binding obligations, enforceable in accordance
with their respective terms, the absence of any requirement of consent, approval
or other authorization by any person or entity with respect to the actions of
each such party, the due organization, existence and good standing of each such
party, and the legal right, and power of the Parent under all applicable laws
and regulations to perform its obligations under the Agreements;
(b) that each person executing any such document or agreement on
behalf of any such party (other than the Company and the Sole Shareholder) is
duly authorized to do so;
(c) the legal capacity of all natural persons (but are not aware of
any incapacity);
(d) that there have been no oral or written modifications of or
amendments to the Agreements;
(e) the genuineness of all signatures of all persons signing any
document or agreement; and
(f) the authenticity of all documents and agreements submitted to us
as originals and the conformity to original documents and agreements of all
documents or agreements submitted to us as copies.
The opinions expressed herein are subject to and are limited by:
(a) bankruptcy, insolvency, reorganization, fraudulent conveyance,
fraudulent transfer, moratorium or other similar laws of general application,
now or hereafter in effect, affecting the enforcement of creditors' rights in
general;
Talk City, Inc.
Attention: Chief Executive Officer
February 11, 2000
Page 3
(b) judicial discretion and general principles of equity (regardless
of whether considered in a proceeding in equity or at law), including, without
limitation, principles that (i) include a requirement that a creditor act with
reasonableness, in good faith and deal fairly with its debtors, or (ii) limit a
creditor's right to accelerate maturity of a debt upon the occurrence of a
default deemed immaterial;
(c) the provisions of the Industrial Site Recovery Act (ISRA) in the
event there occurs a closing, terminating or transferring of operations within
the meaning of N.J.A.C. 7:26B1.5(b) after the date hereof (which provisions may
prevent foreclosure of any lien on any collateral pending compliance with the
requirements of ISRA);
(d) the qualification that any provision requiring the payment of
attorney's fees and costs of suit may be unenforceable except to the extent that
such fees and costs are reasonable and are permitted by applicable Court Rules
of New Jersey;
(e) the non-enforceability under the laws of New Jersey of provisions
requiring amendments or waivers of the provisions of agreements or documents to
be written (other than as provided pursuant to N.J.S.A. 25:1-5);
(f) the non-enforceability of provisions which purport to constitute
or provide for the waiver or release of the rights of the Company, including,
without limitation, the waiver or release of rights to notice; and
(g) the non-enforceability under certain circumstances of provisions
to the effect that failure to exercise or delay in exercising rights or remedies
will not operate as a waiver of the rights or remedies.
Based upon and subject to the foregoing, it is our opinion that:
1. The Company is a corporation duly organized and validly existing
under, and by virtue of, the laws of the State of New Jersey and is in good
standing under such laws. The Company has requisite corporate power to own and
operate its properties and assets, and to carry on its business as presently
conducted.
2. The Company has all requisite legal and corporate power to execute and
deliver the Reorganization Agreement and the other Transaction Documents
contemplated thereunder and to carry out and perform its obligations under the
terms of the Agreements.
Talk City, Inc.
Attention: Chief Executive Officer
February 11, 2000
Page 5
This opinion letter is being provided to you at the request of the Company.
This letter is delivered by us for the purpose of inducing you to accept
delivery of the Transaction Documents with full knowledge that you will rely on
it in finalizing the transactions contemplated by the Agreements.
The members of this firm are admitted to the bar of the State of New Jersey
and we express no opinion as to the laws of any other jurisdiction (including
the applicability of the laws of any other jurisdiction, domestic or foreign, to
the transactions contemplated by the Agreements or the effect of such laws
thereon). To the extent that the laws of any other jurisdiction may apply, we
have assumed that such laws are identical to the laws of the State of New
Jersey.
This opinion is provided to you as a legal opinion only and not as a
guaranty or warranty of the matters discussed herein. This opinion is for your
reliance only in connection with the Agreements and is not intended for the
reliance of, and shall not be relied upon by, any other person or entity without
our express written consent may rely on this opinion. This opinion is not to be
quoted in whole or in part or referred to, nor is it to be filed with or
disclosed to any governmental agency (other than agencies responsible for the
regulation of the Parent) without our prior written consent. No opinion is to be
implied or inferred beyond the opinions expressly stated herein. We undertake no
obligation to inform you of any matters which may subsequently come to our
attention or subsequently occur which affect, in any way, the opinions rendered
herein.
Very truly yours,
▇▇▇▇ ▇▇▇▇ SAN ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
A Limited Liability Company
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
----------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇
A Member of the Firm
SCHEDULE A
Transaction Documents
---------------------
1. Agreement of Merger by and among Talk City, Inc., Research Connections,
Inc. and ▇▇▇ ▇. ▇▇▇▇▇▇ dated as of February 11, 2000.
2. Escrow Agreement by and among Talk City, Inc., Research Connections, Inc.
▇▇▇ ▇. ▇▇▇▇▇▇ and Firstar Bank, N.A. dated as of February 11, 2000.
3. Noncompetition Agreement by and among Talk City, Inc., Research
Connections, Inc. and ▇▇▇ ▇. ▇▇▇▇▇▇ dated as of February 11, 2000.
4. Investment Representation Agreement by and among Talk City, Inc., Research
Connections, Inc. and ▇▇▇ ▇. ▇▇▇▇▇▇ dated as of January 3, 2000.
5. Registration Rights Agreement by and between Talk City, Inc. and ▇▇▇ ▇.
▇▇▇▇▇▇ dated as of February 11, 2000.
6. Corporate Resolutions dated February 8, 2000
7. Research Connections, Inc. Compliance Certificate dated as of February 8,
2000
EXHIBIT E
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), is made as of
February 11, 2000, by and between Talk City, Inc., a Delaware corporation
("Parent"), and ▇▇▇ ▇. ▇▇▇▇▇▇ (the "Sole Shareholder"), the sole former
shareholder of Research Connections, Inc., a New Jersey corporation (the
"Company").
WHEREAS:
A. Pursuant to the terms of the Agreement and Plan of Reorganization
dated as of January 3, 2000 (the "Reorganization Agreement"), by and among
Parent, the Company and the Sole Shareholder, the Company is being merged with
and into Parent (the "Merger"), with Parent being the surviving corporation.
B. In connection with the Merger, the Sole Shareholder shall receive
cash and shares (the "Shares") of Common Stock of Parent ("Parent Common
Stock").
C. The Reorganization Agreement provides for the execution and
delivery of this Agreement at the closing of the transactions contemplated
thereby which grants the Sole Shareholder, subsequent to the first anniversary
of the closing of the Merger (the "First Anniversary") certain piggyback rights
to have her Shares registered under the Securities Act of 1933, as amended.
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS.
------------
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(ii) "Registrable Securities" means the Shares and any shares
of capital stock issued or issuable as a dividend on or in exchange for or
otherwise with respect to the Shares, provided, however, that such securities
-------- -------
shall only be treated as Registrable Securities if and so long as they have not
been (A) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, or (B) sold or are, in the
opinion of counsel for Parent, available for sale in a single transaction exempt
from the registration and prospectus delivery requirements of the
1933 Act so that all transfer restrictions and restrictive legends with respect
thereto are removed upon the consummation such sale.
(iii) "Registration Expenses" shall mean all expenses, except as
otherwise stated below, incurred by Parent in complying with Section 2 below,
including without limitation all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for Parent,
blue sky fees and expenses, the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of Parent which shall be paid in any event by Parent) and the
reasonable fees and disbursements of one counsel for all holders of Registrable
Securities under this Agreement and under the Third Amended and Restated
Shareholders Rights Agreement dated April 23, 1999.
(iv) "Registration Statement" means a registration statement of
Parent under the 1933 Act.
(v) "Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Sole Shareholder and, except as set forth above, all
reasonable fees and disbursements of counsel for the Sole Shareholder.
2. REGISTRATION.
-------------
(a) Notice of Registration. If at any time or from time to time after
----------------------
the First Anniversary, Parent shall determine to register any of its securities,
either for its own account or the account of a security holder or holders, other
than (i) a registration relating solely to employee benefit plans, or (ii) a
registration relating solely to a Commission Rule 145 transaction, Parent will:
(i) promptly give to the Sole Shareholder written notice
thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within twenty (20) days after receipt of such written notice
from Parent, subject to Section 2(b) below.
(b) Underwriting. If the registration of which Parent gives notice is
------------
for a registered public offering involving an underwriting, Parent shall so
advise the Sole Shareholder as a part of the written notice given pursuant to
Section 2(a)(i). In such event the right of the Sole Shareholder to registration
pursuant to Section 2 shall be conditioned upon the Sole Shareholder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. The Sole Shareholder
proposing to distribute her securities through such underwriting shall (together
with Parent and the other holders distributing her securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by Parent. Notwithstanding
any other provision of this
-2-
Section 2, if the managing underwriter determines that marketing factors require
a limitation of the number of shares to be underwritten, the managing
underwriter and Parent may reduce the Registrable Securities to be included in
such registration to the extent the underwriters deem necessary. Parent shall so
advise the Sole Shareholder and other holders distributing their securities
through such underwriting and the number of shares of Registrable Securities and
other shares that may be included in the registration and underwriting shall be
allocated among all the holders of any such shares in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities and other
shares held by such holders at the time of filing the Registration Statement. To
facilitate the allocation of shares in accordance with the above provisions,
Parent may round the number of shares allocated to any holder to the nearest 100
shares. If any holder disapproves of the terms of any such underwriting, such
holder may elect to withdraw therefrom by written notice to Parent and the
managing underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to one hundred eighty (180) days
after the effective date of the registration statement relating thereto, or such
other shorter period of time as the underwriters may require.
(c) Right to Terminate Registration. Parent shall have the right to
-------------------------------
terminate or withdraw any registration initiated by it under this Section 2
prior to the effectiveness of such registration whether or not the Sole
Shareholder has elected to include securities in such registration.
3. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
------------------------
connection with all registrations pursuant to Section 2 shall be borne by
Parent. Unless otherwise stated, all Selling Expenses relating to securities
registered on behalf of the Sole Shareholder and all other Registration Expenses
shall be borne by the Sole Shareholder pro rata on the basis of the number of
shares so registered.
4. REGISTRATION PROCEDURES. In case of each registration, qualification
-----------------------
or compliance effected by Parent pursuant to Section 2, Parent will keep the
Sole Shareholder advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. At its expense
Parent will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
eighty (180) days or until the distribution described in the Registration
Statement has been completed; and
(b) Furnish to the Sole Shareholder and to the underwriters of the
securities being registered such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such other documents as
such underwriters may reasonably request in order to facilitate the public
offering of such securities.
5. INDEMNIFICATION.
---------------
-3-
(a) Parent will indemnify the Sole Shareholder, and each person
controlling the Sole Shareholder within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification or compliance
has been effected pursuant to this Section 3, and each underwriter, if any, and
each person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages or liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made (which such qualification Parent acknowledges shall not apply to
any registration statement, or any amendment or supplement thereto, pursuant to
Section 11 of the Securities Act), not misleading, or any violation by Parent of
the Securities Act, the Exchange Act, state securities law or any rule or
regulation promulgated under such laws applicable to Parent in connection with
any such registration, qualification or compliance, and within a reasonable
period Parent will reimburse the Sole Shareholder, and each person controlling
the Sole Shareholder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action; provided that Parent will not be liable in any such
-------- ----
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to Parent by an instrument duly executed by the Sole
Shareholder, controlling person or underwriter and stated to be specifically for
use therein.
(b) The Sole Shareholder will, if Registrable Securities held by the
Sole Shareholder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify Parent, each of its
directors and officers, each underwriter, if any, of Parent's securities covered
by such a registration statement, each person who controls Parent or such
underwriter within the meaning of Section 15 of the Securities Act, and the Sole
Shareholder, and each person controlling the Sole Shareholder within the meaning
of Section 15 of the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, and within a
reasonable period will reimburse Parent, the Sole Shareholder, such directors,
officers, persons, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to Parent
-4-
by an instrument duly executed by the Sole Shareholder and stated to be
specifically for use therein. Notwithstanding the foregoing, the liability of
the Sole Shareholder under this subsection (b) shall be limited in an amount
equal to the gross proceeds before expenses and commissions to the Sole
Shareholder received for the shares sold by the Sole Shareholder, unless such
liability arises out of or is based on willful misconduct by the Sole
Shareholder.
(c) Each party entitled to indemnification under this Section 5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 5 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or separate and
different defenses. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
6. INFORMATION BY HOLDER. The Sole Shareholder shall furnish to Parent
---------------------
such information regarding the Sole Shareholder, the Registrable Securities held
by her and the distribution proposed by the Sole Shareholder as Parent may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
7. RULE 144 REPORTING. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, Parent
agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that Parent becomes subject to the reporting requirements of
the Securities Act or the Exchange Act;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of Parent under the Securities
Act and the Exchange Act (at any time after it has become subject to such
reporting requirements); and
(c) So long as the Sole Shareholder owns any Restricted Securities to
furnish to the Sole Shareholder forthwith upon request a written statement by
Parent as to its compliance with
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the reporting requirements of said Rule 144 (at any time after ninety (90) days
after the effective date of the first registration statement filed by Parent for
an offering of its securities to the general public), and of the Securities Act
and the Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of Parent,
and such other reports and documents of Parent and other information in the
possession of or reasonably obtainable by Parent as the Sole Shareholder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing the Sole Shareholder to sell any such securities without
registration.
8. STANDOFF AGREEMENT. In connection with any public offering of Parent's
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securities, the Sole Shareholder agrees, upon request of Parent or the
underwriters managing any underwritten offering of Parent's securities, not to
sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Registrable Securities (other than those included in
the registration) without the prior written consent of Parent or such
underwriters, as the case may be, for such period of time (not to exceed one
hundred eighty (180) days in the case of Parent's initial public offering, and
ninety (90) days in the case of other public offerings of Parent) from the
effective date of such registration as may be requested by the underwriters;
provided that the officers and directors of Parent who own stock of Parent and
holders of five percent (5%) or more of Parent's outstanding voting securities
also agree to such restrictions.
9. TERMINATION OF REGISTRATION RIGHTS. The registration rights granted
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pursuant to Section 2 shall terminate as to the Sole Shareholder at such time as
a public market for Parent's Common Stock exists and all Registrable Securities
held by the Sole Shareholder have been sold pursuant to Rule 144.
10. AMENDMENT OF REGISTRATION RIGHTS.
---------------------------------
Provisions of this Agreement may be amended and the observance thereof may
be waived only by the mutual written consent of Parent and the Sole Shareholder.
11. MISCELLANEOUS.
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(a) Any notices required or permitted to be given under the terms
hereof shall be sent by certified or registered mail (return receipt requested)
or delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile and shall be effective five days after being placed in
the mail, if mailed by regular U.S. mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery service) or
by facsimile, in each case addressed to a party. The addresses for such
communications shall be:
If to Parent:
Talk City, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Page ▇▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Sole Shareholder:
▇▇▇ ▇. ▇▇▇▇▇▇
Research Connections, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇ ▇▇▇▇ San ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Each party shall provide notice to the other party of any change of its
address.
(b) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(c) This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State. In the event that any provision
of this Agreement is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision hereof.
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(d) This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.
(e) This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of each of the parties hereto.
(f) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(g) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
(h) Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
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IN WITNESS WHEREOF, Parent and the Sole Shareholder have caused this
Agreement to be duly executed as of the date first above written.
TALK CITY, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Sr VP, Chief Financial Officer
SOLE SHAREHOLDER
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------
▇▇▇ ▇. ▇▇▇▇▇▇
[Signature Page to Registration Rights Agreement]
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