Agreement and Plan of Merger - EarthWeb Inc., D&L Online Inc., Lloyd Linn and Diane Rickert
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), is made and effective
as of February 2, 1999 by and among EarthWeb Inc., a Delaware corporation
("Parent"), EW Acquisition Corporation, a Delaware corporation and a wholly
owned subsidiary of Parent ("Sub"), D&L Online, Inc., an Iowa corporation (the
"Company") and Mr. Lloyd Linn and Ms. Diane Rickert (individually, a "Selling
Shareholder" and, collectively, the "Selling Shareholders") who collectively
hold all of the outstanding shares of common stock, par value $1.00 per share,
of the Company (the "Company Stock"). Parent, Sub, the Company and the Selling
Shareholders are referred to herein individually as a "Party" and collectively
as the "Parties."
W I T N E S S E T H :
WHEREAS, each of Parent and the Company has concluded that a business
combination between Parent and the Company represents a strategic combination of
their complementary assets and operational and long term vision and is in the
best interests of the stockholders of Parent and the shareholders of the
Company, respectively, and, accordingly, Parent and the Company desire to effect
a business combination by means of the merger of the Company with and into Sub
(the "Merger");
WHEREAS, the Boards of Directors of Parent, Sub and the Company have
unanimously approved the Merger, upon the terms and subject to the conditions
set forth herein;
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a purchase; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a tax-free reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
representations, warranties, covenants and agreements contained herein the
Parties agree as follows:
***CONFIDENTIAL TREATMENT REQUESTED.
<PAGE>
ARTICLE I
THE MERGER
Section 1.1. The Merger. Upon the terms and subject to the conditions
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hereof and the certificate of merger attached hereto as Exhibit A (the
"Certificate of Merger"), at the Effective Time (as defined in Section 1.2), the
Company shall be merged with and into Sub and the separate existence of the
Company shall thereupon cease, and Sub, as the corporation surviving the Merger
(the "Surviving Corporation"), shall by virtue of the Merger continue its
corporate existence under the laws of the State of Delaware. The purposes of the
Surviving Corporation will be to conduct the businesses of the Company, and to
conduct such other lawful business activities from time to time as authorized by
the Delaware General Corporation Law (the "DGCL").
Section 1.2. Effective Time of the Merger. (a) The Parties shall execute
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the Certificate of Merger and shall cause the Merger to be consummated by filing
such executed Certificate of Merger, together with appropriate certificates of
approval and adoption executed by authorized representatives of both Sub and the
Company with (i) the Secretary of State of the State of Iowa in accordance with
Section 490.1105 of the Iowa Business Corporation Act (the "BCA"); and (ii) the
Secretary of State of the State of Delaware in accordance with Section 252 of
the DGCL. The Merger shall become effective as of the date specified in the
Certificate of Merger. The time the Merger becomes effective is referred to
herein as the "Effective Time" and the date on which the Effective Time occurs
is referred to herein as the "Closing Date." The Parties agree that the Closing
Date shall be the date on which this Agreement is executed. Following the
Merger, Sub, with all its purposes, objects, rights, privileges, powers and
franchises, shall continue pursuant to the BCA and the DGCL, and the Company
shall cease to exist.
(b) Each of the Selling Shareholders, who together constitute all of
the holders of capital stock of the Company, hereby consents to (i) the entry by
the Company into this Agreement; (ii) the consummation of the transactions
contemplated by this Agreement by the Company and such Selling Shareholder, as
the case may be; and (iii) the consideration to be received by such Selling
Shareholder, as set forth in Articles III and IV of this Agreement.
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1. Articles of Incorporation. The Articles of Incorporation of
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Sub as in effect at the Effective Time shall be the Articles of Incorporation of
the Surviving Corporation, and thereafter may be amended in accordance with its
terms and as provided by law and this Agreement.
Section 2.2. By-laws. The By-laws of Sub as in effect at the Effective Time
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shall be the By-laws of the Surviving Corporation, and thereafter may be amended
in accordance with their terms and as provided by law and this Agreement.
***CONFIDENTIAL TREATMENT REQUESTED. 2
<PAGE>
Section 2.3. Board of Directors; Officers. The directors of Sub immediately
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prior to the Effective Time shall be the directors of the Surviving Corporation,
and the officers of Sub immediately prior to the Effective Time shall be the
officers of the Surviving Corporation, in each case until their respective
successors are duly elected and qualified.
Section 2.4. Effects of Merger. The Merger shall have the effects set forth
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in Section 490.1106 of the BCA and Sections 258-261 of the DGCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the properties, rights, privileges, powers and franchises of the
Company and Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
ARTICLE III
MERGER CONSIDERATION
Section 3.1. Merger Consideration to be Delivered at Closing. At the
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Closing and by virtue of the Merger, Parent shall deliver the following
consideration to the Selling Shareholders as a result of the conversion of the
shares of Company Stock held by the Selling Shareholders pursuant to Section
5.1(b):
(a) 577,778 shares of the common stock, par value $.01 per share, of
Parent ("Parent Common Stock"), to be allocated as follows: (i) an aggregate
520,000 shares of Parent Common Stock shall be delivered to the Selling
Shareholders and (ii) 57,778 shares of Parent Common Stock (the "Escrow Deposit
Amount") shall be delivered to the escrow agent pursuant to an escrow agreement
substantially in the form of Exhibit B hereto (the "Escrow Agreement").
(b) Cash in the amount of Four Million Dollars ($4,000,000).
(c) Unless otherwise specifically provided herein, all payments of
Merger Consideration (including any Additional Contingent Consideration, as
defined in Section 4.1) provided for hereby to the Selling Shareholders shall be
made in separate payments of one-half of the applicable amount or type of Merger
Consideration to each of the Selling Shareholders.
Section 3.2. Merger Consideration Deliverable After Closing. Parent shall
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deliver to the Selling Shareholders the following Merger Consideration (as
defined in Section 3.3) within the specified time period subsequent to the
Closing Date:
(a) Cash in the amount of One Million Five Hundred Thousand Dollars
($1,500,000) on the six month anniversary of the Closing Date ("Six Month Merger
Consideration Installment"); provided that if such anniversary date is not a
business day, that such payment shall occur on the first business day following
such anniversary.
(b) Cash in the amount of One Million Five Hundred Thousand Dollars
($1,500,000) on the one year anniversary of the Closing Date ("One Year Merger
Consideration Installment"); provided that if such anniversary date is not a
business day, that such payment shall occur on the first business day following
such anniversary.
***CONFIDENTIAL TREATMENT REQUESTED. 3
<PAGE>
Section 3.3. Definition of Merger Consideration. The Parent Common Stock
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and cash amounts described in Sections 3.1 and 3.2 shall collectively be
referred to herein as the "Merger Consideration."
ARTICLE IV
ADDITIONAL MERGER CONSIDERATION
Section 4.1. Definitions. For purposes of computing certain contingent
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payments Parent shall pay to the Selling Shareholders as additional
consideration for the Merger (the "Additional Contingent Consideration"):
(a) "Net Revenue" shall refer to such entry on Parent's consolidated
income statement, computed in accordance with GAAP, consistently applied as to
income statements of Parent.
(b) "Organic Business" shall refer to the Internet-based personnel
recruiting business of the Surviving Corporation and of Parent and any of its
affiliates whose financial statements are required to be consolidated with
Parent's financial statements under GAAP, including the "Dice" web site business
currently operated by the Company and any similar web site or business which may
in the future be originally developed and operated by the Surviving Corporation
or Parent and any of its affiliates whose financial statements are required to
be consolidated with Parent's financial statements under GAAP, and any other
personnel recruiting-related services or products of the Surviving Corporation
or Parent and any of its affiliates whose financial statements are required to
be consolidated with Parent's financial statements under GAAP.
(c) "Acquired Business" shall refer to any of Parent's personnel
recruiting acquisitions completed after the Effective Time.
(d) "Organic Revenues" shall mean the Parent's consolidated Net
Revenues from the Organic Business for a given fiscal year, and, for purposes of
the fiscal year ended December 31, 1999, shall include (i) the Company's net
revenues for 1999 prior to the Effective Time, and (ii) the amounts described as
deferred revenue in the Company's audited financial statements for the fiscal
year ended December 31, 1998, up to a maximum of Two-Hundred Fifty Thousand
Dollars ($250,000), as otherwise computed in accordance with GAAP, consistently
applied, but shall not include revenues derived from on-line banner advertising
generated by Parent's advertising activities.
(e) "Acquired Revenues" shall mean any increase in the Parent's
consolidated Net Revenues from the Acquired Business for a given fiscal year
compared to the number which is the ratable portion (based on the portion of
such fiscal year for which the revenues of the Acquired Business are included in
Parent's financial statements) of six (6) times the net revenue of such Acquired
Business during the two (2) full calendar months immediately preceding the
effective date of such acquisition.
***CONFIDENTIAL TREATMENT REQUESTED. 4
<PAGE>
(f) "Combined Revenues" shall mean the sum of Organic Revenues and
the positive amount, if any, of Acquired Revenues.
(g) "Net Revenue Target Amount" shall refer to * * * Dollars ($* * *)
for fiscal year ended December 31, 1999; * * * Dollars ($* * *) for fiscal year
ended December 31, 2000; and * * * Dollars ($* * *) for fiscal year ended
December 31, 2001 and "Net Revenue Target Amounts" shall refer to all such
targeted amounts.
Section 4.2. Payment Schedule. As additional consideration for the
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conversion of the shares of Company Stock held by the Selling Shareholders in
the Merger pursuant to Section 5.1(b), the Selling Shareholders shall be
entitled to receive the following Additional Contingent Consideration under the
circumstances and in the respective amounts provided for in this Section 4.2.
(a) Mr. Linn shall be entitled to receive cash in an amount equal to
Two Million Dollars ($2,000,000), and Ms. Rickert shall be entitled to receive
cash or an amount of Parent Common Stock, or any combination thereof, to be
determined at Parent's sole discretion, equal to Two Million Dollars
($2,000,000), in each case, if the Combined Revenues equal or exceed * * *
Dollars ($* * *) for the fiscal year ended December 31, 1999 (the "First
Additional Consideration Payment"). Any stock utilized by Parent as payment to
Ms. Rickert, in whole or in part, of the First Additional Consideration Payment,
shall be valued at a per share price equal to the average closing sales price of
Parent Common Stock, as quoted on the Nasdaq National Market (for any period,
the "Average Market Value"), during the twenty (20) consecutive trading days
prior to the date on which Parent determines by notice given to Ms. Rickert
whether to deliver cash, stock or a combination thereof, which shall in all
events be the first business day of April (the "Determination Date") for the
First Additional Consideration Payment.
(b) Mr. Linn shall be entitled to receive cash in an amount equal to
Two Million Dollars ($2,000,000), and Ms. Rickert shall be entitled to receive
cash or an amount of Parent Common Stock, or any combination thereof, to be
determined at Parent's sole discretion, equal to Two Million Dollars
($2,000,000), in each case, if the Combined Revenues equal or exceed * * *
Dollars ($* * *) for the fiscal year ended December 31, 2000 (the "Second
Additional Consideration Payment"). Any stock utilized by Parent as payment to
Ms. Rickert, in whole or in part, of the Second Additional Consideration
Payment, shall be valued at the Average Market Value, during the twenty (20)
consecutive trading days prior to the Determination Date for the Second
Additional Consideration Payment.
(c) Mr. Linn shall be entitled to receive cash in an amount equal to
Two Million Dollars ($2,000,000), and Ms. Rickert shall be entitled to receive
cash or an amount of Parent Common Stock, or any combination thereof, to be
determined at Parent's sole discretion, equal to Two Million Dollars
($2,000,000), in each case, if the Combined Revenues equal or exceed * * *
Dollars ($* * *) for the fiscal year ended December 31, 2001 (the "Third
Additional Consideration Payment"). Any stock utilized by Parent as payment to
Ms. Rickert, in whole or in part, of the Third Additional Consideration Payment,
shall be valued at the Average Market Value, during the twenty (20) consecutive
trading days prior to the Determination Date for the Third Additional
Consideration Payment.
***CONFIDENTIAL TREATMENT REQUESTED. 5
<PAGE>
(d) If, for any given fiscal year, the Combined Revenues are less
than the Net Revenue Target Amount established for such year by more than One
Million Dollars ($1,000,000), the Selling Shareholders shall not be entitled to
any portion of the Additional Contingent Consideration payments described in
this Section 4.2 for such fiscal year. However, if in any given year, the net
revenue of the Surviving Corporation is less than the Net Revenue Target Amount
set for such year by less than One Million Dollars ($1,000,000), the Selling
Shareholders shall be entitled to receive an Additional Contingent Consideration
Payment in an amount equal to the product of (i) the amount of Additional
Contingent Consideration the Selling Shareholders would have been entitled to
receive if the Net Revenue Target Amount had been achieved during the designated
year and (ii) a fraction, the numerator of which is the difference between (A)
the actual Combined Revenue amount for such fiscal year under (a), (b) or (c)
above, as applicable, and (B) the number which is One Million Dollars
($1,000,000) less than the applicable Net Revenue Target Amount for such fiscal
year, and the denominator of which is One Million Dollars ($1,000,000) (a "Pro-
rated Additional Contingent Consideration Payment"), which payment, if
applicable, shall otherwise be made in the form and manner otherwise provided by
this Section 4.2. For example, if the Combined Net Revenues for the fiscal year
ended December 31, 2000 equal * * * Dollars ($* * *), thus falling short of the
* * * Dollar ($* * *) Net Revenue Target Amount by Four Hundred Thousand Dollars
($400,000), the Selling Shareholders will be entitled to receive sixty percent
(60%) of the Second Additional Consideration Payment of Four Million Dollars
($4,000,000), which is Two Million Four Hundred Thousand Dollars ($2,400,000).
However, if the Combined Net Revenues for the fiscal year ended December 31,
2000 equal * * * Dollars ($* * *), the Selling Shareholders will not be entitled
to a Pro-rated Additional Consideration Payment because the difference between
the Net Revenue Target Amount and the Combined Revenues for that year, One
Million One Hundred Thousand Dollars ($1,100,000), is greater than One Million
Dollars ($1,000,000).
(e) Each Additional Consideration Payment shall be paid by the
Company to each Selling Shareholder as promptly as is practicable following the
first business day of April following the applicable measurement period for the
Combined Revenues (which in the case of any cash payment shall be not later than
the fifth business day of April).
(f) If the employment of Mr. Linn is terminated by Parent or the
Surviving Corporation without Due Cause, as defined in the employment agreement
entered into by Mr. Linn with Parent (the "Linn Employment Agreement"), or Mr.
Linn terminates his employment for Good Reason, as defined in the Linn
Employment Agreement, in either event prior to the third anniversary of the
Closing Date, then the Selling Shareholders shall be entitled to receive any of
the Additional Contingent Consideration which has not been paid as of the date
of such occurrence, which payment shall be made as and when payable under this
Section 4.2 as if the applicable Net Revenue Target Amounts had been met.
(g) In the event that Parent sells all or substantially all of the
Organic Business (or all or substantially all of the historic business of the
Company), then the Selling Shareholders shall be entitled to receive any of the
Additional Consideration which has not been paid as of the date of such sale,
which payment shall be made as and when payable under this Section 4.2 as if the
applicable Net Revenue Target Amounts had been met.
Section 4.3. Budget of Expenses.
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***CONFIDENTIAL TREATMENT REQUESTED. 6
<PAGE>
(a) Subject to clause (b) of this Section 4.3, during each of the
fiscal years ended December 31, 1999, 2000 and 2001, Parent agrees to make
available to the Surviving Corporation and allocate for expenditure by the
Surviving Corporation a budget of operating expenses equal to not less than
fifty percent (50%) of the projected net revenues for such period; provided,
however, that in the event the Surviving Corporation fails to achieve its
projected net revenues during any fiscal quarter of any calendar year, Parent
may, in its sole discretion, adjust the budget of operating expenses for the
next fiscal quarter of such calendar year so that it equals at least fifty
percent (50%) of the net revenues actually earned during the previous fiscal
quarter. Such budget and projected net revenue amounts shall be developed in
consultation with the President of the Surviving Corporation and the President
shall ensure that the funds allocated pursuant to this Section 4.3 for operating
expenses are applied to the operations of the Surviving Corporation in
substantially the same manner in which such budgeted funds have historically
been applied to the operations of the Company.
(b) If Parent fails to make available to the Surviving Corporation
the amounts contemplated by clause (a) of this Section 4.3 during a given fiscal
year and the Surviving Corporation falls short of the relevant Net Revenue
Target Amount for such year, then notwithstanding Section 4.2, the Selling
Shareholders shall be entitled to receive the applicable Additional Contingent
Consideration Payment for such fiscal year; provided, however, that the Selling
Shareholders shall not be entitled to receive a Pro-rated Additional Contingent
Consideration Payment in the same fiscal year in which it is entitled to payment
pursuant to this clause (b) of Section 4.3.
ARTICLE V
CONVERSION OF SHARES
Section 5.1. Exchange Ratio. At the Effective Time, by virtue of the Merger
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and without any action on the part of Parent, the Company or the Selling
Shareholders:
(a) All shares of the Company Stock issued and outstanding
immediately prior to the Effective Time, which are held by the Company or any
subsidiary of the Company and any shares of Company Stock owned by Parent or any
subsidiary of Parent shall automatically be canceled without payment of any
consideration therefor.
(b) The outstanding shares of Company Stock issued and outstanding
immediately prior to the Effective Time shall be converted into the right to
receive the consideration provided for pursuant to Articles III and IV of this
Agreement.
(c) Each issued and outstanding share of the common stock, par value
$.01, of Sub shall be converted into and become one validly issued, fully paid
and non-assessable share of common stock, par value $.01 per share, of the
Surviving Corporation.
Section 5.2. Delivery of Certificates. At the Closing, Parent shall
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deliver, or cause to be delivered, to the Selling Shareholders, upon surrender
of one or more certificates ("Certificates") representing shares of Company
Stock for cancellation, certificates representing the number of
***CONFIDENTIAL TREATMENT REQUESTED. 7
<PAGE>
shares of Parent Common Stock to which such Selling Shareholder is entitled
pursuant to Section 5.1 of this Agreement.
Section 5.3. Stock Options. The options to purchase Company Stock held by
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Mr. Kelderman as of the Closing shall be, in the aggregate, converted into non-
qualified options to purchase 36,667 shares of Parent Common Stock at an
exercise price of $32.05 per share; of these options, options to purchase 12,222
shares of Parent Common Stock shall vest as of the Closing, options to purchase
8,146 shares of Parent Common Stock shall vest on the first year anniversary of
the Closing, and the remaining options shall vest equally on a quarterly basis
during the period commencing in the first quarter following the first year
anniversary of the Closing and ending on the third year anniversary of the
Closing.
Section 5.4. Shareholders' Meetings and Consents. The Company will take all
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action necessary in accordance with applicable law and its Articles of
Incorporation and By-laws to obtain written consent of the number of its
shareholders necessary to adopt resolutions as promptly as practicable for the
purpose of voting upon this Agreement and related matters. Parent shall take all
action necessary to authorize and cause Sub to consummate the Merger. The Board
of Directors of each of Parent and the Company shall recommend such approval and
Parent and the Company shall each take all lawful action to solicit such
approval; provided, however, that such recommendation is subject to any action
believed in good faith after consultation with independent counsel to be
required by the fiduciary duties of the Board of Directors of the Company under
applicable law and any such action shall not constitute a breach of this
Agreement. Parent and the Company shall coordinate and cooperate with respect to
the timing of such meetings and shall use their best efforts to hold such
meetings on the same day.
Section 5.5. Closing of the Company's Transfer Books. At the Effective
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Time, the stock transfer books of the Company shall be closed and no
registration of transfer of shares of Company Stock shall be made thereafter. In
the event that Certificates are presented to the Surviving Corporation after the
Effective Time, they shall be canceled and exchanged for Parent Common Stock
and/or cash as provided in Sections 5.1(b).
Section 5.6. Closing. The closing of the transactions contemplated by this
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Agreement (the "Closing") shall take place at the offices of Morrison & Foerster
LLP, 1290 Avenue of the Americas, New York, New York 10104, at 2:00 p.m. local
time on the date hereof.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows (such
representations and warranties (as well as other provisions of this Agreement))
are qualified by the matters identified (with reference to the appropriate
Section and, if applicable, subsection being qualified) on a disclosure schedule
(the "Parent Disclosure Schedule") delivered by Parent to the Company prior to
execution of this Agreement):
Section 6.1. Organization and Qualification. Parent is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
Delaware and has the
***CONFIDENTIAL TREATMENT REQUESTED. 8
<PAGE>
corporate power to carry on its business as it is now being conducted or
currently proposed to be conducted except where the failure to be so organized
or to have such power would not have a material adverse effect. The Parent is
duly qualified as a foreign corporation to do business, and is in good standing
in each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary, except
where the failure to be so qualified will not, alone or in the aggregate, have a
material adverse effect. The Parent is not in violation of any of the provisions
of its Certificate of Incorporation, Bylaws or the DGCL. Complete and correct
copies as of the date hereof of the Certificate of Incorporation and Bylaws of
the Parent have been delivered to the Company as part of the Parent Disclosure
Schedule.
Section 6.2. Authority Relative to this Agreement. Parent has the corporate
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power to enter into this Agreement and the Registration Rights Agreement entered
into between Parent and the Selling Shareholders and executed as of an even date
herewith (the "Registration Rights Agreement") and to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement and the
Registration Rights Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
by Parent. The shares of Parent Common Stock to be issued pursuant to the Merger
and the other transactions contemplated hereby have been reserved for issuance
by Parent by all necessary corporate action. This Agreement and the Registration
Rights Agreement constitute valid and binding obligations of Parent enforceable
in accordance with their terms except as enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding therefor may be brought. Except for the filing
and recordation of appropriate merger documents as required by the BCA and the
DGCL, no other corporate proceedings on the part of Parent are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
Parent is not subject to or obligated under (i) any charter, by-law, indenture
or other loan or credit document provision or (ii) any other contract, license,
franchise, permit, order, decree, concession, lease, instrument, judgment,
statute, law, ordinance, rule or regulation applicable to Parent or any of its
subsidiaries or their respective properties or assets, which would be breached
or violated, or under which there would be a default (with or without notice or
lapse of time, or both), or under which there would arise a right of
termination, cancellation, modification or acceleration of any obligation, or
any right to payment or compensation, or the loss of a material benefit, by its
executing and carrying out this Agreement and the Registration Rights Agreement
except for such breaches, violations, defaults or arising of such rights which
would not reasonably be expected to have a material adverse effect. Other than
the Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the corporation,
securities or blue sky laws or regulations of the various states, and except for
the filing and recordation of appropriate merger documents as required by the
BCA and the DGCL, no filing or registration with, or authorization, consent or
approval of, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign (each, a
"Governmental Entity"), is necessary for the consummation by Parent or Sub of
the Merger or the other transactions contemplated by this Agreement, other than
filings, registrations, authorizations, consents or approvals the failure to
make or obtain which has not had, and would not reasonably be expected to have,
a material adverse effect or prevent the consummation of the transactions
contemplated hereby.
***CONFIDENTIAL TREATMENT REQUESTED. 9
<PAGE>
Section 6.3. Reports. Parent has previously furnished the Company with true
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and complete copies of its Registration Statement No. 333-60837 on Form S-1
effective November 10, 1998, as filed with the Securities and Exchange
Commission (the "Commission") and any other reports or registration statements
filed by Parent with the Commission since November 10, 1998, except for
preliminary material, which are all the documents that Parent was required to
file with the Commission since that date (collectively, the "Parent SEC
Reports"). As of their respective dates, the Parent SEC Reports complied as to
form in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the
Commission thereunder applicable to such Parent SEC Reports. As of their
respective dates, the Parent SEC Reports 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 therein, in light of the circumstances under
which they were made, not misleading. The audited consolidated financial
statements and unaudited interim financial statements of Parent included in the
Parent SEC Reports comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
Commission with respect thereto (except as may be indicated thereon or in the
notes thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby and present fairly the
financial condition of the Parent as of such dates and the results of
operations, changes in stockholders' equity and cash flows of the Parent for
such period.
Section 6.4. Financial Advisor. No broker, finder or investment banker is
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entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent.
Section 6.5. Interim Operations of Sub. Sub was formed solely for the
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purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as contemplated
hereby.
Section 6.6. No Undisclosed Liabilities. Except as and to the extent set
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forth in Section 6.6 of the Parent Disclosure Schedule, the Parent had at
September 30, 1998 no liabilities which were not reflected on the balance sheet
of Parent. Except as and to the extent set forth in such Schedule, since
September 30, 1998, Parent has not incurred any liabilities material to the
business, operations or financial condition of Parent, except liabilities
incurred in the ordinary and usual course of business and consistent with past
practice and liabilities incurred in connection with this Agreement.
Section 6.7. Parent Action. The Board of Directors of Parent (at a meeting
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duly called and held or by a consent in lieu of meeting in accordance with the
Company's Certificate of Incorporation, Bylaws, and the DGCL) has by the
requisite vote of all directors present determined that the Merger is advisable
and fair to and in the best interests of Parent and its shareholders and has
approved the Merger and the transactions contemplated by this Agreement in
accordance with the provisions of the DGCL.
Section 6.8. Tax Matters. To the actual knowledge of the executive officers
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of Parent, Parent has not taken any action which would prevent the Merger from
constituting a reorganization within the meaning of Section 368(a) of the Code.
***CONFIDENTIAL TREATMENT REQUESTED. 10
<PAGE>
Section 6.9. Validity of Shares to be Issued. The issuance of the shares
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of Parent Common Stock to the Selling Shareholders under this Agreement has been
duly authorized by all necessary corporation action, and, upon issuance in
accordance with the terms of this Agreement, will be validly issued, fully paid
and nonassessable and will not be issued in violation of the preemptive rights
or other similar rights of any person.
Section 6.10. Absence of Certain Changes or Events. Except as set forth in
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Section 6.10 of the Parent Disclosure Schedule, since December 31, 1998, Parent
has operated its business in the ordinary course of business consistent with
past practice and there has not been (i) any transaction, commitment, dispute or
other event or condition (financial or otherwise) of any character (whether or
not in the ordinary course of business) which, alone or in the aggregate, has
had or would reasonably be expected to have, a material adverse effect and (ii)
any damage, destruction or loss, whether or not covered by insurance, which has
had, or would reasonably be expected to have, a material adverse effect.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SELLING SHAREHOLDERS
The Company and the Selling Shareholders represent and warrant to Parent
and Sub as follows (such representations and warranties (as well as other
provisions of this Agreement) are qualified by the matters identified (with
references to the appropriate Section and, if applicable, subsection being
qualified) on the Company Disclosure Schedule delivered by the Company to Parent
prior to execution of this Agreement):
Section 7.1. Organization and Qualification. The Company is a corporation
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Iowa and has the corporate power to carry on its business as it is now
being conducted or currently proposed to be conducted except where the failure
to be so organized or to have such power would not have a material adverse
effect. The Company is duly qualified as a foreign corporation to do business,
and is in good standing, in each jurisdiction where the character of its
properties owned or held under lease or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified will not,
alone or in the aggregate, have a material adverse effect. The Company is not
in violation of any of the provisions of its Articles of Incorporation or By-
laws. Complete and correct copies as of the date hereof of the charter and By-
laws of the Company have been delivered to Parent as part of the Company
Disclosure Schedule.
Section 7.2. Capitalization. The authorized stock of the Company consists
--------------
of 3,000,000 shares of Company Stock. As of December 31, 1998, 1,000 shares of
Company Stock were validly issued and outstanding, fully paid and nonassessable,
and there have been no changes in such numbers of shares through the date of
this Agreement. Section 7.9 to the Company Disclosure Schedule sets forth by
employee the total number of shares of Company Stock issuable pursuant to the
Company's stock option plans, including detail with respect to date of grant,
exercise price, vesting schedule and options exercised to date. As of the date
of this Agreement, there are no bonds, debentures, notes or other indebtedness
issued or outstanding
*** CONFIDENTIAL TREATMENT REQUESTED. 11
<PAGE>
having the right to vote on any matters on which the Selling Shareholders may
vote. As of the date of this Agreement, except for options issued under the
Company's stock option plans disclosed under Section 7.9 as employee benefit
plans, there are not now, and at the Effective Time there will not be any,
options, warrants, calls, convertible securities or other rights, agreements or
commitments presently outstanding obligating the Company to issue, deliver or
sell shares of its stock or debt securities, or obligating the Company to grant,
extend or enter into any such option, warrant, call or other such right,
agreement or commitment, and, except for exercises thereof, there have been no
changes in such numbers through the date of this Agreement. After the Effective
Time, the Surviving Corporation will have no obligation to issue, transfer or
sell any shares of stock of the Company or the Surviving Corporation (as opposed
to shares of Parent Common Stock) pursuant to any Company Employee Benefit Plan
(as defined in Section 7.9).
Section 7.3. Subsidiaries. The Company has no subsidiaries and does not
------------
directly or indirectly own any interest in any corporation, partnership, joint
venture or other business association or entity or have any obligation,
commitment or undertaking to acquire any such interest.
Section 7.4. Authority Relative to this Agreement. The Company has the
------------------------------------
corporate power to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by the Company's
Board of Directors. This Agreement constitutes a valid and binding obligation of
the Company enforceable in accordance with its terms except as enforcement may
be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditor's rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding therefor may be brought. Except for the
approval of this Agreement and the transactions contemplated hereby by the
holders of a majority of the shares of Company Stock outstanding and entitled to
vote thereon as described in Section 5.4, and the filing and recordation of
appropriate merger documents as required by the BCA and the DGCL, no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or consummate the transactions contemplated hereby. Except as set
forth in Section 7.4 of the Company Disclosure Schedule, the Company is not
subject to or obligated under (i) any charter, by-law, indenture or other loan
or credit document provision or (ii) any other contract, license, franchise,
permit, order, decree, concession, lease, instrument, judgment, statute, law,
ordinance, rule or regulation applicable to the Company or any of its
subsidiaries or their respective properties or assets which would be breached or
violated, or under which there would be a default (with or without notice or
lapse of time, or both), or under which there would arise a right of
termination, cancellation, modification or acceleration of any obligation, or
any right to payment or compensation, or the loss of a material benefit, by its
executing and carrying out this Agreement except for such breaches, violations,
defaults or arising of such rights which would not reasonably be expected to
have a material adverse effect. Except as required by the Securities Act, and
the corporation, securities or blue sky laws or regulations of the various
states, and except for the filing and recordation of appropriate merger
documents as required by the BCA and the DGCL, no filing or registration with,
or authorization, consent or approval of, any Governmental Entity is necessary
for the consummation by the Company of the Merger or the other transactions
contemplated by this Agreement, other than filings, registrations,
*** CONFIDENTIAL TREATMENT REQUESTED. 12
<PAGE>
authorizations, consents or approvals the failure to make or obtain which has
not had, and would not reasonably be expected to have, a material adverse effect
or prevent the consummation of the transactions contemplated hereby.
Section 7.5. Financial Statements. Attached hereto as Schedule 7.5 to the
--------------------
Company Disclosure Schedule are audited balance sheets and statements of income,
changes in stockholders' equity, and cash flow as of and for the fiscal years
ended December 31, 1997 and 1998 for the Company (which have been audited by
PriceWaterhouseCoopers, independent accountants ("PWC")). All such financial
statements (including the notes thereto) have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby and
present fairly the financial condition of the Company as of such dates and the
results of operations, changes in stockholders' equity and cash flows of the
Company for such periods.
Section 7.6. Absence of Certain Changes or Events. Except as set forth in
------------------------------------
Section 7.6 of the Company Disclosure Schedule or as contemplated by this
Agreement, since December 31, 1998, the Company has operated its business in the
ordinary course of business consistent with past practice and there has not been
(i) any transaction, commitment, dispute or other event or condition (financial
or otherwise) of any character (whether or not in the ordinary course of
business) which, alone or in the aggregate, has had or would reasonably be
expected to have, a material adverse effect; (ii) any damage, destruction or
loss, whether or not covered by insurance, which has had, or would reasonably be
expected to have, a material adverse effect; (iii) any declaration, setting
aside or payment of any dividend or distribution (whether in cash, stock or
property) with respect to the stock of the Company; (iv) any material change in
the Company's accounting principles, practices or methods; (v) any repurchase or
redemption with respect to its stock; (vi) any stock split, combination or
reclassification of any of the Company's stock or the issuance or authorization
of any issuance of any other securities in respect of, in lieu of or in
substitution for, shares of the Company's stock; (vii) any grant of or any
amendment of the terms of any option to purchase shares of stock of the Company
other than pursuant to the Option Plans; (viii) any granting by the Company to
any director, officer or employee of the Company of (A) any increase in
compensation (other than in the case of employees in the ordinary course of
business consistent with past practice), (B) any increase in severance or
termination pay, or (C) acceleration of compensation or benefits; (ix) any entry
by the Company or any of its subsidiaries into any employment, severance, bonus
or termination agreement with any director, officer or employee of the Company;
or (x) any agreement (whether or not in writing), arrangement or understanding
to do any of the foregoing.
Section 7.7. No Undisclosed Liabilities. Except as and to the extent set
--------------------------
forth in Section 7.7 of the Company Disclosure Schedule, the Company had at
December 31, 1998 no liabilities which were not reflected on the audited balance
sheet of the Company as of such date (the "Most Recent Balance Sheet"). Except
as and to the extent set forth in such Schedule, since December 31, 1998, the
Company has not incurred any liabilities material to the business, operations or
financial condition of the Company, except liabilities incurred in the ordinary
and usual course of business and consistent with past practice and liabilities
incurred in connection with this Agreement.
Section 7.8. Litigation. Except as disclosed in Section 7.8 of the Company
----------
Disclosure Schedule, there is no suit, action or proceeding pending or, to the
knowledge of the Company,
*** CONFIDENTIAL TREATMENT REQUESTED. 13
<PAGE>
threatened against the Company which, alone or in the aggregate, has had or
would reasonably be expected to have, a material adverse effect, nor is there
any judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against the Company which, alone or in the aggregate, has
had, or would reasonably be expected to have, any such material adverse effect.
Section 7.8 of the Company Disclosure Schedule hereto sets forth a complete
listing and brief description of all suits, actions or proceedings pending or,
to the knowledge of the Company, threatened against the Company, where the
amount in controversy exceeds $100,000.
Section 7.9. Employee Benefit Plans. (a) Section 7.9 of the Company
----------------------
Disclosure Schedule hereto sets forth a list of all "employee benefit plans," as
defined in Section 5(3) of ERISA, and all other material employee benefit or
compensation arrangements or payroll practices, including, without limitation,
any such arrangements or payroll practices providing severance pay, sick leave,
vacation pay, salary continuation for disability, retirement benefits, deferred
compensation, bonus pay, incentive pay, stock options (including those held by
Directors, employees, and consultants), hospitalization insurance, medical
insurance, life insurance, scholarships or tuition reimbursements, that are
maintained by the Company or any Company ERISA Affiliate (as defined below) or
to which the Company or any Company ERISA Affiliate is obligated to contribute
thereunder for current or former directors, employees, independent contractors,
consultants and leased employees of the Company or any Company ERISA Affiliate
(the "Company Employee Benefit Plans").
(b) None of the Company Employee Benefit Plans is a "multi employer
plan," as defined in Section 4001(a)(3) of ERISA, and neither the Company nor
any Company ERISA Affiliate presently maintains or has maintained such a plan.
(c) The Company does not maintain or contribute to any plan or
arrangement which provides or has any liability to provide life insurance or
medical or other employee welfare benefits to any employee or former employee
upon his retirement or termination of employment, nor has the Company
represented, promised or contracted (whether in oral or written form) to any
employee or former employee that such benefits would be provided.
(d) The execution of, and performance of the transactions
contemplated in, this Agreement will not, either alone or upon the occurrence of
subsequent events, result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
employee. The only severance agreements or severance policies applicable to the
Company in the event of a change of control of the Company are the agreements
and policies specifically referred to in Section 7.9 of the Company Disclosure
Schedule. Except as disclosed in the Company Disclosure Schedule, the Board of
Directors of the Company has determined that the transactions contemplated
hereby do not constitute a change of control for purposes of any such agreement,
plan, policy or stock option plan or program to the extent the Company or its
Board has discretion to make such determination under such agreement, plan or
policy and such Board shall not change such determination, provided that the
foregoing shall not apply to the accelerated vesting of any stock options.
(e) Each Company Employee Benefit Plan that is intended to qualify
under Section 401 of the Code, and each trust maintained pursuant thereto, has
been determined to be
*** CONFIDENTIAL TREATMENT REQUESTED. 14
<PAGE>
exempt from federal income taxation under Section 501 of the Code by the IRS,
and, to the Company's knowledge, nothing has occurred with respect to the
operation or organization of any such Company Employee Benefit Plan that would
cause the loss of such qualification or exemption or the imposition of any
material liability, penalty or tax under ERISA or the Code. With respect to any
Company Employee Benefit Plan or other employee benefit plan which is a "defined
benefit plan" within the meaning of Section 3(35) of ERISA, (i) the Company has
not incurred any liability under Title IV of ERISA (other than for the payment
of premiums, all of which have been paid when due), (ii) the Company has not
incurred any accumulated funding deficiency within the meaning of Section 412 of
the Code and has not applied for or obtained a waiver of any minimum funding
standard or an extension of any amortization period under Section 412 of the
Code, (iii) no "reportable event" (as such term is defined in Section 4043 of
ERISA but excluding any event for which the provision for 30-day notice to the
Pension Benefit Guaranty Corporation has been waived by regulation) has occurred
or is expected to occur and (iv) since December 31, 1998, no material adverse
change in the financial condition of any such plan has occurred.
(f) All contributions (including all employer contributions and
employee salary reduction contributions) required to have been made under any of
the Company Employee Benefit Plans to any funds or trusts established thereunder
or in connection therewith have been made by the due date thereof, (ii) the
Company has complied in all material respects with any notice, reporting and
documentation requirements of ERISA and the Code, (iii) there are no pending
actions, claims or lawsuits which have been asserted, instituted or, to the
Company's knowledge, threatened, in connection with the Company Employee Benefit
Plans, and (iv) the Company Employee Benefit Plans have been maintained, in all
material respects, in accordance with their terms and with all provisions of
ERISA and the Code (including rules and regulations thereunder) and other
applicable federal and state laws and regulations.
(g) For purposes of this Agreement, "Company ERISA Affiliate" means
any business or entity which is a member of the same "controlled group of
corporations," under "common control" with or an "affiliated service group" of
the Company within the meanings of Sections 414(b), (c) or (m) of the Code, or
required to be aggregated with the Company under Section 414(o) of the Code, or
is under "common control" with the Company, within the meaning of Section
4001(a)(14) of ERISA, or any regulations promulgated or proposed under any of
the foregoing Sections.
Section 7.10. Company Action. (a) The Board of Directors of the Company (at
--------------
a meeting duly called and held or by a consent in lieu of meeting in accordance
with the company's Articles of Incorporation, bylaws and the BCA) has by the
requisite vote of all directors present (i) determined that the Merger is
advisable and fair to and in the best interests of the Company and its
shareholders, (ii) approved the Merger and the transactions contemplated by this
Agreement in accordance with the provisions of the BCA, and (iii) recommended
the approval of this Agreement and the Merger by the holders of the Company
Stock and directed that the Merger be submitted for approval by the Selling
Shareholders in the manner contemplated by Section 5.4 of this Agreement; and
(iv) the Selling Shareholders (at a meeting duly called or by a consent in lieu
of meeting in accordance with the Company's Articles of Incorporation, Bylaws
and the BCA has approved the Merger and the entry into and performance by the
Company of this Agreement at the meeting of shareholders contemplated by Section
5.4.
*** CONFIDENTIAL TREATMENT REQUESTED. 15
<PAGE>
Section 7.11. Financial Advisors. No broker, finder or investment banker is
------------------
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
Section 7.12. Compliance with Applicable Laws. The Company holds all
-------------------------------
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary or appropriate for the operation of its
respective business (the "Company Permits"), except for such permits, licenses,
variances, exemptions, orders and approvals the failure to hold which, alone or
in the aggregate, has not had, and would not reasonably be expected to have, in
the aggregate, a material adverse effect. Section 7.12 of the Company Disclosure
Schedule sets forth a complete listing of all Company Permits and their
expiration dates. The Company is in compliance in all material respects with the
terms of the Company Permits except for any failure to comply which, alone or in
the aggregate, has not had, and would not reasonably be expected to have, a
material adverse effect. Except as disclosed in Section 7.12 of the Company
Disclosure Schedule, the business of the Company is not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity, except
for possible violations which alone or in the aggregate have not had, and would
not reasonably be expected to have, a material adverse effect. To the actual
knowledge of the executive officers of the Company, during the past five years,
none of the Company's officers, employees or agents, nor any other person acting
on behalf of any of them or the Company or any of its subsidiaries, has,
directly or indirectly, given or agreed to give any gift or similar benefit to
any customer, supplier, governmental employee or other person in violation of
any law, ordinance or regulation of any Governmental Entity, including, without
limitation, the Foreign Corrupt Practices Act, which violation would reasonably
be expected to have a material adverse effect.
Section 7.13. Taxes. The Company has filed all material Tax returns
-----
required to be filed by it and has paid, or has set up an adequate reserve for
the payment of, all Taxes required to be paid by the Company in respect of the
periods covered by such returns, except where the failure to make such payment
or reserve has not had a material adverse effect. The information contained in
such Tax returns is true, complete and accurate in all material respects. The
Company is not delinquent in the payment of any material Tax, assessment or
governmental charge, except where such delinquency has not had, or would not
reasonably be expected to have, a material adverse effect. No material
deficiencies for any taxes have been proposed, asserted or assessed against the
Company that have not been finally settled or paid in full, and no requests for
waivers of the time to assess any such Tax are pending. The Company is
qualified, and has been qualified since its inception, for treatment as an S
corporation under the applicable provisions of Subchapter S of the Code and the
applicable provisions of Iowa law. For purposes of this Agreement, "Tax" shall
mean any federal, state, local or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, windfall
profits, environmental, customs duties, capital stock, franchise, profits,
withholding, social security (or similar), sales, use, transfer, registration,
value added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not, imposed by any United States federal, state, local or foreign
taxing authority.
Section 7.14. Environmental, Health and Safety.
--------------------------------
*** CONFIDENTIAL TREATMENT REQUESTED. 16
<PAGE>
(a) To the knowledge of the officers and directors of Company, the
Company has not received written notice that it is in violation of any
environmental law, that it is liable for the release of any hazardous substances
on or off of its property, or that it is a potentially responsible party for a
federal, state or local clean-up site or for corrective action under any
environmental law to the extent that any such violation, liability or
responsibility would have a material adverse effect on the Company.
(b) The Company has made available to Parent all environmental
audits, evaluations and assessments in its possession which concern any of its
operations or properties, a complete listing of which is set forth on Section
7.14 to the Company Disclosure Schedule.
Section 7.15. Material Contracts. Section 7.15 of the Company Disclosure
------------------
Schedule lists all of the following written or oral material contracts,
agreements and commitments (collectively, the "Company Contracts") involving
consideration in excess of $10,000:
(a) pertaining to the borrowing of money by the Company, including
any letters of credit;
(b) with any present or former officer, director or employee of the
Company;
(c) which call for or contemplate the future disposition (including
restrictions on transfer and rights of first offer or refusal) or acquisition of
(or right to acquire) any interest in any business enterprise, and all
contracts, agreements and commitments relating to the future disposition of a
material portion of the assets and properties of the Company other than in the
ordinary course of business;
(d) that involve all leases or subleases of real property used in the
conduct of business of the Company;
(e) committing the Company to purchase goods, deliver services or
make a capital expenditure;
(f) involving guaranties of the Company;
(g) limiting the freedom of the Company to engage in or compete with
any business; and
(h) not in the ordinary course of business.
Section 7.16. Certain Agreements. The Company is not in default (or would
------------------
be in default with notice or lapse of time, or both) under any Company Contracts
or other material agreements including, but not limited to, any Company Benefit
Plan, whether or not such default has been waived, which default, alone or in
the aggregate with other such defaults, has had, or would reasonably be expected
to have, a material adverse effect.
Section 7.17. Tax Matters. To the actual knowledge of the executive
-----------
officers of the Company, the Company has not taken any action which would
prevent the Merger from constituting a reorganization within the meaning of
Section 368(a) of the Code.
*** CONFIDENTIAL TREATMENT REQUESTED. 17
<PAGE>
Section 7.18. Bank Accounts. Section 7.18 of the Company Disclosure
-------------
Schedule lists each bank, trust company or similar institution with which the
Company maintains an account or safe deposit box, and accurately identifies each
such account or safe deposit box by its number or other identification and the
names of all individuals authorized to draw thereon or have access thereto.
Section 7.19. Officers and Directors. Section 7.19 of the Company
----------------------
Disclosure Schedule accurately lists by name and title all officers and
directors of the Company.
Section 7.20. Insurance. The Company maintains insurance coverage with
---------
reputable insurers in such amounts and covering such risks as are in accordance
with normal industry practice for companies engaged in businesses similar to
that of the Company (taking into account the cost and availability of such
insurance) except where the foregoing would not have a material adverse effect.
Section 7.20 of the Company Disclosure Schedule sets forth a complete listing of
all insurance maintained by the Company (indicating form of coverage, name of
carrier and broker, coverage limits and premium, whether occurrence or claims
made, expiration dates, deductibles, and all endorsements).
Section 7.21. Software Developers and Advertisers. Section 7.21 of the
-----------------------------------
Company Disclosure Schedule is a true and complete list of (a) the software
developers with whom the Company has done business and paid in excess of $10,000
in compensation and (b) advertisers which have paid the Company in excess of
$10,000, in each case within the six (6) months prior to the Closing Date.
Section 7.21 of the Company Disclosure Schedule lists each outstanding (in each
case in excess of $10,000) (i) purchase order of any customer or prospective
customer initiated prior to the Closing Date, and not completed as of the
Closing Date; and (ii) purchase order of the Company, to any vendor, supplier,
contractor or inventor, identifying each such vendor, supplier, contractor or
inventor and the items being purchased and stating the quantity and price
thereof.
Section 7.22. Intellectual Property.
---------------------
(a) The Company's intellectual property includes all patents,
trademarks, service marks, trade names, and copyrights (including registrations,
licenses, and applications pertaining thereto) and all other intellectual
property rights, software (in object and source code formats), trade secrets,
and other proprietary information, processes, and formulas used in, or necessary
for the operation of, the Company's business operations (collectively, the
"Intellectual Property"). Section 7.22(a) of the Company's Disclosure Schedule
set forth all registered trademarks and service marks, all reserved trade names,
all registered copyrights, and all filed patent applications and issued patents
used in or necessary for the operation the Company's business operations.
(b) Section 7.22 (b) of the Company Disclosure Schedule sets forth
the form and placement of the proprietary legends and copyright notices
displayed in or on the Company's web sites, or any software programs set forth
in Section 7.22(a). In no instance has the eligibility of such software programs
for protection under applicable copyright law been forfeited to the public
domain.
*** CONFIDENTIAL TREATMENT REQUESTED. 18
<PAGE>
(c) The Company has promulgated and used its best efforts to protect
the trade secrets of the Company's business operations. To the best knowledge of
the Company, there has been no material disclosure of any trade secrets by any
person or entity. The source code and system documentation relating to any
software programs set forth in Section 7.22(a) of the Company's Disclosure
Schedule (i) have at all times been maintained in confidence and (ii) have been
disclosed by the Company only to employees and consultants having "a need to
know" of the contents thereof in connection with the performance of their duties
to the Company.
(d) All personnel, including employees, agents, consultants, and
contractors, who have contributed to or participated in the conception and
development of the software programs, technical documentation, or Intellectual
Property on behalf of the Company with respect to the business operations of the
Company, either (i) have been party to a "work-for-hire" arrangement or
agreement with the Company, in accordance with applicable federal and state law,
that has accorded the Company full, effective, exclusive, and original ownership
of all tangible and intangible property thereby arising, or (ii) have executed
appropriate instruments of assignment, including those instruments of assignment
listed on Section 7.22(d) of the Company's Disclosure Schedule, in favor of the
Company as assignee that have conveyed to the Company full, effective, and
exclusive ownership of all tangible and intangible property thereby arising.
(e) No intellectual property right or other claims have been asserted
by any person or entity against the Company relating to the Intellectual
Property, and the Company is not aware of any valid basis for any such claim.
The use of any of the Intellectual Property by the Company does not infringe on
the intellectual property rights or other rights of any person or entity;
provided that, with regard to patents, this statement is to the best knowledge
of the Company.
(f) As of the Closing Date, all of the Intellectual Property is free
of any bugs or defects which have caused material and repeated interruptions in
or to the Company's Internet-based personnel recruiting business, including but
not limited to the "Dice" web site business, or other material bugs which have
manifested themselves as of the Closing Date, and is and shall be useable in the
same form as on the Closing Date, under the same circumstances as on the Closing
Date, and in the ordinary course of the business as such business actually has
been operated prior to the Closing Date. As of the Closing Date, to the best
knowledge of the Company, there are no "time bombs" or other intentionally
harmful components in the Intellectual Property. To the knowledge of the
Company, based on the representations of the vendors of the respective
applications, the statements set forth in Schedule 7.22(f) are true as of the
Closing Date.
(g) The Company has good and marketable title to, each item of
Intellectual Property used in and material to, or necessary for the operation
of, the business operations of the Company, free and clear of all liens and
other encumbrances. The Company is the sole and rightful owner of all right,
title and interest in and to each item of Intellectual Property and has the
unrestricted right to market, license and otherwise exploit such items.
*** CONFIDENTIAL TREATMENT REQUESTED. 19
<PAGE>
Section 7.23. Technical Documentation. Any technical documentation related
-----------------------
to and a part of the Intellectual Property includes the source code, system
documentation, statements of principles of operation, and schematics for the
relevant software program, as well as any pertinent commentary or explanation
that may be necessary to render such materials understandable and useable by a
trained computer programmer; provided that, to the extent that such commentary
and explanation does not exist, in whole or in part, as of the Closing Date, Mr.
Linn in his capacity as President of the Surviving Corporation shall, within
ninety (90) days after the Closing Date, use commercially reasonable efforts to
prepare, or cause to be prepared, such pertinent commentary and explanation and
to deliver such information to Parent.
Section 7.24. Third Party Components, Rights, etc.
------------------------------------
(a) The Company has validly and effectively obtained the right and
license to use the third-party programs set forth in Section 7.24 of the Company
Disclosure Schedule and, with respect to such third-party programs, such other
rights and licenses as provided for under the agreements set forth in such
schedule, the Company has the right to assign and transfer to Parent the
foregoing rights and licenses, and the Intellectual Property contains no other
programming or materials in which any third party may claim superior, joint, or
common ownership, including any right or license. The Intellectual Property does
not contain derivative works of any programming or materials not owned in their
entirety by the Company and included in the Assets.
(b) The Company has not granted, transferred or assigned any right,
title or interest in or to any item of Intellectual Property, to any person or
entity. There are no contracts, agreements, licenses, or other commitments and
arrangements in effect with respect to the marketing, distribution, licensing,
or promotion of any item of Intellectual Property by any independent
salesperson, distributor, sublicensor, or other remarketer or sales
organization.
Section 7.25. Interest, Participation Rights and Ownership Position. The
-----------------------------------------------------
Company has no interest, participation rights or ownership position in any
corporation, partnership, joint venture, co-marketing arrangement or similar
enterprise or undertaking relating to its business operations.
Section 7.26. Change in Control. Except as set forth in Section 7.26 of the
-----------------
Company Disclosure Schedule, neither the Company nor any of its subsidiaries is
a party to any contract, agreement or understanding which contains a "change in
control" provision or "potential change in control" provision, or a provision
which will effectively terminate such contract, agreement or understanding or
provides for any payment or event of default in the event the Company is not the
surviving entity in connection with any merger or other business combination.
Section 7.27. General. No representation or warranty made herein or in the
-------
Company Disclosure Schedule contains any material misstatement of any fact or
omits to state anything necessary to make any material statement made herein or
therein not misleading.
*** CONFIDENTIAL TREATMENT REQUESTED. 20
<PAGE>
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES REGARDING SUB
Parent and Sub jointly and severally represent and warrant to the Company
as follows:
Section 8.1. Organization. Sub is a corporation duly organized, validly
-------------
existing and in good standing under the laws of the State of Delaware. Sub was
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement. Sub has not engaged in any business since it was incorporated
other than in connection with its organization and the transactions contemplated
by this Agreement and has no, and immediately prior to the Effective Time, will
have no liabilities or obligations except in connection with the transactions
contemplated by this Agreement.
Section 8.2. Capitalization. The authorized capital stock of Sub
---------------
consists of 1,000 shares of common stock, par value $.01 per share, 1,000 shares
of which are validly issued and outstanding, fully paid and nonassessable and
are directly owned by Parent free and clear of all liens, claims and
encumbrances.
Section 8.3. Authority Relative to this Agreement. Sub has the corporate
-------------------------------------
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by its Board of
Directors and sole shareholder, and no other corporate proceedings on the part
of Sub are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement constitutes a valid and binding obligation
of Sub enforceable in accordance with its terms except as enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding therefor may be brought.
ARTICLE IX
CONDUCT OF BUSINESS PENDING THE MERGER
Section 9.1. Conduct of Business by the Company Pending the Merger.
-----------------------------------------------------
Prior to the Effective Time, the Selling Shareholders shall unless Parent shall
otherwise agree in writing or except as otherwise contemplated by this Agreement
or the Company Disclosure Schedule ensure that the Company will not take or
cause to be taken any action, whether before or after the Effective Time, which
would disqualify the Merger as a "reorganization" within the meaning of Section
368(a) of the Code.
Section 9.2. Conduct of Business by Parent Pending the Merger. Prior to
------------------------------------------------
the Effective Time, Parent shall, unless the Company and the Selling
Shareholders shall otherwise agree in writing or except as contemplated by this
Agreement ensure that Parent and Sub will not take or cause to be taken any
action, whether before or after the Effective Time, which would disqualify the
Merger as a "reorganization" within the meaning of Section 368(a) of the Code.
***CONFIDENTIAL TREATMENT REQUESTED. 21
<PAGE>
ARTICLE X
ADDITIONAL AGREEMENTS
Section 10.1. Repayment of Loan. Parent shall cause the Company to pay
-----------------
the amounts set forth below to the Selling Shareholders in repayment of that
certain loan pursuant to which such Selling Shareholders loaned the Company
funds at the annual rate of eight percent (8%) (the "Company Loan") and which
has the aggregate principal balance of Four Hundred Seventy Thousand Dollars
($470,000") as of the Closing.
(a) Parent shall pay to each Selling Shareholder at the Closing an
amount equal to twenty-five percent (25%) of the principal balance of the
Company Loan outstanding as of the Closing Date.
(b) Parent shall pay to each Selling Shareholder, on a date that is
no later than ten (10) days following the six (6) month anniversary of the
Closing, an amount equal to twenty-five percent (25%) of the principal and
accrued interest balance of the Company Loan outstanding as of such six (6)
month anniversary.
(c) Parent shall pay to each Selling Shareholder, on a date that is
no later than ten (10) days following the one (1) year anniversary of the
Closing, an amount equal to fifty percent (50%) of the remaining principal and
accrued interest balance due under the Company Loan on such one (1) year
anniversary.
Section 10.2. Employee Matters. As of the Effective Time, the employees of
----------------
the Company shall continue employment with the Surviving Corporation, in the
same positions and at the same level of wages and/or salary and without having
incurred a termination of employment or separation from service, except as may
be specifically required by applicable law or any contract. The Surviving
Corporation shall not be obligated to continue any employment relationship with
any employee for any specific period of time, unless required by applicable law
and except as provided in the Linn Employment Agreement, the employment
agreement entered into by Mr. Kent Kelderman with Parent (the "Kelderman
Employment Agreement") and any other employment agreements which Parent or the
Surviving Corporation may enter into with any other current employee of the
Company.
Section 10.3. Benefit Plans. After the Effective Time, Parent will, other
-------------
than during the transition period (during which the Company's benefit programs
will be maintained or replaced by the Parent benefits described herein),
provide, or cause the Surviving Corporation to provide, and their respective
successors to maintain, to all employees of the Company benefits under Parent's
Qualified Employee Defined Benefit Plan, Long-Term Disability Plan, Life
Insurance and Health and Welfare Plan on the same terms generally made available
to other employees of Parent and its subsidiaries having similar titles and
responsibilities. To the extent any employee benefit plan, program or policy of
Parent, the Surviving Corporation, or their affiliates is made available to any
person who is an employee of the Company immediately prior to the Effective
Time: (a) the period of service with the Company by any employee prior to the
Effective Time shall be credited for eligibility purposes and for purposes of
qualifying for any additional benefits tied to periods of service (such as
eligibility for early retirement) under such plan,
***CONFIDENTIAL TREATMENT REQUESTED. 22
<PAGE>
program or policy, but not for benefit accrual purposes; and (b) with respect to
any welfare benefit plans to which such employees may become eligible, Parent
shall cause such plans to provide credit for any co-payments or deductibles by
such employees and waive all pre-existing condition exclusions and waiting
periods, other than limitations or waiting periods that have not been satisfied
under any welfare plans maintained by the Company for its employees prior to the
Effective Time.
Section 10.4. Indemnification Provisions for the Benefit of the Current
---------------------------------------------------------
Officers, Directors and Employees of the Company. (a) The Articles of
------------------------------------------------
Incorporation and Bylaws of the Surviving Corporation shall contain the
provisions with respect to indemnification, advancement and director exculpation
set forth in the Articles of Incorporation and Bylaws of the Company on the date
of this Agreement, which provisions shall not be amended, repealed or otherwise
modified for a period of four (4) years after the Effective Time in any manner
that would adversely affect the rights thereunder of persons who at any time
prior to the Effective Time were or would have been entitled to indemnification,
advancement or exculpation under the Articles of Incorporation or Bylaws of the
Company in respect of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated
hereby).
(b) From and after the Effective Time, Parent and the Surviving
Corporation shall, jointly and severally, indemnify, defend and hold harmless
the present and former officers and directors of the Company, and the Selling
Shareholders in their capacity as trustees of any Company "employee benefit
plan" (as defined in Section 5(3) of ERISA) (collectively, the "Company
Indemnified Parties") against all losses, expenses, claims, damages, liabilities
or amounts that are paid in settlement of (with the approval of Parent and the
Surviving Corporation, which approval shall not be unreasonably withheld or
delayed), or otherwise in connection with, any claim, action, suit, proceeding
or investigation (a "Claim"), to which any such person is or may become a party
by virtue of his or her service as a present or former director or officer of
the Company or the Selling Shareholders in their capacity as trustees of any
Company "employee benefit plan" as defined in Section 5(3) of ERISA and arising
out of actual or alleged events, actions or omissions occurring or alleged to
have occurred at or prior to the Effective Time (including, without limitation,
the transactions contemplated hereby), in each case to the fullest extent
permitted under the BCA (and shall pay expenses in advance of the final
disposition of any such action or proceeding to each Company Indemnified Party
to the fullest extent permitted under the BCA, upon receipt from the Company
Indemnified Party to whom expenses are advanced of the undertaking to repay such
advances contemplated by the BCA). The Company Indemnified Parties agree to
reasonably cooperate with Parent in the investigation and defense of any Claim.
Section 10.5. Indemnification Provisions for the Benefit of the Selling
---------------------------------------------------------
Shareholders.
------------
(a) Subject to the provisions of Section 10.8 below, if after the
Effective Time it is determined that Parent has breached any of the
representations, warranties and covenants contained in this Agreement and a
Selling Shareholder makes a written claim for indemnification against the
Company under these circumstances, then Parent agrees to indemnify such Selling
Shareholder from and against the entirety of Adverse Consequences (as defined
below) such party may suffer through and after the date of the clam for
indemnification resulting from arising
***CONFIDENTIAL TREATMENT REQUESTED. 23
<PAGE>
out of, relating to, or caused by such breach. "Adverse Consequences" shall mean
all actions, suits, proceedings, hearings, investigations, charges, complaints,
claims, demands, injunctions, judgments, orders, decrees, rulings, damages,
dues, penalties, fines, costs, reasonable amounts paid in settlement,
liabilities, obligations, taxes, liens, losses, expenses, and fees, including
court costs and reasonable attorneys' fees and expenses.
(b) Any Selling Shareholder wishing to claim indemnification under
this Section 10.5, upon learning of any such Claim, shall notify Parent and the
Surviving Corporation (although the failure so to notify Parent and the
Surviving Corporation shall not relieve either thereof from any liability that
Parent or the Surviving Corporation may have under this Section 10.5, except to
the extent such failure materially prejudices such party). Parent and the
Surviving Corporation shall have the right to assume the defense thereof and
Parent and the Surviving Corporation shall not be liable to such Selling
Shareholder for any legal expenses of other counsel or any other expenses
subsequently incurred by such Selling Shareholders in connection with the
defense thereof, except that if Parent and the Surviving Corporation elect not
to assume such defense or if there is an actual or potential conflict of
interest between, or different defenses exist for Parent and the Surviving
Corporation and one or more of the Selling Shareholders, the Selling
Shareholders may retain counsel satisfactory to them and Parent and the
Surviving Corporation shall pay all reasonable fees and expenses of such counsel
for the Selling Shareholders promptly as statements therefor are received;
provided however, that (i) Parent and the Surviving Corporation shall not, in
connection with any one such action or proceeding or separate but substantially
similar actions or proceedings arising out of the same general allegations, be
liable for the fees and expenses of more than one separate firm of attorneys in
addition to any appropriate local counsel at any time for all Selling
Shareholders unless there is a conflict on any significant issue between the
positions of both Selling Shareholders, in which event any additional counsel as
may be reasonably required may be retained by such Selling Shareholders at
Parent's and the Surviving Corporation's expense, (ii) Parent, the Surviving
Corporation and the Selling Shareholders will cooperate in the defense of any
such matter and (iii) Parent and the Surviving Corporation shall not be liable
for any settlement effected without its prior written consent, which consent
will not be unreasonably withheld or delayed, and provided further, that the
Parent and the Surviving Corporation shall not have any obligation hereunder to
any Selling Shareholder when and if a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final and not
subject to further appeal, that the indemnification of such Selling Shareholder
in the manner contemplated hereby is prohibited by applicable law.
(c) Notwithstanding any other provision of this Agreement: (i) the
aggregate amount recoverable by both Selling Shareholders from the Parent and
the Surviving Corporation together shall not exceed seventy-five percent (75%)
of the proceeds due to and received by the Company and the Selling Shareholders
pursuant to this Agreement (the "Parent Ceiling Amount"); and (ii) no Selling
Shareholder shall have any right to make a claim under this Agreement until the
aggregate amount of all claims made by the Selling Shareholders as a group
exceeds Two Hundred Thousand Dollars ($200,000) (the "Parent Basket Amount").
Notwithstanding anything in this Agreement to the contrary, the foregoing
limitations in subparagraphs (i) and (ii) of this clause (d) shall not apply in
respect to a claim for indemnity which is related to a claim under this
Agreement which resulted from knowing and intentional fraud on the part of the
Parent.
***CONFIDENTIAL TREATMENT REQUESTED. 24
<PAGE>
(d) The indemnification provided by this Section 10.5 shall not apply
if the Company or any Selling Shareholder is proven by the Parent to have had
actual knowledge of any misrepresentation or breach of warranty at the time of
Closing and to have failed to communicate specifically such knowledge in writing
to a representative of the Parent.
(e) The Parties shall make appropriate adjustments for tax effects
and insurance coverage, and take into account the time cost of money in
calculating Claims. In addition, with respect to any Claim which may give rise
to a claim for indemnification under this Section 10.5, the calculation of the
amount of the Claim with respect thereto shall be reduced by the amount of
insurance proceeds that an insurer undertakes to pay to the Selling Shareholders
in the aggregate in respect of such Claim; provided, however, that any such
reduction shall not limit the ability of the Selling Shareholders to obtain
indemnification for the full amount of the Claim suffered by the Selling
Shareholders.
(f) This Section 10.5 shall survive the consummation of the Merger
and is intended to be for the benefit of, and shall be enforceable by, the
Company Indemnified Parties referred to herein, their heirs and personal
representatives and shall be binding on Parent and Sub and the Surviving
Corporation and their respective successors and assigns.
Section 10.6. Indemnification Provisions for the Benefit of Parent.
----------------------------------------------------
(a) Subject to the provisions of Section 10.8 below, if after the
Effective Time it is determined that the Company has breached any of the
representations, warranties and covenants contained in this Agreement and a
Parent Indemnified Party (as hereinafter defined) makes a written claim for
indemnification against any of Selling Shareholders, then the Selling
Shareholders agree to jointly indemnify Parent, its subsidiaries and their
respective officers, directors and employees (collectively, the "Parent
Indemnified Parties", each a "Parent Indemnified Party") from and against the
entirety of Adverse Consequences any Parent Indemnified Party may suffer through
and after the date of the claim for indemnification resulting from, arising out
of, relating to, or caused by such breach.
(b) Following the Effective Time, the representations, warranties and
covenants of each Selling Shareholder are joint, not several obligations of such
Selling Shareholder, such that each Shareholder will be jointly responsible to
indemnify a Parent Indemnified Party for any Adverse Consequences such Parent
Indemnified Party may suffer as a result of any breach thereof and severally
liable to pay one half of such indemnification claim.
(c) Notwithstanding any other provision of this Agreement: (i) the
aggregate amount recoverable by all Parent Indemnified Parties from any one
Selling Shareholder under this Agreement shall not exceed seventy-five percent
(75%) of the proceeds due to and received by such Selling Shareholder pursuant
to the terms of this Agreement, and from the Company and the Selling
Shareholders together shall not exceed the total amount of proceeds due to and
received by the Company and the Selling Shareholders pursuant to the terms of
this Agreement (with respect to each such party, as the context requires, the
"Ceiling Amount"); and (ii) no Parent Indemnified Party shall have any right to
make a claim under this Agreement until the aggregate amount of all claims made
by the Parent Indemnified Parties as a group exceeds Two Hundred Thousand
Dollars ($200,000) (the "Basket Amount"). Notwithstanding anything in this
***CONFIDENTIAL TREATMENT REQUESTED. 25
<PAGE>
Agreement to the contrary, the foregoing limitations in subparagraphs (i) and
(ii) of this clause (d) shall not apply in respect to a claim for indemnity
which is related to a claim under this Agreement which resulted from knowing and
intentional fraud on the part of the Company or any Company Shareholder.
(d) The indemnification provided by this Section shall not apply if
Parent is proven by the Company or the Selling Shareholders to have had actual
knowledge of any misrepresentation or breach of warranty at the time of Closing
and to have failed to communicate specifically such knowledge in writing to a
representative of the Company.
(e) The Parties shall make appropriate adjustments for tax effects
and insurance coverage, and take into account the time cost of money in
calculating Adverse Consequences. In addition, with respect to any claim which
may give rise to a claim for indemnification under this Section 10.6, the
calculation of the amount of Adverse Consequences with respect thereto shall be
reduced by the amount of insurance proceeds that an insurer undertakes to pay to
the Parent in respect of such claim; provided, however, that any such reduction
shall not limit the ability of the Parent Indemnified Party to obtain
indemnification for the full amount of Adverse Consequences ultimately suffered
by the Parent Indemnified Party.
(f) Any Parent Indemnified Party wishing to claim indemnification
under this Section 10.6, upon learning of any such Adverse Consequence shall
notify the Selling Shareholders (although the failure so to notify the Selling
Shareholders shall not relieve such parties from any liability that the Selling
Shareholders may have under this Section 10.6, except to the extent such failure
materially prejudices such party). The Parent Indemnified Parties may retain
counsel satisfactory to them in connection with any Adverse Consequence, and the
Selling Shareholders shall pay all reasonable fees and expenses of such counsel
for the Parent Indemnified Parties promptly as statements therefor are received;
provided however, that (i) the Selling Shareholders shall not, in connection
with any one such action or proceeding or separate but substantially similar
actions or proceedings arising out of the same general allegations, be liable
for the fees and expenses of more than one separate firm of attorneys in
addition to any appropriate local counsel at any time for all Parent Indemnified
Parties unless there is a conflict on any significant issue between the
positions of any two or more of such Parent Indemnified Parties, in which event
any additional counsel as may be reasonably required may be retained by such
Parent Indemnified Parties at the Selling Shareholders' expense; (ii) the
Selling Shareholders and the Parent Indemnified Parties will cooperate in the
defense of any such matter; and (iii) the Selling Shareholders shall not be
liable for any settlement effected without their prior written consent, which
consent will not be unreasonably withheld or delayed; and provided further, that
the Selling Shareholders shall not have any obligation hereunder to any Parent
Indemnified Party when and if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final and not subject to
further appeal, that the indemnification of such Parent Indemnified Party in the
manner contemplated hereby is prohibited by applicable law.
(g) This Section 10.6 shall survive the consummation of the Merger
and is intended to be for the benefit of, and shall be enforceable by, the
Parent Indemnified Parties referred to herein, their successors and assigns and
shall be binding on the Selling Shareholders and their respective heirs and
personal representatives.
***CONFIDENTIAL TREATMENT REQUESTED. 26
<PAGE>
Section 10.7. Determination of Adverse Consequences.
-------------------------------------
(a) The Parent Common Stock in the Escrow Deposit Account shall be
valued in accordance with the terms of the Escrow Agreement.
(b) In the event that there is a Final Determination (as defined
below) that any Parent Indemnified Party is entitled to indemnification
hereunder by reason of clause (a) of Section 10.6, the Selling Shareholders
shall pay all amounts owed to Parent (the "Indemnification Sum') according to
the schedule set forth below. For purposes of this Article X, "Final
Determination" shall mean (i) the final adjudication by a court of competent
jurisdiction, after appeal, (ii) a written settlement agreement executed by all
of the relevant parties, or (iii) written agreement of the relevant parties to
the effect that there has been a final determination.
(i) If the Indemnification Sum becomes due prior to the one
year anniversary of the Closing Date, the Parent will reduce the Six Month
Merger Consideration Installment by the amount of the Indemnification Sum
and, if the Indemnification Sum exceeds One Million Five Hundred Thousand
Dollars ($1,500,000), then the One Year Merger Consideration Installment
will be reduced by the balance of the Indemnification Sum owed to Parent.
To the extent that the Indemnification Sum exceeds Three Million Dollars
($3,000,000), Parent shall have the option to either (x) seek payment for
such amount from the Escrow Deposit Amount or (y) determine whether the
Selling Shareholders have earned the First Additional Consideration
Payment, or any portion thereof, and if so, deduct the balance of the
Indemnification Sum from such payment. If the First Additional
Consideration Payment, or any portion thereof, does not become due to the
Selling Shareholders, Parent still retains its option to seek payment from
the Escrow Deposit Account.
(ii) If the Indemnification Sum becomes due between the first
and second year anniversary of the Closing Date and the Selling
Shareholders are entitled to the First Additional Consideration Payment, or
any portion thereof, Parent will reduce the amount of the First Additional
Consideration Payment, or any portion thereof, by the amount of the
Indemnification Sum. If the Indemnification Sum exceeds Four Million
Dollars ($4,000,000), Parent shall have the option to (x) seek payment for
the balance of the Indemnification Sum owed to Parent from the Escrow
Deposit Amount or (y) determine whether the Selling Shareholders have
earned the Second Additional Consideration Payment, or any portion thereof,
and if so, deduct the balance of the Indemnification Sum owed to Parent
from such payment. If neither the First Additional Consideration Payment
nor the Second Additional Consideration Payment, or any portion thereof,
become due to the Selling Shareholders, Parent may seek payment for the
entire Indemnification Sum for the Escrow Deposit Amount.
(iii) If the Indemnification Sum becomes due between the second
and third year anniversary of the Closing Date and the Selling Shareholders
are entitled to the Second Additional Consideration Payment, or any portion
thereof, Parent will reduce the amount of the Second Additional
Consideration Payment, or any portion thereof, by the amount of the
Indemnification Sum. If the Indemnification Sum exceeds Four Million
***CONFIDENTIAL TREATMENT REQUESTED. 27
<PAGE>
Dollars ($4,000,000), Parent shall have the option to (x) seek payment for
the balance of the Indemnification Sum owed to Parent from the Escrow
Deposit Amount or (y) determine whether the Selling Shareholders have
earned the Third Additional Consideration Payment, or any portion thereof,
and if so, deduct the balance of the Indemnification Sum owed to the Parent
from such payment. If neither the Second Additional Consideration Payment
nor the Third Additional Consideration Payment, or any portion thereof,
become due the Selling Shareholders, Parent may seek payment for the entire
Indemnification Sum from the Escrow Deposit Amount.
Section 10.8. Additional Agreements. Subject to the terms and conditions
---------------------
herein provided, including the provisions of Section 5.4 hereof:
(a) Each of the parties hereto agrees to use all commercially
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including using all commercially reasonable
efforts to obtain all necessary waivers, consents and approvals, to effect all
necessary registrations and filings and to lift any injunction to the Merger
(and, in such case, to proceed with the Merger as expeditiously as possible).
(b) In case at any time after the Effective Time any further action
is necessary or desirable to carry out the purposes of this Agreement, the
proper officers and/or directors of Parent, the Company and the Surviving
Corporation shall take all such necessary action.
Section 10.9. AA Account. In connection with the Company's winding up of
----------
its S corporation status pending the Merger, the Parties agree that (a) the
funds in the Company's AA Account, to the extent that such funds do not exceed
Three Hundred Sixty Thousand Dollars ($360,000), will be distributed to the
Selling Shareholders and (b) there will be no income earned by the Company
during the month of January, 1999 which will be distributed to the Selling
Shareholders.
Section 10.10. Legal Fees. Parent agrees to pay, on behalf of the Selling
----------
Shareholders, all legal fees incurred by the Selling Shareholders prior to the
Closing Date in connection with the Merger; provided that, such legal fees may
not, under any circumstances, exceed One Hundred Thousand Dollars ($100,000);
and provided further, that such legal fees will only become payable upon receipt
by Parent of a detailed invoice, specifically setting forth all hours worked,
task descriptions and rates of counsel to the Selling Shareholders.
ARTICLE XI
CONDITIONS PRECEDENT
Section 11.1. Conditions to Each Party's Obligation to Effect the Merger.
----------------------------------------------------------
The respective obligations of each party to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the following
conditions:
***CONFIDENTIAL TREATMENT REQUESTED. 28
<PAGE>
(a) This Agreement and the transactions contemplated hereby shall
have been approved and adopted by the Selling Shareholders.
(b) No preliminary or permanent injunction or other order by any
federal or state court in the United States of competent jurisdiction which
prevents the consummation of the Merger shall have been issued and remain in
effect (each Party agreeing to use all commercially reasonable efforts to have
any such injunction lifted).
Section 11.2. Conditions to Obligation of the Company to Effect the Merger.
------------------------------------------------------------
The obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the additional following
conditions, unless waived by the Company:
(a) Parent and Sub shall have performed in all material respects all
obligations contained in this Agreement required to be performed on or prior to
the Effective Time, and the Company shall have received a certificate of the
President or a Vice-President of each of the Parent and Sub to that effect.
(b) The representations and warranties of Parent set forth in this
Agreement shall be true and correct as of the date of this Agreement, and shall
also be true and correct in all material respects (except for such changes as
are contemplated by the terms of this Agreement and such changes as would be
required to be made in the exhibits and schedules to this Agreement if such
exhibits and schedules were to speak as of the Closing Date) on and as of the
Closing Date with the same force and effect as though made on and as of the
Closing Date, except if and to the extent any failures to be true and correct
would not, in the aggregate, have a material adverse effect on Parent and its
subsidiaries taken as a whole.
(c) From the date of this Agreement through the Closing Date, except
as otherwise set forth in the Parent Disclosure Schedule, Parent shall not have
suffered any adverse changes in its business, operations or financial condition
which are material to Parent and its subsidiaries taken as a whole (other than
changes generally affecting the industries in which Parent operates, including
changes due to actual or proposed changes in law or regulation).
(d) Parent shall have performed all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, except
where any failures to perform would not, in the aggregate, have a material
adverse effect on Parent and its subsidiaries taken as a whole.
(e) At the Closing, Parent and Sub shall have furnished the Company
with copies of resolutions duly adopted by their respective Boards of Directors
approving the execution, performance and delivery of this Agreement and all
other necessary or proper corporate action to enable them to comply with the
terms of this Agreement.
(f) At the Closing, Parent shall have furnished the Company with an
opinion, dated the Closing Date, of counsel to the Parent and Sub, in
substantially the form attached hereto as Exhibit C.
***CONFIDENTIAL TREATMENT REQUESTED. 29
<PAGE>
(g) The Linn Employment Agreement and the Kelderman Employment
Agreement in the forms attached hereto as Exhibit D and Exhibit E, respectively,
shall have been executed and delivered and shall be in full force and effect.
(h) The consultant agreement between Parent and Diane Rickert (the
"Consultant Agreement"), in the form attached hereto as Exhibit F, shall have
been executed and delivered and shall be in full force and effect.
(i) The Escrow Agreement shall have been executed and delivered and
shall be in full force and effect.
(j) The Registration Rights Agreement in the form attached hereto as
Exhibit G shall have been executed and delivered and shall be in full force and
effect.
Section 11.3. Conditions to Obligations of Parent and Sub to Effect the
---------------------------------------------------------
Merger. The obligations of Parent and Sub to effect the Merger shall be subject
------
to the fulfillment at or prior to the Effective Time of the additional following
conditions, unless waived by Parent:
(a) The Company shall have performed in all material respects all
obligations contained in this Agreement required to be performed on or prior to
the Effective Time and Parent shall have received a certificate of the President
or Vice-President of the Company to that effect.
(b) The representations and warranties of the Company set forth in
this Agreement shall be true and correct as of the date of this Agreement, and
shall also be true and correct in all material respects (except for such changes
as are contemplated by the terms of this Agreement and such changes as would be
required to be made in the exhibits and schedules to this Agreement if such
exhibits and schedules were to speak as of the Closing Date) on and as of the
Closing Date with the same force and effect as though made on and as of the
Closing Date, except if and to the extent any failures to be true and correct
would not, in the aggregate, have a material adverse effect on the Company and
its subsidiaries taken as a whole.
(c) From the date of this Agreement through the Closing Date, except
as otherwise set forth in the Company Disclosure Schedule, the Company shall not
have suffered any adverse changes in its business, operations or financial
condition which are material to the Company and its subsidiaries taken as a
whole (other than changes generally affecting the industries in which the
Company operates, including changes due to actual or proposed changes in law or
regulation, or changes relating to the transactions contemplated by this
Agreement, including the change in control contemplated hereby).
(d) At the Closing, the Company shall have furnished Parent with
copies of (i) resolutions duly adopted by the Board of Directors of the Company
approving the execution and delivery of this Agreement and all other necessary
or proper corporate action to enable the Company to comply with the terms of
this Agreement, and (ii) the resolution duly adopted by the holders of Shares
approving and adopting this Agreement and the Merger, such resolutions to be
certified by the Secretary or Assistant Secretary of the Company.
***CONFIDENTIAL TREATMENT REQUESTED. 30
<PAGE>
(e) At the Closing, the Company shall have furnished Parent with an
opinion, dated the Closing Date, of counsel to the Company, in substantially the
form attached hereto as Exhibit H.
(f) The Linn Employment Agreement and the Kelderman Employment
Agreement shall have been executed and delivered and shall be in full force and
effect.
(g) The Consultant Agreement shall have been executed and delivered
and shall be in full force and effect.
(h) The Escrow Agreement shall have been executed and delivered and
shall be in full force and effect.
(i) The Registration Rights Agreement shall have been executed and
delivered and shall be in full force and effect.
ARTICLE XII
POST CLOSING COVENANTS
Section 12.1. Tax Returns. In filing federal tax returns at any time, each
-----------
of Parent, the Company and Sub will take consistent filing positions to the
effect that for federal income tax purposes the Merger qualifies as a
"reorganization" within the meaning of Section 368(a)(1)(A) of the Code, and no
Selling Shareholder will be required to recognize income gain or loss with
respect thereto, except with respect to cash payments made pursuant to Articles
III and IV.
Section 12.2. Budget of Expenses. Following the Closing, Parent will, or
------------------
will cause the Surviving Corporation to, make available to the Surviving
Corporation, and allocate for expenditure by the Surviving Corporation, the
amounts contemplated in the budget of expenses set forth in Section 4.3 of this
Agreement.
ARTICLE XIII
AMENDMENT AND WAIVER
Section 13.1. Amendment. This Agreement may be amended by the Parties
---------
hereto, by action taken by their respective Boards of Directors, if applicable,
at any time before or after approval of matters presented in connection with the
Merger by the Selling Shareholders, but after any such approval, no amendment
shall be made which by law requires the further approval of such Selling
Shareholders without obtaining such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
Parties hereto. This Agreement may not be amended following Closing without the
written consent of each of the Selling Shareholders and any other Parent
Indemnified Party.
Section 13.2. Waivers. At any time prior to the Effective Time, the
-------
Parties, by or pursuant to action taken by their respective Boards of Directors,
if applicable, may (i) extend the
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time for the performance of any of the obligations or other acts of the other
Parties, (ii) waive any inaccuracies by the other Party in the representations
and warranties contained herein or in any documents delivered pursuant hereto
and (iii) waive compliance by the other Party with any of the agreements or
conditions contained herein; provided that, no waiver may be made following the
Effective Time without the written consent of each of the Selling Shareholders
and any other Parent Indemnified Party. Any agreement on the part of a Party to
any such extension or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such Party. Except as provided in this Agreement, no
action taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any Party, shall be deemed to constitute a
waiver by the Party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any Party of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
ARTICLE XIV
MISCELLANEOUS
Section 14.1. Survival of Representations, Warranties, Covenants and
------------------------------------------------------
Agreements. All representations, warrants, covenants and agreements set forth in
----------
this Agreement or in any certificate delivered pursuant hereto shall survive the
Closing hereunder and continue in full force and effect following the Closing:
(a) In the case of the representations and warranties set forth in
Section 7.12, until thirty (30) days after the expiration of statutes of
limitation applicable by law.
(b) In the case of all other representations and warranties for a
period of eighteen (18) months after the Closing.
(c) Notwithstanding clauses (a) and (b) of this Section 14.1, any
representation or warranty shall survive the time it would otherwise terminate
pursuant to this Section to the extent that notice of a breach thereof giving
rise to a right of indemnification shall have been given by a Party in
accordance with Article X of this Agreement (but only with respect to the claims
made in such notice).
(d) All covenants and other agreements made herein shall survive in
accordance with their respective terms.
Section 14.2. Notices. All notices or other communications under this
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Agreement shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by cable, telegram, telex
or other standard form of telecommunications, or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company:
D&L Online, Inc.
300 Walnut Street
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Des Moines, Iowa 50309
Facsimile: (515) 280-1452
Attention: Lloyd D. Linn
With a copy to:
Christopher T. Brown, Esquire
Baker & Botts, L.L.P.
1600 San Jacinto Center
98 San Jacinto Blvd.
Austin, Texas 78701
Facsimile: (512) 322-2501
Ronald A. Riley, Esquire
Hansen, McClintock, & Riley
Fleming Building, 8th Floor
218 Sixth Avenue
Des Moines, Iowa 50309
Facsimile: (515) 244-2931
If to Parent or Sub:
EarthWeb Inc.
Three Park Avenue
33rd Floor
New York, NY 10016
Facsimile: (212) 725-6559
Attention: President
With a copy to:
John R. Hempill, Esquire
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile: (212) 468-7900
or to such other address as any Party may have furnished to the other Parties in
writing in accordance with this Section.
Section 14.3. Fees and Expenses. Whether or not the Merger is consummated,
-----------------
except as provided in Section 10.10, all costs and expenses, including legal and
accounting fees, incurred in connection with this Agreement and the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses, whether or not the Merger is consummated except as expressly provided
herein.
Section 14.4. Publicity. So long as this Agreement is in effect, Parent,
---------
Sub and the Company agree to consult with each other in issuing any press
release or otherwise making any
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public statement with respect to the transactions contemplated by this
Agreement, and none of them shall issue any press release or make any public
statement prior to such consultation, except as may be required by law or by
obligations pursuant to any listing agreement with NASDAQ or any other national
securities exchange.
Section 14.5. Specific Performance. The Parties agree that irreparable
--------------------
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the Parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
Section 14.6. Assignment; Binding Effect. Neither this Agreement nor any of
--------------------------
the rights, interests or obligations hereunder shall be assigned by any of the
Parties (whether by operation of law or otherwise) without the prior written
consent of the other Parties. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the Parties and their
respective successors and assigns. Notwithstanding anything contained in this
Agreement to the contrary, except as provided in Sections 5.3, 10.5 and 10.10
nothing in this Agreement, expressed or implied, including without limitation
the provisions of Section 10.4, is intended to nor shall it confer on any person
other than the Parties or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
Section 14.7. Entire Agreement. This Agreement, the Exhibits, the Company
----------------
Disclosure Schedule, the Parent Disclosure Schedule and any documents delivered
by the Parties in connection herewith and therewith constitute the entire
agreement among the Parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the Parties with respect
thereto. No addition to or modification of any provision of this Agreement
shall be binding upon any Party hereto unless made in writing and signed by all
Parties.
Section 14.8. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York, without regard
to its rules of conflict of laws.
EACH OF THE PARTIES (I) CONSENTS TO SUBMIT ITSELF TO THE PERSONAL
JURISDICTION OF ANY FEDERAL COURT LOCATED IN THE STATE OF NEW YORK OR ANY NEW
YORK STATE COURT IN THE EVENT ANY DISPUTE ARISES OUT OF THIS AGREEMENT OR ANY OF
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, (II) AGREES THAT IT SHALL NOT
ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY MOTION OR OTHER REQUEST
FOR LEAVE FROM ANY SUCH COURT, AND (III) AGREES THAT IT SHALL NOT BRING ANY
ACTION RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT IN ANY COURT OTHER THAN A FEDERAL COURT SITTING IN THE STATE OF
NEW YORK OR A NEW YORK STATE COURT.
Section 14.9. Counterparts. This Agreement may be executed by the Parties
------------
in separate counterparts, each of which when so executed and delivered shall be
an original, and all of which
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together shall constitute one and the same instrument. Each counterpart may
consist of a number of copies hereof each signed by less than all, but together
signed by all of the Parties.
Section 14.10. Headings and Table of Contents. Headings of the Articles and
------------------------------
Sections of this Agreement and the Table of Contents are for the convenience of
the parties only, and shall be given no substantive or interpretive effect
whatsoever.
Section 14.11. Interpretation. In this Agreement, unless the context
--------------
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and partnerships
and vice versa.
Section 14.12. Severability. Any term or provision of this Agreement which
------------
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
Section 14.13. Subsidiaries. As used in this Agreement, the word
------------
"subsidiary" when used with respect to any Party means any corporation or other
organization, whether incorporated or unincorporated, of which such Party
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect to
such corporation or other organization, or any organization of which such Party
is a general partner.
Section 14.14. Third-Party Beneficiaries. Except as provided in the second
-------------------------
sentence of this Section 14.14, the terms and provisions of this Agreement are
intended solely for the benefit of the Parties and their respective successors
and assigns, and it is not the intention of the Parties to confer third-party
beneficiary rights upon any other person. Each of the Company Indemnified
Parties, to the extent not a Party, and Mr. Kent Kelderman shall constitute a
third-party beneficiary under this Agreement with respect to the provisions of
Sections 10.4 and 10.6 and Section 5.3, respectively of this Agreement, entitled
to enforce its terms against each of the Parties.
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IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunder duly authorized all as of
the date first written above.
EarthWeb Inc.
By: /s/ Murray Hidary
-----------------------------------
Name: Murray Hidary
Title: Executive Vice President
EW Acquisition Corporation
By: /s/ Murray Hidary
-----------------------------------
Name: Murray Hidary
Title: Executive Vice President
D&L Online, Inc.
By: /s/ Lloyd D. Linn
-----------------------------------
Name: Lloyd D. Linn
Title: President
/s/ Lloyd Linn
-----------------------------------
Lloyd Linn
/s/ Diane Rickert
-----------------------------------
Diane Rickert
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