<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended: June 30, 1999
or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _____ to _____.
Commission file number: 0-27680
INTELLIQUEST INFORMATION GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 74-2775377
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1250 Capital of Texas Highway
Austin, Texas 78746
(512) 329-0808
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JUNE 30, 1999
Common Stock, $.0001 par value 7,882,961
1
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INTELLIQUEST INFORMATION GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 1999 (unaudited) and December 31, 1998 3
Condensed Consolidated Statement of Operations (unaudited)
Three Months Ended June 30, 1999 and 1998 4
Condensed Consolidated Statement of Operations (unaudited)
Six Months Ended June 30, 1999 and 1998 5
Consolidated Statement of Comprehensive Income (unaudited) 6
Three Months Ended June 30, 1999 and 1998
Consolidated Statement of Comprehensive Income (unaudited) 7
Six Months Ended June 30, 1999 and 1998
Condensed Consolidated Statement of Cash Flows (unaudited)
Six Months Ended June 30, 1999 and 1998 8
Notes to Consolidated Financial Statements 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
</TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
2
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INTELLIQUEST INFORMATION GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash --------------------------------------------------------------- $ 1,904 $ 5,611
Short-term investments---------------------------------------------- 27,643 28,010
Accounts receivable, net-------------------------------------------- 7,854 10,978
Unbilled revenues--------------------------------------------------- 5,357 3,532
Projects in process------------------------------------------------- 2,718 153
Prepaid expenses and other assets----------------------------------- 3,686 2,336
-------- ---------
Total current assets-------------------------------------------- 49,162 50,620
Furniture and equipment, net---------------------------------------- 3,113 2,850
License agreement, net --------------------------------------------- 7,218 7,324
Other assets-------------------------------------------------------- 1,488 1,793
-------- ---------
Total assets---------------------------------------------------- $ 60,981 $ 62,587
======== ========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable---------------------------------------------------- $ 2,556 $ 3,996
Accrued liabilities------------------------------------------------- 2,559 2,826
Deferred revenues--------------------------------------------------- 3,314 2,145
-------- --------
Total current liabilities--------------------------------------- 8,429 8,967
Obligations under capital leases and deferred rent--------------------- 241 79
-------- --------
Total liabilities----------------------------------------------- 8,670 9,046
-------- --------
Stockholders equity:
Series A junior participating preferred stock----------------------- - -
Common stock, $.0001 par value, 30,000,000 shares authorized,
8,603,000 and 8,563,000 shares issued and outstanding, respectively
720,000 and 720,000 shares in treasury, respectively---------------- 1 1
Capital in excess of par value-------------------------------------- 54,133 53,976
Other--------------------------------------------------------------- (1) 121
Accumulated deficit ------------------------------------------------ (1,822) (557)
-------- --------
Total stockholders equity--------------------------------------- 52,311 53,541
-------- --------
Total liabilities and stockholders equity----------------------- $ 60,981 $ 62,587
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
3
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INTELLIQUEST INFORMATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1999 1998
---- ----
<S> <C> <C>
Revenues:
Continuous services------------------------------------------------- $ 7,684 $ 8,450
Other services------------------------------------------------------ 1,617 1,537
-------- --------
Total revenues---------------------------------------------------- 9,301 9,987
-------- --------
Operating expenses:
Costs of revenues--------------------------------------------------- 5,072 5,113
Sales, general and administrative----------------------------------- 5,545 4,947
Product development------------------------------------------------- 464 678
Depreciation and amortization--------------------------------------- 407 289
-------- --------
Total operating expenses------------------------------------------ 11,488 11,027
-------- --------
Operating loss--------------------------------------------------------- (2,187) (1,040)
Interest income, net ----------------------------------------------- 249 360
-------- --------
Loss before income tax benefit-------------------------------------- (1,938) (680)
Income tax benefit-------------------------------------------------- 945 413
-------- --------
Net loss--------------------------------------------------------------- $ (993) $ (267)
======== ========
Basic loss per share--------------------------------------------------- $ (.13) $ (.03)
Diluted loss per share------------------------------------------------- $ (.13) $ (.03)
Basic weighted average shares outstanding------------------------------ 7,883 8,452
Diluted weighted average shares outstanding---------------------------- 7,883 8,452
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
4
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INTELLIQUEST INFORMATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 1998
---- ----
<S> <C> <C>
Revenues:
Continuous services------------------------------------------------- $ 16,184 $ 16,669
Other services------------------------------------------------------ 4,098 3,277
-------- --------
Total revenues---------------------------------------------------- 20,282 19,946
-------- --------
Operating expenses:
Costs of revenues--------------------------------------------------- 10,787 10,911
Sales, general and administrative----------------------------------- 10,921 11,068
Product development------------------------------------------------- 874 3,060
Depreciation and amortization--------------------------------------- 758 618
-------- --------
Total operating expenses------------------------------------------ 23,340 25,657
-------- --------
Operating loss--------------------------------------------------------- (3,058) (5,711)
Interest income, net ------------------------------------------------ 516 768
-------- --------
Loss before income tax benefit--------------------------------------- (2,542) (4,943)
Income tax benefit--------------------------------------------------- 1,279 2,307
-------- --------
Net loss--------------------------------------------------------------- $ (1,263) $ (2,636)
======== ========
Basic loss per share--------------------------------------------------- $ (.16) $ (.31)
Diluted loss per share------------------------------------------------- $ (.16) $ (.31)
Basic weighted average shares outstanding------------------------------ 7,870 8,468
Diluted weighted average shares outstanding---------------------------- 7,870 8,468
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
5
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INTELLIQUEST INFORMATION GROUP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1999 1998
---- ----
<S> <C> <C>
Net loss--------------------------------------------------------------- $ (993) $ (267)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments---------------------------- 20 (1)
Unrealized loss on securities--------------------------------------- (42) (1)
--------- --------
Other comprehensive loss ---------------------------------------------- (22) (2)
--------- --------
Comprehensive loss----------------------------------------------------- $ (1,015) $ (269)
========= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
6
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INTELLIQUEST INFORMATION GROUP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 1998
---- ----
<S> <C> <C>
Net loss................................................................ $(1,263) $(2,636)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments............................. (14) 4
Unrealized loss on securities........................................ (64) (14)
------- -------
Other comprehensive loss ............................................... (78) (10)
------- -------
Comprehensive loss...................................................... $(1,341) $(2,646)
======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
7
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INTELLIQUEST INFORMATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss------------------------------------------------------------ $ (1,263) $ (2,636)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization------------------------------------- 764 779
Provision for doubtful accounts----------------------------------- 61 240
Asset impairment and loss on disposal of assets------------------- 75 2,873
Deferred compensation--------------------------------------------- 7 6
Net changes in assets and liabilities:
Accounts receivable and unbilled revenues------------------------- 1,238 (4,693)
Prepaid expenses and other assets--------------------------------- (1,350) (2,987)
Projects in process----------------------------------------------- (2,566) (2,064)
Accounts payable and accrued expenses----------------------------- (1,708) 2,337
Deferred revenues------------------------------------------------- 1,169 924
Other------------------------------------------------------------- 305 469
-------- --------
Net cash used in operating activities---------------------------------- (3,268) (4,752)
-------- --------
Cash flows from investing activities:
Purchases of short-term investments------------------------------- (26,401) (119,191)
Sales and maturities of short-term investments------------------- 26,584 125,564
Purchases of equipment and leasehold improvements------------------- (996) (589)
Purchase of Information Technology Forum assets, net of cash
acquired--------------------------------------------------------- - (138)
Purchase of Treasury Stock------------------------------------------ - (1,536)
Other--------------------------------------------------------------- 184 163
-------- --------
Net cash (used in) provided by investing activities------------- (629) 4,273
-------- --------
Cash flows from financing activities:
Proceeds from issuance of stock, net-------------------------------- 157 54
Other--------------------------------------------------------------- 33
-------- --------
Net cash provided by financing activities----------------------- 190 54
-------- --------
Net decrease in cash and equivalents-------------------------------- (3,707) (425)
Cash and equivalents at the beginning of the period----------------- 5,611 1,785
-------- --------
Cash and equivalents at the end of the period----------------------- $ 1,904 $ 1,360
======== ========
Supplemental cash flow disclosures:
Interest paid------------------------------------------------------- $ - $ 1
Taxes paid---------------------------------------------------------- - 49
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
8
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INTELLIQUEST INFORMATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 1998
---- ----
<S> <C> <C>
Schedule of noncash investing and financing activities:
Purchase of Information Technology Forum assets
Working capital other than cash----------------------------------- $ - $ 43
Equipment and leasehold improvements------------------------------ - 17
Intangibles------------------------------------------------------- - 821
Capital lease assumed--------------------------------------------- - (10)
Issuance of unregistered common stock----------------------------- - (733)
-------- --------
Cash paid for Information Technology Forum assets, net
of cash acquired------------------------------------------------ $ - $ 138
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
9
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INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. GENERAL AND BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements
include the accounts of IntelliQuest Information Group, Inc., a Delaware
corporation, and its consolidated subsidiaries (collectively, the
"Company" or "IntelliQuest"). The Company provides international
quantitative marketing information to technology companies, and operates
under two divisions: the marketing research division and IQ2.net. These
divisions focus on a suite of online and database marketing services
which can greatly improve the identification and segmentation of
customers and prospects for more effective customer acquisition and
retention.
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission regarding interim financial statements
and, accordingly, do not include all information and notes required under
generally accepted accounting principles for complete financial
statements. In the opinion of management, the accompanying unaudited
interim consolidated financial statements contain all adjustments of a
normal recurring nature as considered necessary for a fair presentation
of the financial position of the Company as of June 30, 1999 and the
results of the Company's operations and its cash flows for the three and
six month period ended June 30, 1999 and 1998. This report on Form 10-Q
should be read in conjunction with the Company's audited consolidated
financial statements and related notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
2. LICENSE AGREEMENT
On December 22, 1997, the Company paid $7.5 million for an exclusive
licensing agreement to market and sell database products to the
high-tech, telecommunications, cable and utility industries. In
conjunction with the agreement the Company pays the licensor royalties
and fees on revenue from the sale of data and services.
The contract provides for annual target minimum payments. Royalties and
service fees for the database marketing products were sufficient to
satisfy the prorated annual target minimum payments under this agreement.
Of the total license fee of $7.5 million, $5 million is refundable under
certain conditions. Should the license be canceled by the Company, or
canceled due to the acquisition by the Company of a competitor of the
licensor or to the acquisition of the Company by a competitor of the
licensor, or under certain other conditions, the refundable $5 million
portion may not be recoverable by the Company.
3. ACQUISITION OF ASSETS/ RELATED PARTY TRANSACTION
Effective January 1, 1998, the Company purchased certain assets of
Information Technology Forum, Inc. ("ITF") a company wholly owned by
Charles W. Stryker, who was a Director of the
10
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INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Company at the time of the acquisition. The assets were purchased with cash
and stock and the transaction was accounted for under the purchase
method. The assets purchased were recorded at fair value at the time of
purchase. The excess of the purchase price over the fair value of amounts
assigned to the net tangible assets purchased has been assigned to
goodwill in the amount of approximately $831,000, as reported in the
Company's Annual Report on Form 10-K for the period. As the operations of
ITF are immaterial to the Company as a whole, pro forma financial
statements are not disclosed.
4. STOCK REPURCHASE PROGRAM
In January 1998, the Board of Directors approved the repurchase of up to
850,000 shares of the Company's common stock. As of June 30, 1999, 720,000
shares have been repurchased.
5. SEGMENT INFORMATION
The Company is organized on the basis of products and services provided.
The table below presents information about reported segments for the
three months ended June 30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
Research IQ2.net
-------- -------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 4,953 $ 5,230 $ 4,349 $ 4,757
------------------ ------------------
EBIT $(1,432) $(1,119) $ (755) $ 79
================== ==================
</TABLE>
A reconciliation of total segment revenues to total consolidated
revenues and of total segment EBIT to total consolidated operating
loss, for the three months ended June 30, 1999 and 1998 is as follows
(in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
REVENUES
Total segment revenues $ 9,301 $ 9,987
Other reconciling items --- ---
--------------------
Consolidated revenues $ 9,301 $ 9,987
====================
EBIT
Total EBIT for reportable segments $(2,187) $(1,040)
Reconciling items:
Other --- ---
--------------------
Operating loss (2,187) (1,040)
Other income, net 249 360
--------------------
Loss before tax benefit $(1,938) $ (680)
====================
</TABLE>
11
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The table below presents information about reported segments for
the six months ended June 30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
Research IQ2.net
-------- -------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 10,987 $ 10,921 $ 9,295 $ 9,025
------------------- -------------------
EBIT $ (2,003) $ (1,917) $ (1,056) $ (1,419)
=================== ===================
</TABLE>
A reconciliation of total segment revenues to total
consolidated revenues and of total segment EBIT to total consolidated
operating loss, for the six months ended June 30, 1999 and 1998 is as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
REVENUES
Total segment revenues $ 20,282 $ 19,946
Other reconciling items --- ---
---------------------
Consolidated revenues $ 20,282 $ 19,946
=====================
EBIT
Total EBIT for reportable segments $ (3,059) $ (3,336)
Reconciling items:
Write down of capitalized software
Not attributable to defined segment --- (916)
Unsuccessful launch of new segment --- (805)
Charges for unsuccessful launch of
National sales force --- (496)
Other --- (158)
---------------------
Operating loss (3,059) (5,711)
Other income, net
516 768
---------------------
Loss before tax benefit $ (2,543) $ (4,943)
=====================
</TABLE>
EBIT is net income before interest and taxes. EBIT is a financial
measure commonly used as an indicator of operating performance and
should not be construed as an alternative to net income as determined
in accordance with generally accepted accounting principles.
EBIT for IQ2.net in 1998 includes a one-time write off of capitalized
internally developed software of $580,000.
6. BARTER REVENUE RECOGNITION
During the first quarter of 1999, the Company entered into six barter
agreements with Internet search engine companies. These agreements allow
IntelliQuest access to Internet banner impressions for soliciting marketing
information responses; in return, the Internet companies receive
product-marketing
12
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INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
data from this information. These transactions had associated recognized
revenue of $231,500 and direct expenses of $231,500, resulting in no
effect on results of operations. These types of transactions are common
in this industry. The Company has participated in these types of
transactions in the past, but the associated revenues and expenses were
immaterial.
7. SUBSEQUENT EVENTS
SALE OF IQ2.NET
On July 22, 1999 Naviant Technology Solutions, Inc. and IntelliQuest
Information Group, Inc. signed an agreement to sell the IQ2.net division,
which includes all of the capital stock of IQ2.net and certain other
related assets. The purchase price is $46.5 million, of which $2 million
will be held in escrow pending verification of the "Net Asset Value",
which must be valued between $11.5 million and $13.0 million. Even though
the Company expects to close this transaction before the end of the third
quarter, the transaction is subject to a number of conditions, some of
which are beyond its control. There is no certainty that a transaction
will result from this agreement.
INTELLIQUEST, INC. CASH MERGER
On August 12, 1999, the Company entered into a definitive agreement with
Kantar Media Research, Inc., a subsidiary of WPP, Inc., pursuant to
which, and subject to certain conditions, Kantar will acquire the Company
in a cash merger transaction for an aggregate cash price of $42.5
million, plus an amount equal to the Company's cash on hand at closing.
This amount will be subject to adjustment up or down based on
IntelliQuest's meeting certain financial targets and maintaining a
certain level of working capital. Principal conditions precedent to such
acquisition include approval of the acquisition by the Company's
shareholders, regulatory approvals, and the completion of the sale of the
Company's IQ2.net, Inc. operations to Naviant Technology Solutions, Inc.
Although the Company expects to close the merger in the fourth quarter of
this year, its completion is subject to several conditions beyond its
control. There is no certainty that a transaction will result from this
agreement.
13
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS CONTAINS TREND ANALYSIS AND OTHER
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH
FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THE COMPANY'S
EXPECTATIONS REGARDING ITS FUTURE FINANCIAL CONDITION AND OPERATING RESULTS,
PRODUCT DEVELOPMENT, BUSINESS AND GROWTH STRATEGY, CONTEMPLATED DISPOSITIONS,
MARKET CONDITIONS AND COMPETITIVE ENVIRONMENT. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO RISKS
ASSOCIATED WITH DATABASE MARKETING INFORMATION SERVICES, RELIANCE ON KEY
CUSTOMERS/TECHNOLOGY INDUSTRY CONSOLIDATION; DEPENDENCE ON SUBSCRIPTION AND
CONTRACT RENEWALS; FLUCTUATIONS IN OPERATING RESULTS/SEASONALITY; MANAGEMENT
OF GROWTH/POSSIBLE ACQUISITIONS; COMPETITION; DEPENDENCE ON KEY PERSONNEL;
DEVELOPMENT OF DIRECT SALES FORCE; RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCT
INTRODUCTION; DATA COLLECTION RISKS; RISKS RELATED TO CIMS; HISTORY OF NET
LOSSES/UNCERTAIN PROFITABILITY; LIMITED PROTECTION OF PROPRIETARY SYSTEMS,
SOFTWARE AND PROCEDURES; THE COMPANY'S PURSUIT OF STRATEGIC ALLIANCES; AND
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.
OVERVIEW
IntelliQuest is a leading provider of information, technologies, and
analysis services that are designed to improve the marketing performance of
technology companies. IntelliQuest supplies customers with timely, objective,
accurate and cost-effective information about technology markets, customers
and products on both a subscription basis and a proprietary project basis. The
Company uses its proprietary databases, software and subscription-based
strategic consulting services to help technology companies track product
performance and customer satisfaction, measure advertising effectiveness,
assess brand strength and competitive position, determine price sensitivity,
and evaluate new products, markets or other business opportunities. The
Company licenses custom proprietary software applications and associated
services to technology manufacturers for customer registration. In December
1997, the Company entered into an exclusive licensing agreement to market and
sell database products to the high-tech, telecommunications, cable and utility
industries.
The Company's continuous services are composed of renewable
subscription-based products, renewable proprietary products, customer
information products sold under contract, and recurring conferences. The
Company's renewable subscription-based product revenues are derived
substantially from four product families: IntelliTrack IQ, World Wide Internet
Tracking Study ("WWITS"), the Computer Industry Media Study ("CIMS"), and Zona
Advisory Services. The Company's renewable proprietary product revenues
typically consist of revenues from proprietary recurring tracking studies,
panel projects, "value-add" proprietary services, and customer information
products. Revenues from the customer information products are derived from a
variety of sources, including proprietary customer registration products,
proprietary customer satisfaction products and database marketing services.
Renewable customer information revenues include data medium sales, processing
fees and reporting fees. The Company's other services are composed of
non-recurring proprietary research, non-recurring conferences and database
marketing services sold to clients where an ongoing contractual agreement does
not exist.
14
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Renewable subscription products, except for CIMS, are furnished
pursuant to contracts that are generally renewable annually, and revenue is
amortized pro rata over the contract terms. Substantially all CIMS revenues
and related costs are deferred and recognized upon delivery of the final
study, which typically occurs in the third quarter. Renewable proprietary and
panel products are furnished pursuant to contracts that are generally
renewable annually. Revenues for renewable proprietary and panel products are
recognized on a percentage of completion basis. Customer information products
are recognized based on actual units' shipped/processed. Revenue for
conferences is recognized in the period in which the conference takes place.
The Company's exposure to foreign currency rate fluctuations has been
relatively low. First, the Company generally requires payment from its
customers in U.S. dollars. Second, the Company controls vendor related foreign
currency risk both through contractual clauses requiring clients to reimburse
the Company for any material losses on contracts caused by exchange rate
fluctuations and by locking in forward currency contracts. The Company's
objective in managing the exposure to foreign currency fluctuations is to
reduce earnings and cash flow volatility associated with foreign exchange rate
changes. Accordingly, the Company utilizes foreign currency option contracts
and forward contracts to hedge a portion of its exposure on anticipated
transactions and firm commitment transactions. The currency hedged is the
British pound. The Company monitors its foreign exchange exposures to ensure
the overall effectiveness of its foreign currency hedge positions. However,
there can be no assurance the Company's foreign currency hedging activities
will substantially reduce the impact of fluctuations in currency exchange
rates on its results of operations and financial position. As of June 30,
1999, there were no outstanding forward contracts in place.
RESULTS OF OPERATIONS
TOTAL REVENUES. Total revenues decreased from $10.0 million to $9.3
million for the quarters ended June 30, 1998 and 1999, respectively, and
increased from $19.9 million to $20.3 million for the six months ended June
30, 1998 and 1999. This decline represents a 6.9% decrease for the three-month
period ended June 30, 1999 from the comparable 1998 period and an increase of
1.7% for the six months ended June 30, 1998 and 1999 respectively.
Revenues from continuous services decreased 9.1% from $8.5 million to
$7.7 million for the quarters ended June 30, 1998 and 1999, respectively, and
2.9% from $16.7 million to $16.2 million for the six months ended June 30,
1998 and 1999. This was due to shifts in the product lines and divisional
sales mix. Other revenue increased 5.2% to $1.6 million for the three months
ended June 30, 1999 from $1.5 million for first quarter of 1998 and 25.1% from
$3.3 million to $4.1 million for the six months ended June 30, 1998 and 1999
respectively.
Revenues attributable to international market research decreased
18.1% from $2.2 million to $1.8 million for the quarters ended June 30, 1998
and 1999, respectively, and increased 24.3% from $3.7 million to $4.6 million
for the six months ended June 30, 1998 and 1999 respectively. This was due to
increased projects associated with our current customer base.
COSTS OF REVENUES. Costs of revenues are primarily composed of data
collection, labor charges, database marketing service charges, royalties,
telecommunications charges and other costs directly attributable to products
or projects. Costs of revenues remained constant at $5.1 million for the
quarters ended June 30, 1998 and 1999, respectively. Costs of revenues
increased as a percentage of total revenues from 51% to 55% for the quarters
ended June 30, 1998 and 1999, respectively, and decreased
15
<PAGE>
1.1% from $10.9 million to $10.8 million for the six months ended June 30,
1998 and 1999 respectively. The increase was a result of lower sales while
maintaining the structure needed for higher growth.
SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses consist primarily of personnel and other costs
associated with sales, marketing, administration, finance, information
systems, human resources and general management. Sales, general and
administrative expenses increased 12.1% from $4.9 million to $5.5 million for
the quarters ended June 30, 1998 and 1999, respectively, and decreased from
$11.1 million to $10.9 million for the six months ended June 30, 1998 and
1999. As a percentage of total revenues, sales, general and administrative
expenses increased to 59.6% for the second quarter of 1999 from 49.5% for the
second quarter of 1998 and decreased from 55.5% to 53.8% for the six months
ended June 30, 1998 and 1999 respectively. This increase is due primarily to
increased salaries and benefits resulting from under utilization of the direct
labor force in which non-productive time is charged to S,G&A.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses include
costs incurred to develop or design new products, services or processes and
significantly enhance existing products, services, and processes. Product
development expenses were $678,000 and $464,000 for the three months ended
June 30, 1998 and 1999, respectively, and decreased 71.4% from $3.1 million to
$874,000 for the six months ended June 30, 1998 and 1999 respectively. This
decrease was a result of a one-time charge in 1998 for internally developed
software that was written off. As a percentage of total revenues, product
development expenses represented 6.8% and 4.9% for the second quarters of 1998
and 1999, respectively, and 15.3% to 4.3% for the six months ended June 30,
1998 and 1999 respectively. The decrease in 1999 is primarily related to the
reorganization of the Research product development team and IQ2.net's decision
to outsource the development of a key product.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
increased 40.8% from $289,000 to $407,000 for the quarters ended June 30, 1998
and 1999, respectively, and 22.7% from 618,000 to 758,000 for the six months
ended, June 30, 1998 and 1999 respectively. The increase is primarily due to
the construction of a new Data Collection Center in Austin and the upgrade of
computer systems for Y2K compliance.
INCOME TAXES. Benefit for income taxes was 48.7% of income before
income taxes for the quarter ended June 30, 1999 and 50.3% for the six months
ended June 30, 1999. This rate is higher than the Company's combined federal
and state income tax rates due to significant interest income derived from in
tax-free investments, as a percentage of loss before taxes. As a percentage of
operating income before investment income the rate is 38.3%, as calculated
during 1998, which approximates the Company's effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had cash of $1.9 million and
short-term investments of $27.6 million and working capital of $40.7 million.
During the six months ended June 30, 1999, the Company used $3.3
million for operating activities versus $4.8 million during the same period in
the prior year. This decrease in cash flow used for operations was primarily due
to the ability to collect accounts receivable and monitor the use of cash for
other activities. Billed amounts are recorded as deferred revenues on the
Company's financial statements and are recognized as income when earned. As of
June 30, 1998 and 1999, the Company had $2.1 million and $3.3 million,
respectively, of deferred revenues. In addition, when work is performed in
advance of billing,
16
<PAGE>
the Company will record this work as unbilled revenue. As of June 30, 1998 and
1999, the Company had $3.5 million and $5.4 million of unbilled revenues,
respectively. Substantially all deferred and unbilled revenues will be earned
and billed, respectively, within 12 months of the respective period ends.
The Company generated net cash from investing activities of $4.3
million and had net outflows of $629,000 for the six months ended June 30,
1998 and 1999, respectively. Investments in short-term securities did generate
cash flow of $183,000 in 1999, while purchases of equipment/leasehold
improvements and other investing activities used $812,000.
The Company generated cash from financing activities of $54,000 and
$190,000 for the six months ended, June 30, 1998 and 1999, respectively.
The Company believes that the cash flows from operations, together
with existing cash balances, short term investments and the line of credit,
will be sufficient to meet its working capital and capital expenditure
requirements for at least the next 12 months. Beyond that time, if cash flows
from operations and available borrowing from the line of credit are not
sufficient to satisfy its financing needs, the Company may seek additional
funding through the sale of its securities, including equity securities. There
can be no assurance that such funding can be obtained on favorable terms, if
at all.
YEAR 2000 COMPLIANCE
The Year 2000 issue is a result of computer programs that were
written using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date using 00 as the year 1900 rather than the year 2000. To the extent that
the Company's software applications contain operating instructions that are
unable to interpret appropriately the upcoming calendar year 2000 and beyond,
some level of modification or replacement of such applications will be
necessary to avoid system failures and the temporary inability to process
transactions or engage in other normal business activities.
Management has implemented a company-wide program to assess the computer
systems and applications for the year 2000. A team was established in 1998,
headed by the Company's chief operating officer, to coordinate the Company's
Year 2000 compliance efforts. The Year 2000 team is staffed with
representatives of the Company's management information group and the business
units. Consultants and legal counsel are being leveraged as needed. The chief
operating officer reports regularly on the status of the Year 2000 project to
the Company's Board of Directors.
This project has followed a systematic approach that consists of the following
tasks:
- - created awareness among staff and management regarding the issues and the
project;
- - ensured that executive management and the board of directors were actively
involved in the project;
- - inventoried hardware, software and other systems as well as vendors,
suppliers, and clients;
- - assessed the risk and prioritized those systems most critical to business
functioning;
- - took corrective action by retiring, upgrading and/or remediating hardware,
software and other equipment;
- - developed and implemented action plans and testing strategies;
- - contingency planning.
17
<PAGE>
The project focus has not been limited to our business. We have requested
that critical vendors supply us with their Year 2000 readiness statements so
that we have sufficient time to install upgrades and complete testing where
appropriate. We have been working with our major suppliers and customers to
assess their Year 2000 readiness. The goal of these efforts is to ensure that
the Year 2000 issue will not impact our ability to provide services.
We believe IntelliQuest has taken appropriate measures to make our "mission
critical" systems Year 2000 Ready in accordance with our criteria. "Year 2000
Ready" means that the system will not fail because of problems handling dates
associated with the year change from December 31, 1999 to January 1, 2000,
including leap year calculations, provided that all other systems (for
example, hardware, software and firmware) used with the system, properly
exchange accurate date data with it. We are also putting in place certain
contingency plans to address potential problems caused by the Year 2000 date
change. Based on our test results of mission critical systems, we do not
anticipate problems that would cause disruption of normal business functions.
In addition, our review of vendor and supplier readiness has revealed minimal
impact to our ongoing operation. In the event that issues outside of our
control occur, we will make all reasonable efforts to minimize the impact on
our services.
The Company expects to incur costs of approximately $150,000 to $250,000
through 1999 for consulting, administration, hardware, software, and other
expenses associated with Year 2000 compliance. This quarter, the Company has
incurred approximately $41,000 related to the correction and testing phases
of the Year 2000 project. These charges are reported as a component of
selling, general and administrative expenses. The Company plans to expense
maintenance costs as incurred, while costs of updated software and hardware
will be amortized over the respective lives of the assets. The total cost of
the project is being funded through operating cash flows.
The Company does rely on third-party providers for key services such as
telecommunications and database marketing services. Interruption of these
services could, in management's view, have a material impact on the
operations of the Company. Efforts have begun to evaluate the readiness of
these critical suppliers. Management believes that, should the Company or
other third parties, with whom the Company has a significant business
relationship, have a Year 2000-related systems failure, the most significant
impact would likely be the inability to deliver products in a timely fashion
to its clients, to receive certain products from vendors, or to process
electronically certain internal database programs. The impact could be
material to the Company's liquidity or results of operations.
As part of the Year 2000 compliance effort, the team will be
establishing and implementing a contingency plan to provide for viable
alternatives to ensure that the Company's core business operations are able
to continue in the event of a Year 2000-related systems failure.
STOCK REPURCHASE PROGRAM
In January 1998, the Board of Directors approved the repurchase of
up to 850,000 shares of the Company's outstanding common stock. As of the
date of this filing there were 720,000 shares repurchased under the plan.
SALE OF IQ2.NET
On July 22, 1999 Naviant Technology Solutions, Inc. and IntelliQuest
Information Group, Inc. signed an agreement to sell the IQ2.net division,
which includes all of the capital stock of IQ2.net and
18
<PAGE>
certain other related assets. The purchase price is $46.5 million, of which
$2 million will be held in escrow pending verification of the "Net Asset
Value", which must be valued between $11.5 million and $13.0 million. Even
though the Company expects to close this transaction before the end of the
third quarter, the transaction is subject to a number of conditions, some of
which are beyond its control. There is no certainty that a transaction will
result from this agreement.
INTELLIQUEST, INC. CASH MERGER
On August 12, 1999 , the Company entered into a definitive agreement
with Kantar Media Research, Inc., a subsidiary of WPP, Inc., pursuant to
which, and subject to certain conditions, Kantar will acquire the Company in
a cash merger transaction for an aggregate cash price of $42.5 million, plus
an amount equal to the Company's cash on hand at closing. This amount will be
subject to adjustment up or down based on IntelliQuest's meeting certain
financial targets and maintaining a certain level of working capital.
Principal conditions precedent to such acquisition include approval of the
acquisition by the Company's shareholders, regulatory approvals, and the
completion of the sale of the Company's IQ2.net, Inc. operations to Naviant
Technology Solutions, Inc. Although the Company expects to close the merger
in the fourth quarter of this year, its completion is subject to several
conditions beyond its control. There is no certainty that a transaction will
result from this agreement.
19
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
In connection with the acquisition by the Company of certain assets of
Information Technology Forum, Inc. ("ITF") in January 1998, the Company
issued 67,532 shares of its common stock, and paid $150,000 to ITF in
exchange for assets valued at $883,000 including cash accounts of
$12,000. No underwriters were used in connection with the issuance.
With respect to the issuance, the Company relied on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as
amended.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2 IQ2.net Asset Purchase Agreement
11.1 Statement Regarding Computation of Net Income Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED August 15, 1999
IntelliQuest Information Group, Inc.
(Registrant)
By: /s/ Francis S. Webster III
--------------------------------------
Francis S. Webster III
Chief Financial Officer
21
<PAGE>
Exhibit 11.1
INTELLIQUEST INFORMATION GROUP, INC.
STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30, 1999
-------------------------------------------------------------
Weighted Average
Loss Shares Per-Share
(Numerator) (Denominator) Amount
------------------ -------------------- --------------
<S> <C> <C> <C>
Basic EPS
Net loss available to common stockholders $ (993) 7,883 $ (.13)
==============
Effect of Dilutive Securities
Options (A)
------------------ --------------------
Diluted EPS $ (993) 7,883 $ (.13)
================== ==================== ==============
<CAPTION>
For the Three Months Ended
June 30, 1998
-------------------------------------------------------------
Weighted Average
Loss Shares Per-Share
(Numerator) (Denominator) Amount
------------------ -------------------- --------------
<S> <C> <C> <C>
Basic EPS
Net loss available to common stockholders $ (267) 8,452 $ (.03)
==============
Effect of Dilutive Securities
Options (A)
------------------ --------------------
Diluted EPS $ (267) 8,452 $ (.03)
================== ==================== ==============
</TABLE>
(A) Due to the net loss in the first quarter of 1998 and 1999, diluted
weighted average shares excludes the effect of dilutive securities.
22
<PAGE>
Exhibit 11.1
INTELLIQUEST INFORMATION GROUP, INC.
STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, 1999
-------------------------------------------------------------
Weighted Average
Loss Shares Per-Share
(Numerator) (Denominator) Amount
------------------ -------------------- --------------
<S> <C> <C> <C>
Basic EPS
Net loss available to common stockholders $ (1,263) 7,870 $ (.16)
==============
Effect of Dilutive Securities
Options (A)
------------------ --------------------
Diluted EPS $ (1,263) 7,870 $ (.16)
================== ==================== ==============
<CAPTION>
For the Six Months Ended
June 30, 1998
-------------------------------------------------------------
Weighted Average
Loss Shares Per-Share
(Numerator) (Denominator) Amount
------------------ -------------------- --------------
<S> <C> <C> <C>
Basic EPS
Net loss available to common stockholders $ (2,636) 8,468 $ (.31)
==============
Effect of Dilutive Securities
Options (A)
------------------ --------------------
Diluted EPS $ (2,636) 8,468 $ (.31)
================== ==================== ==============
</TABLE>
(A) Due to the net loss in the first quarter of 1998 and 1999, diluted weighted
average shares excludes the effect of dilutive securities.
23
<PAGE>
ASSET PURCHASE AGREEMENT
between
NAVIANT TECHNOLOGY SOLUTIONS, INC. (the "Purchaser")
and
INTELLIQUEST INFORMATION GROUP, INC. (the "Seller")
As of July 22, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I TRANSFER OF ASSETS AND LIABILITIES............................................... 1
1.1 Transfer of Assets........................................................... 1
1.2 Excluded Assets.............................................................. 4
1.3 Assumption of Liabilities.................................................... 4
1.4 Excluded Liabilities......................................................... 4
ARTICLE II CONSIDERATION.................................................................... 5
2.1 Purchase Price............................................................... 5
2.2 Purchase Price Adjustments................................................... 5
2.3 Allocation of Purchase Price................................................. 7
ARTICLE III THE CLOSING...................................................................... 7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER......................................... 8
4.1 Corporate Organization....................................................... 8
4.2 Authority.................................................................... 8
4.3 No Violations; No Consents or Approvals Required ............................ 8
4.4 Capital Structure............................................................ 9
4.5 Financial Statements......................................................... 9
4.6 Undisclosed Liabilities......................................................10
4.7 Title to Property and Assets.................................................10
4.8 Absence of Change; Payments and Obligations to Date of Agreement.............11
4.9 Intellectual Property Rights.................................................12
4.10 Contracts....................................................................14
4.11 Litigation...................................................................15
4.12 Taxes........................................................................15
4.13 Compliance with Applicable Law...............................................17
4.14 Labor Relations and Employment; No Collective Bargaining.....................17
4.15 Brokers and Finders..........................................................17
4.16 Powers of Attorney...........................................................18
4.17 Employee Benefit Plans.......................................................18
4.18 Subsidiaries.................................................................18
4.19 Directors and Officers.......................................................18
4.20 Accounts Receivable..........................................................19
4.21 Environmental Matters........................................................19
4.22 Asset Maintenance; Insurance; Sufficiency....................................19
4.23 Disclosure...................................................................19
4.24 Disclaimer of Other Representations and Warranties...........................19
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER......................................20
5.1 Corporate Organization.......................................................20
i
<PAGE>
5.2 Authority....................................................................20
5.3 No Violations: No Consents or Approvals Required.............................20
5.4 Brokers and Finders..........................................................21
5.5 Disclosure...................................................................21
5.6 Financing....................................................................21
5.7 Investment...................................................................21
5.8 No Litigation................................................................22
ARTICLE VI COVENANTS.......................................................................22
6.1 Conduct of the Purchased Business Pending the Closing........................22
6.2 No Solicitation..............................................................23
6.3 Delivery of Balance Sheet and Additional Payment Amount......................24
6.4 Access to Information; Continued Assistance..................................24
6.5 Commercially Reasonable Efforts..............................................26
6.6 Public Announcements.........................................................26
6.7 Competition; Non-solicitation................................................26
6.8 Collection of Accounts.......................................................27
6.9 Offers of Employment.........................................................28
6.10 Seller 401(k) Plan...........................................................28
6.11 Vacation.....................................................................28
6.12 QMS Contract.................................................................28
6.13 Accelerated Vesting of Employee Options......................................29
6.14 Assumed Liabilities; Excluded Liabilities....................................29
6.15 Transition Services..........................................................29
ARTICLE VII CONDITIONS TO CLOSING...........................................................29
7.1 General Conditions...........................................................29
7.2 Conditions to Obligations of Seller..........................................30
7.3 Conditions to Obligations of Purchaser.......................................31
ARTICLE VIII SURVIVAL OF REPRESENTATIONS.....................................................33
ARTICLE IX TERMINATION; AMENDMENT; WAIVER..................................................34
9.1 Termination..................................................................34
9.2 Effect of Termination........................................................35
9.3 Termination Fee..............................................................35
9.4 Assignment...................................................................35
9.5 Waiver.......................................................................36
9.6 Time of the Essence..........................................................36
ARTICLE X MISCELLANEOUS...................................................................36
10.1 Confidentiality..............................................................36
10.2 [RESERVED]...................................................................36
10.3 Title, Possession and Risk of Loss...........................................36
10.4 Entire Agreement; Amendments.................................................37
10.5 Power of Attorney............................................................37
10.6 Certain Tax Matters..........................................................37
ii
<PAGE>
10.7 Further Assurances...........................................................39
10.8 Notices......................................................................39
10.9 Expenses.....................................................................40
10.10 Dispute Resolution...........................................................40
10.11 Severability.................................................................42
10.12 Governing Law................................................................42
10.13 Bulk Sales Laws..............................................................42
10.14 Counterparts.................................................................42
10.15 Headings; Interpretation; Disclosure Schedule................................42
10.16 Consent to Jurisdiction......................................................43
10.17 Waiver of Jury Trial.........................................................43
10.18 Indemnification..............................................................44
</TABLE>
iii
<PAGE>
DISCLOSURE SCHEDULES
Schedule 1.1 Permitted Encumbrances
Schedule 1.1(a)(i) Intellectual Property
Schedule 1.1(a)(ii) Leases, Licenses and other Agreements
Schedule 1.1(a)(iii) Contracts
Schedule 1.1(a)(iv) Tangible Personal Property
Schedule 1.1(a)(v) Common Stock
Schedule 1.1(a)(i)(ix) Governmental or Regulatory Operating Authorities
Schedule 2.2 Final Balance Sheet Preparation Procedures
Schedule 4.1 Organization, Good Standing and Qualification
Schedule 4.3 Violations, Consents, Approvals
Schedule 4.6 Undisclosed Liabilities
Schedule 4.7 Assets and Properties of IQ2.net
Schedule 4.8 Changes in Operations, etc.
Schedule 4.10(a) Other Contracts
Schedule 4.12 Tax Returns
Schedule 4.17 Employee Benefit Plans
Schedule 4.19 List of Officers and Directors
Schedule 6.9 Employees to Receive Offers
iv
<PAGE>
EXHIBITS
Exhibit A Assignment and Bill of Sale
Exhibit B Intellectual Property Assignment
Exhibit C Escrow Agreement
Exhibit D-1 Officer's Certificate of Purchaser
Exhibit D-2 Officer's Certificate of Seller
Exhibit E Form of Employment Agreement
Exhibit F [Reserved]
Exhibit G [Reserved]
Exhibit H Allocation of Purchase Price
Exhibit I Assumption Agreement
Exhibit J [Reserved]
Exhibit K License Agreement
Exhibit L Cooperation Agreement
v
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of July 22, 1999 (the "AGREEMENT"),
between IntelliQuest Information Group, Inc., a Delaware corporation ("SELLER"),
and Naviant Technology Solutions, Inc., a Delaware corporation ("PURCHASER").
INTRODUCTION
WHEREAS, Seller, through its database division (which has operated under
the names IntelliQuest Communications, Inc., IQ2.net, Marketing Information
Solutions and MkIS), is in the business of (a) providing electronic consumer
registration services for computer software and hardware vendors and (b)
licensing data from various proprietary databases compiled from its electronic
consumer registration services and commercially available demographic data
licensed from third parties for use and resale (such business hereinafter
referred to as the "PURCHASED BUSINESS").
WHEREAS, Seller owns all of the issued and outstanding capital stock of
IQ2.net, Inc., a Delaware corporation ("IQ2.NET"); and
WHEREAS, the assets which comprise the Purchased Business are held by
Seller and IQ2.net; and
WHEREAS, the parties hereto desire that (a) Seller transfer, convey and
assign to Purchaser all of the capital stock of IQ2.net and substantially all of
the other assets, properties and rights of Seller primarily related to the
Purchased Business as a going concern and (b) Purchaser purchase and acquire the
same, subject to the payment of the Purchase Price and the assumption by
Purchaser of the liabilities and obligations of Seller relating primarily to the
Purchased Business, in each case, upon the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, and for and in
consideration of the mutual promises contained in this Agreement and for such
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
TRANSFER OF ASSETS AND LIABILITIES
1.1 TRANSFER OF ASSETS.
(a) Upon the terms and subject to the conditions of this Agreement, at
the Closing (as defined in Article III), Seller shall sell, transfer, convey,
assign and deliver to Purchaser, and Purchaser shall acquire from Seller, for
the consideration hereinafter described, all of Seller's right, title and
interest in and to all assets, properties and rights of every kind, nature and
description, real, personal or mixed, tangible or intangible, known or unknown,
<PAGE>
wherever located which are primarily related to or primarily used in the
Purchased Business, other than the "Excluded Assets" (as defined in Section 1.2
below), as the same shall exist on the Closing Date (as defined in Article III)
(the "TRANSFERRED ASSETS"), free and clear of any mortgage, security, interest,
pledge, lien, conditional sale agreement, charge or other encumbrance (each, an
"ENCUMBRANCE") other than any Encumbrance identified in SCHEDULE 1.1(a) of the
disclosure schedules attached hereto (the "DISCLOSURE SCHEDULES") (the
"PERMITTED ENCUMBRANCES"), including without limitation, all of Seller's right,
title and interest in the following:
(i) all know-how, show-how, trade secrets, works of authorship,
ideas, procedures, processes, systems, methods, concepts, principles,
discoveries, inventions, art, machines, manufactures, compositions of matter,
materials, improvements, formulas, patterns, devices, compilations, information,
lists (including but not limited to customer and supplier lists), articles,
codes, matters, programs, techniques, apparatus, algorithms, designs, circuitry,
hardware, firmware, software (computer software programs and applications, in
both source code and object code form) except the Reply Quest software developed
by Seller, net lists, schematics, diagrams, technology, inventory, products,
networks, data, plans (including but not limited to financial, business,
marketing, technical and product plans), libraries, media, pictorial works,
graphic works, audiovisual works, computer interfaces (including but not limited
to programming interfaces), computer languages, computer protocols, development
tools, and tangible or intangible proprietary rights or information or material,
irrespective of whether patentable, that are used or are intended to be used
primarily in the Purchased Business as currently conducted, including but not
limited to those set forth in SCHEDULE 1.1(a)(i) of the Disclosure Schedules
(collectively, the "INTELLECTUAL PROPERTY"), and all patents, trademarks, trade
names, service marks, copyrights (including but not limited to moral rights),
and any applications therefor, and trade secrets and other proprietary rights
("INTELLECTUAL PROPERTY RIGHTS") related to the Intellectual Property. Without
limiting the generality of the foregoing, Intellectual Property shall include
all of the foregoing with respect to (a) all versions and releases of the High
Tech Household Database (HTHHD) as used in the Purchased Business and all
Intellectual Property primarily related to or used primarily in connection with
the HTHHD in the Purchased Business except the Reply Quest software developed by
Seller; and (b) the names "IQ2.net", "Marketing Information Solutions", "MkIS",
and variations thereof and all other trade names relating primarily to or used
primarily in the Purchased Business;
(ii) all leases (including leases for real property), licenses,
purchase orders, sales orders, commitments and other agreements (including non-
competition agreements and invention assignment agreements and nondisclosure
agreements) of Seller relating primarily to the Purchased Business, including,
without limitation, those set forth in SCHEDULE 1.1(a)(ii) of the Disclosure
Schedules;
(iii) all contracts set forth on SCHEDULE 1.1(a)(iii) of the
Disclosure Schedules, including without limitation and subject to any required
consents, all contracts between Seller and First Data Solutions, Inc.
(collectively, the "CONTRACTS").
(iv) all personal property, machinery, equipment, vehicles,
furniture, fixtures, office equipment and supplies, brochures, catalogs,
artwork, photographs, advertising and marketing material and other items of
tangible personal property related to or used primarily
2
<PAGE>
in the operation of the Purchased Business, and all warranties relating thereto,
including, without limitation, the tangible personal property identified in
SCHEDULE 1.1(a)(iv) of the Disclosure Schedules;
(v) all shares of the IQ2.net Common Stock (as defined in
Section 4.4 hereof) and other securities of IQ2.net owned by Seller and
identified in SCHEDULE 1.1 (a)(v) of the Disclosure Schedules;
(vi) all accounts and notes receivable arising from the operation
of the Purchased Business and all income (including payments in respect of
receivables received by Seller after the Closing), royalties, damages and
payments due or received at Closing or thereafter under any Contract or
otherwise primarily with respect to the Purchased Business (including, without
limitation, rights to damages and payments for past, present or future
infringements or misappropriations of any Intellectual Property) in all
countries;
(vii) all cash, bank deposits and cash equivalents relating
primarily to the Purchased Business, including for this purpose, all cash and
cash equivalents credited to Seller's bank accounts in the ordinary course of
business consistent with past business practices relating primarily to the
Purchased Business prior to the Closing Date and all cash in transit from banks
or credit card companies for purchases of the Transferred Assets shipped prior
to the Closing Date;
(viii) all causes of action, demands, judgments, claims (including
insurance claims), indemnity rights, rights to set-off against third parties or
other similar rights of Seller relating primarily to Purchased Business ;
(ix) all franchises, consents, licenses, marketing rights,
permits, authorizations, approvals and other operating authorities, to the
extent transferable, issued by governmental or regulatory bodies to Seller
relating primarily to or used primarily in the Purchased Business, including,
without limitation, those set forth in SCHEDULE 1.1(a)(i)(ix) of the Disclosure
Schedules;
(x) all records, files and invoices, including but not limited
to, all production data, equipment maintenance data, employee files, inventory
records, sales and sales promotional data, advertising and marketing materials,
customer lists, cost and pricing information, supplier lists, Intellectual
Property prosecution files, business plans, reference catalogs and any other
records and data, or exact duplicates thereof, used primarily in connection with
the Purchased Business and the Transferred Assets and located at any of the
offices of, or other location used by, Seller or IQ2.net;
(xi) all rights under express or implied warranties from
suppliers with respect to the Purchased Business or the Transferred Assets
except to the extent related primarily to Excluded Assets (as defined in
Section 1.2 hereof); and
(xii) all goodwill associated with the Purchased Business as a
going concern together with the right to represent to third parties that
Purchaser is the successor to the Purchased Business.
3
<PAGE>
1.2 EXCLUDED ASSETS.
Notwithstanding the provisions of Section 1.1 above, the Transferred
Assets do not include, and Seller does not hereby convey or transfer to
Purchaser any asset not described in Section 1.1, including, without limitation,
the following assets (collectively, the "EXCLUDED ASSETS"):
(a) all of Seller's right title and interest in and to all assets,
properties and rights of every kind, nature and description, real personal or
mixed, tangible or intangible, known or unknown, wherever located which are not
primarily related to or used primarily in the Purchased Business;
(b) the consideration delivered by Purchaser to the Seller pursuant to
this Agreement and all rights of Seller under this Agreement;
(c) any books, records or other information related solely and
exclusively to the Excluded Assets or the Excluded Liabilities (as defined in
Section 1.4 hereof).
(d) any accounts receivable, notes or other receivables owed to Seller
or IQ2.net by any officer, director, employee or affiliate of Seller or IQ2.net;
(e) any personal property, machinery, equipment, vehicles, furniture,
fixtures, office equipment and supplies, brochures, catalogs, artwork,
photographs, advertising and marketing material and other items of tangible
property related to or used primarily in the operation of the Purchased
Business, and all warranties relating thereto, which is located at Seller's
facility in Austin, Texas as of the date hereof; and
(f) all tax and accounting records and books of account of Seller.
1.3 ASSUMPTION OF LIABILITIES.
(a) Upon the terms and subject to the conditions of this Agreement, at
the Closing, Purchaser shall, pursuant to an Assumption Agreement substantially
in the form attached hereto as Exhibit I (the "ASSUMPTION AGREEMENT"), assume
the liabilities and obligations (and only the liabilities and obligations) of
Seller primarily related to the Purchased Business (the "ASSUMED LIABILITIES");
provided, however, that Purchaser shall not assume or otherwise be responsible
for (a) any costs or expenses incurred by Seller or I2Q.net in the preparation
of this Agreement and the consummation of the sale of the Purchased Business to
Purchaser provided for in this Agreement, including, without limitation, the
costs and expenses required to be borne by Seller pursuant to Section 4.15 and
Section 10.9 hereof or (b) any liabilities or obligations of Seller under any
severance plans or arrangements with Ed Frazier and Francis Webster.
1.4 EXCLUDED LIABILITIES.
Except as specified in Section 1.3, Purchaser shall not, by the
execution, delivery and performance of this Agreement or the Assumption
Agreement, or otherwise, assume or
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otherwise be responsible for any liability or obligation of any nature of
Seller, or claims of such liability or obligation, matured or unmatured,
liquidated or unliquidated, fixed or contingent, known or unknown, whether
arising out of acts or occurrences prior to, at or after the date hereof (the
"EXCLUDED LIABILITIES").
ARTICLE II
CONSIDERATION
2.1 PURCHASE PRICE.
Upon the terms and subject to the conditions of this Agreement, in
full payment for the aforesaid sale, conveyance, assignment, transfer and
delivery of the Purchased Business and the Transferred Assets, Purchaser shall
assume the Assumed Liabilities pursuant to the Assumption Agreement and shall
deliver or cause to be delivered to Seller the aggregate amount of $46,500,000
to be paid as follows (collectively, the "PURCHASE PRICE"):
(i) immediately available funds (cash equivalent) in the amount
of $44,500,000 shall be paid to the Seller at the Closing; and
(ii) immediately available funds (cash equivalent) in the amount
of $2,000,000 (the "BALANCE SHEET ADJUSTMENT ESCROW AMOUNT") shall be delivered
to and held in escrow by an escrow agent appointed by Purchaser (the "ESCROW
AGENT") pursuant to an Escrow Agreement in substantially the form attached
hereto as EXHIBIT C (the "ESCROW AGREEMENT") and released to Seller or
Purchaser, as applicable, pursuant to Section 2.2 hereof upon the determination
of the "Net Asset Value" and "Adjustment Amount," if any, pursuant to Section
2.2 hereof.
2.2 PURCHASE PRICE ADJUSTMENTS.
(a) As used herein, the term "NET ASSET VALUE" shall mean the book
value of the Transferred Assets included in the Final Balance Sheet less the
book value of the Assumed Liabilities included in the Final Balance Sheet,
determined in accordance with this Section 2.2.
(b) Seller shall deliver to Purchaser the Final Balance Sheet in
accordance with Section 6.3 of this Agreement setting forth in reasonable detail
the book value of each Transferred Asset and Assumed Liability, including
without limitation and separately identifying the assets, liabilities and
stockholder's equity of IQ2.net, and showing the Net Asset Value of the
Purchased Business as of the Closing Date. Such Final Balance Sheet shall be
prepared by Seller's personnel in a manner consistent with the preparation of
the Financial Statements (as defined in Section 4.5) and utilizing the rules and
procedures outlined in SCHEDULE 2.2 of the Disclosure Schedules and such other
procedures as shall be mutually agreeable to Purchaser and Seller. Without
limiting the generality of the foregoing, any account receivable, note or other
receivable owed to IQ2.net by an officer, director, employee or affiliate of
Seller or IQ2.net shall not be assigned any value on the Final Balance Sheet.
Prior to or upon completion of such Final Balance Sheet, Purchaser and the
Philadelphia, Pennsylvania branch of PricewaterhouseCoopers
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LLP ("PWC PA") shall be provided with the working papers used by Seller to
complete such Final Balance Sheet. The Austin, Texas branch of
PricewaterhouseCoopers LLP ("PWC AUSTIN") will perform agreed upon procedures on
the Final Balance Sheet prepared by the Seller. Such procedures will be mutually
agreed upon by the Purchaser and the Seller. Upon completion of such procedures,
Purchaser and PwC PA will be given access to the workpapers prepared by PwC
Austin in performance of the agreed upon procedures. Purchaser shall have a
period of ten days after access to workpapers prepared by the Seller in
preparation of such Final Balance Sheet and workpapers prepared by PwC Austin in
performance of the agreed upon procedures to review and accept or dispute such
Final Balance Sheet in accordance with this Section 2.2.
(c) In the event the Final Balance Sheet reflects a Net Asset Value of
the Purchased Business of less than $11,500,000, then Purchaser shall be
entitled to the difference obtained by subtracting the Net Asset Value set forth
on the Final Balance Sheet from $11,500,000 (the "ADJUSTMENT AMOUNT"), up to a
maximum of the Balance Sheet Adjustment Escrow Amount. In such event, Purchaser
and Seller shall cause the Escrow Agent to pay to the Seller pursuant to the
Escrow Agreement out of the Balance Sheet Adjustment Escrow Amount an amount
equal to the Balance Sheet Adjustment Escrow Amount less the Adjustment Amount.
Purchaser and Seller shall then cause the Escrow Agent to pay the balance of the
Balance Sheet Adjustment Escrow Amount to Purchaser pursuant to the Escrow
Agreement. The maximum amount that Purchaser is entitled to be paid pursuant to
this Section 2.2(c) shall be limited to $2,000,000. If the Net Asset Value set
forth on the Final Balance Sheet is greater than or equal to $11,500,000, then
Purchaser and Seller shall cause the Escrow Agent to pay to the Seller pursuant
to the Escrow Agreement out of the Balance Sheet Adjustment Escrow Amount an
amount equal to the Balance Sheet Adjustment Escrow Amount.
(d) In the event the Final Balance Sheet reflects a Net Asset Value of
greater than $13,000,000, Purchaser shall pay to Seller the amount of such
excess in cash (the "ADDITIONAL PAYMENT AMOUNT").
(e) If Purchaser shall disagree with the Adjustment Amount (if any),
the Additional Payment Amount (if any) or the Net Asset Value set forth on the
Final Balance Sheet, Purchaser shall notify Seller of such disagreement within
ten days following Purchaser's receipt of the Final Balance Sheet as provided in
paragraph (b) above. To the extent that the Net Asset Value set forth on the
Final Balance Sheet or any portion of the Adjustment Amount (if any) or the
Additional Payment Amount (if any) is not in dispute, within ten days following
Purchaser's receipt of the Final Balance Sheet, (i) Purchaser and Seller shall
cause the Escrow Agent to pay to Purchaser pursuant to the Escrow Agreement out
of the Balance Sheet Adjustment Escrow Amount that portion of the Adjustment
Amount (if any) which is not in dispute in the manner set forth in Section
2.2(c), or (ii) Purchaser shall pay to Seller any amount not in dispute in the
manner set forth in Section 2.2(d), as the case may be.
(f) Purchaser and Seller shall use their best efforts for a period of
thirty (30) calendar days after Purchaser's delivery of any notice of
disagreement (or such longer period as Purchaser and Seller shall mutually agree
upon) to resolve any disagreements raised by Purchaser with respect to the Final
Balance Sheet and/or the calculation of the Adjustment Amount. If, at the end of
such period, Purchaser and Seller are unable to resolve such
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disagreements, Purchaser and Seller shall jointly select, or if Purchaser and
Seller shall be unable to agree, PwC Austin and PwC PA, independent auditors of
Seller and Purchaser shall jointly select, a third independent auditor of
recognized national standing to resolve any remaining disagreements. The
determination by such third independent auditor shall be final, binding and
conclusive on the parties. Purchaser and Seller shall use their best efforts to
cause such third independent auditor to make its determination within thirty
(30) calendar days of accepting its selection. Within ten (10) calendar days
after the date of determination of such third independent auditor, Purchaser and
Seller shall cause the Escrow Agent to pay pursuant to the Escrow Agreement out
of the Balance Sheet Adjustment Escrow Amount to Purchaser the Adjustment Amount
(if any), and to Seller the remainder (if any) in the manner set forth in
Section 2.2(c) and 2.2(d). The fees and expenses of such third independent
auditor shall be borne by Purchaser and Seller equally.
(g) All payments made by Purchaser pursuant to Section 2.2(d) or made
out of the Balance Sheet Adjustment Escrow Account pursuant to Section 2.2(c)
shall be made by wire transfer of immediately available funds to an account
designated by the payee.
2.3 ALLOCATION OF PURCHASE PRICE.
On or before the Closing Date, the Seller and the Purchaser will
prepare a schedule to be attached hereto as EXHIBIT H and titled "Allocation of
the Purchase Price" setting forth the following items (which will have been
agreed to by the parties): (i) the consideration paid for the shares of IQ2.net
Common Stock pursuant to this Agreement, (ii) the liabilities of IQ2.net as of
the Closing Date and (iii) the actual values of the major categories (grouped by
physical location) of the assets of IQ2.net and the Transferred Assets other
than the IQ2.net Common Stock, each as of the Closing Date. The Seller and the
Purchaser agree that (i) the consideration paid for the shares of IQ2.net Common
Stock and the liabilities of IQ2.net (plus other relevant items) will be
allocated to the assets of IQ2.net for all purposes (including Tax) in a manner
consistent with the values set forth on Exhibit H, (ii) all Tax returns
(including Internal Revenue Service Form 8594 or any other similar statement)
will be filed in a manner consistent with such values, and (iii) no party will
assert in connection with any audit or other proceeding with respect to Taxes,
any values or other items inconsistent with the allocation set forth in Exhibit
H.
ARTICLE III
THE CLOSING
The closing of the transactions contemplated by this Agreement (the
"CLOSING") will take place at 9:00 a.m. Austin, Texas time at the offices of
Brobeck, Phleger & Harrison LLP, counsel to Purchaser, as soon as is reasonably
practicable following the satisfaction of all conditions set forth in Article
VII hereof (but in any case no earlier than August 2, 1999) or at such other
time, at such other place or on such other date as the parties hereto may
mutually agree. At the Closing, the parties hereto will exchange certificates,
opinions and other documents as required hereby. Notwithstanding the foregoing,
the Closing shall be effective at 12:01 a.m. Austin,
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Texas time on the day of Closing. The date on which the Closing occurs is herein
referred to as the "CLOSING DATE".
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser as follows:
4.1 CORPORATE ORGANIZATION.
Except as set forth on SCHEDULE 4.1 of the Disclosure Schedules, each
of Seller and IQ2.net is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation and is duly
qualified or licensed as a foreign corporation authorized to do business in and
is in good standing under the laws of each jurisdiction in which the character
of the properties and assets now owned or held by it or the nature of the
business now conducted by it requires it to be so licensed or qualified and
where the failure to be so licensed or qualified and in good standing would have
a material adverse effect on the business, financial condition, results of
operations or assets or properties (including, without limitation, the
Transferred Assets) of the Purchased Business and IQ2.net, taken as a whole
("MATERIAL ADVERSE EFFECT"). Each of Seller and IQ2.net has full corporate power
and authority to carry on the Purchased Business as now being conducted.
4.2 AUTHORITY.
Seller has full corporate power and authority to execute, deliver and
perform this Agreement and, to the extent it is a party thereto, the documents
to be delivered at the Closing pursuant to Section 7.3(e) hereof (collectively,
the "SELLER AGREEMENTS") and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Seller
Agreements by Seller and the consummation by Seller of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action, and no other corporate action or proceeding on the part of
Seller or IQ2.net is necessary to authorize the execution and delivery by Seller
of this Agreement or the Seller Agreements or the consummation by Seller of the
transactions contemplated hereby or thereby or the performance of Seller's
obligations hereunder and thereunder. This Agreement has been, and the Seller
Agreements on the Closing Date will be, duly executed and delivered by Seller
and this Agreement is, and on the Closing Date each of the Seller Agreements
will be, legal, valid and binding obligations of Seller, enforceable against it
in accordance with their terms, subject to applicable laws affecting creditors'
rights generally and, as to enforcement, to general principles of equity,
regardless of whether applied in a proceeding at law or in equity.
4.3 NO VIOLATIONS; NO CONSENTS OR APPROVALS REQUIRED.
Except as set forth in SCHEDULE 4.3 of the Disclosure Schedules,
neither the execution and delivery of this Agreement or the Seller Agreements
nor the consummation of the transactions contemplated hereby or thereby will (i)
conflict with or violate any provision of the
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certificate of incorporation or by-laws, each as amended, of Seller or IQ2.net,
(ii) conflict with or violate any law, rule, regulation, ordinance, order, writ,
injunction, judgment or decree applicable to Seller, IQ2.net or the Purchased
Business or by which Seller, IQ2.net or any of the Transferred Assets are bound
or affected or (iii) conflict with or result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination or cancellation of,
or accelerate the performance required by or maturity of, or result in the
creation of any security interest, lien, charge or encumbrance on any of the
Transferred Assets or any assets, properties or other rights of Seller or
IQ2.net pursuant to any of the terms, conditions or provisions of, any note,
bond, mortgage, indenture, permit, license, franchise, lease, contract, or other
instrument or obligation to which Seller or IQ2.net is a party, including,
without limitation, the Contracts and the IQ2.net Contracts (as defined in
Section 4.10 hereof), except, in the case of (ii) and (iii) above, for such
conflicts, violations, breaches, defaults, accelerations, terminations,
cancellations, encumbrances, security interests, liens, or charges which do not
and could not reasonably be expected to have a material adverse effect on the
ability of Seller to consummate the transactions contemplated by this Agreement
and the Seller Agreements or a Material Adverse Effect. Except for applicable
requirements, if any, of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR ACT"), or as set forth in SCHEDULE 4.3 of the
Disclosure Schedules, no notice, declaration, report or other filing or
registration with, and no waiver, consent, approval or authorization of, any
governmental or regulatory authority or instrumentality or any other person is
required to be submitted, made or obtained by Seller or IQ2.net in connection
with the execution, delivery or performance of this Agreement or the Seller
Agreements and the consummation of the transactions contemplated hereby or
thereby, except where the failure to give notice, declare, report, file, or
obtain any waiver, consent, approval or authorization does not and could not
reasonably be expected to have a material adverse effect on the ability of the
parties hereto to consummate the transactions contemplated by this Agreement or
a Material Adverse Effect.
4.4 CAPITAL STRUCTURE.
The total authorized capital stock of IQ2.net consists of 1,000 shares
of common stock, par value $0.0001 per share (the "IQ2.NET COMMON STOCK"), of
which 1,000 shares are issued and outstanding. All outstanding shares of IQ2.net
Common Stock are duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights created by statute, IQ2.net's Certificate
of Incorporation or Bylaws or any agreement to which IQ2.net or Seller is a
party or by which IQ2.net or Seller is bound. All of the outstanding shares of
IQ2.net Common Stock are owned beneficially and held of record by Seller, and
Seller has good and marketable title thereto, free and clear of all Encumbrances
other than Permitted Encumbrances. There are no other outstanding obligations,
warrants, preemptive rights, or other agreements or commitments to which IQ2.net
or Seller is a party, or by which IQ2.net or Seller is otherwise bound,
providing for the issuance of any additional shares of IQ2.net Common Stock, nor
are there any other outstanding equity or nonequity securities (E.G., debt
securities) of IQ2.net.
4.5 FINANCIAL STATEMENTS.
Seller has previously delivered to Purchaser unaudited financial
statements (including a balance sheet and income statement) for the Purchased
Business and IQ2.net for the
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calendar quarter ended March 31, 1999 and unaudited financial statements
(including a balance sheet and income statement) the Purchased Business and
IQ2.net for the calendar year ended December 31, 1998 (the "FINANCIAL
STATEMENTS"). The Financial Statements fairly present, and the Final Balance
Sheet will fairly present, in each case, in all material respects the financial
position of the Purchased Business and IQ2.net as of the respective dates set
forth therein and, with respect to the Financial Statements, the results of
operations of the Purchased Business and IQ2.net for the respective periods or
as of the respective dates set forth therein, but in each case do not or will
not, as applicable, include all information and notes required under generally
accepted accounting principles for complete financial statements but do or will,
as applicable, contain all accruals and adjustments of a normal recurring nature
necessary for a fair and consistent presentation of the financial position of
the Purchased Business for such periods.
4.6 UNDISCLOSED LIABILITIES.
As of March 31, 1999, neither Seller (primarily with respect to the
Purchased Business) nor IQ2.net had incurred any material liabilities or
obligations of any nature whatsoever, whether absolute, accrued, fixed,
contingent, liquidated, unliquidated or otherwise and whether due or to become
due which are not reflected on the March 31, 1999 balance sheets included in the
Financial Statements or described on SCHEDULE 4.6 of the Disclosure Schedules.
Since March 31, 1999, neither Seller (primarily with respect to the Purchased
Business) nor IQ2.net has incurred any material liabilities or obligations of
any nature, whether absolute, accrued, contingent or otherwise and whether due
or to become due that are not reflected on the books and records of Seller and
IQ2.net other than those incurred in the ordinary course of business consistent
with their past practices or described on SCHEDULE 4.6 of the Disclosure
Schedules.
4.7 TITLE TO PROPERTY AND ASSETS.
Except for Third Party Intellectual Property Rights (as defined in
Section 4.9(b)), Seller owns (and has good and marketable title to) all of the
Transferred Assets and IQ2.net owns (and has good and marketable title to) all
of its assets and properties, in each case, free and clear of all Encumbrances
other than Permitted Encumbrances. With respect to Transferred Assets leased by
Seller, Seller is in compliance with such leases and holds valid leasehold
interests therein free and clear of all Encumbrances other than Permitted
Encumbrances. With respect to assets and properties leased by IQ2.net, IQ2.net
is in material compliance with the terms of such leases and holds valid
leasehold interests therein free and clear of all Encumbrances other than
Permitted Encumbrances. Seller does not own any real property used in or
relating to the conduct of the Purchased Business, and IQ2.net does not own any
real property. SCHEDULE 4.7 of the Disclosure Schedules contains a list of all
assets, properties and other rights other than Intellectual Property,
Intellectual Property Rights and the IQ2.net Contracts owned or held by IQ2.net,
including, without limitation, all personal property, machinery, equipment,
vehicles, furniture, fixtures, office equipment, bank accounts or similar
deposit arrangements, investment securities, franchises, consents, licenses,
marketing rights, permits, authorizations, approvals and other operating
authorities, and such list is complete and accurate in all material respects.
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4.8 ABSENCE OF CHANGE; PAYMENTS AND OBLIGATIONS TO DATE OF AGREEMENT.
Except for transactions arising in the ordinary course of business or
as set forth on SCHEDULE 4.8 of the Disclosure Schedules, since March 31, 1999,
there has not been any change in the operations, properties, assets or
condition, financial or otherwise, of the Purchased Business or IQ2.net other
than changes affecting the data base research industry generally and other than
changes, none of which, individually or in the aggregate, have had or reasonably
could be expected to have a Material Adverse Effect. Since March 31, 1999,
Seller has conducted the Purchased Business and IQ2.net has conducted its
business, including, without limitation, the Purchased Business, only in the
ordinary course, consistent with past practices. Without limiting the generality
of the foregoing, since March 31, 1999, Seller (solely with respect to the
Purchased Business) and IQ2.net have not directly or indirectly:
(i) borrowed money or incurred any material obligation,
indebtedness or liability (absolute or contingent), except (a) under existing
lines of credit or other borrowing facilities in effect as of March 31, 1999 and
only in amounts and under circumstances consistent with past practices and in
the ordinary and usual course of business and (b) obligations and liabilities
incurred in connection with the transactions contemplated by this Agreement;
(ii) discharged or satisfied any lien or paid any material
obligation or liability (absolute or contingent) other than current liabilities
shown on the March 31, 1999 Balance Sheet, current liabilities incurred since
such date in the ordinary course of business, and obligations incurred under
Contracts entered into in the ordinary course of business;
(iii) mortgaged, pledged, hypothecated, assigned, or subjected to
any lien, any material portion of the Transferred Assets, except under existing
lines of credit or other borrowing facilities in effect as of March 31, 1999 and
only in amounts and under circumstances consistent with past practices and in
the ordinary course of business;
(iv) suffered any extraordinary loss or waived any right of
material value;
(v) entered into any material transaction other than in the
ordinary course of business or made any waiver or abandonment of any property,
asset or rights of material value;
(vi) made any material change in its method of accounting;
(vii) paid or committed itself to pay to or for the benefit of
any of its current or former directors, officers, employees, or shareholders any
material compensation or any kind other than wages, bonuses, salaries,
insurance, pension or other benefit plan, payment or arrangement at rates then
in effect and permitted by law;
(viii) made any binding arrangement, understanding, contract or
arrangement between itself and any current or former director, officer or
employee or any lineal descendant of any of such persons pursuant to which any
benefit of such arrangement, understanding, contract or agreement has or will
hereafter accrue, directly or indirectly, to any such current or former
director, officer or employee or any lineal descendant of any of them or to
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any entity in which such director, officer or employee or lineal descendant has
any equity ownership, directly or indirectly;
(ix) made any purchase, sale or lease of any capital asset with
an original cost in excess of $25,000 for any single item other than in the
ordinary course of business consistent with past practice; or
(x) made any sale or lease of any capital asset with an
original cost in excess of $25,000 for any single item at less than full and
adequate consideration therefor.
4.9 INTELLECTUAL PROPERTY RIGHTS.
(a) Seller or IQ2.net, as the case may be, owns or otherwise possesses
legally enforceable rights or licenses to or for the Intellectual Property and
Intellectual Property Rights.
(b) SCHEDULE 1.1(a)(i) of the Disclosure Schedules lists: (i) all
patents and patent applications, and all registered and unregistered trademarks,
trade names and service marks, and all registered copyrights and applications
for copyright registration, owned or claimed by Seller or IQ2.net and used
primarily by Seller or IQ2.net in connection with the Purchased Business,
including the jurisdictions in which each such Intellectual Property right has
been issued or registered or in which any application for such issuance and
registration has been filed, and including the date of filing or registration or
issuance of such applications and registrations, and including the registration
number or serial number of such applications and registrations; (ii) all
licenses, sublicenses and other agreements to which Seller or IQ2.net is a party
and pursuant to which any person is authorized to use any of Seller's or
IQ2.net's Intellectual Property; and (iii) all licenses, sublicenses and other
agreements to which Seller or IQ2.net is a party and pursuant to which Seller or
IQ2.net is authorized to use any Intellectual Property owned by any third party
("THIRD PARTY INTELLECTUAL PROPERTY RIGHTS") that is necessary to or used
primarily in the Purchased Business as currently conducted by Seller and IQ2.net
(I.E., including but not limited to Third Party Intellectual Property Rights
that are incorporated in, are, or form (or in each of the foregoing instances
which are contemplated to be incorporated in, be, or form) a part of any Seller
or IQ2.net product, product under development, service or service under
development primarily with respect to the Purchased Business)), other than
Seller's internally-developed Reply Quest software; and (iv) all other
Intellectual Property and Intellectual Property Rights used primarily by Seller
or IQ2.net in connection with the Purchased Business or by IQ2.net.
(c) To Seller's knowledge, there is no (and there is no fact that
reasonably might be expected to form the basis for a claim of) unauthorized use,
disclosure, infringement, violation or misappropriation of Seller's or IQ2.net's
Intellectual Property, any trade secret material received by Seller or IQ2.net,
or any Third Party Intellectual Property Rights (to the extent licensed by or
through Seller or IQ2.net) by any third party, including any employee or former
employee of Seller or IQ2.net. Neither Seller nor IQ2.net has entered into any
agreement to indemnify (or hold harmless) any other person against any charge of
misuse, unauthorized disclosure, infringement, violation or misappropriation of
Seller's or IQ2.net's Intellectual Property, other than indemnification (or hold
harmless) provisions contained in the Contracts, the IQ2.net Contracts or
purchase orders arising in the ordinary course of business.
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(d) Neither Seller nor IQ2.net is, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
under this Agreement, in breach of any license, sublicense or other agreement
relating to Seller's or IQ2.net's Intellectual Property or Third Party
Intellectual Property Rights, and there is no fact that reasonably might be
expected to form the basis for a claim of such breach. To Seller's knowledge, no
third party is in breach of any license, sublicense or other agreement (as to
which Seller or IQ2.net is a party) relating to Seller's of IQ2.net's
Intellectual Property or Third Party Intellectual Property Rights, and to
Seller's knowledge there is no fact that reasonably might be expected to form
the basis for a claim of such breach.
(e) All patents and registered trademarks, trade names, service marks,
maskworks and copyrights owned by Seller and primarily relating to or primarily
used in the Purchased Business or IQ2.net are valid, subsisting, in full force
and effect, and not abandoned. Neither Seller nor IQ2.net (i) is a party to any
suit, action or proceeding, nor to Seller's knowledge is any such suit, action
or proceeding threatened, nor is there any fact that reasonably might be
expected to form the basis for any such suit, action or proceeding or threat
thereof, which involves a claim of misuse, unauthorized disclosure,
infringement, violation or misappropriation of any Third Party Intellectual
Property Right; (ii) has any knowledge nor any basis to conclude that the
development, manufacturing, use, marketing, distribution, licensing or sale of
its products and services misuses, discloses without authorization, infringes,
violates or misappropriates any Third Party Intellectual Property Right; and
(iii) has brought and or intends to bring, nor to Seller's knowledge is there
any fact that reasonably might be expected to form the basis for any such suit,
action or proceeding or threat thereof, any suit, action or proceeding for
misuse, unauthorized disclosure, infringement, violation or misappropriation of
Seller's or IQ2.net's Intellectual Property or breach of any license, sublicense
or agreement involving Seller's Intellectual Property against any third party.
(f) With regard to Seller's and IQ2.net's employees who contributed to
conception, reduction to practice, creation or development of Seller's and
IQ2.net's Intellectual Property in the course of providing services to Seller or
IQ2.net, Seller or IQ2.net, as the case may be, has secured valid written
assignments from all such employees of all rights to such Seller's or IQ2.net's
Intellectual Property to the extent that Seller or IQ2.net would not have
already owned such rights by operation of law. A true and correct copy of
seller's standard documentation effecting all such assignments have been
provided to Purchaser. Each current employee of Seller employed at the Purchased
Business and each current employee of IQ2.net has executed a proprietary
information and inventions agreement in the form previously delivered to
Purchaser, and all such assignments are substantially in such form. Each current
consultant of Seller employed at the Purchased Business and each current
consultant of IQ2.net has executed a proprietary information agreement in the
form previously delivered to Purchaser.
(g) "Confidential Information" shall mean Seller's or IQ2.net's
Intellectual Property not otherwise protected by patents, patent applications or
copyrights. With respect to Confidential Information owned by Seller or IQ2.net,
Seller or IQ2.net, as the case may be, has taken commercially reasonable steps
to protect and preserve the confidentiality of such Confidential Information,
and all accessibility, receipt, use, disclosure, delivery, dissemination,
reproduction or appropriation of such Confidential Information by or to a third
party has been pursuant to the terms of a written agreement between Seller or
IQ2.net and such third party.
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With respect to Confidential Information not owned by Seller or IQ2.net, all
accessibility, receipt, use, disclosure, delivery, dissemination, reproduction
or appropriation of such Confidential Information by Seller or IQ2.net has been
pursuant to the terms of a written agreement between Seller or IQ2.net and the
owner of such Confidential Information, or is otherwise lawful.
(h) Except with respect to Third Party Intellectual Property Rights,
no third party has claimed invalidity of, or superior rights to, any one or more
parts of Seller's or IQ2.net's Intellectual Property and, to Seller's knowledge,
there is no fact that reasonably might be expected to form the basis for any
such claim. Except with respect to Third Party Intellectual Property Rights,
Seller or IQ2.net, as the case may be, is the sole and exclusive owner of all
right, title and interest in and to Seller's or IQ2.net's Intellectual Property
free and clear of any Encumbrance other than Permitted Encumbrances. Each of
Seller and IQ2.net has full legal right and authority to license, sell, assign,
transfer and convey good, valid and marketable title to all Intellectual
Property owned by it, (i) free and clear of any and all ownership rights (and
ownership interests) assertable by any one or more third parties, (ii) free and
clear of any Encumbrances, (iii) without requiring any consent, authorization or
approval of any one or more third parties, and (iv) without violation of, breach
of, default under, conflict with, or acceleration of the performance required by
any agreement, obligation or legal restrictions (e.g. law, statute, regulation,
order, award, judgment, writ, injunction or decree), irrespective of whether
with or without notice, irrespective of whether with or without lapse of time,
and irrespective of whether judicial, administrative or arbitration.
(i) Seller and IQ2.net have provided Purchaser access to all existing
documentation and source code for all software included in the Intellectual
Property owned by Seller and IQ2.net. The condition of such documentation and
the source code has not had a material adverse effect on the ability of Seller
and IQ2.net to use such software for the purposes intended in the operation of
the Purchased Business, and such software operates without material operating
defects. Seller has disclosed to Purchaser a summary description of any material
problems experienced by Seller or IQ2.net in the past 12 months with respect to
such software and the provision of related services to Seller's and IQ2.net's
clients.
(j) Seller's and IQ2.net's software products, along with the
information technology systems (including but not limited to software) which are
used in the Purchased Business as currently conducted by Seller and IQ2.net, are
(or will be on the Closing Date) "year 2000 compliant" in that they are designed
to be used prior to, during and after the calendar year 2000 A.D.
4.10 CONTRACTS.
(a) There are no contracts or other agreements (written or oral)
binding upon Seller primarily with respect to the Purchased Business or the
Transferred Assets or IQ2.net except the Contracts set forth in SCHEDULE
1.1(a)(iii) of the Disclosure Schedules, contracts or agreements included within
the definition of Excluded Assets or the contracts or agreements to which
IQ2.net is a party or by which it is bound and listed or described on SCHEDULE
4.10(a) of the Disclosure Schedules (the "IQ2.net Contracts"). Seller and
IQ2.net have delivered to Purchaser true and complete copies of all written
Contracts and IQ2.net Contracts and written
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summaries of all oral Contracts and IQ2.net Contracts and any amendments thereto
enumerated in SCHEDULE 1.1(a)(iii) or SCHEDULE 4.10(a) of the Disclosure
Schedules. IQ2.net has not entered into any product development or licensing
agreement with Qualitative Marketing Software, Inc. ("QMS") other than the
Letter of Agreement dated March 30, 1999 (the "QMS Contract").
(b) The Contracts are all the material contracts, leases, agreements,
undertakings and commitments of Seller which relate primarily to the operation
of the Purchased Business. The IQ2.net Contracts are all the material contracts,
leases, agreements, undertakings and commitments of IQ2.net. Neither Seller nor
IQ2.net is (nor to Seller's reasonable knowledge is any other party) in material
default under, nor does any event, circumstance or situation exist which, with
the passage of time and/or the giving of notice, would result in a material
default under any material lease, contract or agreement, undertaking,
commitment, judgment, order or decree of any court or any government agency or
instrumentality relating primarily to any of the Transferred Assets or the
Purchased Business, including without limitation, any material Contract or
material IQ2.net Contract, under which any person, firm, corporation or other
entity is or may be entitled to assert any rights against any of the Transferred
Assets, the Purchased Business or IQ2.net, except as disclosed in SCHEDULE
4.10(b) of the Disclosure Schedules.
4.11 LITIGATION.
There are no actions, causes of action, claims, suits, proceedings,
orders, writs, investigations, injunctions or decrees pending or, to the
knowledge of Seller, threatened, against Seller or seeking to prevent
consummation of the transactions provided for herein, at law, in equity or
admiralty, or before or by any court or any governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, except where any
of the foregoing have not had and could not reasonably be expected to have a
Material Adverse Effect. There are no actions, causes of action, claims, suits,
proceedings, orders, writs, investigations, injunctions or decrees pending or,
to the knowledge of Seller, threatened against IQ2.net or seeking to prevent the
consummation of the transactions provided for herein, at law, in equity or
admiralty, or before or by any court or any governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, except where any
of the foregoing have not had and could not reasonably be expected to have a
Material Adverse Effect.
4.12 TAXES.
Except as set forth on Schedule 4.12 of the Disclosure Schedules:
(a) Each of Seller, IQ2.net and each member of any consolidated,
combined or unitary group of which Seller or IQ2.net is a member (an
"Affiliate"), have filed all material Tax Returns that they were required to
file. Each such Tax Return was correct and complete in all material respects
when filed. Neither Seller, IQ2.net. nor any Affiliate currently is the
beneficiary of any extension of time within which to file any Tax Return. No
claim by an authority in a jurisdiction where IQ2.net does not file Tax Returns
is pending that IQ2.net is or may be subject to taxation in a material amount by
that jurisdiction. There are no Encumbrances on any of the assets of IQ2.net
that arose in connection with any failure (or alleged failure) to pay any
material amount of Tax.
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(b) Each of Seller, IQ2.net and any Affiliate has withheld and paid
all material Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
(c) There is no pending material dispute or claim concerning any
Tax liability of Seller, IQ2.net or any Affiliate either (A) claimed or
raised by any Tax authority in writing or (B) as to which any director,
officer or employee responsible for Tax matters of Seller, IQ2.net or any
Affiliate has Knowledge based upon personal contact with any agent of a Tax
authority. SCHEDULE 4.12 (iii) of the Disclosure Schedules lists all
federal, state, local, and foreign income Tax Returns filed with respect to
Seller, IQ2.net and Affiliates for taxable periods ended on or after December
31, 1995, indicates those Tax Returns that have been audited, and indicates
those Tax Returns that currently are the subject of audit. The Seller has
delivered to the Purchaser correct and complete copies of all federal income
Tax Returns, examination reports, and statements of deficiencies assessed
against or agreed to by Seller, IQ2.net or an Affiliate since December 31,
1995.
(d) None of Seller, IQ2.net or any Affiliate has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency where such waiver or extension remains in
effect.
(e) IQ2.net has not filed a consent under Code Section 341(f)
concerning collapsible corporations. IQ2.net has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G or Section 162 by reason of Section 162(m).
IQ2.net is not a party to any Tax allocation or sharing agreement or any other
agreement pursuant to which it could be liable for the Taxes of any person other
than IQ2.net (excluding any liability under Treas. Reg. Section 1.1502-6 or any
similar provision of state, local, or foreign law).
(f) The unpaid Taxes of Seller, IQ2.net and each Affiliate (A) did
not, as of March 31, 1999, exceed the reserve for Taxes (excluding any reserve
for deferred Taxes established to reflect timing differences between book and
Tax income) set forth on the face of the most recent balance sheet (included in
Seller's Form 10Q filed with the Securities and Exchange Commission for the
quarter then ended) (rather than in any notes thereto) and (B) do not exceed
that reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of Seller and IQ2.net in filing
their Tax Returns. The unpaid Taxes of IQ2.net will not, as of the Closing Date,
exceed the reserve for Taxes (excluding any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
with regard to IQ2.net on the face of the Final Balance Sheet.
(g) "TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, 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.
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(h) "TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
4.13 COMPLIANCE WITH APPLICABLE LAW.
Except as set forth in the Disclosure Schedules, each of Seller and IQ2.net is
presently complying, and on the Closing will be in compliance, in all material
respects with all applicable laws, rules, regulations, orders, ordinances,
judgments or decrees of all governmental authorities (federal, state, local or
otherwise) related to or affecting the Purchased Business, the Transferred
Assets or the business, operations, assets or properties of IQ2.net, except
where such failure to so comply has not had and could not be reasonably expected
to have a Material Adverse Effect.
4.14 LABOR RELATIONS AND EMPLOYMENT; NO COLLECTIVE BARGAINING.
(a) Neither Seller (solely with respect to the Purchased Business) nor
IQ2.net has failed to comply in any material respect with Title VII of the Civil
Rights Act of 1964, as amended, the Fair Labor Standards Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, any applicable federal,
state and local laws, rules and regulations relating to employment, or any
applicable laws, rules and regulations governing payment of minimum wages and
overtime rates, and the withholding and payment of taxes from compensation of
employees, except where such failure to so comply has not had and could not be
reasonably expected to have a Material Adverse Effect. The employment of all
persons presently employed or retained by Seller to work at the Purchased
Business or by IQ2.net is terminable at will, all employment agreements, if any,
between Seller or IQ2.net and any such employee shall terminate as of the
Closing, and there are no labor controversies pending or threatened between
Seller or IQ2.net and any such employees.
(b) Neither the employees of Seller employed at the Purchased Business
nor the employees of IQ2.net are subject to any collective bargaining agreements
or other contracts with a labor union, contingent or otherwise, nor are any of
such employees represented by any labor union. The relations of Seller with
respect to employees employed or retained by it in connection with the Purchased
Business and the relations of IQ2.net with respect to all of its employees are
satisfactory. There are no unfair labor practice charges or complaints pending
against Seller involving any employees now or previously employed at the
Purchased Business or against IQ2.net involving any employees now or previously
employed by it. During the 12-month period preceding the date hereof, there have
not been any labor disputes or written and filed grievances or claims involving
any employees of Seller relating to the Purchased Business or any employees of
IQ2.net.
4.15 BROKERS AND FINDERS.
Except for fees and expenses payable to U.S. Bancorp Piper Jaffray
Inc. in connection with the transactions contemplated by this Agreement (which
fees and expenses are payable by Seller), neither Seller, IQ2.net nor any of
their officers, directors or employees, has incurred any liability for any
brokerage fees, commissions, finders' fees or similar fees or expenses in
connection with the transactions contemplated by this Agreement.
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4.16 POWERS OF ATTORNEY.
Except as set forth in the Disclosure Schedules, neither Seller nor
IQ2.net has given to any person or party, and there is not currently existing,
any power of attorney pertaining to the Transferred Assets, the Purchased
Business or the business, properties or assets of IQ2.net.
4.17 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 4.17 to the Disclosure Schedules lists, with respect to
Seller and IQ2.net, and any trade or business (whether or not incorporated) of
Seller or IQ2.net: (i) all employee benefit plans or arrangements, oral or
written; (ii) each stock option, stock purchase, phantom stock, stock
appreciation right, supplemental retirement, severance, sabbatical, medical,
dental, vision care, disability, employee relocation, cafeteria benefit or
dependent care, life insurance or accident insurance plans, programs or
arrangements, oral or written; (iii) all bonus, pension, profit sharing,
savings, deferred compensation or incentive plans, programs or arrangements,
oral or written; (iv) all other fringe or employee benefit plans, programs or
arrangements, oral or written, that apply to senior management of Seller or
IQ2.net and that do not generally apply to all employees; and (v) any current or
former employment or executive compensation or severance agreements or
arrangements, written or otherwise, as to which unsatisfied obligations of
Seller or IQ2.net remain for the benefit of, or relating to, any present or
former employee, consultant or director of Seller or IQ2.net (collectively, the
"Seller Employee Plans").
(b) Seller has furnished or made available to Purchaser a copy of each
of the Seller Employee Plans and related plan documents (including trust
documents, insurance policies or contracts, employee booklets, summary plan
descriptions and other authorizing documents, and, to the extent still in its
possession, any material employee communications relating thereto). The Seller
Employee Plans are duly registered where required by, and have at all times been
invested and administered in material compliance with, all applicable laws,
rules, regulations and terms of the Seller Employee Plans. All required employer
and employee contributions and premiums under the Seller Employee Plans have
been made, no past service funding obligations exist (either on a solvency or a
going concern basis) there are no outstanding violations or defaults thereunder,
and there are no actions or claims, pending or threatened (other than routine
claims for benefits), relating to any of the Seller Employee Plans. No promise
or commitment to increase benefits under any Seller Employee Plans has been made
except as required by applicable law.
4.18 SUBSIDIARIES.
IQ2.net has no subsidiaries and owns no equity interest in any other
corporation, firm, joint venture, partnership or other entity.
4.19 DIRECTORS AND OFFICERS.
The names and titles of all the officers and directors of IQ2.net are
set forth on Schedule 4.19 of the Disclosure Schedules.
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4.20 ACCOUNTS RECEIVABLE.
All of the accounts receivable reflected on the Final Balance Sheet
will have arisen from bona fide transactions in the ordinary course of the
Purchased Business and will not be subject to any set-off or counterclaims. All
accounts receivable reflected on the Final Balance Sheet will be collectible in
full in the ordinary course in the aggregate recorded amounts therefor, less any
reserves for doubtful accounts reflected on the Final Balance Sheet.
4.21 ENVIRONMENTAL MATTERS.
None of Seller, IQ2.net or the activities of the Purchased Business
are in material violation of any applicable statute, law or regulation relating
to the environment or occupational health and safety. Seller and IQ2.net have
obtained all material permits, licenses, registrations and other governmental
authorizations currently required by all applicable statutes, laws or
regulations relating to the environment or occupational health and safety
necessary for the conduct of the Purchased Business or the business of IQ2.net.
4.22 ASSET MAINTENANCE; INSURANCE; SUFFICIENCY.
Except as described in the Disclosure Schedules, the Transferred
Assets and the assets and properties of IQ2.net have been properly maintained
and are: (i) in satisfactory operating condition (except for ordinary wear and
tear which in the aggregate would not have a Material Adverse Effect) and (ii)
are capable of being used in the Purchased Business without present need for
repair or replacement except in the ordinary course of business. Seller has
maintained fire, casualty, liability and other insurance with respect to the
Purchased Business and the Transferred Assets at levels which insure Seller with
regard to the Purchased Business and IQ2.net in reasonably sufficient amounts
against risks customarily insured against by persons operating similar
businesses or properties of similar size in the localities where such businesses
or properties are located. The Transferred Assets and the assets and properties
of IQ2.net together constitute all properties and assets essential to conduct
and operate the Purchased Business in the manner in which it is presently
conducted by Seller and IQ2.net.
4.23 DISCLOSURE.
To the knowledge of Seller, no representation or warranty by Seller in
this Agreement (as supplemented by the Disclosure Schedules) or any statement in
the closing certificate delivered by Seller to Purchaser pursuant to Section
7.3(d)(i) contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary to make the statements
contained in such representation, warranty or certificate, in light of the
circumstances under which it was or will be made, not misleading. As used in
this Section 4.23, "knowledge of Seller" with respect to a fact or matter shall
mean that an executive officer of Seller or IQ2.net has, or at any time had, or
would after reasonable inquiry, have actual knowledge of such fact or matter.
4.24 DISCLAIMER OF OTHER REPRESENTATIONS AND WARRANTIES.
Except as expressly set forth in this Article IV, Seller makes no
representation or warranty, express or implied, at law or in equity, in respect
of any of its assets (including,
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without limitation, the Transferred Assets), liabilities or operations,
including without limitation, with respect to merchantability or fitness for any
particular purpose, and any such other representations or warranties are hereby
expressly disclaimed. Purchaser hereby acknowledges and agrees that, except to
the extent specifically set forth in this Article IV, Purchaser is purchasing
the Transferred Assets on an "as-is, where-is" basis. Without limiting the
generality of the foregoing, Seller makes no representation or warranty
regarding any assets other than the Transferred Assets or any liabilities other
than the Assumed Liabilities, and none shall be implied at law or in equity.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to each Seller as follows:
5.1 CORPORATE ORGANIZATION.
Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
5.2 AUTHORITY.
Purchaser has full corporate power and authority to execute and
deliver this Agreement and the documents to be delivered at the Closing pursuant
to Section 7.2 hereof (collectively, the "PURCHASER AGREEMENTS") and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Purchaser Agreements by Purchaser and the
consummation by Purchaser of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action and no other
corporate action or proceeding on the part of Purchaser is necessary to
authorize the execution and delivery by Purchaser of this Agreement or the
Purchaser Agreements or the consummation by Purchaser of the transactions
contemplated hereby or thereby. This Agreement has been, and the Purchaser
Agreements on the Closing Date will be, duly executed and delivered by Purchaser
and this Agreement is, and on the Closing Date each of the Purchaser Agreements
will be, legal, valid and binding obligations of Purchaser, enforceable against
Purchaser in accordance with their terms, subject to applicable laws affecting
creditors' rights generally and, as to enforcement, to general principles of
equity, regardless of whether applied in a proceeding at law or in equity.
5.3 NO VIOLATIONS: NO CONSENTS OR APPROVALS REQUIRED.
Neither the execution and delivery of this Agreement or the Purchaser
Agreements nor the consummation of the transactions contemplated hereby or
thereby will (i) conflict with or violate any provision of the Certificate of
Incorporation or by-laws of Purchaser, (ii) conflict with or violate any law,
rule, regulation, ordinance, order, writ, injunction, judgment or decree
applicable to Purchaser or by which any of its properties or assets are bound or
affected or (iii) conflict with or result in any breach of or constitute a
default (or an event which with
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notice or lapse of time or both would become a default) under, or give to others
any rights of termination or cancellation of, or accelerate the performance
required by or maturity of, or result in the creation of, any security interest,
lien, charge or encumbrance on any of its assets or properties pursuant to any
of the terms, conditions or provisions of, any note, bond, mortgage, indenture,
permit, license, franchise agreement, lease, contract, or other instrument or
obligation to which Purchaser is a party or by which Purchaser or any of its
properties or assets is bound or affected, except, in the case of (ii) and (iii)
above, for such conflicts, violations, breaches, defaults, terminations,
cancellations and accelerations which in the aggregate will not have a material
adverse effect on the ability of Purchaser to consummate the transactions
contemplated by this Agreement and the Purchaser Agreements. Except for
applicable requirements, if any, of the HSR Act, no notice, declaration, report
or other filing or registration with, and no waiver, consent, approval or
authorization of, any governmental or regulatory authority or instrumentality or
any other person is required to be submitted, made or obtained by Purchaser in
connection with the execution, delivery or performance of this Agreement or the
Purchaser Agreements and the consummation of the transactions contemplated
hereby or thereby.
5.4 BROKERS AND FINDERS.
Purchaser does not have any obligation to pay any broker's, finder's,
investment banker's, financial advisor's or similar fee in connection with this
Agreement, or the transactions contemplated hereby or thereby, by reason of any
action taken by or on behalf of Purchaser except for fees and expenses payable
to Bowles Hollowell Connor, a division of First Union Capital Markets Group.
5.5 DISCLOSURE.
The representations and warranties by Purchaser in this Agreement and
the statements contained in the schedules, certificates, exhibits and other
writings furnished and to be furnished by Purchaser or its representatives to
Seller pursuant to this Agreement do not and will not contain any untrue
statement of a material fact and do not and will not omit to state any material
fact necessary to make the statements herein or therein in light of the
circumstances under which it is not or will not be made, not misleading.
5.6 FINANCING.
Purchaser has received certain non-binding commitments to provide
funds to Purchaser sufficient to enable Purchaser to consummate the transactions
contemplated hereby and to pay fees and expenses related thereto (the
"FINANCING"). Purchaser has delivered a draft term sheet (including all
amendments thereto through the date hereof) to Seller setting forth the proposed
terms on which Purchaser contemplates it will receive the Financing.
5.7 INVESTMENT.
Purchaser is not acquiring the capital stock of IQ2.net with a view to
or for sale in connection with any distribution thereof within the meaning of
the Securities Act of 1933, as amended.
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5.8 NO LITIGATION.
There are no actions, causes of action, claims, suits, proceedings,
orders, writs, investigations, injunctions or decrees pending, or to the
knowledge of Purchaser, threatened against Purchaser, which would affect the
consummation of the transactions contemplated herein, at law, in equity or
admiralty, or before or by any court or any governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign.
ARTICLE VI
COVENANTS
6.1 CONDUCT OF THE PURCHASED BUSINESS PENDING THE CLOSING.
Seller hereby covenants that, from the date hereof to and including
the earlier of the termination of this Agreement and the Closing Date, unless
Purchaser shall have consented, which consent may be withheld in Purchaser's
sole discretion, or as otherwise contemplated by this Agreement:
(a) the Purchased Business shall be conducted and the Transferred
Assets and the assets and properties of IQ2.net repaired and maintained in the
ordinary and usual course, in a manner consistent with past practice;
(b) except in the ordinary course of business consistent with past
practice, neither the Seller in connection with the Purchased Business nor
IQ2.net shall (i) make any commitment to make any capital expenditures
individually in excess of $25,000 or in the aggregate in excess of $100,000;
(ii) dispose of any capital assets with a book value, individually or in the
aggregate, in excess of $100,000 or encumber any of its capital assets;
(iii) incur, or guarantee or otherwise become liable for, any indebtedness for
borrowed money in excess of $100,000 in the aggregate; (iv) amend any of the
Contracts or IQ2.net Contracts; or (v) enter into any new employee benefit plan,
program or arrangement or amend any existing employee benefit plan, program or
arrangement or grant any increases in employee compensation;
(c) Seller shall use its commercially reasonable efforts to preserve,
and shall cause IQ2.net to use its commercially reasonable efforts to preserve,
for Purchaser the goodwill of all persons dealing with the Purchased Business;
(d) Seller shall maintain, or cause IQ2.net to maintain, as
applicable, in full force and effect all insurance policies now in effect or
renewals thereof covering the Transferred Assets, the Purchased Business or the
assets and property of IQ2.net and the employees employed in the Purchased
Business or by IQ2.net prior to the Closing Date, and shall provide reasonable
assistance to Purchaser to make claims against or otherwise obtain benefits
payable under any insurance policies maintained by Seller or IQ2.net relating to
the Purchased Business that provide coverage with respect to events which occur
prior to the Closing. Purchaser shall reimburse Seller for all reasonable out-
of-pocket expenses incurred by Seller in providing said assistance;
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(e) Seller shall promptly notify Purchaser of (i) any breach or
violation of, default or event of default under, or actual or threatened
termination or cancellation of any contract or other instrument relating to the
Purchased Business, including, without limitation, any Contract or IQ2.net
Contract, which has had or could reasonably be expected to have a Material
Adverse Effect, (ii) any loss of, damage to, or disposition of any of the
Transferred Assets or any of the assets or properties of IQ2.net (other than the
sale or use of inventories in the ordinary course of business) which has had or
could reasonably be expected to have a Material Adverse Effect, and (iii) any
claim or litigation, threatened or instituted against Seller or IQ2.net, or any
other adverse event or occurrence involving or affecting the Purchased Business
or IQ2.net which has had or could reasonably be expected to have a Material
Adverse Effect;
(f) Seller shall not enter or permit IQ2.net to enter into any
collective bargaining agreement affecting the Purchased Business or the
employees of IQ2.net; and
(g) except in the ordinary course of business, consistent with past
practice, Seller shall not sell, dispose of, distribute, encumber or enter into
any agreement, arrangement or commitment, whether oral or written, for the sale,
disposition, distribution or encumbrance of any portion of the Purchased
Business or permit IQ2.net to do any of the foregoing with respect to any of its
assets or properties.
6.2 NO SOLICITATION
(a) Unless and until the earlier of the Closing Date and the
termination of this Agreement pursuant to Section 9.1 hereof, Seller (including
through its agents, representatives or otherwise) shall not take or cause,
directly or indirectly, any of the following actions with any party other than
Purchaser or its respective designees: (i) solicit, knowingly encourage,
initiate or participate in any negotiations, inquiries or discussions with
respect to any offer, indication or proposal to acquire the Purchased Business,
any of the IQ2.net Common Stock or more than 10% of the other Transferred Assets
or the assets and properties of IQ2.net, whether by merger, consolidation, other
business combination, purchase of assets, tender or exchange offer or otherwise
(each of the foregoing, an "Acquisition Proposal") or (ii) disclose, in
connection with an Acquisition Proposal, any non-public information or provide
access to its properties, books or records or those of IQ2.net, except as
required by law or pursuant to a governmental request for information.
(b) Notwithstanding anything to the contrary contained in Section
6.2(a) or elsewhere in this Agreement, prior to the Closing, Seller may, to the
extent the Board of Directors of the Company determines that it would be in the
best interests of Seller or its stockholders to do so, directly or indirectly,
participate in discussions or negotiations with, and furnish information, and
afford access to the properties, books, records, officers, employees and
representatives of the Seller and the Purchased Business to any Person, entity
or group after such Person, entity or group has delivered to Seller in writing,
an Acquisition Proposal which the Board of Directors of Seller in its good faith
reasonable judgment determines if consummated would be more favorable to Seller
or its stockholders than the transactions contemplated by this Agreement (a
"SUPERIOR PROPOSAL"). In the event the Company receives a Superior Proposal,
nothing contained in this Agreement (but subject to the terms of this paragraph
(b) and paragraph (c) below) will prevent the Board of Directors of Seller from
executing or entering into an
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agreement relating to such Superior Proposal and recommending such Superior
Proposal to its stockholders, if the Board determines in good faith that it is
appropriate to do so; in such case, the Board of Directors of Seller may
withdraw, modify or refrain from making its recommendation of the transactions
contemplated hereby, and, to the extent it does so, Seller may refrain from
calling, providing notice of and holding the stockholders meeting to adopt this
Agreement and from soliciting proxies or consents to secure the vote or written
consent of its stockholders to adopt this Agreement and may terminate this
Agreement; PROVIDED HOWEVER that the Seller shall provide Purchaser at least
five (5) calendar days prior written notice of Seller's intention to execute or
enter into an agreement relating to such Superior Proposal and containing a true
and correct copy and statement of the terms of such Superior Proposal, including
an identification of the party proposing the Superior Proposal, in order to
allow Purchaser the opportunity to propose a counteroffer to such Superior
Proposal prior to the time Seller enters into an agreement relating to such
Superior Proposal.
(c) In the event Seller accepts a Superior Proposal, Seller may
terminate this Agreement by written notice to Purchaser, PROVIDED that Seller
must abide by the termination provisions contained in Article IX of this
Agreement. Notwithstanding anything to the contrary contained in Section 6.2 or
elsewhere in this Agreement, prior to the Closing Date, Seller may, in
connection with a possible Acquisition Proposal, refer any third party to this
Section 6.2 and Article IX and make a copy of this Section 6.2 and Article IX
available to a third party.
6.3 DELIVERY OF BALANCE SHEET AND ADDITIONAL PAYMENT AMOUNT.
(a) As soon as practicable after the Closing Date, but in any case no
later than thirty days following the Closing Date, Seller shall deliver to
Purchaser an unaudited balance sheet setting forth in reasonable detail the Net
Asset Value, including without limitation and separately identifying the assets,
liabilities and stockholders' equity of IQ2.net, as of the Closing Date,
prepared in accordance with Section 2.2 hereof (the "Final Balance Sheet").
Seller shall give Purchaser written notice of its intent to deliver the Final
Balance Sheet to Purchaser at least five days prior to the date of delivery.
(b) Purchaser shall pay to Seller the Additional Payment Amount (if
any), in accordance with the provisions of Section 2.2 hereof.
6.4 ACCESS TO INFORMATION; CONTINUED ASSISTANCE.
(a) From the date hereof until the earlier of the termination of this
Agreement and the Closing Date, Seller shall and shall cause IQ2.net to (i) give
Purchaser and its respective authorized representatives reasonable access,
subject to such limitations or procedures as may be necessary to protect the
attorney-client privilege or the work product doctrine and subject to their
respective confidentiality obligations, to all offices, warehouses, and other
facilities and to all books and records of the Purchased Business or IQ2.net,
(ii) permit Purchaser and all such persons to make such inspections of the
Transferred Assets and the assets and properties of IQ2.net as they may
reasonably request and (iii) cause its officers to furnish Purchaser and all
such persons with such financial and operating data and other information with
respect to the Transferred Assets, the Purchased Business and IQ2.net as they
may from time to time
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reasonably request; provided that Purchaser shall exercise its rights under this
Section 6.4 in a manner that does not unreasonably interfere with the operations
of the Purchased Business.
(b) Purchaser will hold and will cause its representatives to hold in
strict confidence all documents and information concerning the Purchased
Business to the extent and in accordance with the terms and conditions of the
Confidentiality Agreement (as defined in Section 10.1 hereof).
(c) For a period of at least five (5) years following the Closing
Date, Purchaser will retain, at Purchaser's sole expense, the books, records and
other data of the Purchased Business transferred pursuant to this Agreement.
During such period, Purchaser will afford to Seller, its counsel and
accountants, during normal business hours, reasonable access to such books,
records and other data.
(d) Purchaser shall, at the request of Seller, (i) provide reasonable
assistance in the collection of information or documents and (ii) make
Purchaser's employees available when reasonably requested by Seller in
connection with claims or actions brought by or against third parties based upon
events or circumstances concerning Excluded Liabilities. Seller shall reimburse
Purchaser for all reasonable out-of-pocket expenses incurred by Purchaser in
providing said assistance.
(e) For a period of five (5) years following the Closing Date, Seller
will retain, at Seller's sole expense all tax and accounting records and other
books of account relating to the Purchased Business or IQ2.net not delivered to
Seller pursuant to Section 7.3(f) hereof on the Closing Date (the "Retained
Records"). During such period, Seller agrees to make available to Purchaser, for
inspection and copying at Purchaser's expense, at reasonable times upon request
therefor, (i) the Retained Records and (ii) any other records and documents
relating to the Purchased Business, the Transferred Assets or IQ2.net retained
by Seller, which in the case of this clause (ii) only, are, at the time of such
request, in Seller's possession or control. In addition, Seller agrees to make
available to Purchaser such then current employees of Seller, as Purchaser shall
from time to time reasonably request, to permit Purchaser to prepare (i) any tax
returns or other tax related documents in connection with any governmental
examination of tax returns and (ii) any other financial and accounting documents
for a one (1) year period following the Closing Date, relating to the Purchased
Business, the Transferred Assets or IQ2.net for periods from and after the
Closing Date. Except as provided in the first sentence of this Section,
Purchaser shall reimburse Seller for all reasonable expenses incurred by Seller
in providing the assistance set forth in this paragraph (e). After the fifth
anniversary of the Closing Date, Seller may dispose of any Retained Records;
PROVIDED, HOWEVER, that before disposing of any Retained Records, it will first
notify Purchaser and permit Purchaser, at its sole expense, to pick up such
Retained Records. In the event that Seller transfers all or substantially all of
its assets or liquidates and dissolves at a time when it continues to have
obligations under this paragraph (e), it shall either cause its successor to
agree to be bound by the provisions of this paragraph (e) or shall deliver to
Purchaser all (i) Retained Records and (ii) all other documents and records
relating to the Purchased Business, the Transferred Assets or IQ2.net then in
its possession.
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6.5 COMMERCIALLY REASONABLE EFFORTS.
(a) Upon the terms and subject to the conditions hereof, each of the
parties hereto agrees to use its 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 to consummate the transfer of the Purchased
Business and the Transferred Assets and the transactions contemplated by this
Agreement, the Seller Agreements and the Purchaser Agreements and shall use its
commercially reasonable efforts to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings.
(b) In the event Purchaser or Seller, as the case may be, is unable to
obtain, prior to the Closing, any consents, approvals, waivers or other
authorizations necessary or advisable to transfer to Purchaser any Transferred
Asset or otherwise consummate the transactions contemplated hereby, and
Purchaser nonetheless elects to consummate the transactions contemplated hereby,
Purchaser and Seller will cooperate with each other in order to obtain such
consents, approvals, waivers or other authorizations at the earliest practicable
date. In each instance where such consents, approvals, waivers or other
authorizations cannot be obtained prior to the Closing, Seller shall use its
commercially reasonable efforts to enter into such alternative arrangements and
agreements with Purchaser as may be appropriate in order to permit Purchaser to
realize, receive and enjoy substantially similar rights and benefits and to
enable Purchaser to conduct operations of the Purchased Business and the
ownership of the Transferred Asset until the consents, approvals, waivers or
other authorizations are obtained; provided however, that Seller shall have no
obligation to pay any fees, incur any expense or make any modification to such
contract, license, lease, sales order, purchase order, commitment, permit,
operating authority or other agreement to obtain such consent. If, after the
exercise of commercially reasonable efforts, any such consents, approvals,
waivers or other authorizations are not obtained, Seller agrees to cooperate
with Purchaser in any reasonable arrangements designed to provide, to the extent
reasonably practicable and at Purchaser's request and expense, for the benefit
of Purchaser any and all rights of Seller in and to such Transferred Asset.
6.6 PUBLIC ANNOUNCEMENTS.
Purchaser and Seller will consult with each other before issuing any
press release or otherwise making any public statements with respect to this
Agreement or the transactions contemplated hereby and shall not issue any such
press release or make any such public statement prior to such consultation.
6.7 COMPETITION; NON-SOLICITATION.
(a) Seller covenants and agrees that, during the three-year period
immediately following the Closing, it shall not, directly, indirectly or through
any ownership interest in any firm, corporation, partnership, proprietorship or
other business, engage in the activities now engaged in by the Purchased
Business in the geographic areas in which the Purchased Business is now
conducted; provided, however, that (i) Seller may own, directly or indirectly,
solely as an investment, securities of any person which are publicly traded if
Seller does not, directly or indirectly, beneficially own five percent or more
of any class of securities of such person; and (ii) Seller may have such an
ownership interest during such three-year period if such ownership
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arises as a result of the acquisition of a business entity having business
activities other than those now engaged in by the Purchased Business and Seller
is proceeding actively to dispose of those business activities prohibited by
this Section.
(b) For a period of three years after the Closing date, Seller shall
not directly or indirectly (i) induce or attempt to induce any employee of
IQ2.net or any employee of Seller who becomes an employee of Purchaser on or
after the date hereof to leave IQ2.net or Purchaser, as the case may be, or
accept any other employment or position unless (in each case, prior to any such
inducement or attempted inducement), such employee has been terminated by
IQ2.net or Purchaser or has resigned as an employee of IQ2.net or Purchaser,
(ii) assist any other entity in hiring any such employee other than by
furnishing employment data and recommendations when solicited by potential
employers, or (iii) solicit, approach or otherwise contact any client of the
Purchased Business in an attempt to obtain such client as a customer of any
business conducted by Seller.
(c) Nothing in this Section 6.7 shall prevent any direct or indirect
current or future stockholder or affiliate of Seller (each, a "Related Party")
from engaging in the activities now engaged in by the Purchased Business;
provided that Seller shall not do any of the following in an attempt to
circumvent the restrictions set forth in Section 6.7(a): (i) permit any Related
Party to use, or assist any Related Party in using, any Confidential Information
of Seller or IQ2.net in connection with such activities, (ii) permit any Related
Party to utilize the assistance of any person employed as an employee, agent,
contractor, consultant or advisor of Seller on the date thereof or the Closing
Date in connection with such activities, (iii) permit any Related Party to
utilize the trade names "IntelliQuest" or "IntelliQuest Information Group, Inc."
in connection with such activities, or (iv) assist any Related Party in the
solicitation of business from any client or customer of the Purchased Business
or IQ2.net prior to the Closing Date for services provided to such client or
customer by the Purchased Business or IQ2.net. As used herein, the term
"affiliate" shall have the meaning ascribed to such term in Rule 405 promulgated
under the Securities Act of 1933, as amended.
(d) Purchaser covenants and agrees that, if the Closing shall occur,
during the three-year period immediately following the Closing, it shall not,
directly, indirectly or through any ownership interest in any firm, corporation,
partnership, proprietorship or other business, engage in the activities now
engaged in by the Seller in connection with its research business in the
geographic areas in which such business is now conducted; provided, however,
that (i) Purchaser may own, directly or indirectly, solely as an investment,
securities of any person which are publicly traded if Purchaser does not,
directly or indirectly, beneficially own five percent or more of any class of
securities of such person; and (ii) Purchaser may have such an ownership
interest during such three-year period if such ownership arises as a result of
the acquisition of a business entity having business activities other than those
now engaged in by Seller is connection with its research business and Purchaser
is proceeding actively to dispose of those business activities prohibited by
this Section.
6.8 COLLECTION OF ACCOUNTS.
Any payment in respect of accounts receivable reflected on the Final
Balance Sheet received by Seller following the Closing Date shall be segregated
into a separate account
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established for such purpose by Seller, and shall be paid to Purchaser within
five (5) business days of receipt by Seller by wire transfer in immediately
available (same day) funds to the account specified by Purchaser for this
purpose, together with a statement of accounting therefor in the form of
remittance advice provided in connection with such payment or, if no such
remittance advice was provided with such payment, in a manner otherwise
reasonably acceptable to Purchaser.
6.9 OFFERS OF EMPLOYMENT.
Prior to the Closing Date, Purchaser shall offer employment to Dr.
Charles Stryker and the other employees listed on SCHEDULE 6.9 of the Disclosure
Schedules, such employment to be effective on the Closing Date. Purchaser shall
not be obligated to offer employment to any other individuals currently employed
by Seller and shall not be obligated to assume any severance obligations with
respect to any employees who are not offered employment or who do not accept
Purchaser's offer of employment.
6.10 SELLER 401(k) PLAN.
(a) Effective as of the Closing Date, Seller shall cause each employee
of the Seller or IQ2.net who remains employed with IQ2.net following the Closing
Date or who becomes employed by the Purchaser (collectively, the "Continued
Employees") to have a fully nonforfeitable right to such employee's account
balances, if any, under the defined contribution individual account plan
currently participated in by employees of IQ2.net (the "Seller 401(k) Plan").
Effective as of the Closing Date, Purchaser shall establish or shall extend
coverage to each Continued Employee under Purchaser's current defined
contribution plan (the "Purchaser Plan") qualified pursuant to Sections 401(a)
and 401(k) of the Code as it exists on the Closing Date. Each Continued Employee
who is a participant in the Seller 401(k) Plan shall cease to be an active
participant in and to accrue benefits under such plan as of the Closing Date.
The Purchaser Plan shall credit each Continued Employee with service for
purposes of eligibility to participate and vesting under the Purchaser Plan to
the extent such service was recognized for such purposed under the Seller 401(k)
Plan immediately prior to the Closing Date.
(b) Purchaser shall cause Purchaser's Plan to accept rollover
contributions of amounts distributed from the Seller's 401(k) plan to continued
Employees, provided and to the extent that such amounts qualify as eligible
rollover amounts.
6.11 VACATION.
With respect to any accrued but unused vacation time (which is
reflected as a liability on the Final Balance Sheet) to which any Continued
Employee is entitled pursuant to the vacation policy applicable to such
Continued Employee immediately prior to the Closing Date, Purchaser shall cause
IQ2.net to allow such Continued Employee to utilize such accrued vacation time
in accordance with the existing policies of Seller and IQ2.net as of the
Closing.
6.12 QMS CONTRACT.
Seller shall cause IQ2.net to terminate and/or discharge in full prior
to the Closing Date all of its liabilities and obligations under the QMS
Contract, and shall not permit IQ2.net to
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enter into, or incur any obligation or liability under any, product development
or licensing agreement or other contract or agreement with QMS pursuant to or in
connection with the QMS Contract.
6.13 ACCELERATED VESTING OF EMPLOYEE OPTIONS.
If any outstanding options, whether then vested or not, to purchase
capital stock of Seller granted to employees of the Purchased Business or
IQ2.net who will remain employees of the Purchased Business or IQ2.net on and
after the Closing Date (the "IQ2.net Employee Options") are not cancelled prior
to or within five business days following the Closing in exchange for cash
consideration on the same terms as options to purchase capital stock granted to
other employees of Seller, Seller shall, prior to or within five business days
following the Closing, take all actions necessary to vest in full and make
immediately exercisable all outstanding IQ2.net Employee Options not so
cancelled.
6.14 ASSUMED LIABILITIES; EXCLUDED LIABILITIES.
Pursuant to the Assumption Agreement, Purchaser shall agree to pay,
perform and discharge the Assumed Liabilities in accordance with terms thereof
as and when due or required. Seller shall pay, perform and discharge the
Excluded Liabilities in accordance with the terms thereof as and when due or
required.
6.15 TRANSITION SERVICES.
Subsequent to the Closing, Seller shall provide to Naviant such
accounting, technical and other support services as Purchaser reasonably shall
request for a smooth and orderly transfer of the Purchased Business to
Purchaser.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 GENERAL CONDITIONS.
The obligations of each party hereto to effect the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of the following conditions (or the written waiver thereof by
such party):
(a) ORDERS, STATUTES, ETC. No order, statute, rule, regulation,
executive order, stay, decree or restraining order shall have been enacted,
entered, promulgated or enforced by any court of competent jurisdiction or
governmental or regulatory authority or instrumentality of competent
jurisdiction that prohibits the consummation of the transactions contemplated
hereby.
(b) HSR ACT. Any waiting period applicable to the transactions
contemplated hereby pursuant to the HSR Act shall have expired or been
terminated.
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(c) NO INJUNCTION; LITIGATION. No injunction or restraining order
shall be in effect which forbids or enjoins the consummation of the transactions
contemplated by this Agreement, no proceedings for such purpose shall be
pending, and no federal, state, local or foreign statute, rule or regulation
shall have been enacted which prohibits, restricts or delays the consummation
hereof. No litigation or governmental investigation or proceeding seeking to
enjoin or challenging, or seeking damages or relief in connection with, the
transactions contemplated by this Agreement shall be pending, which in either
party's reasonable judgment (with advice of counsel), makes it inadvisable to
proceed with the transaction contemplated by this Agreement.
(d) APPROVALS. All governmental and third party approvals, consents,
licenses, permits or waivers necessary for consummation of the transactions
contemplated by this Agreement, including, without limitation, any consents
required under any Contract or IQ2.net Contract, shall have been obtained. In
addition, no Contract or IQ2.net Contract listed on Schedule 4.3 shall have been
terminated after notice of the transactions contemplated by this Agreement shall
have been given to the required parties thereto.
7.2 CONDITIONS TO OBLIGATIONS OF SELLER.
The obligations of Seller to close the transactions contemplated by
this Agreement shall be subject to the satisfaction at or prior to the Closing
of the following conditions (or the written waiver thereof by Seller):
(a) COVENANTS AND AGREEMENTS. Purchaser shall have performed and
complied with in all material respects all covenants and agreements required
under this Agreement to be performed by it at or prior to the Closing.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Purchaser contained herein shall be true and correct in all material respects
(unless such representation or warranty is by its terms expressed in terms of
materiality, in which case, such representation or warranty shall be true and
correct in all respects) at and as of the Closing Date as if made at and as of
such time except to the extent that a different time is specifically stated in
such representations and warranties.
(c) DELIVERIES. Purchaser shall have delivered, or caused to be
delivered, to Seller the following (which shall be in form and substance
satisfactory to Seller):
(i) PURCHASE PRICE - Seller shall have received the portion of
the Purchase Price payable directly to it, and the Escrow Agent shall have
received the Balance Sheet Adjustment Escrow Amount;
(ii) OPINION OF COUNSEL - Seller shall have received an opinion
of Brobeck, Phleger & Harrison, LLP, counsel to the Purchaser, covering the
transactions contemplated hereby in form and substance reasonably satisfactory
to Seller;
(iii) SECRETARY'S CERTIFICATE - a certificate, dated the Closing
Date, of the Secretary of Purchaser with respect to (a) the resolutions adopted
by the Board of Directors of Purchaser approving this Agreement and the
transactions contemplated hereby and (b) the
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incumbency and specimen signature of each officer of Purchaser executing this
Agreement and any other agreement or certificate to be executed by Purchaser and
a certification by another officer of Purchaser as to the incumbency and
specimen signature of the Secretary of the Purchaser;
(iv) OFFICER'S CERTIFICATE - a certificate, substantially in a
form attached hereto as EXHIBIT D-1 and by this reference incorporated herein,
dated the Closing Date and signed by an executive officer of Purchaser expressly
certifying that the conditions set forth in Sections 7.2(a) and 7.2(b) have been
met;
(v) ESCROW AGREEMENT - the Purchaser shall have executed an
Escrow Agreement with Seller and the Escrow Agent in substantially the form
attached hereto as EXHIBIT C; and
(vi) [Reserved]; and
(vii) COOPERATION AGREEMENT. Purchaser shall have entered into a
Cooperation Agreement with Seller in substantially the form attached hereto as
EXHIBIT L.
7.3 CONDITIONS TO OBLIGATIONS OF PURCHASER.
The obligation of Purchaser to close the transactions contemplated
hereby shall be subject to the fulfillment and satisfaction, prior to or at the
Closing, of the following conditions (or the written waiver thereof by
Purchaser):
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of Seller contained in this Agreement shall be true and correct in
all material respects (unless such representation or warranty is by its terms
expressed in terms of materiality, in which case, such representation or
warranty shall be true and correct in all respects) on and as of the Closing
Date with the same force and effect as though made on and as of the Closing
Date, except to the extent that a different time is specifically stated in such
representations and warranties. Seller shall have performed and complied in all
material respects with all covenants and agreements required by this Agreement
to be performed or complied with by Seller on or prior to the Closing Date.
(b) NO CHANGE IN CAPITAL STRUCTURE. No dividends, distributions, new
options or equity shall be paid or issued by IQ2.net, and no other changes in
the capitalization of IQ2.net shall have occurred between March 31, 1999 and the
Closing Date.
(c) MATERIAL ADVERSE CHANGE. Since March 31, 1999, there shall not
have been a material adverse change in the assets or properties (including,
without limitation, the Transferred Assets), business, financial condition or
results of operations of IQ2.net and the Purchased Business, taken as a whole,
other than changes affecting the database research industry generally.
(d) DELIVERIES. Seller shall have delivered, or caused to be
delivered, to Purchaser the following (which shall be in form and substance
satisfactory to Purchaser).
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(i) OFFICER'S CERTIFICATE - a certificate, substantially in a
form attached hereto as EXHIBIT D-2 and by this reference incorporated herein,
dated the Closing Date and signed by an executive officer of Seller expressly
certifying that the conditions set forth in Sections 7.3(a) and 7.3(b) have been
met;
(ii) OPINION OF COUNSEL - an opinion of counsel for Seller
covering the transactions contemplated hereby in form and substance reasonably
satisfactory to Purchaser;
(iii) SECRETARY'S CERTIFICATE - a certificate, dated the Closing
Date, of the Secretary of Seller with respect to (a) the resolutions adopted by
the Board of Directors of Seller approving this Agreement and the transactions
contemplated hereby and (b) the incumbency and specimen signature of each
officer of Seller executing this Agreement and any other agreement or
certificate to be executed by Seller and a certification by another officer of
Seller as to the incumbency and specimen signature of the Secretary of the
Seller;
(iv) GENERAL ASSIGNMENT AND BILL OF SALE - an original general
assignment and bill of sale, substantially in the form attached hereto as
EXHIBIT A and by this reference incorporated herein;
(v) STOCK CERTIFICATES AND STOCK POWERS - Seller shall deliver
to Purchaser certificates evidencing all outstanding shares of the IQ2.net
Common Stock which are duly endorsed for transfer thereon or by means of duly
executed stock powers attached thereto;
(vi) ESCROW AGREEMENT - the Seller shall have executed an
Escrow Agreement with Purchaser and the Escrow Agent in substantially the form
attached hereto as EXHIBIT C;
(vii) INTELLECTUAL PROPERTY ASSIGNMENT - an original assignment
of all Seller's Intellectual Property related to the Purchased Business,
including that set forth in SCHEDULE 1.1(a)(i) of the Disclosure Schedules,
substantially in the form attached hereto as EXHIBIT B and by this reference
incorporated herein (the "INTELLECTUAL PROPERTY AGREEMENT");
(viii) [Reserved];
(ix) RESIGNATIONS OF DIRECTORS AND OFFICERS - Each of the
directors and officers of IQ2.net shall have delivered to Purchaser written
letters of resignation resigning such director's or officer's position with
IQ2.net as of the Closing Date;
(x) ACCEPTANCE OF EMPLOYMENT OFFERS - Dr. Charles Stryker and
at least 70% of the individuals listed on SCHEDULE 6.9 hereof (or such other
number as shall be acceptable to Purchaser) shall have accepted employment with
Purchaser on or before the Closing on terms and conditions acceptable to
Purchaser;
(xi) EMPLOYMENT AGREEMENTS - Each of Dr. Charles Stryker, and
any other person listed on SCHEDULE 6.9 hereof employed by Purchaser in
connection with the transactions contemplated by this Agreement, shall have
entered into the Purchaser's standard Employment Agreement in substantially the
form attached hereto as EXHIBIT E;
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(xii) LICENSE AGREEMENT - Seller shall have entered a License
Agreement with Purchaser and IQ2.net substantially in the form attached hereto
as EXHIBIT K relating to the Reply Quest software developed by Seller; and
(xiii) COOPERATION AGREEMENT - Seller shall have entered into a
Cooperation Agreement with Purchaser substantially in the form attached hereto
as EXHIBIT L.
(e) FINANCING. Purchaser shall have obtained Financing resulting in
net proceeds to Purchaser of at least $60 million on substantially the terms set
forth in the terms sheet with respect thereto previously provided to Seller.
(f) RECORDS. Seller shall have delivered to Purchaser copies (which
shall be true, complete and accurate in all material respects) of the following
accounting and tax records and books of account of Seller relating primarily to
the Purchased Business or IQ2.net in form acceptable to Purchaser: (i) current
accounts receivable and accounts payable files, including copies of all open
invoices, (ii) reconciliations of all bank statements relating to deposit
accounts included in the Transferred Assets or held by IQ2.net, (iii) sales tax
records for the one-year period on the Closing Date, and (iv) payroll records
for the one-year period ending on the Closing Date.
(g) REQUIRED CONSENTS. All notices, declarations, reports and other
filings and registrations with, and all waivers, consents, approvals and
authorizations of, any governmental or regulatory authority or instrumentality
or any other person required to be submitted, made or obtained by Seller or
IQ2.net in connection with the execution, delivery or performance of this
Agreement or the Seller Agreements or the consummation of the transactions
contemplated hereby or thereby, shall have been submitted, given, made or
obtained, except where the failure to give notice, declare, report, file, or
obtain any waiver, consent, approval or authorization does not and would not
reasonably be expected to have a material adverse effect on the ability of the
parties hereto to consummate the transactions contemplated by this Agreement or
a Material Adverse Effect.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS
None of the representations and warranties of Seller contained in or
made pursuant to this Agreement or contained in any certificate, document or
instrument delivered pursuant to or in connection with this Agreement or the
transactions contemplated hereby shall survive the Closing. Covenants and
agreements set forth in this Agreement to be performed after the Closing will
survive the Closing in accordance with their respective terms. No claim shall be
made or action brought by any party after the Closing for the breach of any
representation or warranties in this Agreement or in any instrument delivered
pursuant to this Agreement or with respect to any agreement or covenant in this
Agreement or in any instrument delivered pursuant to this Agreement, except with
respect to those that by their terms contemplate performance after the Closing.
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ARTICLE IX
TERMINATION; AMENDMENT; WAIVER
9.1 TERMINATION.
This Agreement may be terminated at any time prior to the Closing Date
as follows:
(a) by the Seller or Purchaser if the Closing shall not have occurred
on or before September 30, 1999, which date may be extended by mutual consent of
the parties, provided that the right to terminate this Agreement under this
Section 9.1(a) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date;
(b) by Seller upon written notice to Purchaser if Purchaser has
materially breached any representation, warranty, covenant or agreement
contained herein and has not cured such breach within twenty (20) days of
receipt of written notice from the Seller or by the Closing Date, if earlier and
such breach will result in a condition to Seller's obligation to consummate the
transactions contemplated hereby not to be satisfied;
(c) by Purchaser upon written notice to Seller if the Seller has
materially breached any representation, warranty, covenant or agreement
contained herein and has not cured such breach within twenty (20) days of
receipt of written notice from the Purchaser or by the Closing Date, if earlier
and such breach will result in a condition to Purchaser's obligation to
consummate the transactions contemplated hereby not to be satisfied;
(d) by Seller or Purchaser if any court of competent jurisdiction or
governmental body shall have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting the
Transfer and such order, decree or ruling shall have become final and
nonappealable;
(e) by the Purchaser if the Board of Directors of Seller (i) fails to
approve the this Agreement and the transactions contemplated hereby because it
does not believe this Agreement and the transactions contemplated hereby to be
fair to and in the best interest of Seller and its stockholders, (ii) adopts
resolutions approving or otherwise authorizes or recommends to Seller's
stockholders a Superior Proposal, or (iii) prior to the Closing Date, the Seller
has entered into an agreement to engage in a Superior Proposal with any person
other than Purchaser;
(f) at any time with the mutual written consent of Purchaser and
Seller; or
(g) by the Seller if the Board of Directors of Seller determines to
accept a Superior Proposal.
34
<PAGE>
9.2 EFFECT OF TERMINATION.
If this Agreement is terminated as provided in Section 9.1, this
Agreement shall forthwith become void and have no effect, without liability on
the part of any party, its directors, officers or stockholders, other than as
set forth in the provisions of this Section 9.2, Section 10.9 relating to
expenses, Section 6.6 relating to publicity and Section 10.1 relating to
confidentiality to the extent provided therein and Section 9.3. Nothing
contained in Section 9.2 or 9.3 shall relieve any party from liability for any
breach of any representation, warranty, covenant or agreement contained in this
Agreement occurring before such termination.
9.3 TERMINATION FEE.
(a) Seller will make a cash payment to Purchaser of $1,500,000 if and
only if prior to the Closing Date:
(i) The Purchaser terminates this Agreement pursuant to Section
9.1(e) hereof; or
(ii) The Seller terminates this Agreement pursuant to Section 9.1
(g) hereof.
(b) If Purchaser terminates this Agreement pursuant to Section 9.1(c),
Seller will make a cash payment to Purchaser of $300,000;
(c) If Purchaser terminates this Agreement pursuant to Section 9.1(c)
prior to the Closing Date and Seller or any affiliate thereof enters into a
definitive agreement within 180 days after the date of such termination to sell
all or substantially all of the Purchased Business in any one or series of
transactions, whether by sale of assets, merger consolidation or otherwise,
Seller shall make a cash payment of $1,200,000 to Purchaser (in addition to the
payment required by Section 9.3(b));
(d) Any payment required by this section will be payable (by wire
transfer of immediately available funds to an account designated by the party
entitled to such payment) within five (5) business days after receipt by Seller
from Purchaser of a demand for such payment.
9.4 ASSIGNMENT.
This Agreement shall be binding upon, and inure to the benefit of, the
parties and their respective successors and permitted assigns. This Agreement or
any rights or obligations hereunder shall not be assignable by any party, except
that either Seller or Purchaser may after the Closing (i) assign any or all of
its rights and interests hereunder (A) to one or more of its affiliates or (B)
in connection with the transfer of all or substantially all of its assets
(provided that any transferee shall expressly assume its liabilities and
obligations under this Agreement), (ii) designate one of more of its affiliates
to perform its obligations hereunder or (iii) pledge its rights hereunder to a
lender as security for any financing or refinancing (provided that Seller and
Purchaser shall nonetheless remain liable and responsible for the performance of
all of their
35
<PAGE>
respective obligations hereunder in the case of any of the foregoing). Any
attempted assignment made in violation of this Section 9.4 shall be null and
void.
9.5 WAIVER.
The terms of this Agreement may be waived only by a written instrument
signed by the party waiving compliance. No waiver of any provision of this
Agreement shall be deemed or shall constitute a waiver of any other provision
hereof (whether or not similar), nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.
9.6 TIME OF THE ESSENCE.
The parties agree that time is of the essence in respect to the
consummation of all of the transactions contemplated by this Agreement.
ARTICLE X
MISCELLANEOUS
10.1 CONFIDENTIALITY.
In the event that the transactions contemplated by this Agreement are
consummated, Seller shall treat the Confidential Information as confidential,
shall preserve the confidentiality thereof and shall not duplicate or use the
Confidential Information, and shall use all reasonable efforts to ensure that
its officers, directors, employees and affiliates who have had access to the
Confidential Information keep the Confidential Information confidential and do
not use the Confidential Information. The letter agreement dated April 8, 1999,
by and among the parties hereto relating to confidentiality (the
"Confidentiality Agreement") is hereby confirmed and acknowledged as a
continuing obligation of the parties and shall survive the Closing of the
transactions contemplated in this Agreement, and each party hereby represents
that it has, at all times since the execution of the Confidentiality Agreement,
complied with the provisions contained therein.
10.2 [RESERVED].
10.3 TITLE, POSSESSION AND RISK OF LOSS.
The title to, possession of and risk of loss, destruction or damage
with respect to the Purchased Business and the Transferred Assets shall pass to
Purchaser as of the time of Closing; PROVIDED, HOWEVER, that this Section 10.3
shall not diminish, limit or otherwise impair in any manner Purchaser's or
Seller's rights under the other provisions of this Agreement or the instruments,
agreements, certificates and documents to be executed and delivered in
connection herewith that apportion liability among the parties with respect to
events, occurrences, omissions or other matters arising or occurring during
specific periods.
36
<PAGE>
10.4 ENTIRE AGREEMENT; AMENDMENTS.
This Agreement, the other documents delivered in connection herewith
and the Confidentiality Agreement constitute the entire agreement of the parties
with respect to the subject matter hereof and supersede all other prior
agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof. The representations,
warranties, covenants and agreements set forth in this Agreement constitute all
the representations, warranties, covenants and agreements of the parties hereto
and their respective shareholders, directors, officers, employees, affiliates,
advisors (including financial, legal and accounting), agents and representatives
and upon which the parties have relied, and except as specifically provided
herein, no change, modification, amendment, waiver, addition or termination of
this Agreement or any part thereof shall be valid unless in writing and signed
by or on behalf of the party to be charged therewith. No delay on the part of
any party hereto in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder. Unless
otherwise provided, the rights and remedies herein provided are cumulative and
are not exclusive of any rights or remedies which the parities hereto may
otherwise have at law or in equity. Whenever this Agreement requires or permits
consent by or on behalf of a party, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in this Section 10.4.
10.5 POWER OF ATTORNEY.
Effective upon the Closing Date, Seller hereby irrevocably constitutes
and appoints Purchaser as its true and lawful attorney-in-fact, with full power
of substitution, in the name of Seller, on behalf of and for the benefit of the
Purchaser, to endorse, without recourse, checks, notes and other instruments
included in the Transferred Assets in the name of Seller. Seller agrees that the
foregoing powers are coupled with an interest and shall be irrevocable by
Seller. Seller further agrees that Purchaser shall retain for its own account
any amounts collected pursuant to the foregoing powers and Seller shall promptly
transfer and deliver to Purchaser any cash or other property received by Seller,
directly or indirectly, at any time after the Closing Date in respect of any
accounts receivable or otherwise included in the Transferred Assets transferred,
conveyed and assigned to Purchaser as provided herein.
10.6 CERTAIN TAX MATTERS.
The following provisions shall govern the allocation of responsibility
as between Purchaser and Seller for certain tax matters following the Closing
Date:
(a) SECTION 338(h)(10) ELECTION. Seller will join with Purchaser in
making an election under Section 338(h)(10) of the Code (and any corresponding
elections under state, local, or foreign tax law to the extent requested by
Purchaser or Seller) (collectively, a "Section 338(h)(10) Election") with
respect to the purchase and sale of the stock of IQ2.net hereunder.
(b) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. Seller shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for Seller and any Affiliate
37
<PAGE>
(other than IQ2.net) for all periods ending on or prior to the Closing Date
which are filed after the Closing Date, and any income Tax Return of IQ2.net
with respect to periods for which a consolidated, unitary or combined income Tax
Return of Seller or an Affiliate will include the operations of IQ2.net.
Purchaser shall prepare or cause to be prepared and file or cause to be filed
any Tax Returns of IQ2.net for periods ending on or prior to the Closing Date
which are filed after the Closing Date, other than those income Tax Returns of
IQ2.net which are filed as part of a consolidated, unitary or combined income
Tax Return of Seller or an Affiliate as set forth in the preceding sentence.
(c) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING DATE.
Purchaser shall prepare or cause to be prepared and file or cause to be filed
all Tax Returns of IQ2.net for all periods which begin before the Closing Date
and end after the Closing Date
(d) COOPERATION ON TAX MATTERS.
(i) Purchaser, Seller and IQ2.net shall cooperate fully, as
and to the extent reasonably requested by the other party, in connection with
the filing of Tax Returns pursuant to this Section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. Purchaser and Seller agree (A) to retain all books and records with
respect to Tax matters pertinent to Seller and IQ2.net relating to any taxable
period beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by Purchaser, any extensions thereof)
of the respective taxable periods, and to abide by all record retention
agreements entered into with any taxing authority, and (B) to give the other
party reasonable written notice prior to transferring, destroying or discarding
any such books and records and, if the other party so requests, Purchaser or
Seller, as the case may be, shall allow the other party to take possession of
such books and records.
(ii) Purchaser and Seller further agree, upon request, to use
their best efforts to obtain any certificate or other document from any
governmental authority or any other person or entity as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).
(iii) Purchaser and Seller further agree, upon request, to
provide the other party with all information that either party may be required
to report pursuant to Section 6043 of the Code and all Treasury Department
Regulations promulgated thereunder.
(e) TAX CONTESTS. As of the Closing Date, Purchaser shall have the
sole right and responsibility for conducting any audit, examination, proceeding
or litigation with respect to any Tax of IQ2.net.
(f) CERTAIN TAXES. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by Seller
when due, and Seller will, at its own expense, file all
38
<PAGE>
necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable law, Purchaser will, and will cause its affiliates to,
join in the execution of any such Tax Returns and other documentation.
(g) INDEMNIFICATION. Seller shall indemnify, defend and hold IQ2.net
harmless from and against any and all Taxes attributable to the business, assets
or operations of any other member of any consolidated, combined or unitary group
which IQ2.net is required to pay in accordance with the provisions of Treas.
Reg. Section 1.1502-6 (or any similar provision of state, local, or foreign
law).
10.7 FURTHER ASSURANCES.
From time to time after the Closing, (i) Seller will execute and
deliver, or cause its affiliates to execute and deliver, to Purchaser such
instruments of sale, transfer, conveyance, assignment and delivery, and such
consents, assurances, powers of attorney and other instruments as may be
reasonably requested by Purchaser or its counsel in order to vest in Purchaser
all right, title and interest of Seller in and to the Transferred Assets free
and clear of all Encumbrances other than Permitted Encumbrances and otherwise in
order to carry out the purpose and intent of this Agreement and (ii) Purchaser
will execute and deliver, or cause its affiliates to execute and deliver, to
Seller such instruments of assumption and other instruments as may be reasonably
requested by Seller or its counsel in order to vest in Purchaser all obligations
relating to the Assumed Liabilities and otherwise in order to carry out the
purposes and intent of this Agreement.
10.8 NOTICES.
Any notices or other communications required or permitted hereunder or
otherwise in connection herewith shall be in writing and shall be deemed to have
been duly given when delivered in person or transmitted by facsimile
transmission or on receipt after dispatch by registered or certified mail,
postage prepaid, addressed, as follows:
If to Seller to:
IntelliQuest Information Group, Inc.
1250 S. Capital of Texas Highway
Suite 600
Austin, TX 78746
Facsimile: (512) 314-1878
Attention: Brian Sharples, President and CEO
39
<PAGE>
With a required copy (which shall not constitute notice) to:
Latham & Watkins
135 Commonwealth Drive
Menlo Park, California 94025
Facsimile: (650) 463-2600
Attention: Peter Kerman, Esq.
If to Purchaser to:
Naviant Technology Solutions, Inc.
14 Campus Boulevard, Suite 200
Newtown Square, Pennsylvania 19073-3279
Facsimile: (610) 355-2428
Attention: James M. Flynn, President and CEO
With a required copy (which shall not constitute notice) to:
Brobeck, Phleger & Harrison LLP
301 Congress Avenue, Suite 1200
Austin, Texas 78701
Facsimile: (512) 477-5813
Attention: Carmelo M. Gordian, P.C.
or such other address as the person to whom notice is to be given has furnished
in writing to the other parties. A notice of change in address shall not be
deemed to have been given until received by the addressee.
10.9 EXPENSES.
Each party hereto shall pay their own respective costs and expenses
incurred in connection with this Agreement, and the transactions contemplated
hereby (including without limitation all broker, investment banking, legal and
other professional fees) and, regardless of whether such transaction is
consummated or the Agreement is entered into by the parties. Without limiting
the generality of the foregoing, Seller shall pay all applicable sales, use,
transfer and documentary taxes arising out of the purchase and sale of the
Transferred Assets. The parties agree to cooperate to minimize the taxes arising
from the transactions contemplated by this Agreement, including where practical,
but not limited to, the electronic transmission of Intellectual Property so as
to limit the application of sales and use taxes.
10.10 DISPUTE RESOLUTION.
The parties desire that any controversy or claim arising out of or
related to this Agreement, other than claims or controversies arising under
Section 6.7 (Competition; Non-Solicitation) or Article IX (Termination)
(collectively, the "Arbitral Disputes"), be resolved in an expeditious and
efficient manner exclusively in accordance with this dispute resolution
procedure. A dispute under this clause shall be initiated by delivering written
notice to the other
40
<PAGE>
party briefly stating the nature of the dispute and requesting resolution.
Except as otherwise specified, each party shall bear its own costs and fees
relating to any dispute.
(a) INFORMAL RESOLUTION. The parties agree that before initiation of
any legal or arbitration proceeding with respect to any issue arising out of the
transactions contemplated by the Agreement, they shall cause their respective
representatives to attempt to resolve in good faith all disputes between the
parties. The parties agree that they will cause, in the case of Purchaser, James
M. Flynn or his successor-in-interest, and, in the case of Seller, Brian
Sharples or his successor-in-interest, to meet in person in Austin, Texas, to
attempt in good faith to resolve such dispute within fifteen business days of
notification of such dispute. In the event that the representatives are unable
to resolve such a dispute, the aggrieved party must refer the dispute to
mediation under paragraph (b).
(b) MEDIATION. In the event any dispute is not resolved by a meeting
of the parties, the dispute shall be referred to non-binding mediation. The
mediation shall occur within 40 days of the meeting of the parties. Mediation
fees shall be split equally among the parties. The mediator shall be selected by
agreement of the parties or, in the event of no agreement, shall be designated
by Judicial Arbitration and Mediation Services ("JAMS"). The mediation shall be
attended by the parties' representatives designated in paragraph (a) and, if
desired, the parties' attorneys.
(c) ARBITRATION. In the event a dispute is not resolved by mediation
pursuant to Section (b), the aggrieved party shall refer any Arbitral Dispute to
binding arbitration. The aggrieved party shall be entitled to seek judicial
review of any non-Arbitral Disputes. The arbitration shall be governed by the
procedures set forth below. The arbitrator shall give written notice to the
parties of the arbitrator's determination, which shall be binding on the
parties. The parties agree to act in compliance with the arbitrator's
determination, and judgment upon the same may be entered by any court of
competent jurisdiction.
(i) SELECTION OF ARBITRATOR. Within 30 days of referral of a
dispute to arbitration, a single arbitrator will be selected by agreement of the
parties or, in the event of no agreement, shall be designated by JAMS.
(ii) DISCOVERY. The parties agree to submit discovery plans to
the arbitrator within 15 days following the date that the arbitrator accepts his
appointment to this matter. The discovery plan will describe all discovery
contemplated. The arbitrator will schedule a meeting of counsel to occur within
15 days of his receipt of the discovery plans, at which time the arbitrator will
issue a written order scheduling dates for all depositions and completion dates
for all additional discovery. The written discovery plan may only be modified by
a written order from the arbitrator. The parties may request, in their discovery
plans, and the arbitrator shall be empowered to impose, limitations on the
nature and quantity of discovery to be conducted.
(iii) PROCEDURE. The arbitration hearing shall take place in
Austin, Texas within 90 days of the arbitrator's acceptance of his appointment.
The hearing is not to exceed two days. Introduction of evidence and testimony at
the hearing will be subject to the
41
<PAGE>
Federal Rules of Civil Procedure. Each party is entitled to be heard, to present
material evidence and testimony, and to cross-examine witnesses appearing at the
hearing.
(iv) LIMITATION ON DAMAGES. The arbitrator may not award
exemplary or punitive damages.
10.11 SEVERABILITY.
In the event that any one or more of the provisions or parts of a
provision contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or part of a provision of this Agreement or any other jurisdiction, but this
Agreement shall be reformed and construed in any such jurisdiction as if such
invalid or illegal or unenforceable provision or part of a provision had never
been contained herein and such provision or part shall be reformed so that it
would be valid, legal and enforceable to the maximum extent permitted in such
jurisdiction.
10.12 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware applicable to contracts executed and performed
in such State, without giving effect to conflicts of laws principles.
10.13 BULK SALES LAWS.
The parties hereby waive compliance with the Bulk Sales Laws of any
state in which the Transferred Assets are located or in which operations
relating to the Purchased Business are conducted.
10.14 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
10.15 HEADINGS; INTERPRETATION; DISCLOSURE SCHEDULE.
The descriptive headings of the several Articles and Sections of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement. References to Sections or Articles, unless otherwise indicated, are
references to Sections of this Agreement. The parities have participated jointly
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. The word "including" means including without
limitation. Words (including defined terms) in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other gender as the context requires. The terms "hereof", "herein"
and "herewith" and words of similar import shall, unless otherwise stated, be
construed
42
<PAGE>
to refer to this Agreement as a whole (including all of the Schedules and
Exhibits hereto) and not to any particular provision of this Agreement unless
otherwise specified. It is understood and agreed that neither the specifications
of any dollar amount in this Agreement nor the inclusion of any specific item in
the Schedules or Exhibits is intended to imply that such amounts or higher or
lower amounts, or the items so included or other items, are or are not material,
and neither party shall use the fact of setting of such amounts or the fact of
the inclusion of such item in the Schedules or Exhibits in any dispute or
controversy between the parties as to whether any obligation, item or matter is
or is not material for purposes hereof.
10.16 CONSENT TO JURISDICTION.
Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the exclusive jurisdiction of any
Delaware State court, or Federal court of the United States of America, sitting
in Delaware, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement or the agreements
delivered in connection herewith or the transactions contemplated hereby or
thereby or for recognition or enforcement of any judgment relating thereto, and
each of the parties hereby irrevocably and unconditionally (i) agrees not to
commence any such action or proceeding except in such courts, (ii) agrees that
any claim in respect of any such action or proceeding may be heard and
determined in such Delaware State court or, to the extent permitted by law, in
such Federal court, (iii) waives, to the fullest extent it may legally and
effectively do so, any objection which it may now or hereafter have to the
laying of venue of any such action or proceeding in any such Delaware State or
Federal court, and (iv) waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such Delaware State or Federal court. Each of the parties hereto agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 10.8. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
10.17 WAIVER OF JURY TRIAL.
EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE
AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE EITHER OF SUCH WAIVERS, (ii) IT UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF SUCH WAIVERS, (iii) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (iv)
IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
43
<PAGE>
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.17.
10.18 INDEMNIFICATION.
Seller shall indemnify, defend and hold Purchaser and its officers,
directors, employees and affiliates harmless from and against any and all
claims, actions, suits, proceedings, investigations, losses, costs, damages and
expenses, including reasonable attorneys' fees and expenses, incurred by any of
them arising out of or relating to approval by the stockholders of Seller of the
transactions contemplated by this Agreement.
[SIGNATURE PAGE FOLLOWS]
44
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Asset
Purchase Agreement to be executed on its behalf by its duly authorized officer,
all as of the day and year first written above.
PURCHASER
NAVIANT TECHNOLOGY SOLUTIONS, INC.
By:
----------------------------------------------
James M. Flynn
President and Chief Executive Officer
SELLER
INTELLIQUEST INFORMATION GROUP, INC.
By:
----------------------------------------------
Brian Sharples
President and Chief Executive
Officer
[SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT]
<PAGE>
DISCLOSURE SCHEDULES
<PAGE>
EXHIBIT A
ASSIGNMENT AND BILL OF SALE
<PAGE>
EXHIBIT B
INTELLECTUAL PROPERTY ASSIGNMENT
<PAGE>
EXHIBIT C
ESCROW AGREEMENT
<PAGE>
EXHIBIT D
OFFICER'S CERTIFICATE
<PAGE>
EXHIBIT E
EMPLOYMENT AGREEMENT
<PAGE>
EXHIBIT F
[RESERVED]
<PAGE>
EXHIBIT G
[RESERVED]
<PAGE>
EXHIBIT H
ALLOCATION OF PURCHASE PRICE
<PAGE>
EXHIBIT I
ASSUMPTION AGREEMENT
<PAGE>
EXHIBIT J
[RESERVED]
<PAGE>
EXHIBIT K
LICENSE AGREEMENT
<PAGE>
EXHIBIT L
COOPERATION AGREEMENT
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1999 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,904
<SECURITIES> 27,643
<RECEIVABLES> 7,854
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 49,162
<PP&E> 3,113
<DEPRECIATION> 0
<TOTAL-ASSETS> 60,981
<CURRENT-LIABILITIES> 8,429
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 52,310
<TOTAL-LIABILITY-AND-EQUITY> 60,981
<SALES> 20,282
<TOTAL-REVENUES> 20,282
<CGS> 10,787
<TOTAL-COSTS> 10,787
<OTHER-EXPENSES> 12,553
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,542)
<INCOME-TAX> (1,279)
<INCOME-CONTINUING> (1,263)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,263)
<EPS-BASIC> (.16)
<EPS-DILUTED> (.16)
</TABLE>
