<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 16, 1999
REGISTRATION NO. 333-81233
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LIONBRIDGE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7389 04-3398462
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
</TABLE>
LIONBRIDGE TECHNOLOGIES, INC.
950 WINTER STREET
WALTHAM, MASSACHUSETTS 02451
(781) 890-6612
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
RORY J. COWAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
LIONBRIDGE TECHNOLOGIES, INC.
950 WINTER STREET
WALTHAM, MASSACHUSETTS 02451
(781) 890-6612
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
GEORGE W. LLOYD, ESQ. STEPHEN A. RIDDICK, ESQ.
TESTA, HURWITZ & THIBEAULT, LLP BROBECK, PHLEGER & HARRISON LLP
125 HIGH STREET 701 PENNSYLVANIA AVENUE NW, SUITE 220
BOSTON, MASSACHUSETTS 02110 WASHINGTON, D.C. 20004
(617) 248-7000 (202) 220-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
------------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / _______________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _______________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE REGISTRATION FEE
SECURITIES TO BE REGISTERED OFFERING PRICE (1) (2)
<S> <C> <C>
Common Stock, $.01 par value............................................................ $64,400,000 $17,904
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Registration fee previously paid in connection with the filing of this
registration statement on June 21, 1999 and Amendment No. 1 to this
registration statement on July 27, 1999.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION--AUGUST 16, 1999
PROSPECTUS
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
LIONBRIDGE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
- --------------------------------------------------------------------------------
4,000,000 Shares
[LOGO]
Common Stock
- ----------------------------------------------------------------------
Lionbridge Technologies, Inc. is offering 4,000,000 shares of its common stock
in an initial public offering. Prior to this offering, there has been no public
market for Lionbridge's common stock.
Lionbridge adapts and translates products, information and other materials to
the requirements of local markets for technology companies worldwide.
It is anticipated that the public offering price will be between $12.00 and
$14.00 per share. The shares of Lionbridge will be quoted in the Nasdaq National
Market under the symbol "LIOX".
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price........................................... $ $
Underwriting discounts and commissions.......................... $ $
Proceeds, before expenses, to Lionbridge........................ $ $
</TABLE>
SEE "RISK FACTORS" ON PAGES 7 TO 14 FOR FACTORS THAT SHOULD BE CONSIDERED BEFORE
INVESTING IN THE SHARES OF LIONBRIDGE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
The underwriters may purchase up to 600,000 additional shares from selling
stockholders and Lionbridge at the public offering price, less underwriting
discounts and commissions. Delivery
and payment for the shares will be on , 1999.
PRUDENTIAL SECURITIES
U.S. BANCORP PIPER JAFFRAY
ADAMS, HARKNESS & HILL, INC.
PRUDENTIALSECURITIES.COM
, 1999
<PAGE>
<PAGE>
INSIDE FRONT COVER
Representative Clients
Lionbridge has provided services to the following companies:
3Com
Adobe
Aurum
Autodesk
Avid
Baan
Bentley Systems
Bull
Candle
Cognos
Corel
Data General
Gateway
IBM
JD Edwards
Kodak
Macromedia
Microsoft
Motorola
Network Associates
Novell
Oce
Oracle
Page Factory
Parametric Technology
Portal
PowerQuest
SPSS
Silicon Graphics
Sun Microsystems
Language Diversity
Lionbridge has delivered multilingual versions in the following languages:
Arabic
Bulgarian
Chinese Simplified
Chinese Traditional
Czech
Danish
Dutch
English - American
English - UK
Finnish
French
French - Canadian
German
Greek
Hebrew
Hungarian
Italian
Japanese
Korean
Norwegian
Polish
Portuguese - Iberian
Portuguese - Brazilian
Romanian
Russian
Spanish Iberian
Spanish Latin American
Swedish
Thai
Turkish
Worldwide Locations
Lionbridge has facilities around the world
Lionbridge Globalization Centers
Japan
China
South Korea
Silicon Valley
Boston
Ireland
France
The Netherlands
Graphic showing world map with the locations of Lionbridge globalization
centers and VeriTest Testing Labs indicated
VeriTest Testing Labs
Los Angeles
Silicon Valley
France
Ireland
Japan
<PAGE>
INSIDE FRONT COVER - FOLDOUT
Simultaneous Worldwide Release ...Continuous Multilingual Delivery
[Two-page graphic illustrating Lionbridge processes and customer
examples. The graphic contains three sections.
On the far left are three computer screen capture images of English software
products from Lionbridge customers. Below each screen shot is text
indicating the customer and describing the software.
CISCO delivers Web-based education to thousands of schools
around the world through the Cisco Networking Academy Program.
To help launch NOVELL Groupwise in Asia, Lionbridge simultaneously
translated Japanese, Simplified Chinese, Traditional Chinese, and
Korean versions of Novell's messaging and collaboration software.
PORTAL is a rapidly growing Internet company that provides Internet
Service Providers with customer account management software. Their
customers are global telecommunications companies requiring global
solutions.
On the far right are the corresponding foreign language versions of the
screen samples in French, Chinese, and Japanese. Below each screen shot is
text describing the work performed by Lionbridge.
CISCO selected Lionbridge to localize the Networking Academy curriculum
and keep it continuously updated in several languages, including French.
Chinese versions of NOVELL Groupwise involved localization and testing
of the software, creation of Windows and HTML help systems, and
translation and publishing of the user documentation.
Lionbridge provided a complete globalization solution for PORTAL's
flagship Infranet product, including source code internationalization,
software localization in Japanese and seven other languages, and
client server testing.
In the middle is a large circle representing the Lionbridge globalization
process. Centered inside the circle is the lion head from the company logo.
Surrounding the outside of the circle are eight ovals, each representing a
step in the Lionbridge process. Below the circle is a rectangular box
representing Lionbridge's global network of translation resources.]
Text inside the circle, above the lion head: "Rapid Globalization
Methodology-TM-"
Text inside the circle, below the lion head: "LionTrack-TM- Workflow Systems"
Text inside the ovals:
Oval #1 "Localization Engineering"
Oval #2 "Internationalization Engineering
Oval #3 "Multilingual Technical Publishing"
Oval #4 "Project Management"
Oval #5 "Translation"
Oval #6 "Localization Testing"
Oval #7 "Compatibility Testing"
Oval #8 "Logo Certification"
Text inside the rectangular box: "Global Network of 2,000 Independent
Technical Translators"
Above and below each of the three sections of the graphic are rectangular
boxes with the following text:
Lower left (below the English screen shots): "Lionbridge clients ..."
Lower middle (below the Lionbridge circle): "...use our services ..."
Lower right (below the foreign language screen shots): "...to reach
global markets."
On the bottom in fine print is the following copyright notice:
"Cisco, Cisco Systems, and the Cisco Systems bridge logo are trademarks of
Cisco Systems, Inc. Portal, Infranet, and the Portal logo are registered
trademarks of Portal Software, Inc. Novell and GroupWise are registered
trademarks of Novell, Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Forward-Looking Statements..................... 14
Use of Proceeds................................ 15
Dividend Policy................................ 15
Capitalization................................. 16
Dilution....................................... 17
Selected Consolidated Financial Data........... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 21
<CAPTION>
PAGE
-----
<S> <C>
Business....................................... 33
Management..................................... 42
Certain Transactions........................... 50
Principal and Selling Stockholders............. 53
Description of Capital Stock................... 56
Shares Eligible For Future Sale................ 61
Underwriting................................... 63
Legal Matters.................................. 65
Experts........................................ 65
Available Information.......................... 65
Index to Financial Statements.................. F-1
</TABLE>
- --------------------------------------------------------------------------------
"Lionbridge" is a registered trademark and "lionbridge.com" and the
Lionbridge logo are trademarks of Lionbridge. "VeriTest" is a registered
trademark of Lionbridge. All other trade names and trademarks referred to in
this prospectus are the property of their respective owners.
- --------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are not
making an offer of these securities in any jurisdiction where the offer or sale
is not permitted. You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the front cover of
this prospectus.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
Investors should read the entire prospectus carefully.
LIONBRIDGE
Lionbridge is a provider of globalization services to technology companies
worldwide. Globalization is the process of adapting products or services to meet
the demands of local cultures. Our software, test, Web, and linguistic
engineering groups create and maintain multilingual versions of our clients'
software and hardware, as well as Web-based technical support, training
materials, and sales and marketing information for worldwide release via
traditional means and the Internet.
Four business trends are driving the demand for our services:
- the increasingly global operations of companies around the world,
- the widespread adoption of information technology,
- the impact of the Internet on commerce, and
- the increased outsourcing by companies of technology services.
Lionbridge serves as a globalization partner throughout our clients' product
development and support lifecycle by offering the following services:
- LOCALIZATION. The modification and translation of user interfaces, online
help, documentation, technical support databases, training materials, and
sales and marketing information.
- INTERNATIONALIZATION. The modification of source code so that products and
applications are compatible with country-specific operating systems and
software.
- MULTILINGUAL PRODUCT TESTING. The testing of products to verify that they
have been properly localized and/or internationalized.
- PROJECT MANAGEMENT. The workflow and project management skills necessary
to direct, track, and monitor at times hundreds of discrete documents that
require the input of dozens of different service groups both inside and
outside Lionbridge.
As product releases, technical support and training have evolved toward a
Web-based business model, we have in turn begun to offer multilingual Internet
services. While the Internet has been an integral part of our operations and our
relationships with our customers for several years, in the last year we have
developed new multilingual Internet service offerings that are focused on this
rapidly changing business opportunity. These multilingual Internet service
offerings include:
- ERELEASE--we modify, translate, and test our clients' software products
and Web applications in multiple languages.
- ESUPPORT--we translate, test, and maintain technical support databases
which are accessible to our clients' customers through the Internet.
- ELEARNING--we enable our clients to provide updated training materials on
the Web in multiple languages.
- ECOMMERCE--we modify Web-based sales and marketing materials for our
clients who sell their products through the Internet in multiple
languages.
We use a proprietary methodology we call the Lionbridge RAPID GLOBALIZATION
METHODOLOGY and proprietary workflow management tools we call LIONTRACK to
deliver our services.
We service our technology clients, including IBM, Microsoft, Motorola,
Novell, Oracle, and Sun Microsystems from our facilities in the United States,
Europe, and Asia.
3
<PAGE>
OUR MARKET OPPORTUNITY
Companies around the world are increasingly operating on a global scale. To
operate efficiently, they must standardize their hardware, software, and
telecommunications infrastructures throughout their global organization.
Historically, technology providers first developed products for their home
markets and then created foreign language versions that were compatible with
local operating systems and standards. The complexity of developing these
localized versions often resulted in product releases being delayed from six
months to a year after delivery of the home-country version. In the interim, end
users often faced version and compatibility conflicts throughout their global
organizations. As a result, global end users of technology now demand:
- simultaneous product release of the home country and localized versions,
- independent third party testing and certification to provide assurance of
compatibility with local operating systems and international standards,
and
- customer support, testing, and training in local languages wherever the
end user operates.
To meet these end user demands, the market for globalization services has
evolved beyond translation to include adapting to local operating systems,
standards, products and cultural requirements.
With the increasing complexity of many technology products, globalization
requires the application of sophisticated project management skills to integrate
a broad range of disciplines and specialized technical resources.
Technology companies now use the Internet to release products, provide
technical support, deliver product training, and sell and market products.
Internet content is predominantly in English, but a growing percentage of
Internet users do not speak English as their first language. Although the
Internet offers significant opportunities, companies cannot take full advantage
of these opportunities on a global basis unless they accommodate users' local
languages, cultures, and technical environments.
Few companies have the combination of engineering, linguistic, testing, and
project management skills needed to globalize their products successfully. We
offer a complete globalization and multilingual Internet service that improves
the quality, consistency, and timeliness of our clients' international product
releases, technical support, training materials, and sales and marketing
information.
We believe that expanded global competition and worldwide Internet access
will increase the demand for our services. We also believe that by offering
one-stop globalization and multilingual Internet services, Lionbridge is an
attractive partner to companies operating in a global marketplace.
OUR STRATEGY
Lionbridge's goal is to become the leading provider of globalization and
multilingual Internet services. The following are the key elements of our
strategy:
- leverage existing clients,
- continue strategic acquisitions,
- evolve our methodology and workflow systems,
- pursue multi-year relationships with clients, and
- expand into additional vertical markets.
OUR HISTORY AND OFFICES
Our predecessor, Lionbridge America, Inc., was incorporated in Delaware in
September 1996 (under the name Lionbridge Technologies, Inc.). We were
incorporated in Delaware in October 1997 (under the name Lionbridge Technologies
Holdings, Inc.) and completed a reorganization in February 1998 in which
Lionbridge America became our wholly owned subsidiary. In June 1999, we changed
our name to Lionbridge Technologies, Inc. from Lionbridge Technologies Holdings,
Inc. and the name of our subsidiary Lionbridge Technologies, Inc. to Lionbridge
America, Inc. Our principal executive offices are located at 950 Winter Street,
Waltham, Massachusetts 02451, our telephone number is (781) 890-6612, and our
Web site is www.lionbridge.com. Information contained on our Web site is not a
part of this prospectus.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Shares offered by Lionbridge................ 4,000,000 shares
Total shares outstanding after this 15,219,450 shares (1)
offering....................................
Use of proceeds............................. To (i) redeem our Series B redeemable
preferred stock, (ii) repay our subordinated
debt and (iii) provide for other general
corporate purposes.
Proposed Nasdaq National Market symbol...... LIOX
</TABLE>
(1) Based on 11,219,450 shares of common stock outstanding as of June 30, 1999.
Excludes 1,616,594 shares issuable upon exercise of warrants and 2,621,945
shares issuable upon the exercise of stock options as of June 30, 1999 and
2,890,791 shares available for future grant or issuance under our 1998 Stock
Plan and 1999 Employee Stock Purchase Plan.
Except as set forth in the consolidated financial statements or as otherwise
indicated, all information in the prospectus:
- does not include 206,666 shares offered if the underwriters exercise their
over-allotment option from Lionbridge,
- reflects the conversion of our Series C preferred stock into shares of our
common stock and the redemption of our Series B preferred stock upon the
closing of the offering, and
- reflects a two-for-three reverse stock split effective August 13, 1999.
Upon the closing of the offering, Lionbridge will pay an aggregate of
approximately $27,686,000, or 58%, of its net proceeds from the offering to
affiliates of Lionbridge to redeem shares of our Series B redeemable preferred
stock and to repay in full our senior subordinated notes held by those
affiliates. For more information, see "Use of Proceeds."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes the financial data for our business. We
commenced operations on December 23, 1996 through the acquisition of the
localization businesses of Stream International. The information for the year
ended December 31, 1996 reflects Stream International's results of operations
for the acquired businesses. For the years ended December 31, 1997 and 1998 and
the six months ended June 30, 1998, our loss from operations and net loss
include restructuring charges of $541,000, $501,000 and $451,000 related to
workforce reductions in France.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- ------------------------
1996 1997 1998 1998 1999
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue..................................... $ 28,134 $ 26,462 $ 38,412 $ 18,132 $ 23,783
Gross profit................................ 3,157 7,548 12,866 5,906 7,176
Income (loss) from operations............... 13 (6,909) (3,404) (2,183) (4,142)
Net loss.................................... (213) (7,654) (4,262) (2,523) (9,765)
Basic and diluted net loss per common share
attributable to common stockholders....... $ (8.85) $ (2.99) $ (1.89) $ (4.64)
Shares used in computing basic and diluted
net loss per share attributable to common
stockholders.............................. 985 1,782 1,613 2,218
</TABLE>
The pro forma as adjusted column below gives effect upon the closing of this
offering to:
- the exchange of all outstanding shares of our Series A convertible
preferred stock and Series D nonvoting convertible preferred stock into
shares of our Series B redeemable preferred stock and Series C convertible
preferred stock,
- the redemption of all outstanding shares of our Series B redeemable
preferred stock for $100,000 per share plus an 8% annual premium,
- the conversion of all outstanding shares of our Series C convertible
preferred stock into shares of our common stock,
- the repayment in full of the subordinated notes and the related charge for
the unamortized original issue discount on these notes, and
- the sale of 4,000,000 shares of common stock in this offering at an
assumed initial public offering price of $13.00 per share, after deducting
underwriting discounts and commissions and estimated offering expenses,
and application of the estimated net proceeds.
<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------------
DECEMBER 31, PRO FORMA
1998 ACTUAL AS ADJUSTED
------------ ----------- --------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
CONSOLIDATED BALANCE SHEET DATA:
Cash.................................................................. $ 732 $ 1,455 $ 20,866
Working capital (deficit)............................................. (7,718) (2,919) 16,492
Total assets.......................................................... 22,402 28,107 47,518
Long-term debt, net of discount....................................... -- 10,964 831
Redeemable convertible preferred stock................................ 15,418 15,949 --
Total stockholders' equity (deficit).................................. (13,521) (17,032) 28,462
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors, in addition to the
other information set forth in this prospectus, before purchasing shares of
common stock of Lionbridge. Each of these risk factors could adversely affect
our business, operating results and financial condition, as well as adversely
affect the value of an investment in our common stock. This investment involves
a high degree of risk.
RISKS RELATED TO OUR BUSINESS
OUR REVENUE COULD BE NEGATIVELY AFFECTED BY THE DELAY OF ONE OF OUR CLIENTS'
PRODUCT RELEASES OR THE LOSS OF A MAJOR CLIENT.
A significant portion of our revenue is linked to the product release cycle
of our clients. As a result, we perform varying amounts of work for specific
clients from year to year based on their product development schedule. A major
client in one year may not have use for a similar level of our services in
another year. In addition, we derive a significant portion of our revenues from
large projects and programs for a limited number of clients. In 1998, IBM
accounted for approximately 14% of our revenue and our five largest clients
(including IBM) accounted for approximately 39% of our revenue. In the first six
months of 1999, our five largest clients accounted for approximately 34% of our
revenue. As a result, the loss of any major client or a significant reduction in
a large project's scope could materially reduce our revenue and cash flow, and
adversely affect our ability to achieve and maintain profitability.
WE GENERALLY DO NOT HAVE LONG-TERM CONTRACTS, WHICH MAKES REVENUE
FORECASTING DIFFICULT.
A majority of our revenue is derived from individual projects rather than
long-term contracts. We cannot assure you that a client will engage us for
further services once a project is completed or that a client will not
unilaterally reduce the scope of, or terminate, existing projects. You should
not predict or anticipate our future revenues based on the number of clients we
have or the size of our existing projects. The absence of long-term contracts
makes it difficult to predict our future revenues.
OUR BRIEF OPERATING HISTORY MAKES IT DIFFICULT TO PREDICT OUR SUCCESS.
Lionbridge was formed in September 1996 to acquire the localization
businesses and assets of Stream International and commenced operations at the
end of December 1996 upon closing this acquisition. As a result, we have a brief
operating history upon which you can evaluate our business and prospects. Our
historical results of operations do not fully give effect to the operations of
the companies we have acquired after the Stream acquisition. As a result, our
historical results of operations may not give you an accurate indication of our
future results of operations or prospects. We are in an early stage of
development and the market for some of our services is new and rapidly evolving.
We cannot be sure that we will be successful in meeting the challenges we face.
If we are unable to do so, our business will not be successful and the value of
your investment in Lionbridge will decline.
WE HAVE AN ACCUMULATED DEFICIT, ARE NOT CURRENTLY PROFITABLE, AND ANTICIPATE
FUTURE LOSSES.
We have incurred substantial losses since Lionbridge was founded, and we
anticipate we will continue to incur substantial losses for the foreseeable
future. We had an accumulated deficit of approximately $24.5 million as of June
30, 1999 and a net loss of $4.3 million for the year ended December 31, 1998.
Although our revenues have grown significantly since 1997, this growth may not
be sustainable or indicative of future results of operations. We intend to
continue to invest in internal expansion, infrastructure, integration of our
acquired companies into our existing operations, select
7
<PAGE>
acquisitions, and our sales and marketing efforts. In addition, our acquisitions
have significantly increased our intangible assets, such as goodwill, and the
charges we expect to incur in connection with the amortization of these
intangible assets will have a material adverse impact on our ability to achieve
and maintain profitability for the foreseeable future. We cannot predict when we
will operate profitably, if ever.
IF OUR LOSSES CONTINUE, WE WILL NEED TO RAISE ADDITIONAL CAPITAL. IF WE ARE
UNABLE TO DO SO, OR WE DO SO ON UNFAVORABLE TERMS, THE VALUE OF YOUR
INVESTMENT IN OUR STOCK MAY DECLINE.
If our losses continue, we will be unable to pay our expenses unless we
raise additional capital. If we need to raise additional capital but are unable
to do so, we may not be able to continue as a going concern. If we need to raise
additional capital but are able to do so only on unfavorable terms, the value of
your investment in our stock may decline.
POTENTIAL FLUCTUATIONS IN OUR QUARTERLY RESULTS MAKE FINANCIAL FORECASTING
DIFFICULT AND COULD AFFECT OUR COMMON STOCK TRADING PRICE.
As a result of fluctuations in our revenues tied to our clients' product
release cycles, the length of our sales cycle, rapid growth, acquisitions, the
emerging nature of the markets in which we compete, and other factors outside
our control, we believe that quarter-to-quarter comparisons of results of
operations are not necessarily meaningful. You should not rely on the results of
any one quarter as an indication of our future performance. We may not
experience revenue increases in the remainder of 1999 comparable to the revenue
increases in 1998. If in some future quarter our results of operations were to
fall below the expectations of securities analysts and investors, the trading
price of our common stock would likely decline.
IF WE FAIL TO ATTRACT AND RETAIN PROFESSIONAL STAFF, OUR ABILITY TO COMPLETE
OUR PROJECTS AND OBTAIN NEW PROJECTS COULD SUFFER.
Our failure to attract and retain qualified employees could impair our
ability to complete existing projects and bid for or obtain new projects and, as
a result, could have a material adverse effect on our business and revenues. Our
ability to grow and increase our market share largely depends on our ability to
hire, train, retain, and manage highly skilled employees, including project
managers and technical, translation, and sales and marketing personnel. There is
a significant shortage of, and intense competition for, personnel who are
qualified to perform the services we provide. For example, in June 1998, the
general manager of our Irish operations, our largest operating location at the
time, unexpectedly resigned his employment with the Company. In addition, we
must make sure our employees maintain their technical expertise and business
skills. We cannot assure you that we will be able to attract a sufficient number
of qualified employees or that we will successfully train and manage the
employees we hire.
WE MAY BE UNABLE TO CONTINUE TO GROW AT OUR HISTORICAL GROWTH RATES OR TO
MANAGE OUR GROWTH EFFECTIVELY.
Continued, planned growth is a key component of increasing the value of our
common stock. In the past two years, our business has grown significantly and we
anticipate future internal growth and growth through acquisitions. From December
31, 1996 to June 30, 1999, our staff increased from approximately 270 to
approximately 450 employees. This rapid growth places a significant demand on
management and operational resources. In order to manage growth effectively, we
must implement and improve our operational systems and controls. In addition,
the proceeds of this offering will be used in part to expand our operations and
our sales and marketing capabilities. This additional growth may further strain
our management and operational resources. Our growth could also be adversely
affected by many other factors, including economic downturns. As a result of
these concerns, we cannot be sure
8
<PAGE>
that we will continue to grow, or, if we do grow, that we will be able to
maintain our historical growth rate.
BECAUSE OF THE CRITICAL NATURE OF THE SERVICES WE PROVIDE TO OUR CLIENTS, WE
MAY BE LIABLE FOR DEFECTS OR ERRORS IN THE SOLUTIONS WE DEVELOP.
Many of the services we provide are critical to our clients' businesses. Any
defects or errors in these solutions could result in:
- delayed or lost client revenues,
- adverse reaction to our clients from their end users and, ultimately,
toward Lionbridge,
- claims against us,
- negative publicity, and
- additional expenditures to correct the problem.
Liability claims could require us to spend significant time and money in
litigation or to pay significant damages. Although we maintain general liability
insurance, including coverage for errors and omissions, we cannot assure you
that this coverage will be available in amounts sufficient to cover one or more
large claims, or that the insurer will not disclaim coverage as to any future
claim.
OUR OUTSOURCE ACQUISITION STRATEGY MAY CAUSE US TO LOSE MONEY.
Part of our strategy is to acquire other companies' internal localization
operations and then enter into multi-year contracts with the sellers of these
operations to meet their globalization requirements on an outsourcing basis. As
such, our strategy is to buy these operations with the objective of recouping
our up-front purchase price out of future revenues from the seller. If we pay
too much for these acquisitions or these contracts prove unprofitable, our
revenues and profitability will suffer.
OUR INTANGIBLE ASSETS REPRESENT A SIGNIFICANT PORTION OF OUR ASSETS;
AMORTIZATION OF OUR INTANGIBLE ASSETS WILL ADVERSELY IMPACT OUR NET INCOME,
AND WE MAY NEVER REALIZE THE FULL VALUE OF OUR INTANGIBLE ASSETS.
Our original purchase of the business operations from Stream International
together with subsequent acquisitions have resulted in the creation of
significant goodwill and other intangible assets, which are being amortized over
five-year periods. At June 30, 1999, we had goodwill of approximately $10.3
million, net of accumulated amortization, which represented approximately 37% of
our total assets. The amount of goodwill associated with our acquisitions of
Japanese Language Services and VeriTest may increase in the future as a result
of the contingent purchase price that may become payable if the agreed-upon
operating targets for Japanese Language Services and VeriTest, as the case may
be, are fully met. We will continue to incur non-cash charges in connection with
the amortization of our intangible assets over their respective useful lives,
and we expect these charges will have a significant adverse impact on our
ability to achieve and maintain profitability for the foreseeable future.
We cannot assure you that we will ever realize the value of these intangible
assets. In the future, as events or changes in circumstances indicate that the
carrying amount of our intangible assets may not be recoverable, we will
evaluate the carrying value of our intangible assets and may take an accelerated
charge to our earnings. Any future determination requiring the write-off of a
significant portion of unamortized intangible assets could have a material
adverse effect on our ability to achieve and maintain profitability.
9
<PAGE>
WE MAY HAVE DIFFICULTY IN IDENTIFYING AND COMPETING FOR ACQUISITION
OPPORTUNITIES.
Our business strategy includes the pursuit of strategic acquisitions. From
time to time, we have engaged in discussions with third parties concerning
potential acquisitions of niche expertise, businesses, and operations. We
currently do not have commitments or agreements with respect to any acquisition.
In executing our acquisition strategy, we may be unable to identify suitable
acquisition candidates. In addition, we expect to face competition from other
companies for acquisition candidates, making it more difficult to acquire
suitable companies on favorable terms.
PURSUING AND COMPLETING POTENTIAL ACQUISITIONS COULD DIVERT MANAGEMENT
ATTENTION AND FINANCIAL RESOURCES AND MAY NOT PRODUCE THE DESIRED BUSINESS
RESULTS.
As part of our growth strategy, we intend to pursue and make acquisitions of
other complementary businesses. We do not have specific personnel dedicated
solely to pursuing and making acquisitions. As a result, if we pursue any
acquisition, our management, in addition to their operational responsibilities,
could spend a significant amount of time and management and financial resources
to pursue and integrate the acquired business with our existing business. To pay
for an acquisition, we might use capital stock, or cash, including the proceeds
from this offering, or a combination of both. Alternatively, we may borrow money
from a bank or other lender. If we use capital stock, our stockholders will
experience dilution. If we use cash or debt financing, our financial liquidity
will be reduced. In addition, from an accounting perspective, an acquisition may
involve nonrecurring charges or involve amortization of significant amounts of
goodwill that could adversely affect our ability to achieve and maintain
profitability.
Despite the investment of these management and financial resources and
completion of due diligence with respect to these efforts, an acquisition may
not produce the revenue, earnings or business synergies that we anticipated, and
an acquired service or technology may not perform as expected for a variety of
reasons, including:
- difficulties in the assimilation of the operations, technologies, products
and personnel of the acquired company,
- risks of entering markets in which we have no or limited prior experience,
- expenses of any undisclosed or potential legal liabilities of the acquired
company,
- the applicability of rules and regulations that might restrict our ability
to operate, and
- the potential loss of key employees of the acquired company.
For example, after we acquired Japanese Language Services, Inc. in February
1998, our Japanese language revenue (including that from both our existing and
the newly-acquired operations) for the quarter ended June 30, 1998 declined as
compared to the previous quarter.
IF WE FAIL TO KEEP PACE WITH CHANGING TECHNOLOGIES, WE MAY LOSE CLIENTS.
Our market is characterized by rapidly changing client requirements, and
evolving technologies and industry standards. If we cannot keep pace with these
changes, our business could suffer. The Internet's recent growth and strong
influence in our industry magnifies these characteristics. To achieve our goals,
we need to develop strategic business solutions and methodologies that keep pace
with continuing changes in industry standards, information technology, and
client preferences.
IF WE LOSE THE SERVICES OF OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER, RORY
J. COWAN, OR OTHER KEY PERSONNEL, OUR BUSINESS AND STOCK PRICE COULD SUFFER.
In order to continue to provide quality services in our rapidly changing
business, we believe it is particularly important to retain personnel with
experience and expertise relevant to our business. Our
10
<PAGE>
future success, therefore, depends in large part on the continued services of a
number of our key personnel, including our President and Chief Executive
Officer, Rory J. Cowan. The loss of the services of Mr. Cowan or any of our
other key personnel could seriously impede our success. We might not be able to
prevent key personnel, who may leave our employ in the future, from disclosing
or using our technical knowledge, practices or procedures. One or more of our
key personnel might resign and join a competitor or form a competing company. As
a result, we might lose existing or potential clients.
DIFFICULTIES PRESENTED BY INTERNATIONAL ECONOMIC, POLITICAL, LEGAL,
ACCOUNTING, AND BUSINESS FACTORS COULD NEGATIVELY AFFECT OUR BUSINESS IN
INTERNATIONAL MARKETS.
A large component of our operations is our ability to conduct business in
international markets, as evidenced by the fact that a majority of our current
operations are outside of the United States. As a result, our business is
subject to the political and economic fluctuations in various countries,
including Japan and other Asian countries. For example, in the past, we have
experienced periods of slowdowns in revenue growth as our clients reassessed
their strategies in China and Japan based on political and economic conditions.
We must employ and retain personnel throughout the world. Furthermore,
employment laws vary widely from country to country where we operate. To date,
we have been able to successfully staff our international operations, but if we
continue to grow our operations, it may become more difficult to manage our
business. If we fail to manage these operations successfully, our ability to
service our clients and grow our business will be seriously impeded.
We have experienced long payment cycles and occasional problems in
collecting accounts receivable originating outside of the United States. We have
experienced foreign currency fluctuations and they may have a more significant
impact on our revenues, cash flow and ability to achieve and maintain
profitability as we attempt to grow our business. For more information, see
"Management's Discussion and Analysis of Financial Condition--Foreign Currency
Exchange Rate Losses" and our consolidated financial statements.
WE COMPETE IN A HIGHLY COMPETITIVE MARKET THAT HAS LOW BARRIERS TO ENTRY.
The market for our services is very competitive and we face many
competitors. We cannot assure you that we will compete successfully against
these competitors in the future. Many of these companies have longer operating
histories; significantly greater resources; and greater name recognition than
Lionbridge. If we fail to be competitive with these companies in the future, we
may lose market share and our revenues could fail to grow or decline.
There are relatively few barriers preventing companies from competing with
us. We do not own any patented technology that precludes or inhibits others from
entering our market. As a result, new market entrants also pose a threat to our
business. In addition to our existing competitors, we may face further
competition in the future from companies that do not currently offer
globalization services. Companies currently providing information technology
services may choose to broaden their range of services to include globalization.
While we currently use translation memory software in our localization process,
and to a lesser extent machine translation software, these technologies may
improve and become sophisticated enough to enable more companies to offer
localization services and thus to compete with us. We cannot assure you that we
will be able to compete effectively with these potential future competitors. For
more information, see "Business--Competition."
WE MAY NOT BE ABLE TO MAINTAIN OUR REPUTATION OR EXPAND OUR NAME
RECOGNITION.
We believe that establishing and maintaining a good reputation and name
recognition is critical to retaining our existing clients and attracting new
clients. We also believe that the importance of reputation and name recognition
will increase due to the growing number of service providers in our
11
<PAGE>
segment. If our reputation is damaged or if potential clients do not know what
services we provide, we may become less competitive or lose market share.
Promotion and enhancement of our name will depend largely on our success in
providing high quality globalization and multilingual Internet services, which
we cannot assure. If clients do not perceive our services to be of high value or
high quality, our brand name and reputation could be materially and adversely
affected.
PROBLEMS RELATED TO THE YEAR 2000 ISSUE COULD REQUIRE US TO INCUR
UNANTICIPATED DELAYS AND EXPENSES IN THE OPERATION OF OUR BUSINESS.
Year 2000 problems could cause us to incur unanticipated delays and expenses
in the operation of our business. These delays and expenses could have a
material adverse effect on our business, financial condition and results of
operations. Clients' and potential clients' purchasing patterns may be affected
by Year 2000 issues as companies expend significant resources to correct or
replace their current systems for Year 2000 compliance. These clients and
potential clients may have fewer funds available to purchase our services. We
may experience operations difficulties because of undetected errors or defects
in the technology we use in our internal systems. We have made representations
to clients concerning Year 2000 compliance and may become involved in disputes
regarding Year 2000 problems involving our solutions.
RISKS RELATED TO THIS OFFERING
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK OR FOR THE COMMON
STOCK OF OTHER COMPANIES OFFERING THE RANGE OF SERVICES WE PROVIDE, AND THE
PRICE OF OUR COMMON STOCK AFTER THIS OFFERING MAY BE LOWER THAN THE PRICE
YOU PAY.
Prior to this offering, there has not been a public market for our common
stock or for companies providing the same range of services we offer. We intend
to include the common stock for quotation in the Nasdaq National Market. We do
not know the extent to which investor interest in Lionbridge will lead to the
development of a trading market for our common stock or how our common stock
will trade in the future. The public offering price will be determined by
negotiations between us and the representatives of the underwriters. You may not
be able to resell your shares at or above the initial public offering price.
WE ARE CONTROLLED BY A SMALL NUMBER OF STOCKHOLDERS WHICH COULD RESULT IN
THEIR TAKING ACTIONS WHICH OTHER STOCKHOLDERS DO NOT APPROVE.
Immediately following this offering, Rory Cowan, Morgan Stanley Dean Witter
Venture Partners, Advent International, and Capital Resource Partners
collectively will beneficially own approximately 70.4% of the outstanding shares
(or 67.9% if the underwriters' over-allotment options are exercised in full). If
these stockholders choose to act or vote in concert, they will have the power to
influence the election of our directors, the appointment of new management and
the approval of any other action requiring the approval of our stockholders,
including any amendments to our Certificate of Incorporation and mergers or
sales of all of our assets. If these stockholders withhold their consent, we
could be prevented from entering into transactions that could be beneficial to
us.
SHARES ARE RESTRICTED FROM IMMEDIATE RESALE BUT MAY BE SOLD INTO THE MARKET
IN THE NEAR FUTURE. THIS COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO
DROP SIGNIFICANTLY.
After this offering, we will have outstanding 15,219,450 shares of common
stock. This includes the 4,000,000 shares we are selling in this offering, which
may be resold in the public market immediately. The remaining 11,219,450 shares
of our total outstanding shares will become available for resale in the public
market as shown in the chart below.
12
<PAGE>
As restrictions on resale end, the market price could drop significantly if
the holders of these restricted shares sell them or are perceived by the market
as intending to sell them.
<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR RESALE
NUMBER OF SHARES INTO PUBLIC MARKET
- ------------------ ----------------------------------------------------------------------------------------------
<S> <C>
11,195,178 180 days after the date of this prospectus due to a lock-up agreement these shareholders have
with Prudential Securities. However, Prudential Securities can waive this restriction at any
time and without notice.
24,272 Between 180 and 365 days after the date of this prospectus due to the requirements of the
federal securities laws.
</TABLE>
An additional 1,533,260 shares will be available for resale between 180 and
365 days after the date of this prospectus if Capital Resource Lenders and the
Morgan Stanley-sponsored limited partnerships exercise their warrants in full.
For more information, see "Certain Transactions."
OUR MANAGEMENT HAS BROAD DISCRETION OVER THE USE OF A PORTION OF THE NET
PROCEEDS FROM THIS OFFERING AND MAY ALLOCATE THESE NET PROCEEDS IN WAYS IN
WHICH YOU DO NOT AGREE.
Our management has significant flexibility in applying the proceeds we
receive in this offering. Although we are required to repay our subordinated
indebtedness and to redeem our Series B redeemable preferred stock, the
remaining net proceeds will not be allocated to any specific investment or
transaction.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION BECAUSE THE NET TANGIBLE
BOOK VALUE OF OUR COMMON STOCK ISSUED IN THIS OFFERING WILL BE LESS THAN THE
OFFERING PRICE.
The initial public offering price for this offering is substantially higher
than the net tangible book value per share of the outstanding common stock
immediately after the offering. If you purchase common stock in the offering,
you will incur immediate and substantial dilution of $11.81 per share, based on
an assumed initial public offering price of $13.00 per share. Dilution is a
reduction in the net tangible book value per share from the price you pay per
share for our common stock. We also have outstanding a large number of stock
options and warrants to purchase common stock with exercise prices significantly
below the estimated initial public offering price of the common stock. To the
extent these options or warrants are exercised, there will be further dilution.
We intend to continue to grant a significant number of stock options to our
employees.
YOU SHOULD NOT EXPECT TO RECEIVE DIVIDENDS FROM US.
Our commercial credit facility restricts our ability to pay dividends and we
do not expect to declare or pay any cash dividends in the near future.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements based largely on our
current expectations and projections about future events and financial trends
affecting the financial condition of our business. The words "believe", "may",
"will", "estimate", "continue", "anticipate", "intend", "expect" and similar
expressions, as they relate to Lionbridge, our business or our management, are
intended to identify forward-looking statements. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions,
including, among other things:
- general economic and business conditions, both nationally and in our
markets,
- our expectations and estimates concerning future financial performance,
financing plans and the impact of competition,
13
<PAGE>
- anticipated trends in our business,
- existing and future regulations affecting our business,
- our acquisition opportunities, and
- other risk factors set forth under "Risk Factors" in this prospectus.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus may not occur and actual results
could differ materially from those anticipated or implied in the forward-looking
statements.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to Lionbridge from the sale of the 4,000,000 shares of
common stock in this offering, assuming a public offering price of $13.00 per
share, are estimated to be $47,360,000 ($49,859,000 if the underwriters'
over-allotment option is exercised in full from us), after deducting
underwriting discounts and commissions and estimated offering expenses.
The principal purposes of this offering are to:
- repay debt;
- obtain working capital;
- establish a public market for our common stock and increase our visibility
in the marketplace;
- create a currency for future acquisitions;
- facilitate future access to public capital markets; and
- provide liquidity to existing stockholders and optionholders.
We intend to use the net proceeds as follows:
- To pay off an aggregate of $12,000,000 principal amount of our senior
subordinated notes held by affiliates of our directors, Stephen M. Jenks
and Guy L. de Chazal. The notes accrue interest of 12.0% per year,
interest is required to be paid quarterly and the notes mature upon the
earlier of February (in the case of $10,000,000 of the notes) or March (in
the case of $2,000,000 of the notes) 2006, and the completion of an
underwritten public offering. Lionbridge issued the notes in February and
March 1999 and used the proceeds to finance the acquisition of its
VeriTest business and for general corporate purposes.
- To redeem all outstanding shares of our Series B redeemable preferred
stock at $100,000 per share plus and 8% annual premium. Although we have
the option to defer the redemption in full of our Series B redeemable
preferred stock under the terms of our certificate of incorporation, we
have decided to redeem all of our Series B redeemable preferred stock upon
the closing of this offering. As of June 30, 1999, the redemption amount
is approximately $15,949,000; of which approximately $843,000 is payable
to Rory J. Cowan, $7,209,000 is payable to affiliates of our director
Marcia J. Hooper, $7,209,000 is payable to affiliates of our director Guy
L. de Chazal, and $120,000 is payable to our director Paul Kavanagh.
- For general corporate purposes, including expanding our sales and
marketing capabilities, capital expenditures and potential acquisitions.
Pending these uses, we may invest the net proceeds from this offering
temporarily in short-term, investment-grade, interest-bearing securities or
guaranteed obligations of the United States government.
Lionbride will not receive any proceeds from the sale of common stock by the
selling stockholders if the underwriters exercise their over-allotment options.
DIVIDEND POLICY
Lionbridge has not declared or paid and does not anticipate declaring or
paying any dividends on its common stock in the near future. In addition, the
terms of our credit facility with Silicon Valley Bank prohibit the payment of
cash dividends to us by our European subsidiaries. We currently intend to retain
future earnings, if any, to fund the expansion and growth of our business. Any
future determination as to the declaration and payment of dividends will be at
the discretion of our Board of Directors and will depend on then existing
conditions, including our financial condition, results of operations,
contractual restrictions, capital requirements, business prospects, and other
factors as our Board of Directors considers relevant.
15
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1999:
(i) the actual capitalization of Lionbridge,
(ii) the pro forma as adjusted capitalization of Lionbridge after giving
effect upon the closing of this offering to:
- the exchange of all outstanding shares of our Series A convertible
preferred stock and Series D nonvoting convertible preferred stock into
shares of our Series B redeemable preferred stock and Series C convertible
preferred stock,
- the redemption of all outstanding shares of our Series B redeemable
preferred stock for $100,000 per share plus an 8% annual premium,
- the conversion of all outstanding shares of our Series C convertible
preferred stock into shares of our common stock,
- the repayment in full of the subordinated notes and the related charge for
the unamortized original issue discount on these notes, and
- the sale of 4,000,000 shares of our common stock in this offering at an
assumed initial public offering price of $13.00 per share, after deducting
underwriting discounts and commissions and estimated offering expenses,
and application of the estimated net proceeds.
You should read the following table in conjunction with Lionbridge's
consolidated financial statements and related notes appearing elsewhere in this
prospectus. This information excludes 2,621,945 shares of common stock issuable
upon exercise of outstanding options as of June 30, 1999, of which options to
purchase 472,490 shares were then exercisable, and 1,890,791 shares of common
stock reserved for future issuance under our 1998 Stock Plan. This information
also excludes 1,616,594 shares of common stock issuable upon exercise of
warrants as of June 30, 1999 and 1,000,000 shares reserved for issuance under
our 1999 Employee Stock Purchase Plan.
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
DATA)
<S> <C> <C>
Amounts owed to banks........................................................... $ 143 $ 143
Short-term debt................................................................. 5,893 5,893
Long-term debt, net of discount................................................. 10,964 831
Redeemable convertible preferred stock, $0.01 par value:
Series A convertible preferred stock, 17,271,314 shares authorized; 13,271,314
shares issued and outstanding actual; no shares issued and outstanding pro
forma as adjusted .......................................................... 15,949 --
Series B redeemable preferred stock, 200 shares authorized; no shares issued
and outstanding actual and pro forma as adjusted............................ -- --
Series C convertible preferred stock, 17,271,514 shares authorized; no shares
issued and outstanding actual and pro forma as adjusted..................... -- --
Series D nonvoting convertible preferred stock, 200 shares authorized; 140
shares issued and outstanding actual; no shares issued and outstanding pro
forma as adjusted........................................................... -- --
Stockholders' equity (deficit):
Common stock, $0.01 par value; 25,950,867 shares authorized; 2,371,799 shares
issued and outstanding actual; 15,219,450 shares issued and outstanding pro
forma as adjusted........................................................... 24 152
Additional paid-in capital.................................................... 10,516 57,749
Accumulated deficit........................................................... (24,518) (26,385)
Deferred compensation......................................................... (3,529) (3,529)
Accumulated other comprehensive income (1).................................... 475 475
----------- -----------
Total stockholders' equity (deficit).......................................... (17,032) 28,462
----------- -----------
Total capitalization............................................................ $ 15,917 $ 35,329
----------- -----------
----------- -----------
</TABLE>
- --------------------------
(1) Represents the cumulative effect of foreign currency translation
adjustments. For more information, see Note 2 of notes to consolidated
financial statements.
16
<PAGE>
DILUTION
Purchasers of the common stock in this offering will experience immediate
and substantial dilution in the net tangible book value of the common stock from
the initial public offering price. Net tangible book value per share represents
the amount of the total tangible assets less total liabilities of Lionbridge,
divided by the number of shares of common stock outstanding. At June 30, 1999,
Lionbridge had a pro forma net tangible book value of $(29,224,000) or $(2.60)
per share of common stock, assuming
- the exchange of all outstanding shares of our Series A convertible
preferred stock and Series D nonvoting convertible preferred stock into
shares of our Series B redeemable preferred stock and Series C convertible
preferred stock upon the closing of this offering,
- the redemption of all outstanding shares of our Series B redeemable
preferred stock for $100,000 per share plus an 8% annual premium upon the
closing of this offering, and
- the conversion of all outstanding shares of our Series C convertible
preferred stock into shares of our common stock upon the closing of this
offering.
After giving effect to the sale of 4,000,000 shares of common stock offered
by Lionbridge at an assumed initial public offering price of $13.00 per share
and the deduction of underwriting discounts and commissions and estimated
offering expenses, the pro forma net tangible book value of Lionbridge as of
June 30, 1999 would have been approximately $18,136,000, or $1.19 per share.
This represents an immediate increase in pro forma net tangible book value of
$3.79 per share to existing stockholders and an immediate and substantial
dilution of $11.81 per share to new investors purchasing shares of common stock
in this offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price...................................... $ 13.00
Pro forma net tangible book value per share at June 30,
1999........................................................ $ (2.60)
Increase attributable to new investors........................ $ 3.79
---------
Pro forma net tangible book value after this offering...................... $ 1.19
---------
Dilution in pro forma net tangible book value to new investors............. $ 11.81
---------
---------
</TABLE>
The following table summarizes, on the pro forma basis set forth above as of
June 30, 1999, the differences between existing stockholders and new investors
in this offering with respect to the number of shares of common stock purchased
from Lionbridge, the consideration paid to Lionbridge and the average
consideration paid per share (before the deduction of underwriting discounts and
commissions and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... 11,219,450 74% $13,860,000 21% $ 1.24
New investors............................ 4,000,000 26% $52,000,000 79% $ 13.00
--------- ----- ---------- -----
Totals............................. 15,219,450 100% $65,860,000 100%
--------- ----- ---------- -----
--------- ----- ---------- -----
</TABLE>
The foregoing discussion and tables assume no sale of shares of common stock
held by existing stockholders pursuant to the underwriters' over-allotment
options. The foregoing discussion and tables also do not assume exercise of any
stock options or warrants after June 30, 1999. As of June 30, 1999, there were
83,334 shares of common stock issuable upon exercise of outstanding warrants at
an exercise price of $2.40 per share and 1,533,260 shares of common stock
issuable upon exercise of outstanding warrants at an exercise price of $0.015
per share. As of June 30, 1999, there were 2,621,945 shares of common stock
issuable upon exercise of outstanding stock options, at a weighted average
exercise price of $1.69 per share; and 1,890,791 shares of common stock reserved
for issuance under Lionbridge's 1998 Stock Plan. In addition, in June 1999,
effective upon closing of this offering, Lionbridge adopted the 1999 Employee
Stock Purchase Plan, pursuant to which 1,000,000 shares of common stock were
initially reserved for issuance. To the extent that these options are exercised,
there will be further dilution to new investors.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
Lionbridge was incorporated on September 11, 1996 and commenced operations
on December 23, 1996 through the acquisition of the localization businesses of
Stream International in France, Ireland, and The Netherlands. Until 1996, Stream
did not maintain complete accounting records for these localization businesses.
As a result, the accounting information required to prepare financial statements
for any period prior to 1996 is not available; and, therefore, we cannot present
selected financial data for 1994 and 1995.
The selected financial data for the year ended December 31, 1996 relating to
Stream's European localization businesses have been derived from the combined
financial statements of The Localization Businesses of Stream International
Holdings, Inc. in Ireland, The Netherlands and France which appear elsewhere in
this prospectus and which have been audited by PricewaterhouseCoopers LLP,
independent public accountants. The selected consolidated financial data as of
December 31, 1997 and 1998 and for the years then ended have been derived from
the consolidated financial statements of Lionbridge which appear elsewhere in
this prospectus and which have been audited by PricewaterhouseCoopers LLP,
independent public accountants. The selected financial data as of June 30, 1999
and for the six months ended June 30, 1998 and 1999 have been derived from
unaudited consolidated financial statements which appear elsewhere in this
prospectus. In the opinion of management, the unaudited consolidated financial
statements have been prepared on a basis consistent with the audited
consolidated financial statements that appear elsewhere in this prospectus and
include all adjustments, which are only normal recurring adjustments, necessary
for a fair presentation.
The results of operations of Lionbridge for the period from inception
(September 11, 1996) to December 31, 1996, are immaterial, consisting of no
revenues, general and administrative expenses of $158,000, interest expense of
$1,000, and a net loss of $159,000. As a result, we do not present selected
consolidated financial data for this period.
The historical results presented are not necessarily indicative of future
results. You should read the data set forth below in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes included
elsewhere in this prospectus.
18
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, SIX MONTHS ENDED
------------------------------ JUNE 30,
1996(1) 1997 1998 -------------------------
-------- -------- -------- 1998 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue........................................... $ 28,134 $ 26,462 $ 38,412 $18,132 $23,783
Cost of revenue................................... 24,977 18,914 25,546 12,226 16,607
-------- -------- -------- ----------- -----------
Gross profit.................................. 3,157 7,548 12,866 5,906 7,176
-------- -------- -------- ----------- -----------
Operating expenses:
Sales and marketing (1)......................... -- 1,306 2,735 1,206 2,613
General and administrative...................... 3,144 8,210 10,889 5,238 6,894
Amortization of acquisition-related intangible
assets........................................ -- 4,400 2,145 1,194 1,579
Restructuring charges........................... -- 541 501 451 --
Stock-based compensation........................ -- -- -- -- 232
-------- -------- -------- ----------- -----------
Total operating expenses...................... 3,144 14,457 16,270 8,089 11,318
-------- -------- -------- ----------- -----------
Income (loss) from operations..................... 13 (6,909) (3,404) (2,183) (4,142)
Interest expense:
Interest on outstanding debt.................... (154) (127) (648) (265) (889)
Amortization of original issue discount......... -- -- -- -- (4,099)
Other income (expense), net....................... (72) (506) 49 (22) (320)
-------- -------- -------- ----------- -----------
Loss before income taxes.......................... (213) (7,542) (4,003) (2,470) (9,450)
Provision for income taxes........................ -- 112 259 53 315
-------- -------- -------- ----------- -----------
Net loss.......................................... (213) (7,654) (4,262) (2,523) (9,765)
Accrued dividends on preferred stock.............. -- (1,062) (1,062) (531) (531)
-------- -------- -------- ----------- -----------
Net loss attributable to common stockholders...... $ (213) $ (8,716) $ (5,324) $(3,054) $(10,296)
-------- -------- -------- ----------- -----------
-------- -------- -------- ----------- -----------
Basic and diluted net loss per share attributable
to common stockholders (2)...................... $ (8.85) $ (2.99) $ (1.89) $ (4.64)
Shares used in computing basic and diluted net
loss per share attributable to common
stockholders.................................... 985 1,782 1,613 2,218
</TABLE>
(1) Results for the year ended December 31, 1996 reflect Stream International's
results of operations for the businesses we acquired from Stream
International on December 23, 1996. These businesses did not have any
dedicated sales and marketing personnel; therefore, Stream International
allocated a portion of its total sales and marketing expenses to these
businesses and these expenses are reflected within general and
administrative expenses for that period.
(2) See Note 2 to Lionbridge's consolidated financial statements for an
explanation of the basis used to calculate net loss per share attributable
to common stockholders.
19
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1999
-------------------- -------------------------
1997 1998 ACTUAL PRO FORMA
-------- --------- ----------- AS ADJUSTED
-----------
(UNAUDITED)
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash........................................................ $ 1,098 $ 732 $ 1,455 $ 20,866
Working capital (deficit)................................... (1,476) (7,718) (2,919) 16,492
Total assets................................................ 18,756 22,402 28,107 47,518
Long-term debt, net of discount............................. -- -- 10,964 831
Redeemable convertible preferred stock...................... 14,356 15,418 15,949 --
Stockholders' equity (deficit).............................. (8,086) (13,521) (17,032) 28,462
</TABLE>
The pro forma as adjusted column above gives effect upon the closing of this
offering to:
- the exchange of all outstanding shares of our Series A convertible
preferred stock and Series D nonvoting convertible preferred stock into
shares of our Series B redeemable preferred stock and Series C convertible
preferred stock,
- the redemption of all outstanding shares of our Series B redeemable
preferred stock for $100,000 per share plus an 8% annual premium,
- the conversion of all outstanding shares of our Series C convertible
preferred stock into shares of our common stock,
- the repayment in full of the subordinated notes and the related charge for
the unamortized original issue discount on these notes, and
- the sale of 4,000,000 shares of our common stock in this offering at an
assumed initial public offering price of $13.00 per share, after deducting
underwriting discounts and commissions and estimated offering expenses,
and application of the estimated net proceeds.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the accompanying financial statements
and related notes included elsewhere in this prospectus.
OVERVIEW
ORGANIZATION OF LIONBRIDGE
Our predecessor, Lionbridge America, was incorporated in September 1996
(under the name Lionbridge Technologies, Inc.) to acquire the localization
businesses and assets of Stream International, as described in further detail
below under "--ACQUISITIONS." We were incorporated in October 1997 (under the
name Lionbridge Technologies Holdings, Inc.) and completed a reorganization in
February 1998 in which Lionbridge America became a wholly owned subsidiary of
Lionbridge. In June 1999, we changed our name to Lionbridge Technologies, Inc.
from Lionbridge Technologies Holdings, Inc. and the name of our subsidiary
Lionbridge Technologies, Inc. to Lionbridge America, Inc.
GENERAL
Lionbridge is a provider of globalization and multilingual Internet services
to industry-leading software publishers, computer hardware manufacturers, and
telecommunications companies. Since 1996, we have focused primarily on
globalization services, including localization, internationalization, and
testing, that enable simultaneous worldwide release and ongoing maintenance of
products and product-related technical support, training materials, and sales
and marketing information in multiple languages. More recently, as product
release, technical support, and training have evolved toward a Web-based
business model, we have begun to offer multilingual Internet services.
Lionbridge's revenues are derived from fees for services generated on a
project-by-project basis. Projects are generally billed on a time and materials
basis. Revenue is recognized using the percentage of completion method of
accounting, based on management's estimate of progress against the project plan.
The agreements entered into in connection with projects are generally terminable
by clients upon 30 days' prior written notice. If a client terminates an
agreement, it is required to pay Lionbridge for time and materials incurred
through the termination date. If clients terminate existing projects or if
Lionbridge is unable to enter into new engagements, our financial condition and
results of operations could be materially and adversely affected.
On March 19, 1999, in connection with our February and March 1999
subordinated debt financing, the Boston Business Journal published an article in
which Lionbridge was reported as estimating revenues for 1999 of $60 million.
This estimate was made while we were a private company (and thus at a time when
we did not contemplate the impact such a statement might have on potential
public investors) and was not based on a formal analysis or set of projections.
This estimate also reflected our expectation at the time that we would complete
an acquisition that we later decided not to pursue. This estimate does not
accurately reflect our current estimates of our financial performance and should
not be relied upon. In the future, our policy as a public company will be to
avoid making public estimates of our future financial performance unless
required to by law, stock exchange regulation or other compelling reasons.
Lionbridge has experienced operating losses, as well as net losses, for each
year of its operations and, as of June 30, 1999, had an accumulated deficit of
$24.5 million.
ACQUISITIONS
We have grown our business through a combination of acquisitions and organic
growth. Since our inception, we have acquired the following businesses and
assets.
21
<PAGE>
In 1996, we acquired the localization businesses of Stream International in
Ireland, The Netherlands, and France by acquiring all of the capital stock of
five subsidiaries of Stream--two subsidiaries incorporated in the Netherlands
and one each in Belgium, France and Ireland. The Belgian subsidiary was inactive
and was subsequently dissolved by Lionbridge. Stream's business was formed as
the result of a combination of R.R. Donnelley's localization business with the
business of another company, Corporate Software. R.R. Donnelley owned a majority
interest in Stream. We acquired these businesses on December 23, 1996 for $11.3
million in cash and the assumption of $100,000 of liabilities. Our acquisition
of the businesses was recorded as though the purchase had occurred on December
31, 1996, as the results of operations and changes in financial position between
the actual date of the purchase (December 23, 1996) and this date were
immaterial. In connection with this acquisition, we recorded $9.2 million of
goodwill, which is being amortized over five years. Additionally, during 1997,
we renegotiated an earlier agreement with Stream and purchased assets, including
cash, property and equipment, rights under contracts, and accounts receivable,
from three subsidiaries of Stream International which represented the
localization businesses of Stream in Japan, China, South Korea and Taiwan. We
paid approximately $100,000 in cash and assumed liabilities of $317,000 in
exchange for these assets. Following this transaction, we expanded our business
in Asia.
In June 1998, we entered into an agreement with Stream settling outstanding
inter-company balances as well as claims that we had made that Stream had
breached some of the representations, warranties and covenants that it had made
in connection with our acquisition of the European businesses. Our principal
claim was that in connection with this acquisition we had assumed more
liabilities and fewer assets than Stream had previously disclosed to us. Under
the terms of the settlement agreement, our purchase price for the European
business was reduced by $531,000.
As of January 2, 1998, Lionbridge acquired Japanese Language Services, a
company specializing in Japanese localization services with operations in the
United States and Japan, for total initial consideration of $2,323,000
consisting of cash of $2,237,000 and 286,959 shares of common stock valued at
$86,000. The shares of common stock may be redeemed, at the option of the
holder, at a price of $1.35 per share at any time from July 2001 to September
2001. Subsequent to the acquisition date, Lionbridge paid a further $449,000 and
issued 24,268 shares of common stock, valued at $36,400, in connection with the
purchase. Lionbridge may be required to pay up to an additional $125,000 in cash
based on future operating results of Japanese Language Services through December
31, 1999. In connection with this acquisition, we have recorded $2.7 million of
goodwill, not including any additional contingent amounts that may be paid in
the future. The goodwill is being amortized over five years.
In April 1998, Lionbridge acquired the business and assets of the Monterey,
California-based localization services division of Lucent Technologies for $1.0
million in cash. In connection with this acquisition, Lionbridge recorded
$470,000 of goodwill, which is being amortized over five years. The purchase of
assets from the former Lucent business provided us with a West Coast, U.S.-based
operation to enable us to further penetrate U.S.-based customers.
In January 1999, Lionbridge acquired all of the stock of VeriTest, a
California-based provider of contract and logo certification testing services.
Lionbridge paid $3.3 million in cash and issued notes totaling $750,000 and
66,668 shares of our common stock valued at $344,000. Lionbridge may also be
required to pay up to an additional $1.0 million in cash dependent upon future
operating performance of VeriTest through December 2000. In connection with this
acquisition, Lionbridge recorded $4.3 million of goodwill, not including any
additional contingent amounts that may be paid in the future. The goodwill is
being amortized over five years.
We believe our acquisitions contributed to our growth by rapidly expanding
our employee base, geographic coverage, client base, industry expertise, and
technical skills. Lionbridge anticipates that a material portion of its future
growth will be accomplished by acquiring existing businesses. Most of
Lionbridge's growth in personnel to date has been through acquisitions. The
success of this plan depends upon, among other things, Lionbridge's ability to
integrate acquired personnel, operations,
22
<PAGE>
products, and technologies into its organization effectively; to retain and
motivate key personnel of acquired businesses; and to retain customers of
acquired firms. Lionbridge cannot guarantee that it will be able to identify
suitable acquisition opportunities, obtain any necessary financing on acceptable
terms to finance any acquisitions, consummate any acquisitions, or successfully
integrate acquired personnel and operations.
RESTRUCTURING CHARGES
During the fourth quarter of 1997, the first quarter of 1998, and the fourth
quarter of 1998, Lionbridge recorded restructuring charges of $541,000, $451,000
and $50,000, respectively, in operating expenses. These charges related to
reductions to our workforce in France, where we reduced our technical staff by 9
and 5 employees in 1997 and 1998, respectively, as a result of a decrease in
resources required on a specific customer contract. These reductions in
workforce were completed to correspond with the anticipated lower volume of work
orders under the contract. All employees had been informed of their termination
and related benefits in the period that the corresponding charge was recorded
and have now left Lionbridge. The liabilities recorded in relation to the cost
of these reductions were matched by corresponding expenditures in 1998, and we
do not anticipate any future costs related to these actions nor do we anticipate
any further resource reductions associated with the customer contract. The
Company does not anticipate any significant net effect on operating results from
these actions.
NON-CASH CHARGES
DEFERRED COMPENSATION
Lionbridge recorded deferred compensation of approximately $3.8 million in
the first six months of 1999, representing the difference between the exercise
price of stock options granted and the fair market value for accounting purposes
of the underlying common stock at the date of the grant. The deferred
compensation is being amortized over the four-year vesting period of the
applicable options. Of the total deferred compensation amount, $232,000 had been
amortized as of June 30, 1999. The amortization of deferred compensation is
recorded as an operating expense. We currently expect to amortize the following
remaining amounts of deferred compensation as of June 30, 1999 in the fiscal
periods ending:
<TABLE>
<S> <C>
December 31, 1999................................................. $ 470,000
December 31, 2000................................................. $ 940,000
December 31, 2001................................................. $ 940,000
December 31, 2002................................................. $ 940,000
December 31, 2003................................................. $ 239,000
</TABLE>
ORIGINAL ISSUE DISCOUNT ON SUBORDINATED NOTES
Interest expense for the six months ended June 30, 1999 includes $4.1
million for the accretion of the original issue discount on $12.0 million of
subordinated notes issued in that period. This discount represents the $6.0
million value attributable to detachable warrants to purchase 1,533,260 shares
of common stock, at an exercise price of $0.015 per share, granted in connection
with this debt financing. As we are required to repay the subordinated notes
upon the closing of this offering, we are recording the expense of this discount
on a straight-line basis over a six-month period from date of debt issuance to
the date by which we expect this offering to occur. We currently expect to
record an expense for the discount remaining as of June 30, 1999 as follows:
<TABLE>
<S> <C>
Quarter ending September 30, 1999.............................. $1.9 million
</TABLE>
If this offering occurs prior to the end of this three-month period, we will
record an extraordinary loss equal to the discount remaining at that time.
23
<PAGE>
RESULTS OF OPERATIONS
The following table presents results of operations data for Lionbridge as a
percentage of total revenue for the periods presented:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1996(1) 1997 1998 1998 1999
----- ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.......................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue.................................................. 88.8 71.5 66.5 67.4 69.8
----- ------ ------ ------ ------
Gross profit..................................................... 11.2 28.5 33.5 32.6 30.2
----- ------ ------ ------ ------
Operating expenses:
Sales and marketing(1)......................................... -- 4.9 7.1 6.6 11.0
General and administrative..................................... 11.2 31.1 28.4 28.9 29.0
Amortization of acquisition-related intangible assets.......... -- 16.6 5.6 6.6 6.6
Restructuring charges.......................................... -- 2.0 1.3 2.5 --
Stock-based compensation....................................... -- -- -- -- 1.0
----- ------ ------ ------ ------
Total operating expenses..................................... 11.2 54.6 42.4 44.6 47.6
----- ------ ------ ------ ------
Loss from operations........................................... -- (26.1) (8.9) (12.0) (17.4)
Interest expense................................................. (0.5) (0.5) (1.6) (1.5) (21.0)
Other income (expense), net...................................... (0.3) (1.9) 0.1 (0.1) (1.3)
----- ------ ------ ------ ------
Loss before income taxes......................................... (0.8) (28.5) (10.4) (13.6) (39.7)
Provision for income taxes....................................... -- 0.4 0.7 0.3 1.4
----- ------ ------ ------ ------
Net loss......................................................... (0.8)% (28.9)% (11.1)% (13.9)% (41.1)%
----- ------ ------ ------ ------
----- ------ ------ ------ ------
</TABLE>
- ------------------------
(1) Results for the year ended December 31, 1996 reflect Stream International's
results of operations for the businesses we acquired from Stream
International on December 23, 1996. These businesses did not have any
dedicated sales and marketing personnel; therefore, Stream International
allocated a portion of its total sales and marketing expenses to these
businesses and these expenses are reflected within general and
administrative expenses for that period.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUE. Revenue for the six months ended June 30, 1999 increased 31.2% to
$23.8 million as compared to $18.1 million for the same period of the prior
year. This increase results from additional project volume during the first half
of 1999 as compared to the first half of 1998, reflecting the continued impact
of a strengthened sales organization. In addition, the first half of 1999 also
reflects revenue derived from the operations of VeriTest, which was not included
in the first half of 1998 and accounted for $1.7 million in revenue in 1999.
COST OF REVENUE. Cost of revenue consists primarily of outsourcing expense
incurred for translation services provided by third parties as well as salaries
and associated employee benefits for personnel related to client projects. As a
percentage of revenue, cost of revenue remained relatively consistent for the
six months ended June 30, 1999 from the corresponding period of the prior year.
However, the Company's fixed costs of revenue as a percentage of revenue
increased in the six months ended June 30, 1999 compared to the corresponding
period in 1998 primarily as a result of the acquisition of VeriTest in January
1999.
24
<PAGE>
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and associated employee benefits, travel expenses of sales
and marketing personnel, and promotional expenses. Sales and marketing expenses
increased 116.7% to $2.6 million for the six months ended June 30, 1999 from
$1.2 million for the six months ended June 30, 1998. This increase is
attributable to increases in the number of employees and additional marketing
initiatives to support the continued growth of the business. As a percentage of
revenue, sales and marketing expenses increased to 11.0% for the six months
ended June 30, 1999 from 6.6% for the six months ended June 30, 1998. Sales and
marketing expenses are expected to continue to increase in absolute dollars as
we continue to expand our marketing programs and sales force.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of
salaries of the management, purchasing, process and technology, finance and
administrative groups, and associated employee benefits; facilities costs,
including depreciation and amortization; information systems costs; professional
fees; travel; and all other site and corporate costs. General and administrative
expenses increased 31.6% to $6.9 million for the six months ended June 30, 1999
from $5.2 million for the six months ended June 30, 1998. This increase was
principally due to increased staffing and additional depreciation expense from a
larger fixed asset base necessary to support Lionbridge's continued growth. As a
percentage of revenue, general and administrative expenses remained constant for
the six months ended June 30, 1999 compared with the corresponding six months of
1998.
AMORTIZATION OF ACQUISITION-RELATED INTANGIBLE ASSETS. Amortization of
acquisition-related intangible assets consists of amortization of goodwill and
other intangible assets resulting from acquired businesses. Amortization
increased 32.2% to $1.6 million for the six months ended June 30, 1999 from $1.2
million for the six months ended June 30, 1998. This increase was due to the
amortization of goodwill recognized on the acquisition of VeriTest in the first
half of 1999.
INTEREST EXPENSE. Interest expense represents interest payable on debt and
the accretion of original issue discount on subordinated notes with detachable
warrants. Interest expense increased to $5.0 million for the six months ended
June 30, 1999 as compared to $265,000 for the six months ended June 30, 1998.
This increase was principally due to accretion of $4.1 million on the original
issue discount on our subordinated notes issued in 1999 and to increased
interest as a result of greater borrowings through notes issued, and our
commercial credit facility.
OTHER INCOME (EXPENSE), NET. Other income (expense), net consists primarily
of foreign currency transaction gains or losses arising from exchange rate
fluctuations on transactions denominated in currencies other than the local
currencies of the countries in which the transactions are recorded. As a
percentage of revenue, other income (expense), net increased to (1.3)% for the
six months ended June 30, 1999 from (0.1)% for the corresponding six months of
1998.
PROVISION FOR INCOME TAXES. The provision for income taxes in the six-month
periods ended June 30, 1999 and 1998 represents taxes generated in foreign
jurisdictions for which U.S. tax credit utilization is currently uncertain. We
recorded no tax benefit for losses generated during these periods due to the
uncertainty of realizing any benefit.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUE. In 1998, revenue increased 45.2% to $38.4 million from $26.5
million in 1997. This increase results from additional project volume during
1998 as compared to 1997, reflecting the impact of a more established sales and
marketing organization in 1998. Additionally, 1998 results reflect the impact of
the Japanese Language Services acquisition, which accounted for approximately
$4.0 million of revenue in 1998.
25
<PAGE>
COST OF REVENUE. As a percentage of revenue, cost of revenue decreased to
66.5% during 1998 as compared to 71.5% during 1997 due to improved utilization
of employees as Lionbridge realized increased operating leverage from its
services personnel.
SALES AND MARKETING. Sales and marketing costs increased 109.4% to $2.7
million in 1998 from $1.3 million in 1997. This increase was primarily due to
expenses associated with the hiring of additional direct sales personnel in
fiscal 1998 as we continued to establish our sales and marketing organization.
As a percentage of revenue, sales and marketing expenses increased to 7.1% from
4.9% during 1997.
GENERAL AND ADMINISTRATIVE. General and administrative costs increased
32.6% to $10.9 million in 1998 from $8.2 million in 1997 as a result of the
hiring of additional employees and other personnel-related costs as well as the
additional infrastructure costs of adding the Japanese Language Services,
Monterey and Ballina facilities. As a percentage of revenue, general and
administrative expenses decreased to 28.4% in 1998 from 31.1% in 1997 as we
began to realize the operating leverage from our infrastructure.
AMORTIZATION OF ACQUISITION-RELATED INTANGIBLE ASSETS. Amortization
decreased 51.3% to $2.1 million in 1998 from $4.4 million in 1997. This decrease
is due to the amortization of a six-month non-compete agreement between
Lionbridge and Stream International, valued at $2.6 million, which was fully
amortized in 1997. Partially offsetting this decrease is amortization expense
attributable to goodwill on the acquisition of the Japanese Language Services
and Lucent businesses in 1998.
INTEREST EXPENSE. Interest expense increased 410.2% to $648,000 in 1998
from $127,000 in 1997. The increase is due to additional interest incurred on
our commercial credit facility during 1998 as outstanding borrowings rose from
$2.2 million at December 31, 1997 to $7.7 million at December 31, 1998 to
support our growth.
OTHER INCOME (EXPENSE), NET. Other income (expense), net, was $49,000 for
the twelve months ended December 31, 1998 as compared to $(506,000) for the
twelve months ended December 31, 1997, or 0.1% and (1.9)% of revenue,
respectively.
PROVISION FOR INCOME TAXES. The provision for income taxes for the years
ended December 31, 1998 and 1997 represents taxes generated in foreign
jurisdictions for which U.S. tax credit utilization is currently uncertain. The
benefit from our utilization of net operating loss carryforwards in Europe
during those periods was recorded as a reduction of goodwill, rather than a tax
provision benefit, since the deferred tax assets associated with these
carryforwards had been fully reserved at the time we acquired Stream
International's localization businesses. We recorded no tax benefit for losses
generated during these periods due to the uncertainty of realizing any benefit.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUE. In 1997, revenue decreased 5.9% to $26.5 million as compared to
Stream International's revenues from the European localization business of $28.1
million in 1996. The decrease is primarily due to the expiration of two large
contracts at the end of 1996 and beginning of 1997. In addition, because Stream
International did not transfer any sales and marketing personnel to us, we
needed to build a sales and marketing team. As a result, sales in 1997 were
adversely impacted as we built this team.
OPERATING COSTS AND EXPENSES. Operating costs and expenses consist of cost
of revenue, sales and marketing, general and administrative expenses, and
restructuring charges. Our operating costs and expenses increased 3.0% to $29.0
million in 1997 from $28.1 million in 1996. As a percentage of revenue,
operating costs and expenses increased to 109.5% of revenue in 1997, up from
100.0% in 1996, reflecting the costs of establishing our direct sales force,
increased marketing activities, and the
26
<PAGE>
addition of centralized management and finance functions after the purchase of
Stream International's businesses in 1996.
PROVISION FOR INCOME TAXES. The provision for income taxes for the year
ended December 31, 1997 represents taxes generated in foreign jurisdictions for
which U.S. tax credit utilization is currently uncertain. The benefit from our
utilization of net operating loss carryforwards in Europe during that period was
recorded as a reduction of goodwill, rather than a tax provision benefit, since
the deferred tax assets associated with these carryforwards had been fully
reserved at the time we acquired Stream International's localization businesses.
We recorded no tax benefit for losses generated during this period due to the
uncertainty of realizing any benefit. There was no tax provision recorded for
the year ended December 31, 1996 because Stream International benefited the tax
provision with the utilization of previously unrecognized net operating loss
carryforwards.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth unaudited consolidated quarterly financial
data for the periods indicated. We derived this data from our unaudited
consolidated financial statements, and, in the opinion of management, they have
been prepared on the same basis as the audited financial statements contained
elsewhere in this prospectus and include all adjustments, which consist only of
normal recurring adjustments, necessary to present fairly the financial results
for the periods. The operating results for any quarter are not necessarily
indicative of results for any future period.
27
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------
SEPT. MARCH SEPT. MARCH
30, DEC. 31, 31, JUNE 30, 30, DEC. 31, 31,
1997 1997 1998 1998 1998 1998 1999
-------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue........................................... $ 6,866 $ 7,382 $ 7,438 $10,694 $10,021 $10,259 $11,690
Cost of revenue................................... 5,161 5,138 5,344 6,882 6,550 6,770 8,195
-------- --------- -------- --------- -------- --------- --------
Gross profit.................................. 1,705 2,244 2,094 3,812 3,471 3,489 3,495
-------- --------- -------- --------- -------- --------- --------
Operating expenses:
Sales and marketing............................. 341 369 527 679 749 780 1,172
General and administrative...................... 2,139 2,327 2,387 2,851 2,690 2,961 3,233
Amortization of acquisition-related intangible
assets........................................ 1,100 1,100 561 633 441 510 766
Restructuring charges........................... -- 541 451 -- -- 50 --
Stock-based compensation........................ -- -- -- -- -- -- 45
-------- --------- -------- --------- -------- --------- --------
Total operating expenses...................... 3,580 4,337 3,926 4,163 3,880 4,301 5,216
-------- --------- -------- --------- -------- --------- --------
Loss from operations.............................. (1,875) (2,093) (1,832) (351) (409) (812) (1,721)
Interest expense.................................. (36) (27) (86) (179) (196) (187) (1,468)
Other income (expense), net....................... 60 (535) 42 (64) (22) 93 (181)
-------- --------- -------- --------- -------- --------- --------
Loss before income taxes.......................... (1,851) (2,655) (1,876) (594) (627) (906) (3,370)
Provision for income taxes........................ -- 112 36 17 36 170 45
-------- --------- -------- --------- -------- --------- --------
Net loss.......................................... $(1,851) $(2,767) $(1,912) $ (611) $ (663) $(1,076) $(3,415)
-------- --------- -------- --------- -------- --------- --------
-------- --------- -------- --------- -------- --------- --------
AS A PERCENTAGE OF REVENUE:
Revenue........................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue................................... 75.2 69.6 71.8 64.4 65.4 66.0 70.1
-------- --------- -------- --------- -------- --------- --------
Gross profit.................................. 24.8 30.4 28.2 35.6 34.6 34.0 29.9
-------- --------- -------- --------- -------- --------- --------
Operating expenses:
Sales and marketing............................. 5.0 5.0 7.1 6.3 7.5 7.6 10.0
General and administrative...................... 31.1 31.5 32.1 26.7 26.8 28.9 27.6
Amortization of acquisition-related intangible
assets........................................ 16.0 14.9 7.5 5.9 4.4 5.0 6.6
Restructuring charges........................... -- 7.3 6.1 -- -- 0.4 --
Stock-based compensation........................ -- -- -- -- -- -- 0.4
-------- --------- -------- --------- -------- --------- --------
Total operating expenses...................... 52.1 58.7 52.8 38.9 38.7 41.9 44.6
-------- --------- -------- --------- -------- --------- --------
Loss from operations.............................. (27.3) (28.3) (24.6) (3.3) (4.1) (7.9) (14.7)
Interest expense.................................. (0.5) (0.4) (1.2) (1.7) (2.0) (1.8) (12.6)
Other income (expense), net....................... 0.8 (7.3) 0.6 (0.6) (0.2) 0.9 (1.5)
-------- --------- -------- --------- -------- --------- --------
Loss before income taxes.......................... (27.0) (36) (25.2) (5.6) (6.3) (8.8) (28.8)
Provision for income taxes........................ -- 1.5 0.5 0.1 0.3 1.7 0.4
-------- --------- -------- --------- -------- --------- --------
Net loss.......................................... (27.0)% (37.5)% (25.7)% (5.7)% (6.6)% (10.5)% (29.2)%
-------- --------- -------- --------- -------- --------- --------
-------- --------- -------- --------- -------- --------- --------
<CAPTION>
JUNE 30,
1999
---------
<S> <C>
Revenue........................................... $12,093
Cost of revenue................................... 8,412
---------
Gross profit.................................. 3,681
---------
Operating expenses:
Sales and marketing............................. 1,441
General and administrative...................... 3,661
Amortization of acquisition-related intangible
assets........................................ 813
Restructuring charges........................... --
Stock-based compensation........................ 187
---------
Total operating expenses...................... 6,102
---------
Loss from operations.............................. (2,421)
Interest expense.................................. (3,520)
Other income (expense), net....................... (139)
---------
Loss before income taxes.......................... (6,080)
Provision for income taxes........................ 270
---------
Net loss.......................................... $(6,350)
---------
---------
AS A PERCENTAGE OF REVENUE:
Revenue........................................... 100.0%
Cost of revenue................................... 69.6
---------
Gross profit.................................. 30.4
---------
Operating expenses:
Sales and marketing............................. 11.9
General and administrative...................... 30.3
Amortization of acquisition-related intangible
assets........................................ 6.7
Restructuring charges........................... --
Stock-based compensation........................ 1.5
---------
Total operating expenses...................... 50.4
---------
Loss from operations.............................. (20.0)
Interest expense.................................. (29.1)
Other income (expense), net....................... (1.2)
---------
Loss before income taxes.......................... (50.3)
Provision for income taxes........................ 2.2
---------
Net loss.......................................... (52.5)%
---------
---------
</TABLE>
Lionbridge has experienced quarter-to-quarter variability in its revenues
and gross profit. This variability is due to fluctuations in our clients'
product release cycles, the length of our sales cycle, rapid growth,
acquisitions, the emerging nature of the markets in which we compete and other
factors outside our control. We believe that quarter-to-quarter comparisons of
results of operations are not necessarily meaningful. You should not rely on
these comparisons as a measure of future performance.
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LIQUIDITY AND CAPITAL RESOURCES
Since its formation, Lionbridge has relied primarily on private sales of
equity securities (totaling approximately $13.3 million through December 31,
1998) and borrowings to fund operations. We have incurred significant losses
since our inception and, at June 30, 1999, had an accumulated deficit of $24.5
million and a working capital deficit of $2.9 million. We conduct our business
through our wholly owned subsidiaries in the United States and overseas.
We have a commercial credit facility with Silicon Valley Bank that allows
Lionbridge to borrow up to $8.0 million and that expires on September 20, 1999.
The facility requires Lionbridge to maintain financial ratios and restricts the
payment of dividends. The facility bears interest at the bank's prime rate plus
1% (8.75% at June 30, 1999) and is collateralized by worldwide accounts
receivable and work in process. As of June 30, 1999, $5.9 million was
outstanding under the facility.
In the first quarter of 1999, we entered into subordinated loan agreements
with Morgan Stanley Venture Capital Fund II Annex, L.P. and Morgan Stanley
Venture Investors Annex, L.P., each stockholders of Lionbridge, and Capital
Resource Lenders III, L.P. Under the terms of the agreements, we issued $12.0
million of subordinated notes with detachable warrants to purchase 1,533,260
shares of our common stock at an exercise price of $0.015 per share. These notes
bear interest at 12% per year and are due upon the earlier of the closing of
this offering or between 2003 and 2006. As of March 31, 1999, we were not in
compliance with one of the covenants common to each of the above loan
agreements. We subsequently obtained waivers from the Morgan Stanley-sponsored
limited partnerships and Capital Resource Lenders which release us from the
requirement to comply with that covenant for the quarter ended March 31, 1999
and for the quarters ending June 30 and September 30, 1999.
Net cash used in operations was $1.4 million in 1997, $1.7 million in 1998,
and $4.4 million in the six months ended June 30, 1999. Cash used in these
periods was primarily to fund the net losses of $7.7 million, $4.3 million and
$9.8 million incurred during these periods, respectively, offset in part by
depreciation, amortization and other non-cash expenses and increases in
operating assets and liabilities. Increases in operating assets and liabilities
were largely the result of the growth of our business operations during these
periods. We have not experienced any significant trends in accounts receivable
other than changes relative to increases in sales. Fluctuations in accounts
receivable from period to period relative to changes in sales are a result of
the timing of customer invoicing and receipt of milestone payments from
customers.
Net cash used in investing activities was $426,000 in 1997, $4.5 million in
1998, and $4.8 million in the six months ended June 30, 1999. Investing
activities for these periods were primarily purchases of equipment and the
acquisitions of Japanese Language Services and the localization services
division of Lucent Technologies in 1998 and VeriTest in 1999.
Net cash provided by financing activities was $1.3 million in 1997, $5.9
million in 1998, and $10.0 million in the six months ended June 30, 1999,
primarily due to the borrowings against our bank line of credit in each period
as well as the issuance of the subordinated debt in 1999.
As of June 30, 1999, Lionbridge's other significant financial commitments
consisted of $750,000 of notes payable as well as obligations under operating
leases. Additionally, we will redeem our Series B redeemable preferred stock
upon the closing of this offering. The redemption amount at June 30, 1999 was
approximately $15.9 million.
Lionbridge has an agreement with the Irish Industrial Development Agency
regarding financial grants to our Irish subsidiary from this agency. Under the
agreement, the Irish subsidiary may not pay dividends or otherwise distribute
its cash, including any distributions to Lionbridge. In addition, our European
subsidiaries, including our Irish subsidiary, are restricted from paying
dividends to us under the terms of our commercial credit facility with Silicon
Valley Bank. These restrictions have not had a
29
<PAGE>
material impact on Lionbridge or any of our subsidiaries and we do not expect
that these restrictions will have a material impact in the future.
As of June 30, 1999, we had cash of $1.5 million and an additional $2.1
million available for borrowing under the bank line of credit. Our future
financing requirements will depend upon a number of factors, including the
Company's operating performance and increases in operating expenses associated
with growth in our business. We anticipate that the net proceeds of this
offering, together with existing cash and available financing, should provide
adequate cash to fund our currently anticipated cash needs through at least the
next 18 months. We cannot assure you that additional financing, if needed, will
be available to Lionbridge at terms acceptable to us, if at all.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 problem is the potential for system and processing failures of
date-related data arising from the use of two digits by computer-controlled
systems, rather than four digits, to define the applicable year. Because we and
our clients are dependent, to a very substantial degree, upon the proper
functioning of our and their computer systems, a failure of our or their systems
to correctly recognize dates beyond December 31, 1999 could materially disrupt
our operations, which could materially and adversely affect our business,
results of operations, and financial condition. Additionally, our failure to
provide Year 2000-compliant services to our clients could result in financial
loss, harm to our reputation and legal liability. Likewise, the failure of
computer systems and products of the third parties with which we transact
business to be Year 2000-compliant could materially disrupt their and our
operations.
STATE OF READINESS. We have made an assessment of the Year 2000 readiness
of our information technology ("IT") systems, including the hardware and
software that enable us to provide services. Our Year 2000 readiness plan
consists of:
- quality assurance testing of our internally developed proprietary
software,
- contacting third-party vendors and licensors of material software and
services that are both directly and indirectly related to the delivery of
our services,
- assessing our repair and replacement requirements, and
- creating contingency plans in the event of Year 2000 failures.
We have begun to contact our third party vendors and service providers to
assess their Year 2000 compliance. We have been informed by all of our material
software component vendors that the products we use are currently Year
2000-compliant. We are currently completing the assessment of our non-IT systems
and will seek assurance of Year 2000 compliance from providers of material
non-IT systems. We expect to complete this review by September 30, 1999 and any
resulting contingency plans by October 31, 1999. Until testing is complete and
we contact these vendors and providers, we will not be able to completely
evaluate whether our IT systems or non-IT systems will need to be revised or
replaced.
COSTS. We have made the majority of our equipment and other purchases over
the course of the last two years, and we believe this equipment is Year
2000-compliant. As a result, we have not incurred any material costs in
identifying or evaluating Year 2000 compliance issues. Based on our assessment
to date, we do not anticipate that costs associated with remediating our
non-compliant IT systems or non-IT systems will be material. We expect that our
existing employees or consultants will perform any significant work pertaining
to Year 2000 compliance.
RISKS. We believe that our internal software and hardware systems will
function properly with respect to dates in the Year 2000 and thereafter. Year
2000 problems of our clients, suppliers and
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<PAGE>
service providers could affect our systems or operations. Our primary vendors
consist of individual translators and other service professionals who are not
expected to be materially impacted by the Year 2000 issue. We do have
relationships with various financial institutions and telecommunications
providers throughout the world which could be materially impacted by this
problem. We have contacted our financial institutions and critical
telecommunications providers and based on their responses, we believe our
operations will not be materially impacted by Year 2000 problems. In addition,
we cannot assure you that governmental agencies, utility companies, Internet
access companies, third party service providers, and others outside our control
will be Year 2000-compliant. Because we depend heavily on the availability of
the Internet to conduct our business and provide services to our clients,
disruptions in the use of the Internet arising from Year 2000 problems could
materially affect our business, financial condition, and results of operations.
Widespread Year 2000 difficulties could also decrease demand for our
services as companies expend resources upgrading their computer systems.
Although, as a general matter, we do not specifically contract with or warrant
to our clients that our work will be Year 2000-compliant, several clients have
requested and received this warranty. In these cases, we do not warrant the
compliance of the client's source material; rather, we warrant only that the
localized version created by us will not include new routines which fail to be
Year 2000-compliant. In addition, through our VeriTest labs we provide Year 2000
testing services on customer products, but we expressly exclude any warranty,
guaranty, or certification of Year 2000 compliance, compatability or the
functionality of the customer's products. Although we believe we have
effectively limited our risk of warranty claims for Year 2000 problems, there is
still a risk that clients for whom we have localized or tested software will
attempt to hold us liable for any damages that result in connection with Year
2000 problems.
CONTINGENCY PLAN. As discussed above, we are engaged in an ongoing Year
2000 assessment and are developing contingency plans in case of Year 2000
disruptions. We will take into account the results of our Year 2000 simulation
testing and the responses received from third party vendors and service
providers in determining the nature and extent of any contingency plans.
FOREIGN CURRENCY EXCHANGE RATE LOSSES
The majority of our contracts with clients are denominated in U.S. dollars.
However, 73% of our costs and expenses in 1998 and 62% of our costs and expenses
for the six months ended June 30, 1999 were denominated in foreign currencies.
59% and 64% of our assets were recorded in foreign currencies as of December 31,
1998 and June 30, 1999. 48% and 43% of our liabilities were recorded in foreign
currencies as of December 31, 1998 and June 30, 1999. Therefore, we are exposed
to foreign currency exchange risks. We have not historically tried to reduce our
exposure to exchange rate fluctuations by using hedging transactions. However,
we may choose to do so in the future. We may not be able to do this
successfully. Accordingly, we may experience economic loss and a negative impact
on earnings and equity as a result of foreign currency exchange rate
fluctuations.
CONVERSION TO THE EURO
On January 1, 1999, 11 European countries began using the euro as their
single currency, while still continuing to use their own notes and coins for
cash transactions. Banknotes and coins denominated in euros are expected to be
in circulation by 2002, at which time local notes and coins will cease to be
legal tender. Lionbridge conducts a significant amount of business in these
countries. The introduction of the euro has not resulted in any material adverse
impact upon our operations, although we continue to monitor the effects of the
conversion.
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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair values. Changes in
the fair values of derivatives are recorded each period in current earnings or
other comprehensive income (loss), depending on whether or not a derivative is
designated as part of a hedge transaction and, if it is, depending on the type
of hedge transaction. SFAS No. 133, as amended by SFAS No. 137, will be
effective for Lionbridge's fiscal quarter beginning January 1, 2001, and we do
not expect its adoption will have a material impact on our financial position or
results of operations.
In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SOP 98-5, the cost of start-up activities should be expensed as incurred.
SOP 98-5 is effective for our fiscal 1999 financial statements, and we do not
expect its adoption will have a material effect on our financial position or
results of operations.
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<PAGE>
BUSINESS
OVERVIEW
Lionbridge is a provider of globalization services to industry-leading
software publishers, computer hardware manufacturers, and telecommunications
companies. Globalization is the process of adapting products or services to meet
the demands of local cultures. Since 1996, we have focused primarily on
globalization services, including localization, internationalization, and
testing, that enable simultaneous worldwide release and ongoing maintenance of
products and related technical support, training materials, and sales and
marketing information in multiple languages. As product releases, technical
support and training have evolved toward a Web-based business model, we have in
turn begun to offer multilingual Internet services. While the Internet has been
an integral part of our operations and our relationships with our customers for
several years, in the last year we have developed new multilingual Internet
service offerings that are focused on this rapidly changing business
opportunity.
INDUSTRY BACKGROUND
Companies around the world are increasingly operating on a global scale. To
operate efficiently, companies must standardize their hardware, software, and
telecommunications infrastructures throughout their global organization. As a
result, technology companies that provide hardware, software, and
telecommunications products must also operate on a global scale to address their
customers' needs. This is one of the reasons that in 1997 approximately 54% of
worldwide software sales were generated outside of the United States, according
to International Data Corporation.
Historically, technology companies first developed products for their home
markets and then created foreign language versions that were compatible with
local operating systems and standards. The complexity of developing these
localized versions often resulted in product releases being delayed from six
months to a year after delivery of the home-country version. In the interim, end
users of technology products often faced version and compatibility conflicts
throughout their global organizations. As a result, global end users of
technology now demand:
- simultaneous product release of the home-country and localized versions,
- independent third party testing and certification to provide assurance of
compatibility with local operating systems and international standards,
and
- customer support, testing, and training in local languages wherever the
end user operates around the world.
To meet these demands, the market for globalization services has evolved
beyond translation to encompass:
- LOCALIZATION. The re-engineering and translation of user interfaces,
online help, documentation, technical support databases, training
materials, and sales and marketing information.
- INTERNATIONALIZATION. The re-engineering of source code so that products
and applications are compatible with country-specific operating systems
and software.
- MULTILINGUAL PRODUCT TESTING. The testing of products to verify that they
have been properly localized and/or internationalized.
With the increasing complexity of many technology products today, product
globalization requires the integration of a broad range of disciplines and
specialized technical resources with a global communications and project
management infrastructure.
The Internet is transforming business worldwide by removing the barriers of
time and geography. As the world becomes more technology-enabled, companies are
using the Internet to conduct operations, manage constituents, distribute
products, and communicate both internally and externally
33
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on a worldwide basis. Internet content is predominantly in English, but a
growing percentage of Internet users do not speak English as their first
language. Computer Economics, an independent research firm, predicts that by
2002 a majority of Internet users will be non-English speaking. Although the
Internet offers significant opportunities, companies cannot take full advantage
of these opportunities unless they accommodate users' local languages, cultures,
and technical environments.
Technology companies now use the Internet to:
- RELEASE PRODUCTS. Software products are increasingly distributed over the
Internet or redesigned as Web-based applications. Today, many software
publishers regularly post product updates and enhancements on their Web
sites.
- PROVIDE TECHNICAL SUPPORT. Demonstrated cost benefits and improved
customer satisfaction are driving businesses to provide Web-based
technical support for their end users. As a result, companies are
supplementing technical support call centers with Web-based self-help
offerings such as frequently asked questions and technical support
databases. Gartner Group has estimated that the cost of providing
Internet-based support ranges between $0.25 and $3.50 per request compared
to $5.01 per call using traditional telephone-based customer support.
International Data Corporation estimates that this market was
approximately $1.8 billion in 1998 and expects it to grow to approximately
$13.9 billion in 2003.
- DELIVER PRODUCT TRAINING. Self-directed Web-based courseware, product
training, and accreditation is beginning to replace classroom-based,
instructor-led training. International Data Corporation estimates that the
market for Internet-based information technology learning will grow from
$440 million in 1998 to $4.1 billion in 2002.
- MARKET AND SELL PRODUCTS. Lionbridge believes that e-commerce, while
predominately U.S.-based today, will become a global phenomenon. Today,
companies routinely localize their sales and marketing information for
posting to their Web site. Lionbridge believes this trend will expand to
include Internet storefronts and e-commerce applications.
The following diagram depicts the effect the Internet is having on the way
companies conduct business.
[GRAPHIC]
Few companies have the combination of engineering, linguistic, testing, and
project management skills needed to successfully globalize their products and
services for simultaneous worldwide release. In addition, because the demand for
globalization services at most companies is variable, it is usually not
34
<PAGE>
cost-effective for them to maintain a full suite of in-house globalization
resources. Lionbridge believes that technology companies recognize that
localization is not a core competency. As a result, they are increasingly
outsourcing their globalization and multilingual Internet activities, which
allows them to accelerate time-to-market, minimize their fixed costs, and
reallocate their resources to core product development activities.
Although many companies provide translation and other discrete
localization-related services, Lionbridge believes few companies offer a
complete globalization and multilingual Internet solution. Lionbridge believes
that technology companies are demanding a one-stop globalization and
multilingual Internet service provider to meet their global product development,
technical support, training, and sales and marketing requirements.
LIONBRIDGE'S SOLUTION
We provide a complete globalization and multilingual Internet offering to
businesses, particularly industry-leading software publishers, computer hardware
manufacturers, and telecommunications companies. Our full suite of services
improve the quality, consistency, and timeliness of our clients' international
product releases, technical support, training materials, and sales and marketing
information. Lionbridge serves as a globalization partner throughout a client's
product development and support lifecycle by offering:
- localization, translation, and internationalization services,
- compliance, compatibility, and localization testing of software and
hardware, and
- project management throughout the globalization process.
We have invested in the development of our proprietary RAPID GLOBALIZATION
METHODOLOGY, a process which is at the heart of each client engagement. Our
RAPID GLOBALIZATION METHODOLOGY standardizes processes, defines key activities,
and specifies goals for each project. This approach to a project benefits our
clients by enabling Lionbridge to provide consistent quality and timely delivery
of localized versions of products and related materials across multiple
geographies and languages. Our RAPID GLOBALIZATION METHODOLOGY emphasizes the
integration of process and technology into the globalization process to achieve
operational efficiencies and predictable, measurable results. This methodology
also facilitates the identification, capture, and sharing of valuable knowledge
and best practices throughout our organization, enabling us to continuously
improve the quality and efficiency of our services. The RAPID GLOBALIZATION
METHODOLOGY is generally supported by our proprietary internal LIONTRACK
workflow systems, LIONTRACK WORKGROUP and LIONTRACK ENTERPRISE.
- LIONTRACK WORKGROUP enables our clients to submit files and translation
instructions to us via the Internet for automated routing throughout the
localization process. Our clients can use LIONTRACK WORKGROUP to monitor
the real-time progress of individual components of an assignment, which
allows them to plan their product release schedule more effectively.
- LIONTRACK ENTERPRISE has been designed for the demanding localization
requirements of large, complex Web sites that are subject to continuous
updating, and LIONTRACK ENTERPRISE, which became operational in July 1999,
connects directly to our client's Web site, automatically detecting and
extracting required changes through our Web-crawling technology. LIONTRACK
ENTERPRISE routes those changes for translation and localization, and
automatically inserts the localized material into the client's
multilingual Web sites. We expect LIONTRACK ENTERPRISE to enable clients
to maintain continuously updated multilingual Web sites without
disruption, freeing them to focus on content development.
We believe that expanded global competition and worldwide Internet access
will increase the demand for our services. We also believe that by offering a
one-stop solution to globalization and
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<PAGE>
multilingual Internet service needs, Lionbridge is an attractive strategic
partner to companies operating in a global marketplace.
LIONBRIDGE'S GROWTH STRATEGY
Lionbridge's goal is to become the leading provider of globalization and
multilingual Internet services. The following are the key elements of our
strategy:
LEVERAGE EXISTING CLIENTS. We seek to increase the services we provide to
our existing clients by selling to other product groups within the same
client organization. In addition, we seek to leverage product knowledge
acquired on one project (for example, globalization of a product release) to
sell services to different enterprise functions within the same client (for
example, compliance testing, logo certification, localization of customer
support knowledgebases, and training materials).
CONTINUE STRATEGIC ACQUISITIONS. We intend to continue pursuing strategic
acquisitions that provide greater niche expertise, complementary service
offerings, additional geographic reach, and new clients. In 1998, we
acquired businesses that gave us valuable expertise in Japanese localization
and a facility on the west coast of the United States. In 1999, we acquired
compliance testing and certification capabilities.
EVOLVE OUR METHODOLOGY AND WORKFLOW SYSTEMS. Lionbridge intends to continue
investing in the development of our RAPID GLOBALIZATION METHODOLOGY and
LIONTRACK workflow systems. We have a dedicated process and technology group
that works closely with our operations groups to refine and enhance our core
methodology and systems based on best practices and client feedback. This
focus enables Lionbridge to continuously improve the quality,
predictability, and efficiency of our services across geographies and
languages.
PURSUE MULTI-YEAR RELATIONSHIPS WITH CLIENTS. We intend to pursue multi-year
relationships with clients who seek an outsourcing partner. This could
involve the acquisition of selected companies' internal localization
operations and entering into multi-year agreements with the sellers of these
operations.
EXPAND INTO ADDITIONAL VERTICAL MARKETS. We initially focused on providing
globalization and multilingual Internet services to software publishers and
computer hardware manufacturers. Our client base has since expanded to
include telecommunications companies. We intend to continue expanding into
additional industries that are global and information-intensive, such as the
automotive and medical device industries.
LIONBRIDGE SERVICES
We provide a full suite of globalization and multilingual Internet services
to businesses--primarily technology businesses--to improve the quality,
consistency, and timeliness of their international product releases, technical
support, training materials, and sales and marketing information. Our
globalization services consist of the following:
- SOFTWARE LOCALIZATION. Lionbridge creates foreign language versions of
software products and applications, including the user interface, online
help systems, and documentation. We provide our clients with
re-engineered, fully tested, and culturally adapted multilingual versions
of their products and applications.
- INTERNATIONALIZATION. Lionbridge provides source code analysis and
engineering services that enable software to be compatible with
country-specific operating systems and localized software. Through a
complex and highly specialized process, we re-engineer code to support the
"double-byte" character set requirements of the Japanese, Chinese, and
Korean languages.
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<PAGE>
- TRANSLATION. Lionbridge uses a combination of internal and external
translators, as well as translation software, for its projects. We have
approximately 35 translators who are employees and we also have
established relationships with a global network of over 2,000 in-country
translators, including independent agencies and freelance professionals. A
majority of our translation costs are attributable to outsourcing these
services to in-country translators. We develop and apply glossaries to
ensure consistent terminology across projects for a specific company or
industry. We also use translation memory software to identify previously
translated material for re-use. Our project editors review translated
material to ensure that it meets our standards for quality and accuracy.
Historically, a majority of our revenue from translation services has
involved translating information from English to various foreign
languages.
- LOCALIZATION AND INTERNATIONALIZATION TESTING. We provide both
localization testing, and software, hardware, and telecommunications
internationalization testing through our global network of VeriTest labs.
Testing provides an opportunity to uncover errors before the product is
placed into production and into the hands of end users. The goal of
localization testing is to ensure that local language versions of the
product perform consistently with the source language version.
Internationalization testing is necessary to ensure that localized
products function properly in the local hardware and software environment,
including local operating systems, peripheral devices, and networking and
communications standards.
- LOGO CERTIFICATION. Lionbridge, under its VeriTest brand, provides logo
certification programs for many of the leading software companies,
including Autodesk, BMC Software, Microsoft, and Oracle. These sponsoring
companies retain Lionbridge to develop and administer test criteria that
independent software vendors must satisfy before they may display the
sponsor's logo (such as Microsoft's CERTIFIED FOR WINDOWS 2000-TM-) on
their products. The logo is an indication of software quality and
compatibility for end users. Other Lionbridge logo programs include BUILT
WITH OBJECT ARX-TM- (Autodesk), BMC CERTIFIED FOR PATROL-TM-, DESIGNED FOR
MICROSOFT WINDOWS NT AND WINDOWS 98-TM-, and ORACLE E-CERTIFIED
WAREHOUSE-TM-.
- MULTILINGUAL TECHNICAL PUBLISHING. We localize user manuals, marketing and
training materials, and other product support information using a variety
of desktop publishing and graphics software. Using workflow technology,
multiple language versions are simultaneously delivered to our clients in
formats ready for printing or Internet delivery.
Our revenues from primary products and services, excluding non-multilingual
compatibility testing and logo certification, were 100%, 100%, and approximately
93% of consolidated revenues for the years ended December 31, 1997 and 1998 and
for the six-month period ended June 30, 1999, respectively.
As our clients increasingly use the Internet to deliver products, technical
support, training materials, and sales and marketing information, we are
adapting our service offerings to support our clients' Web-based initiatives. We
are organizing our multilingual Internet services in four key areas:
ERELEASE
Lionbridge localizes software products and Web applications into multiple
languages. With the emergence of the Internet, our clients are redesigning their
software products as Web components and applications, then releasing them and
providing continuous updates over the Internet. Lionbridge provides the
methodology and workflow systems to support continuous release of multilingual
products and updates via the Web.
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ESUPPORT
We offer localization and maintenance of technical support Web sites,
including frequently asked questions, product specifications, white papers, and
technical support databases. As our clients continuously update this Web-based
information, we automatically update the multilingual versions as well. We have
also begun to assist our clients in providing local language responses to
technical support questions through e-mail.
ELEARNING
Our multilingual eLearning services enable our clients to provide updated
training materials on the Web in multiple languages and culturally appropriate
formats as they move from instructor-led classroom training to Internet distance
learning.
ECOMMERCE
We localize Web-based sales and marketing materials for our clients who sell
their products via the Internet. Our services support continuous updates and
revisions to these materials.
As corporate Web sites become an integrated global resource, Lionbridge
believes that our multilingual Internet services will assist multinational
corporations in maintaining the quality and consistency of their Web-based
products and content in multiple languages.
SALES AND MARKETING
Substantially all of Lionbridge's revenue has been generated through its
dedicated direct sales force. We currently have 20 direct sales professionals
based in the United States, Europe, and Asia who sell the full range of
Lionbridge globalization and multilingual Internet services. Our sales approach
is highly consultative and often involves planning for an organization's ongoing
requirements, including future versions of products, and ongoing support,
maintenance, and training, related to both traditional and Web deployment. There
are often several different functional areas within the same organization that
require one or more of our services. Many of our clients do not coordinate these
purchases but buy these services at the department head level. As a result, our
sales professionals may call on several functional departments and at various
management levels within the same client organization. Our sales cycle varies
significantly, but typically takes six to twelve months.
Lionbridge's marketing efforts are designed to create brand recognition and
demand for Lionbridge services throughout the world. Lionbridge's seven-person
corporate marketing team is supplemented by marketing representatives in each
country in order to provide a consistent global message. Marketing programs
include targeted industry and solution-specific advertising campaigns, trade
show participation, speaking engagements, and promotion of customer success
stories. We plan to continue expanding our sales and marketing activities.
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<PAGE>
CLIENTS
Lionbridge customers are generally large multi-national organizations in the
software, hardware and telecommunications industries. The following companies
are representative Lionbridge clients in 1998:
<TABLE>
<S> <C> <C>
3Com Corel Novell
Adobe Data General Oce
Aurum Gateway Oracle
Autodesk IBM Page Factory
Avid J.D. Edwards Parametric Technology
Baan Kodak Portal
Bentley Systems Macromedia PowerQuest
Bull Microsoft Silicon Graphics
Candle Motorola SPSS
Cognos Network Associates Sun Microsystems
</TABLE>
In 1998, Lionbridge's largest client, IBM, accounted for approximately 14%
of total revenue. In 1997 and 1998, our five largest clients accounted for
approximately 52% and 39%, respectively, of revenue. Revenues from existing
clients increased 59% in 1998 as compared to revenues from these clients in
1997.
COMPETITION
Lionbridge provides a broad range of globalization and multilingual Internet
service offerings to its clients. The market for our services is highly
fragmented, and we have many competitors. Our current competitors include the
following:
- localization or translation services providers such as Berlitz
International, Bowne & Co., Lernout and Hauspie, Sykes Enterprises and
regional vendors of translation services specializing in specific
languages in particular geographic areas,
- companies providing outsourcing of technical support call centers
including Stream International and Sykes Enterprises, and
- independent testing labs providing testing and logo certification services
such as National Software Testing Laboratories (a division of CMP Media),
and Keylabs.
Although we have competed favorably with these companies to date, we cannot
assure you that we will be able to do so in the future. Many of these companies
have longer operating histories; significantly greater financial, marketing and
other resources; and greater name recognition than Lionbridge. If we fail to be
competitive with these companies in the future, our business will be materially
and adversely affected.
Lionbridge also faces competition from internal localization departments in
large multi-national companies. Although many companies are finding that
simultaneous global release and ongoing maintenance of Web-based applications
require new skill sets that are not available in-house, many companies may still
perform these services in-house rather than outsourcing them. If these companies
continue to localize their own products, Lionbridge's business, financial
condition and results of operations may be adversely affected.
We may also face competition from companies that provide outsourcing of
technical support call centers. As businesses shift from telephonic support
centers to Web-based support, companies such as Stream International, Sykes
Enterprises and others that currently provide traditional outsourcing services
may decide to provide comparable services over the Internet. If these or other
companies
39
<PAGE>
choose to expand their service offerings, we cannot assure you that Lionbridge
will be able to compete with them successfully.
Lionbridge believes the principal competitive factors in providing its
services include project management expertise, quality, speed of service
delivery, vertical industry knowledge, the ability to provide clients end-to-end
localization solutions, expertise in certain geographic areas, corporate
reputation, and expertise in Internet-related services.
We believe we compete favorably with respect to these factors. We have
developed significant expertise in project management which has allowed us to
provide high-quality and quick service in our clients' particular industries and
geographic regions. We have been able to successfully provide our customers with
a one-stop globalization service and have recently begun to offer our
Internet-related services. As a result, we have been able to develop a strong
reputation in our industry.
There are relatively few barriers preventing companies from competing with
us. We do not own any patented technology that precludes or inhibits others from
entering our market. As a result, new market entrants pose a threat to our
business. In addition to our existing competitors, we may face further
competition in the future from companies that do not presently offer
globalization services. Companies currently providing information technology
services may choose to broaden their range of services to include globalization.
While we presently use translation memory software licensed from third parties
in our localization process, and to a lesser extent machine translation software
also licensed from third parties, these technologies may improve and become
sophisticated enough to compete with our localization service offering. We
cannot assure you that we will be able to compete effectively with these
potential future competitors.
INTELLECTUAL PROPERTY RIGHTS
Our success is dependent, in part, upon our proprietary RAPID GLOBALIZATION
METHODOLOGY, our LIONTRACK workflow systems, and other intellectual property
rights. We do not have any patents or patent applications pending. Lionbridge
relies on a combination of trade secret, nondisclosure and other contractual
agreements, and copyright and trademark laws to protect its proprietary rights.
Existing trade secret and copyright laws afford us only limited protection. We
enter into confidentiality agreements with our employees, require that our
consultants and generally our clients enter into these agreements, and limit
access to and distribution of Lionbridge's proprietary information. We cannot
assure you that these arrangements will be adequate to deter misappropriation of
our proprietary information or that we will be able to detect unauthorized use
and take appropriate steps to enforce our intellectual property rights.
EMPLOYEES
As of June 30, 1999, we had 447 employees. Of these, 348 were consulting and
service delivery professionals and 99 were management and administrative
personnel performing marketing, sales, operations, process and technology,
finance, accounting, and administrative functions.
We have been successful in hiring individuals with leading-edge technical
skills and project management experience. In addition, Lionbridge is committed
to employee training and retention. Lionbridge has a dedicated process and
technology team that initiates and oversees the training and development of
Lionbridge professionals. Key organizational development initiatives include
ongoing technical and project management classes as well as career path
management and guidance. We plan to continue to invest in attracting the best
employees.
Lionbridge's employees in Paris, France are represented by a labor union,
and we have a works council in The Netherlands. We have never experienced a work
stoppage. We believe our employee relations are good.
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<PAGE>
FACILITIES
We maintain offices in the United States, Ireland, France, The Netherlands,
China, Japan, and South Korea. We maintain sales offices in Charlotte, North
Carolina and the metropolitan areas of Seattle, Houston, Los Angeles, and San
Francisco in the United States; Dublin, Ireland; Paris, France; Beijing, China;
Tokyo, Japan; and Osaka, Japan.
Lionbridge's headquarters and principal administrative, finance, legal, and
marketing operations are located in leased office space in Waltham,
Massachusetts. Lionbridge's lease is for a term of 3 years and expires on August
1, 2002. Lionbridge maintains a facility in metropolitan Dublin, Ireland and
leases three floors under three separate leases expiring between September 14,
2025 and March 1, 2026. We also lease office space in Santa Monica, California;
Monterey, California; Ballina, Ireland; Velizy, France; Sophia Antipolis,
France; Amsterdam, The Netherlands; Seoul, South Korea; Beijing, China; Tokyo,
Japan; and Osaka, Japan. Lionbridge expects that it will need additional space
as it expands its business and believes that it will be able to obtain
additional space as needed on commercially reasonable terms.
LEGAL PROCEEDINGS
Lionbridge is not a party to any material legal proceedings.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table presents information about each of Lionbridge's
executive officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- -------------------------------------------------------
<S> <C> <C>
Rory J. Cowan................. 46 Chairman of the Board, Chief Executive Officer and
President
Stephen J. Lifshatz........... 40 Chief Financial Officer, Treasurer and Secretary
Myriam Martin-Kail............ 46 Vice President, Operations
Peter H. Wright............... 38 Vice President, Sales
Guy L. de Chazal.............. 51 Director
Marcia J. Hooper.............. 45 Director
Stephen M. Jenks.............. 40 Director
Paul Kavanagh................. 57 Director
Claude P. Sheer............... 49 Director
</TABLE>
RORY J. COWAN founded Lionbridge in September 1996. Mr. Cowan served as
Chairman and Chief Executive Officer of Stream International, Inc., a software
and services provider, from May 1995 to June 1996. Mr. Cowan was also the Chief
Executive Officer of Interleaf, Inc. from October 1996 to January 1997. He was
an Executive Vice President of R.R. Donnelley & Sons, a provider of commercial
print and print-related services, from January 1991 to June 1996. Mr. Cowan also
serves as a director of NewsEDGE Corporation and Interleaf, Inc., where he is
Chairman of the Board.
STEPHEN J. LIFSHATZ joined Lionbridge in January 1997. Mr. Lifshatz served
as the Chief Financial Officer of The Dodge Group from May 1996 to January 1997.
He served in a number of senior financial roles, including Chief Financial
Officer of Marcam Corporation, a publicly traded software company, from May 1984
to May 1996.
MYRIAM MARTIN-KAIL joined Lionbridge in December 1996. Ms. Martin-Kail
served as European Director for Localization of Stream International, Inc. from
April 1995 to December 1996 and Operations Manager, Dublin from September 1994
to September 1995. She was Internationalization Manager for Digital Equipment
Corporation in Europe from January 1992 to November 1994.
PETER H. WRIGHT joined Lionbridge in January 1997. Mr. Wright was previously
the Sales Director at Berlitz International, Inc. for their localization
business from August 1991 to November 1996.
GUY L. DE CHAZAL has been a director of Lionbridge since February 1998. Mr.
de Chazal has been with Morgan Stanley since 1984, most recently as a managing
director of Morgan Stanley and the President and a general partner of Morgan
Stanley Dean Witter Venture Partners. Mr. de Chazal is a director of PageMart
Wireless, Inc. and several private companies.
MARCIA J. HOOPER has been a director of Lionbridge since December 1996.
Since May 1996, Ms. Hooper has been a partner with the Information Technology
Group of Advent International Corporation, a venture capital company. From July
1994 to April 1996, she served as a partner of Viking Capital Group, a venture
capital company focused on early stage investments. Ms. Hooper was a partner of
Paine Webber/Ampersand Ventures, a venture capital company, from September 1985
to June 1994. Ms. Hooper is also a director of Wang Laboratories, Inc.,
Interleaf, Inc., Worldgate Communications, Inc. and PolyMedica Corporation.
STEPHEN M. JENKS has been a director of Lionbridge since March 1999. Mr.
Jenks has been a member of Capital Resource Management, LLC since 1993. He is
also a director of several privately held companies.
42
<PAGE>
PAUL KAVANAGH has been a director of Lionbridge since December 1996. Mr.
Kavanagh has served as an industry consultant since January 1998. Mr. Kavanagh
served as President Europe, Middle East and Africa of Stream International, Inc.
from August 1995 to January 1998. From April 1992 to August 1995, Mr. Kavanagh
was Managing Director Europe, Middle East and Africa of R.R. Donnelley & Sons.
CLAUDE P. SHEER has been a director of Lionbridge since March 1999. Mr.
Sheer has served as Senior Advisor to Ziff Davis since April 1999. Mr. Sheer
served as Chief Internet Strategist of Ziff Davis from November 1998 to April
1999. From 1980 to November 1998, Mr. Sheer served in a number of executive
roles for Ziff Davis, including President, ZD Publishing; President US
Publications; and President, Business Media Group.
The Board of Directors is currently fixed at six members. Lionbridge's
second amended and restated certificate of incorporation, as in effect
immediately following this offering, divides the Board of Directors into three
classes. The members of each class of directors serve for staggered three-year
terms. The Board of Directors is composed of (i) two Class I directors (Messrs.
Jenks and Sheer), whose terms expire upon the election and qualification of
directors at the annual meeting of stockholders to be held in 2000, (ii) two
Class II directors (Mr. de Chazal and Ms. Hooper), whose terms expire upon the
election and qualification of directors at the annual meeting of stockholders to
be held in 2001, and (iii) two Class III directors (Messrs. Cowan and Kavanagh),
whose terms expire upon the election and qualification of directors at the
annual meeting of stockholders to be held in 2002.
Our executive officers are elected by and serve at the discretion of the
Board of Directors. There are no family relationships among any of our executive
officers and directors.
COMMITTEES OF THE BOARD OF DIRECTORS
We have a standing compensation committee and audit committee of the Board
of Directors. The members of the compensation committee consist of Messrs. de
Chazal, Kavanagh and Sheer. The compensation committee's duties are to review
and evaluate the salaries and incentive compensation of our management and
employees and administer our 1998 Stock Plan and, upon adoption at the closing
of this offering, our 1999 Employee Stock Purchase Plan.
The members of the audit committee consist of Messrs. Jenks and Kavanagh and
Ms. Hooper. The audit committee is responsible for the selection of and
determination of fees paid to Lionbridge's independent public accountants,
reviewing the scope and results of audits and other services provided by our
independent public accountants and reviewing Lionbridge's system of internal
accounting and financial controls. The audit committee also reviews other
matters with respect to our accounting, auditing, and financial reporting
practices and procedures as it may find appropriate or may be brought to its
attention.
DIRECTOR COMPENSATION
Lionbridge does not currently compensate its directors. Each director is
reimbursed for reasonable travel and other out-of-pocket expenses incurred in
attending meetings of the Board of Directors or of any committee of the Board.
Non-employee directors are eligible to receive options to purchase shares of our
common stock.
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<PAGE>
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the total compensation
paid or accrued for the year ended December 31, 1998 for our Chief Executive
Officer and all other executive officers whose salary and bonus for services
rendered in any capacities to Lionbridge for the fiscal year ended December 31,
1998 exceeded $100,000. We will use the term "named executive officers" to refer
to these people later in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- -------------
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS/SARS
- ----------------------------------------------------------- ---------- ---------- ----------------- -------------
<S> <C> <C> <C> <C>
Rory J. Cowan.............................................. $ 249,144 $ 112,500 -- --
Chairman of the Board, President and Chief Executive
Officer
Stephen J. Lifshatz........................................ $ 182,750 $ 41,250 -- 36,667
Chief Financial Officer, Treasurer and Secretary
Myriam Martin-Kail......................................... $ 128,256 $ 31,205 -- 20,000
Vice President, Operations
Peter H. Wright............................................ $ 151,614 $ 30,000 -- 33,334
Vice President, Sales
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes the options granted to each of Lionbridge's
named executive officers during the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
------------------------------------------------------ STOCK
NUMBER OF PERCENT OF PRICE APPRECIATION
SECURITIES TOTAL OPTIONS FOR
UNDERLYING GRANTED TO OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION --------------------
NAME GRANTED FISCAL YEAR PRICE(1) DATE 5% 10%
- ------------------------------------------- ----------- --------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Rory J. Cowan.............................. -- -- -- -- -- --
Stephen J. Lifshatz........................ 36,667 9.0% $ 0.30 2/08/08 $ 6,918 $ 17,531
Myriam Martin-Kail......................... 20,000 4.9% $ 0.30 2/08/08 $ 3,773 $ 9,562
Peter H. Wright............................ 33,334 8.2% $ 0.30 4/01/08 $ 6,289 $ 15,937
</TABLE>
- ------------------------
(1) The exercise price equals the fair market value of the common stock as of
the grant date as determined by our board of directors.
(2) The potential realizable value is calculated based on the term of the option
at the time of grant (10 years). Assumed stock price appreciation of 5% and
10% is based on the fair value at time of the grant.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information with respect to exercisable and
unexercisable stock options held as of December 31, 1998 by each of the named
executive officers and with respect to stock options exercised by the named
executive officers during the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT DECEMBER 31, 1998 AT DECEMBER 31, 1998(2)
ACQUIRED VALUE -------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ----------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Rory J. Cowan........................... 187,689 $ 53,492 187,689 750,763 $ 2,408,988 $ 9,636,069
Stephen J. Lifshatz..................... 97,155 $ 34,004 -- 198,595 -- $ 2,546,446
Myriam Martin-Kail...................... -- -- 121,455 222,430 $ 1,560,697 $ 2,855,226
Peter H. Wright......................... -- -- 44,769 119,065 $ 575,282 $ 1,529,985
</TABLE>
(1) The value realized by Messrs. Cowan and Lifshatz upon the exercise of these
options represents the aggregate amount of the difference between the fair
market value for a share of our common stock on the date of exercise and the
exercise price per share, multiplied by the number of shares underlying such
options.
(2) There was no public trading market for our common stock as of December 31,
1998. Accordingly, as permitted by the rules of the Securities and Exchange
Commission, the value of unexercised in-the-money options has been
calculated by determining the difference between the exercise price per
share payable upon exercise of such options and an assumed initial public
offering price of $13.00.
STOCK PLANS
1998 STOCK PLAN. The 1998 Stock Plan has a total of 5,522,032 shares of
common stock reserved for issuance. The 1998 Stock Plan provides for the grant
of stock-based awards to our employees, officers, directors, and consultants.
Under the 1998 Stock Plan, we may grant options that are intended to qualify as
incentive stock options within the meaning of Section 422 of the Code, options
not intended to qualify as incentive stock options, stock-based awards and
opportunities to make direct purchases of stock. Incentive stock options may be
granted only to employees of Lionbridge. In general, options granted pursuant to
the 1998 Stock Plan are exercisable within ten years of the original grant date
and become exercisable over a period of four years as follows: 25% on the first
anniversary of the date of grant and semi-annually thereafter, in six equal
installments over the remaining three-year period. As of June 30, 1999, an
aggregate of 2,621,945 shares of common stock at an average exercise price of
$1.69 per share were outstanding under the 1998 Stock Plan. The maximum number
of shares with respect to which options, awards or purchase rights may be
granted to any employee under the 1998 Stock Plan shall not exceed 2,333,334
shares of common stock during any fiscal year of Lionbridge.
The 1998 Stock Plan is administered by the compensation committee. Subject
to the provisions of the 1998 Stock Plan, the compensation committee has the
authority to select the persons to whom options, awards or purchase rights are
granted and determine the terms of each option, award or purchase right,
including the number of shares of common stock subject to the option or award.
The compensation committee may also provide that any option shall become
immediately exercisable, in full or in part. Payment of the exercise price of an
option or award or purchase rights may be made in cash or check or, if approved
by the compensation committee, shares of common stock, a promissory note, an
assignment of common stock proceeds or any combination of the foregoing.
Incentive stock options are not assignable or transferable except by wills or
the laws of decent or distribution. Non-qualified
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<PAGE>
stock options and other awards or purchase rights are assignable or transferable
to the extent set forth in the agreement relating to the non-qualified stock
option or award or purchase rights.
1999 EMPLOYEE STOCK PURCHASE PLAN. The 1999 Employee Stock Purchase Plan
(the "1999 Purchase Plan") was adopted by the Board of Directors and our
stockholders on June 15, 1999, to be effective upon the closing of this
offering. The 1999 Purchase Plan provides for the issuance of a maximum of
1,000,000 shares of common stock.
The 1999 Purchase Plan will be administered by the compensation committee of
the Board of Directors. All employees of Lionbridge whose customary employment
is for more than 20 hours per week and for more than three months in any
calendar year are eligible to participate in the 1999 Purchase Plan. Employees
who would own 5% or more of the total combined voting power or value of our
stock immediately after the grant of the option may not participate in the 1999
Purchase Plan. To participate in the 1999 Purchase Plan, an employee must
authorize us to deduct an amount (not less than one percent nor more than 10
percent of a participant's total cash compensation) from his or her pay during
six-month payment periods (each, a "Payment Period"). The first Payment Period
will commence on the earlier to occur of (1) November 1, 1999 and (2) the first
day of the first calendar month following the effective date of the Registration
Statement on Form S-8 filed with respect to the shares issued under the 1999
Purchase Plan and shall end April 30, 2000. Thereafter, the Payment Periods will
commence on the six-month periods commencing on May 1 and November 1,
respectively, and ending on the following October 31 and April 30, respectively,
of each year, but in no case shall an employee be entitled to purchase more than
500 shares in any one Payment Period. The exercise price for the option granted
in each Payment Period is 85% of the lesser of the average market price of the
common stock on the first or last business day of the Payment Period, in either
event rounded up to the nearest cent. If an employee is not a participant on the
last day of the Payment Period, such employee is not entitled to exercise his or
her option, and the amount of his or her accumulated payroll deductions will be
refunded. Options granted under the 1999 Purchase Plan may not be transferred or
assigned. An employee's rights under the 1999 Purchase Plan terminate upon his
or her voluntary withdrawal from the plan at any time or upon termination of
employment. No options have been granted to date under the 1999 Purchase Plan.
401(K) PLAN
We maintain a 401(k) plan qualified under Section 401(a) of the Code. Most
of our U.S.-based employees who are at least 21 years of age are eligible to
participate in the 401(k) plan. Under the 401(k) plan, a participant may
contribute a maximum of 15% of his or her pre-tax salary, commissions and
bonuses through payroll deductions (up to the statutorily prescribed annual
limit of $10,000 in calendar year 1999) to the 401(k) plan. The percentage
elected by more highly compensated participants may be required to be lower. In
addition, at the discretion of the Board of Directors, we may make matching
contributions to the 401(k) plan for all eligible employees. During the plan
year ended December 31, 1998, we made no matching contributions to the 401(k)
plan.
PENSION PLANS
We maintain a defined contribution pension plan for our employees in
Ireland. Our permanent employees in Ireland are eligible to participate in the
plan after one year of employment with us. Under the Ireland pension plan, we
contribute 5% of a participant's gross salary (excluding any overtime or bonus
payments) to the plan and a participant is entitled to contribute between 5% and
15% of his or her total earnings (gross salary plus bonus, overtime, and other
earnings) to the plan.
We also maintain a defined benefit pension plan for our employees in France
as required by and in accordance with French law. All of our employees in France
are entitled to participate in the plan.
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<PAGE>
We and our employees in France contribute to the plan in varying amounts based
upon French statutory requirements.
We maintain a defined benefit pension plan for our employees in The
Netherlands. All of our employees in The Netherlands with a fixed contract are
entitled to participate in the plan. The cost of funding the plan is split
equally between us and the participants. For married employees, 8% of their
salaries are contributed to the plan on an annual basis. and, for single
employees, 5% of their salaries are contributed to the plan on an annual basis.
EMPLOYMENT AND NON-COMPETITION AGREEMENTS
Rory J. Cowan entered into an employment agreement with Lionbridge on
December 23, 1996. Mr. Cowan's employment agreement provides for a two-year term
with automatic one-year renewals. Under the terms of his employment agreement,
Mr. Cowan receives a base salary of $225,000, subject to increase from time to
time by the Board of Directors in its sole discretion, and an annual
discretionary bonus in an amount up to Mr. Cowan's then current base salary.
Pursuant to his employment agreement, we also issued Mr. Cowan options to
purchase up to 1,501,529 shares of our common stock at an exercise price of
$0.15 per share. Mr. Cowan's options vest over a four-year period and 50% of any
unvested options held by Mr. Cowan will vest and become immediately exercisable
upon a merger or sale of all or substantially all of the assets of Lionbridge or
upon the disposition by Advent International and Morgan Stanley Dean Witter
Venture Partners of more than 50% of the aggregate amount of our capital stock
owned by them. If Lionbridge terminates Mr. Cowan's employment other than for
cause, he is entitled to receive twelve monthly severance payments, each in an
amount equal to his then current monthly base compensation (i.e., 1/12(th) of
Mr. Cowan's base salary). If Mr. Cowan is terminated for cause, he will not be
entitled to any severance payments or other benefits except as required by law.
Mr. Cowan entered into a non-competition agreement with Lionbridge on
December 23, 1996. The agreement provides that Mr. Cowan will not, during the
course of his employment and the twelve months following the date of the
termination of his employment with Lionbridge (1) engage or otherwise have a
financial interest in any business activity which is in competition with any of
the products or services being provided by Lionbridge, (2) solicit our employees
or (3) solicit or do business with any present or past customer of ours, or any
prospective customer of ours in connection with any business activity which
would be in violation of the non-competition agreement.
Stephen J. Lifshatz entered into an employment agreement with Lionbridge on
February 11, 1997. Mr. Lifshatz's employment agreement provides for a one-year
term with automatic one-year renewals. Under the terms of his employment
agreement, Mr. Lifshatz receives a base salary of $165,000, subject to increase
from time to time by the Board of Directors in its sole discretion, and an
annual discretionary bonus in an amount up to 50% of his then current base
salary. In connection with his employment agreement, we also issued Mr. Lifshatz
options to purchase up to 259,082 shares of our common stock at an exercise
price of $0.15 per share. Mr. Lifshatz's options vest over a four-year period.
If, during the six-month period following a change in control of Lionbridge, Mr.
Lifshatz ceases to be the Chief Financial Officer of the parent of the surviving
entity or suffers a substantial diminution of his responsibilities, 50% of any
unvested options then held by Mr. Lifshatz shall vest and become immediately
exercisable. If Lionbridge terminates Mr. Lifshatz's employment other than for
cause, he is entitled to receive six monthly severance payments, each in an
amount equal to his then current monthly base compensation (i.e., 1/12(th) of
Mr. Lifshatz's base salary). If Mr. Lifshatz is terminated for cause, he will
not be entitled to any severance payments or other benefits except as required
by law.
Mr. Lifshatz entered into a non-competition agreement with Lionbridge on
February 11, 1997. The agreement provides that Mr. Lifshatz will not, during the
course of his employment and the twelve
47
<PAGE>
months following the date of the termination of his employment with Lionbridge
(1) engage or otherwise have a financial interest in any business activity which
is in competition with any of the products or services being provided by
Lionbridge, (2) solicit our employees or (3) solicit or do business with any
present or past customer of ours, or any prospective customer of ours in
connection with any business activity which would be in violation of the
non-competition agreement.
Myriam Martin-Kail entered into an employment agreement with Lionbridge on
February 24, 1997, effective as of January 1, 1997. Under the terms of her
employment agreement, Ms. Martin-Kail receives a base salary of 650,000 French
Francs, subject to increase from time to time by the Board of Directors in its
sole discretion, and an annual discretionary bonus in an amount up to 50% of her
then current base salary. Ms. Martin-Kail is also entitled to a car allowance of
up to 63,000 French Francs per year. In connection with her employment
agreement, we also issued Ms. Martin-Kail options to purchase up to 323,885
shares of our common stock at an exercise price of $0.15 per share. Ms.
Martin-Kail's options vest over a four-year period. If Lionbridge terminates Ms.
Martin-Kail's employment, she is entitled to receive twelve monthly severance
payments, each in an amount equal to her then current monthly base compensation
(i.e., 1/12(th) of Ms. Martin-Kail's base salary).
Ms. Martin-Kail entered into a non-competition agreement with Lionbridge on
February 24, 1997. The agreement provides that Ms. Martin-Kail will not, during
the course of her employment and the twelve months following the date of the
termination of her employment with Lionbridge (1) engage or otherwise have a
financial interest in any business activity which is in competition with any of
the products or services being provided by Lionbridge, (2) solicit our employees
or (3) solicit or do business with any present or past customer of ours or any
prospective customer of ours which would be in violation of the non-competition
agreement.
Peter H. Wright entered into an employment agreement with Lionbridge on
February 28, 1997. Mr. Wright's employment agreement provides for a one-year
term with automatic one-year renewals. Under the terms of his employment
agreement, Mr. Wright receives a base salary of $125,000, subject to increase
from time to time by the Board of Directors in its sole discretion, and an
annual discretionary bonus in an amount up to 50% of his then current base
salary. In connection with his employment agreement, we issued Mr. Wright
options to purchase up to 97,166 shares of our common stock at an exercise price
of $0.15 per share. Mr. Wright's options vest over a four-year period. If
Lionbridge terminates Mr. Wright's employment other than for cause, he is
entitled to receive six monthly severance payments, each in an amount equal to
his then current monthly base compensation (i.e., 1/12(th) of Mr. Wright's base
salary). If Mr. Wright is terminated for cause, he will not be entitled to any
severance payments or other benefits except as required by law.
Mr. Wright entered into a non-competition agreement with Lionbridge on
February 28, 1997. The agreement provides that Mr. Wright will not, during the
course of his employment and the six months following the date of the
termination of his employment with Lionbridge (1) engage or otherwise have a
financial interest in any business activity which is in competition with any of
the products or services being provided by Lionbridge, (2) solicit our employees
or (3) solicit or do business with any present or past customer of ours, or any
prospective customer of ours which would be in violation of the non-competition
agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to June 1999, we did not have a separate compensation committee or
other board committee performing equivalent functions. These functions were
performed by our board of directors. In June 1999, we established a compensation
committee and appointed Messrs. de Chazal, Kavanagh and Sheer to serve on the
compensation committee.
The compensation committee evaluates the salaries and incentive compensation
of management and employees of Lionbridge and administers our equity incentive
plans. No member of this committee
48
<PAGE>
was at any time during the past year an officer or employee of Lionbridge, was
formerly an officer of Lionbridge or any of its subsidiaries, or had any
relationship with Lionbridge. During the last year, none of our executive
officers served as:
- a member of the compensation committee (or other committee of the Board of
Directors performing equivalent functions or, in the absence of any such
committee, the entire Board of Directors) of another entity, one of whose
executive officers served on the compensation committee of Lionbridge;
- a director of another entity, one of whose executive officers served on
the compensation committee of Lionbridge; or
- a member of the compensation committee (or other committee of the Board of
Directors performing equivalent functions or, in the absence of any such
committee, the entire Board of Directors) of another entity, one of whose
executive officers served as a director of Lionbridge.
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CERTAIN TRANSACTIONS
ORGANIZATION OF LIONBRIDGE
In September 1996, Lionbridge America, Inc., our predecessor holding company
and current wholly owned subsidiary formerly known as Lionbridge Technologies,
Inc., issued 2,000 shares of its common stock to Rory J. Cowan, our President
and Chief Executive Officer at a purchase price of $0.15 per share, for an
aggregate of $30.
In December 1996, Lionbridge America acquired the localization businesses of
Stream International in Ireland, The Netherlands and France for $11,300,000 in
cash and the assumption of $100,000 of liabilities through its acquisition of
all of the capital stock of the following five foreign subsidiaries of Stream:
R.R. Donnelley Language Solutions International B.V., INK Nederland B.V., R.R.
Donnelley Language Solutions Belgium N.V., R.R. Donnelley Language Solutions
France SARL, and Stream International Language Solutions. Rory J. Cowan was an
executive officer of Stream International until June 1996 and our director Paul
A. Kavanagh was an executive officer of Stream International and R.R. Donnelley
& Sons until January 1998. As a result of this transaction, R.R. Donnelley
Language Solutions International B.V. became a subsidiary of Lionbridge America
and is now known as Lionbridge Technologies Holdings, B.V. and each of INK
Nederland B.V. (now known as Lionbridge Technologies B.V.), R.R. Donnelley
Language Solutions France SARL (now known as Lionbridge Technologies (France)),
and Stream International Language Solutions (now known as Lionbridge
Technologies Ireland) became subsidiaries of Lionbridge Technologies Holdings,
B.V. R.R. Donnelley Language Solutions Belgium N.V. was an inactive subsidiary
and was subsequently dissolved by Lionbridge. All subsidiaries of Lionbridge
are, directly or indirectly, wholly owned by Lionbridge.
In July 1997, Lionbridge America, through its Lionbridge Technologies
Holdings, B.V. subsidiary, acquired assets from the localization businesses of
Stream International in Japan, China, South Korea and Taiwan for $100,000 in
cash and the assumption of $317,000 of liabilities.
In June 1998, Lionbridge and Stream International entered into an agreement
to settle indemnity claims of Lionbridge against Stream under the December 1996
purchase agreement. Under the terms of the settlement agreement, Lionbridge's
purchase price for the European businesses acquired from Stream International
was reduced by $531,000.
The purchase price for and terms of these acquisitions and the terms of the
settlement agreement described above were the result of arms'-length
negotiations.
SALES OF STOCK OF LIONBRIDGE AMERICA
In December 1996, Lionbridge America issued 701,454 shares of its Series A
convertible preferred stock at a purchase price of $1.00 per share, for an
aggregate of $701,454, and an option to purchase up to 1,501,529 shares of its
common stock at an exercise price of $0.15 per share to Mr. Cowan.
In December 1996, Lionbridge America issued an aggregate of 1,000 shares of
its Series AA preferred stock to five limited partnerships sponsored by Advent
International Corporation, at a purchase price of $0.01 per share, for an
aggregate purchase price of $10.00. In December 1996, Lionbridge Technologies
Holdings, B.V., a subsidiary of Lionbridge, issued an aggregate of 248 of its
ordinary shares to the Advent-sponsored limited partnerships at a purchase price
of $24,193.55 per share, for an aggregate of $6,000,000. Marcia J. Hooper, a
partner of Advent International, has served as a member of the Board of
Directors of Lionbridge since December 1996.
In December 1996, Lionbridge America issued an aggregate of 6,000,000 shares
of its Series A convertible preferred stock to Morgan Stanley Venture Capital
Fund II Annex, L.P. and Morgan Stanley Venture Investors Annex, L.P. at purchase
price of $1.00 per share, for an aggregate of $6,000,000. Guy L. de Chazal, the
managing general partner of Morgan Stanley Venture Partners II,
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L.P., the general partner of each of the Morgan Stanley-sponsored limited
partnerships, has served as a member of the Board of Directors of Lionbridge
since February 1998.
In December 1996, Lionbridge America issued 971,654 shares of its Series A
convertible preferred stock to Stream International at a purchase price of $1.00
per share, for an aggregate of $971,654. The shares issued to Stream
International were subject to a stock option agreement providing a call option
to the Advent-sponsored limited partnerships, the Morgan Stanley-sponsored
limited partnerships and Lionbridge America to purchase the shares from Stream
and a put option to Stream to sell the shares to the Advent-sponsored limited
partnerships, the Morgan Stanley-sponsored limited partnerships and Lionbridge
America at Stream's original purchase price. In September 1997, Stream
International exercised its put option and sold the shares to Lionbridge America
at a purchase price of $1.00 per share, for an aggregate of $971,654.
In July 1997, Lionbridge America issued 100,000 shares of its Series A
convertible preferred stock to Paul Kavanagh at a purchase price of $1.00 per
share, for an aggregate of $100,000. Mr. Kavanagh has served as a member of the
Board of Directors of Lionbridge since December 1996.
SALES OF STOCK, NOTES AND WARRANTS OF LIONBRIDGE
In February 1998, Lionbridge America became a subsidiary of Lionbridge. We
accomplished this by issuing an aggregate of 1,359,993 shares of our common
stock, 13,271,314 shares of our Series A convertible preferred stock and 140
shares of our Series D nonvoting convertible preferred stock to Mr. Cowan, the
Advent-sponsored limited partnerships, the Morgan Stanley-sponsored limited
partnerships, and the other stockholders of Lionbridge America in exchange for
all of the outstanding shares of capital stock of Lionbridge America held by
these stockholders and the outstanding ordinary shares of Lionbridge
Technologies Holdings, B.V. held by the Advent-sponsored limited partnerships.
Lionbridge America also redeemed all of the outstanding shares of its Series AA
preferred stock held by the Advent-sponsored limited partnerships at the
original purchase price of $0.01 per share, for an aggregate of $10.00.
In January 1999, Lionbridge borrowed $4,000,000 from Capital Resource
Lenders, III, L.P. under a 12% senior subordinated convertible note due January
8, 2000. In connection with our issuance of the note to Capital Resource
Lenders, many of our subsidiaries executed guarantees in favor of Capital
Resource Lenders. In February 1999, we borrowed an additional $2,000,000 from
Capital Resource Lenders under an amended and restated 12% senior subordinated
note due February 26, 2006 in the aggregate principal amount of $6,000,000 and
issued to Capital Resource Lenders and an affiliated entity of Capital Resource
Lenders common stock purchase warrants exercisable for an aggregate of 1,277,716
shares of our common stock at an exercise price of $0.015 per share.
In February 1999, our indirect wholly owned subsidiary, Lionbridge
Technologies Holdings, B.V. borrowed $4,000,000 from Capital Resource Lenders
under a 12% senior subordinated note due February 26, 2006. In connection with
Lionbridge Technologies Holdings, B.V.'s issuance of the note to Capital
Resource Lenders, many of our subsidiaries executed guarantees in favor of
Capital Resource Lenders. Stephen M. Jenks, a member of Capital Research
Partners III, L.L.C. which is the general partner of Capital Resource Lenders,
has served as a member of our Board of Directors since March 1999.
In March 1999, Lionbridge and Lionbridge Technologies Holdings, B.V.
borrowed an aggregate of $2,000,000 from the Morgan Stanley-sponsored limited
partnerships under 12% senior subordinated notes due March 9, 2006 and issued to
the Morgan Stanley-sponsored limited partnerships common stock purchase warrants
exercisable for an aggregate of 255,544 shares of our common stock at an
exercise price of $0.015 per share. In connection with our issuance of the notes
to the Morgan Stanley-sponsored limited partnerships, many of our subsidiaries
executed guarantees in favor of the Morgan Stanley-sponsored limited
partnerships.
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<PAGE>
TRANSACTIONS OCCURRING AT THE CLOSING OF THIS OFFERING
Upon closing of this offering:
- the notes issued to Capital Resource Lenders and the Morgan
Stanley-sponsored limited partnerships will be paid in full. As of June
30, 1999, the amount to be repaid under the notes is $10,000,000 and
$2,000,000, respectively,
- the 13,271,314 outstanding shares of our Series A convertible preferred
stock and 140 outstanding shares of our Series D nonvoting convertible
preferred stock held by our preferred stockholders including Mr. Cowan,
Mr. Kavanagh, the Advent-sponsored limited partnerships and the Morgan
Stanley-sponsored limited partnerships will automatically be exchanged for
an aggregate of 132.7145 shares of our Series B redeemable preferred stock
and 8,847,649 shares of our Series C convertible preferred stock,
- the 132.7145 outstanding shares of our Series B redeemable preferred stock
will be redeemed for $100,000 per share plus an 8% annual premium. As of
June 30, 1999, the redemption amount to be paid to Mr. Cowan, the
Advent-sponsored limited partnerships, the Morgan Stanley-sponsored
limited partnerships, and Mr. Kavanagh is approximately $843,000,
$7,209,000, $7,209,000, and $120,000, respectively, and
- the 8,847,649 outstanding shares of our Series C convertible preferred
stock held by our preferred stockholders including Mr. Cowan, Mr.
Kavanagh, the Advent-sponsored limited partnerships and the Morgan
Stanley-sponsored limited partnerships will automatically convert into
8,847,649 shares of our common stock.
TRANSACTIONS OCCURRING AFTER THE CLOSING OF THIS OFFERING
Capital Resource Lenders and the Morgan Stanley-sponsored limited
partnerships have indicated to us that they intend to exercise their warrants to
acquire an aggregate of 1,533,260 shares promptly after the closing of this
offering, subject to compliance with applicable law.
STOCKHOLDERS' AGREEMENT
Lionbridge, Mr. Cowan, Mr. Kavanagh, the Advent-sponsored limited
partnerships, the Morgan Stanley-sponsored limited partnerships, Capital
Resource Lenders and each of the other preferred stockholders of Lionbridge are
parties to a Second Restated Stockholders' Agreement dated as of February 26,
1999. The stockholders agreement contains arrangements with respect to voting,
rights of first refusal, rights of first offer, as well as other agreements
relating to corporate governance. This agreement will terminate upon the closing
of this offering.
REGISTRATION RIGHTS AGREEMENT
We have entered into a Second Restated Registration Rights Agreement dated
as of February 26, 1999 with Mr. Cowan, Mr. Kavanagh, the Advent-sponsored
limited partnerships, the Morgan Stanley-sponsored limited partnerships, Capital
Resource Lenders, CRP Investment Partners and each of our other preferred
stockholders. This registration rights agreement provides these holders with
rights with respect to the registration by Lionbridge of their shares under the
Securities Act.
Lionbridge believes that all transactions described above were made on terms
no less favorable to us than would have been obtained from unaffiliated third
parties. All future transactions, if any, with our executive officers, directors
and affiliates will be on terms no less favorable to us than could be obtained
from unrelated third parties and will be approved by a majority of the Board of
Directors and by a majority of the disinterested members of the Board of
Directors.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of June 30, 1999, and as adjusted to reflect
the sale of the shares of common stock offered hereby, by:
- each of Lionbridge's directors and named executive officers,
- all directors and executive officers of Lionbridge as a group,
- each person who is known by us to own beneficially more than five percent
of the outstanding shares of our common stock, and
- each person who is a selling stockholder if the underwriters exercise
their over-allotment options.
Except as noted below, the address of each person listed on the table is c/o
Lionbridge Technologies, Inc., 950 Winter Street, Waltham, Massachusetts 02451,
and each person has sole voting and investment power over the shares shown as
beneficially owned, except to the extent authority is shared by spouses under
applicable law unless otherwise noted below.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. For purposes of calculating the percentage
of shares beneficially owned, the number of shares of our common stock
outstanding as of June 30, 1999 is 11,219,450 shares. Shares of common stock
issuable by Lionbridge to a person or entity named below pursuant to options or
warrants which may be exercised within 60 days after June 30, 1999 are deemed to
be beneficially owned and outstanding for purposes of calculating the number of
shares and the percentage beneficially owned by that person or entity. However,
these shares are not deemed to be beneficially owned and outstanding for
purposes of computing the percentage beneficially owned by any other person or
entity. The number of shares of common stock deemed outstanding after this
offering includes an additional 4,000,000 shares that are being offered for sale
by us in this offering.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING (1)
---------------------- ----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- -------------------------------------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Rory J. Cowan (2)....................................... 2,390,706 21.0% 2,390,706 15.5%
Marcia J. Hooper (3).................................... 4,000,004 35.7 4,000,004 26.3
c/o Advent International Corporation
75 State Street
Boston, MA 02109
Guy L. de Chazal (4).................................... 4,255,546 37.1 4,255,546 27.5
c/o Morgan Stanley Dean Witter Venture Capital
1221 Avenue of the Americas, 33(rd) Floor
New York, New York 10020
Paul Kavanagh (5)....................................... 69,166 * 69,166 *
"Arcachon"
Strathmore Road
Killiney, Co. Dublin, Ireland
Stephen M. Jenks (6).................................... 1,277,716 10.2 1,277,716 7.7
c/o Capital Resource Lenders III, L.P.
85 Merrimac Street, Suite 200
Boston, MA 02114
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING (1)
---------------------- ----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- -------------------------------------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Claude P. Sheer......................................... 0 * 0 *
240 Main Street
Boxford, MA 01921
Myriam Martin-Kail (7).................................. 209,925 1.8 209,925 1.4
Stephen J. Lifshatz (8)................................. 175,674 1.6 175,674 1.2
Peter H. Wright (9)..................................... 85,726 * 85,726 *
Morgan Stanley-sponsored limited partnerships (10)...... 4,255,546 37.1 4,255,546 27.5
1221 Avenue of the Americas, 33(rd) Floor
New York, New York 10020
Advent-sponsored limited partnerships (11).............. 4,000,004 35.7 4,000,004 26.3
75 State Street
Boston, MA 02109
Capital Resource Lenders III, L.P. (12)................. 1,277,716 10.2 1,277,716 7.7
85 Merrimac Street, Suite 200
Boston, MA 02114
All executive officers and directors as a group (9
persons).............................................. 8,499,982 64.3 8,499,982 49.4
Kenneth L. Coleman Irrevocable Trust (13)............... 66,666 * 66,666 *
Martha Lynne Paschetag (14)............................. 9,582 * 9,582 *
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares.
(1) If the underwriters exercise their over-allotment option in full, then the
following stockholders named in the table above will sell the following
number of shares: Rory J. Cowan, 266,667 shares (200,001 shares from Mr.
Cowan personally, 33,333 shares from the Cowan Manchester Trust of which
Mr. Cowan is the settlor and is primarily for the benefit of Mr. Cowan's
children and 33,333 shares from the Cowan Stream Trust of which Mr. Cowan
is the settlor and is primarily for the benefit of Mr. Cowan's siblings and
their lineal descendants); Stephen J. Lifshatz, 50,000 shares; Peter H.
Wright, 50,000 shares; Kenneth L. Coleman Irrevocable Trust, 20,000 shares;
and Martha Lynne Paschetag, 6,667 shares.
(2) Includes an aggregate of 266,667 shares held by affiliated trusts of Mr.
Cowan. Includes 187,692 shares deemed to be beneficially owned by Mr. Cowan
pursuant to options exercisable within 60 days of June 30, 1999.
(3) Includes 328,001 shares held by Advent Euro-Italian Direct Investment
Program Limited Partnership; 88,001 shares held by Advent Partners Limited
Partnership; 2,396,000 shares held by Global Private Equity II Limited
Partnership; 504,001 shares held by Global Private Equity II-- Europe
Limited Partnership; and 684,001 shares held by Global Private Equity
II--PGGM Limited Partnership. Ms. Hooper is a partner of Advent
International Corporation, which is the general partner of Advent
International Limited Partnership, the general partner of each of the
Advent-sponsored entities. Ms. Hooper may be deemed to beneficially own the
shares held by the Advent-sponsored entities. Ms. Hooper disclaims
beneficial ownership of all such shares, except to the extent of her
pecuniary interest therein.
(4) Includes 3,743,642 shares, including 224,802 shares deemed to be
beneficially owned pursuant to warrants exercisable within 60 days of June
30, 1999, held by Morgan Stanley Venture Capital Fund II Annex, L.P. and
511,904 shares, including 30,742 shares deemed to be beneficially owned
pursuant to warrants exercisable within 60 days of June 30, 1999, held by
Morgan Stanley Venture Investors Annex, L.P. Mr. de Chazal is a general
partner of Morgan Stanley Venture Partners II, L.P., which is the managing
general partner of each of the Morgan Stanley-sponsored limited
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<PAGE>
partnerships. Mr. de Chazal may be deemed to beneficially own the shares
held by the Morgan Stanley-sponsored limited partnerships. Mr. de Chazal
disclaims beneficial ownership of all such shares, except to the extent of
his pecuniary interest therein.
(5) Includes 2,499 shares deemed to be beneficially owned by Mr. Kavanagh
pursuant to options exercisable within 60 days of June 30, 1999.
(6) Represents an aggregate of 1,277,716 shares held by Capital Resource
Lenders III, L.P. and CRP Investment Partners III, L.L.C. deemed to be
beneficially owned pursuant to warrants exercisable within 60 days of June
30, 1999. Mr. Jenks is a member of Capital Resource Partners III, L.L.C.,
which is the general partner of Capital Resource Lenders III, L.P., and a
manager of CRP Investment Partners III, L.L.C. Mr. Jenks may be deemed to
beneficially own the shares held by Capital Resource Lenders and CRP
Investment Partners. Mr. Jenks disclaims ownership of all such shares,
except to the extent of his pecuniary interest therein.
(7) Represents 209,925 shares deemed to be beneficially owned by Ms.
Martin-Kail pursuant to options exercisable within 60 days of June 30,
1999.
(8) Includes 36,966 shares deemed to be beneficially owned by Mr. Lifshatz
pursuant to options exercisable within 60 days of June 30, 1999.
(9) Includes an aggregate of 6,668 shares held in trusts for the benefit of Mr.
Wright's children and 24,642 shares deemed to be beneficially owned by Mr.
Wright pursuant to options exercisable within 60 days of June 30, 1999.
(10) Includes 3,743,642 shares, including 224,802 shares deemed to be
beneficially owned pursuant to warrants exercisable within 60 days of June
30, 1999, held by Morgan Stanley Venture Capital Fund II Annex, L.P. and
511,904 shares, including 30,742 shares deemed to be beneficially owned
pursuant to warrants exercisable within 60 days of June 30, 1999, held by
Morgan Stanley Venture Investors Annex, L.P. The managing general partner
of each of the Morgan Stanley-sponsored limited partnerships is Morgan
Stanley Venture Partners II, L.P. Morgan Stanley Venture Capital II, Inc.
is the managing general partner of Morgan Stanley Venture Partners II, L.P.
and exercises sole voting and investment power with respect to all shares
held of record by the Morgan Stanley-sponsored limited partnerships;
individually, no stockholder, director or officer of Morgan Stanley Venture
Capital II, Inc. is deemed to have or share such voting or investment
power.
(11) Includes 328,001 shares held by Advent Euro-Italian Direct Investment
Program Limited Partnership; 88,001 shares held by Advent Partners Limited
Partnership; 2,396,000 shares held by Global Private Equity II Limited
Partnership; 504,001 shares held by Global Private Equity II-- Europe
Limited Partnership; and 684,001 shares held by Global Private Equity
II--PGGM Limited Partnership. The general partner of each of the
Advent-sponsored limited partnerships is Advent International Limited
Partnership. Advent International Corporation is the general partner of
Advent International Limited Partnership and exercises sole voting and
investment power with respect to all shares held of record by the
Advent-sponsored limited partnerships; individually, no stockholder,
director or officer of Advent International Corporation is deemed to have
or share such voting or investment power.
(12) Represents an aggregate of 1,277,716 shares held by the Capital Resource
Lenders III, L.P. and CRP Investment Partners III, L.L.C. deemed to be
beneficially owned pursuant to warrants exercisable within 60 days of June
30, 1999.
(13) Includes 16,257 shares held by Kenneth L. Coleman, our Vice President,
Marketing, and 415 shares deemed to be beneficially owned by Mr. Coleman
pursuant to options exercisable within 60 days of June 30, 1999. Mr.
Coleman is the settlor of the Kenneth L. Coleman Irrevocable Trust which is
for the benefit of the spouse and children of Mr. Coleman.
(14) Includes 2,080 shares deemed to be beneficially owned by Ms. Paschetag, our
Director of Financial Planning and Analysis, pursuant to options
exercisable within 60 days of June 30, 1999.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of this offering and the filing of our Second
Amended and Restated Certificate of Incorporation, the authorized capital stock
of Lionbridge will consist of 100,000,000 shares of common stock, par value
$0.01 per share, and 5,000,000 shares of preferred stock, par value $0.01 per
share.
The following summary description of Lionbridge's capital stock, as of the
closing of this offering, is not intended to be complete and is qualified by
reference to Lionbridge's Second Amended and Restated Certificate of
Incorporation and Amended and Restated By-laws filed as exhibits to the
registration statement of which this prospectus is a part.
COMMON STOCK
As of June 30, 1999, there were 11,219,450 shares of common stock
outstanding and held of record by 37 stockholders, after giving effect to (1)
the exchange of all of the 13,271,314 outstanding shares of Series A convertible
preferred stock and 140 outstanding shares of Series D nonvoting convertible
preferred stock for an aggregate of 132.7145 shares of Series B redeemable
preferred stock and 8,847,649 shares of Series C convertible preferred stock,
(2) the redemption of all of the 132.7145 outstanding shares of Series B
redeemable preferred stock for $100,000 per share plus an 8% annual premium, and
(3) the conversion of all of the 8,847,649 outstanding shares of our Series C
convertible preferred stock into 8,847,649 shares of common stock upon the
closing of this offering. Based upon the number of shares outstanding as of June
30, 1999, assuming these exchanges and conversions and giving effect to the
issuance of the shares of common stock offered by Lionbridge hereby, there will
be 15,219,450 shares of common stock outstanding upon the closing of this
offering. In addition, as of June 30, 1999, there were outstanding stock options
and warrants for the purchase of a total of 4,238,539 shares of common stock.
Capital Resource Lenders and the Morgan Stanley-sponsored limited partnerships
have indicated to us they intend to exercise their warrants to acquire an
aggregate of 1,533,260 shares promptly after the closing of this offering,
subject to compliance with applicable law.
Holders of common stock are entitled to one vote per share for each share
held of record on all matters submitted to a vote of stockholders and do not
have cumulative voting rights. Directors are elected by a plurality of the votes
of the shares present in person or by proxy at the meeting. The holders of
common stock are entitled to receive ratably such lawful dividends as may be
declared by the Board of Directors. However, such dividends are subject to
preferences that may be applicable to the holders of any outstanding shares of
preferred stock. In the event of a liquidation, dissolution or winding up of the
affairs of Lionbridge, whether voluntarily or involuntarily, the holders of
common stock will be entitled to receive pro rata all of the remaining assets of
Lionbridge available for distribution to its stockholders. Any such pro rata
distribution would be subject to the rights of the holders of any outstanding
shares of preferred stock. The common stock has no preemptive, redemption,
conversion or subscription rights. All outstanding shares of common stock are
fully paid and non-assessable. The shares of common stock to be issued by
Lionbridge in this offering, when issued in consideration of payment, will be
fully paid and non-assessable. The rights, powers, preferences and privileges of
holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock which
Lionbridge may designate and issue in the future.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations prescribed
by Delaware law, without further stockholder approval, to issue from time to
time up to an aggregate of 5,000,000 shares of preferred stock, in one or more
series. The Board of Directors is also authorized, subject to the
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<PAGE>
limitations prescribed by Delaware law, to establish the number of shares to be
included in each series and to fix the designations, preferences, rights and any
qualifications, limitation or restrictions of the shares of any series,
including the dividend rights, dividend rates, conversion rights, voting rights,
redemption terms and prices, liquidation preferences and the number of shares
constituting any series. The Board of Directors is authorized to issue preferred
stock with voting, conversion and other rights and preferences that could
adversely affect the voting power or other rights of the holders of common
stock.
Upon the closing of this offering, there will be no shares of preferred
stock outstanding. Lionbridge has no current plans to issue any preferred stock.
However, the issuance of preferred stock or of rights to purchase preferred
stock could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, a majority
of the outstanding common stock of Lionbridge.
REGISTRATION RIGHTS
The Second Restated Registration Rights Agreement dated as of February 26,
1999, provides holders (the "Registration Rights Holders") of 12,215,870 shares
of our common stock (the "Registrable Shares") rights with respect to the
registration of the Registrable Shares under the Securities Act. If we propose
to register any of our securities under the Securities Act, either for our own
account or for the account of another securityholder, the Registration Rights
Holders are entitled to notice of this registration and to include the
Registrable Shares in this registration. However, in the event of a registration
pursuant to an underwritten public offering of common stock, the underwriters
will have the right to limit the number of shares included in the registration.
The Registration Rights Holders currently have piggyback registration rights in
connection with this offering. These holders have agreed to waive their
piggyback registration rights with respect to this offering. In addition, a
majority of the Registration Rights Holders have entered into a 180-day lock-up
agreement with the underwriters. After expiration of this lock-up period, these
Registration Rights Holders will have the ability to exercise the registration
rights set forth above.
In addition, six months after this offering, the holders of at least 40% of
the then outstanding Registrable Shares issued are entitled to request that we
file a registration statement under the Securities Act covering the sale of some
or all of the shares held by the requesting holder or holders. Upon the receipt
of a request, Lionbridge is generally required to use its best efforts to effect
a registration. Lionbridge is not required to effect more than two demand
registrations for the Registration Rights Holders, and each demand registration
must cover the sale shares of common stock representing at least 20% of the
Registrable Shares or any lesser percentage, so long as anticipated offering
price for these shares exceeds $5,000,000.
Once Lionbridge has qualified to use Form S-3 to register securities under
the Securities Act, the Registration Rights Holders have the right to request
that we file a registration statement on Form S-3 or any successor form for a
public offering of all or any portion of their Registrable Shares, provided that
the reasonably anticipated aggregate price to the public of such offering would
be at least $1,000,000. Upon the receipt of such a request, Lionbridge is
generally required to use its best efforts to effect such registration.
In general, all fees, costs and expenses of such registrations (other than
underwriting discounts and selling commissions), including the fees and
disbursements of one counsel to the Registration Rights Holders, will be borne
by us. Lionbridge has agreed to indemnify the Registration Rights Holders
against, and provide contribution with respect to, liabilities relating to any
registration in which any Registrable Shares of Registration Rights Holders are
sold under the Securities Act.
The previously described registration rights shall terminate for a
Registration Rights Holder upon the earlier to occur of (1) the fifth
anniversary of the closing of this offering, (2) such time as the
57
<PAGE>
particular holder remains an "affiliate" of Lionbridge pursuant to Rule 144
under the Securities Act and could sell all of such holder's shares under Rule
144 within any three month period, or (3) such time as the particular holder
ceases to be an "affiliate" of Lionbridge pursuant to Rule 144 and could sell
all of such holder's shares under the terms of Rule 144(k) under the Securities
Act.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF LIONBRIDGE'S SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION AND AMENDED AND RESTATED BY-LAWS AND DELAWARE LAW
Lionbridge's Second Amended and Restated Certificate of Incorporation (the
"Charter"), Lionbridge's Amended and Restated By-Laws (the "By-Laws") and
Delaware General Corporation Law contain provisions that could discourage, delay
or prevent a change in control of Lionbridge or an acquisition of Lionbridge at
a price which many stockholders may find attractive. The existence of these
provisions could limit the price that investors might be willing to pay in the
future for shares of common stock.
CHARTER AND BY-LAWS
The Charter provides for the division of the Board of Directors into three
classes as nearly as equal in size as possible with staggered three-year terms.
In addition, the Charter provides that directors may be removed without cause by
the affirmative vote of the holders of 75% of the shares of capital stock of
Lionbridge entitled to vote or with cause by the affirmative vote of the holders
of a majority of the shares. The By-Laws provide that, except as otherwise
provided by law or the Charter, newly created directorships resulting from an
increase in the authorized number of directors or vacancies on the Board may be
filled only by:
- a majority of the directors then in office, even though less than a quorum
may then be in office, or
- the sole remaining director.
These provisions prevent a stockholder from enlarging the Board and filling the
new directorships with this stockholder's own nominees without Board approval.
These provisions of the By-Laws may have the effect of discouraging a third
party from initiating a proxy contest, making a tender offer or otherwise
attempting to gain control of Lionbridge, or attempting to change the
composition or policies of the Board, even though these attempts might be
beneficial to Lionbridge or its stockholders.
The Charter and By-Laws provide that, unless otherwise prescribed by law,
only the Chairman of the Board, a majority of the Board of Directors, or the
President is able to call a special meeting of stockholders. The Charter and the
By-Laws also provide that, unless otherwise prescribed by law, stockholder
action may be taken only at a duly called and convened annual or special meeting
of stockholders and may not be taken by written consent. These provisions, taken
together, prevent stockholders from forcing consideration by the stockholders of
stockholder proposals over the opposition of the Board, except at an annual
meeting.
The By-Laws provide that any action required or permitted to be taken by the
stockholders of Lionbridge at an annual meeting or special meeting of
stockholders may only be taken if Lionbridge is given proper advance notice of
the action (the "Notice Procedure"). The Notice Procedure affords the Board an
opportunity to consider the qualifications of proposed director nominees or the
merit of stockholder proposals, and, to the extent deemed appropriate by the
Board, to inform stockholders about such matters. The Notice Procedure also
provides a more orderly procedure for conducting annual meetings of
stockholders. The By-Laws do not give the Board any power to approve or
disapprove stockholder nominations for the election of directors or proposals
for action. However, the Notice Procedure may prevent a contest for the election
of directors or the consideration of
58
<PAGE>
stockholder proposals. This could deter a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposal if the proper advance notice procedures are not followed, without
regard to whether consideration of such nominees or proposals might be harmful
or beneficial to Lionbridge and its stockholders.
Lionbridge, without stockholder approval, can issue shares of common stock
and preferred stock up to the number of shares authorized for issuance in its
Charter, except as limited by Nasdaq rules. Lionbridge could use these
additional shares for a variety of corporate purposes. These purposes include
future public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. Lionbridge's ability to issue these shares of common
stock and preferred stock could make it more difficult or discourage an attempt
to obtain control of Lionbridge by means of a proxy contest, tender offer,
merger or otherwise.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares issued and outstanding is required
to amend a corporation's certificate of incorporation or by-laws, unless a
corporation's certificate of incorporation or by-laws, as the case may be,
requires a greater percentage. The Charter requires the affirmative vote of the
holders of at least 75% of the issued and outstanding shares of our capital
stock to amend many Charter provisions, including provisions relating to any
reduction in the number of authorized shares of our capital stock, our staggered
board, and director and officer indemnification. The By-Laws require the
affirmative vote of the holders of at least 75% of the issued and outstanding
shares of capital stock of Lionbridge entitled to vote to amend or repeal any of
the foregoing provisions of the By-Laws. The 75% stockholder vote would be in
addition to any separate class vote that might be required pursuant to the terms
of any series of preferred stock that might be outstanding at the time any
amendments are submitted to stockholders.
DELAWARE LAW
Lionbridge is subject to Section 203 of the Delaware General Corporation Law
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the time that such stockholder became an
interested stockholder.
Section 203 does not apply if:
- prior to such time, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors and also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
- at or subsequent to such time, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock which is not owned by the
interested stockholder.
The application of Section 203 may limit the ability of stockholders to approve
a transaction that they may deem to be in their best interests.
59
<PAGE>
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, lease, transfer, pledge or other disposition of 10% or more of
the assets of the corporation to or with the interested stockholder;
- subject to limited exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation to
the interested stockholder;
- any transaction involving the corporation which has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an "interested stockholder" as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation or is an affiliate or associate of the corporation and was the owner
of 15% or more of the outstanding voting stock of the corporation at any time
within the past three years, and any entity or person associated with,
affiliated with or controlling or controlled by such entity or person.
LIMITATION OF LIABILITY
The Charter provides that no director of Lionbridge shall be personally
liable to Lionbridge or to its stockholders for monetary damages for breach of
fiduciary duty as a director, except that the limitation shall not eliminate or
limit liability to the extent that the elimination or limitation of such
liability is not permitted by the Delaware General Corporation Law as the same
exists or may hereafter be amended.
The Charter further provides for the indemnification of Lionbridge's
directors and officers to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law, including circumstances in which
indemnification is otherwise discretionary. A principal effect of these
provisions is to limit or eliminate in most situations the potential liability
of Lionbridge's directors for monetary damages arising from breaches of their
duty of care. These provisions may also shield directors from liability under
federal and state securities laws.
Officers, directors or other persons controlling Lionbridge may be entitled
under these indemnification provisions to indemnification for liabilities
arising under the Securities Act of 1933. We have been informed that in the
opinion of the Securities and Exchange Commission, this indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
STOCK TRANSFER AGENT
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that these sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.
After this offering, 15,219,450 shares of common stock will be outstanding,
15,426,116 shares if the underwriters exercise their over-allotment option from
us in full. Of these shares, the 4,000,000 shares (4,600,000 shares if the
underwriters exercise their over-allotment options in full) sold in this
offering will be freely tradeable without restriction under the Securities Act
except for any shares purchased by "affiliates" of Lionbridge as defined in Rule
144 under the Securities Act. The remaining 11,219,450 shares are "restricted
securities" within the meaning of Rule 144 under the Securities Act. The
restricted securities generally may not be sold unless they are registered under
the Securities Act or are sold pursuant to an exemption from registration, such
as the exemption provided by Rules 144 or 701 under the Securities Act.
We, our officers and directors, and a majority of our stockholders,
including the selling stockholders, have entered into lock-up agreements
pursuant to which we and they have agreed not to offer or sell any shares of
common stock or securities convertible into or exchangeable or exercisable for
shares of common stock for a period of 180 days from the date of this prospectus
without the prior written consent of Prudential Securities, on behalf of the
underwriters. Transfers or dispositions can be made in the case of gifts or
estate planning transfers where the donee signs a lock-up agreement. Prudential
Securities may, at any time and without notice, waive any of the terms of these
lock-up agreements specified in the underwriting agreement. Following the
lock-up period, these shares will not be eligible for sale in the public market
without registration under the Securities Act unless these sales meet the
conditions and restrictions of Rules 144 or 701 as described below.
As restrictions on resale end, the market price could drop significantly if
the holders of these restricted shares sell them, or are perceived by the market
as intending to sell them.
<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR RESALE
NUMBER OF SHARES INTO PUBLIC MARKET
- ------------------ ----------------------------------------------------------------------------------------------
<S> <C>
11,195,178 180 days after the date of this prospectus due to a lock-up agreement these stockholders have
with Prudential Securities. However, Prudential Securities can waive this restriction at any
time and without notice.
24,272 Between 180 and 365 days after the date of this prospectus due to the requirements of the
federal securities laws.
</TABLE>
An additional 1,533,260 shares will be available for resale between 180 and
365 days after the date of this prospectus if Capital Resource Lenders and the
Morgan Stanley-sponsored limited partnerships exercise their warrants in full.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for a period of at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of
- 1% of the then-outstanding shares of common stock and
- the average weekly trading volume in the common stock during the four
calendar weeks immediately preceding the date on which the notice of such
sale on Form 144 is filed with the Securities and Exchange Commission.
Sales under Rule 144 are also subject to certain provisions relating to
notice and manner of sale and the availability of current public information
about Lionbridge.
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<PAGE>
In addition, a person (or persons whose shares are aggregated) who has not
been an affiliate of Lionbridge at any time during the 90 days immediately
preceding a sale, and who has beneficially owned the shares for at least two
years, would be entitled to sell such shares under Rule 144(k) without regard to
the volume limitation and other conditions described above. Therefore, unless
otherwise restricted, Rule 144(k) shares may be sold immediately upon the
completion of this offering. The foregoing summary of Rule 144 is not intended
to be a complete description.
Subject to limitations on the aggregate offering price of a transaction and
other conditions, Rule 701 may be relied upon with respect to the resale of
securities originally purchased from Lionbridge by its employees, directors,
officers, consultants or advisors prior to the date the issuer becomes subject
to the reporting requirements of the Exchange Act. To be eligible for resale
under Rule 701, shares must have been issued pursuant to written compensatory
benefit plans or written contracts relating to the compensation of such persons.
In addition, the SEC has indicated that Rule 701 will apply to typical stock
options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of such options (including exercises after the date of the offering). Securities
issued in reliance on Rule 701 are restricted securities and, subject to the
contractual restrictions described above, beginning 90 days after the date of
this prospectus, may be sold by persons other than affiliates, subject only to
the manner of sale provisions of Rule 144, and by affiliates, under Rule 144
without compliance with its one-year minimum holding period requirements. The
foregoing summary of Rule 701 is not intended to be a complete description.
Ninety days following the consummation of this offering, Lionbridge intends
to file a registration statement under the Securities Act to register the shares
of common stock available for issuance pursuant to its stock option plans as of
the date of this prospectus. Shares issued pursuant to these plans after the
effective date of such registration statement will be available for sale in the
open market subject to the lock-up period and, for affiliates of Lionbridge,
subject to conditions and restrictions of Rule 144.
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<PAGE>
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below, for whom Prudential Securities Incorporated, U.S. Bancorp Piper Jaffray
and Adams, Harkness & Hill, Inc. are acting as representatives. We and the
selling stockholders are obligated to sell, and the underwriters are obligated
to purchase, all of the shares offered on the cover page of this prospectus, if
any are purchased. Subject to conditions of the underwriting agreement, each
underwriter has severally agreed to purchase the shares indicated opposite its
name:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
Prudential Securities Incorporated..................................................................
U.S. Bancorp Piper Jaffray Inc......................................................................
Adams, Harkness & Hill, Inc. .......................................................................
------------
Total........................................................................................... 4,000,000
------------
------------
</TABLE>
The underwriters may sell more shares than the total number of shares
offered on the cover page of this prospectus and they have, for a period of 30
days from the date of this prospectus, over-allotment option to purchase up to
206,666 additional shares from us and 393,334 additional shares from the selling
stockholders. If any additional shares are purchased, the underwriters will
severally purchase the shares in the same proportion as per the table above. If
the underwriters exercise the over-allotment option in part, the shares to be
purchased by the underwriters will be allocated first pro rata among the selling
stockholders up to the entire 393,334 shares to be sold by the selling
stockholders and then from us.
The representatives of the underwriters have advised us and the selling
stockholders that the shares will be offered to the public at the offering price
indicated on the cover page of this prospectus. The underwriters may allow to
selected dealers a concession not in excess of $ per share and such
dealers may reallow a concession not in excess of $ per share to certain
other dealers. After the shares are released for sale to the public, the
representatives may change the offering price and the concessions. The
representatives have informed us that the underwriters do not intend to sell
shares to any investor who has granted them discretionary authority.
We and the selling stockholders have agreed to pay to the underwriters the
following fees, assuming both no exercise and full exercise of the underwriters'
over-allotment options to purchase additional shares:
<TABLE>
<CAPTION>
TOTAL FEES
-----------------------------------------------
WITHOUT EXERCISE
OF FULL EXERCISE OF
FEE PER OVER-ALLOTMENT OVER-ALLOTMENT
SHARE OPTIONS OPTIONS
--------- ----------------- -----------------
<S> <C> <C> <C>
Fees paid by us............................ $ $ $
Fees paid by the selling stockholders...... $ $ $
</TABLE>
In addition, we estimate that we will spend approximately $1,000,000 in
expenses for this offering, including those of the selling stockholders. We and
the selling stockholders have agreed to indemnify the underwriters against
certain liabilities, including liabilities under the Securities Act, or
contribute to payments that the underwriters may be required to make in respect
of these liabilities.
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<PAGE>
We, our officers and directors, and a majority of our stockholders,
including the selling stockholders, have entered into lock-up agreements
pursuant to which we and they have agreed not to offer or sell any shares of
common stock or securities convertible into or exchangeable or exercisable for
shares of common stock for a period of 180 days from the date of this prospectus
without the prior written consent of Prudential Securities, on behalf of the
underwriters. Prudential Securities may, at any time and without notice, waive
the terms of these lock-up agreements specified in the underwriting agreement.
Prior to this offering, there has been no public market for the common stock
of Lionbridge. The public offering price, negotiated among Lionbridge and the
representatives, is based upon various factors such as Lionbridge's financial
and operating history and condition, our prospects, the prospects for our
industry, and prevailing market conditions.
Prudential Securities, on behalf of the underwriters, may engage in the
following activities in accordance with applicable securities rules:
- over-allotments involving sales in excess of the offering size, creating a
short position. Prudential Securities may elect to reduce this short
position by exercising some or all of the over-allotment options.
- stabilizing and short covering; stabilizing bids to purchase the shares
are permitted if they do not exceed a specified maximum price. After the
distribution of shares has been completed, short covering purchases in the
open market may also reduce the short position. These activities may cause
the price of the shares to be higher than would otherwise exist in the
open market.
- penalty bids permitting the representatives to reclaim concessions from a
syndicate member for the shares purchased in the stabilizing or short
covering transactions.
Such activities, which may be commenced and discontinued at any time, may be
effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.
Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connection with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:
- the Public Offers of Securities Regulation 1995,
- the Financial Services Act 1986, and
- the Financial Services Act 1986, (Investment Advertisements) (Exemptions)
Order 1986 (as amended).
Prudential Securities Incorporated facilitates the marketing of new issues
online through its PrudentialSecurities.com communication channel. Clients of
Prudential Advisor-SM-, a full service brokerage program, may view offering
terms and a prospectus online and place orders through their financial advisors.
We have asked the underwriters to reserve approximately 5% of the shares
offered for sale at the same offering price directly to our employees and other
business affiliates or related third parties. The number of shares available for
sale to the general public in the offering will be reduced to the extent such
persons purchase the reserved shares.
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<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Lionbridge by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
George W. Lloyd, a partner at Testa, Hurwitz & Thibeault, LLP, is the beneficial
owner of 16,667 shares of common stock of Lionbridge. Certain legal matters will
be passed upon for the underwriters by Brobeck, Phleger & Harrison LLP,
Washington, District of Columbia.
EXPERTS
The consolidated financial statements of Lionbridge Technologies, Inc. as of
December 31, 1998 and 1997 and for the years then ended, the combined financial
statements of The Localization Businesses of Stream International Holdings, Inc.
in Ireland, The Netherlands and France for the year ended December 31, 1996, and
the financial statements of VeriTest, Inc. as of December 31, 1998 and for the
year then ended, included in this prospectus, have been so included in reliance
on the reports of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
Lionbridge has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 under the Securities Act with
respect to the common stock offered hereby. This prospectus does not contain all
of the information set forth in the registration statement. For further
information with respect to Lionbridge and the common stock, reference is made
to the registration statement. Statements contained in this prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of the contract
or document filed as an exhibit to the registration statement, and each such
statement is qualified in all respects by reference to such exhibit. Copies of
the registration statement may be examined without charge at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Regional Offices of
the Commission at Suite 1400, 500 West Madison Street, Chicago, Illinois 60661
and 7 World Trade Center, Thirteenth Floor, New York, New York 10048. Copies of
all or any portion of the registration statement may be obtained from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington D.C. 20549, or by calling the Commission at
1-800-SEC-0330, at prescribed rates. The Commission also maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants, such as Lionbridge, that make
electronic filings with the Commission.
Lionbridge intends to furnish to its stockholders annual reports containing
financial statements audited by an independent public accounting firm.
65
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
LIONBRIDGE TECHNOLOGIES, INC.
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999 (unaudited)................. F-3
Consolidated Statements of Operations for the years ended December 31, 1997 and 1998 and the six months
ended June 30, 1998 and 1999 (unaudited)................................................................. F-4
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Deficit for the years
ended December 31, 1997 and 1998 and the six months ended June 30, 1999 (unaudited)...................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1998 and the six months
ended June 30, 1998 and 1999 (unaudited)................................................................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
THE LOCALIZATION BUSINESSES OF STREAM INTERNATIONAL HOLDINGS, INC. IN IRELAND,
THE NETHERLANDS AND FRANCE
Report of Independent Accountants.......................................................................... F-27
Combined Statement of Operations for the year ended December 31, 1996...................................... F-28
Combined Statement of Cash Flows for the year ended December 31, 1996...................................... F-29
Notes to Combined Financial Statements..................................................................... F-30
VERITEST, INC.
Report of Independent Accountants.......................................................................... F-34
Balance Sheet as of December 31, 1998...................................................................... F-35
Statement of Operations for the year ended December 31, 1998............................................... F-36
Statement of Shareholders' Equity for the year ended December 31, 1998..................................... F-37
Statement of Cash Flows for the year ended December 31, 1998............................................... F-38
Notes to Financial Statements.............................................................................. F-39
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Introduction to Unaudited Pro Forma Financial Statements................................................... F-43
Unaudited Pro Forma Statement of Operations for the year ended December 31, 1998........................... F-44
Unaudited Pro Forma Statement of Operations for the six months ended June 30, 1999......................... F-45
Notes to Unaudited Pro Forma Financial Statements.......................................................... F-46
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Lionbridge Technologies, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, redeemable convertible preferred stock
and stockholders' deficit and cash flows present fairly, in all material
respects, the financial position of Lionbridge Technologies, Inc. at December
31, 1997 and 1998, and the consolidated results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 9, 1999, except as to the
information presented under Reverse
Stock Split in Note 1, which is as of
August 13, 1999
F-2
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------- JUNE 30, JUNE 30,
1997 1998 1999 1999
------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(NOTE 2)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 1,098 $ 732 $ 1,455 $ 1,455
Accounts receivable, net of allowances of $366, $573
and $546 at December 31, 1997 and 1998 and June 30,
1999 (unaudited), respectively..................... 6,902 7,321 9,133 9,133
Work in process...................................... 2,386 3,929 3,674 3,674
Other current assets................................. 624 805 1,045 1,045
------- -------- ----------- -----------
Total current assets............................. 11,010 12,787 15,307 15,307
Property and equipment, net............................ 951 1,840 2,155 2,155
Goodwill, net.......................................... 6,710 7,370 10,325 10,325
Other assets........................................... 85 405 320 320
------- -------- ----------- -----------
Total assets................................... $18,756 $ 22,402 $ 28,107 $ 28,107
------- -------- ----------- -----------
------- -------- ----------- -----------
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Amounts owed to banks................................ $ 88 $ 416 $ 143 $ 143
Short-term debt...................................... 2,200 7,693 5,893 33,842
Accounts payable..................................... 3,118 3,964 3,761 3,761
Accrued compensation and benefits.................... 2,057 2,356 2,855 2,855
Other accrued expenses............................... 4,499 5,664 5,175 5,175
Deferred revenue..................................... 524 412 399 399
------- -------- ----------- -----------
Total current liabilities........................ 12,486 20,505 18,226 46,175
------- -------- ----------- -----------
Long-term debt, net of discount........................ -- -- 10,964 831
Redeemable convertible preferred stock, $0.01 par
value:
Series A convertible preferred stock, 17,271,314
shares authorized; 13,271,314 shares issued and
outstanding at December 31, 1997 and 1998 and June
30, 1999 (unaudited); no shares issued and
outstanding on a pro forma basis (unaudited)....... 14,356 15,418 15,949 --
Series B redeemable preferred stock, 200 shares
authorized; no shares issued and outstanding....... -- -- -- --
Series C convertible preferred stock, 17,271,514
shares authorized; no shares issued and
outstanding........................................ -- -- -- --
Series D nonvoting convertible preferred stock, 200
shares authorized; 140 shares issued and
outstanding at December 31, 1997 and 1998 and June
30, 1999 (unaudited); no shares issued and
outstanding on a pro forma basis (unaudited)....... -- -- -- --
Commitments and contingencies (Note 7)
Stockholders' deficit:
Common stock, $0.01 par value; 25,950,867 shares
authorized; 1,359,993, 1,963,614 and 2,371,799
shares issued and outstanding at December 31, 1997
and 1998 and June 30, 1999 (unaudited),
respectively, and 11,219,450 shares issued and
outstanding on a pro forma basis (unaudited)....... 14 20 24 112
Additional paid-in capital........................... 57 300 10,516 10,428
Accumulated deficit.................................. (8,898) (14,222) (24,518) (26,385)
Deferred compensation................................ -- -- (3,529) (3,529)
Accumulated other comprehensive income............... 741 381 475 475
------- -------- ----------- -----------
Total stockholders' deficit...................... (8,086) (13,521) (17,032) (18,899)
------- -------- ----------- -----------
Total liabilities, redeemable convertible
preferred stock and stockholders' deficit.... $18,756 $ 22,402 $ 28,107 $ 28,107
------- -------- ----------- -----------
------- -------- ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- ------------------------
1997 1998 1998 1999
--------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue.............................................. $ 26,462 $ 38,412 $ 18,132 $ 23,783
Cost of revenue...................................... 18,914 25,546 12,226 16,607
--------- --------- ----------- -----------
Gross profit................................... 7,548 12,866 5,906 7,176
--------- --------- ----------- -----------
Operating expenses:
Sales and marketing................................ 1,306 2,735 1,206 2,613
General and administrative......................... 8,210 10,889 5,238 6,894
Amortization of acquisition-related intangible
assets........................................... 4,400 2,145 1,194 1,579
Restructuring charges (Note 10).................... 541 501 451 --
Stock-based compensation........................... -- -- -- 232
--------- --------- ----------- -----------
Total operating expenses....................... 14,457 16,270 8,089 11,318
--------- --------- ----------- -----------
Loss from operations................................. (6,909) (3,404) (2,183) (4,142)
Interest expense..................................... (127) (648) (265) (4,988)
Other income (expense), net.......................... (506) 49 (22) (320)
--------- --------- ----------- -----------
Loss before income taxes............................. (7,542) (4,003) (2,470) (9,450)
Provision for income taxes........................... 112 259 53 315
--------- --------- ----------- -----------
Net loss............................................. (7,654) (4,262) (2,523) (9,765)
Accrued dividends on preferred stock................. (1,062) (1,062) (531) (531)
--------- --------- ----------- -----------
Net loss attributable to common stockholders......... $ (8,716) $ (5,324) $ (3,054) $ (10,296)
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Basic and diluted net loss per share attributable to
common stockholders................................ $ (8.85) $ (2.99) $ (1.89) $ (4.64)
Shares used in computing basic and diluted net loss
per share attributable to common stockholders...... 985 1,782 1,613 2,218
Unaudited pro forma basic and diluted net loss
per share.......................................... $ (0.44) $ (0.78)
Shares used in computing unaudited pro forma
basic and diluted net loss per share............... 11,977 13,198
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- ------------------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES PAR VALUE CAPITAL DEFICIT
--------- ----------- --------- ------------- ----------- ------------
Balance at December 31, 1996...................... 13,673,098 $ 13,696 984,608 $ 10 $ 5 $ (182)
<S> <C> <C> <C> <C> <C> <C>
Stock options exercised........................... 375,385 4 52
Issuance of Series A convertible preferred
stock........................................... 570,010 570
Repurchase of Series A convertible preferred stock
to be retired................................... (971,654) (972)
Accrual of dividends on preferred stock........... 1,062 (1,062)
Comprehensive loss:
Net loss........................................ (7,654)
Other comprehensive income:
Translation adjustment........................
Comprehensive loss..............................
--------- ----------- --------- --- ----------- ------------
Balance at December 31, 1997...................... 13,271,454 14,356 1,359,993 14 57 (8,898)
Issuance of common stock in connection with the
acquisition of Japanese Language Services,
Inc............................................. 286,959 3 83
Stock options exercised........................... 316,662 3 39
Accrual of dividends on preferred stock........... 1,062 (1,062)
Accretion of common stock to redemption value..... 121
Comprehensive loss:
Net loss........................................ (4,262)
Other comprehensive loss:
Translation adjustment........................
Comprehensive loss..............................
--------- ----------- --------- --- ----------- ------------
Balance at December 31, 1998...................... 13,271,454 15,418 1,963,614 20 300 (14,222)
Issuance of common stock in connection with the
acquisition of VeriTest, Inc.................... 66,668 1 343
Issuance of common stock in connection with the
acquisition of Japanese Language Services,
Inc............................................. 24,268 -- 35
Issuance of warrants in connection with debt
financing....................................... 5,967
Deferred compensation............................. 3,761
Amortization of deferred compensation.............
Stock options exercised........................... 317,249 3 50
Accrual of dividends on preferred stock........... 531 (531)
Accretion of common stock to redemption value..... 60
Comprehensive loss:
Net loss........................................ (9,765)
Other comprehensive income:
Translation adjustment........................
Comprehensive loss..............................
--------- ----------- --------- --- ----------- ------------
Balance at June 30, 1999 (unaudited).............. 13,271,454 $ 15,949 2,371,799 $ 24 $ 10,516 $ (24,518)
--------- ----------- --------- --- ----------- ------------
--------- ----------- --------- --- ----------- ------------
<CAPTION>
ACCUMULATED
OTHER TOTAL
DEFERRED COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE
COMPENSATION INCOME DEFICIT LOSS
--------------- --------------- ------------- ---------------
Balance at December 31, 1996...................... $ (167)
<S> <C> <C> <C> <C>
Stock options exercised........................... 56
Issuance of Series A convertible preferred
stock...........................................
Repurchase of Series A convertible preferred stock
to be retired...................................
Accrual of dividends on preferred stock........... (1,062)
Comprehensive loss:
Net loss........................................ (7,654) $ (7,654)
Other comprehensive income:
Translation adjustment........................ $ 741 741 741
---------------
Comprehensive loss.............................. $ (6,913)
------- ------------- ---------------
---------------
Balance at December 31, 1997...................... 741 (8,086)
Issuance of common stock in connection with the
acquisition of Japanese Language Services,
Inc............................................. 86
Stock options exercised........................... 42
Accrual of dividends on preferred stock........... (1,062)
Accretion of common stock to redemption value..... 121
Comprehensive loss:
Net loss........................................ (4,262) $ (4,262)
Other comprehensive loss:
Translation adjustment........................ (360) (360) (360)
---------------
Comprehensive loss.............................. $ (4,622)
------- ------------- ---------------
---------------
Balance at December 31, 1998...................... 381 (13,521)
Issuance of common stock in connection with the
acquisition of VeriTest, Inc.................... 344
Issuance of common stock in connection with the
acquisition of Japanese Language Services,
Inc............................................. 35
Issuance of warrants in connection with debt
financing....................................... 5,967
Deferred compensation............................. $ (3,761) --
Amortization of deferred compensation............. 232 232
Stock options exercised........................... 53
Accrual of dividends on preferred stock........... (531)
Accretion of common stock to redemption value..... 60
Comprehensive loss:
Net loss........................................ (9,765) $ (9,765)
Other comprehensive income:
Translation adjustment........................ 94 94 94
---------------
Comprehensive loss.............................. $ (9,671)
------- ------- ------------- ---------------
---------------
Balance at June 30, 1999 (unaudited).............. $ (3,529) $ 475 $ (17,032)
------- ------- -------------
------- ------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- ------------------------
1997 1998 1998 1999
--------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................... $ (7,654) $ (4,262) $ (2,523) $ (9,765)
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization of acquisition-related intangible
assets......................................... 4,400 2,145 1,194 1,579
Compensation expense for stock options granted... -- -- -- 232
Accretion of discount on subordinated notes
payable........................................ -- -- -- 4,099
Depreciation and amortization of property and
equipment...................................... 1,164 1,187 573 741
Provision for doubtful accounts.................. 380 182 75 35
Deferred income taxes............................ 112 206 -- --
Foreign currency (gain) loss on intercompany
transactions................................... 353 (67) 549 555
Changes in operating assets and liabilities, net
of effects of acquisitions:
Accounts receivable............................ 187 214 93 (2,334)
Work in process................................ (592) (828) (1,163) (47)
Other current assets........................... 690 (295) (229) (255)
Other assets................................... (78) (193) (34) 67
Accounts payable............................... (426) (401) (189) 90
Accrued compensation and benefits.............. 781 341 299 499
Other accrued expenses......................... 184 478 755 104
Deferred revenue............................... (943) (440) (105) 12
--------- --------- ----------- -----------
Net cash used in operating activities........ (1,442) (1,733) (705) (4,388)
--------- --------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment................ (923) (1,363) (1,154) (1,039)
Payments for businesses acquired, net of cash
acquired......................................... (18) (3,141) (3,141) (3,726)
Payments for Asian asset purchase, net of cash
acquired......................................... (85) -- -- --
Transfer of funds from escrow...................... 600 -- -- --
--------- --------- ----------- -----------
Net cash used in investing activities........ (426) (4,504) (4,295) (4,765)
--------- --------- ----------- -----------
Cash flows from financing activities:
Net increase (decrease) in amounts owed to banks... (522) 328 (68) (178)
Net increase (decrease) in short-term debt......... 1,197 5,551 5,795 (1,843)
Proceeds from long-term debt....................... -- -- -- 12,000
Proceeds from issuance of preferred stock.......... 570 -- -- --
Proceeds from exercise of common stock options..... 56 42 43 53
--------- --------- ----------- -----------
Net cash provided by financing activities.... 1,301 5,921 5,770 10,032
--------- --------- ----------- -----------
Net increase (decrease) in cash...................... (567) (316) 770 879
Effects of exchange rate changes on cash............. (130) (50) (89) (156)
Cash at beginning of period.......................... 1,795 1,098 1,098 732
--------- --------- ----------- -----------
Cash at end of period................................ $ 1,098 $ 732 $ 1,779 $ 1,455
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
NATURE OF THE BUSINESS
Lionbridge Technologies, Inc. and its subsidiaries (collectively,
"Lionbridge") is a provider of globalization services to software publishers,
computer hardware manufacturers and telecommunications companies. Globalization
services, including localization, internationalization and testing, enable
simultaneous worldwide release and ongoing maintenance of products and
product-related technical support, training materials, and sales and marketing
information in multiple languages. Lionbridge has its head office in the United
States, with operations in France, Ireland, The Netherlands, China, Japan, South
Korea and the United States.
FORMATION OF LIONBRIDGE AND BASIS OF PRESENTATION
Lionbridge was incorporated on September 11, 1996 in order to effect the
acquisition of certain elements of the localization businesses of Stream
International Holdings, Inc. ("Stream"). Funding for the acquisition was
provided through the issuance of common and preferred stock in Lionbridge and in
a majority-owned subsidiary of Lionbridge.
On December 23, 1996, Lionbridge entered into an agreement with Stream to
acquire its localization businesses in Ireland, The Netherlands and France (see
Note 4). The purchase accounting for the acquisition of the businesses was
recorded as though the purchase had occurred on December 31, 1996, as the
results of operations and changes in financial position between December 23,
1996 and this date were immaterial.
The December 23, 1996 agreement with Stream also contemplated the
acquisition of certain businesses in Asia. However, Lionbridge did not acquire
such businesses as planned, and renegotiated the agreement in July 1997. As a
result, a note payable for $840,000 issued to Stream in contemplation of the
December 23, 1996 agreement was canceled, and restricted cash of $600,000, which
was held in escrow at December 31, 1996 and was to be paid to Stream on
completion of the Asian acquisition, was returned to Lionbridge, net of certain
payments otherwise due.
On July 3, 1997, Lionbridge entered into a new agreement with Stream to
purchase work in process and certain other assets of Stream's Japanese, Chinese
and Taiwanese localization businesses as of April 1, 1997, and of the South
Korean localization business as of July 3, 1997, in exchange for approximately
$100,000 of cash plus the assumption of liabilities of $317,000 for the
completion of work under existing customer contracts. As these assets did not
comprise businesses, the Company allocated the purchase price based on their
fair values.
REVERSE STOCK SPLIT
Effective August 13, 1999, the Company's Board of Directors declared a
2-for-3 reverse stock split. All references in the consolidated financial
statements to shares of common stock have been retroactively adjusted to reflect
this reverse stock split.
F-7
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES:
The accompanying consolidated financial statements of Lionbridge reflect the
application of certain significant accounting policies as described below:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Lionbridge and its wholly owned subsidiaries from the effective date of their
acquisition or formation. All significant intercompany accounts and transactions
have been eliminated in the consolidated financial statements.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The consolidated financial statements and related notes of Lionbridge for
the six months ended June 30, 1998 and 1999 are unaudited. Management believes
the unaudited consolidated financial statements have been prepared on the same
basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations in such
periods. Results of operations for the six months ended June 30, 1998 and 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999, or for any other future period.
UNAUDITED PRO FORMA BALANCE SHEET
Upon the closing of Lionbridge's anticipated initial public offering of
securities, certain transactions will occur automatically. The unaudited pro
forma information included on the balance sheet at June 30, 1999 reflects these
transactions as if they had occurred on June 30, 1999, as follows (see Notes 6
and 8):
- the exchange of an aggregate of 13,271,454 shares of Series A convertible
preferred stock and Series D nonvoting convertible preferred stock
outstanding as of June 30, 1999 for 132.7145 shares of Series B redeemable
preferred stock and 8,847,649 shares of Series C convertible preferred
stock;
- the redemption of the 132.7145 shares of Series B redeemable preferred
stock for $15,949,000, including accrued and unpaid dividends, presented
as a reclassification of long-term debt, net of discount to short-term
debt;
- the conversion of the 8,847,649 shares of Series C convertible preferred
stock into 8,847,649 shares of common stock; and
- the repayment of subordinated notes payable for $12,000,000, presented as
a reclassification of long-term debt, net of discount to short-term debt,
and the associated impact on accumulated deficit of the write-off of the
unamortized discount on these notes of $1,867,000 as of June 30, 1999.
REVENUE RECOGNITION
Lionbridge recognizes revenue from the provision of services to its
customers on the percentage-of-completion method of accounting, based on costs
incurred as a percentage of management's estimates of total costs of individual
contracts. Anticipated losses by project, if any, are recognized in the period
in which determined.
F-8
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ADVERTISING COSTS
Advertising costs are included in sales and marketing expenses and are
expensed as incurred. Advertising costs were $0 and approximately $120,000 for
the years ended December 31, 1997 and 1998, respectively.
FOREIGN CURRENCY TRANSLATION
The functional currency for each of Lionbridge's foreign operations is the
local currency of the country in which those operations are based. Revenues and
expenses of foreign operations are translated into U.S. dollars at the average
rates of exchange during the period. Assets and liabilities of foreign
operations are translated into U.S. dollars at period-end rates of exchange.
Resulting cumulative translation adjustments are reflected as a separate
component of accumulated other comprehensive income in stockholders' deficit.
Foreign currency transaction gains or losses, arising from exchange rate
fluctuations on transactions denominated in currencies other than the functional
currencies, are included in other income (expense), net in the consolidated
statements of operations and were $(472,000) and $49,000 for the years ended
1997 and 1998, respectively.
For the purpose of the disclosure of comprehensive loss, Lionbridge does not
record tax provisions or benefits for the net changes in foreign currency
translation adjustments, as Lionbridge intends to permanently reinvest
undistributed earnings in its foreign subsidiaries.
WORK IN PROCESS
Work in process represents the value of work performed but not billed. Work
in process is calculated using the percentage-of-completion method based on
total anticipated costs and is stated at cost plus estimated profit, but not in
excess of net realizable value. Billing of amounts in work in process occurs
according to customer-agreed payment schedules or upon completion of specified
project milestones. All of Lionbridge's projects in work in process are expected
to be billed and collected within one year.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated over the estimated
useful lives of the assets using the straight-line method, based upon the
following asset lives:
<TABLE>
<S> <C>
Computer software and equipment 1 to 5 years
Furniture and office equipment 3 to 5 years
Leasehold improvements Shorter of lease term or useful life of
asset
</TABLE>
Upon retirement or other disposition, the cost and related accumulated
depreciation of the assets are removed from the accounts and the resulting gain
or loss is reflected in the determination of net income or loss. Expenditures
for maintenance and repairs are expensed as incurred.
INTANGIBLE ASSETS
Goodwill represents the excess of cost over the fair value of the net assets
of businesses acquired. Goodwill is amortized using the straight-line method
over five years.
F-9
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
LONG-LIVED ASSETS
Lionbridge periodically evaluates the net realizable value of long-lived
assets, including goodwill and property and equipment, relying on a number of
factors including operating results, business plans, economic projections and
anticipated future cash flows. An impairment in the carrying value of an asset
is assessed when the undiscounted, expected future operating cash flows derived
from the asset are less than its carrying value.
INCOME TAXES
Deferred income taxes are recognized based on the temporary differences
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the temporary differences are
expected to reverse. Valuation allowances are provided if, based on the weight
of available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS AND PRO FORMA NET
LOSS PER SHARE
Basic and diluted earnings per share are computed in accordance with SFAS
No. 128, "Earnings per Share." Basic net loss per share attributable to common
stockholders is computed by dividing net loss attributable to common
stockholders by the weighted average number of shares of common stock
outstanding. There is no difference between basic and diluted earnings per share
since potential common shares from the conversion of preferred stock and
exercises of stock options and warrants are anti-dilutive for all periods
presented.
Unaudited pro forma basic and diluted net loss per share for the year ended
December 31, 1998 and the six months ended June 30, 1999 is computed using the
weighted average number of common shares outstanding, adjusted to include the
impact of certain transactions that will occur automatically upon the closing of
Lionbridge's anticipated initial public offering of securities, as follows:
- the addition of 8,847,649 shares of common stock for each of the year
ended December 31, 1998 and the six months ended June 30, 1999, resulting
from the exchange of an aggregate of 13,271,454 shares of Series A and
Series D convertible preferred stock for 8,847,649 shares of Series C
convertible preferred stock, and the conversion of these shares into
8,847,649 shares of common stock; and
- the addition of 1,347,044 and 2,132,517 shares of common stock for the
year ended December 31, 1998 and the six months ended June 30, 1999,
respectively, to reflect the number of shares of common stock from the
anticipated initial public offering from which proceeds are deemed to be
used to repay the subordinated notes of $12,000,000 and to redeem the
132.7145 shares of Series B redeemable preferred stock with accrued
dividends for $15,949,000, based on an assumed net offering price of
$11.84 per share, weighted from the beginning of the periods for the
preferred stock and from the date of issuance for the subordinated notes.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Lionbridge accounts for stock-based awards to employees using the intrinsic
value method as prescribed by Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, no compensation expense is recorded for options
F-10
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
issued to employees in fixed amounts and with fixed exercise prices at least
equal to the fair market value of Lionbridge's common stock at the date of
grant. When the exercise price of stock options granted to employees is less
than the fair market value of common stock at the date of grant, Lionbridge
records that difference multiplied by the number of shares under option as
deferred compensation, which is then amortized over the vesting period of the
options. Lionbridge has adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," through disclosure only (see Note 8). All stock-based
awards to non-employees are accounted for at their fair value in accordance with
SFAS No. 123.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates. Estimates are used when accounting for the collectibility of
receivables, calculating revenue using the percentage-of-completion method, and
valuing intangible assets, deferred tax assets and net assets of businesses
acquired.
CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments which potentially subject Lionbridge to concentrations
of credit risk consist principally of trade accounts receivables. Concentrations
of credit risk with respect to trade accounts receivable are limited due to the
dispersion of customers across different geographic regions, although globally
some customers constitute a significant percentage of total revenue (see Note
11). Lionbridge does not require collateral or other security against trade
receivable balances; however, it maintains reserves for potential credit losses
and such losses have been within management's expectations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments, including cash, accounts receivable, accounts
payable, redeemable preferred stock and debt, are carried in the consolidated
financial statements at amounts that approximate fair values at December 31,
1997 and 1998 and June 30, 1999 (unaudited). Fair values are based on quoted
market prices and assumptions concerning the amount and timing of estimated
future cash flows and assumed discount rates, reflecting varying degrees of
perceived risk.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The standard requires that all derivative
instruments be recorded on the balance sheet at their fair values. Changes in
the fair values of derivatives are recorded each period in current earnings or
other comprehensive income (loss), depending on whether or not a derivative is
designated as part of a hedge transaction and, if it is, depending on the type
of hedge transaction. SFAS No. 133, as amended by SFAS No. 137, will be
effective for Lionbridge's fiscal quarter beginning January 1, 2001 and its
adoption is not expected to have a material impact on Lionbridge's financial
position or results of operations.
F-11
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SOP 98-5, the cost of start-up activities should be expensed as incurred.
SOP 98-5 is effective for Lionbridge's fiscal 1999 financial statements, and
Lionbridge does not expect its adoption to have a material effect on its
financial position or results of operations.
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
Computer software and equipment................................. $ 1,400,000 $ 2,035,000
Furniture and office equipment.................................. 527,000 708,000
Leasehold improvements.......................................... 138,000 327,000
------------- -------------
2,065,000 3,070,000
Less: Accumulated depreciation and amortization................. (1,114,000) (1,230,000)
------------- -------------
$ 951,000 $ 1,840,000
------------- -------------
------------- -------------
</TABLE>
4. BUSINESS COMBINATIONS:
LOCALIZATION BUSINESS OF STREAM
On December 23, 1996, Lionbridge acquired the localization businesses of
Stream in Ireland, The Netherlands and France (see Note 1). In accordance with
the acquisition agreement, Lionbridge paid Stream aggregate cash consideration
of $11,300,000 in exchange for all of the outstanding common stock of R.R.
Donnelley Language Solutions International B.V. and Stream International
Language Solutions as well as the assumption of tax liabilities of $100,000
incurred in connection with the transaction.
The business combination was accounted for using the purchase method of
accounting, and the results of the acquired localization business have been
included in Lionbridge's financial statements as of December 31, 1996 (see Note
1). The purchase price, including direct costs of the acquisition, was allocated
based on the fair values of the acquired assets and assumed liabilities as
follows:
<TABLE>
<CAPTION>
<S> <C>
Current assets................................................................ $ 11,417,000
Current liabilities........................................................... (12,516,000)
Property and equipment........................................................ 1,350,000
Non-compete agreement......................................................... 2,559,000
Goodwill...................................................................... 9,224,000
--------------
$ 12,034,000
--------------
--------------
</TABLE>
In 1997, Lionbridge submitted a claim to Stream for the reimbursement of a
portion of the purchase consideration under the indemnity terms of the December
23, 1996 agreement. This claim was ultimately resolved through a settlement
agreement with Stream, effective December 31, 1997 (see
F-12
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. BUSINESS COMBINATIONS: (CONTINUED)
Note 6). Under the terms of this agreement, the purchase price for the European
businesses was reduced by $531,000. This amount was deducted from goodwill at
December 31, 1997.
During 1997 and 1998, acquired net operating loss carryforwards of
$1,120,000 and $1,291,000, respectively, were utilized to offset taxable income
in Ireland and The Netherlands. As the deferred tax assets associated with these
losses had been fully reserved at the time of the Stream acquisition, the
benefits were recorded as reductions to goodwill of $112,000 and $207,000 in
1997 and 1998, respectively.
JAPANESE LANGUAGE SERVICES
On February 27, 1998, Lionbridge entered into an agreement to acquire all of
the outstanding stock of Japanese Language Services, Inc., a company based in
Massachusetts with additional operations in Japan, for total initial
consideration of $2,323,000 consisting of cash of $2,237,000 and 286,959 shares
of common stock valued at $86,000. The shares of common stock may be redeemed,
at the option of the holder, at a price of $1.35 per share at any time from July
2001 to September 2001. The carrying amount of the redeemable common stock will
be increased to the redemption amount of $387,000 over the 30-month period
ending July 2001. The agreement also requires certain contingent stock
issuances, limited to 24,268 shares of common stock, and cash payments, limited
to $625,000, dependent on future operating results of Japanese Language
Services, Inc. through December 31, 1999. This agreement was effective January
2, 1998, when operating control of Japanese Language Services, Inc. was assumed
by Lionbridge. The acquisition was accounted for using the purchase method of
accounting, and the results of Japanese Language Services, Inc. have been
included in Lionbridge's financial statements as of the effective date. The
purchase price, including direct costs of the acquisition, was allocated based
on the fair values of the acquired assets and assumed liabilities as follows:
<TABLE>
<CAPTION>
<S> <C>
Current assets................................................................ $ 935,000
Current liabilities........................................................... (789,000)
Property and equipment........................................................ 247,000
Goodwill...................................................................... 1,999,000
--------------
$ 2,392,000
--------------
--------------
</TABLE>
The initial calculation of goodwill did not include any anticipated
contingent consideration. Additional goodwill of $375,000 was recorded at
December 31, 1998 in connection with an incremental payment being due under the
contingent payment arrangement. Future payments under the contingent payment
arrangement, if any, will similarly increase goodwill. Goodwill was also
increased by $120,000 and $60,000 (unaudited) during the year ended December 31,
1998 and the six months ended June 30, 1999, respectively, related to the
accretion to the redemption amount of the redeemable common stock. Pro forma
statements of operations would not differ materially from reported results.
ILT SOLUTIONS GROUP
On April 1, 1998, Lionbridge acquired certain assets and operations of the
ILT Solutions Group of Lucent Technologies, Inc. for cash of $1,000,000. The
acquisition was accounted for using the purchase method of accounting. The
purchase price, including direct costs of the acquisition, was allocated to
current assets of $244,000, property and equipment of $299,000 and goodwill of
$470,000 based on their
F-13
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. BUSINESS COMBINATIONS: (CONTINUED)
fair values at the acquisition date. The results of the ILT Solutions Group are
included in these financial statements from the date of the acquisition. Pro
forma statements of operations would not differ materially from reported
results.
VERITEST, INC.
On January 11, 1999, Lionbridge entered into an agreement to acquire all of
the stock of VeriTest, Inc., a company based in California, for total initial
consideration of $4,354,000 consisting of cash of $3,260,000, 66,668 shares of
common stock valued at $344,000, and notes payable for $750,000. The agreement
also requires certain contingent cash payments, limited to $1,000,000, dependent
on future operating performance through December 31, 2000. This acquisition was
accounted for using the purchase method of accounting. The purchase price,
including direct costs of the acquisition, was allocated based on the fair
values of the acquired assets and assumed liabilities as follows:
<TABLE>
<CAPTION>
<S> <C>
Current assets................................................................ $ 522,000
Current liabilities........................................................... (616,000)
Property and equipment........................................................ 175,000
Goodwill...................................................................... 4,338,000
--------------
$ 4,419,000
--------------
--------------
</TABLE>
The initial calculation of goodwill did not include any contingent
consideration. Future payments, if any, under the contingent payment arrangement
will increase goodwill. The initial calculation of goodwill is subject to
adjustment when additional information on the valuation of customer contracts
and intellectual property is finalized. An allocation of the purchase price to
such assets, if any, would decrease goodwill by a corresponding amount. The
results of VeriTest, Inc. are included in these financial statements from the
date of acquisition.
The following unaudited pro forma consolidated results of operations for the
year ended December 31, 1998 and the six-month period ended June 30, 1999 assume
that the acquisition of VeriTest, Inc. occurred as of January 1, 1998:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C> <C>
Revenue......................................................... $ 42,147 $ 23,783
Net loss........................................................ (6,615) (9,982)
Basic and diluted net loss per share attributable to common
stockholders.................................................. (4.08) (4.72)
</TABLE>
For each period presented, the pro forma results include estimates of the
interest expense on debt used to finance the purchase and the depreciation and
amortization of intangible and other fixed assets based on the purchase price
allocation. These pro forma amounts do not purport to be indicative of the
results that would have actually been obtained if the acquisition had occurred
on January 1, 1998 or that may be obtained in the future.
The expense of amortizing goodwill from all acquisitions prior to December
31, 1998 was $1,841,000 and $2,145,000 in 1997 and 1998, respectively.
Additionally, amortization of $2,559,000 was recorded in 1997 in connection with
a noncompete agreement between Lionbridge and Stream.
F-14
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. AMOUNTS OWED TO BANKS:
Amounts owed to banks represent temporary, unsecured overdraft facilities
utilized by Lionbridge's operations in Ireland, France, Holland and the United
States.
6. DEBT:
SETTLEMENT AGREEMENT
On June 10, 1998, Lionbridge entered into an agreement with certain
companies that had previously been part of the Stream organization to settle
various outstanding amounts due between Lionbridge and Stream, including the
indemnity claim submitted by Lionbridge (see Note 4); a note payable to Stream
of $569,000, together with accrued interest of $39,000; and the amount due to
Stream on the exercise of its put option to sell 971,654 shares of Series A
convertible preferred stock to Lionbridge (see Note 8). In settlement of all
amounts due to and from Stream (or successor companies), Lionbridge agreed to
pay an interest-free amount of $700,000 in seven equal monthly installments
beginning February 1998. This note was recorded in current liabilities at
December 31, 1997 and was paid during 1998. The net effect of the settlement
agreement was to reduce by $531,000 the Company's purchase price for the
European business acquired from Stream. The effective date of this agreement was
December 31, 1997, and its impact was reflected in the consolidated financial
statements as of that date.
LINE OF CREDIT
On September 26, 1997, Lionbridge entered into a line of credit agreement
with a commercial bank. The agreement was subsequently amended on May 21, 1998
and May 20, 1999 (unaudited) and expires on September 20, 1999. At the time of
the May 1998 amendment, Lionbridge issued a warrant for the purchase of 83,334
shares of common stock at an exercise price of $2.40 per share. This warrant was
exercisable immediately and expires on May 21, 2003. The value ascribed to this
warrant was immaterial. Under the amended terms of the agreement, Lionbridge may
borrow up to $8,000,000, based on the value of certain eligible current assets
worldwide.
The interest rate payable on any outstanding borrowings is prime plus 1% per
year (9.5% and 8.8% at December 31, 1997 and 1998, respectively), and Lionbridge
was required to pay a facility fee of $50,000 on the signing of the agreement.
This fee and other direct arrangement expenses were amortized over the initial
term of the agreement, which expired on May 22, 1998. Borrowings outstanding
under the line of credit agreement are collateralized by certain assets of
Lionbridge. The amount outstanding on the line of credit at December 31, 1997
and 1998 was $1,500,000 and $7,693,000, respectively, and $5,893,000 as of June
30, 1999 (unaudited).
The agreement requires Lionbridge to maintain certain financial ratios and
restricts the payment of dividends. As of December 31, 1997 and 1998, Lionbridge
was in compliance with the financial covenants as subsequently amended by the
bank.
ADDITIONAL FINANCING
On January 8, 1999, Lionbridge entered into a bridge loan agreement with a
third party. Under the terms of the agreement, Lionbridge issued a $4,000,000,
12% senior subordinated note. On February 26, 1999, Lionbridge entered into a
new subordinated debt agreement with the same party and terminated the bridge
loan agreement. Under the terms of the new agreement, Lionbridge issued
$10,000,000, 12% senior subordinated convertible notes. The notes are repayable
in quarterly
F-15
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. DEBT: (CONTINUED)
installments beginning in March 2003, with final settlement of the principal and
interest due in February 2006. The notes are subject to certain covenant
restrictions, including the maintenance of a defined minimum current asset to
current liability ratio and a minimum profitability measure, and are
collateralized by certain assets of Lionbridge. In connection with the issuance
of these notes, Lionbridge issued detachable warrants to purchase 1,277,716
shares of common stock at a price of $0.015 per share, valued at $4,972,000.
On January 11, 1999, Lionbridge entered into two substantially identical
promissory note agreements with the former owners of VeriTest, Inc. in
connection with the acquisition of this business (see Note 4). The notes are for
an aggregate amount of $750,000 and are payable in one installment on January
11, 2001. Interest on the notes is due annually at a rate of 8%.
On March 9, 1999, Lionbridge entered into a subordinated debt agreement with
a stockholder. Under the terms of the agreement, Lionbridge issued $2,000,000,
12% senior subordinated convertible notes. The notes are repayable in quarterly
installments beginning in March 2003, with final settlement of the principal and
interest due in March 2006. The notes are collateralized by certain assets of
Lionbridge and are subject to certain covenant restrictions, including the
maintenance of a defined minimum current asset to current liability ratio and a
minimum profitability measure. In connection with the issuance of these notes,
Lionbridge issued detachable warrants to purchase 255,544 shares of common stock
at a price $0.015 per share, valued at $995,000.
Lionbridge is required to repay each of the above notes, together with all
accrued and unpaid interest, upon the closing of certain defined liquidity
events, including the initial public offering of securities with aggregate
proceeds of at least $25,000,000. The detachable warrants issued in connection
with these financings expire on the later of (i) the seventh anniversary of the
issuance of the warrant and (ii) the date when each related note is paid in
full. If not otherwise exercised, the warrants will be automatically exercised
in accordance with their terms immediately prior to any expiration. The
aggregate value of these warrants was recorded as a discount on subordinated
notes payable and is being amortized as additional interest expense using the
straight-line method over the period from issuance until August 1999, based on
the expected repayment of the debt upon the initial public offering of
securities by Lionbridge.
As of March 31, 1999, Lionbridge was not in compliance with one of the
covenants common to each of the above notes. Lionbridge subsequently obtained
waivers from the debtholders which release it from the requirement to comply
with that covenant for the quarter ended March 31, 1999 and for the quarters
ending June 30 and September 30, 1999.
F-16
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company leases certain equipment and office space under noncancelable
agreements and leases which expire at various dates through 2003. Future minimum
lease payments under noncancelable operating leases at December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- --------------------------------------------------------------------------------
<S> <C>
1999............................................................................ $ 746,000
2000............................................................................ 564,000
2001............................................................................ 334,000
2002............................................................................ 229,000
2003............................................................................ 298,000
Thereafter...................................................................... 2,019,000
------------
$ 4,190,000
------------
------------
</TABLE>
Total rental expenses charged to operations were $697,000 and $952,000 in
1997 and 1998, respectively.
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT:
SERIES A AND SERIES D CONVERTIBLE PREFERRED STOCK
VOTING
The holders of Series A preferred stock are entitled to one vote for each
whole share of common stock issuable upon conversion to Series C preferred stock
and thereon to common stock. The holders of Series A preferred stock vote with
the holders of common stock, and certain other outstanding preferred stock, as a
single class. The holders of Series D preferred stock have no voting rights.
DIVIDENDS
Holders of Series A and Series D preferred stock are entitled to receive
dividends or other distributions in an amount based upon, and in advance of, the
planned dividend or other distribution to holders of common stock.
LIQUIDATION
In the event of any liquidation, dissolution or winding up of Lionbridge,
the holders of Series A and Series D preferred stock are entitled to be paid out
of the assets available for distribution, in preference to any payment to the
holders of common or more junior preferred stock, but subordinated to payments
to the holders of more senior preferred stock, an amount of $1.00 per share,
plus any dividends declared but unpaid, plus a premium of $0.08 per year from
the date of issue, plus an amount per share that would have been payable had
each share of Series A and Series D preferred stock been converted into shares
of common stock immediately prior to liquidation, dissolution or winding up.
In the event of a merger or consolidation of Lionbridge with another
corporation, with certain exemptions, or the sale of substantially all the
assets of Lionbridge, holders of 66 2/3% or more of the Series A or Series D
preferred stock may elect to consider the event to be a liquidation of
Lionbridge.
F-17
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT: (CONTINUED)
EXCHANGE
Each share of Series A and Series D preferred stock is exchangeable, at the
option of the holder, into 1/100,000 of a share of Series B preferred stock and
a specified number of shares of Series C preferred stock based on an exchange
ratio, subject to adjustment under specified terms and conditions (2-for-3 at
December 31, 1998). Certain terms exist to protect the exchange rights of the
holders of Series A and Series D preferred stock in the event of further
issuances of common stock or a merger or reorganization of Lionbridge.
In the event of a public offering of the Company's common stock at a price
of at least $6.00 per share with gross proceeds of at least $15,000,000, all
shares of Series A and Series D preferred stock will automatically be exchanged
for shares of Series B and C preferred stock at the effective exchange rates.
SERIES B REDEEMABLE PREFERRED STOCK
VOTING
The holders of Series B preferred stock are not entitled to vote, except in
certain specified circumstances.
DIVIDENDS
Holders of Series B preferred stock are not entitled to receive dividends.
LIQUIDATION
In the event of any liquidation, dissolution or winding up of Lionbridge,
the holders of Series B preferred stock are entitled to be paid out of the
assets available for distribution, in preference to any payment to the holders
of common or more junior preferred stock, but subordinated to payments to the
holders of more senior preferred stock, an amount of $100,000 per share, plus
any dividends declared but unpaid, plus a premium of $8,000 per share per year.
REDEMPTION
On December 23, 2001, the Series B preferred stock becomes redeemable at the
request of 66 2/3% or more of the holders and to the extent permitted by legally
available funds. The redemption price is equal to $100,000 per share, plus any
unpaid dividends, plus a premium of $8,000 per share per year, for all shares of
Series B preferred stock issued or issuable upon conversion of the outstanding
Series A preferred stock and Series D preferred stock. In any event, to the
extent permitted by legally available funds, all outstanding shares of Series B
preferred stock must be redeemed by December 23, 2003.
In the event of a public offering of the Company's common stock at a price
of at least $6.00 per share with gross proceeds of at least $15,000,000, the
merger or consolidation of Lionbridge with another corporation, with certain
exemptions, or the sale of substantially all the assets of Lionbridge, all
shares of Series B preferred stock must be redeemed for the amount specified
above (a "Mandatory Redemption"). In connection with any Mandatory Redemption,
Lionbridge is not required to redeem a number of shares of its Series B
preferred stock that would result in it paying more than 50% of its consolidated
net income before taxes for the preceding year. The redemption of any shares not
redeemed as a result of the application of the provision described in the
preceding sentence is deferred
F-18
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT: (CONTINUED)
until the earlier of the date that Lionbridge has sufficient consolidated net
income before taxes to redeem such shares or December 23, 2003.
SERIES C CONVERTIBLE PREFERRED STOCK
VOTING
The holders of Series C preferred stock are entitled to one vote for each
whole share of common stock issuable upon conversion. The holders of Series C
preferred stock vote with the holders of common stock, and any other outstanding
preferred stock, as a single class.
DIVIDENDS
Holders of Series C preferred stock are entitled to receive dividends or
other distributions in an amount based upon, and in advance of, the planned
dividend or other distribution to holders of common stock.
LIQUIDATION
In the event of any liquidation, dissolution or winding up of Lionbridge,
the holders of Series C preferred stock are entitled to be paid out of the
assets available for distribution, in preference to any payment to the holders
of common or more junior preferred stock, but subordinated to payments to the
holders of more senior preferred stock, an amount per share that would have been
payable had each share of Series C preferred stock been converted into shares of
common stock.
In the event of a merger or consolidation of Lionbridge with another
corporation, with certain exemptions, or the sale of substantially all the
assets of Lionbridge, holders of 66 2/3% or more of the Series C preferred stock
may elect to consider the event to be a liquidation of Lionbridge.
CONVERSION
Each share of Series C preferred stock is convertible, at the option of the
holder, into a specified number of shares of common stock based on a conversion
ratio, subject to adjustment under specified terms and conditions (1-for-1 at
December 31, 1998). Certain terms exist to protect the conversion rights of the
holders of Series C preferred stock in the event of further issuances of common
stock or a merger or reorganization of Lionbridge.
In the event of a public offering of the Company's common stock at a price
of at least $6.00 per share with gross proceeds of at least $15,000,000, all
shares of Series C preferred stock will automatically be converted into shares
of common stock at the effective conversion rate.
TREASURY STOCK
In connection with the December 23, 1996 financing of Lionbridge, Stream was
granted a put option to sell 971,654 shares of Series A preferred stock to
Lionbridge.
On September 25, 1997, Stream exercised its put option and Lionbridge
acquired 971,654 shares of its Series A preferred stock at a cost of $971,654.
Settlement of this amount due to Stream was resolved through a subsequent
agreement (see Note 6). In 1998, Lionbridge retired all of the shares acquired.
F-19
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT: (CONTINUED)
STOCK OPTION PLANS
Lionbridge maintains a stock option plan (the "Plan") for the issuance of
incentive and nonqualified stock options. The number of shares of common stock
available for issuance under the Plan was 2,855,365 shares, an amount which
increased to 3,522,032 shares on April 23, 1998. Options to purchase common
stock are granted at the discretion of the Board of Directors.
Generally, stock options vest over a four-year period as follows: 25% on the
first anniversary of the date of grant and semi-annually thereafter in equal
installments over the remaining three-year period. Stock options generally
expire ten years (five years in certain cases) from the date of grant.
Under the terms of the Plan, the exercise price of incentive stock options
granted must not be less than 100% (110% in certain cases) of the fair market
value of the common stock on the date of grant, as determined by the Board of
Directors. The exercise price of nonqualified stock options may be less than the
fair market value of the common stock on the date of grant, as determined by the
Board of Directors, but in no case may the exercise price be less than the
statutory minimum. The Board of Directors, in assessing the fair market value of
Lionbridge's common stock, considers factors relevant at the time, including
recent third-party transactions, significant new customers, composition of the
management team, recent hiring results, Lionbridge's financial condition and
operating results and the lack of a public market for Lionbridge's common stock.
Transactions involving the Plan for the period from January 1, 1997 to
December 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
---------- -----------
<S> <C> <C>
Outstanding at January 1, 1997........................................ 1,501,529 $ 0.165
Granted............................................................... 1,472,555 0.150
Exercised............................................................. (375,385) 0.150
Canceled.............................................................. (382,363) 0.150
----------
Outstanding at December 31, 1997...................................... 2,216,336 0.165
Granted............................................................... 407,573 0.525
Exercised............................................................. (316,662) 0.135
Canceled.............................................................. (115,025) 0.195
----------
Outstanding at December 31, 1998...................................... 2,192,222 0.225
----------
----------
</TABLE>
Options for 0 and 421,380 shares were exercisable at December 31, 1997 and
1998, respectively.
There were 263,644 and 637,763 shares available for future grant under the
Plan at December 31, 1997 and 1998, respectively.
F-20
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT: (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------- ------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------------ ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$0.150 - $0.165 8.09
1,800,349 years $ 0.165 421,380 $ 0.165
0.300 - 0.450 9.13
285,797 years 0.300 -- 0.300
0.900 9.58
69,917 years 0.900 -- 0.900
1.500 9.83
36,159 years 1.500 -- 1.500
----------- -----------
2,192,222 421,380
----------- -----------
----------- -----------
</TABLE>
Had compensation cost for stock options granted to employees been determined
based on the fair value at the date of grant for awards in the period from
inception (September 11, 1996) to December 31, 1998, consistent with the
provisions of SFAS No. 123, Lionbridge's net loss for 1997 and 1998 would have
been increased to $7,668,000 and $4,283,000, and the net loss per common share
attributable to common stockholders for 1997 and 1998 would have been increased
to $8.87 and $3.00, respectively. The fair value of options granted during 1997
and 1998 was $0.02 and $0.06, respectively.
For these pro forma calculations, the fair value of each option granted was
estimated on the date of grant using the minimum value option pricing model,
utilizing the following weighted-average assumptions: (1) weighted-average risk
free interest rates of 6.11% and 5.40% for 1997 and 1998, respectively, (2)
weighted-average expected option life of 4.0 years, and (3) expected dividend
yield of 0.
The effects of applying the fair value method may be material to the pro
forma results of operations in future years because the determination of the
fair value of all options granted after Lionbridge becomes a public entity will
include an expected volatility factor, additional option grants are expected to
be made subsequent to December 31, 1998, and most options vest over several
years.
DEFERRED COMPENSATION (UNAUDITED)
During the six months ended June, 1999, Lionbridge granted stock options to
purchase 843,700 shares of its common stock at exercise prices ranging from
$1.50 to $9.75 per share. Lionbridge recorded deferred compensation relating to
these options totaling $3,761,000, representing the aggregate difference between
the estimated fair market value of Lionbridge's common stock on the date of
grant and the exercise price of each option. This deferred compensation is being
amortized over the four-year vesting period of the related options, resulting in
amortization of $232,000 in the six months ended June 30, 1999.
9. INCOME TAXES:
The provisions for income taxes for the years ended December 31, 1997 and
1998 are due to taxable income generated in foreign jurisdictions for which U.S.
tax credit utilization is currently uncertain. The benefit from the utilization
of net operating loss carryforwards in Europe during the years ended December
31, 1997 and 1998 was recorded as a reduction of goodwill of $112,000 and
F-21
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES: (CONTINUED)
$207,000, respectively, rather than a tax provision benefit, since the deferred
tax assets associated with these carryforwards had been fully reserved at the
time of the acquisition of the businesses from Stream (see Note 4). Lionbridge
recorded no tax benefit for losses generated during these periods due to the
uncertainty of realizing such benefits.
The components of the loss before income taxes were as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
United States....................................................................... $ (6,115,000) $ (4,636,000)
Foreign............................................................................. (1,427,000) 633,000
------------- -------------
Loss before income taxes............................................................ $ (7,542,000) $ (4,003,000)
------------- -------------
------------- -------------
</TABLE>
The consolidated deferred tax assets of the Company were as follows at
December 31:
<TABLE>
<CAPTION>
1997 1998
------------- ------------
<S> <C> <C>
U.S. net operating loss carryforwards................................................ $ 564,000 $ 1,309,000
Foreign net operating loss carryforwards............................................. 1,623,000 1,696,000
Difference in accounting for amortization and depreciation........................... 1,136,000 1,113,000
Other................................................................................ 77,000 32,000
Valuation allowance.................................................................. (3,400,000) (4,150,000)
------------- ------------
Net deferred tax asset............................................................... -- --
------------- ------------
------------- ------------
</TABLE>
Management of Lionbridge has evaluated the positive and negative evidence
bearing upon the realizability of its deferred tax assets. Under the applicable
accounting standards, management has considered Lionbridge's history of losses
and concluded that it is more likely than not that Lionbridge will not generate
future taxable income prior to the expiration of these net operating losses.
Accordingly, the deferred tax assets have been fully reserved. Management
reevaluates the positive and negative evidence periodically.
At December 31, 1998, Lionbridge had net operating loss carryforwards for
U.S. Federal and state income tax purposes of approximately $3,252,000 which may
be used to offset future taxable income, beginning to expire in 2011.
Additionally, Lionbridge has net operating loss carryforwards in France of
approximately $4,218,000 which may be used to offset future taxable income,
beginning to expire in 1999; net operating loss carryforwards in Japan of
approximately $247,000 which expire in 2003; and net operating loss
carryforwards in The Netherlands of approximately $483,000 which may be carried
forward indefinitely.
Tax benefits recognized for the utilization of foreign net operating loss
carryforwards acquired in the December 23, 1996 acquisition of businesses from
Stream (see Note 4) are recorded as a reduction to goodwill, rather than as a
tax provision benefit.
Under the provisions of the Internal Revenue Code, certain substantial
changes in Lionbridge's ownership may limit in the future the amount of net
operating loss carryforwards which could be used annually to offset future
taxable income and income tax liability.
F-22
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RESTRUCTURING CHARGES:
During the fourth quarter of 1997, the first quarter of 1998 and the fourth
quarter of 1998, Lionbridge recorded restructuring charges of $541,000, $451,000
and $50,000, respectively, in operating expenses. These charges related to
workforce reductions in France, consisting of nine technical staff in 1997 and
five technical and administrative staff in 1998. All employees had been informed
of their termination and related benefits in the period that the corresponding
charge was recorded. Lionbridge had balances of $541,000, $0 and $0 (unaudited)
remaining at December 31, 1997 and 1998 and at June 30, 1999, respectively, in
other accrued expenses in relation to these charges. As of June 30, 1999
(unaudited), none of these employees remained with Lionbridge and management
does not anticipate any future expenditures related to these actions.
11. SIGNIFICANT CUSTOMERS:
Lionbridge's two largest customers accounted for the following percentages
of total revenues for the periods ended:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Customer A......................................... 19% 14% 16% 14%
Customer B......................................... 10% 6% 7% 2%
</TABLE>
12. OPERATING SEGMENT AND GEOGRAPHICAL INFORMATION:
In June 1998, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 requires that public
business enterprises report certain information about operating segments in
annual and interim financial statements filed with the SEC and issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. Operating segments
are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to allocate resources
and in assessing their performance.
Lionbridge provides localization services to the information technology
industry, including language translation, cultural reformatting and testing of
applications. Lionbridge provides a full service offering to its clients on a
global basis and, although customers may utilize the results of Lionbridge's
services in a number of different formats, for example, through software manuals
or the Internet, management does not allocate resources or assess performance on
the basis of this end-use. As a result, management considers Lionbridge to have
only one operating segment.
F-23
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. OPERATING SEGMENT AND GEOGRAPHICAL INFORMATION: (CONTINUED)
A summary of Lionbridge's operations and other financial information by
geographical region follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
---------------------- ----------------------
1997 1998 1998 1999
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues:
United States........................... $ -- $4,683,000 $1,562,000 $4,846,000
Asia.................................... 1,510,000 4,801,000 1,934,000 3,451,000
France.................................. 11,070,000 9,094,000 4,634,000 6,035,000
Ireland................................. 11,157,000 14,296,000 6,889,000 7,907,000
The Netherlands......................... 3,724,000 6,799,000 3,668,000 2,835,000
Eliminations............................ (999,000) (1,261,000) (555,000) (1,291,000)
---------- ---------- ---------- ----------
$26,462,000 $38,412,000 $18,132,000 $23,783,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- JUNE 30,
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Long-lived assets:
United States....................................... $ 6,776,000 $ 7,990,000 $ 11,573,000
Asia................................................ 146,000 320,000 307,000
France.............................................. 121,000 207,000 163,000
Ireland............................................. 595,000 989,000 694,000
The Netherlands..................................... 108,000 109,000 63,000
------------- ------------- -------------
$ 7,746,000 $ 9,615,000 $ 12,800,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Foreign revenue is presented based on the country in which projects are
managed. Long-lived assets in the United States as of December 31, 1997 and 1998
and June 30, 1999 include goodwill from acquisitions of $6,710,000, $7,370,000
and $10,325,000, respectively.
Lionbridge has an agreement with the Irish Industrial Development Agency
regarding financial grants to its Irish subsidiary from this agency. Under the
agreement, the Irish subsidiary may not pay dividends or otherwise distribute
its cash, including any distributions to Lionbridge.
F-24
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------- ------------------------
1997 1998 1998 1999
--------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Interest paid.................................................... $ 127,000 $ 648,000 $ 83,000 $ 332,000
--------- ---------- ----------- -----------
--------- ---------- ----------- -----------
Noncash investing and financing activities:
Cancellation of note payable (Note 1).......................... $ 840,000 -- -- --
Issuance of warrants for common stock in connection with debt
(Note 6)..................................................... -- -- -- $5,967,000
Lionbridge entered into an agreement to settle various
outstanding amounts due between Lionbridge and Stream (Note
6) which reduced goodwill as follows:
Cancellation of note payable, including interest............. $ 608,000 -- -- --
Repurchase of Series A preferred stock from Stream 972,000 -- -- --
Settlement of operating accounts............................. (349,000) -- -- --
Amount payable by Lionbridge under agreement................. (700,000) -- -- --
--------- ---------- ----------- -----------
Reduction to goodwill...................................... $ 531,000 -- -- --
--------- ---------- ----------- -----------
--------- ---------- ----------- -----------
Lionbridge purchased all of the outstanding capital stock of
Japanese Language Services, Inc. for $2,323,000, effective
January 2, 1998. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired and goodwill................... -- $3,181,000 $3,181,000 --
Cash paid for capital stock.................................. -- (2,237,000) (2,237,000) --
Common stock issued.......................................... -- (86,000) (86,000) --
--------- ---------- ----------- -----------
Liabilities assumed........................................ -- $ 858,000 $ 858,000 --
--------- ---------- ----------- -----------
--------- ---------- ----------- -----------
Lionbridge purchased all of the outstanding capital stock of
VeriTest, Inc. for $4,354,000, effective January 11, 1999. In
conjunction with the acquisition, liabilities were assumed as
follows:
Fair value of assets acquired and goodwill................... -- -- -- $5,035,000
Cash paid for capital stock.................................. -- -- -- (3,260,000)
Common stock issued.......................................... -- -- -- (344,000)
Notes issued................................................. -- -- -- (750,000)
--------- ---------- ----------- -----------
Liabilities assumed........................................ -- -- -- $ 681,000
--------- ---------- ----------- -----------
--------- ---------- ----------- -----------
</TABLE>
14. VALUATION AND QUALIFYING ACCOUNTS:
The following table sets forth activity in Lionbridge's accounts receivable
reserve:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING CHARGES TO END OF
OF PERIOD OPERATIONS DEDUCTIONS PERIOD
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Year ended:
- --------------------------------------------
December 31, 1997 $ -- $ 450,000 $ (84,000) $ 366,000
December 31, 1998 $ 366,000 $ 220,000 $ (13,000) $ 573,000
</TABLE>
F-25
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS:
Diluted loss per share attributable to common stockholders does not differ
from basic loss per share attributable to common stockholders since potential
common shares from the conversion of preferred stock and the exercise of stock
options and warrants are anti-dilutive for all periods presented and are
therefore excluded from the calculation. Preferred stock convertible into
8,847,649 shares of common stock, options to purchase 2,216,336, 2,192,222 and
2,621,945 (unaudited) shares of common stock, and warrants to purchase 0, 83,334
and 1,616,594 (unaudited) shares of common stock, were outstanding as of
December 31, 1997 and 1998 and June 30, 1999, respectively, but were not
included in the calculation of diluted net loss per share attributable to common
shareholders because the effect of their inclusion would have been
anti-dilutive.
16. EMPLOYEE BENEFIT PLANS:
As of December 31, 1998, the Company maintained defined benefit pension
plans for employees in The Netherlands and France, and a defined contribution
scheme for employees in Ireland. Total pension contributions charged to
operations were $154,000 and $350,000 in 1997 and 1998, respectively.
17. SUBSEQUENT EVENTS (UNAUDITED):
On June 15, 1999, the Board of Directors of Lionbridge approved the
following matters, among other items:
- the adoption, effective upon the closing of the anticipated initial public
offering, of the Second Amended and Restated Certificate of Incorporation,
which among other matters (a) increases the number of authorized shares of
common stock of Lionbridge to 100,000,000 and (b) decreases the number of
authorized shares of preferred stock of Lionbridge to 5,000,000 and
authorizes the Board of Directors to issue up to that amount of shares of
undesignated preferred stock, for which the Board of Directors will have
the power to determine designations and preferences;
- an amendment to Lionbridge's stock option plan to increase the number of
shares of common stock issuable under the plan by 2,000,000 to 5,522,032;
and
- the adoption, effective upon the closing of the anticipated initial public
offering, of an employee stock purchase plan, under which employees may
purchase shares of common stock in semi-annual offerings at a price equal
to the lower of 85% of the average market price on the beginning or ending
date of each offering period.
F-26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Stockholders of
Lionbridge Technologies, Inc.:
We have audited the accompanying combined statements of operations and cash
flows of the Localization Businesses of Stream International Holdings, Inc. in
Ireland, The Netherlands and France (together, the "Entities") for the year
ended December 31, 1996. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined results of operations and cash flows of
the Entities for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
November 7, 1997
F-27
<PAGE>
THE LOCALIZATION BUSINESSES OF STREAM INTERNATIONAL
HOLDINGS, INC. IN IRELAND, THE NETHERLANDS AND FRANCE
COMBINED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Revenue............................................................................................. $ 28,134
Cost of revenue..................................................................................... 24,977
------------
Gross profit.................................................................................. 3,157
Selling, general and administrative expenses........................................................ 3,144
------------
Income from operations.............................................................................. 13
Interest expense.................................................................................... (154)
Other income (expense), net......................................................................... (72)
------------
Net loss............................................................................................ $ (213)
------------
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED FINANCIAL
STATEMENTS.
F-28
<PAGE>
THE LOCALIZATION BUSINESSES OF STREAM INTERNATIONAL
HOLDINGS, INC. IN IRELAND, THE NETHERLANDS AND FRANCE
COMBINED STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Cash flows from operating activities:
Net loss.......................................................................................... $ (213)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of property and equipment......................................... 571
Provision for doubtful accounts................................................................. 62
Loss on disposal of equipment................................................................... 16
Changes in operating assets and liabilities:
Accounts receivable........................................................................... 1,603
Work in process............................................................................... (709)
Other current assets.......................................................................... 169
Accounts payable.............................................................................. 2,394
Accrued expenses.............................................................................. (1,457)
Deferred revenue.............................................................................. 445
------------
Net cash provided by operating activities................................................... 2,881
------------
Cash flows from investing activities:
Purchases of property and equipment............................................................... (444)
------------
Net cash used in investing activities....................................................... (444)
------------
Cash flows from financing activities:
Increase in short-term debt, net.................................................................. 890
Payment of notes payable.......................................................................... (554)
Net decrease in amounts owed to banks............................................................. (3,239)
------------
Net cash used in financing activities....................................................... (2,903)
------------
Net decrease in cash................................................................................ (466)
Effects of exchange rate changes on cash............................................................ (41)
Cash at beginning of year........................................................................... 715
------------
Cash at end of year................................................................................. $ 208
------------
------------
Supplemental disclosure of cash flow information:
Interest paid..................................................................................... $ 154
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED FINANCIAL
STATEMENTS.
F-29
<PAGE>
THE LOCALIZATION BUSINESSES OF STREAM INTERNATIONAL
HOLDINGS, INC. IN IRELAND, THE NETHERLANDS AND FRANCE
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
NATURE OF THE BUSINESS
The Localization Businesses of Stream International Holdings, Inc. in
Ireland, The Netherlands and France (together, the "Entities") are providers of
outsourced localization services to the information technology industry. Their
customer base includes software publishers, hardware manufacturers and
telecommunications companies that must render versions of their software and
manuals in different languages and culturally appropriate formats.
ACQUISITION OF THE ENTITIES
Lionbridge Technologies, Inc. ("Lionbridge") was incorporated on September
11, 1996 in order to effect the acquisition of certain elements of the
localization businesses of Stream International Holdings, Inc. ("Stream").
Funding for the acquisition was provided through the issuance of common and
preferred stock in Lionbridge and in a majority-owned subsidiary of Lionbridge.
On December 23, 1996, Lionbridge entered into an agreement with Stream to
acquire its localization businesses in Ireland, The Netherlands and France for
total consideration of $11,400,000, principally consisting of cash. These
businesses consisted of legal entities in Ireland and Holland, a legal entity
and divisional operation in France, and a divisional operation in Belgium.
These combined financial statements have been prepared using Stream's
historical basis in the assets and liabilities and historical results of
operations related to the Entities, since the Entities were under the common
control of Stream. These combined financial statements generally reflect the
results of operations and cash flows of the Entities as if they were separate
entities for the period presented.
Certain costs and expenses presented in the combined financial statements
were allocated by the management of Stream, based on their estimates of the cost
of services provided to the Entities by Stream. Stream management believes that
these allocations and allocation methods are reasonable. However, the financial
information included herein may not necessarily reflect the combined results of
operations and cash flows of the Entities in the future, or what they would have
been had the Entities been separate from Stream during the period presented.
2. SIGNIFICANT ACCOUNTING POLICIES:
The accompanying combined financial statements of the Entities reflect the
application of certain significant accounting policies as described below:
BASIS OF PRESENTATION
The combined financial statements present the statements of operations and
cash flows as if the Entities had operated as separate entities for the year
ended December 31, 1996. All significant inter-entity transactions have been
eliminated on combination.
Transactions with other members of the Stream group have been treated as
dealings with third-parties. Management does not believe that the cost of such
transactions would differ materially if conducted with unrelated parties.
F-30
<PAGE>
THE LOCALIZATION BUSINESSES OF STREAM INTERNATIONAL
HOLDINGS, INC. IN IRELAND, THE NETHERLANDS AND FRANCE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
REVENUE RECOGNITION
The Entities recognize revenue from the provision of localization services
to their customers on the percentage-of-completion method of accounting, based
on management's estimates of project progress. Anticipated losses by project, if
any, are recognized in the period in which determined.
ADVERTISING COSTS
Advertising costs are included in selling, general and administrative
expenses and are expensed as incurred.
ALLOCATED COSTS
Corporate expenses incurred by Stream on behalf of the Entities were
generally charged directly to these entities during the year ended December 31,
1996. These charges were allocated using a variety of methods depending on the
nature of the expense, including specified percentages of revenue measures and
management estimates.
When corporate expenses had not been previously charged, an amount has been
allocated in these financial statements based upon estimates made by management
of Stream of the cost attributable to the entity. Methods used to make
allocations were similar to those used to determine direct charges, with the
addition of headcount equivalents.
FOREIGN CURRENCY TRANSLATION
The functional currency for each of the Entities is the local currency of
the country in which operations are based. Revenues and expenses of foreign
operations are translated into U.S. dollars at the average rates of exchange for
the period. Resulting cumulative translation adjustments are reflected as a
separate component of accumulated comprehensive income in equity. Foreign
currency transaction losses arising from exchange rate fluctuations on
transactions denominated in currencies other than the functional currencies are
included in other income (expense), net in results of operations and were
$32,000 in 1996.
INCOME TAXES
Historically, the operations of the Entities have been included in the
consolidated U.S. Federal and certain state and foreign income tax returns filed
by Stream and its subsidiaries (see Note 1). Income tax expense has been
calculated on a separate-return basis for the purpose of these financial
statements. Deferred taxes arise primarily from unutilized net operating losses,
using enacted tax rates in effect in the years in which net operating losses are
expected to be utilized or differences are expected to reverse. Valuation
allowances are provided if, based on the weight of available evidence, it is
more likely than not that some or all of the deferred tax assets will not be
realized.
F-31
<PAGE>
THE LOCALIZATION BUSINESSES OF STREAM INTERNATIONAL
HOLDINGS, INC. IN IRELAND, THE NETHERLANDS AND FRANCE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is depreciated over the estimated useful lives of the
assets using the straight-line method, based upon the following asset lives:
<TABLE>
<S> <C>
Computer software and equipment..... 1 to 3 years
Furniture and office equipment...... 3 to 5 years
Leasehold improvements.............. Shorter of lease term or useful life
of asset
</TABLE>
Upon retirement or other disposition, the cost and related accumulated
depreciation of the assets are removed from the accounts and the resulting gain
or loss is reflected in the determination of net income or net loss.
Expenditures for maintenance and repairs are expensed as incurred.
LONG-LIVED ASSETS
The Entities periodically evaluate the net realizable value of long-lived
assets relying on a number of factors including operating results, business
plans, economic projections and anticipated future cash flows. An impairment in
the carrying value of an asset is assessed when the undiscounted, expected
future operating cash flows derived from the asset are less than its carrying
value.
NET LOSS PER COMMON SHARE
As these financial statements have been prepared by combining the operating
results and cash flows of several legal entities and divisional operations,
there is no historical basis of common shares outstanding. As a result, earnings
per share information is not presented.
USE OF ESTIMATES
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and expenses during
the period presented. Actual results could differ from these estimates.
Estimates are used when accounting for the calculation of work in process,
depreciation and tax asset valuation allowances, and for the allocation of
corporate expenses from Stream.
3. RELATIONSHIP WITH STREAM:
Where corporate expenses incurred by Stream on behalf of the Entities were
not charged to the Entities during the year ended December 31, 1996, an
allocation of corporate expense has been included in operating expenses in the
combined statement of operations. The aggregate of amounts allocated to the
Entities for the year was $717,000, all relating to selling, general and
administrative expenses. No interest has been charged related to these
transactions.
4. LEASES:
The Entities leased certain equipment and office space. Total rental expense
charged to operations during the year ended December 31, 1996 was $90,000.
F-32
<PAGE>
THE LOCALIZATION BUSINESSES OF STREAM INTERNATIONAL
HOLDINGS, INC. IN IRELAND, THE NETHERLANDS AND FRANCE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. EMPLOYEE BENEFIT PLANS:
During the year ended December 31, 1996, certain of the employees of the
Entities were members of defined benefit pension plans ultimately administered
by Stream. The pension contributions charged to operations during the year were
$324,000.
6. INCOME TAXES:
The Entities had no income tax expense for the year ended December 31, 1996,
as a result of incurred losses. A full valuation allowance was recorded against
the deferred tax assets generated by the 1996 losses, due to management's
uncertainty of realizing such benefits.
7. GEOGRAPHICAL INFORMATION:
Net revenue in 1996 arose entirely from activities in Europe, as follows:
<TABLE>
<S> <C>
France......................................................... $11,136,000
Ireland........................................................ 13,796,000
The Netherlands................................................ 2,514,000
Belgium........................................................ 688,000
----------
$28,134,000
----------
----------
</TABLE>
Foreign revenue is presented based on the country in which projects are
managed.
8. DONATED CAPITAL:
Immediately prior to the acquisition of the Entities by Lionbridge (see Note
1), a capital donation of $1,974,000 was made to the Dutch entities by Stream.
This donation was effected by the waiver of certain amounts payable to Stream.
9. VALUATION AND QUALIFYING ACCOUNTS:
The following table sets forth activity in the Entities' accounts receivable
reserve:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF CHARGES TO END OF
YEAR OPERATIONS DEDUCTIONS YEAR
------------ ----------- ------------- ----------
<S> <C> <C> <C> <C>
December 31, 1996.............................................. $ 202,000 $ 55,000 -- $ 257,000
</TABLE>
F-33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of VeriTest, Inc.:
In our opinion, the accompanying balance sheet and the related statements of
operations, shareholders' equity and cash flows present fairly, in all material
respects, the financial position of VeriTest, Inc. (the "Company") at December
31, 1998, and the results of its operations and its cash flows for the year
ended December 31, 1998 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Woodland Hills, California
June 16, 1999
F-34
<PAGE>
VERITEST, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 144,288
Accounts receivable, net of allowance for doubtful accounts of $15,000.......... 317,258
Prepaid expenses and other current assets....................................... 52,117
---------
Total current assets.......................................................... 513,663
Property and equipment, net....................................................... 174,515
Other assets...................................................................... 8,728
---------
Total assets.................................................................. $ 696,906
---------
---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........................................... 300,459
Deferred revenue................................................................ 173,122
---------
Total current liabilities..................................................... 473,581
---------
Commitments (Note 6)
Shareholders' equity:
Common stock, no par value; 100,000 shares authorized; 10,000 shares issued and
outstanding................................................................... 10,000
Retained earnings............................................................... 213,325
---------
Total shareholders' equity.................................................... 223,325
---------
Total liabilities and shareholders' equity.................................... $ 696,906
---------
---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-35
<PAGE>
VERITEST, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Net revenues.................................................................... $3,735,496
Operating expenses:
Cost of services.............................................................. 1,969,810
Selling and marketing......................................................... 190,590
General and administrative.................................................... 1,566,714
---------
Total operating expenses.................................................... 3,727,114
---------
Income before income taxes.................................................. 8,382
Provision for income taxes...................................................... 130
---------
Net income.................................................................. $ 8,252
---------
---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-36
<PAGE>
VERITEST, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
SHARES RETAINED
OUTSTANDING AMOUNT EARNINGS TOTAL
----------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1997....................................... 10,000 $ 10,000 $ 350,073 $ 360,073
Net income..................................................... 8,252 8,252
Cash distributions, $14.50 per share........................... -- -- (145,000) (145,000)
----------- --------- ---------- ----------
Balance, December 31, 1998....................................... 10,000 $ 10,000 $ 213,325 $ 223,325
----------- --------- ---------- ----------
----------- --------- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-37
<PAGE>
VERITEST, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income..................................................................... $ 8,252
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation................................................................. 77,632
Provision for bad debts...................................................... 6,419
Changes in assets and liabilities:
Accounts receivable........................................................ 142,583
Prepaid expenses and other current assets.................................. (22,030)
Other assets............................................................... (2,086)
Accounts payable and accrued expenses...................................... 88,619
Deferred revenue........................................................... 53,329
---------
Net cash provided by operating activities................................ 352,718
---------
Cash flows from investing activities:
Purchases of property and equipment............................................ (93,018)
---------
Net cash used in investing activities.................................... (93,018)
---------
Cash flows from financing activities:
Cash distributions............................................................. (145,000)
---------
Net cash used in financing activities.................................... (145,000)
---------
Net increase in cash and cash equivalents................................ 114,700
Cash and cash equivalents, beginning of year..................................... 29,588
---------
Cash and cash equivalents, end of year........................................... $ 144,288
---------
---------
Supplemental disclosure of cash flow information:
Income taxes paid.............................................................. $ 1,660
Interest paid.................................................................. $ 490
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-38
<PAGE>
VERITEST, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
GENERAL
VeriTest, Inc. ("VeriTest") was incorporated in California on December 21,
1987 and began operations in that month.
VeriTest offers specialized lab test verification for computer hardware and
software OEMS as well as other customers who want their product tested or
logo-certified. The areas of testing include hardware platform and peripherals,
client/server and Internet, mobile computing, software quality assurance, game
and multimedia software, logo compliance and Year 2000 compliance.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
In the normal course of preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
VeriTest considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximates their carrying amounts
because of the short-term maturity of these instruments.
REVENUE RECOGNITION
VeriTest's revenues are derived principally from the performance of lab
testing on computer hardware, software and software logo certification services
performed for customers under a variety of contracts, some of which provide for
reimbursement on a fixed-price basis and others on a time and materials basis.
Generally, revenues and fees on VeriTest's long-term contracts are recognized as
services are performed, using the percentage-of-completion method of accounting.
Revenues on short-term contracts (typically three months or less) are generally
recognized under the completed-contract method upon completion of the lab
testing and delivery of the final report.
Billings and customer collections received prior to the completion of the
lab tests are recorded as deferred revenue until the completion of the tests and
services under the terms of the contracts.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method based upon the estimated
useful lives of the assets, ranging from four to seven years. Leasehold
improvements are amortized over the shorter of their estimated useful life or
the term of the lease. Useful lives are evaluated regularly by management in
order to
F-39
<PAGE>
VERITEST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
determine recoverability in light of current technological conditions.
Maintenance and repairs are charged to expense as incurred, while renewals and
improvements are capitalized. Upon the sale or retirement of property and
equipment, the accounts are relieved of the cost and the related accumulated
depreciation, with any resulting gain or loss included in the Statement of
Operations.
INCOME TAXES
VeriTest elected to be taxed under Section 1361 of the Internal Revenue Code
as an S Corporation. Under these provisions, VeriTest does not pay federal
corporate income taxes on its taxable income. Instead, the shareholders are
individually liable for federal income taxes based on VeriTest's taxable income.
This election is also valid for state income tax reporting. However, a provision
for state income taxes is required based on a 1.5% state income tax rate, and
this state tax provision is included in the provision for income taxes in the
accompanying Statement of Operations.
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement established standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income generally represents all changes in
shareholders' equity during the period except those resulting from investments
by, or distributions to, shareholders. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997 and requires restatement of earlier
periods presented. SFAS No. 130 defines comprehensive income as net income plus
all other changes in equity from non-owner sources. VeriTest has no other
comprehensive income items, and accordingly net income equals comprehensive
income.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This statement provides guidance on accounting for the costs of
computer software developed or obtained for internal use. This SOP is effective
for fiscal periods commencing after December 15, 1998. Management does not
believe that the implementation of SOP 98-1 will have a material effect on the
financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement established accounting and
reporting standards for derivative instruments and hedging activities and
requires companies to recognize all derivatives as either assets or liabilities
in the statement of financial position and measures those instruments at fair
value. This statement is expected to be effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. Management does not believe that the
implementation of SFAS No. 133 will have any impact on the financial statements
since VeriTest does not engage in derivative or hedging activities.
3. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments which subject VeriTest to concentrations of credit
risk consist primarily of cash and cash equivalents, and trade accounts
receivable. VeriTest maintains cash and cash equivalents with various domestic
financial institutions. VeriTest performs periodic evaluations of the relative
credit
F-40
<PAGE>
VERITEST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS (CONTINUED)
standing of these institutions. From time to time, VeriTest's cash balances with
any one financial institution may exceed Federal Deposit Insurance Corporation
insurance limits.
VeriTest's customers are primarily concentrated in the United States.
VeriTest performs ongoing credit evaluations and generally requires a deposit on
its larger customer contracts prior to commencing work. Historically, VeriTest
has not experienced any significant losses related to credit risk.
For the year ended December 31, 1998, two customers accounted for
approximately 21% and 15%, respectively, of all revenues generated by VeriTest,
and three customers accounted for approximately 33%, 16% and 12%, respectively,
of accounts receivable at December 31, 1998.
4. PROPERTY AND EQUIPMENT
Property and equipment, net is comprised of the following at December 31,
1998:
<TABLE>
<CAPTION>
USEFUL LIFE
-----------
<S> <C> <C>
Equipment............................................................ 4 years $ 412,826
Furniture and fixtures............................................... 7 years 38,256
Leasehold improvements............................................... 5 years 27,955
Automobiles.......................................................... 5 years 55,588
----------
534,625
Less: accumulated depreciation (360,110)
----------
$ 174,515
----------
----------
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses is comprised of the following at
December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Accounts payable.................................................................. $ 8,631
Accrued payroll................................................................... 85,820
Accrued vacation.................................................................. 51,520
Accrued profit sharing............................................................ 80,000
Accrued professional fees......................................................... 30,000
Other accrued expenses............................................................ 44,488
----------
$ 300,459
----------
----------
</TABLE>
F-41
<PAGE>
VERITEST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS
VeriTest leases its facility under a noncancelable operating lease. The
following are the minimum lease obligations under the noncancelable operating
lease at December 31, 1998:
<TABLE>
<S> <C>
1999.............................................................. $ 224,724
2000.............................................................. 226,476
2001.............................................................. 228,427
2002.............................................................. 143,884
---------
Minimum lease payments............................................ $ 823,511
---------
---------
</TABLE>
Rent expense for the year ended December 31, 1998 amounted to $180,710.
7. PROFIT SHARING PLAN
VeriTest has a profit sharing plan covering employees with more than two
years of service. All contributions are made by VeriTest, are based on
VeriTest's performance, and are at the discretion of the Board of Directors.
Total VeriTest contributions for the year ended December 31, 1998 were $80,000.
8. CAPITALIZATION
As discussed in Note 2, VeriTest is a subchapter S Corporation with two
shareholders. During 1998, VeriTest made cash distributions to its shareholders
of $145,000 in the aggregate.
9. BANK LINES OF CREDIT
VeriTest has lines of credit available totaling $350,000 at December 31,
1998. There were no borrowings outstanding on these lines of credit at December
31, 1998. The lines of credit bear interest at rates ranging from a prime rate
plus 0.5% to a prime rate plus 0.75% (8.25% to 8.50% at December 31, 1998) and
are secured primarily by VeriTest's accounts receivable and/or property and
equipment. In addition, VeriTest's president and vice-president act as
guarantors for all indebtedness under the agreements.
10. SUBSEQUENT EVENT
Effective January 11, 1999, VeriTest's owners sold all their outstanding
shares of common stock to Lionbridge in exchange for consideration of
$4,354,000, consisting of cash of $3,260,000, 66,668 shares of common stock of
Lionbridge valued at $344,000, and notes payable for $750,000. The agreement
also requires certain contingent cash payments dependent on future operating
performance through December 31, 2000. Concurrent with the sale, VeriTest
converted its tax status from an S Corporation to a C Corporation.
F-42
<PAGE>
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
On January 11, 1999, Lionbridge Technologies, Inc. ("Lionbridge") entered
into an agreement to acquire all of the stock of VeriTest, Inc. for
consideration of $4,354,000, consisting of cash of $3,260,000, 66,668 shares of
common stock valued at $344,000, and notes payable for $750,000. The agreement
also required certain contingent cash payments, limited to $1,000,000, dependent
on future operating performance through December 31, 2000. This acquisition was
accounted for using the purchase method of accounting. The net difference
between the total purchase price of $4,419,000 at the date of acquisition
(including direct costs of the acquisition) and the fair value of assets and
liabilities acquired was recognized as goodwill, totaling $4,338,000. The
initial calculation of goodwill does not include any contingent consideration.
Future payments, if any, under the contingent payment arrangement will increase
goodwill. The results of VeriTest, Inc. are included in the Lionbridge
consolidated financial statements from January 11, 1999.
The following unaudited pro forma combined statements of operations give
effect to this acquisition as if it had occurred on January 1, 1998 and include
all material pro forma adjustments necessary for this purpose. The pro forma
statement of operations for the six months ended June 30, 1999 combines the
results of VeriTest, Inc. from January 1, 1999 to the date of acquisition with
the consolidated results of Lionbridge for the six months ended June 30, 1999.
The pro forma information is presented for illustrative purposes only and is not
necessarily indicative of the operating results that would have actually
occurred if the acquisition had been consummated on January 1, 1998, nor is it
necessarily indicative of future operating results. This unaudited pro forma
information should be read in conjunction with the Lionbridge consolidated
financial statements and notes thereto, included elsewhere in this prospectus.
The combined financial position of Lionbridge and VeriTest, Inc. is presented in
the Lionbridge consolidated balance sheet as of June 30, 1999, included
elsewhere in this prospectus, and is therefore not presented on a pro forma
basis.
F-43
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
LIONBRIDGE
TECHNOLOGIES, VERITEST, PRO FORMA PRO FORMA
INC. INC. ADJUSTMENTS COMBINED
---------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue............................................. $ 38,412 $ 3,735 $ 42,147
Cost of revenue..................................... 25,546 1,970 27,516
------- ------------ -----------
Gross profit.................................. 12,866 1,765 14,631
------- ------------ -----------
Operating expenses:
Sales and marketing............................... 2,735 191 2,926
General and administrative........................ 10,889 1,567 12,456
Amortization of acquisition-releated intangible
assets.......................................... 2,145 -- $ 868(a) 3,013
Restructuring charges............................. 501 -- -- 501
------- ------------ ----------- -----------
Total operating expenses...................... 16,270 1,758 868 18,896
------- ------------ ----------- -----------
(Loss) income from operations....................... (3,404) 7 (868) (4,265)
(451)
Interest expense.................................... (648) -- (b)
(1,041)
(c) (2,140)
Other income (expense), net......................... 49 -- -- 49
------- ------------ ----------- -----------
(Loss) income before income taxes................... (4,003) 7 (2,360) (6,356)
Provision for income taxes.......................... 259 -- -- 259
------- ------------ ----------- -----------
Net (loss) income................................... (4,262) $ 7 $ (2,360) (6,615)
------------ -----------
------------ -----------
Accrued dividends on preferred stock................ (1,062) (1,062)
------- -----------
Net loss attributable to common stockholders........ $ (5,324) $ (7,677)
------- -----------
------- -----------
Basic and diluted net loss per share attributable to
common stockholders............................... $ (2.99) $ (4.08)
Shares used in computing basic and diluted net loss
per share attributable to common stockholders..... 1,782 100(d) 1,882
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED FINANCIAL
STATEMENTS.
F-44
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
LIONBRIDGE
TECHNOLOGIES, PRO FORMA PRO FORMA
INC. VERITEST, INC. ADJUSTMENTS COMBINED
---------------- ----------------- ------------- -----------
<S> <C> <C> <C> <C>
Revenue........................................... $ 23,783 $ -- $ 23,783
Cost of revenue................................... 16,607 68 16,675
-------- ----- -----------
Gross profit (loss)......................... 7,176 (68) 7,108
-------- ----- -----------
Operating expenses:
Sales and marketing............................. 2,613 5 2,618
General and administrative...................... 6,894 80 6,974
Amortization of acquisition-releated intangible
assets........................................ 1,579 -- $ 24(e) 1,603
Stock-based compensation........................ 232 -- -- 232
-------- ----- ----- -----------
Total operating expenses.................... 11,318 85 24 11,427
-------- ----- ----- -----------
Loss from operations.............................. (4,142) (153) (24) (4,319)
(12)
Interest expense.................................. (4,988) -- (f)
(28)
(g) (5,028)
Other income (expense), net....................... (320) -- -- (320)
-------- ----- ----- -----------
Loss before income taxes.......................... (9,450) (153) (64) (9,667)
Provision for income taxes........................ 315 -- -- 315
-------- ----- ----- -----------
Net loss.......................................... (9,765) $ (153) $ (64) (9,982)
----- -----
----- -----
Accrued dividends on preferred stock.............. (531) (531)
-------- -----------
Net loss attributable to common stockholders...... $ (10,296) $ (10,513)
-------- -----------
-------- -----------
Basic and diluted net loss per share attributable
to common stockholders.......................... $ (4.64) $ (4.72)
Shares used in computing basic and diluted net
loss per share attributable to common
stockholders.................................... 2,218 11(h) 2,229
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED FINANCIAL
STATEMENTS.
F-45
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Adjustments to reflect the acquisition of VeriTest, Inc. as if it had
occurred as of January 1, 1998 are as follows:
a) To increase amortization expense due to $4,338,000 of goodwill generated
from the acquisition of VeriTest, Inc., assuming one year of a five-year
amortization period.
b) To record interest expense for one year of interest on debt of
$4,010,000, used to finance the acquisition, at rates of 8% and 12%.
c) To record accretion of discount on notes payable for the value of
warrants issued in connection with debt used to finance the acquisition,
assuming one year of a twenty-month amortization period.
d) To adjust shares used in computing basic and diluted net loss per share
attributable to common stockholders for common shares issued upon the
acquisition that would have been outstanding for the entire year had the
acquisition occurred on January 1, 1998.
e) To increase amortization expense due to $4,338,000 of goodwill generated
from the acquisition of VeriTest, Inc., assuming ten days of a five-year
amortization period.
f) To record interest expense for ten days of interest on debt of
$4,010,000, used to finance the acquisition, at rates of 8% and 12%.
g) To record accretion of discount on notes payable for the value of
warrants issued in connection with debt used to finance the acquisition,
assuming ten days of a twenty-month amortization period.
h) To adjust shares used in computing basic and diluted net loss per share
attributable to common stockholders for common shares issued that would
have been outstanding for ten days had the acquisition occurred on
January 1, 1999.
F-46
<PAGE>
- --------------------------------------------------------------------------------
Until , 1999, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
[LOGO]
PRUDENTIAL SECURITIES
U.S. BANCORP PIPER JAFFRAY
ADAMS, HARKNESS & HILL, INC.
PRUDENTIALSECURITIES.COM
- ------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the common stock offered hereby are as
follows:
<TABLE>
<S> <C>
SEC registration fee............................................ $ 17,903
NASD filing fee................................................. 10,000
Nasdaq National Market listing fee.............................. 95,000
Printing and engraving expenses................................. 150,000
Legal fees and expenses......................................... 300,000
Accounting fees and expenses.................................... 300,000
Blue Sky fees and expenses (including legal fees)............... 10,000
Transfer agent and registrar fees and expenses.................. 10,000
Miscellaneous................................................... 107,097
---------
Total....................................................... $1,000,000
---------
---------
</TABLE>
Lionbridge will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law and Lionbridge's second amended and
restated charter and amended and restated by-laws provide for indemnification of
Lionbridge's directors and officers for liabilities and expenses that they may
incur in such capacities. In general directors and officers are indemnified with
respect to actions taken in good faith in a manner reasonably believed to be in,
or not opposed to, the best interests of Lionbridge and, with respect to any
criminal action or proceeding, actions that the indemnitee had no reasonable
cause to believe were unlawful. Reference is made to Lionbridge's second amended
and restated charter and amended and restated by-laws filed as Exhibits 3.2 and
3.4 hereto, respectively.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of Lionbridge against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"). Reference is made
to the form of Underwriting Agreement filed as Exhibit 1.1 hereto.
In addition, Lionbridge has an existing directors and officers liability
insurance policy.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Lionbridge Technologies, Inc. was originally incorporated in Delaware in
1996. In 1998, Lionbridge Technologies, Inc. became a wholly owned subsidiary of
the Registrant, Lionbridge Technologies Holdings, Inc. In June 1999, Lionbridge
Technologies, Inc. changed its name to Lionbridge America, Inc. and Lionbridge
Technologies Holdings, Inc. changed its name to Lionbridge Technologies, Inc.
In the three fiscal years preceding the filing of this registration
statement, Lionbridge and Lionbridge America have issued the following
securities that were not registered under the Securities Act:
(a) Issuances of Capital Stock.
In September 1996, Lionbridge America issued 2,000 shares of its common
stock, par value $0.01 per share, to Rory J. Cowan at a purchase price of $0.15
per share, for an aggregate of $30.
II-1
<PAGE>
In December 1996, Lionbridge America issued 982,610 shares of its common
stock to Rory J. Cowan pursuant to a 491.3043 to 1 stock dividend and issued to
Mr. Cowan an option to purchase 1,501,529 shares of its common stock.
In December 1996, Lionbridge America issued (i) an aggregate of 1,000 shares
of its Series AA preferred stock, par value $0.01 per share, to five limited
partnerships of Advent International Corporation, at a purchase price of $.01
per share, for an aggregate of $10.00 and (ii) an aggregate of 7,673,108 shares
of its Series A convertible preferred stock, par value $0.01 per share, to Rory
J. Cowan, Morgan Stanley Venture Capital Fund II Annex, L.P. and Morgan Stanley
Venture Investors Annex, L.P. and Stream International Holdings, Inc. at
purchase price of $1.00 per share, for an aggregate of $7,673,108.
In March 1997, Lionbridge America issued an aggregate of 395,000 shares of
its Series A convertible preferred stock to investors at purchase price of $1.00
per share, for an aggregate of $395,000.
In July 1997, Lionbridge America issued an aggregate of 175,000 shares of
its Series A convertible preferred stock to Paul Kavanagh and Kenneth Coleman at
purchase price of $1.00 per share, for an aggregate of $175,000.
In February 1998, Lionbridge issued an aggregate of 1,359,993 shares of its
common stock to the holders of common stock of Lionbridge America in exchange
for all of the 2,039,990 outstanding shares of common stock of Lionbridge
America held by these holders in connection with the creation of our holding
company corporate structure. Lionbridge also issued an aggregate of 13,271,314
shares of its Series A convertible preferred stock, par value $0.01 per share,
and an aggregate of 140 shares of its Series D nonvoting convertible preferred
stock, par value $0.01 per share, to Mr. Cowan, the Advent-sponsored limited
partnerships, the Morgan Stanley-sponsored limited partnerships and other
stockholders of Lionbridge America in exchange for all outstanding shares of
Series A convertible preferred stock of Lionbridge America and ordinary shares
of Lionbridge Technologies Holdings, B.V.
In February 1998, Lionbridge issued 259,524 shares of its common stock to
Carl J. Kay at an agreed upon value of $0.30 per share as partial consideration
for all of the 97,500 outstanding shares of common stock of Japanese Language
Services, Inc. held by Carl J. Kay and Yoko I. Kay in connection with
Lionbridge's acquisition of Japanese Language Services, Inc., a Massachusetts
corporation. Lionbridge also issued an aggregate of 27,435 shares of its common
stock to Elizabeth Draper, Coleman Yeaw and Daniel Schneider in February 1998
and an additional 24,268 shares to Ms. Draper and Mr. Yeaw in February 1999 in
satisfaction of certain obligations of Japanese Language Services to Ms. Draper,
Mr. Yeaw and Mr. Schneider.
In January 1999, Lionbridge issued an aggregate of 66,668 shares of its
common stock to Steven Nezmer and Marc Porter Zasada as partial consideration
for all of the 10,000 outstanding shares of common stock of VeriTest, Inc. held
by Messrs. Nezmer and Zasada in connection with Lionbridge's acquisition of
VeriTest, Inc., a California corporation.
In January 1999, Lionbridge entered into a Senior Subordinated Note Purchase
Agreement with Capital Resource Lenders III, L.P. pursuant to which Lionbridge
borrowed $4,000,000 from Capital Resource Lenders under a 12% senior
subordinated convertible note due January 8, 2000. In February 1999, Lionbridge
entered into a First Amended and Restated Senior Subordinated Note Purchase
Agreement with Capital Resource Lenders pursuant to which Lionbridge borrowed an
additional $2,000,000 from Capital Resource Lenders under an amended and
restated 12% senior subordinated note due February 26, 2006 in the aggregate
principal amount of $6,000,000 and issued to Capital Resource Lenders and an
affiliated entity of Capital Resource Lenders common stock purchase warrants
exercisable for an aggregate of 1,277,716 shares of common stock of Lionbridge
at an exercise price of $0.015 per share.
II-2
<PAGE>
In February 1999, Lionbridge Technologies Holdings, B.V. entered into a
Senior Subordinated Note Purchase Agreement with Capital Resource Lenders
pursuant to which it borrowed $4,000,000 from Capital Resource Lenders under a
12% senior subordinated note due February 26, 2006.
In March 1999, Lionbridge and Lionbridge Technologies Holdings, B.V. entered
into Senior Subordinated Note Purchase Agreements with the Morgan
Stanley-sponsored limited partnerships pursuant to which we borrowed an
aggregate of $2,000,000 from the Morgan Stanley-sponsored limited partnerships
under 12% senior subordinated notes due March 9, 2006 and issued to the Morgan
Stanley-sponsored limited partnerships common stock purchase warrants
exercisable for an aggregate of 255,544 shares of common stock of Lionbridge at
an exercise price of $0.015 per share.
(b) Grants and Exercises of Stock Options
As of June 30, 1999, Lionbridge has granted options to purchase an aggregate
of 2,621,945 shares of its common stock under its 1998 Stock Plan exercisable at
a weighted average exercise price of $1.69 per share. From December 1996 to June
30, 1999, Lionbridge issued 1,009,296 shares of its common stock for an
aggregate purchase price of approximately $151,000 pursuant to exercise of
employee options.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by an
issuer not involving any public offering or the rules and regulations
thereunder, or, in the case of options to purchase Common Stock, Rule 701 under
the Securities Act. All of the foregoing securities are deemed restricted
securities for purposes of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
2.1 Stock Purchase Agreement dated as of January 2, 1998 by and among Lionbridge, Japanese Language
Services, Inc., Carl J. Kay and Yoko I. Kay.
2.2 Stock Purchase Agreement dated as of January 6, 1999 among VeriTest, Inc., the shareholders of
VeriTest listed on the signature pages thereto and Lionbridge.
3.1* Restated Certificate of Incorporation of Lionbridge.
3.2, 4.1* Form of Second Amended and Restated Certificate of Incorporation of Lionbridge (to become effective
upon the closing of this offering).
3.3* By-laws of Lionbridge.
3.4, 4.2* Form of Amended and Restated By-laws of Lionbridge (to become effective upon the closing of this
offering).
3.5* Certificate of Amendment of Restated Certificate of Incorporation.
3.6* Form of Certificate of Amendment of Restated Certificate of Incorporation of Lionbridge (effecting
reverse stock split).
4.3 Specimen Certificate for shares of Lionbridge's Common Stock.
5.1 Legal Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1* 1998 Stock Plan.
10.2* 1999 Employee Stock Purchase Plan.
10.3* Lease dated as of February 13, 1997 between Shorenstein Management, Inc., as Trustee of SRI Two
Realty Trust, and Lionbridge Technologies, Inc.
10.4* Employment Agreement dated as of December 23, 1996 between Lionbridge Technologies, Inc. and Rory J.
Cowan.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
10.5* Employment Agreement dated as of February 24, 1997 between Lionbridge Technologies, Inc. and Myriam
Martin-Kail.
10.6* Employment Agreement dated as of February 11, 1997 between Lionbridge Technologies, Inc. and Stephen
J. Lifshatz.
10.7* Employment Agreement dated as of February 28, 1997 between Lionbridge Technologies, Inc. and Peter
Wright.
10.8* Second Restated Registration Rights Agreement dated as of February 26, 1999 by and among Lionbridge.
Capital Resource Lenders III, L.P., Morgan Stanley Venture Capital Fund II Annex, L.P., Morgan
Stanley Venture Investors Annex, L.P and each of the other parties listed on the signature pages
thereto.
10.9* Loan Agreement dated as of September 26, 1997 by and between Silicon Valley Bank and Lionbridge
Technologies Holdings B.V. and Lionbridge Technologies B.V.
10.10* Deed of Pledge dated as of September 26, 1997 by Lionbridge Technologies, Inc. of Shares in the
Capital of Lionbridge Technologies Holdings B.V. in favor of Silicon Valley Bank.
10.11* Deed of Pledge dated as of September 26, 1997 by Lionbridge Technologies Holdings B.V. of Shares in
the Capital of Lionbridge Technologies B.V. in favor of Silicon Valley Bank.
10.12* Deed of Pledge dated as of September 26, 1997 by Lionbridge Technologies B.V. of Accounts Receivable
of Lionbridge Technologies B.V. in favor of Silicon Valley Bank.
10.13* Deed of Pledge dated as of September 26, 1997 by Lionbridge Technologies Holdings B.V. of Accounts
Receivable of Lionbridge Technologies Holdings B.V. in favor of Silicon Valley Bank.
10.14* Letter of Deposit dated as of September 26, 1997 of Lionbridge Technologies Holdings B.V. and Rory
Cowan to Silicon Valley Bank.
10.15* Security Agreement dated as of September 26, 1997 between Lionbridge Technologies, Inc. and Silicon
Valley Bank.
10.16* Guarantee dated as of September 26, 1997 made by Lionbridge Technologies Ireland in favor of Silicon
Valley Bank.
10.17* Debenture dated as of September 26, 1997 between Lionbridge Technologies Ireland and Silicon Valley
Bank.
10.18* Loan Document Modification Agreement Number 1 dated as of May 21, 1998 by and among Lionbridge
Technologies Holdings B.V., Lionbridge Technologies B.V. and Silicon Valley Bank.
10.19* Pledge Agreement dated as of May 21, 1998 between Lionbridge Technologies Holdings B.V. and Silicon
Valley Bank regarding capital stock of Lionbridge Technologies (France).
10.20* Warrant to Purchase Common Stock of Lionbridge dated as of May 21, 1998 issued to Silicon Valley
Bancshares.
10.21* Pledge Agreement dated as of May 21, 1998 between Lionbridge and Silicon Valley Bank regarding
capital stock of Lionbridge Technologies California, Inc.
10.22* Pledge Agreement dated as of May 21, 1998 between Lionbridge and Silicon Valley Bank regarding
capital stock of Japanese Language Services, Inc.
10.23* Amended and Restated Guarantee dated as of May 21, 1998 made by Lionbridge Technologies, Inc. in
favor of Silicon Valley Bank.
10.24* Guarantee dated as of May 21, 1998 made by Japanese Language Services, Inc. in favor of Silicon
Valley Bank.
10.25* Pledge Agreement dated as of May 21, 1998 between Japanese Language Services, Inc. and Silicon Valley
Bank regarding capital stock of Lionbridge Japan K.K.
10.26* Security Agreement dated as of May 21, 1998 between Japanese Language Services, Inc. and Silicon
Valley Bank.
10.27* Guarantee dated as of May 21, 1998 made by Lionbridge Japan K.K. in favor of Silicon Valley Bank.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
10.28* Guarantee dated as of May 21, 1998 made by Lionbridge Technologies California, Inc. in favor of
Silicon Valley Bank.
10.29* Security Agreement dated as of May 21, 1998 between Lionbridge Technologies California, Inc. and
Silicon Valley Bank.
10.30* First Demand Guarantee dated as of May 21, 1998 made by Lionbridge Technologies (France) in favor of
Silicon Valley Bank.
10.31* Loan Document Modification Agreement Number 2 dated as of February 25, 1999 by and among Lionbridge
Technologies Holdings B.V., Lionbridge Technologies B.V., Lionbridge Technologies, Inc. and Silicon
Valley Bank.
10.32* Common Stock Purchase Warrant of Lionbridge dated as of February 27, 1999 issued to Capital Resource
Partners III, L.P.
10.33* Common Stock Purchase Warrant of Lionbridge dated as of February 27, 1999 issued to CRP Investment
Partners III, L.L.C.
10.34* Common Stock Purchase Warrant of Lionbridge dated as of March 9, 1999 issued to Morgan Stanley
Venture Capital Fund II Annex, L.P.
10.35* Common Stock Purchase Warrant of Lionbridge dated as of March 9, 1999 issued to Morgan Stanley
Venture Investors Annex, L.P.
10.36* Lease dated as of January 1, 1998 between Corke Abbey Investments Limited and Lionbridge Technologies
Ireland.
10.37* Lease dated as of March 1, 1991 between Corke Abbey Investments and Andrews Travel Consultants
Limited; Assignment to European Language Translations Limited as of March 12, 1993.
10.38* Lease dated as of September 14, 1990 between Corke Abbey Investments Limited and European Language
Translations Limited.
10.39* Agreement dated as of December 4, 1998 between the Industrial Development Agency (Ireland) and
Lionbridge.
10.40* Loan Document Modification Agreement Number 3 dated as of May 20, 1999 by and among Lionbridge
Technologies Holdings B.V., Lionbridge Technologies B.V. and Silicon Valley Bank.
10.41* Form of Non-Competition Agreement as entered into between Lionbridge and each of Rory J. Cowan,
Stephen J. Lifshatz, and Peter Wright.
10.42* Amended and Restated Promissory Note dated as of May 20, 1999 payable to Silicon Valley Bank.
10.43* Loan Document Modification Agreement Number 4 dated as of July 16, 1999 by and among Lionbridge
Technologies Holdings B.V., Lionbridge Technologies B.V., Lionbridge America, Inc., and Silicon
Valley Bank.
21.1* Subsidiaries of Lionbridge, as amended.
23.1 Consent of Testa, Hurwitz & Thibeault, LLP (contained in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
24.1* Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES.
All other schedules have been intentionally omitted because they are
either not required or the information has been included in the Notes to the
consolidated financial statements included as part of this Registration
Statement.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective; and (3) that for the purpose of determining any liability
under the Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 3 to the registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Waltham, Massachusetts on August 16, 1999.
LIONBRIDGE TECHNOLOGIES, INC.
By: /s/ STEPHEN J. LIFSHATZ
-----------------------------------------
Stephen J. Lifshatz
CHIEF FINANCIAL OFFICER, TREASURER AND
SECRETARY (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
President, Chief Executive
* Officer and Chairman of
- ------------------------------ the Board (Principal August 16, 1999
Rory J. Cowan Executive Officer)
Chief Financial Officer,
/s/ STEPHEN J. LIFSHATZ Treasurer and Secretary
- ------------------------------ (Principal Financial and August 16, 1999
Stephen J. Lifshatz Accounting Officer)
* Director
- ------------------------------ August 16, 1999
Guy L. de Chazal
* Director
- ------------------------------ August 16, 1999
Marcia J. Hooper
* Director
- ------------------------------ August 16, 1999
Stephen M. Jenks
* Director
- ------------------------------ August 16, 1999
Paul Kavanagh
* Director
- ------------------------------ August 16, 1999
Claude P. Sheer
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ STEPHEN J. LIFSHATZ
-------------------------
Stephen J. Lifshatz
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT INDEX
- ----------- -------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
2.1 Stock Purchase Agreement dated as of January 2, 1998 by and among Lionbridge,
Japanese Language Services, Inc., Carl J. Kay and Yoko I. Kay.
2.2 Stock Purchase Agreement dated as of January 6, 1999 among VeriTest, Inc., the
shareholders of VeriTest listed on the signature pages thereto and Lionbridge.
3.1* Restated Certificate of Incorporation of Lionbridge.
3.2, 4.1* Form of Second Amended and Restated Certificate of Incorporation of Lionbridge
(to become effective upon the closing of this offering).
3.3* By-laws of Lionbridge.
3.4, 4.2* Form of Amended and Restated By-laws of Lionbridge (to become effective upon
the closing of this offering).
3.5* Certificate of Amendment of Restated Certificate of Incorporation of
Lionbridge.
3.6* Form of Certificate of Amendment of Restated Certificate of Incorporation of
Lionbridge (effecting reverse stock split).
4.3 Specimen Certificate for shares of Lionbridge's Common Stock.
5.1 Legal Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1* 1998 Stock Plan.
10.2* 1999 Employee Stock Purchase Plan.
10.3* Lease dated as of February 13, 1997 between Shorenstein Management, Inc., as
Trustee of SRI Two Realty Trust, and Lionbridge Technologies, Inc.
10.4* Employment Agreement dated as of December 23, 1996 between Lionbridge
Technologies, Inc. and Rory J. Cowan.
10.5* Employment Agreement dated as of January 1, 1997 between Lionbridge
Technologies, Inc. and Myriam Martin-Kail.
10.6* Employment Agreement dated as of February 11, 1997 between Lionbridge
Technologies, Inc. and Stephen J. Lifshatz.
10.7* Employment Agreement dated as of February 28, 1997 between Lionbridge
Technologies, Inc. and Peter Wright.
10.8* Second Restated Registration Rights Agreement dated as of February 26, 1999 by
and among Lionbridge, Capital Resource Lenders III, L.P., Morgan Stanley
Venture Capital Fund II Annex, L.P., Morgan Stanley Venture Investors Annex,
L.P., and each of the other parties listed on the signature pages thereto.
10.9* Loan Agreement dated as of September 26, 1997 by and between Silicon Valley
Bank and Lionbridge Technologies Holdings B.V. and Lionbridge Technologies B.V.
10.10* Deed of Pledge dated as of September 26, 1997 by Lionbridge Technologies, Inc.
of Shares in the Capital of Lionbridge Technologies Holdings B.V. in favor of
Silicon Valley Bank.
10.11* Deed of Pledge dated as of September 26, 1997 by Lionbridge Technologies
Holdings B.V. of Shares in the Capital of Lionbridge Technologies B.V. in favor
of Silicon Valley Bank.
10.12* Deed of Pledge dated as of September 26, 1997 by Lionbridge Technologies B.V.
of Accounts Receivable of Lionbridge Technologies B.V. in favor of Silicon
Valley Bank.
10.13* Deed of Pledge dated as of September 26, 1997 by Lionbridge Technologies
Holdings B.V. of Accounts Receivable of Lionbridge Technologies Holdings B.V.
in favor of Silicon Valley Bank.
10.14* Letter of Deposit dated as of September 26, 1997 of Lionbridge Technologies
Holdings B.V. and Rory Cowan to Silicon Valley Bank.
10.15* Security Agreement dated as of September 26, 1997 between Lionbridge
Technologies, Inc. and Silicon Valley Bank.
10.16* Guarantee dated as of September 26, 1997 made by Lionbridge Technologies
Ireland in favor of Silicon Valley Bank.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT INDEX
- ----------- -------------------------------------------------------------------------------
<S> <C>
10.17* Debenture dated as of September 26, 1997 between Lionbridge Technologies
Ireland and Silicon Valley Bank.
10.18* Loan Document Modification Agreement Number 1 dated as of May 21, 1998 by and
among Lionbridge Technologies Holdings B.V., Lionbridge Technologies B.V. and
Silicon Valley Bank.
10.19* Pledge Agreement dated as of May 21, 1998 between Lionbridge Technologies
Holdings B.V. and Silicon Valley Bank regarding capital stock of Lionbridge
Technologies (France).
10.20* Warrant to Purchase Common Stock of Lionbridge dated as of May 21, 1998 issued
to Silicon Valley Bancshares.
10.21* Pledge Agreement dated as of May 21, 1998 between Lionbridge and Silicon Valley
Bank regarding capital stock of Lionbridge Technologies California, Inc.
10.22* Pledge Agreement dated as of May 21, 1998 between Lionbridge and Silicon Valley
Bank regarding capital stock of Japanese Language Services, Inc.
10.23* Amended and Restated Guarantee dated as of May 21, 1998 made by Lionbridge
Technologies, Inc. in favor of Silicon Valley Bank.
10.24* Guarantee dated as of May 21, 1998 made by Japanese Language Services, Inc. in
favor of Silicon Valley Bank.
10.25* Pledge Agreement dated as of May 21, 1998 between Japanese Language Services,
Inc. and Silicon Valley Bank regarding capital stock of Lionbridge Japan K.K.
10.26* Security Agreement dated as of May 21, 1998 between Japanese Language Services,
Inc. and Silicon Valley Bank.
10.27* Guarantee dated as of May 21, 1998 made by Lionbridge Japan K.K. in favor of
Silicon Valley Bank.
10.28* Guarantee dated as of May 21, 1998 made by Lionbridge Technologies California,
Inc. in favor of Silicon Valley Bank.
10.29* Security Agreement dated as of May 21, 1998 between Lionbridge Technologies
California, Inc. and Silicon Valley Bank.
10.30* First Demand Guarantee dated as of May 21, 1998 made by Lionbridge Technologies
(France) in favor of Silicon Valley Bank.
10.31* Loan Document Modification Agreement Number 2 dated as of February 25, 1999 by
and among Lionbridge Technologies Holdings B.V., Lionbridge Technologies B.V.,
Lionbridge Technologies, Inc. and Silicon Valley Bank.
10.32* Common Stock Purchase Warrant of Lionbridge dated as of February 27, 1999
issued to Capital Resource Partners III, L.P.
10.33* Common Stock Purchase Warrant of Lionbridge dated as of February 27, 1999
issued to CRP Investment Partners III, L.L.C.
10.34* Common Stock Purchase Warrant of Lionbridge dated as of March 9, 1999 issued to
Morgan Stanley Venture Capital Fund II Annex, L.P.
10.35* Common Stock Purchase Warrant of Lionbridge dated as of March 9, 1999 issued to
Morgan Stanley Venture Investors Annex, L.P.
10.36* Lease dated as of January 1, 1998 between Corke Abbey Investments Limited and
Lionbridge Technologies Ireland.
10.37* Lease dated as of March 1, 1991 between Corke Abbey Investments and Andrews
Travel Consultants Limited; Assignment to European Language Translations
Limited as of March 12, 1993.
10.38* Lease dated as of September 14, 1990 between Corke Abbey Investments Limited
and European Language Translations Limited.
10.39* Agreement dated as of December 4, 1998 between the Industrial Development
Agency (Ireland) and Lionbridge.
10.40* Loan Document Modification Agreement Number 3 dated as of May 20, 1999 by and
among Lionbridge Technologies Holdings B.V., Lionbridge Technologies B.V. and
Silicon Valley Bank.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT INDEX
- ----------- -------------------------------------------------------------------------------
<S> <C>
10.41* Form of Non-Competition Agreement as entered into between Lionbridge and each
of Rory J. Cowan, Stephen J. Lifshatz, and Peter Wright.
10.42* Amended and Restated Promissory Note dated as of May 20, 1999 payable to
Silicon Valley Bank.
10.43* Loan Document Modification Agreement Number 4 dated as of July 16, 1999 by and
among Lionbridge Technologies Holdings B.V., Lionbridge Technologies B.V.,
Lionbridge America, Inc., and Silicon Valley Bank
21.1* Subsidiaries of Lionbridge, as amended.
23.1 Consent of Testa, Hurwitz & Thibeault, LLP (contained in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
24.1* Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
EXHIBIT 1.1
Common Stock
UNDERWRITING AGREEMENT
August ___, 1999
PRUDENTIAL SECURITIES INCORPORATED
U.S. Bancorp Piper Jaffray
Adams, Harkness & Hill, Inc.
As Representatives of the several Underwriters
c/o Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Dear Ladies and Gentlemen:
Lionbridge Technologies, Inc., a Delaware corporation (the "Company"),
hereby confirms its agreement with the several underwriters named in Schedule 1
hereto (the "Underwriters"), for whom you have been duly authorized to act as
representatives (in such capacities, the "Representatives"), as set forth below.
If you are the only Underwriters, all references herein to the Representatives
shall be deemed to be to the Underwriters.
1. SECURITIES. Subject to the terms and conditions herein contained, the
Company proposes to issue and sell to the several Underwriters an aggregate of
4,000,000 shares (the "Firm Securities") of the Company's Common Stock, par
value $.01 per share ("Common Stock"). The Company and Selling Securityholders
identified on Schedule 2 hereto also propose to issue and sell to the several
Underwriters not more than 600,000 additional shares of Common Stock if
requested by the Representatives as provided in Section 3 of this Agreement. Any
and all shares of Common Stock to be purchased by the Underwriters pursuant to
such option are referred to herein as the "Option Securities", and the Firm
Securities and any Option Securities are collectively referred to herein as the
"Securities".
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SECURITYHOLDERS.
A. The Company represents and warrants to, and agrees with, each of
the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-81233) with respect
to the Securities, including a prospectus subject to completion, has been filed
by the Company with the
<PAGE>
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"), and one or more amendments to such registration
statement may have been so filed. After the execution of this Agreement, the
Company will file with the Commission either (i) if such registration statement,
as it may have been amended, has been declared by the Commission to be effective
under the Act, either (A) if the Company relies on Rule 434 under the Act, a
Term Sheet (as hereinafter defined) relating to the Securities, that shall
identify the Preliminary Prospectus (as hereinafter defined) that it supplements
containing such information as is required or permitted by Rules 434, 430A and
424(b) under the Act or (B) if the Company does not rely on Rule 434 under the
Act, a prospectus in the form most recently included in an amendment to such
registration statement (or, if no such amendment shall have been filed, in such
registration statement), with such changes or insertions as are required by Rule
430A under the Act or permitted by Rule 424(b) under the Act, and in the case of
either clause (i)(A) or (i)(B) of this sentence as have been provided to and
approved by the Representatives prior to the execution of this Agreement, or
(ii) if such registration statement, as it may have been amended, has not been
declared by the Commission to be effective under the Act, an amendment to such
registration statement, including a form of prospectus, a copy of which
amendment has been furnished to and approved by the Representatives prior to the
execution of this Agreement. The Company may also file a related registration
statement with the Commission pursuant to Rule 462(b) under the Act for the
purpose of registering certain additional Securities, which registration shall
be effective upon filing with the Commission. As used in this Agreement, the
term "Original Registration Statement" means the registration statement
initially filed relating to the Securities, as amended at the time when it was
or is declared effective, including all financial schedules and exhibits thereto
and including any information omitted therefrom pursuant to Rule 430A under the
Act and included in the Prospectus (as hereinafter defined); the term "Rule
462(b) Registration Statement" means any registration statement filed with the
Commission pursuant to Rule 462(b) under the Act (including the Registration
Statement and any Preliminary Prospectus or Prospectus incorporated therein at
the time such Registration Statement becomes effective); the term "Registration
Statement" includes both the Original Registration Statement and any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus" means each prospectus
subject to completion filed with such registration statement or any amendment
thereto (including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective); the term "Prospectus" means:
(A) if the Company relies on Rule 434 under the Act, the Term Sheet
relating to the Securities that is first filed pursuant to Rule 424(b)(7)
under the Act, together with the Preliminary Prospectus identified therein
that such Term Sheet supplements;
(B) if the Company does not rely on Rule 434 under the Act, the prospectus
first filed with the Commission pursuant to Rule 424(b) under the Act; or
(C) if the Company does not rely on Rule 434 under the Act and if no
prospectus is required to be filed pursuant to Rule 424(b) under the Act,
the prospectus included in the Registration Statement;
and the term "Term Sheet" means any term sheet that satisfies the requirements
of Rule 434
<PAGE>
under the Act. Any reference herein to the "date" of a Prospectus that includes
a Term Sheet shall mean the date of such Term Sheet.
(b) The Commission has not issued any order preventing or suspending use of
any Preliminary Prospectus. When any Preliminary Prospectus was filed with the
Commission it (i) contained all statements required to be stated therein in
accordance with, and complied in all material respects with the requirements of,
the Act and the rules and regulations of the Commission thereunder and (ii) did
not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. When the
Registration Statement or any amendment thereto was or is declared effective, it
(i) contained or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading. When the Prospectus or any Term Sheet that is
a part thereof or any amendment or supplement to the Prospectus is filed with
the Commission pursuant to Rule 424(b) (or, if the Prospectus or part thereof or
such amendment or supplement is not required to be so filed, when the
Registration Statement or the amendment thereto containing such amendment or
supplement to the Prospectus was or is declared effective) and on the Firm
Closing Date and any Option Closing Date (both as hereinafter defined), the
Prospectus, as amended or supplemented at any such time, (i) contained or will
contain all statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements of, the
Act and the rules and regulations of the Commission thereunder and (ii) did not
or will not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (b) do not apply to statements or omissions made in
any Preliminary Prospectus, the Registration Statement or any amendment thereto
or the Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through the Representatives specifically for use therein.
(c) If the Company has elected to rely on Rule 462(b) and the Rule 462(b)
Registration Statement has not been declared effective (i) the Company has filed
a Rule 462(b) Registration Statement in compliance with and that is effective
upon filing pursuant to Rule 462(b) and has received confirmation of its receipt
and (ii) the Company has given irrevocable instructions for transmission of the
applicable filing fee in connection with the filing of the Rule 462(b)
Registration Statement, in compliance with Rule 111 promulgated under the Act or
the Commission has received payment of such filing fee.
(d) The Company and each of its subsidiaries listed in Schedule 3 hereto
(the "subsidiaries") have been duly organized and are validly existing as
corporations in good standing under the laws of their respective jurisdictions
of incorporation and are duly qualified to transact business as foreign
corporations and are in good standing under the laws of all other jurisdictions
where the ownership or leasing of their respective properties or the conduct of
their
<PAGE>
respective businesses requires such qualification, except where the failure to
be so qualified does not amount to a material liability or disability to the
Company and its subsidiaries, taken as a whole.
(e) The Company and each of its subsidiaries listed in Schedule 3 hereto
have full power (corporate and other) to own or lease their respective
properties and conduct their respective businesses as described in the
Registration Statement and the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus; and the Company has full
power (corporate and other) to enter into this Agreement and to carry out all
the terms and provisions hereof to be carried out by it.
(f) The issued shares of capital stock of each of the subsidiaries have
been duly authorized and validly issued, are fully paid and nonassessable and
are owned beneficially by the Company free and clear of any security interests,
liens, encumbrances, equities or claims, except for any security interests,
liens, encumbrances, pledges or other claims in favor of Silicon Valley Bank.
(g) The Company has an authorized, issued and outstanding capitalization as
set forth in the Prospectus or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus. All of the issued and outstanding shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable. The Firm Securities and the Option Securities
have been duly authorized and at the Firm Closing Date or the related Option
Closing Date (as the case may be) (both hereinafter defined), after payment
therefor in accordance herewith, will be validly issued, fully paid and
nonassessable. No holders of outstanding shares of capital stock of the Company
are entitled as such to any preemptive or other rights to subscribe for any of
the Securities, and no holder of securities of the Company has any right which
has not been fully exercised or waived to require the Company to register the
offer or sale of any securities owned by such holder under the Act in the public
offering contemplated by this Agreement.
(h) After giving effect to the Company's Second Amended and Restated
Certificate of Incorporation to be filed with the Secretary of State of
Delaware, the capital stock of the Company conforms to the description thereof
contained in the Prospectus or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus.
(i) Except as disclosed in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), there are no outstanding (A)
securities or obligations of the Company or any of its subsidiaries convertible
into or exchangeable for any capital stock of the Company or any such
subsidiary, (B) warrants, rights or options to subscribe for or purchase from
the Company or any such subsidiary any such capital stock or any such
convertible or exchangeable securities or obligations, or (C) obligations of the
Company or any such subsidiary to issue any shares of capital stock, any such
convertible or exchangeable securities or obligations, or any such warrants,
rights or options.
(j) The consolidated financial statements of the Company and its
consolidated
<PAGE>
subsidiaries included in the Registration Statement and the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus)
fairly present the financial position of the Company and its consolidated
subsidiaries and the results of operations and financial condition as of the
dates and periods therein specified. Such financial statements have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (except as otherwise noted
therein). The selected financial data set forth under the caption "SELECTED
CONSOLIDATED FINANCIAL DATA" in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present, on the basis
stated in the Prospectus (or such Preliminary Prospectus), the information
included therein.
(k) PricewaterhouseCoopers LLP, who have certified certain financial
statements of the Company and its consolidated subsidiaries and delivered their
report with respect to the audited consolidated financial statements included in
the Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), are independent public
accountants as required by the Act and the applicable rules and regulations
thereunder.
(l) The execution and delivery of this Agreement have been duly authorized
by the Company and this Agreement has been duly executed and delivered by the
Company, and is the valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms.
(m) No legal or governmental proceedings are pending to which the Company
or any of its subsidiaries is a party or to which the property of the Company or
any of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not described therein (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus),
and, to the knowledge of the Company, no such proceedings have been threatened
against the Company or any of its subsidiaries or with respect to any of their
respective properties; and no contract or other document is required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement that is not described therein (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) or filed
as required.
(n) The issuance, offering and sale of the Securities to the Underwriters
by the Company pursuant to this Agreement, the compliance by the Company with
the other provisions of this Agreement and the consummation of the other
transactions herein contemplated do not (i) require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, except such as have been obtained, such as may be required under
state securities or blue sky laws, such as may be required by the National
Association of Securities Dealers, Inc. (the "NASD") and, if the registration
statement filed with respect to the Securities (as amended) is not effective
under the Act as of the time of execution hereof, such as may be required (and
shall be obtained as provided in this Agreement) under the Act, or (ii) conflict
with or result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any indenture, mortgage, deed of trust, lease or
other agreement or instrument to which the Company or any of its subsidiaries is
a party or by which the Company or any of its
<PAGE>
subsidiaries or any of their respective properties are bound, or any statute or
any judgment, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator applicable to the Company or any of its
subsidiaries except where any such conflict, breach, violation or default would
not, singly or in the aggregate, result in a material adverse change in the
condition (financial or otherwise) management, business prospects, net worth or
results of operations of the Company and its subsidiaries, taken as a whole.
(o) Subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus, neither the Company nor any
of its subsidiaries, taken as a whole, has sustained any material loss or
interference with their respective businesses or properties from fire, flood,
hurricane, accident or other calamity, whether or not covered by insurance, or
from any labor dispute or any legal or governmental proceeding and there has not
been any material adverse change, or any development involving a prospective
material adverse change, in the condition (financial or otherwise), management,
business prospects, net worth, or results of the operations of the Company or
any of its subsidiaries, taken as a whole, except in each case as described in
or contemplated by the Prospectus or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus.
(p) The Company has not, directly or indirectly, (i) taken any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) since the filing of the Registration Statement (A) sold, bid
for, purchased, or paid anyone any compensation for soliciting purchases of, the
Securities or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company (except for
the sale of Securities by the Selling Securityholders under this Agreement).
(q) The Company has not distributed and, prior to the later of (i) the
Closing Date (as hereinafter defined) and (ii) the completion of the
distribution of the Securities, will not distribute any offering material in
connection with the offering and sale of the Securities other than the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or other materials, if
any permitted by the Act.
(r) Subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), (i) the Company and its
subsidiaries have not incurred any material liability or obligation, direct or
contingent, nor entered into any material transaction not in the ordinary course
of business; (ii) the Company has not purchased any of its outstanding capital
stock, nor declared, paid or otherwise made any dividend or distribution of any
kind on its capital stock; and (iii) there has not been any material change in
the capital stock, short-term debt or long-term debt of the Company and its
consolidated subsidiaries, except in each case as described in or contemplated
by the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
<PAGE>
(s) The Company and each of its subsidiaries have good and marketable title
in fee simple to all items of real property and marketable title to all personal
property owned by each of them, in each case free and clear of any security
interests, liens, encumbrances, equities, claims and other defects, except (i)
such as do not materially and adversely affect the value of such property and do
not interfere with the use made or proposed to be made of such property by the
Company or such subsidiary and (ii) for security interests, liens and other
encumbrances in favor of Silicon Valley Bank, and any real property and
buildings held under lease by the Company or any such subsidiary are held under
valid, subsisting and enforceable leases, with such exceptions as are not
material and do not interfere with the use made of such property and buildings
by the Company or such subsidiary, in each case except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(t) No labor dispute with the employees of the Company or any of its
subsidiaries exists or, to the Company's knowledge, is threatened or imminent
that could result in a material adverse change in the condition (financial or
otherwise), business prospects, net worth or results of operations of the
Company and its subsidiaries, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(u) The Company and its subsidiaries own or possess, or can acquire on
reasonable terms, all material patents, patent applications, trademarks, service
marks, trade names, licenses, copyrights and proprietary or other confidential
information currently employed by them in connection with their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of infringement of or conflict with asserted rights of any third party
with respect to any of the foregoing which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(v) The Company and each of its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are engaged
and for companies of similar size as the Company and its subsidiaries, taken as
a whole; neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for; and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), business prospects, net worth or results of operations
of the Company and its subsidiaries, except as described in or contemplated by
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(w) No subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the Company
any loans or advances to such subsidiary from the
<PAGE>
Company or from transferring any of such subsidiary's property or assets to the
Company or any other subsidiary of the Company, except (i) as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus) or (ii) prohibited in that certain Loan
Agreement dated September 26, 1997 by and between Silicon Valley Bank,
Lionbridge Technologies Holdings B.V. and Lionbridge Technologies B.V., as
amended to date.
(x) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses (except
those the failure to possess which would not result in material adverse change
in the condition (financial or otherwise), management, business prospects, net
worth, results of operations of the Company and its subsidiaries, taken as a
whole), and neither the Company nor any such subsidiary has received any notice
of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company and its
subsidiaries, taken as a whole, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(y) The Company has conducted its operations in a manner that will not
subject it to registration as an investment company under the Investment Company
Act of 1940, as amended, and as a result of this transaction, has not caused the
Company to become an investment company subject to registration under such Act.
(z) The Company has filed all foreign, federal, state and local tax returns
that are required to be filed or has requested extensions thereof (except in any
case in which the failure so to file would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole) and has paid all taxes
required to be paid by it and any other assessment, fine or penalty levied
against it, to the extent that any of the foregoing is due and payable, except
for any such assessment, fine or penalty that is currently being contested in
good faith or as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(aa) Neither the Company nor any of its subsidiaries is in violation of any
federal or state law or regulation relating to occupational safety and health or
to the storage, handling or transportation of hazardous or toxic materials and
the Company and its subsidiaries have received all permits, licenses or other
approvals required of them under applicable federal and state occupational
safety and health and environmental laws and regulations to conduct their
respective businesses, and the Company and each such subsidiary is in compliance
with all terms and conditions of any such permit, license or approval, except
any such violation of law or regulation, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals which would not, singly or in the
aggregate, result in a material adverse change in the condition (financial or
otherwise), business prospects, net worth or results of operations of the
Company and its subsidiaries, taken
<PAGE>
as a whole, except as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(bb) Each certificate signed by the Chief Executive Officer, Chief
Financial Officer or Secretary of the Company and delivered to the
Representatives or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby.
(cc) Except for the shares of capital stock of each of the subsidiaries
owned by the Company and such subsidiaries, neither the Company nor any such
subsidiary owns any shares of stock or any other equity securities of any
corporation or has any equity interest in any firm, partnership, association or
other entity, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(dd) The Company and each of its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (1)
transactions are executed in accordance with management's general or specific
authorizations; (2) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (3) access to assets is
permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(ee) No default exists, and no event has occurred which, with notice or
lapse of time or both, would constitute a violation or default in the due
performance and observance any term, covenant or condition of the Company's
charter documents or, by-laws, any indenture, mortgage, deed of trust, lease or
other agreement or instrument to which the Company or any of its subsidiaries is
a party or by which the Company or any of its subsidiaries or any of their
respective properties is bound or may be affected in any material adverse
respect with regard to property, business or operations of the Company and its
subsidiaries which would, singly or in the aggregate, result in a material
adverse change in the financial condition, net worth or results of operations of
the Company and its subsidiaries, taken as a whole.
B. Rory J. Cowan and Stephen J. Lifshatz, jointly and severally, and
each of Peter H. Wright, Martha Lynne Paschetag and Kenneth L. Coleman,
severally and not jointly, represents and warrants to, and agrees with, each of
the several Underwriters that:
(i) Such Selling Securityholder has full power (corporate and other) to
enter into this Agreement and to sell, assign, transfer and deliver to the
Underwriters the Securities to be sold by such Selling Securityholders hereunder
in accordance with the terms of this Agreement; and this Agreement has been duly
executed and delivered by such Selling Securityholder.
(ii) Such Selling Securityholders has duly executed and delivered a power
of attorney and custody agreement (with respect to such Selling Securityholder,
the "Power of Attorney" and the "Custody Agreement", respectively), each in the
form heretofore delivered to the
<PAGE>
Representatives, appointing Rory J. Cowan and Stephen J. Lifshatz as such
Selling Securityholder's attorneys-in-fact (the "Attorneys-in-Fact") with
authority to execute, deliver and perform this Agreement on behalf of such
Selling Securityholder and appointing the Company, as custodian thereunder (the
"Custodian"). Certificates in negotiable form, endorsed in blank or accompanied
by blank stock powers duly executed, with signatures appropriately guaranteed,
representing the Securities to be sold by such Selling Securityholder hereunder
have been deposited with the Custodian pursuant to the Custody Agreement for the
purpose of delivery pursuant to this Agreement. The Custody Agreement and the
Power of Attorney have been duly executed and delivered by such Selling
Securityholder and, assuming due authorization, execution and delivery by the
Custodian, are the valid, binding and enforceable instruments of such Selling
Securityholder. Such Selling Securityholder agrees that each of the Securities
represented by the certificates on deposit with the Custodian is subject to the
interests of the Underwriters hereunder, that the arrangements made for such
custody, the appointment of the Attorneys-in-Fact and the right, power and
authority of the Attorneys-in-Fact to execute and deliver this Agreement, to
agree on the price at which the Securities (including such Selling
Securityholder's Securities) are to be sold to the Underwriters, and to carry
out the terms of this Agreement, are to that extent irrevocable and that the
obligations of such Selling Securityholder hereunder shall not be terminated,
except as provided in this Agreement or the Custody Agreement, by any act of
such Selling Securityholder, by operation of law or otherwise, whether in the
case of any individual Selling Securityholder by the death or incapacity of such
Selling Securityholder, in the case of a trust or estate by the death of the
trustee or trustees or the executor or executors or the termination of such
trust or estate. If any individual Selling Securityholder, trustee or executor
should die or become incapacitated or any such trust should be terminated, or if
any other event should occur, before the delivery of such Securities hereunder,
the certificates for such Securities deposited with the Custodian shall be
delivered by the Custodian in accordance with the respective terms and
conditions of this Agreement as if such death, incapacity, termination,
liquidation or dissolution or other event had not occurred, regardless of
whether or not the Custodian or the Attorneys-in-Fact shall have received notice
thereof.
(iii) Such Selling Securityholder is the lawful owner of the Securities to
be sold by such Selling Securityholder hereunder and upon sale and delivery of,
and payment for, such Securities, as provided herein, such Selling
Securityholder will convey good and marketable title to such Securities, free
and clear of any security interests, liens, encumbrances, equities, claims or
other defects.
(iv) Such Selling Securityholder has not, directly or indirectly, (i) taken
any action designed to cause or result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) since the filing of the Registration Statement (A) sold, bid
for, purchased, or paid anyone any compensation for soliciting purchases of, the
Securities or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company (except for
the sale of Securities by the Selling Securityholders under this Agreement).
<PAGE>
(v) To the extent that any statements or omissions are made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by such Selling Securityholder specifically
for use therein, such Preliminary Prospectus did, and the Registration Statement
and the Prospectus and any amendments or supplements thereto, when they become
effective or are filed with the Commission, as the case may be, will conform in
all material respects to the requirements of the Act, the Exchange Act and the
respective rules and regulations of the Commission thereunder and will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they are made, not misleading.
Such Selling Securityholder has reviewed the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus) and the
Registration Statement, and the information regarding such Selling
Securityholder set forth therein under the caption "Principal and Selling
Stockholders" is complete and accurate.
(vi) The sale by such Selling Securityholder of Securities pursuant hereto
is not prompted by any adverse information concerning the Company that is not
set forth in the Registration Statement or the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus).
(vii) The sale of the Securities to the Underwriters by such Selling
Securityholder pursuant to this Agreement, the compliance by Such Selling
Securityholder with the other provisions of this Agreement, the Custody
Agreement and the consummation of the other transactions herein contemplated do
not (i) require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as have been
obtained, such as may be required under state securities or blue sky laws, such
as may be required by the NASD and, if the registration statement filed with
respect to the Securities (as amended) is not effective under the Act as of the
time of execution hereof, such as may be required (and shall be obtained as
provided in this Agreement) under the Act and the Exchange Act and the Trust
Indenture Act, or (ii) conflict with or result in a breach or violation of any
of the terms and provisions of, or constitute a default under any indenture,
mortgage, deed of trust, lease or other agreement or instrument to which such
Selling Securityholder is a party or any statute or any judgment, decree, order,
rule or regulation of any court or other governmental authority or any
arbitrator applicable to such Selling Securityholder.
(viii) Rory J. Cowan and Stephen J. Lifshatz agree that the representations
and warranties included in Section 2A hereof are true and correct.
3. PURCHASE, SALE AND DELIVERY OF THE SECURITIES. (a) On the basis of the
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to each of the Underwriters, and each of the Underwriters,
severally and not jointly, agrees to purchase from the Company, at a purchase
price of $________ per share, the number of Firm Securities set forth opposite
the name of such Underwriter in Schedule 1 hereto. One or more certificates in
definitive form for the Firm Securities that the several Underwriters have
agreed to purchase hereunder, and in such
<PAGE>
denomination or denominations and registered in such name or names as the
Representatives request upon notice to the Company at least 48 hours prior to
the Firm Closing Date, shall be delivered by or on behalf of the Company to the
Representatives for the respective accounts of the Underwriters, against payment
by or on behalf of the Underwriters of the purchase price therefor by wire
transfer in same-day funds (the "Wired Funds") to the account of the Company.
Such delivery of and payment for the Firm Securities shall be made at the
offices of Testa, Hurwitz & Thibeault, LLP, 125 High Street, Boston,
Massachusetts 02110 at 9:30 A.M., New York time, on __________, 1999, or at such
other place, time or date as the Representatives and the Company may agree upon
or as the Representatives may determine pursuant to Section 9 hereof, such time
and date of delivery against payment being herein referred to as the "Firm
Closing Date". The Company will make such certificate or certificates for the
Firm Securities available for checking and packaging by the Representatives at
the offices in New York, New York of the Company's transfer agent or registrar
or of Prudential Securities Incorporated at least 24 hours prior to the Firm
Closing Date.
(b) For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Securities as contemplated by the Prospectus,
each Selling Securityholder, severally and not jointly, hereby grants to the
several Underwriters an option to purchase, the number of Option Securities set
forth opposite the name of such Selling Securityholder in Schedule II hereto.
The purchase price to be paid for any Option Securities shall be the same price
per share as the price per share for the Firm Securities set forth above in
paragraph (a) of this Section 3. The option granted hereby may be exercised as
to all or any part of the Option Securities from time to time within (thirty)
days after the date of the Prospectus (or, if such 30th day shall be a Saturday
or Sunday or a holiday, on the next business day thereafter when the New York
Stock Exchange is open for trading). If the Underwriters exercise the
over-allotment option in part, the number of Option Securities to be sold be
each Selling Securityholder will be determined first on a pro-rata basis among
the Selling Securityholders (based upon the percentage of the total number of
Option Securities purchased from each Selling Securityholder obtained by
dividing the total number of Option Securities offered by such Selling
Securityholder by the aggregate number of Option Securities offered by the
Selling Securityholders hereunder) up to the total number of Option Securites
offered hereunder, and then from the Company. The Underwriters shall not be
under any obligation to purchase any of the Option Securities prior to the
exercise of such option. The Representatives may from time to time exercise the
option granted hereby by giving notice in writing or by telephone (confirmed in
writing) to the Company and the Selling Securityholders (and the
Attorneys-in-Fact) setting forth the aggregate number of Option Securities as to
which the several Underwriters are then exercising the option and the date and
time for delivery of and payment for such Option Securities. Any such date of
delivery shall be determined by the Representatives but shall not be earlier
than two business days or later than five business days after such exercise of
the option and, in any event, shall not be earlier than the Firm Closing Date.
The time and date set forth in such notice, or such other time on such other
date as the Representatives and the Selling Securityholders may agree upon or as
the Representatives may determine pursuant to Section 9 hereof, is herein called
the "Option Closing Date" with respect to such Option Securities. Upon exercise
of the option as provided herein, the Selling Securityholders shall become
obligated to sell, severally and not jointly, to each of the several
Underwriters, and, subject to the terms and
<PAGE>
conditions herein set forth, each of the Underwriters (severally and not
jointly) shall become obligated to purchase from the Selling Securityholders,
the same percentage of the total number of the Option Securities as to which the
several Underwriters are then exercising the option as such Underwriter is
obligated to purchase of the aggregate number of Firm Securities, as adjusted by
the Representatives in such manner as they deem advisable to avoid fractional
shares. If the option is exercised as to all or any portion of the Option
Securities, one or more certificates in definitive form for such Option
Securities, and payment therefor, shall be delivered on the related Option
Closing Date in the manner, and upon the terms and conditions, set forth in
paragraph (a) of this Section 3, except that reference therein to the Firm
Securities and the Firm Closing Date shall be deemed, for purposes of this
paragraph (b), to refer to such Option Securities and Option Closing Date,
respectively. In the event that any of the Selling Securityholders fail to
provide any portion of the Option Securities set forth opposite their name on
Schedule 2 hereto, the Company shall become obligated to sell and, subject to
the terms and conditions herein set forth, each of the Underwriters (severally
and not jointly) shall become obligation to purchase from the Company, such
portion of the Option Securities.
(c) The Company hereby acknowledges that the wire transfer by or on behalf
of the Underwriters of the purchase price for any Securities does not constitute
closing of a purchase and sale of the Securities. Only execution and delivery of
a receipt for Securities by the Underwriters indicates completion of the closing
of a purchase of the Securities from the Company. Furthermore, in the event that
the Underwriters wire funds to the Company prior to the completion of the
closing of a purchase of Securities, the Company hereby acknowledges that until
the Underwriters execute and deliver a receipt for the Securities, by facsimile
or otherwise, the Company will not be entitled to the Wired Funds and shall
return the Wired Funds to the Underwriters as soon as practicable (by wire
transfer of same-day funds) upon demand. In the event that the closing of a
purchase of Securities is not completed and the Wired Funds are not returned by
the Company to the Underwriters on the same day the Wired Funds were received by
the Company, the Company agrees to pay to the Underwriters in respect of each
day the Wired Funds are not returned by it, in same-day funds, interest on the
amount of such Wired Funds in an amount representing the Underwriters' cost of
financing as reasonably determined by Prudential Securities Incorporated.
(d) It is understood that any of you, individually and not as one of the
Representatives, may (but shall not be obligated to) make payment on behalf of
any Underwriter or Underwriters for any of the Securities to be purchased by
such Underwriter or Underwriters. No such payment shall relieve such Underwriter
or Underwriters from any of its or their obligations hereunder.
4. OFFERING BY THE UNDERWRITERS. Upon your authorization of the release of
the Firm Securities, the several Underwriters propose to offer the Firm
Securities for sale to the public upon the terms set forth in the Prospectus.
5. COVENANTS OF THE COMPANY AND SELLING SECURITYHOLDERS.
A. The Company covenants and agrees with each of the Underwriters
that:
<PAGE>
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, and any
amendments thereto to become effective as promptly as possible. If required, the
Company will file the Prospectus or any Term Sheet that constitutes a part
thereof and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rules 434 and 424(b) under the
Act. During any time when a prospectus relating to the Securities is required to
be delivered under the Act, the Company (i) will comply with all requirements
imposed upon it by the Act and the rules and regulations of the Commission
thereunder to the extent necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and of the
Prospectus, as then amended or supplemented, and (ii) will not file with the
Commission the prospectus, Term Sheet or the amendment referred to in the second
sentence of Section 2(a) hereof, any amendment or supplement to such Prospectus,
Term Sheet or any amendment to the Registration Statement or any Rule 462(b)
Registration Statement of which the Representatives previously have been advised
and furnished with a copy for a reasonable period of time prior to the proposed
filing and as to which filing the Representatives shall not have given their
consent, which consent shall not be unreasonably withheld. The Company will
prepare and file with the Commission, in accordance with the rules and
regulations of the Commission, promptly upon request by the Representatives or
counsel for the Underwriters, any amendments to the Registration Statement or
amendments or supplements to the Prospectus that may be necessary or advisable
in connection with the distribution of the Securities by the several
Underwriters, and will use its best efforts to cause any such amendment to the
Registration Statement to be declared effective by the Commission as promptly as
possible. The Company will advise the Representatives, promptly after receiving
notice thereof, of the time when the Registration Statement or any amendment
thereto has been filed or declared effective or the Prospectus or any amendment
or supplement thereto has been filed and will provide evidence satisfactory to
the Representatives of each such filing or effectiveness.
(b) The Company will advise the Representatives, promptly after receiving
notice or obtaining knowledge thereof, of (i) the issuance by the Commission of
any stop order suspending the effectiveness of the Original Registration
Statement or any Rule 462(b) Registration Statement or any amendment thereto or
any order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, (ii) the suspension of the
qualification of the Securities for offering or sale in any jurisdiction, (iii)
the institution, threatening or contemplation of any proceeding for any such
purpose or (iv) any request made by the Commission for amending the Original
Registration Statement or any Rule 462(b) Registration Statement, for amending
or supplementing the Prospectus or for additional information. The Company will
use its best efforts to prevent the issuance of any such stop order and, if any
such stop order is issued, to obtain the withdrawal thereof as promptly as
possible.
(c) The Company will arrange for the qualification of the Securities for
offering and sale under the securities or blue sky laws of such jurisdictions as
the Representatives may designate and will continue such qualifications in
effect for as long as may be necessary to complete the distribution of the
Securities, PROVIDED, HOWEVER, that in connection therewith the Company shall
not be required to qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction.
<PAGE>
(d) If, at any time prior to the later of (i) the final date when a
prospectus relating to the Securities is required to be delivered under the Act
or (ii) the Option Closing Date, any event occurs as a result of which the
Prospectus, as then amended or supplemented, would include any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or if for any other reason it is necessary at any time to
amend or supplement the Prospectus to comply with the Act or the rules or
regulations of the Commission thereunder, the Company will promptly notify the
Representatives thereof and, subject to Section 5.A.(a) hereof, will prepare and
file with the Commission, at the Company's expense, an amendment to the
Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.
(e) The Company will, without charge, provide (i) to the Representatives
and to counsel for the Underwriters a conformed copy of the registration
statement originally filed with respect to the Securities and each amendment
thereto (in each case including exhibits thereto) or any Rule 462(b)
Registration Statement, certified by the Secretary or an Assistant Secretary of
the Company to be true and complete copies thereof as filed with the Commission
by electronic transmission, (ii) to each other Underwriter, a conformed copy of
such registration statement or any Rule 462(b) Registration Statement and each
amendment thereto (in each case without exhibits thereto) and (iii) so long as a
prospectus relating to the Securities is required to be delivered under the Act,
as many copies of each Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto as the Representatives may reasonably request; without
limiting the application of clause (iii) of this sentence, the Company, not
later than (A) 6:00 P.M., New York City time, on the date of determination of
the public offering price, if such determination occurred at or prior to 10:00
A.M., New York City time, on such date or (B) 2:00 P.M., New York City time, on
the business day following the date of determination of the public offering
price, if such determination occurred after 10:00 A.M., New York City time, on
such date, will deliver to the Underwriters, without charge, as many copies of
the Prospectus and any amendment or supplement thereto as the Representatives
may reasonably request for purposes of confirming orders that are expected to
settle on the Firm Closing Date. The Company will provide or cause to be
provided to each of the Representatives, and to each Underwriter that so
requests in writing, a copy of its periodic report filed pursuant to Sections
13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, which
includes the Company's disclosure of its use of proceeds from the sale of the
Securities as required under Rule 463 of the Act.
(f) The Company, as soon as practicable, will make generally available to
its securityholders and to the Representatives a consolidated earnings statement
of the Company and its subsidiaries that satisfies the provisions of Section
11(a) of the Act and Rule 158 thereunder.
(g) The Company will apply the net proceeds from the sale of the Securities
as set forth under "Use of Proceeds" in the Prospectus.
(h) The Company will not, directly or indirectly, without the prior written
consent of Prudential Securities Incorporated, on behalf of the Underwriters,
offer, sell, offer to sell,
<PAGE>
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, pledge,
grant of any option to purchase or other sale or disposition) of any shares of
Common Stock or any securities convertible into, or exchangeable or exercisable
for, shares of Common Stock for a period of 180 days after the date hereof,
except pursuant to this Agreement and except for issuances pursuant to (i) the
exercise of employee stock options outstanding on the date hereof, (ii) the
Company's 1998 Stock Option Plan, (iii) the terms of convertible securities of
the Company outstanding on the date hereof, (iv) the Company's 1999 Employee
Stock Purchase Plan, (v) the exercise of warrants as disclosed in the
Prospectus, (vi) the acquisition (whether by merger or otherwise) by the Company
or any of its subsidiaries of all or substantially all of the capital stock or
assets of any other entity or all or a substantial portion of the assets of a
business operated by another entity provided that the recipient executes a
lock-up agreement including the restrictions of this paragraph (h), or (vii) any
stock plan established at any of the Company's foreign subsidiaries provided
that under no circumstances will the options issued under such plan vest prior
to 180 days after the date hereof.
(i) The Company will not, directly or indirectly, (i) take any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) (A) sell, bid for, purchase, or pay anyone any compensation
for soliciting purchases of, the Securities or (B) pay or agree to pay to any
person any compensation for soliciting another to purchase any other securities
of the Company (except for the sale of Securities by the Selling Securityholders
under this Agreement).
(j) The Company will obtain the agreements described in Section 7(f) hereof
prior to the Firm Closing Date.
(k) If at any time during the 25-day period after the Registration
Statement becomes effective or the period prior to the Option Closing Date, any
rumor, publication or event relating to or affecting the Company shall occur as
a result of which in your opinion the market price of the Common Stock has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the appropriateness and advisability of preparing and disseminating a
press release or other public statement, reasonably satisfactory to you,
responding to or commenting on such rumor, publication or event.
(l) If the Company elects to rely on Rule 462(b), the Company shall both
file a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) and pay the applicable fees in accordance with Rule 111 promulgated
under the Act by the earlier of (i) 10:00 P.M. Eastern time on the date of this
Agreement and (ii) the time confirmations are sent or given, as specified by
Rule 462(b)(2).
(m) The Company will cause the Securities to be duly included for quotation
on The Nasdaq Stock Market's National Market (the "Nasdaq National Market")
prior to the Firm Closing Date. The Company will use best efforts to ensure that
the Securities remain included
<PAGE>
for quotation on the Nasdaq National Market or another national quotation system
or listed on a national securities exchange following the Firm Closing Date.
B. Each of the Selling Securityholders covenants and agrees with each
of the Underwriters that:
(a) Such Selling Securityholder will not, without the prior written consent
of Prudential Securities Incorporated, on behalf of the Underwriters, directly
or indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of (i) any shares of Common Stock and/or certain
other securities (the "Other Securities") of the Company or of securities
substantially similar thereto or (ii) any other securities convertible into, or
exchangeable or exercisable for, shares of Common Stock or such similar
securities, beneficially owned (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) by such Selling Securityholder on
the date hereof or hereafter acquired for a period of 180 days (the "Lock-up
Period") subsequent to the date of the final Prospectus filed with the
Commission pursuant to Rule 424(b) of the Act or if no filing under Rule 424(b)
is made, the date of the final Prospectus included in the Registration Statement
when declared effective under the Act. Notwithstanding the foregoing, solely
with respect to options (and the shares of Common Stock underlying such options)
beneficially owned by such Selling Securityholder, such Lock-up Period shall be
90 days; provided further, that any such sale, transfer or disposition may be
made within the applicable Lock-up Period if such Selling Securityholder first
requires any and all offering or acquiring parties to execute and deliver to
Prudential Securities Incorporated an agreement of substantially this provision
5.B.(a).
(b) Such Selling Securityholder will not, directly or indirectly, (i) take
any action designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) (A) sell, bid for, purchase, or pay anyone any compensation
for soliciting purchases of, the Securities or (B) pay or agree to pay to any
person any compensation for soliciting another to purchase any other securities
of the Company (except for the sale of Securities by Such Selling Securityholder
under this Agreement).
6. EXPENSES. The Company will pay all costs and expenses incident to the
performance of the obligations of the Company and the Selling Securityholders
under this Agreement, whether or not the transactions contemplated herein are
consummated or this Agreement is terminated pursuant to Section 11 hereof,
including all costs and expenses incident to (i) the printing or other
production of documents with respect to the transactions, including any costs of
printing the registration statement originally filed with respect to the
Securities and any amendment thereto, any Rule 462(b) Registration Statement,
any Preliminary Prospectus and the Prospectus and any amendment or supplement
thereto, this Agreement and any blue sky memoranda, (ii) all arrangements
relating to the delivery to the Underwriters of copies of the foregoing
documents, (iii) the fees and disbursements of the counsel for the Company and
the Selling Securityholders, and the accountants and any other experts or
advisors retained by the Company, (iv) preparation, issuance and delivery to the
Underwriters of any certificates
<PAGE>
evidencing the Securities, including transfer agent's and registrar's fees, (v)
the qualification of the Securities under state securities and blue sky laws,
including filing fees and fees and disbursements of counsel for the Underwriters
relating thereto, (vi) the filing fees of the Commission and the NASD relating
to the Securities, (vii) any quotation of the Securities on the Nasdaq National
Market and, (viii) expenses of the Company's officers incurred in connection
with any meetings with prospective investors in the Securities (other than as
shall have been specifically approved by the Representatives to be paid for by
the Underwriters) and (ix) advertising relating to the offering of the
Securities (other than as shall have been specifically approved by the
Representatives to be paid for by the Underwriters). If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 7 hereof is not satisfied,
because this Agreement is terminated pursuant to Section 11(a)(i) or (ii) hereof
or because of any failure, refusal or inability on the part of the Company or
the Selling Securityholders to perform all obligations and satisfy all
conditions on its part to be performed or satisfied hereunder other than by
reason of a default by any of the Underwriters, the Company will reimburse the
Underwriters severally upon demand for all out-of-pocket expenses (including
counsel fees and disbursements) that shall have been incurred by them in
connection with the proposed purchase and sale of the Securities. The Company
and the Selling Securityholders shall not in any event be liable to any of the
Underwriters for the loss of anticipated profits from the transactions covered
by this Agreement. The provisions of this Section 6 shall not effect any
agreement which the Selling Securityholders and the Company have made for the
sharing of such expenses and costs.
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the Representatives' sole discretion, to the accuracy of the
representations and warranties of the Company contained herein as of the date
hereof and as of the Firm Closing Date, as if made on and as of the Firm Closing
Date, to the accuracy of the statements of the Company's officers made pursuant
to the provisions hereof, to the performance by the Company of its covenants and
agreements hereunder and to the following additional conditions:
(a) If the Original Registration Statement or any amendment thereto filed
prior to the Firm Closing Date has not been declared effective as of the time of
execution hereof, the Original Registration Statement or such amendment and, if
the Company has elected to rely upon Rule 462(b), the Rule 462(b) Registration
Statement shall have been declared effective not later than the earlier of (i)
11:00 A.M., New York time, on the date on which the amendment to the
registration statement originally filed with respect to the Securities or to the
Registration Statement, as the case may be, containing information regarding the
initial public offering price of the Securities has been filed with the
Commission and (ii) the time confirmations are sent or given as specified by
Rule 462(b)(2), or with respect to the Original Registration Statement, or such
later time and date as shall have been consented to by the Representatives; if
required, the Prospectus or any Term Sheet that constitutes a part thereof and
any amendment or supplement thereto shall have been filed with the Commission in
the manner and within the time period required by Rules 434 and 424(b) under the
Act; no stop order suspending the effectiveness of the Registration Statement or
any amendment thereto shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of the
Company or
<PAGE>
the Representatives, shall be contemplated by the Commission; and the Company
shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise).
(b) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Testa, Hurwitz & Thibeault, LLP, counsel for the Company, to
the effect that:
(i) the Company and each of its subsidiaries which is incorporated in
the United States (the "U.S. Subsidiaries") have been duly organized and
are validly existing as corporations in good standing under the laws of
their respective jurisdictions listed on Schedule 3 hereto;
(ii) the Company and each of the U.S. Subsidiaries have corporate
power to own or lease their respective properties and conduct their
respective businesses as described in the Registration Statement and the
Prospectus, and the Company has corporate power to enter into this
Agreement and to carry out all the terms and provisions hereof to be
carried out by it;
(iii) the issued shares of capital stock of each of the U.S.
Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable and are owned beneficially by the Company free and clear
of any perfected security interests or, to the best knowledge of such
counsel, any other security interests, liens, encumbrances, equities or
claims except for security interests, liens, encumbrances, pledges or other
claims in favor of Silicon Valley Bank;
(iv) after giving effect to the Company's Second Amended and Restated
Certificate of Incorporation to be filed with the Secretary of State of
Delaware, the Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus; all of the issued shares of
capital stock of the Company have been duly authorized and validly issued
and are fully paid and nonassessable, have been issued in compliance with
all applicable federal and state securities laws and, to such counsel's
knowledge, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities; the Firm
Securities have been duly authorized by all necessary corporate action of
the Company and, when issued and delivered to and paid for by the
Underwriters pursuant to this Agreement, will be validly issued, fully paid
and nonassessable; to such counsel's knowledge, no holders of outstanding
shares of capital stock of the Company are entitled as such to any
preemptive or other rights to subscribe for any of the Securities; and to
such counsel's knowledge, no holders of securities of the Company are
entitled to have such securities registered under the Registration
Statement other than those holders who have waived such rights;
(v) the statements set forth under the heading "Description of Capital
Stock" in the Prospectus, to the extent that it constitutes matters of law
or legal conclusions, has been reviewed by such counsel and is a fair
summary in all material respects of such matters and conclusions; and the
statements set forth under the headings "Intellectual
<PAGE>
Property Rights" and "Legal Proceedings" in the Prospectus, insofar as such
statements purport to summarize legal matters, documents or proceedings,
provide a fair summary of such legal matters, documents and proceedings;
(vi) the execution and delivery of this Agreement have been duly
authorized by all necessary corporate action of the Company and this
Agreement has been duly executed and delivered by the Company;
(vii) (A) to the knowledge of such counsel, no legal or governmental
proceedings are pending to which the Company or any of the subsidiaries is
a party or to which the property of the Company or any of the subsidiaries
is subject that are required to be described in the Registration Statement
or the Prospectus and are not described therein, and, to the best knowledge
of such counsel, no such proceedings have been threatened against the
Company or any of the subsidiaries or with respect to any of their
respective properties and (B) no contract or other document known to such
counsel is required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement that
is not described therein or filed as required;
(viii) the issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance by
the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (A)
require the consent, approval, authorization, registration or qualification
of or with any governmental authority, except such as have been obtained
and such as may be required under the NASD or state securities or blue sky
laws, or (B) conflict with or result in a breach or violation of any of the
terms and provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, lease or other agreement or instrument, known to
such counsel, to which the Company or any of the subsidiaries is a party or
by which the Company or any of the U.S. Subsidiaries or any of their
respective properties are bound, or the charter documents or by-laws of the
Company or any of the U.S. Subsidiaries, or any statute or any judgment,
decree, order, rule or regulation of any court or other governmental
authority or any arbitrator known to such counsel and applicable to the
Company or subsidiaries;
(ix) such counsel has been informed by the Commission that the
Registration Statement is effective under the Act; any required filing of
the Prospectus, or any Term Sheet that constitutes a part thereof, pursuant
to Rules 434 and 424(b) has been made in the manner and within the time
period required by Rules 434 and 424(b); and such counsel has been informed
by the Commission that no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or, to such counsel's
knowledge, threatened or are contemplated by the Commission;
(x) the Registration Statement originally filed with respect to the
Securities and each amendment thereto, any Rule 462(b) Registration
Statement and the Prospectus (in each case, other than the financial
statements and other financial information
<PAGE>
contained therein, as to which such counsel need express no opinion) comply
as to form in all material respects with the applicable requirements of the
Act and the rules and regulations of the Commission thereunder; and
(xi) if the Company elects to rely on Rule 434, the Prospectus is not
"materially different", as such term is used in Rule 434, from the
prospectus included in the Registration Statement at the time of its
effectiveness or an effective post-effective amendment thereto (including
such information that is permitted to be omitted pursuant to Rule 430A).
Such counsel shall also state that, during the course of the
preparation of the Registration Statement, they participated in conferences with
representatives of the Underwriters, and with officers and other representatives
of the Company and with PricewaterhouseCoopers LLP, the Company's independent
certified public accountants, at which the contents of the Registration
Statement and the Prospectus were discussed. Based upon their participation as
described above, we are of the opinion that the Registration Statement and the
Prospectus (other than the financial statements, including the notes and
schedules thereto, and the other financial and statistical data included in the
Registration Statement and Prospectus, as to which we express no opinion), as of
the effective date of the Registration Statement, complies as to form in all
material respects with the requirements of the Act and the applicable rules and
regulations thereunder. Based on their participation as described above, nothing
has come to their attention that leads them to believe that (i) the Registration
Statement, at the time it became effective under the Act, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the date hereof, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading (it being
understood in each case that they express no view as to the financial
statements, including the footnotes and supporting schedules, and the other
financial and statistical data included therein).
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials.
(c) The Selling Securityholders shall have furnished to the Representatives
the opinion of Testa, Hurwitz & Thibeault, LLP, counsel for the Selling
Securityholders, dated the Closing Date, to the effect that:
(i) this Agreement, the Custody Agreement and the Power of Attorney
have been duly authorized, executed and delivered by such Selling
Securityholder;
(ii) the delivery by each Selling Securityholder to the several
Underwriters of certificates for the Securities being sold hereunder by
such Selling Securityholder against payment therefor as provided herein,
will convey good and marketable title to such
<PAGE>
Securities to the several Underwriters, free and clear of all security
interests, liens, encumbrances, equities, claims or other defects;
(iii) the sale of the Securities to the Underwriters by such Selling
Securityholder pursuant to this Agreement, the compliance by such Selling
Securityholder with the other provisions of this Agreement, the Custody
Agreement and the consummation of the other transactions herein
contemplated do not (i) require the consent, approval, authorization,
registration or qualification of or with any governmental authority, except
such as have been obtained and such as may be required under the NASD or
state securities or blue sky laws, or (ii) conflict with or result in a
breach or violation of any of the terms and provisions of, or constitute a
default under any indenture, mortgage, deed of trust, lease or other
agreement or instrument to which such Selling Securityholder is a party or
by which such Selling Securityholder's respective properties are bound, or
any statute or any judgment, decree, order, rule or regulation of any court
or other governmental authority or any arbitrator applicable to such
Selling Securityholder or any of its subsidiaries.
Such counsel shall also state that they have no reason to believe that the
Registration Statement, as of its effective date, contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or the date of such opinion, included or includes any
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Yves Leservoiser & Christian Cortier, counsel for the Company's
Lionbridge Technologies (France) subsidiary, in the form acceptable to
Representatives.
(e) The Representatives shall have received an opinion, dated the Firm
Closing Date, of De Brauw Blackstone Westbroek p.c., counsel for the Company's
Lionbridge Technologies Holdings B.V. and Lionbridge Technologies B.V.
subsidiaries, in the form acceptable to Representatives.
(f) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Arthur Cox, counsel for the Company's Lionbridge Technologies
Ireland subsidiary, in the form acceptable to Representatives.
(g) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Brobeck, Phleger & Harrison LLP, counsel for the Underwriters,
with respect to the issuance and sale of the Firm Securities, the Registration
Statement and the Prospectus, and such other related matters as the
Representatives may reasonably require, and the Company shall have furnished to
such counsel such documents as they may reasonably request for the purpose of
enabling them to pass upon such matters. In rendering such opinion, such counsel
may rely as to all matters of law upon the opinions provided pursuant to
paragraphs (b), (c), (d), (e) and (f)
<PAGE>
above.
(h) The Representatives shall have received from PricewaterhouseCoopers LLP
a letter or letters dated, respectively, the date hereof and the Firm Closing
Date, in form and substance satisfactory to the Representatives, to the effect
that:
(i) they are independent accountants with respect to the Company and
its consolidated subsidiaries within the meaning of the Act and the
applicable rules and regulations thereunder;
(ii) in their opinion, the audited consolidated financial statements
and schedules and pro forma financial statements examined by them and
included in the Registration Statement and the Prospectus comply in form in
all material respects with the applicable accounting requirements of the
Act and the related published rules and regulations;
(iii) on the basis of a reading of the latest available interim
unaudited consolidated condensed financial statements of the Company and
its consolidated subsidiaries, carrying out certain specified procedures
(which do not constitute an examination made in accordance with generally
accepted auditing standards) that would not necessarily reveal matters of
significance with respect to the comments set forth in this paragraph
(iii), a reading of the minute books of the shareholders, the board of
directors and any committees thereof of the Company and each of its
consolidated subsidiaries, and inquiries of certain officials of the
Company and its consolidated subsidiaries who have responsibility for
financial and accounting matters, nothing came to their attention that
caused them to believe that:
(A) the unaudited consolidated condensed financial statements of
the Company and its consolidated subsidiaries included in the
Registration Statement and the Prospectus do not comply in form in all
material respects with the applicable accounting requirements of the
Act and the related published rules and regulations thereunder or are
not in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
consolidated financial statements included in the Registration
Statement and the Prospectus;]
(B) at a specific date not more than five business days prior to
the date of such letter, there were any changes in the capital stock
or long-term debt of the Company and its consolidated subsidiaries or
any decreases in not current assets or stockholders' equity of the
Company and its consolidated subsidiaries, in each case compared with
amounts shown on the March 31, 1999 unaudited consolidated balance
sheet included in the Registration Statement and the Prospectus, or
for the period from the date of such balance sheet to such specified
date there were any decreases, as compared with the quarterly period
ending as of the date of such balance sheet, in total revenues loss
from operations or basic and diluted net loss per share attributable
to common stockholders of the Company and its consolidated
subsidiaries, except in all instances for changes, decreases or
increases set forth in such letter; and
<PAGE>
(iv) they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information that are derived from the general accounting records
of the Company and its consolidated subsidiaries and are included in the
Registration Statement and the Prospectus under the captions "Prospectus
Summary - Summary Financial Data," Risk Factors," "Use of Proceeds,"
Capitalization," "Dilution," "Selected Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," "Management," "Certain Transactions," "Principal
and Selling Stockholders," "Description of Capital Stock," "Shares Eligible
for Future Sale," and in Exhibit 11 to the Registration Statement, and have
compared such amounts, percentages and financial information with such
records of the Company and its consolidated subsidiaries and with
information derived from such records and have found them to be in
agreement, excluding any questions of legal interpretation.
In the event that the letters referred to above set forth any such changes,
decreases or increases, it shall be a further condition to the obligations of
the Underwriters that (A) such letters shall be accompanied by a written
explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (B) such changes,
decreases or increases do not, in the sole judgment of the Representatives, make
it impractical or inadvisable to proceed with the purchase and delivery of the
Securities as contemplated by the Registration Statement, as amended as of the
date hereof.
References to the Registration Statement and the Prospectus in paragraphs
(b), (c), (d) and (e) referred to above shall include any amendment or
supplement thereto at the date of such letter.
(i) The Representatives shall have received a certificate, dated the Firm
Closing Date, of the principal executive officer and the principal financial or
accounting officer of the Company to the effect that:
(i) the representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Firm Closing
Date; the Registration Statement, as amended as of the Firm Closing Date,
does not include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein not misleading,
and the Prospectus, as amended or supplemented as of the Firm Closing Date,
does not include any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; and
the Company has performed all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to the Firm
Closing Date;
(ii) no stop order suspending the effectiveness of the Registration
Statement or any amendment thereto has been issued, and no proceedings for
that purpose have been instituted or threatened or, to the best of the
Company's knowledge, are contemplated by
<PAGE>
the Commission; and
(iii) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, neither the Company
nor any of its subsidiaries has sustained any material loss or interference
with their respective businesses or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from
any labor dispute or any legal or governmental proceeding, and there has
not been any material adverse change, or any development involving a
prospective material adverse change, in the condition (financial or
otherwise), management, business prospects, net worth or results of
operations of the Company or any of its subsidiaries, except in each case
as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto).
(j) The Representatives shall have received from each person who owns
greater than 3,334 shares of Common Stock or options exercisable within 90 days
of the date of this Agreement for 3,334 shares of Common Stock an agreement to
the effect that such person will not, without the prior written consent of
Prudential Securities Incorporated, on behalf of the Underwriters, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of (i) any shares of Common Stock and/or Other
Securities of the Company or of securities substantially similar thereto or (ii)
any other securities convertible into, or exchangeable or exercisable for,
shares of Common Stock or such similar securities, beneficially owned (within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended)
by such person on the date hereof or hereafter acquired for a period of 180 days
(the "Lock-up Period") subsequent to the date of the final Prospectus filed with
the Commission pursuant to Rule 424(b) of the Act or if no filing under Rule
424(b) is made, the date of the final Prospectus included in the Registration
Statement when declared effective under the Act. Notwithstanding the foregoing,
solely with respect to options (and the shares of Common Stock underlying such
options) beneficially owned by such person, such Lock-up Period shall be 90
days; provided further, that any such sale, transfer or disposition may be made
within the applicable Lock-up Period if such person first requires any and all
offering or acquiring parties to execute and deliver to Prudential Securities
Incorporated an agreement of substantially this provision.
(k) On or before the Firm Closing Date, the Representatives and counsel for
the Underwriters shall have received such further certificates, documents or
other information as they may have reasonably requested from the Company.
(l) Prior to the commencement of the offering of the Securities, the
Securities shall have been included for trading on the Nasdaq National Market.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representatives and
counsel for the Underwriters. The Company shall furnish to the Representatives
such conformed copies of such opinions, certificates, letters and documents in
<PAGE>
such quantities as the Representatives and counsel for the Underwriters shall
reasonably request.
The respective obligations of the several Underwriters to purchase and pay
for any Option Securities shall be subject, in their discretion, to each of the
foregoing conditions to purchase the Firm Securities, except that all references
to the Firm Securities and the Firm Closing Date shall be deemed to refer to
such Option Securities and the related Option Closing Date, respectively.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) A. The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Securities Exchange Act of 1934 (the
"Exchange Act"), against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter or such controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of, caused by, related to,
based upon or arising out of or in connection with:
(i) any untrue statement or alleged untrue statement made by the
Company in Section 2 of this Agreement;
(ii) any untrue statement or alleged untrue statement of any material
fact contained in (A) the Registration Statement or any amendment thereto,
any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto or (B) any application or other document, or any amendment or
supplement thereto, executed by the Company or based upon written
information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Securities under the securities or
blue sky laws thereof or filed with the Commission or any securities
association or securities exchange (each a "Company Application");
(iii) the omission or alleged omission to state in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; or
(iv) any untrue statement or alleged untrue statement of any material
fact contained in any audio or visual materials, including, without
limitation, slides, videos, films and tape recordings used in connection
with the marketing of the Securities, including, without limitation,
statements communicated to securities analysts employed by the
Underwriters,
and will reimburse, as incurred, each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating, defending against
or appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that the
<PAGE>
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in such
registration statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto or any Company Application in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter through the Representatives specifically for use
therein; and PROVIDED, FURTHER, that the Company will not be liable to any
Underwriter or any person controlling such Underwriter with respect to any such
untrue statement or omission made in any Preliminary Prospectus that is
corrected in the Prospectus (or any amendment or supplement thereto) if the
person asserting any such loss, claim, damage or liability purchased Securities
from such Underwriter but was not sent or given a copy of the Prospectus (as
amended or supplemented) at or prior to the written confirmation of the sale of
such Securities to such person in any case where such delivery of the Prospectus
(as amended or supplemented) is required by the Act, unless such failure to
deliver the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5.A.(d) and (e) of this Agreement.
This indemnity agreement will be in addition to any liability which the Company
may otherwise have. The Company will not, without the prior written consent of
the Underwriter or Underwriters purchasing, in the aggregate, more than fifty
percent (50%) of the Securities, settle or compromise or consent to the entry of
any judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not any
such Underwriter or any person who controls any such Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party to
such claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of all of the Underwriters and such
controlling persons from all liability arising out of such claim, action, suit
or proceeding.
B. Each of Rory J. Cowan and Stephen J. Lipshatz, Peter H. Wright,
Martha Lynne Paschetag and Kenneth L. Coleman, severally and not jointly, agree
to indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter or such controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of, caused by,
related to, based upon or arising out of or in connection with:
(i) any untrue statement or alleged untrue statement made by such
Selling Securityholder in Section 2.B. of this Agreement,
(ii) any untrue statement or alleged untrue statement of any material
fact contained in (A) the Registration Statement or any amendment thereto,
any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto or (B) any application or other document, or any amendment or
supplement thereto, executed by the Selling Securityholder or based upon
written information furnished by or on behalf of the Selling Securityholder
filed in any jurisdiction in order to qualify the Securities under the
securities or blue sky laws thereof or filed with the Commission or any
securities
<PAGE>
association or securities exchange (each a "Selling Securityholder
Application" and collectively with a Company Application, an
"Application"), or
(iii) the omission or alleged omission to state in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or any Selling
Securityholder Application a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
and will reimburse, as incurred, each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating, defending against
or appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that such Selling Securityholder
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto or any Selling Securityholder
Application in reliance upon and in conformity with written information
furnished to such Selling Securityholder by such Underwriter through the
Representatives specifically for use therein; and PROVIDED, FURTHER, that such
Selling Securityholder will not be liable to any Underwriter or any person
controlling such Underwriter with respect to any such untrue statement or
omission made in any Preliminary Prospectus that is corrected in the Prospectus
(or any amendment or supplement thereto) if the person asserting any such loss,
claim, damage or liability purchased Securities from such Underwriter but was
not sent or given a copy of the Prospectus (as amended or supplemented) at or
prior to the written confirmation of the sale of such Securities to such person
in any case where such delivery of the Prospectus (as amended or supplemented)
is required by the Act, unless such failure to deliver the Prospectus (as
amended or supplemented) was a result of noncompliance by the Company with
Section 5.A.(d) and (e) of this Agreement; and PROVIDED, FURTHER, that each
individual Selling Securityholder shall be liable under the foregoing indemnity
agreement only to the extent of the proceeds (net of underwriting discounts and
commissions) received by such Selling Securityholder from the sale of the
Securities to the Underwriters pursuant to this Agreement. This indemnity
agreement will be in addition to any liability which such Selling Securityholder
may otherwise have. Such Selling Securityholder will not, without the prior
written consent of the Underwriter or Underwriters purchasing, in the aggregate,
more than fifty percent (50%) of the Securities, settle or compromise or consent
to the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not any such Underwriter or any person who controls any such Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of all of the
Underwriters and such controlling persons from all liability arising out of such
claim, action, suit or proceeding.
(b) Each Underwriter, severally and not jointly, will indemnify and hold
harmless the Company, each of its directors, each of its officers who signed the
Registration Statement, each
<PAGE>
of the Selling Securityholders, and each person, if any, who controls the
Company or such Selling Securityholder within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act against any losses, claims, damages or
liabilities to which the Company or any such Selling Securityholder, director,
officer or controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement or
any amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or any Application or (ii) the omission or the
alleged omission to state therein a material fact required to be stated in the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through the
Representatives specifically for use therein: and, subject to the limitation set
forth immediately preceding this clause, will reimburse, as incurred, any legal
or other expenses reasonably incurred by the Company or any such Selling
Securityholder or director, officer, controlling person of the company of such
Selling Securityholder in connection with investigating or defending against or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or any action in respect thereof. This indemnity agreement
will be in addition to any liability which such Underwriter may otherwise have.
The Underwriters will not, without the prior written consent of the Company,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which indemnification
may be sought hereunder (whether or not the Company is a party to such claim,
action, suit or proceeding), unless such settlement, compromise or consent
includes an unconditional release of the Company, its directors and officers,
each of the Selling Securityholders and any controlling persons of the Company
or such Selling Securityholders from all liability arising out of such claim,
action, suit or proceeding.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 8 except to the extent the party to whom notice was not given was
prejudiced by the failure to give such notice. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; PROVIDED, HOWEVER, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be one or more legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnifying party shall not have the right to
direct the defense of such action on behalf of such indemnified party or parties
and such indemnified party or parties shall have the right to select separate
counsel to defend such action on behalf of such
<PAGE>
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and approval
by such indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (in addition to local counsel) in any one action or separate
but substantially similar actions in the same jurisdiction arising out of the
same general allegations or circumstances, designated by the Representatives in
the case of paragraph (a) of this Section 8, representing the indemnified
parties under such paragraph (a) who are parties to such action or actions) or
(ii) the indemnifying party does not promptly retain counsel reasonably
satisfactory to the indemnified party within a reasonable time after
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable for the costs and
expenses of any settlement of such action effected by such indemnified party
without the consent of the indemnifying party.
(d) In circumstances in which the indemnity agreement provided for in the
preceding paragraphs of this Section 8 is unavailable or insufficient, for any
reason, to hold harmless an indemnified party in respect of any losses, claims,
damages or liabilities (or actions in respect thereof), each indemnifying party,
in order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect (i) the relative benefits received by
the indemnifying party or parties on the one hand and the indemnified party on
the other from the offering of the Securities or (ii) if the allocation provided
by the foregoing clause (i) is not permitted by applicable law, not only such
relative benefits but also the relative fault of the indemnifying party or
parties on the one hand and the indemnified party on the other in connection
with the statements or omissions or alleged statements or omissions that
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and such Selling Securityholder on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the net proceeds from the offering (before deducting expenses) received by
the Company bear to the total underwriting discounts and commissions received by
the Underwriters. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, the Selling Securityholders or
the Underwriters, the parties' relative intents, knowledge, access to
information and opportunity to correct or prevent such statement or omission,
and any other equitable considerations appropriate in the circumstances. The
Company, the Selling Securityholders and the Underwriters agree that it would
not be equitable if the amount of such contribution were determined by pro rata
or per
<PAGE>
capita allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take into account
the equitable considerations referred to above in this paragraph (d).
Notwithstanding any other provision of this paragraph (d), no Underwriter shall
be obligated to make contributions hereunder that in the aggregate exceed the
total public offering price of the Securities purchased by such Underwriter
under this Agreement, less the aggregate amount of any damages that such
Underwriter has otherwise been required to pay in respect of the same or any
substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11 (f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute hereunder are
several in proportion to their respective underwriting obligations and not
joint, and contributions among Underwriters shall be governed by the provisions
of the Prudential Securities Incorporated Master Agreement Among Underwriters.
For purposes of this paragraph (d), each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement and each person, if any, who controls the Company or such
Selling Securityholder within the meaning of Section 15 of the Act or Section 20
of the Exchange Act, shall have the same rights to contribution as the Company
or such Selling Securityholder, as the case may be.
9. DEFAULT OF UNDERWRITERS. If one or more Underwriters default in their
obligations to purchase Firm Securities or Option Securities hereunder and the
aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by all
of the Underwriters at such time hereunder, the other Underwriters may make
arrangements satisfactory to the Representatives for the purchase of such
Securities by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives), but if no such arrangements are
made by the Firm Closing Date or the related Option Closing Date, as the case
may be, the other Underwriters shall be obligated severally in proportion to
their respective commitments hereunder to purchase the Firm Securities or Option
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase. If one or more Underwriters so default with respect to an aggregate
number of Securities that is more than ten percent of the aggregate number of
Firm Securities or Option Securities, as the case may be, to be purchased by all
of the Underwriters at such time hereunder, and if arrangements satisfactory to
the Representatives are not made within 36 hours after such default for the
purchase by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives) of the Securities with respect to
which such default occurs, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter or the Company other than as provided
in Section 10 hereof. In the event of any default by one or more Underwriters as
described in this Section 9, the Representatives shall have the right to
postpone the Firm Closing Date or the Option Closing Date, as the case may be,
established as provided in Section 3 hereof for not more than seven business
days in order that any necessary changes may be made in the arrangements or
documents for the purchase and delivery of the Firm Securities or Option
Securities, as the case may be. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 9. Nothing herein shall
<PAGE>
relieve any defaulting Underwriter from liability for its default.
10. SURVIVAL. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, the Selling
Securityholders and the several Underwriters set forth in this Agreement or made
by or on behalf of them, respectively, pursuant to this Agreement shall remain
in full force and effect, regardless of (i) any investigation made by or on
behalf of the Company, any of its officers or directors, the Selling
Securityholders and any Underwriter or any controlling person referred to in
Section 8 hereof and (ii) delivery of and payment for the Securities. The
respective agreements, covenants, indemnities and other statements set forth in
Sections 6 and 8 hereof shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement.
11. TERMINATION. (a) This Agreement may be terminated with respect to the
Firm Securities or any Option Securities in the sole discretion of the
Representatives by notice to the Company given prior to the Firm Closing Date or
the related Option Closing Date, respectively, in the event that the Company
shall have failed, refused or been unable to perform all obligations and satisfy
all conditions on its part to be performed or satisfied hereunder at or prior
thereto or, if at or prior to the Firm Closing Date or such Option Closing Date,
respectively,
(i) the Company or any of its subsidiaries shall have, in the sole
judgment of the Representatives, sustained any material loss or
interference with their respective businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental
proceeding or there shall have been any material adverse change, or any
development involving a prospective material adverse change (including
without limitation a change in management or control of the Company), in
the condition (financial or otherwise), business prospects, net worth or
results of operations of the Company and its subsidiaries, except in each
case as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto);
(ii) trading in the Common Stock shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities generally
on the New York Stock Exchange or Nasdaq National Market shall have been
suspended or minimum or maximum prices shall have been established on any
such exchange or market system;
(iii) a banking moratorium shall have been declared by New York or
United States authorities; or
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any other calamity or crisis or material
adverse change in general economic, political or financial conditions, in
each case having an effect on the U.S. financial markets that, in the sole
judgment of the Representatives, makes it impractical or inadvisable to
proceed with the public offering or the delivery of the Securities as
contemplated by the Registration Statement, as
<PAGE>
amended as of the date hereof.
(b) Termination of this Agreement pursuant to this Section 11 shall be
without liability of any party to any other party except as provided in Section
10 hereof.
12. INFORMATION SUPPLIED BY UNDERWRITERS. The statements set forth in the
last paragraph on the front cover page and under the heading "Underwriting" in
any Preliminary Prospectus or the Prospectus (to the extent such statements
relate to the Underwriters) constitute the only information furnished by any
Underwriter through the Representatives to the Company for the purposes of
Sections 2.A.(b) and 8 hereof. The Underwriters confirm that such statements (to
such extent) are correct.
13. NOTICES. All communications hereunder shall be in writing and, if sent
to any of the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission and confirmed in writing to Prudential Securities
Incorporated, One New York Plaza, New York, New York 10292, Attention: Equity
Transactions Group; and if sent to the Company or the Selling Securityholders,
shall be delivered or sent by mail, telex or facsimile transmission and
confirmed in writing to the Company at 950 Winter Street, Suite 4300, Waltham,
Massachusetts 02451, Attention: President (telecopier: (781) 890-3799); with a
copy to Testa, Hurwitz & Thibeault, LLP, 125 High Street, Boston, MA 02110,
Attention: George W. Lloyd, Esq. (telecopier: (617) 248-7100).
14. SUCCESSORS. This Agreement shall inure to the benefit of and shall be
binding upon the several Underwriters, the Company, the Selling Securityholders
and their respective successors and legal representatives, and nothing expressed
or mentioned in this Agreement is intended or shall be construed to give any
other person any legal or equitable right, remedy or claim under or in respect
of this Agreement, or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of such persons and for the benefit of no other person except
that (i) the indemnities of the Company and the Selling Securityholders
contained in Section 8 of this Agreement shall also be for the benefit of any
person or persons who control any Underwriter within the meaning of Section 15
of the Act or Section 20 of the Exchange Act and (ii) the indemnities of the
Underwriters contained in Section 8 of this Agreement shall also be for the
benefit of the directors of the Company, the officers of the Company who have
signed the Registration Statement, the Selling Securityholders and any person or
persons who control the Company and any Selling Securityholders within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act. No purchaser
of Securities from any Underwriter shall be deemed a successor because of such
purchase.
15. APPLICABLE LAW. The validity and interpretation of this Agreement, and
the terms and conditions set forth herein, shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to any
provisions relating to conflicts of laws.
16. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. All judicial
proceedings arising out of or relating to this Agreement may be brought in any
state or federal court of competent
<PAGE>
jurisdiction in the State of New York, and by execution and delivery of this
Agreement, each of the Selling Securityholders accepts for itself and in
connection with its properties, generally and unconditionally, the nonexclusive
jurisdiction of the aforesaid courts and waives any defense of forum non
conveniens and irrevocably agrees to be bound by any judgment rendered thereby
in connection with this Agreement. Each Selling Securityholders designates and
appoints Rory J. Cowan, and such other persons as may hereafter be selected by
the Selling Securityholders irrevocably agreeing in writing to so serve, as its
agent to receive on its behalf service of all process in any such proceedings in
any such court, such service being hereby acknowledged by the Selling
Securityholders to be effective and binding service in every respect. A copy of
any such process so served shall be mailed by registered mail to the Selling
Securityholder at its address provided in Section 13 hereof; PROVIDED, HOWEVER,
that, unless otherwise provided by applicable law, any failure to mail such copy
shall not affect the validity of service of such process. If any agent appointed
by the Selling Securityholders refuses to accept service, each of the Selling
Securityholders hereby agrees that service of process sufficient for personal
jurisdiction in any action against such Selling Securityholder in the State of
New York may be made by registered or certified mail, return receipt requested,
to such Selling Securityholder at his or her address provided in Section 13
hereof, and such Selling Securityholder hereby acknowledges that such service
shall be effective and binding in every respect. Nothing herein shall affect the
right to serve process in any other manner permitted by law or shall limit the
right of any Underwriter to bring proceedings against the Selling
Securityholders in the courts of any other jurisdiction.
17. 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.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company, each of the
Selling Securityholders and each of the several Underwriters.
Any person executing and delivering this Agreement as Attorneys-in-Fact for
a Selling Securityholder represents that he or she has been duly appointed as
Attorneys-in-Fact by such Selling Securityholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorneys-in-Fact to take
such action.
Very truly yours,
LIONBRIDGE TECHNOLOGIES, INC.
By ________________________________
Rory J. Cowan
President and Chief Executive Officer
<PAGE>
SELLING SECURITYHOLDERS LISTED ON
SCHEDULE 2 HERETO
By ________________________________
Attorney-in-Fact
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
PRUDENTIAL SECURITIES INCORPORATED
U.S. BANCORP PIPER JAFFRAY
ADAMS, HARKNESS & HILL, INC.
By PRUDENTIAL SECURITIES INCORPORATED
By _____________________
Jean-Claude Canfin
Managing Director
For itself and on behalf of the Representatives of several Underwriters listed
on Schedule 1.
<PAGE>
SCHEDULE 1
UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm
Securities to
Underwriter be Purchased
- ----------- --------------
<S> <C>
Prudential Securities Incorporated................
U.S. Bancorp Piper Jaffray........................
Adams, Harkness & Hill, Inc.......................
---------
Total ............. 4,000,000
</TABLE>
<PAGE>
SCHEDULE 2
OFFERED SECURITIES
<TABLE>
<CAPTION>
Firm Securities Number Of Shares
- --------------- ----------------
<S> <C>
Company 4,000,000
<CAPTION>
Option Securities Number Of Shares
- ----------------- ----------------
Rory J. Cowan
Stephen J. Lifshatz
Peter H. Wright
Martha Lynne Paschetag
Kenneth L. Coleman Irrevocable Trust
Company
</TABLE>
<PAGE>
SCHEDULE 3
SUBSIDIARIES
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
- ---- -----------------------------
<S> <C>
</TABLE>
<PAGE>
Exhibit 2.1
STOCK PURCHASE AGREEMENT
AGREEMENT dated as of January 2, 1998 by and among Lionbridge
Technologies Holdings, Inc., a Delaware corporation ("BUYER"), Japanese Language
Services, Inc., a Massachusetts corporation (the "COMPANY"), Carl J. Kay ("CARL
KAY"), and Yoko I. Kay ("YOKO KAY") (Carl Kay and Yoko Kay, together,
"SELLERS").
W I T N E S S E T H :
WHEREAS, the Company owns and operates a Japanese language localization
service business (the "Business") conducted primarily in the United States and
Japan;
WHEREAS, Buyer desires to acquire the Company from Sellers by
purchasing all of the outstanding capital stock of the Company from Sellers (the
"SHARES"), upon the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements herein contained, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01. DEFINITIONS. (a) The following terms, as used herein, have the
following meanings:
"AFFILIATE" means, with respect to any Person, any Person directly
or indirectly controlling, controlled by, or under common control with such
Person.
"ANCILLARY AGREEMENTS" means the Put Agreements substantially in
the form attached hereto as EXHIBIT A, the Employment Agreement substantially in
the form attached hereto as EXHIBIT B, the Non-Disclosure and Developments
Agreements substantially in the form attached hereto as EXHIBIT C, the Bonus
Agreements substantially in the form attached hereto as EXHIBIT D, the
Non-Competition Agreements substantially in the form attached hereto as EXHIBIT
E, and the Releases substantially in the form attached hereto as EXHIBIT F, each
to be entered into by Buyer with Carl Kay, Yoko Kay, Elizabeth Draper, Coleman
Yeaw and/or Daniel Schneider.
"BALANCE SHEET" means the unaudited consolidated balance sheet of
the Company as of December 31, 1997 found in SCHEDULE 3.07.
"BALANCE SHEET DATE" means DECEMBER 31, 1997.
<PAGE>
"BUYER STOCK" means the common stock, $.01 par value per share, of
Buyer.
"BUYER'S COUNSEL" means the law firm of Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts.
"CLOSING BALANCE SHEET" means a consolidated balance sheet of the
Company and its consolidated subsidiaries as at the close of business on the
Closing Date, together with the notes thereto.
"CLOSING DATE" means the date of the Closing.
"COMMON STOCK" means the common stock, $.01 par value, of the
Company.
"COMPANY'S PROPRIETARY RIGHTS" means all Proprietary Rights which
are owned or licensed by the Company and the Japanese Subsidiary or any of their
Affiliates and used or held for use by the Company or the Japanese Subsidiary.
"GOVERNMENTAL AUTHORITY" means any government, domestic or
foreign, federal, state or local, or any department, agency, political
subdivision or court thereof.
"JAPANESE SUBSIDIARY" means KK JLS Japan, a wholly-owned
subsidiary of the Company organized under the laws of Japan.
"LIEN" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest, restriction or encumbrance of any kind in
respect of such asset.
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means a
material adverse change, or effect, as the case may be, in the business, assets,
financial condition or results of operations of the Company and the Japanese
Subsidiary taken as a whole.
"1934 ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"PERSON" means an individual, corporation, partnership,
association, trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
"PROPRIETARY RIGHTS" means all (A) patents, patent applications,
patent disclosures and all related continuation, continuation-in-part,
divisional, reissue, re-examination, utility, model, certificate of invention
and design patents, patent applications, registrations and applications for
registrations, (B) trademarks, service marks, trade dress, logos, tradenames,
service names and corporate names and registrations and applications for
registration thereof, (C) copyrights and registrations and applications for
registration thereof, (D) mask works and registrations and
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applications for registration thereof, (E) computer software, data and
documentation, (F) trade secrets and confidential business information, whether
patentable or nonpatentable and whether or not reduced to practice, know-how,
manufacturing and product processes and techniques, research and development
information, copyrightable works, financial, marketing and business data,
pricing and cost information, business and marketing plans and customer and
supplier lists and information, (G) other proprietary rights relating to any of
the foregoing (including without limitation associated goodwill and remedies
against infringements thereof and rights of protection of an interest therein
under the laws of all jurisdictions) and (H) copies and tangible embodiments
thereof.
"SELLERS' COUNSEL" means the law firm of Lawson & Weitzen, LLP.
"SUBSIDIARY" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Company.
(b) Each of the following terms is defined in the Section set
forth opposite such term:
<TABLE>
<CAPTION>
TERM SECTION
<S> <C>
Benefit Arrangement 9.01
Buyer Financial Statements 5.09
Buyer Securities 5.08
Closing 2.02
Code 3.18
Company Securities 3.05
Damages 11.02
Employee Plans 9.01
ERISA 9.01
ERISA Affiliate 9.01
Financial Statements 3.07
Hazardous Substance 3.20
Indemnified Party 11.02
Indemnifying Party 11.02
Major Stockholder 5.12
Purchase Price 2.01
Release 3.20
Subsidiary Securities 3.06
Permit 3.14
PBGC 9.01
</TABLE>
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ARTICLE II
PURCHASE AND SALE
2.01. PURCHASE AND SALE. Upon the terms and subject to the conditions of
this Agreement, each Seller, severally but not jointly, shall sell to Buyer, and
Buyer shall purchase from each such Seller, at the Closing, that number of
shares of Company common stock as is set forth opposite such Seller's name on
SCHEDULE 2.01. The purchase price (the "PURCHASE PRICE") for the Shares and the
agreements of the Company and Sellers in this Agreement and the Ancillary
Agreements is the following cash and stock consideration:
(i) $2,164,000 in cash, of which $1,043,071.50 shall be paid to Carl
Kay (subject to certain withholding provisions set forth in Sections 11.04 and
11.05 hereof) and $1,120,928.50 shall be paid to Yoko Kay (the "CASH
CONSIDERATION"); and
(ii) 389,285 shares of Buyer Stock, all of which shall be paid to Carl
Kay (the "STOCK CONSIDERATION"), such shares of Buyer Stock being agreed by
Buyer and Sellers to have a fair market value as of the date of this Agreement
of $.20 per share, or an aggregate of $77,857.00.
The Purchase Price shall be paid as provided in Section 2.02. All payments
made for Sellers' shares under this Section 2.01 shall be considered United
States income and shall be paid in the United States, with the closing treated
as occurring in Boston and Osaka.
2.02. CLOSING. The closing (the "CLOSING") of the purchase and sale of the
Shares hereunder shall take place at the offices of Testa, Hurwitz & Thibeault,
LLP in Boston, Massachusetts, as soon as possible, but in no event later than 10
business days after satisfaction of the conditions set forth in Article X, or at
such other time or place as Buyer and Sellers may agree. At the Closing,
(a) Buyer shall deliver to Sellers:
(i) certified or official bank checks payable to the order
of Sellers, or make wire transfers to accounts designated by Sellers, in
the aggregate amount of the Cash Consideration, less the Holdback Cash (as
defined in Section 11.04 hereof); and
(ii) certificates of Buyer Stock representing the Stock
Consideration.
(b) Sellers shall deliver to Buyer certificate(s) representing the
Shares duly endorsed or accompanied by stock powers duly endorsed in blank, with
any required transfer stamps affixed thereto and any other documents as the
Buyer and its counsel shall deem necessary to vest in Buyer all right title and
interest in, to and under the Shares.
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<PAGE>
(c) Buyer shall pay the cash amounts and the shares of Buyer Stock
required to be paid on the Closing pursuant to Sections 7.07(c) and 7.08.
(d) Carl Kay shall enter into:
(i) a Put Agreement with Buyer substantially in the form attached
hereto as EXHIBIT A,
(ii) an Employment Agreement with Buyer or a Subsidiary of Buyer
substantially in the form attached hereto as EXHIBIT B,
(iii) a Non-Disclosure and Developments Agreement with Buyer or a
Subsidiary of Buyer substantially in the form attached hereto as EXHIBIT
C, and
(iv) a Non-Competition Agreement substantially in the form
attached hereto as EXHIBIT E,
(e) Yoko Kay shall enter into a Non-Disclosure and Developments
Agreement with Buyer or a Subsidiary of Buyer substantially in the form attached
hereto as EXHIBIT C.
(f) Each of Elizabeth Draper and Coleman Yeaw shall enter into:
(i) a Put Agreement with Buyer substantially in the form attached
hereto as EXHIBIT A,
(ii) a Non-Disclosure and Developments Agreement with Buyer or a
Subsidiary of Buyer substantially in the form attached hereto as
EXHIBIT C,
(iii) a Bonus Agreement substantially in the form attached hereto
as EXHIBIT D,
(iv) a Non-Competition Agreement substantially in the form
attached hereto as EXHIBIT E and
(v) a Release Substantially in the form attached hereto as
EXHIBIT F.
(g) Daniel Schneider shall enter into:
(i) a Put Agreement with Buyer substantially in the form attached
hereto as EXHIBIT A,
(ii) a Non-Disclosure and Developments Agreement with Buyer or a
Subsidiary of Buyer substantially in the form attached hereto as
EXHIBIT C,
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(iii) a Non-Competition Agreement substantially in the form
attached hereto as EXHIBIT E, AND
(iv) a Release substantially in the form attached hereto as
EXHIBIT F.
(h) Without prejudice to Buyer's rights under Sections 10.02 and
11.02, Seller shall deliver to Buyer revised schedules to this Agreement
updating the information shown thereon to the Closing Date.
(i) The parties shall execute and deliver any other instruments,
documents and certificates that are required to be delivered pursuant to this
Agreement or as may be reasonably requested by any party in order to consummate
the transactions contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND SELLERS
The Company and each Seller hereby jointly and severally represent and
warrant to Buyer as of the date hereof and as of the Closing Date that:
3.01. CORPORATE EXISTENCE AND POWER. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
make such qualification necessary, except for those jurisdictions where the
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect. The Company has heretofore delivered to Buyer true and
complete copies of the corporate charter and bylaws of the Company as currently
in effect.
3.02. CORPORATE AUTHORIZATION. The execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby are within the Company's corporate powers and,
except for any required approval by the Company's stockholders, have been duly
authorized by all necessary corporate action on the part of the Company. This
Agreement constitutes a valid and binding agreement of the Company.
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<PAGE>
3.03. GOVERNMENTAL AUTHORIZATION; CONSENTS. (a) The execution, delivery
and performance by the Company and Sellers of this Agreement require no action
by or in respect of, or filing with, any Governmental Authority.
(b) Except as set forth in SCHEDULE 3.03, no consent, approval,
waiver or other action by any Person (other than any Governmental Authority
referred to in Section 3.03 (a)) under any contract, agreement, indenture,
lease, instrument or other document to which the Company or any Subsidiary is a
party or by which any of them is bound is required or necessary for the
execution, delivery and performance of this Agreement by the Company or the
consummation of the transactions contemplated hereby.
3.04. NON-CONTRAVENTION. The execution, delivery and performance by the
Company of this Agreement and the consummation of the transactions contemplated
hereby do not and will not (i) contravene or conflict with the corporate charter
or bylaws of the Company, (ii) assuming compliance with the matters referred to
in Section 3.03(a), contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to the Company or the Japanese Subsidiary, (iii) assuming the
receipt of all required consents, constitute a default under or give rise to any
right of termination, cancellation or acceleration of any right or obligation of
the Company or the Japanese Subsidiary or to a loss of any benefit to which the
Company or the Japanese Subsidiary is entitled under any provision of any
agreement, contract or other instrument binding upon the Company or the Japanese
Subsidiary or any permit held by the Company or the Japanese Subsidiary or (iv)
assuming the receipt of all required consents result in the creation or
imposition of any Lien on any asset of the Company or the Japanese Subsidiary.
3.05. CAPITALIZATION. The authorized capital stock of the Company is
300,000 shares of common stock, $.01 par value per share, of which 200,000
shares are designated as Common Shares and 100,000 shares are designated
Non-Voting Common "A" Shares. As of the date hereof, 97,500 Common Shares are
issued and outstanding, and no Non-Voting Common "A" Shares are issued and
outstanding. As of the date hereof, the Company has reserved 10,000 shares of
its Common Shares for issuance pursuant to the Company's 1997 Stock Option Plan
and has granted non-statutory stock options (the "Options") to purchase 8,548
Common Shares to the persons specified in SCHEDULE 3.05. The Company has
heretofore provided Buyer copies of all option agreements relating to the
Options. Except for the Options, all of the outstanding capital stock of, or
other ownership interests in, the Company is owned by the Sellers, directly or
indirectly, free and clear of any Lien and free of any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other ownership interests). Except as described
above, there are no outstanding (i) securities of the Company or the Japanese
Subsidiary convertible into or exchangeable for shares of capital stock or other
voting securities or ownership interests in the Company or (ii) options or other
rights to acquire from the Company or any obligation of the Japanese Subsidiary
to issue any capital stock, voting
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<PAGE>
securities or other ownership interests in, or any securities convertible into
or exchangeable for any capital stock, voting securities or ownership interests
in, the Company (the items in clauses (i) and (ii) being referred to
collectively as the "COMPANY SECURITIES"). Except as provided in the Options,
there are no outstanding obligations of the Company or the Japanese Subsidiary
to repurchase, redeem or otherwise acquire any outstanding Company Securities.
3.06. SUBSIDIARIES. (a) The Company does not have and never has had any
Subsidiaries or any ownership or equity interest in or control of (direct or
indirect) any other Person other than the Japanese Subsidiary. The Japanese
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, has all corporate
powers and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted and is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of the property owned or leased by it or
the nature of its activities make such qualification necessary.
(b) The authorized capital stock of the Japanese Subsidiary is 768
shares, of which 200 shares are issued and outstanding. All of the outstanding
capital stock of, or other ownership interests in, the Japanese Subsidiary is
owned by the Company, directly or indirectly, free and clear of any Lien and
free of any other limitation or restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). Except for the non-statutory stock options referred to in
SCHEDULE 3.05, there are no outstanding (i) securities of the Company or the
Japanese Subsidiary convertible into or exchangeable for shares of capital stock
or other voting securities or ownership interests in the Japanese Subsidiary or
(ii) options or other rights to acquire from the Company or any obligation of
the Japanese Subsidiary to issue any capital stock, voting securities or other
ownership interests in, or any securities convertible into or exchangeable for
any capital stock, voting securities or ownership interests in, the Japanese
Subsidiary (the items in clauses (i) and (ii) being referred to collectively as
the "SUBSIDIARY SECURITIES"). There are no outstanding obligations of the
Company or the Japanese Subsidiary to repurchase, redeem or otherwise acquire
any outstanding Subsidiary Securities.
3.07. FINANCIAL STATEMENTS. Except as set forth in SCHEDULE 3.07, the
Company has previously furnished Buyer with a true and complete copy of (i) the
consolidated balance sheet of the Company as of December 31, 1997, and the
statements of operations, cash flows and changes in stockholders' equity of the
Company for the fiscal year then ended, as reviewed by Silver & Company, and
(ii) the consolidated balance sheets of the Company as of December 31, 1996 and
1995, and the statements of operations, cash flows and changes in stockholders'
equity of the Company for the respective fiscal years then ended, as compiled by
Silver & Company (collectively, the "FINANCIAL STATEMENTS", which are attached
hereto as SCHEDULE 3.07). Each of the consolidated balance sheets included in
the Financial Statements fairly presents in all material respects the
consolidated financial position of the Company as of its date, and the other
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<PAGE>
statements included in the Financial Statements fairly present in all material
respects the consolidated results of operations, cash flows and stockholders'
equity, as the case may be, of the Company for the periods therein set forth. As
of December 31, 1997 the net stockholders' equity of the Company calculated in
accordance with U.S. generally accepted accounting principles would not differ
materially from the amount of net stockholders' equity shown on the Balance
Sheet.
3.08. ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date, except as
reflected in the unaudited Financial Statements or in SCHEDULE 3.08, the Company
and the Japanese Subsidiary have conducted their businesses in the ordinary
course consistent with past practices and there has not been:
(a) any Material Adverse Change or any event, occurrence,
development or state of circumstances or facts which could reasonably be
expected to result in a Material Adverse Change;
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any Company Securities or Subsidiary
Securities or any repurchase, redemption or other acquisition by the Company or
the Japanese Subsidiary of any outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company or the Japanese
Subsidiary;
(c) any amendment of any outstanding security of the Company or
the Japanese Subsidiary;
(d) any incurrence, assumption or guarantee by the Company or the
Japanese Subsidiary of any indebtedness for borrowed money in an amount greater
than $25,000 in the aggregate;
(e) any creation or assumption by the Company or the Japanese
Subsidiary of any Lien on any asset (including any asset owned by the Japanese
Subsidiary);
(f) any making of any loan, advance or capital contributions to or
investment in any Person other than loans, advances or capital contributions to
or investments in the Japanese Subsidiary made in the ordinary course of
business consistent with past practices;
(g) any material damage, destruction or other casualty loss
(whether or not covered by insurance) affecting the business or assets of the
Company or the Japanese Subsidiary;
(h) any transaction or commitment made, or any contract or
agreement entered into, by the Company or the Japanese Subsidiary relating to
its assets or business (including the
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acquisition or disposition of any assets) or any relinquishment by the Company
or the Japanese Subsidiary of any contract or other right, in either case,
material to the Company and the Japanese Subsidiary taken as a whole, other than
transactions and commitments in the ordinary course of business consistent with
past practices and those contemplated by this Agreement;
(i) any change in any method of accounting or accounting practice
by the Company or the Japanese Subsidiary;
(j) any (i) grant of any severance or termination pay to any
director, officer or employee of the Company or the Japanese Subsidiary, (ii)
entering into of any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any director,
officer or employee of the Company or the Japanese Subsidiary, (iii) change in
benefits payable under existing severance or termination pay policies or
employment agreements or (iv) change in compensation, bonus or other benefits
payable to directors, officers or employees of the Company or the Japanese
Subsidiary; or
(k) any labor dispute, other than routine individual grievances,
or any activity or proceeding by a labor union or representation thereof to
organize any employees of the Company or the Japanese Subsidiary, which
employees were not subject to a collective bargaining agreement at the Balance
Sheet Date, or any lockouts, strikes, slowdowns, work stoppages or threats
thereof by or with respect to any employees of the Company or the Japanese
Subsidiary.
3.09. PROPERTY AND EQUIPMENT. (a) The Company and the Japanese Subsidiary
have good and marketable title to, or in the case of leased property have valid
leasehold interests in, all property and assets (whether real or personal,
tangible or intangible) reflected on the Balance Sheet or acquired after the
Balance Sheet Date. None of such properties or assets is subject to any Liens,
except:
(i) Liens disclosed on the Balance Sheet;
(ii) Liens for taxes not yet due (and for which adequate
accruals or reserves have been established on the Balance Sheet); or
(iii) Liens which do not materially detract from the value
of such property or assets as now used, or materially interfere with any
present or intended use of such property or assets.
(b) There are no developments affecting any of such properties or
assets pending or, to the knowledge of Sellers threatened, which might
materially detract from the value of such property or assets, materially
interfere with any present or intended use of any such property or assets or
materially adversely affect the marketability of such property or assets.
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(c) The equipment owned by the Company and the Japanese Subsidiary
is in good operating condition and repair (ordinary wear and tear excepted), is
substantially adequate for the uses to which it is being put and, to Sellers'
knowledge, has no material defects.
(d) The assets owned or leased by the Company and the Japanese
Subsidiary, or which it otherwise has the right to use, constitute all of the
assets held for use or used in connection with the business of the Company and
the Japanese Subsidiary and are generally adequate to conduct such business as
currently conducted.
(e) The Company and the Japanese Subsidiary own no real estate.
3.10. NO UNDISCLOSED MATERIAL LIABILITIES. Except as set forth in SCHEDULE
3.10, there are no liabilities of the Company or the Japanese Subsidiary of any
kind whatsoever, whether accrued, contingent, absolute, determined, determinable
or otherwise, and there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a liability,
other than:
(i) liabilities disclosed or provided for in the Balance Sheet;
and
(ii) liabilities incurred in the ordinary course of business
consistent with past practice since the Balance Sheet Date, which in the
aggregate are not material to the Company and the Japanese Subsidiary,
taken as a whole.
3.11. LITIGATION. Except as set forth in SCHEDULE 3.11, there is no
action, suit, investigation or proceeding (or any basis therefor) pending
against, or to the knowledge of Sellers threatened against or affecting, the
Company or the Japanese Subsidiary or any of their respective properties or the
transactions contemplated hereby before any court or arbitrator or any
Governmental Authority.
3.12. MATERIAL CONTRACTS. (a) Except for agreements, contracts, plans,
leases, arrangements or commitments disclosed in SCHEDULE 3.12 or any other
schedule to this Agreement, neither the Company nor the Japanese Subsidiary is a
party to or subject to:
(i) any lease providing for annual rentals of $10,000 or more;
(ii) any contract for the purchase of materials, supplies, goods,
services, equipment or other assets providing for annual payments by the
Company or the Japanese Subsidiary of $10,000 or more;
(iii) any sales, distribution or other similar agreement providing
for the sale by the Company or the Japanese Subsidiary of materials,
supplies, goods, services, equipment or other assets providing for annual
payments to the Company or the Japanese Subsidiary of $10,000 or more;
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(iv) any partnership, joint venture or other similar contract,
arrangement or agreement;
(v) any contract relating to indebtedness for borrowed money or
the deferred purchase price of property (whether incurred, assumed,
guaranteed or secured by any asset), except contracts relating to
indebtedness incurred in the ordinary course of business in an amount not
exceeding $5,000;
(vi) any license agreement, franchise agreement or agreement in
respect of similar rights granted to or held by the Company or the
Japanese Subsidiary;
(vii) any agency, dealer, sales representative or other similar
agreement;
(viii) any contract or other document that limits the freedom of the
Company or the Japanese Subsidiary to compete in any line of business or
with any Person or in any area or which would so limit the freedom of the
Company or the Japanese Subsidiary after the Closing Date;
(ix) any consulting, employment or independent contractor
agreement; or
(x) any other contract or commitment not made in the ordinary
course of business that is material to the Company and the Japanese
Subsidiary taken as a whole.
(b) Each agreement, contract, plan, lease, arrangement and
commitment disclosed in any schedule to this Agreement or required to be
disclosed pursuant to Section 3.12(a) is a valid and binding agreement of the
Company or the Japanese Subsidiary and is in full force and effect, and neither
the Company, the Japanese Subsidiary nor, to the knowledge of the Company and
Sellers, any other party thereto is in default in any material respect under the
terms of any such agreement, contract, plan, lease, arrangement or commitment.
3.13. INSURANCE COVERAGE. Attached as SCHEDULE 3.13 is a list of, and true
and complete copies of, all insurance policies and fidelity bonds covering the
assets, business, equipment, properties, operations, employees, officers and
directors of the Company and the Japanese Subsidiaries. There is no claim by the
Company or the Japanese Subsidiary pending under any of such policies or bonds
as to which coverage has been questioned, denied or disputed by the underwriters
of such policies or bonds. All premiums payable under all such policies and
bonds have been paid and the Company and the Japanese Subsidiary are otherwise
in full compliance with the terms and conditions of all such policies and bonds.
Such policies of insurance and bonds (or other policies and bonds providing
substantially similar insurance coverage) have been in effect since and remain
in full force and effect. Such policies of insurance and bonds are of the type
and in amounts customarily carried by Persons conducting businesses similar to
those of
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the Company and the Japanese Subsidiary. The Company and Sellers do not know of
any threatened termination of, or premium increase with respect to, any of such
policies or bonds.
3.14. COMPLIANCE WITH LAWS; NO DEFAULTS. (a) The Company, the Japanese
Subsidiary and the Sellers are not in violation of, and have not since January
1, 1996 violated, and, to the Sellers' knowledge, are not under investigation
with respect to and have not been threatened to be charged with or been given
notice of any material violation of, any provisions of any material laws,
statutes, ordinances or regulations applicable to the Company or the Japanese
Subsidiary.
(b) SCHEDULE 3.14 correctly describes each license and permit (a
"PERMIT") material to the business of the Company, together with the name of the
governmental agency or entity issuing such license or permit. Such licenses and
permits are valid and in full force and effect, and none of such licenses or
permits will be terminated or impaired or become terminable as a result of the
transactions contemplated hereby.
(c) The Company, the Japanese Subsidiary and the Sellers are not
in material default under, and no condition exists that with notice or lapse of
time or both would constitute a material default under, (i) any mortgage, loan
agreement, indenture or evidence of indebtedness for borrowed money to which the
Company or the Japanese Subsidiary is a party or by which the Company or the
Japanese Subsidiary or any material amount of their assets is bound or (ii) any
judgment, order or injunction of any court, arbitrator or Governmental Authority
applicable to the Company, the Japanese Subsidiary, or any assets of the Company
or the Japanese Subsidiary.
3.15. FINDERS' FEES. There is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of Sellers, the Company or the Japanese Subsidiary who might be entitled to any
fee or commission from Buyer, the Company or any of their respective Affiliates
upon consummation of the transactions contemplated by this Agreement.
3.16. INTELLECTUAL PROPERTY. (a) The Company has no patents, trademarks,
service marks or copyrights, and has no filed applications for the same, and has
licensed no such items to or from anyone else. SCHEDULE 3.16 lists all
confidentiality and non-disclosure agreements entered into by the Company in the
last three years or otherwise currently applicable to the Company. SCHEDULE 3.16
also lists any and all software licenses or agreements involving payments or
royalties over $10,000 entered into by the Company in the last three years or
otherwise currently applicable to the Company.
(b)(i) Except as disclosed in SCHEDULE 3.16, neither the Company
nor the Japanese Subsidiary during the three years preceding the date of this
Agreement has been sued or charged in writing with or been a defendant in any
claim, suit, action or proceeding relating to its business that has not been
finally terminated prior to the date hereof and that involves a claim of
infringement of any patents, trademarks, service marks or copyrights, and (ii)
the Company and Sellers have no knowledge of any other claim or infringement by
the Company or the Japanese
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Subsidiary, and no knowledge of any continuing infringement by any other Person
of any of the Company's Proprietary Rights. No Company Proprietary Right is
subject to any outstanding order, judgment, decree, stipulation or agreement
restricting the use thereof by the Company or the Japanese Subsidiary or
restricting the licensing thereof by the Company or the Japanese Subsidiary to
any Person. Neither the Company nor the Japanese Subsidiary has entered into any
agreement to indemnify any other Person against any charge of infringement of
any patent, trademark, service mark or copyright.
(c) To the knowledge of the Company and Sellers, no third party
has asserted any claim, or has any reasonable basis to assert any valid claim,
against the Company or the Japanese Subsidiary with respect to (i) the continued
employment by, or association with, the Company or the Japanese Subsidiary of
any of the present officers and employees of or consultants to the Company or
the Japanese Subsidiary or (ii) the use by the Company or the Japanese
Subsidiary or any of such Persons in connection with their activities for or on
behalf of the Company or the Japanese Subsidiary of any information which the
Company or the Japanese Subsidiary or any of such Persons would be prohibited
from using under any prior agreements or arrangements or any laws applicable to
unfair competition, trade secrets or proprietary information.
3.17. RECEIVABLES. All accounts, notes receivable and other receivables
(other than receivables collected since the Balance Sheet Date) reflected on the
Balance Sheet are, and all accounts and notes receivable of the Company and the
Japanese Subsidiary at the Closing Date will be, valid, genuine and collectible
at face value within 180 days, subject to normal and customary trade discounts,
less any reserves for doubtful accounts recorded on the Balance Sheet as of the
Balance Sheet Date. All accounts, notes receivable and other receivables of the
Company and the Japanese Subsidiary at the Balance Sheet Date have been included
in the Balance Sheet.
3.18. TAXES. (a) The term "Taxes" as used herein means all federal,
state, local, foreign net income, alternative or add-on minimum tax, estimated,
gross income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, capital profits, lease, service, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit taxes, customs duties or other taxes,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest, penalty, addition to tax or additional amount with
respect thereto, and the term "Tax" means any one of the foregoing Taxes. The
term "Tax Returns" as used herein means all returns, declarations, reports,
claims for refund, information statements and other documents relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof, and the term "Tax Return" means any one of the foregoing Tax Returns.
(b) The Company and the Japanese Subsidiary have timely filed
all Tax Returns required to be filed on or prior to the Closing Date and have
paid all Taxes owed (whether or not shown as due on such returns), including,
without limitation, all Taxes which the
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Company and the Japanese Subsidiary are obligated to withhold for amounts owing
to employees, creditors and third parties. All Tax Returns filed by the Company
and the Japanese Subsidiary were complete and correct in all respects, and such
Tax Returns correctly reflected the facts regarding the income, business,
assets, operations, activities and status of the Company and the Japanese
Subsidiary and any other information required to be shown thereon. Except as
disclosed in SCHEDULE 3.18, none of such Tax Returns have been the subject of an
audit, action, suit, proceeding, claim or examination by any Governmental
Authority. No action, suit, proceeding, audit, claim, deficiency or assessment
is pending or, to the knowledge of the Company, threatened with respect to any
Taxes of the Company or the Japanese Subsidiary. The Company and the Japanese
Subsidiary are not currently the beneficiaries of any extension of time within
which to file any Tax Return, and the Company and the Japanese Subsidiary have
not waived any statute of limitation with respect to any Tax or agreed to any
extension of time with respect to a Tax assessment or deficiency. Neither the
Company nor the Japanese Subsidiary has agreed to make any adjustment under
Section 481(a) of the Internal Revenue Code of 1986, as amended (the "CODE") (or
any corresponding provision of state, local or foreign Tax law) by reason of a
change in accounting method or otherwise, and will not be required to make such
adjustment as a result of the transactions contemplated by this Agreement. All
Taxes that have been withheld (or any such Taxes that were required to be
withheld) by or on behalf of the Company or the Japanese Subsidiary from any
amounts payable to any Person have been timely remitted to the appropriate
Governmental Authority. No claim has ever been made by a Governmental Authority
in a jurisdiction where the Company or the Japanese Subsidiary does not file Tax
Returns that it is or may be subject to Tax in that jurisdiction. No portion of
the Purchase Price is subject to the tax withholding provisions of Section 3406
of the Code, or of Subchapter A of Chapter 3 of the Code or of any other
provision of law. To the knowledge of the Company, neither the Company nor the
Japanese Subsidiary is a party to any joint venture, partnership, or other
arrangement or contract which could be treated as a partnership for federal
income tax purposes (without regard to arrangements between the Company and
Buyer entered into after July 1, 1997). Except as set forth in SECTION 3.18, the
Company does not have, and has not had, a "permanent establishment" in any
foreign country, as defined in any applicable Tax treaty or convention between
the United States and such foreign country.
(c) Neither the Company nor the Japanese Subsidiary has ever
filed a consent pursuant to Section 341(f) of the Code, relating to collapsible
corporations. Neither the Company nor the Japanese Subsidiary is a party to any
Tax sharing or similar agreement. The Company has never been a member of a group
filing a consolidated federal income Tax Return (other than a group the common
parent of which was the Company), and the Company and the Japanese Subsidiary do
not have any liability for the Taxes of any Person (other than the Company or
the Japanese Subsidiary) under Treasury Regulation Section 1.1502-6 (or any
corresponding provision of state, local or foreign Tax law), as a transferee or
successor, by contract, or otherwise. Neither the Company nor the Japanese
Subsidiary has net operating losses or other tax attributes presently subject to
limitation (without regard to the transactions contemplated by this Agreement)
under Sections 382, 383 or 384 of the Code, or the federal consolidated return
regulations.
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(d) There are no liens for Taxes upon any of the assets, other
than for ad valorem Taxes not yet due and payable. Subject to SCHEDULE 3.07, the
unpaid Taxes of the Company and the Japanese Subsidiary did not, as of September
30, 1997 materially exceed the reserve for actual Taxes (as opposed to any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) as shown on the Balance Sheet dated September 30, 1997 as
prepared by Silver & Company and will not exceed such reserve as adjusted for
the passage of time through the Closing Date in accordance with the past custom
and practice of the Company and the Japanese Subsidiary in filing their Tax
Returns.
(e) The Japanese Subsidiary is not, and has never been, a
party to any contract, agreement, arrangement or plan that has resulted or would
result in the reallocation (under Section 482 of the Code or any other provision
of law) of any item of the Japanese Subsidiary's gross income, deductions,
credits or allowances.
(f) SCHEDULE 3.18 hereto contains a list of all jurisdictions
(whether foreign or domestic) to which any Tax is properly payable by the
Company or the Japanese Subsidiary.
(g) Notwithstanding the foregoing provisions of Section 3.18
and Article IX of this Agreement, Sellers' warranties under this Section 3.18
and Sellers' tax, ERISA and benefits warranties under Article IX, relate only to
liabilities arising from or attributable to the conduct of the Company on or
prior to the Closing Date.
3.19. EMPLOYEES. SCHEDULE 3.19 sets forth a true and complete list of (a)
the names, titles, annual salaries and other compensations of all employees of
the Company and the Japanese Subsidiary and (b) the wage rates for non-salaried
employees of the Company and the Japanese Subsidiary (by classification). None
of such employees and no other key employee of the Company or the Japanese
Subsidiary has indicated to the Company or either Seller that he intends to
resign or retire as a result of the transactions contemplated by this Agreement
or otherwise.
3.20. ENVIRONMENTAL COMPLIANCE. The Company and the Japanese Subsidiary
are in compliance in all material respects with, and have since January 1, 1996
complied in all material respects with, all material environmental laws.
3.21. CUSTOMERS AND SUPPLIERS. Neither the Company nor the Japanese
Subsidiary has received notice from or is otherwise aware that any customer, or
group of customers, that are under common ownership or control, and that
accounted for a material percentage of the aggregate services furnished by the
Company and the Japanese Subsidiary during the past 18 months has stopped or
intends to stop purchasing the Company's or the Japanese Subsidiary's services,
nor has the Company or the Japanese Subsidiary lost any supplier, or group of
suppliers that are under common ownership or control, that accounted for a
material percentage of the aggregate supplies or services purchased by the
Company or the Japanese Subsidiary during the past 18 months.
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3.22. TRANSACTIONS WITH AFFILIATES. There are no loans, leases, royalty
agreements or other continuing transactions between the Company and the Japanese
Subsidiary, on the one hand, and either Seller, any Affiliate of either Seller,
or any member of either Seller's family, on the other hand. To the knowledge of
the Company and Sellers, none of the officers or directors of the Company and
the Japanese Subsidiary or Sellers (a) has any material direct or indirect
interest in any entity which does business with the Company or the Japanese
Subsidiary, (b) has any direct or indirect interest in any property, asset or
right which is used by the Company or the Japanese Subsidiary in the conduct of
its business, or (c) has any contractual relationship with the Company or the
Japanese Subsidiary other than such relationships which occur from being an
officer, director or stockholder of the Company or the Japanese Subsidiary.
3.23. OTHER INFORMATION. None of the documents or information delivered to
Buyer in connection with the transactions contemplated by this Agreement,
including, without limitation, the Disclosures Schedules and the Ancillary
Agreements, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained therein not
misleading. The financial projections relating to the Company and the Japanese
Subsidiary delivered to Buyer constitute the Company's and the Sellers' best
estimate of the information purported to be shown therein, and neither the
Company nor either Seller is aware of any fact or information that would lead it
to believe that such projections are incorrect or misleading in any material
respect.
3.24. INTERCOMPANY ARRANGEMENTS. Neither the Company nor the Japanese
Subsidiary owns any note, bond, debenture or other indebtedness, or is otherwise
a creditor, of either Seller or any of its Affiliates. Since the Balance Sheet
Date there has not been any payment by the Company or the Japanese Subsidiary to
either Seller or any of its Affiliates, charge by either Seller or any of its
Affiliates to the Company or the Japanese Subsidiary or other transaction
between the Company or the Japanese Subsidiary and a Seller or any of its
Affiliates, except in any such case in the ordinary course of business of the
Company and the Japanese Subsidiary consistent with past practice.
3.25. FOREIGN CORRUPT PRACTICES ACT. The Company and the Japanese
Subsidiary have not taken any action which would cause either of them to be in
violation of the Foreign Corrupt Practices Act of 1977, as amended, or any rules
and regulations thereunder. To the best of the knowledge of the Company and the
Sellers, after due inquiry, there is not now, and there has never been, any
employment by the Company or the Japanese Subsidiary of, or beneficial ownership
in the Company or the Japanese Subsidiary by, any governmental or political
official in any country in the world.
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ARTICLE IV
ADDITIONAL REPRESENTATIONS
AND WARRANTIES OF SELLERS
Each Seller, severally but not jointly, represents and warrants to, and
agrees with, Buyer as follows:
4.01. TITLE TO AND VALIDITY OF SHARES. Such Seller now has, and on the
Closing Date will have, good and marketable title to and unrestricted power to
vote and sell the shares of the Company designated as owned by such Seller
opposite such Seller's name on SCHEDULE 2.01, free and clear of any Lien and,
upon purchase and payment therefor and delivery to Buyer thereof in accordance
with the terms of this Agreement, Buyer will obtain good and marketable title to
such Shares free and clear of any Lien. All shares of the Company owned by such
Seller have been duly authorized and validly issued and are fully paid and
non-assessable. All shares of the Company to be sold by such Seller are
registered in the name of such Seller.
4.02. AUTHORITY. Such Seller has the legal power, right and authority to
enter into and perform each of this Agreement and the Ancillary Agreements, and
to perform each of his obligations hereunder and thereunder. The execution,
delivery and performance of each of this Agreement and the Ancillary Agreements
by such Seller (a) require no action by or in respect of, or filing with, or
consent of, any Governmental Authority or any other Person and (b) do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of any agreement, judgment, injunction, order, decree or any other
instrument binding upon such Seller. Each of this Agreement and the Ancillary
Agreements has been duly executed and delivered by such Seller and constitutes a
valid and binding obligation of such Seller, enforceable in accordance with its
terms.
4.03. POWER TO ACT AS TRUSTEE OR EXECUTOR. If such Seller is serving as
trustee or executor with respect to its shares of the Company, such Seller is
duly authorized and empowered by the instruments creating such trust or trusts
or by the will of which such Seller is acting as executor and under applicable
law to enter into this Agreement with respect to such shares held by such Seller
and to consummate the transactions contemplated herein.
4.04 INVESTMENT REPRESENTATIONS. Such Seller represents and
warrants to Buyer that, except as disclosed in SCHEDULE 4.04:
(a) He is an "accredited investor" within the meaning of Rule 501 under
the Securities Act;
(b) He has sufficient knowledge and experience, either alone or with
his purchaser representative (as defined in Regulation D of the Securities Act),
in financial and business matters so as to be able to evaluate the risks and
merits of his investment in Buyer;
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(c) He has carefully read this Agreement and he has not relied on any
information other than the information contained in this Agreement and the
Ancillary Agreements (including the schedules and exhibits thereto) in making
his decision to invest in Buyer Stock;
(d) He has had sufficient opportunity to discuss Buyer's business,
management and financial affairs with Buyer's management;
(e) The Stock Consideration is being acquired for his own account for
the purpose of investment and not with a view to or for sale in connection with
any distribution thereof;
(f) He understands that (i) the shares representing the Stock
Consideration have not been registered under the Securities Act by reason of
their issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof or Rule 506 promulgated under
the Securities Act, (ii) the shares representing the Stock Consideration must be
held indefinitely unless a subsequent disposition thereof is registered under
the Securities Act or is exempt from such registration, (iii) the shares
representing the Stock Consideration will bear a legend to such effect and (iv)
Buyer will make a notation on its transfer books to such effect.
(g) The execution, delivery and performance by him of each of this
Agreement and the Ancillary Agreements to which he is a party do not and will
not (i) contravene or conflict with or constitute a violation of any provision
of any law, regulation, judgment, injunction, order or decree binding upon or
applicable to him or the Company, (ii) assuming the receipt of all consents,
constitute a default under or give rise to any right of termination,
cancellation or acceleration of any right or obligation of his or to a loss of
any benefit relating to the Company to which he is entitled under any provision
of any agreement, contract or other instrument binding upon him or by which any
assets of the Company or Company Securities are or may be bound, or any Permit
or (iii) result in the creation or imposition of any Lien on any assets of the
Company or Company Securities.
(h) There is no agreement, contract or other instrument binding upon
him or any Permit requiring a consent as a result of the execution, delivery and
performance of this Agreement and the Ancillary Agreements or the consummation
of the transactions contemplated hereby and thereby;
(i) There is no action, suit, investigation or proceeding (or any basis
therefor) pending against, or to his knowledge, threatened against or affecting
him before any court or arbitrator or any governmental body, agency or official
or that in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the transactions contemplated hereby;
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(j) This Agreement and each of the Ancillary Agreements to which he is
a party have been duly executed and delivered and constitute valid and binding
agreements by him; and
(k) He makes no other representations and warranties with respect to
the Company, the Japanese Subsidiary and the transactions contemplated hereby
except as set forth herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Company and Sellers that:
5.01. ORGANIZATION AND EXISTENCE. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of Delaware
and has all corporate powers and all material governmental licenses,
authorizations, consents and approvals (or has applied therefor) required to
carry on its business as now conducted. Buyer is duly qualified to do business
as a foreign corporation (or has applied to be so qualified) and is in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualifications
necessary, except for those jurisdictions where the failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect.
Buyer has heretofore delivered to the Company true and complete copies of the
corporate charter and bylaws of Buyer as currently in effect.
5.02. CORPORATE AUTHORIZATION; ISSUANCE OF BUYER STOCK. The execution,
delivery and performance by Buyer of each of this Agreement and the Ancillary
Agreements and the consummation by Buyer of the transactions contemplated hereby
and thereby are within the corporate powers of Buyer and have been duly
authorized by all necessary corporate action on the part of Buyer. Each of this
Agreement and the Ancillary Agreements constitutes valid and binding agreements
of Buyer. The shares of Buyer Stock comprising the Stock Consideration have been
duly authorized by all necessary corporate action and, when issued and delivered
at the Closing, will be validly issued, fully paid and non-assessable shares of
Buyer Stock.
5.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance
by Buyer of each of this Agreement and the Ancillary Agreements requires no
action by or in respect of, or filing with, any Governmental Authority.
5.04. NON-CONTRAVENTION. The execution, delivery and performance by Buyer
of each of this Agreement and the Ancillary Agreements does not and will not (i)
contravene or conflict with the corporate charter or bylaws of Buyer, (ii)
contravene or conflict with any provision of any law, regulation, judgment,
injunction, order or decree binding upon Buyer, or (iii) result in the creation
or imposition of any Lien on any material asset of Buyer.
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5.05. FINDERS' FEES. There is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of Buyer who might be entitled to any fee or commission from the Company or any
Affiliate thereof upon consummation of the transactions contemplated by this
Agreement.
5.06. PURCHASE FOR INVESTMENT. Buyer is purchasing the Shares for
investment for its own account and not with a view to, or for sale in connection
with, any distribution thereof.
5.07. LITIGATION. Except as disclosed on SCHEDULE 5.07, there is no
action, suit, investigation or proceeding pending against, or to the knowledge
of Buyer threatened against or affecting, Buyer or any of Buyer's Subsidiaries
or any of their respective properties or the transactions contemplated hereby
before any court or arbitrator or any Governmental Authority.
5.08. CAPITALIZATION. The authorized capital stock of Buyer consists of
21,733,070 shares of Common Stock, $.01 par value per share, and 31,948,376
shares of Preferred Stock, $.01 par value per share, of which 15,973,108 shares
are designated Series A Convertible Preferred Stock, 160 shares are designated
Series B Redeemable Preferred Stock, 15,973,108 shares are designated as Series
C Convertible Preferred Stock, and 1,000 shares are designated as Series D
Nonvoting Preferred Stock. As of the date hereof, there are issued and
outstanding 2,039,986 shares of Common Stock, 13,271,314 shares of Series A
Convertible Preferred Stock, and 140 shares of Series D Nonvoting Preferred
Stock. There are no issued and outstanding shares of Series B Redeemable
Preferred Stock or Series C Convertible Preferred Stock. Except (i) as set forth
in the preceding sentence and (ii) outstanding options granted by Buyer's
subsidiary, Lionbridge Technologies, Inc., to acquire up to approximately
3,653,713 shares of Buyer Common Stock, there are no outstanding (x) securities
of Buyer or any subsidiary of Buyer convertible into or exchangeable for shares
of capital stock or other voting securities or ownership interests in Buyer or
(ii) options or other rights to acquire from Buyer or any obligation of any
subsidiary of Buyer to issue any capital stock, voting securities or other
ownership interests in, or any securities convertible into or exchangeable for
any capital stock, voting securities or ownership interests in, Buyer (the items
in clauses (x) and (y) being referred to collectively as the "Buyer
Securities"). Except as set forth in the Certificate of Incorporation of Buyer,
there are no outstanding obligations of Buyer or any subsidiary of Buyer to
repurchase, redeem or otherwise acquire any outstanding Buyer Securities.
Lionbridge Technologies, Inc., a Delaware corporation, is a wholly-owned
subsidiary of Buyer.
5.09. FINANCIAL STATEMENTS. Buyer has previously furnished to the Company
a true and complete copy of the consolidated balance sheet of Buyer as of
December 31, 1997, and the statement of operations of Buyer for the fiscal year
then ended (collectively, the "BUYER FINANCIAL STATEMENTS", which are attached
hereto as Schedule 5.09). The consolidated balance sheet included in the Buyer
Financial Statements fairly presents in all material respects the consolidated
financial position of Buyer as of its date, and the statement of operations
included in the Buyer Financial Statements fairly presents in all material
respects the consolidated results
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of operations of Buyer for the period therein set forth. As of December 31, 1997
the [net stockholders' equity] of Buyer calculated in accordance with U.S.
generally accepted accounting principles would not differ materially from the
amount of [net stockholders' equity] shown on the consolidated balance sheet of
Buyer dated December 31, 1997.
5.10. MATERIAL CONTRACTS. (a) Except for agreements, contracts, plans,
leases, arrangements or commitments disclosed in SCHEDULE 5.10 or any other
schedule to this Agreement, neither Buyer nor any subsidiary of Buyer is a party
to or subject to:
(i) any partnership, joint venture or other similar contract,
arrangement or agreement; and
(ii) any contract or other document that limits the freedom of
Buyer or any subsidiary of Buyer to compete in any line of business or
with any Person or in any area or which would so limit the freedom of
Buyer or any subsidiary of Buyer after the Closing Date.
(b) Each agreement, contract, plan, lease, arrangement and
commitment disclosed in SCHEDULE 5.10 to this Agreement or required to be
disclosed pursuant to Section 5.10(a) is a valid and binding agreement of Buyer
or a subsidiary of Buyer and is in full force and effect, and neither Buyer, any
of its subsidiaries nor, to the knowledge of Buyer, any other party thereto is
in default in any material respect under the terms of any such agreement,
contract, plan, lease, arrangement or commitment.
5.11. TRANSACTIONS WITH AFFILIATES. There are no loans, leases, royalty
agreements or other continuing transactions between Buyer and its subsidiaries,
on the one hand, and any holder of more than 5% of the Buyer's outstanding
capital stock on a fully diluted basis (a "Major Stockholder"), any Affiliate of
a Major Stockholder, or any member of a Major Stockholder's family, on the other
hand. To the knowledge of Buyer, none of the officers, directors or Major
Stockholders of Buyer (a) has any material direct or indirect interest in any
entity which does business with Buyer or any subsidiary of Buyer, (b) has any
direct or indirect interest in any property, asset or right which is used by
Buyer or any subsidiary of Buyer in the conduct of its business or (c) has any
contractual relationship with Buyer or any subsidiary of Buyer other than such
relationships which occur from being an officer, director or stockholder of
Buyer or such subsidiary.
5.12. OTHER INFORMATION. None of this Agreement (including the Disclosures
Schedules) and the Ancillary Agreements contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained therein not misleading.
5.13. INTERCOMPANY ARRANGEMENTS. Since the Balance Sheet Date there has
not been any payment by Buyer or any subsidiary of Buyer to any Major
Stockholder or any Affiliate thereof, charge by any Major Stockholder or any
Affiliate thereof to Buyer or any subsidiary of Buyer or
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other transaction between Buyer or any subsidiary of Buyer and a Major
Stockholder or any Affiliate thereof, except in any such case in the ordinary
course of business of Buyer and its subsidiaries consistent with past practice.
5.14. FOREIGN CORRUPT PRACTICES ACT. Buyer and its subsidiaries have not
taken any action which would cause any of them to be in violation of the Foreign
Corrupt Practices Act of 1977, as amended, or any rules and regulations
thereunder. To the best of the knowledge of Buyer, after due inquiry, there is
not now, and there has never been, any employment by Buyer or any subsidiary of
Buyer of, or beneficial ownership in Buyer or any subsidiary of Buyer by, any
governmental or political official in any country in the world.
5.15. SECURITIES LAWS. Buyer has complied and will comply with all
applicable federal and state securities laws in connection with the offer,
issuance and sale of the shares representing the Stock Consideration hereunder.
Subject to the validity of the Sellers' and Company's representations in
Articles III and IV, neither Buyer nor anyone acting on its behalf has or will
sell, offer to sell or solicit offers to buy Buyer Stock or similar securities
to, or solicit offers with respect thereto from, or enter into any preliminary
conversations or negotiations relating thereto with, any person, so as to
require the registration of the Buyer Stock pursuant to the Securities Act or
any state securities laws.
5.16. COMPLIANCE WITH LAWS. Except as set forth in SCHEDULE 5.16, to
Buyer's knowledge, Buyer and its subsidiaries, are not in violation of, and have
not since December 23, 1996, violated, and are not under investigation with
respect to and have not been threatened to be charged with or been given notice
of any material violation of, any provisions of any material laws, statutes,
ordinances or regulations applicable to Buyer or its subsidiaries.
5.17. NO UNDISCLOSED MATERIAL LIABILITIES. Except as set forth in
SCHEDULE 5.17, there are no liabilities of Buyer of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, and there
is no existing condition, situation or set of circumstances which would
reasonably be expected to result in such a liability, other than:
(i) liabilities disclosed or provided for in the balance sheet provided
in Buyer's Financial Statements;
(ii) liabilities incurred in the ordinary course of business consistent
with past practice since the Balance Sheet Date, which in the aggregate
are not material to Buyer, taken as a whole.
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ARTICLE VI
COVENANTS OF THE COMPANY AND SELLERS
The Company and each Seller agree that:
6.01. CONDUCT OF THE COMPANY. From the date hereof until the Closing Date,
the Company and the Japanese Subsidiary shall conduct their businesses in the
ordinary course consistent with past practices and to use their best efforts to
preserve intact their business organizations and relationships with third
parties and to keep available the services of their present officers and
employees. Without limiting the generality of the foregoing, from the date
hereof until the Closing Date, the Company and the Japanese Subsidiary will not:
(a) adopt or propose any change in its corporate charter or bylaws;
(b) merge or consolidate with any other Person or acquire a
material amount of assets of any other Person;
(c) sell, lease, license or otherwise dispose of any material
assets or property except (i) pursuant to existing contracts or
commitments and (ii) in the ordinary course consistent with past
practices;
(d) effect any direct or indirect redemption, purchase or other
acquisition of any Company Securities or any Subsidiary Securities, or
declare, set aside or pay any dividend or make any other distribution of
assets of any kind whatsoever with respect to any Company Securities or
any Subsidiary Securities;
(e) issue any securities;
(f) lend to or borrow from any Person any money in excess of
$5,000;
(g) make any single capital expenditure in excess of $5,000;
(h) terminate or amend any material contract; or
(i) agree or commit to do any of the foregoing.
The Company will not and will not permit the Japanese Subsidiary to (i) take or
agree or commit to take any action that would make any representation and
warranty of the Company or Sellers under this Agreement on the date of its
execution and delivery inaccurate in any respect at, or as of any time prior to,
the Closing Date or (ii) omit or agree or commit to omit to take any action
necessary to prevent any such representation or warranty from being inaccurate
in any respect at any such time.
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6.02. ACCESS TO INFORMATION. From the date hereof until the Closing Date,
the Company (a) will give, and will cause the Japanese Subsidiary to give,
Buyer, its counsel, financial advisors, financing sources, auditors and other
authorized representatives full access to the offices, properties, books and
records of the Company and the Japanese Subsidiary, (b) will furnish, and will
cause the Company and the Japanese Subsidiary to furnish Buyer, its counsel,
financial advisors, auditors and other authorized representatives such financial
and operating data and other information relating to the Company and the
Japanese Subsidiary as such Persons may reasonably request, and (c) will
instruct the employees, counsel and financial advisors of the Company and the
Japanese Subsidiary to cooperate with Buyer in its investigation of the Company
and the Japanese Subsidiary; PROVIDED that no investigation pursuant to this
Section 6.02 shall affect any representation or warranty given by the Company or
Sellers hereunder.
6.03. NOTICES OF CERTAIN EVENTS. The Company will promptly notify Buyer
of:
(a) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection with
the transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened against, relating to or
involving or otherwise affecting the Company or the Japanese Subsidiary
disclosed pursuant to Section 3.11 or that relate to the consummation of
the transactions contemplated by this Agreement.
6.04. RESIGNATIONS. The Company will deliver to Buyer the resignations of
all officers and directors of the Company and the Japanese Subsidiary from their
positions with the Company and the Japanese Subsidiary at or prior to the
Closing Date, unless otherwise specified by Buyer.
6.05. NONCOMPETITION. (a) Yoko Kay agrees that for a period of three
(3) full years from the Closing Date, neither she nor any of her Affiliates
shall:
(i) engage, either directly or indirectly, as a principal or for
its own account or solely or jointly with others, or as stockholder in any
corporation or joint stock association, in any business that competes with
the businesses of the Company or the Japanese Subsidiary as they exist on
the Closing Date in Japan and the United States; or
(ii) employ or solicit, receive or accept the performance of
services by any employee currently employed by the Company or the Japanese
Subsidiary; or
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(iii) advise any customer or supplier of the Company or the
Japanese Subsidiary with respect to its business relationship with the
Company or the Japanese Subsidiary.
(b) If any provision contained in this Section 6.05 shall for any
reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provisions
of this Section 6.05, but this Section 6.05 shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein. It
is the intention of the parties that if any of the restrictions or covenants
contained herein is held to cover a geographic area or to be for a length of
time which is not permitted by applicable law, or in any way construed to be too
broad or to any extent invalid, such provision shall not construed to be null,
void and of no effect, but to the extent such provision would be valid or
enforceable under applicable law, a court of competent jurisdiction shall
construe and interpret or reform this Section 6.05 to provide for a covenant
having the maximum enforceable geographic area, time period and other provisions
(not greater than those contained herein) as shall be valid and enforceable
under such applicable law. Yoko Kay acknowledges that Buyer would be irreparably
harmed by any breach of this Section and that there would be no adequate remedy
at law or in damages to compensate Buyer for any such breach. Yoko Kay agrees
that Buyer shall be entitled to injunctive relief requiring specific performance
by Yoko Kay of this Section 6.05, and Yoko Kay consents to the entry thereof.
(c) Notwithstanding anything in this Section 6.05 to the contrary, Buyer
consents to Yoko Kay's employment as a language interpreter, provided that such
employment or any services rendered in such capacity (i) shall not be related to
software (and software-related materials) localization, and (ii) shall not be
performed for the benefit of any company engaging in software (or
software-related materials) localization.
6.06. NO NEGOTIATIONS WITH THIRD PARTIES. From the date hereof until the
earlier of the Closing Date or the date on which this Agreement is terminated,
neither the Company nor any Seller, nor any of their respective agents or
representatives, shall, directly or indirectly, encourage, solicit or engage in
any discussions or negotiations with, or provide any information to, any Person
or group concerning the possible acquisition by such third party of all or any
part of the business of the Company, including the Japanese Subsidiary, whether
by purchase of assets, stock, merger or otherwise, other than as contemplated or
permitted by this Agreement. The Company and each Seller agree promptly to
notify Buyer of interest by any Person with respect to any such possible
acquisition.
6.07. CONFIDENTIALITY. The Company, and Sellers and their Affiliates, will
hold, and will use their best efforts to cause their respective officers,
directors, employees, accountants, counsel, consultants, advisors and agents to
hold, in confidence, unless compelled to disclose by judicial or administrative
process or by other requirements of law, all confidential documents and
information concerning Buyer furnished to the Company, or to Sellers or their
Affiliates, in connection with the transactions contemplated by this Agreement,
and (after the Closing Date)
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all confidential documents and information concerning the Company, except to the
extent that such information can be shown to have been (i) previously known on a
nonconfidential basis by Sellers, (ii) in the public domain through no fault of
Sellers or (iii) later lawfully acquired by Sellers from sources other than the
Company or Buyer; PROVIDED that Sellers may disclose such information to their
respective officers, directors, employees, accountants, counsel, consultants,
advisors and agents in connection with the transactions contemplated by this
Agreement so long as such persons are informed by Sellers of the confidential
nature of such information and are directed by Sellers to treat such information
confidentially. The obligation of the Company, and Sellers and their Affiliates,
to hold any such information in confidence shall be satisfied if they exercise
the same care with respect to such information as they would take to preserve
the confidentiality of their own similar information. If this Agreement is
terminated, the Company, and Sellers and their Affiliates, will, and will use
their best efforts to cause their respective officers, directors, employees,
accountants, counsel, consultants, advisors and agents to, destroy or deliver to
Buyer, upon request, all documents and other materials, and all copies thereof,
obtained by the Company, or by Sellers or their Affiliates, or on their behalf
from Buyer in connection with this Agreement that are subject to such
confidence.
6.08. CONTINUING DISCLOSURE. The Company and Sellers shall have the
continuing obligation promptly to advise Buyer with respect to any matter
hereafter arising or discovered that, if existing or known at the date of this
Agreement, would have been required to be set forth or described in a schedule
to this Agreement, or that constitutes a breach or prospective breach of this
Agreement by the Company or either Seller. The delivery of any such notice shall
not affect Buyer's remedies hereunder.
6.09. SURVIVAL OF COVENANTS. None of the covenants in Article VI is
binding on the Company or Sellers prior to the Closing, and only Sections 6.05
and 6.07 shall bind the Company and Sellers after the Closing. Notwithstanding
the preceding sentence, from January 2, 1998 through the Closing Date, Sellers
and the Company have consulted and cooperated in good faith with Buyer in
accordance with the provisions of Article VI.
ARTICLE VII
COVENANTS OF BUYER
Buyer agrees that:
7.01. CONFIDENTIALITY. Prior to the Closing Date and after any termination
of this Agreement, Buyer and its Affiliates will hold, and will use their best
efforts to cause their respective officers, directors, employees, accountants,
counsel, consultants, advisors and agents to hold, in confidence, unless
compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning the
Company and the Japanese Subsidiary furnished to Buyer or its Affiliates in
connection with the transactions contemplated by this Agreement, except to the
extent that such information can be shown to have been (i) previously known on a
nonconfidential basis by Buyer, (ii) in the public
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domain through no fault of Buyer or (iii) later lawfully acquired by Buyer from
sources other than the Company or the Japanese Subsidiary; PROVIDED that Buyer
may disclose such information to its officers, directors, employees,
accountants, counsel, consultants, advisors, bankers, investors, and agents in
connection with the transactions contemplated by this Agreement so long as such
Persons are informed by Buyer of the confidential nature of such information and
are directed by Buyer to treat such information confidentially. The obligation
of Buyer and its Affiliates to hold any such information in confidence shall be
satisfied if the exercise the same care with respect to such information as they
would take to preserve the confidentiality of their own similar information. If
this Agreement is terminated, Buyer and its Affiliates will, and will use their
best efforts to cause their respective officers, directors, employees,
accountants, counsel, consultants, advisors and agents to, destroy or deliver to
the Sellers, upon request, all documents and other materials, and all copies
thereof, obtained by Buyer or its Affiliates or on their behalf from either
Seller, the Company or the Japanese Subsidiary in connection with this Agreement
that are subject to such confidence.
7.02. ACCESS TO INFORMATION. From the date hereof until the Closing Date,
Buyer (a) will give the Company, its counsel, financial advisors, financing
sources, auditors and other authorized representatives full access to the
offices, properties, books and records of Buyer and its subsidiaries, (b) will
furnish and will cause Buyer and its subsidiaries to furnish the Company, its
counsel, financial advisors, auditors and other authorized representatives such
financial and operating data and other information relating to Buyer and
subsidiaries as such Persons may reasonably request, and (c) will instruct the
employees, counsel and financial advisors of Buyer and its subsidiaries to
cooperate with the Company in its investigation of Buyer and its subsidiaries;
PROVIDED that no investigation pursuant to this Section 7.02 shall affect any
representation or warranty given by Buyer hereunder.
7.03. NOTICES OF CERTAIN EVENTS. Buyer will promptly notify the Company
of:
(a) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement; and
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened against, relating to or involving or
otherwise affecting Buyer or any subsidiary of Buyer that relate to the
consummation of the transactions contemplated by this Agreement.
7.04. CONTINUING DISCLOSURE. Buyer shall have the continuing obligation
promptly to advise the Company with respect to any matter hereafter arising or
discovered that, if existing or known at the date of this Agreement, would have
been required to be set forth or described in a
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schedule to this Agreement, or that constitutes a breach or prospective breach
of this Agreement by Buyer. The delivery of any such notice shall not affect the
Company's remedies hereunder.
7.05. RELEASE OF PERSONAL GUARANTIES. Promptly following the Closing,
Buyer shall use its best efforts to cause any creditor of the Company to release
any personal guaranties extended by the Sellers to such creditor and shall
indemnify the Sellers against any claims by such creditors based on such
personal guaranties.
7.06. ELECTION OF OFFICERS. Promptly following the Closing, Buyer shall
cause to be elected or appointed as officers of Buyer the following persons,
such persons to have their titles specified opposite their name below and to be
covered by Buyer's officers and directors liability insurance policy from that
date:
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
Carl Kay Vice President - Japanese Group Worldwide
</TABLE>
7.07. SATISFACTION OF CERTAIN EMPLOYEE OPTIONS. (a) On the day following
the Closing, Buyer shall pay to each Company employee listed below the cash
amounts specified opposite each such employee's name in satisfaction of one half
of the Company's obligations under such employee's nonstatutory stock option
agreement:
<TABLE>
<S> <C>
Takeshi Tokushige $7,500.00
Yasuko Mizuno $7,500.00
Joe K. H. Ho $7,500.00
Eri Imai $2,500.00
Laura Lambo $2,500.00
Mokoto Voisey $2,500.00
Marcia Metz $2,500.00
Naoko Nunomura $2,500.00
Shigeyuki Yoshida $1,500.00
Kimberly Abrams $1,500.00
</TABLE>
(b) On the day that is one year and one day after the Closing,
Buyer shall pay to each Company employee listed in the table under Section
7.07(a) an additional amount in cash equal to the amount specified opposite each
such employee's name in such table in satisfaction of the Company's remaining
obligations under such employee's nonstatutory stock option agreement; PROVIDED
that Buyer shall have no obligation to make any such payment to any such person
who ceases to be employed by Buyer or an affiliate of Buyer prior to the day
that is one year and one day after the Closing, unless such person shall have
been terminated by Buyer without just cause (as defined in Section 7(b) the
employee's stock option agreement) prior to
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such day. If any such employee shall be terminated by Buyer without just cause
prior to the day that is one year and one day after the Closing, Buyer shall pay
such employee the amount specified opposite such employee's name in the table
under Section 7.07(a) at the time of such termination.
(c) On the Closing, Buyer shall pay to each Company employee
listed below the cash amounts and the number of shares of Buyer Stock specified
opposite each such employee's name in satisfaction of one half of the Company's
obligations under such employee's nonstatutory stock option agreement:
<TABLE>
<CAPTION>
SHARES OF
CASH BUYER STOCK
---- -----------
<S> <C> <C>
Elizabeth Draper $17,500 18,200
Coleman Yeaw $17,500 18,200
</TABLE>
(d) On the first anniversary of the Closing, Buyer shall pay to
each Company employee listed in the table under Section 7.07(c) an additional
amount in cash and an additional number of shares of Buyer Stock equal to the
amounts specified opposite each such employee's name in such table in
satisfaction of the Company's remaining obligations under such employee's
nonstatutory stock option agreement; PROVIDED that Buyer shall have no
obligation to make any such payment to any such person who ceases to be employed
by Buyer or an affiliate of Buyer prior to the first anniversary of the Closing,
unless such person shall have been terminated by Buyer without just cause (as
defined in Section 5(c) the employee's stock option agreement) prior to such
day. If any such employee shall be terminated by Buyer without just cause prior
to the first anniversary of the Closing, Buyer shall pay such employee the cash
amount and the number of shares of Buyer Stock specified opposite such
employee's name in the table under Section 7.07(c) at the time of such
termination.
(e) If any employee listed in the tables under Sections 7.07(a)
and (c) shall resign his employment with Buyer before the applicable date
specified in such Section, Buyer shall promptly pay the Sellers the amounts of
cash and, if applicable, shares of Buyer Stock specified opposite such
employee's name in such tables, such amounts to be apportioned between the
Sellers in proportion to the Common Stock owned by them as reflected in SCHEDULE
2.01. The amounts so paid to the Sellers by Buyer shall be treated as an
increase in the Purchase Price.
7.08. SATISFACTION OF CERTAIN EQUITY COMMITMENTS. On the Closing, Buyer
shall pay to Daniel Schneider 4,750 shares of Buyer's Stock in satisfaction of
certain equity commitments made by the Company to such employee.
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ARTICLE VIII
COVENANTS OF ALL PARTIES
The parties hereto agree that:
8.01. BEST EFFORTS. Subject to the terms and conditions of this Agreement,
each party will use its best efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary or desirable under
applicable laws and regulations to consummate the transactions contemplated by
this Agreement. Sellers and Buyer each agree, and Sellers, prior to the Closing,
and Buyer, after the Closing, agree to cause the Company and the Japanese
Subsidiary, to execute and deliver such other documents, certificates,
agreements and other writings and to take such other actions as may be necessary
or desirable in order to consummate or implement expeditiously the transactions
contemplated by this Agreement.
8.02. CERTAIN FILINGS. The Company, Sellers and Buyer shall cooperate with
each other (a) in determining whether any action by or in respect of, or filing
with, any Governmental Authority is required, or any actions, consents,
approvals or waivers are required to be obtained from parties to any material
contracts, in connection with the consummation of the transactions contemplated
by this Agreement and (b) in taking such actions or making any such filings,
furnishing information required in connection therewith and seeking timely to
obtain any such actions, consents, approvals or waivers.
8.03. PUBLIC ANNOUNCEMENTS. The parties agree to consult with each other
before issuing any press release or making any public statement with respect to
this Agreement or the transactions contemplated hereby and, except as may be
required by applicable law or any listing agreement with any national securities
exchange, will not issue any such press release or make any such public
statement prior to such consultation.
ARTICLE IX
EMPLOYEE BENEFITS
9.01. EMPLOYEE BENEFITS DEFINITIONS. The following terms, as used herein,
having the following meanings:
"BENEFIT ARRANGEMENT" means each employment, severance or other similar
contract, arrangement or policy (written or oral) and each plan or arrangement
(written or oral) providing for severance benefits, insurance coverage
(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits or for deferred compensation, profit-sharing, bonuses, stock options,
stock appreciation rights or other forms of incentive compensation or
post-retirement insurance,
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compensation or benefits which (i) is not an Employee Plan, (ii) is entered
into, maintained or contributed to, as the case may be, by the Company, the
Japanese Subsidiary or any of their ERISA Affiliates and (iii) covers any
employee or former employee of the Company or the Japanese Subsidiary.
"EMPLOYEE PLANS" means each "employee benefit plan", as such term is
defined in Section 3(3) of ERISA, that (i) is subject to any provision of ERISA
and (ii) is maintained or contributed to by the Company, the Japanese Subsidiary
or any of their ERISA Affiliates, as the case may be.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" of any entity means any other entity that, together with
such entity, would be treated as a single employer under Section 414 of the
Code.
9.02. ERISA REPRESENTATIONS. The Company and each Seller, jointly
and severally, hereby represent and warrant to Buyer that:
(a) THE COMPANY AND THE JAPANESE SUBSIDIARY HAVE NO Employee
Plans.
(b) SCHEDULE 9.02 lists each Benefit Arrangement of the Company
and the Japanese Subsidiary, copies or descriptions of which have been made
available or furnished previously to Buyer.
(c) Except as listed in SCHEDULE 9.02, none of the Benefit
Arrangements listed on SCHEDULE 9.02 covers any non-United States employee or
former employee of the Business.
(d) Each Benefit Arrangement has been maintained in substantial
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations which are applicable to such Benefit
Arrangement.
(e) With respect to the employees and former employees of the
Company and the Japanese Subsidiary, there are no employee post-retirement
medical or health plans in effect, except as required by Section 4980B of the
Code.
(f) No tax under Section 4980B or 4980D of the Code has been
incurred in respect of any Employee Plan that is a group health plan, as defined
in Section 5000(b)(1) of the Code.
(g) No employee of the Company or the Japanese Subsidiary will
become entitled to any bonus, retirement, severance or similar benefit or
enhanced benefit solely as a result of the transactions contemplated hereby.
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9.03. NO THIRD PARTY BENEFICIARIES. No provision of this Article IX shall
create any third party beneficiary or other rights in any employee or former
employee (including any beneficiary or dependent thereof) of the Company or the
Japanese Subsidiary in respect of continued employment (or resumed employment)
with the Company or the Japanese Subsidiary and no provision of this Article IX
shall create any such rights in any such Persons in respect of any benefits that
may be provided, directly or indirectly, under any Benefit Arrangement or any
plan or arrangement that may be established by Buyer or any of its Affiliates.
No provision of this Agreement shall constitute a limitation on rights to amend,
modify or terminate after the Closing Date any Benefit Arrangement.
ARTICLE X
CONDITIONS TO CLOSING
10.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations of
Buyer, the Company and Sellers to consummate the Closing are subject to the
satisfaction of the following conditions:
(a) No proceeding challenging this Agreement or the transactions
contemplated hereby or seeking to prohibit, alter, prevent or materially delay
the Closing shall have been instituted by any Person before any Governmental
Authority and be pending.
(b) Each other party shall have executed and delivered each of the
Ancillary Agreements to be entered into by it at Closing, in each case
substantially in the form attached as an exhibit to this Agreement.
(c) All actions by or in respect of or filings with any
Governmental Authority required to permit the consummation of the Closing shall
have been obtained.
(d) All of the actions contemplated by Section 2.02 shall have
taken place.
10.02. CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to
consummate the Closing is subject to the satisfaction of the following further
conditions:
(a)(i) the Company and each Seller shall have performed in all
material respects all of his or its obligations hereunder required to be
performed on or prior to the Closing Date, (ii) the representations and
warranties of the Company and each Seller contained in this Agreement at the
time of its execution and delivery and in any certificate or other writing
delivered by the Company or a Seller pursuant hereto shall be true at and as of
the Closing Date, and (iii) Buyer shall have received a certificate signed by
the President of the Company and by each Seller to the foregoing effect.
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(b) No Governmental Authority shall have issued any order, and
there shall not be any statute, rule or regulation, restraining the effective
operation by Buyer of the business of the Company and the Japanese Subsidiary
after the Closing Date, and no proceeding challenging this Agreement or the
transactions contemplated hereby or seeking to prohibit, alter, prevent or
materially delay the Closing shall have been instituted by any Person before any
Governmental Authority.
(c) Buyer shall have received an opinion of Lawson & Weitzen, LLP,
counsel to the Company, dated the Closing Date, reasonably satisfactory in form
and substance to Buyer. In rendering such opinion, such counsel may rely upon
certificates of public officers, as to matters governed by the laws of
jurisdictions other than Massachusetts, Delaware or the federal laws of the
United States of America, upon opinions of counsel reasonably satisfactory to
Buyer, copies of which shall be contemporaneously delivered to Buyer, and as to
matters of fact, upon certificates of officers of the Company and the Japanese
Subsidiary.
(d) The Company and the Japanese Subsidiary shall have received
all consents, authorizations or approvals from the governmental agencies
referred to in Section 3.03(a), in each case in form and substance reasonably
satisfactory to Buyer, and no such consent, authorization or approval shall have
been revoked.
(e) On or before the Closing Date, the Company shall deliver to
Buyer a properly executed statement satisfying the requirements of Treasury
Regulation Sections 1.897-2(h) and 1.1445-2(c)(3) in a form acceptable to Buyer.
(f) Buyer shall have received all other closing documents that it
may reasonably request, all in form and substance reasonably satisfactory to
Buyer.
10.03. CONDITIONS TO OBLIGATION OF SELLERS. The obligation of Sellers to
consummate the Closing is subject to the satisfaction of the following further
conditions:
(a)(i) Buyer shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Closing Date, (ii) the representations and warranties of Buyer contained in this
Agreement at the time of its execution and delivery and in any certificate or
other writing delivered by Buyer pursuant hereto shall be true in all material
respects at and as of the Closing Date, as if made at and as of such date and
(iii) Sellers shall have received a certificate signed by an officer of Buyer to
the foregoing effect.
(b) Sellers shall have received an opinion of Testa, Hurwitz &
Thibeault, LLP dated the Closing Date, reasonably satisfactory in form and
substance to Sellers. In rendering such opinion, such counsel may rely upon
certificates of public officers, as to matters governed by the laws of
jurisdictions other than Massachusetts, Delaware and the federal laws of the
United States of America, upon opinions of counsel reasonably satisfactory to
Sellers, copies of
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which shall be contemporaneously delivered to Sellers, and as to matters of
fact, upon certificates of officers of Buyer.
(c) Buyer shall have received all consents, authorizations or
approvals from relevant Governmental Authorities referred to in Section 3.03, in
each case in form and substance reasonably satisfactory to Sellers, and no such
consent, authorization or approval shall have been revoked.
(d) Sellers shall have received all items specified in Section
2.02 of this Agreement and all other closing documents that they may reasonably
request, all in form and substance reasonably satisfactory to them.
ARTICLE XI
SURVIVAL; INDEMNIFICATION
11.01. SURVIVAL. The covenants, agreements, representations and warranties
of the parties hereto contained in this Agreement or in any certificate or other
writing delivered pursuant hereto or in connection herewith shall survive the
Closing until September 29, 2000 or (i) in the case of Section 6.05, for the
period set forth therein, (ii) in the case of Sections 6.07 and 7.01,
indefinitely, and (iii) in the case of the covenants, agreements,
representations and warranties contained in Section 3.18 and Article IX, until
expiration of the applicable statutory period of limitations (giving effect to
any waiver, mitigation or extension thereof), if later. Notwithstanding the
preceding sentence, any covenant, agreement, representation or warranty in
respect of which indemnity may be sought under Section 11.02 shall survive the
time at which it would otherwise terminate pursuant to the preceding sentence,
if notice of the inaccuracy or breach thereof giving rise to such right to
indemnity shall have been given to the party against whom such indemnity may be
sought prior to such time.
11.02. INDEMNIFICATION. (a) Each Seller, jointly and severally, hereby
indemnifies Buyer and, effective at the Closing, without duplication, the
Company and the Japanese Subsidiary against and agrees to hold them harmless
from any and all damage, loss, liability and expense (including without
limitation reasonable expenses of investigation and reasonable attorneys' fees
and expenses in connection with any action, suit or proceeding) ("DAMAGES")
incurred or suffered by Buyer, the Company or the Japanese Subsidiary arising
out of any misrepresentation or breach of warranty, covenant or agreement made
or to be performed by the Company or a Seller pursuant to this Agreement (other
than the covenants and agreements of Sellers contained in Articles I, II and
IV); PROVIDED that Sellers shall not be liable under this Section 11.02(a) with
respect to any misrepresentation or breach of warranty referred to in this
Section 11.02 unless the aggregate amount of Damages exceeds $50,000, and then
only to the extent of such excess.
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(b) Each Seller, severally but not jointly, hereby indemnifies
Buyer and, effective at the Closing, without duplication, the Company against
and agrees to hold them harmless from all Damages incurred or suffered by Buyer
or the Company arising out of any breach of any covenant or agreement of such
Seller pursuant to Article I or II or the inaccuracy or breach of any
representation, warranty, covenant or agreement made by such Seller pursuant to
Article IV.
(c) Buyer hereby indemnifies Sellers against and agrees to hold
them harmless from any and all Damages incurred or suffered by Sellers arising
out of any misrepresentation or breach of warranty, covenant or agreement made
or to be performed by Buyer pursuant to this Agreement (other than pursuant to
Article VIII); PROVIDED that Buyer shall not be liable under this Section
11.02(c) with respect to any misrepresentation or breach of warranty referred to
in this Section 11.02(c) unless the aggregate amount of Damages exceeds $50,000,
and then only to the extent of such excess.
(d) Sellers shall have no right of indemnification, contribution
or subrogation against the Company with respect to any indemnification by any
Seller or Sellers under this Section 11.02 if the transactions contemplated by
this Agreement are consummated. Sellers shall have a right of contribution
against each other with respect to amounts actually paid by either of them
pursuant to this Section 11.02, but such right of contribution shall in no way
limit or affect Buyer's and the Company's rights contained in this Article XI.
11.03. PROCEDURES; NO WAIVER. (a) The party seeking indemnification under
Section 11.02 (the "INDEMNIFIED PARTY") agrees to give prompt notice to the
party against whom indemnity is sought (the "INDEMNIFYING PARTY") of the
assertion of any claim, or the commencement of any suit, action or proceeding in
respect of which indemnity may be sought under such Section. The Indemnifying
Party may, and at the request of the Indemnified Party shall, participate in and
control the defense of any third party suit, action or proceeding at its own
expense. The Indemnifying Party shall not be liable under Section 11.02 for any
settlement effected without its consent of any claim, litigation or proceeding
in respect of which indemnity may be sought hereunder.
(b) No waiver of a closing condition by either Buyer or Seller
shall limit its rights under Section 11.02.
11.04. HOLDBACK CASH. At the Closing, Carl Kay shall be deemed to have
directed Buyer to withhold from delivery to Carl Kay $250,000.00 (the "Holdback
Cash") from the Cash Consideration. The Holdback Cash shall be held in escrow by
Buyer subject to the terms and conditions set forth in Section 11.05.
11.05 HOLDBACK TERMINATION. The Holdback Cash shall be distributed to Carl
Kay upon the occurrence of the following:
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(a) Delivery by Carl Kay to Buyer of Financial Statements of the
Company prepared by Silver & Company for the period ended December 31, 1997,
which Financial Statements shall fairly present in all material respects the
consolidated results of operations, cash flows and stockholders' equity of the
Company and are in substantial compliance with U.S. generally accepted
accounting principles; and
(b) Either (i) the directors of the Japanese Subsidiary as of the
time immediately prior to the Closing shall have resigned or have been removed
from such positions in a manner mutually satisfactory to Buyer and Carl Kay or
(ii) Carl Kay and Buyer shall have mutually agreed in writing to waive the
condition set forth in Section 11.05(b)(i) hereof.
ARTICLE XII
TERMINATION
12.01. GROUNDS FOR TERMINATION. This Agreement may be terminated at any
time prior to the Closing:
(a) by written agreement of Sellers and Buyer;
(b) by either Sellers or Buyer if the Closing shall not have been
consummated on or before February 28, 1998;
(c) by either Seller or Buyer in the event of a material breach by
the other of the breaching party's covenants, representations and warranties
contained herein; or
(d) by either Sellers or Buyer if consummation of the transactions
contemplated hereby would violate any nonappealable final order, decree or
judgment of any court or governmental body having competent jurisdiction.
The party desiring to terminate this Agreement pursuant to clauses (b),
(c) or (d) shall give notice of such termination to the other parties.
12.02. EFFECT OF TERMINATION. If this Agreement is terminated as permitted
by Section 12.01, such termination shall be without liability of either party
(or any stockholder, director, officer, employee, agent, consultant or
representative of such party) to the other party to this Agreement; PROVIDED
that if such termination shall result from the willful failure of any party to
fulfill a condition to the performance of the obligations of another party or to
perform a covenant of this Agreement or from a willful breach by any party to
this Agreement, such party shall be fully liable for any and all Damages
incurred or suffered by the other parties as a result of such failure or breach.
The provisions of Sections 6.07, 7.01 and 13.03 shall survive any termination
hereof pursuant to Section 12.01.
-37-
<PAGE>
ARTICLE XIII
MISCELLANEOUS
13.01. NOTICES. All notices, requests and other communications to either
party hereunder shall be in writing (including telecopy or similar writing) and
shall be given,
if to Buyer, to:
Rory J. Cowan
Lionbridge Technologies, Inc.
950 Winter Street, Suite 4300
Waltham, MA 02154
Telecopy: (781) 890-3122
with a copy to:
George W. Lloyd, Esq.
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Telecopy: (617) 248-7100
if to a Seller, to:
Carl Kay
5-11-10, Esako-cho, Suita-shi
Osaka 564, Japan
Telecopy: 011-81-6-368-6905
with a copy to:
Robert A. Adelson, Esq.
Lawson & Weitzen, LLP.
425 Summer Street, 5th Floor
Boston, MA
Telecopy: (617) 439-3987
-38-
<PAGE>
13.02. AMENDMENTS; NO WAIVERS. (a) Any provision of this Agreement may be
amended or waived prior to the Closing Date if, and only if, such amendment or
waiver is in writing and signed by Buyer, the Company and Sellers.
(b) No failure or delay by either party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
13.03. EXPENSES. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby (including without limitation
the fees and expenses of the Company's and Sellers' financial, legal and
accounting advisers) shall be paid by the party incurring such cost or expense;
PROVIDED, however, that if the Closing shall occur all such costs and expenses
incurred by the Company in excess of $30,000 shall be paid or reimbursed by
Sellers.
13.04. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; PROVIDED that no party may assign, delegate or otherwise
transfer any of his or its rights or obligations under this Agreement without
the consent of the other parties hereto; PROVIDED FURTHER that Buyer may
transfer or assign, in whole or from time to time in part, to one or more of its
Affiliates, the right to purchase all or a portion of the Shares, but no such
transfer or assignment will relieve Buyer of its obligations hereunder, and
Buyer may collaterally assign its rights to receive payments pursuant to Article
XI hereof.
13.05. FURTHER ASSURANCES. From time to time after the Closing, at the
request of Buyer and without further consideration, Sellers will execute and
deliver to Buyer such other documents, and take such other action, as Buyer may
reasonably request in order to consummate more effectively the transactions
contemplated hereby and to vest in Buyer good, valid and marketable title to the
Shares.
13.06. GOVERNING LAW. This Agreement and the Ancillary Agreements shall be
construed in accordance with and governed by the law of the Commonwealth of
Massachusetts, without regard to the conflicts of law rules of such state. In
addition, each of Buyer, the Company and the Sellers irrevocably submit to the
non-exclusive jurisdiction of any State or Federal court sitting in the State of
Washington over any suit, action or proceeding arising out of or relating to
this Agreement or any of the Ancillary Agreements and waives, to the fullest
extent permitted by law, any objection it may now or hereafter have to the
laying of venue of any such suit, action or proceeding brought in any such court
and any claim that any such suit, action or proceeding brought in such a court
has been brought in any inconvenient forum.
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<PAGE>
13.07. COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received a
counterpart hereof signed by the other parties hereto.
13.08. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements, understandings and negotiations, both written and oral,
between the parties with respect to the subject matter hereof. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein has been made or relied upon by either party hereto. None of
this Agreement is intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
13.09. CAPTIONS. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
LIONBRIDGE TECHNOLOGIES
HOLDINGS, INC.
By: /s/ RORY J. COWAN
-------------------------------------
Rory J. Cowan
President and Chief Executive Officer
JAPANESE LANGUAGE SERVICES, INC.
By: /s/ CARL J. KAY
-------------------------------------
Carl J. Kay
Chief Executive Officer
STOCKHOLDERS:
/s/ CARL J. KAY
------------------------------------------
Carl J. Kay
/s/ YOKO I. KAY
------------------------------------------
Yoko I. Kay
<PAGE>
JAPANESE LANGUAGE SERVICES, INC.
STOCK PURCHASE AGREEMENT
Index to Exhibits and Schedules
-------------------------------
Exhibits:
- ---------
Exhibit A - Form of Put Agreement
Exhibit B - Form of Employment Agreement
Exhibit C - Form of Employee Non-Disclosure and Developments Agreement
Exhibit D - Form of Bonus Agreement
Exhibit E - Form of Non-Competition Agreement
Exhibit F - Form of Release
Schedules:
- ----------
Schedule 2.01 - Schedule of Purchasers
Schedule 3.03 - Transaction Consents
Schedule 3.05 - Non-statutory Stock Options
Schedule 3.07 - Financial Statements
Schedule 3.08 - Certain Changes
Schedule 3.10 - Undisclosed Liabilities
Schedule 3.11 - Litigation and Claims
Schedule 3.12 - Material Contracts
Schedule 3.13 - Insurance Coverage
Schedule 3.14 - Licenses and Permits
Schedule 3.16 - Intellectual Property
Schedule 3.18 - Tax Matters
Schedule 3.19 - Current Employees
Schedule 3.22 - Transactions with Affiliates
Schedule 5.07 - Buyer Litigation
Schedule 5.09 - Buyer Financial Statements
Schedule 5.10 - Buyer Material Contracts
Schedule 5.16 - Compliance with Laws
Schedule 5.17 - Buyer Undisclosed Liabilities
<PAGE>
Exhibit 2.2
STOCK PURCHASE AGREEMENT
AMONG
VERITEST, INC.,
THE STOCKHOLDERS LISTED ON THE SIGNATURE PAGES HERETO
AND
LIONBRIDGE TECHNOLOGIES HOLDINGS, INC.
DATED AS OF JANUARY 6, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I - DEFINITIONS...........................................................................................1
1.01. DEFINITIONS................................................................................................1
ARTICLE II - PURCHASE AND SALE....................................................................................3
2.01. PURCHASE AND SALE..........................................................................................3
2.02. CLOSING....................................................................................................5
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS...........................................5
3.01. CORPORATE EXISTENCE AND POWER..............................................................................6
3.02. CORPORATE AUTHORIZATION....................................................................................6
3.03. GOVERNMENTAL AUTHORIZATION; CONSENTS.......................................................................6
3.04. NON-CONTRAVENTION..........................................................................................6
3.05. CAPITALIZATION.............................................................................................6
3.06. SUBSIDIARIES...............................................................................................7
3.07. FINANCIAL STATEMENTS.......................................................................................7
3.08. ABSENCE OF CERTAIN CHANGES.................................................................................7
3.09. PROPERTY AND EQUIPMENT.....................................................................................8
3.10. NO UNDISCLOSED MATERIAL LIABILITIES........................................................................8
3.11. LITIGATION.................................................................................................9
3.12. MATERIAL CONTRACTS.........................................................................................9
3.13. INSURANCE COVERAGE.........................................................................................9
3.14. COMPLIANCE WITH LAWS; NO DEFAULTS.........................................................................10
3.15. FINDERS FEES..............................................................................................10
3.16. INTELLECTUAL PROPERTY.....................................................................................10
3.17. RECEIVABLES...............................................................................................11
3.18. TAXES.....................................................................................................11
3.19. EMPLOYEES.................................................................................................13
3.20. ENVIRONMENTAL COMPLIANCE..................................................................................13
3.21. CUSTOMERS AND SUPPLIERS...................................................................................13
3.22. TRANSACTIONS WITH AFFILIATES.............................................................................13
3.23. OTHER INFORMATION.........................................................................................14
3.24. INTERCOMPANY ARRANGEMENTS.................................................................................14
3.25. REPRESENTATIONS...........................................................................................14
ARTICLE IV - ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLERS................................................14
4.01. TITLE TO AND VALIDITY OF SHARES...........................................................................14
4.02. AUTHORITY.................................................................................................14
4.03. POWER TO ACT AS TRUSTEE OR EXECUTOR.......................................................................15
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF BUYER..............................................................15
5.01. ORGANIZATION AND EXISTENCE................................................................................15
5.02. CORPORATE AUTHORIZATION...................................................................................15
5.03. GOVERNMENTAL AUTHORIZATION................................................................................15
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
5.04. NON-CONTRAVENTION.........................................................................................15
5.05. FINDERS' FEES.............................................................................................15
5.06. PURCHASE FOR INVESTMENT...................................................................................15
5.07. LITIGATION................................................................................................15
ARTICLE VI - COVENANTS OF THE COMPANY AND SELLERS................................................................16
6.01. CONDUCT OF THE COMPANY....................................................................................16
6.02. ACCESS TO INFORMATION.....................................................................................16
6.03. NOTICES OF CERTAIN EVENTS.................................................................................17
6.04. RESIGNATIONS..............................................................................................17
6.05. NO NEGOTIATIONS WITH THIRD PARTIES........................................................................17
6.06. CONFIDENTIALITY...........................................................................................17
6.07. CONTINUING DISCLOSURE.....................................................................................18
6.08 CERTAIN TAX MATTERS.........................................................................................18
ARTICLE VII - COVENANTS OF BUYER.................................................................................18
7.01 CONFIDENTIALITY.............................................................................................18
7.02 SALES AND OTHER RESOURCES...................................................................................19
ARTICLE VIII - COVENANTS OF ALL PARTIES..........................................................................19
8.01. BEST EFFORTS..............................................................................................19
8.02. CERTAIN FILINGS...........................................................................................19
8.03. PUBLIC ANNOUNCEMENTS......................................................................................19
8.04 Taxes......................................................................................................19
ARTICLE IX - EMPLOYEE BENEFITS...................................................................................20
9.01. EMPLOYEE BENEFITS DEFINITIONS.............................................................................20
9.02. ERISA REPRESENTATIONS.....................................................................................20
9.03. NO THIRD PARTY BENEFICIARIES..............................................................................21
ARTICLE X - CONDITIONS TO CLOSING................................................................................22
10.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY..............................................................22
10.02. CONDITIONS TO OBLIGATION OF BUYER........................................................................22
10.03. CONDITIONS TO OBLIGATION OF SELLERS......................................................................23
ARTICLE XI - SURVIVAL; INDEMNIFICATION...........................................................................23
11.01. SURVIVAL.................................................................................................23
11.02. INDEMNIFICATION..........................................................................................23
11.03. PROCEDURES; NO WAIVER....................................................................................24
ARTICLE XII - TERMINATION........................................................................................25
12.01. GROUNDS FOR TERMINATION..................................................................................25
12.02. EFFECT OF TERMINATION....................................................................................26
ARTICLE XIII - MISCELLANEOUS.....................................................................................26
13.01. NOTICES..................................................................................................26
13.02. AMENDMENTS; NO WAIVERS...................................................................................27
13.03. EXPENSES.................................................................................................27
13.04. SUCCESSORS AND ASSIGNS...................................................................................27
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
13.05. FURTHER ASSURANCES.......................................................................................28
13.06. GOVERNING LAW............................................................................................28
13.07. COUNTERPARTS; EFFECTIVENESS..............................................................................28
13.08. ENTIRE AGREEMENT.........................................................................................28
13.09. CAPTIONS.................................................................................................28
13.10. JURISDICTION.............................................................................................28
</TABLE>
SCHEDULES
Schedule 2.01 List of Stockholders
Schedule 3.07 Financial Statements
Schedule 3.08 Certain Changes
Schedule 3.10 Liabilities
Schedule 3.12 Material Contracts
Schedule 3.14 Permits
Schedule 3.16 Intellectual Property
Schedule 3.19 Tax Matters
Schedule 3.20 Employees
Schedule 3.22 Environmental Matters
Schedule 8.04 Section 338(h)(10) Election
Schedule 9.02 Employee Plans
- iii -
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT dated as of January 6, 1999 among VeriTest, Inc. a California
corporation (the "Company"); the shareholders of the Company listed on the
signature pages hereto (collectively "Sellers" and individually a "Seller"); and
Lionbridge Technologies Holdings, Inc. a Delaware corporation ("Buyer").
W I T N E S S E T H :
WHEREAS, the Company owns and operates a computer products testing,
compliance testing, and developer relations services business (the "Business")
conducted primarily in the United States;
WHEREAS, Buyer wishes to acquire the Company from Sellers by purchasing all
of the outstanding capital stock of the Company from Sellers (the "Shares"),
upon the terms and subject to the conditions hereinafter set forth; and
WHEREAS, each Seller desires to sell to Buyer all of the Shares owned by
such Seller;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties hereto agree
as follows:
ARTICLE I
DEFINITIONS
1.01. DEFINITIONS. (a) The following terms, as used herein, have the
following meanings:
"AFFILIATE" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with such Person.
"ANCILLARY AGREEMENTS" means the Employment Agreement substantially in
the form attached hereto as EXHIBIT A, the Non-Disclosure and Developments
Agreement substantially in the form attached hereto as EXHIBIT B, the
Non-Competition Agreement substantially in the form attached hereto as EXHIBIT
C, each to be entered into by Buyer with each Seller.
"BALANCE SHEET" means the unaudited balance sheet of the Company as of
December 31, 1998 referred to in Section 3.07.
"BALANCE SHEET DATE" means December 31, 1998.
"BUYER STOCK" means the common stock, $.01 par value per share, of
Buyer.
"BUYER'S COUNSEL" means the law firm of Testa, Hurwitz & Thibeault,
LLP, Boston, Massachusetts.
"CLOSING DATE" means the date of the Closing.
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<PAGE>
"COMMON STOCK" means the common stock, no par value per share, of the
Company.
"COMPANY'S PROPRIETARY RIGHTS" means all Proprietary Rights which are
owned or licensed by the Company or any Affiliate of the Company and used or
held for use by the Company.
"FUNCTIONAL LOCALIZATION TESTING" means re-testing of functions after
a computer product has been localized to determine if errors have been
introduced during the localization process.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, restriction or encumbrance of any kind in respect of
such asset.
"LINGUISTIC TESTING" means testing to determine if the task of product
localization has been performed to an acceptable standard and if a translation
is of sufficiently high quality and acceptable to a user fluent in the
particular language for which the product has been localized.
"MATERIAL ADVERSE CHANGE" means a material adverse change in the
business, assets, condition (financial or otherwise), results of operations or
prospects of the Company.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
business, assets, condition (financial or otherwise), results, operations or
prospects of the Company.
"1934 ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"NOTE" means a promissory note issued by Buyer to each of the Sellers
in substantially the form of EXHIBIT D attached hereto.
"PERSON" means an individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"PROPRIETARY RIGHTS" means all (A) patents, patent applications,
patent disclosures and all related continuation, continuation-in-part,
divisional, reissue, re-examination, utility, model, certificate of invention
and design patents, patent applications, registrations and applications for
registrations, (B) trademarks, service marks, trade dress, logos, trade names,
service names and corporate names and registrations and applications for
registration thereof, (C) copyrights and registrations and applications for
registration thereof, (D) mask works and registrations and applications for
registration thereof, (E) computer software, data and documentation, (F) trade
secrets and confidential business information, whether patentable or
nonpatentable and whether or not reduced to practice, know-how, manufacturing
and product processes and techniques, research and development information,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and supplier lists and
information, (G) other proprietary rights relating to any of the foregoing
(including without limitation associated goodwill and remedies against
infringements thereof and rights of protection of an interest therein under the
laws of all jurisdictions) and (H) copies and tangible embodiments thereof.
"SELLERS' COUNSEL" means the law firm of Bryan Cave LLP, Santa Monica,
California.
- 2 -
<PAGE>
Phrases such as "TO THE BEST OF SELLERS' KNOWLEDGE" and phrases of
similar import shall mean to the actual knowledge of each of Steven Nemzer and
Marc Porter Zasada.
"SUBSIDIARY" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Company.
"TOTAL REVENUES" means the total revenues derived from computer
products testing, compliance testing, and developer relations services provided
by the Company and/or the Buyer and determined in accordance with generally
accepted accounting principles; PROVIDED, HOWEVER, that Total Revenues shall not
include those revenues derived from other Persons acquired by the Buyer
subsequent to the Closing Date unless either Seller devotes in excess of ten
percent (10%) of his employment time to conducting the business of such Person,
nor shall it include revenues derived from the Functional Localization Testing
or Linguistic Testing services conducted by the Buyer.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
TERM SECTION
<S> <C>
Benefit Arrangement 9.01
Closing 2.02
Code 3.19
Company Securities 3.05
Damages 11.02
Employee Plans 9.01
ERISA 9.01
ERISA Affiliate 9.01
Financial Statements 3.07
Indemnified Party 11.02
Indemnifying Party 11.02
Multiemployer Plan 9.01
Purchase Price 2.01
Permit 3.14
</TABLE>
ARTICLE II
PURCHASE AND SALE
2.01. PURCHASE AND SALE. (a) Upon the terms and subject to the conditions
of this Agreement, each Seller, severally but not jointly, shall sell to Buyer,
and Buyer shall purchase from each such Seller, at the Closing, that number of
Shares as is set forth opposite such Seller's name on SCHEDULE 2.01. The
aggregate purchase price (the "Purchase Price") for the Shares is as follows:
(i) $3,260,000 in cash;
(ii) 100,000 shares of Buyer Stock;
- 3 -
<PAGE>
(iii) Notes in the aggregate principal amount of $750,000; and
(iv) the 1999 Earn-Out Payment and the 2000 Earn-Out Payment (both as
defined below).
The Purchase Price (other than the 1999 Earn-Out Payment, and the 2000 Earn-Out
Payment) shall be paid as provided in Section 2.02.
(b) If Total Revenues for the year ending December 31, 1999 ("Fiscal
1999") exceed $5,000,000, Sellers shall receive a payment calculated as follows
(the "1999 Earn-Out Payment"):
(i) forty-five percent (45%) of the first $1,000,000 of Fiscal 1999
Total Revenues in excess of $5,000,000; plus
(ii) ten percent (10%) of the amount by which Fiscal 1999 Total
Revenues exceed $6,000,000;
PROVIDED, HOWEVER, that the 1999 Earn-Out Payment shall not exceed $500,000.
(c) If Total Revenues for the year ending December 31, 2000 ("Fiscal
2000") exceed $7,500,000, Sellers shall receive a payment (the "2000 Earn-Out
Payment") equal to one-third (1/3) of the amount by which Fiscal 2000 Total
Revenues exceed $7,500,000; PROVIDED, HOWEVER, that the 2000 Earn-Out Payment
shall not exceed $500,000.
(d) Any 1999 Earn-Out Payment and 2000 Earn-Out Payment shall be paid
to Sellers within thirty (30) days after Buyer's independent public accountants
have issued their report on Buyer's audited financial statements for such
period. Each Seller shall receive one-half (1/2) of any such payments made by
Buyer. Within ten (10) days of receiving such report, Buyer shall deliver a copy
of a report to each of the Sellers detailing the calculation of the Fiscal 1999
Earn-Out Payment or Fiscal 2000 Earn-Out Payment, as the case may be. Sellers
will have fifteen (15) days from receipt of such report to contest in writing to
Buyer (the "Objection Notice") a calculation of the Fiscal 1999 Earn-Out Payment
or the Fiscal 2000 Earn-Out Payment which they believe in good faith to be
inaccurate. Should Sellers issue an Objection Notice, Buyer shall provide
Sellers with reasonable access to the supporting information for such
calculations. Buyer and Sellers shall use their best efforts to reach agreement
on the disputed amount. If Buyer and Sellers are unable to reach such agreement
within twenty (20) days of receipt of the Objection Notice by Buyer, the parties
agree to cause independent accountants of nationally recognized standing
reasonably satisfactory to Sellers and Buyer (who shall not have a material
relationship with Sellers or Buyer) promptly to review this Agreement and the
disputed amounts. Such independent public accountants shall deliver to Sellers
and Buyer, as promptly as practicable, a reporting setting forth the calculation
of the disputed amount. Such report shall be final and binding upon the parties
hereto. The cost of such review and report shall be borne by Sellers; PROVIDED
HOWEVER, Buyer shall bear all the expenses associated with such review if the
final Fiscal 1999 Earn-Out Payment or Fiscal 2000 Earn-Out Payment, as the case
may be, exceeds Buyer's original calculation of such amount by more than five
percent (5%) of such original calculation.
(e) In the event that either of the Sellers is terminated
without Cause (as defined in the
- 4 -
<PAGE>
Employment Agreement) or terminates his employment for Good Reason (as defined
in the Employment Agreement) prior to January 1, 2000, such terminated Seller
shall receive, without regard to Fiscal 1999 Total Revenues or Fiscal 2000 Total
Revenues, $250,000 in full satisfaction of such Seller's rights to receive the
1999 Earn-Out Payment and $250,000 in full satisfaction of such Seller's rights
to receive the 2000 Earn-Out Payment. Each of such payments shall be made upon
the earlier to occur of (a) April 30, 2000 (with respect to the 1999 Earn-Out
Payment) or April 30, 2001 (with respect to the 2000 Earn-Out Payment) and (b)
thirty (30) days after Buyer's independent public accountants have issued their
report on Buyer's audited financial statements for Fiscal 1999 (with respect to
payment of the 1999 Earn-Out Payment) or Fiscal 2000 (with respect to payment of
the 2000 Earn-Out Payment), as the case may be.
(f) In the event that either of the Sellers is terminated without
Cause or terminates his employment for Good Reason prior to January 1, 2001 and
after December 31, 1999, such terminated Seller shall receive, without regard to
Fiscal 2000 Total Revenues, $250,000 in full satisfaction of such terminated
Seller's rights to receive the Fiscal 2000 Earn-Out Payment. Such payment shall
be made upon the earlier to occur of (a) April 30, 2001 and (b) thirty (30) days
after Buyer's independent public accountants have issued their report on Buyer's
audited financial statements for Fiscal 2000.
2.02. CLOSING. The closing (the "Closing") of the purchase and sale of the
Shares hereunder shall take place at the offices of Buyer's Counsel in Boston,
Massachusetts on or prior to January 8, 1999, or at such other time or place as
Buyer and Sellers may agree. At the Closing,
(a) Buyer shall deliver to Sellers $3,260,000 by wire transfer to
accounts designated by Sellers written notice to Buyer not later than two
business days prior to the Closing Date.
(b) Buyer shall deliver to Sellers certificates for the Buyer Stock,
registered in the names of Sellers for the number of shares shown in SCHEDULE
2.01.
(c) Buyer shall deliver to Sellers the Notes in the aggregate
principal amount of $750,000.
(d) Sellers shall deliver to Buyer certificates for the Shares duly
endorsed or accompanied by stock powers duly endorsed in blank, with any
required transfer stamps affixed thereto.
(e) Buyer and Sellers shall enter into the Ancillary Agreements.
(f) The Company and Sellers shall deliver to Buyer revised schedules,
if any, to this Agreement updating the information shown thereon to the Closing
Date.
(g) The parties shall execute and deliver any other instruments,
documents and certificates that are required to be delivered pursuant to this
Agreement or as may be reasonably requested by any party in order to consummate
the transactions contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND SELLERS
- 5 -
<PAGE>
The Company and each Seller hereby jointly and severally represent and
warrant to Buyer as of the date hereof and as of the Closing Date that each of
the following statements is true and correct, except as disclosed in any
Schedule hereto. The disclosures in any Schedule hereto shall qualify every
other section of this Agreement to the extent it is reasonably clear from a
reading of such Schedule that the disclosure therein is applicable to such other
sections.
3.01. CORPORATE EXISTENCE AND POWER. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
make such qualification necessary, except for those jurisdictions where failure
to be so qualified would not, individually or in the aggregate, have a Material
Adverse Effect. The Company has heretofore delivered to Buyer true and complete
copies of the corporate charter and bylaws of the Company as currently in
effect.
3.02. CORPORATE AUTHORIZATION. The execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby are within the Company's corporate powers and
have been duly authorized by all necessary corporate action on the part of the
Company. This Agreement constitutes a valid and binding agreement of the
Company.
3.03. GOVERNMENTAL AUTHORIZATION; CONSENTS. (a) The execution, delivery and
performance by the Company and Sellers of this Agreement require no action by or
in respect of, or filing with, any governmental body, agency, official or
authority.
(b) Except as set forth on SCHEDULE 3.03(b), no consent, approval,
waiver or other action by any Person (other than any governmental body, agency,
official or authority referred to in Section 3.03(a) above) under any contract,
agreement, indenture, lease, instrument or other document to which the Company
is a party or by which the Company is bound is required or necessary for the
execution, delivery and performance of this Agreement by the Company or the
consummation of the transactions contemplated hereby.
3.04. NON-CONTRAVENTION. The execution, delivery and performance by the
Company of this Agreement and the consummation of the transactions contemplated
hereby do not and will not (i) contravene or conflict with the corporate charter
or bylaws of the Company, (ii) assuming compliance with the matters referred to
in Section 3.03(a), contravene or conflict with or constitute a violation of any
material provision of any law, regulation, judgment, injunction, order or decree
binding upon or applicable to the Company; (iii) assuming the receipt of all
required consents, constitute a default under or give rise to any right of
termination, cancellation or acceleration of any right or obligation of the
Company or to a loss of any material benefit to which the Company is entitled
under any provision of any agreement, contract or other instrument binding upon
the Company or any permit held by the Company or (iv), assuming the receipt of
all required consents, result in the creation or imposition of any Lien on any
asset of the Company.
3.05. CAPITALIZATION. The authorized capital stock of the Company consists
of 100,000 shares of common stock, no par value. As of the date hereof, there
were outstanding 10,000 shares of common stock of the Company. All outstanding
shares of capital stock of the Company have been duly authorized and validly
issued and are fully paid and are owned by Sellers as shown on SCHEDULE 2.01.
Except as set
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forth in this Section 3.05, there are no outstanding (i) shares of capital
stock, other securities or phantom or other equity interests of the Company,
(ii) securities of the Company convertible into or exchangeable for shares of
capital stock or other securities of the Company or (iii) options or other
rights to acquire from the Company any capital stock, other securities or
phantom or other equity interests of the Company (the items in clauses (i), (ii)
and (iii) being referred to collectively as the "Company Securities"). There are
no outstanding obligations of the Company, actual or contingent, to issue or
deliver or to repurchase, redeem or otherwise acquire any Company Securities.
3.06. SUBSIDIARIES. The Company does not have and never has had any
Subsidiaries or any ownership or equity interest in or control of (direct or
indirect) any other Person.
3.07. FINANCIAL STATEMENTS. The Company has previously furnished Buyer with
a true and complete copy of (i) the balance sheet of the Company as of December
31, 1998 and (ii) the balance sheet of the Company at December 31, 1997, the
statements of operations, cash flows and changes in stockholders' equity of the
Company for the fiscal year ended December 31, 1997, as reviewed by
Markman/Brecker Associates (collectively, the "Financial Statements" which are
attached hereto as SCHEDULE 3.07). Each of the balance sheets included in the
Financial Statements fairly presents in all material respects the financial
position of the Company as of its date, and the other statements included in the
Financial Statements fairly present in all material respects the results of
operations, cash flows and stockholders' equity, as the case may be, of the
Company for the periods therein set forth.
3.08. ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date, except as
reflected in the Financial Statements or in SCHEDULE 3.08, the Company has
conducted its business in the ordinary course consistent with past practices and
there has not been:
(a) any Material Adverse Change or any event, occurrence, development
or state of circumstances or facts which could reasonably be expected to result
in a Material Adverse Change;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any Company Securities or any repurchase,
redemption or other acquisition by the Company of any outstanding shares of
capital stock or other securities of, or other ownership interests in, the
Company;
(c) any amendment of any outstanding security of the Company;
(d) any incurrence, assumption or guarantee by the Company of any
indebtedness for borrowed money (other than in the ordinary course of business
and in amounts and on terms consistent with past practices);
(e) any creation or assumption by the Company of any material Lien on
any asset;
(f) any making of any loan, advance or capital contributions to or
investment in any Person;
(g) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of the Company which,
individually or in the aggregate, has had or would reasonably be expected to
have a Material Adverse Effect;
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(h) any transaction or commitment made, or any contract or agreement
entered into, by the Company relating to its assets or business (including the
acquisition or disposition of any assets) or any relinquishment by the Company
of any contract or other right, in either case, material to the Company, other
than transactions and commitments in the ordinary course of business consistent
with past practices and those contemplated by this Agreement;
(i) any change in any method of accounting or accounting practice by
the Company;
(j) any (i) grant of any severance or termination pay to any director,
officer or employee of the Company, (ii) entering into of any employment,
deferred compensation or other similar agreement (or any amendment to any such
existing agreement) with any director, officer or employee of the Company, (iii)
change in benefits payable under existing severance or termination pay policies
or employment agreements or (iv) change in compensation, bonus or other benefits
payable to directors, officers or employees of the Company; or
(k) any labor dispute, other than routine individual grievances, or
any activity or proceeding by a labor union or representation thereof to
organize any employees of the Company, which employees were not subject to a
collective bargaining agreement at the Balance Sheet Date, or any lockouts,
strikes, slowdowns, work stoppages or threats thereof by or with respect to any
employees of the Company.
3.09. PROPERTY AND EQUIPMENT. (a) The Company has good and valid title to,
or in the case of leased property has valid leasehold interests in, all property
and assets (whether real or personal, tangible or intangible) reflected on the
Balance Sheet or acquired after the Balance Sheet Date. None of such properties
or assets is subject to any Liens, except:
(i) Liens disclosed on the Balance Sheet; or
(ii) Liens which do not materially detract from the value of such
property or assets as now used, or materially interfere with any present or
intended use of such property or assets.
(b) There are no developments affecting any of such properties or
assets pending, or to the knowledge of the Company and Sellers, threatened,
which might materially detract from the value of such property or assets,
materially interfere with any present or intended use of any such property or
assets or materially adversely affect the marketability of such property or
assets.
(c) To the best of Sellers' knowledge, the equipment owned by the
Company has no material defects, is in good operating condition and repair
(ordinary wear and tear excepted), and is substantially adequate for the uses to
which it is being put.
(d) The assets owned or leased by the Company, or which it otherwise
has the right to use, constitute all of the assets held for use or used in
connection with the business of the Company and are generally adequate to
conduct such business as currently conducted.
3.10. NO UNDISCLOSED MATERIAL LIABILITIES. There are no material
liabilities of the Company of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, and, to the best of Sellers'
knowledge, there is no existing condition, situation or set of circumstances
which could reasonably be expected to result in such a liability, other than:
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(i) liabilities disclosed or provided for in the Balance Sheet; and
(ii) liabilities incurred in the ordinary course of business
consistent with past practice since the Balance Sheet Date, which in the
aggregate are not material to the Company.
3.11. LITIGATION. Except as set forth in SCHEDULE 3.11, there is no action,
suit, investigation or proceeding pending against, or to the knowledge of the
Sellers, threatened against or affecting, the Company or any of its properties
or the transactions contemplated hereby before any court or arbitrator or any
governmental body, agency, official or authority, nor, to the knowledge of the
Sellers, is there any basis therefor.
3.12. MATERIAL CONTRACTS. (a) Except for agreements, contracts, plans,
leases, arrangements or commitments disclosed in SCHEDULE 3.12 or any other
schedule to this Agreement, the Company is not a party to or subject to:
(i) any lease providing for annual rentals of $10,000 or more;
(ii) any contract for the purchase of materials, supplies, goods,
services, equipment or other assets providing for annual payments by the
Company of $10,000 or more;
(iii) any sales, distribution or other similar agreement providing for
the sale by the Company of materials, supplies, goods, services, equipment
or other assets providing for annual payments in 1998 or thereafter to the
Company of $25,000 or more;
(iv) any partnership, joint venture or other similar contract,
arrangement or agreement;
(v) any contract relating to indebtedness for borrowed money or the
deferred purchase price of property (whether incurred, assumed, guaranteed
or secured by any asset), except contracts relating to indebtedness
incurred in the ordinary course of business in an amount not exceeding
$5,000;
(vi) any license agreement, franchise agreement or agreement in
respect of similar rights granted to or held by the Company;
(vii) any agency, dealer, sales representative or other similar
agreement;
(viii) any contract or other document that limits the freedom of the
Company to compete in any line of business or with any Person or in any
area or which would so limit the freedom of the Company after the Closing
Date; or
(ix) any other contract or commitment not made in the ordinary course
of business that is material to the Company.
(b) Each agreement, contract, plan, lease, arrangement and commitment
disclosed in any schedule to this Agreement or required to be disclosed pursuant
to Section 3.12(a) is a valid and binding agreement of the Company and is in
full force and effect, except as may be limited by bankruptcy
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and other laws affecting creditors' rights generally, and by general principles
of equity (whether considered in a proceeding in equity or at law), and neither
the Company nor, to the knowledge of the Company and Sellers, any other party
thereto is in default in any material respect under the terms of any such
agreement, contract, plan, lease, arrangement or commitment.
3.13. INSURANCE COVERAGE. The Company has furnished to Buyer a list of, and
true and complete copies of, all insurance policies and fidelity bonds covering
the assets, business, equipment, properties, operations, employees, officers and
directors of the Company. There is no claim by the Company pending under any of
such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums payable
under all such policies and bonds have been paid and the Company is otherwise in
full compliance with the terms and conditions of all such policies and bonds.
Such policies of insurance and bonds (or other policies and bonds providing
substantially similar insurance coverage) have been in effect since January 1,
1997 and remain in full force and effect. The Company and Sellers do not know of
any threatened termination of, or any material premium increase with respect to,
any of such policies or bonds.
3.14. COMPLIANCE WITH LAWS; NO DEFAULTS. (a) The Company is not in
violation of, and has not violated, any applicable provisions of any laws,
statutes, ordinances or regulations.
(b) SCHEDULE 3.14 correctly describes each license and permit (a
"Permit") material to the business of the Company, together with the name of the
governmental agency or entity issuing such license or permit. Such licenses and
permits are valid and in full force and effect, and none of such licenses or
permits will be terminated or impaired or become terminable as a result of the
transactions contemplated hereby.
(c) The Company is not in default under, and no condition exists that
with notice or lapse of time or both would constitute a default under, (i) any
mortgage, loan agreement, indenture or evidence of indebtedness for borrowed
money to which the Company is a party or by which the Company or any material
amount of its assets is bound or (ii) any judgment, order or injunction of any
court, arbitrator or governmental body, agency, official or authority.
3.15. FINDERS FEES. There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of
Sellers or the Company who might be entitled to any fee or commission from
Buyer, the Company or any of their respective Affiliates upon consummation of
the transactions contemplated by this Agreement.
3.16. INTELLECTUAL PROPERTY. (a) SCHEDULE 3.16 includes a list of all of
the Company's patents, copyrights, trademarks, trade names and service marks,
and all pending applications for any of the foregoing, including the
jurisdictions by or in which such right has been issued or registered. The
Company does not license any of its Proprietary Rights to any third party and is
not subject to or bound by any agreements providing for the payment of any
royalty. The Company has sufficient right, title, and interest in, or license
to, its Proprietary Rights to conduct its business as presently conducted.
(b)(i) The Company has not been sued or charged in writing with or
been a defendant in any claim, suit, action or proceeding relating to its
business that has not been finally terminated prior to the date hereof and that
involves a claim of infringement of any patents, trademarks, service marks or
copyrights, and (ii) the Company and Sellers have no knowledge of any other
claim or infringement by the Company, and no knowledge of any continuing
infringement by any other Person of any of the
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Company's Proprietary Rights. No Company Proprietary Right is subject to any
outstanding order, judgment, decree, stipulation or agreement restricting the
use thereof by the Company or restricting the licensing thereof by the Company
to any Person. Except in the ordinary course of business or as set forth in
SCHEDULE 3.16(b), the Company has not entered into any agreement to indemnify
any other Person against any charge of infringement of any patent, trademark,
service mark or copyright.
(c) None of the processes and formulae, research and development
results and other know-how of the Company, the value of which to the Company is
contingent upon maintenance of the confidentiality thereof, has been disclosed
by the Company to any Person other than Persons that are parties to
confidentiality agreements with the Company.
(d) To the knowledge of the Company and Sellers, no third party has
asserted any claim, or has any reasonable basis to assert any valid claim,
against the Company with respect to (i) the continued employment by, or
association with, the Company of any of the present officers, employees of or
consultants to the Company or (ii) the use by the Company or any of such Persons
in connection with their activities for or on behalf of the Company of any
information which the Company or any of such Persons would be prohibited from
using under any prior agreements or arrangements or any laws applicable to
unfair competition, trade secrets or proprietary information.
3.17. RECEIVABLES. All accounts, notes receivable and other receivables
(other than receivables collected since the Balance Sheet Date) reflected on the
Balance Sheet are, and all accounts and notes receivable of the Company at the
Closing Date will be, valid and genuine, subject to normal and customary trade
discounts, less any reserves for doubtful accounts recorded on the Balance
Sheet. To the best of Sellers' knowledge, there are no defenses to the
collectibility of any such receivables. All accounts, notes receivable and other
receivables of the Company at the Balance Sheet Date have been included in the
Balance Sheet.
3.18. TAXES. (a) The term "Taxes" as used herein means all federal, state,
local, foreign net income, alternative or add-on minimum tax, estimated, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, capital profits, lease, service, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit taxes, customs, duties and other taxes,
governmental fees and other like assessments and charges of any kind whatsoever,
together with all interest, penalties, additions to tax and additional amounts
with respect thereto, and the term "Tax" means any one of the foregoing Taxes.
The term "Tax Returns" as used herein means all returns, declarations, reports,
claims for refund, information statements and other documents relating to Taxes,
including all schedules and attachments thereto, and including all amendments
thereof, and the term "Tax Return" means any one of the foregoing Tax Returns.
The term "Code" means the Internal Revenue Code of 1986, as amended.
(b) The Company has timely filed all Tax Returns required to be filed
and has paid all Taxes owed (whether or not shown as due on such Tax Returns),
including, without limitation, all Taxes which the Company is obligated to
withhold for amounts owing or paid to employees, creditors and third parties.
All Tax Returns filed by the Company were complete and correct in all material
respects, and such Tax Returns appropriately reflected the facts regarding the
income, business, assets, liabilities, operations, activities, status and other
matters of the Company and any other information required to be shown thereon.
None of the Tax Returns filed by the Company or Taxes payable by the Company
have been the subject of an audit, action, suit, proceeding, claim,
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examination, deficiency or assessment by any governmental authority, and no such
audit, action, suit, proceeding, claim, examination, deficiency or assessment is
currently pending or, to the knowledge of the Company, threatened. The Company
is not currently the beneficiary of any extension of time within which to file
any Tax Return, and the Company has not waived any statute of limitation with
respect to any Tax or agreed to any extension of time with respect to a Tax
assessment or deficiency. None of the Tax Returns filed by the Company contain a
disclosure statement under former Section 6661 of the Code or Section 6662 of
the Code (or any similar provision of state, local or foreign Tax law). The
Company is not a party to any Tax sharing agreement or similar arrangement. The
Company has never been a member of a group filing a consolidated federal income
Tax Return, and the Company does not have any liability for the Taxes of any
Person (other than the Company) under Treasury Regulation Section 1.1502-6 (or
any corresponding provision of state, local or foreign Tax law), as a transferee
or successor, by contract, or otherwise.
(c) The Company is not a party to any agreement, contract, arrangement
or plan that has resulted or would result, separately or in the aggregate, in
the payment of (i) any "excess parachute payments" within the meaning of Section
280G of the Code (without regard to the exceptions set forth in Sections
280G(b)(4) and 280G(b)(5) of the Code) or (ii) any amount for which a deduction
would be disallowed or deferred under Section 162 or Section 404 of the Code.
The Company has not agreed to make any adjustment under Section 481(a) of the
Code (or any corresponding provision of state, local or foreign law) by reason
of a change in accounting method or otherwise. The Company does not have and has
not had a permanent establishment in any foreign country, as defined in any
applicable Tax treaty or convention between the United States and such foreign
country. No portion of the Purchase Price is subject to the Tax withholding
provisions of Section 3406 of the Code, or of Subchapter A of Chapter 3 of the
Code or of any other provision of law. No claim has ever been made by a Tax
Authority in a jurisdiction where the Company does not file Tax Returns that it
is or may be subject to Tax in that jurisdiction. None of the shares of
outstanding capital stock of the Company are subject to a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code. SCHEDULE 3.18 sets
forth the Company's adjusted Tax basis in each of its assets for which such
adjusted tax basis exceeds $25,000.
(d) There are no liens for Taxes (other than for ad valorem Taxes not
yet due and payable) upon the assets of the Company. The unpaid Taxes of the
Company did not, as of the Balance Sheet Date, exceed the reserve for actual
Taxes (as opposed to any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) as shown on the Balance Sheet,
and will not exceed such reserve as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the Company in
filing their Tax Returns (taking into account any Taxes incurred as a result of
the transactions contemplated by this Agreement). The Company is not a party to
any joint venture, partnership, or other arrangement or contract which could be
treated as a partnership for federal income tax purposes.
(e) The Company has never filed a consent pursuant to Section 341(f)
of the Code, relating to collapsible corporations. The Company and its
shareholders made (i) a valid election for the Company to be treated as an "S
corporation", as that term is defined in Section 1361(a) of the Code, for
federal income tax purposes and (ii) a similar valid election under the laws of
the State of California or any other applicable governmental authority, and all
of such elections will be in effect at the Effective Time. An election under
Section 1362(a) of the Code has been in effect with respect to the Company and
any predecessor corporation (within the meaning of Section 1374(c) of the Code)
for each of its taxable years. SCHEDULE 3.18(e) lists each such election and a
true copy of each such election is attached thereto; to the best knowledge of
the Sellers, there are no grounds for the revocation of any such election and no
such election will be revoked retroactively or otherwise except at the Closing
Date by reason of the
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transactions contemplated by this Agreement. Except as set forth on SCHEDULE
3.18(e), the Company has been an S corporation at all times since its inception
through the date hereof. Neither the Company nor any of its shareholders has
taken any action that would cause, or would result in, the termination of the S
corporation status of the Company, other than pursuant to this Agreement. No Tax
will be imposed under Section 1374 of the Code or any corresponding provisions
of the laws of the State of California or any other applicable governmental
authority as a result of the transactions contemplated by this Agreement.
Immediately prior to the Closing, Sellers will be "S corporation shareholders"
within the meaning of Treasury Regulation Section 1.338(h)(10)-1(d)(iii).
(f) The Company's shareholders have timely filed all Tax Returns with
respect to Taxes required to be paid attributable to items of income, gain,
deductions, losses and credits of the Company, and have timely paid all such
Taxes shown on such Tax Returns. There has not been any audit of any Tax Return
filed by a shareholder of the Company with respect to, or which may relate to,
items of income, gain, deduction, loss or credit of the Company; and no such
audit of any shareholder of the Company is in progress and such shareholders
have not been notified by any taxing authority that any such audit is
contemplated or pending.
3.19. EMPLOYEES. SCHEDULE 3.19 sets forth a true and complete list of (a)
the names, titles, annual salaries and other compensations of all employees of
the Company whose annual base salary exceed $35,000 and (b) the wage rates for
non-salaried employees of the Company (by classification). None of such
employees and no other key employee of the Company has indicated to the Company
or a Seller that he intends to resign or retire as a result of the transactions
contemplated by this Agreement or otherwise.
3.20. ENVIRONMENTAL COMPLIANCE. Except as set forth in SCHEDULE 3.20, and
except in all cases as, in the aggregate, have not had and could not reasonably
be expected to have a Material Adverse Effect, the Company: (i) has obtained all
approvals which are required to be obtained under all applicable federal, state,
foreign or local laws or any regulation, code, plan, order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved thereunder
relating to pollution or protection of the environment, including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials or wastes into ambient air,
surface water, ground water, or land or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic materials or wastes
by the Company or its agents ("Environmental Laws"); (ii) is in compliance in
all material respects with all terms and conditions of such required approvals,
and also is in compliance in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in applicable Environmental Laws; (iii) as of
the date hereof, is not aware of nor has received notice of any past or present
violations of Environmental Laws or any event, condition, circumstance,
activity, practice, incident, action or plan which is reasonably likely to
interfere with or prevent continued compliance with or which would give rise to
any material common law or statutory liability, or otherwise form the basis of
any material claim, action, suit or proceeding, against the Company based on or
resulting from the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge or release
into the environment, of any pollutant, contaminant or hazardous or toxic
material or waste; and (iv) has taken all actions necessary under applicable
Environmental Laws to register any products or materials required to be
registered by the Company (or any of their respective agents) thereunder.
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3.21. CUSTOMERS AND SUPPLIERS. Since January 1, 1998, neither the Company
nor the Sellers have received any notice from the sponsor of any of the
Company's current logo or compliance testing programs that such sponsor has
stopped or intends to stop purchasing the Company's products or services, except
that Microsoft has informed the Company that it intends to halt testing in
connection with the discontinuance of MS Office Compatible.
3.22. TRANSACTIONS WITH AFFILIATES. There are no loans, leases, royalty
agreements or other continuing transactions of a similar nature between the
Company and any Seller, any Affiliate of any Seller, or any member of any
Seller's family. To the knowledge of the Company and Sellers, none of the
officers or directors of the Company or Sellers (a) has any material direct or
indirect interest in any entity which does business with the Company; (b) has
any direct or indirect interest in any property, asset or right which is used by
the Company in the conduct of its business; or (c) has any contractual
relationship with the Company other than such relationships which occur from
being an officer, director or stockholder of the Company.
3.23. OTHER INFORMATION. Neither this Agreement nor the Schedules hereto
prepared by Sellers contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained
therein not misleading.
3.24. INTERCOMPANY ARRANGEMENTS. The Company does not own any note, bond,
debenture or other indebtedness, or is not otherwise a creditor, of any Seller
or any of its Affiliates. Since the Balance Sheet Date, there has not been any
payment by the Company to any Seller or any of its Affiliates, charge by any
Seller or any of its Affiliates to the Company or other transaction between the
Company and a Seller or any of its Affiliates, except in any such case in the
ordinary course of business of the Company consistent with past practice.
3.25. REPRESENTATIONS. Each of the joint representations and warranties of
the Company and Sellers contained in this Agreement is true and correct in all
material respects.
ARTICLE IV
ADDITIONAL REPRESENTATIONS
AND WARRANTIES OF SELLERS
Each Seller, severally but not jointly, represents and warrants to, and
agrees with, Buyer as follows:
4.01. TITLE TO AND VALIDITY OF SHARES. Such Seller now has, and on the
Closing Date will have, good and valid title to and unrestricted power to vote
and sell (such sale being subject to applicable securities laws) the Shares
designated as owned by such Seller opposite such Seller's name on SCHEDULE 2.01,
free and clear of any Lien and, upon purchase and payment therefor and delivery
to Buyer thereof in accordance with the terms of this Agreement, Buyer will
obtain good and valid title to such Shares free and clear of any Lien. All
Shares owned by such Seller have been duly authorized and validly issued and are
fully paid and non-assessable. All Shares to be sold by such Seller are
registered in the name of such Seller.
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4.02. AUTHORITY. Such Seller has the legal power, right and authority to
enter into and perform this Agreement, and to perform each of his obligations
hereunder. The execution, delivery and performance of this Agreement by such
Seller (a) require no action by or in respect of, or filing with, or consent of,
any governmental body, agency or official or any other Person and (b) do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of any agreement, judgment, injunction, order, decree or any other
instrument binding upon such Seller. This Agreement has been duly executed and
delivered by such Seller and constitutes a valid and binding obligation of such
Seller, enforceable in accordance with its terms, except as such enforcement may
be limited by applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws from time to time in effect that affect creditors' rights
generally, and by general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law).
4.03. POWER TO ACT AS TRUSTEE OR EXECUTOR. If such Seller is serving as
trustee or executor with respect to its Shares, such Seller is duly authorized
and empowered by the instruments creating such trust or trusts or by the will of
which such Seller is acting as executor and under applicable law to enter into
this Agreement with respect to the Shares held by such Seller and to consummate
the transactions contemplated herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Company and Sellers that:
5.01. ORGANIZATION AND EXISTENCE. Buyer is a corporation duly incorporated,
validly existing and in good standing under the laws of Delaware and has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
5.02. CORPORATE AUTHORIZATION. The execution, delivery and performance by
Buyer of this Agreement and the Ancillary Agreements and the consummation by
Buyer of the transactions contemplated hereby are within the corporate powers of
Buyer and have been duly authorized by all necessary corporate action on the
part of Buyer. This Agreement constitutes a valid and binding agreement of
Buyer. The Notes, when executed and delivered, will constitute a valid and
binding obligation of Buyer.
5.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance
by Buyer of this Agreement require no action by or in respect of, or filing
with, any governmental body, agency, official or authority.
5.04. NON-CONTRAVENTION. The execution, delivery and performance by Buyer
of this Agreement do not and will not (i) contravene or conflict with the
corporate charter or bylaws of Buyer or (ii) contravene or conflict with any
provision of any law, regulation, judgment, injunction, order or decree binding
upon Buyer.
5.05. FINDERS' FEES. There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of
Buyer who might be entitled to any fee or
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commission from the Company or any or any Affiliate thereof upon consummation of
the transactions contemplated by this Agreement.
5.06. PURCHASE FOR INVESTMENT. Buyer is purchasing the Shares for
investment for its own account and not with a view to, or for sale in connection
with, any distribution thereof.
5.07. LITIGATION. There is no action, suit, investigation or proceeding
pending against, or to the knowledge of Buyer, threatened against or affecting,
Buyer before any court or arbitrator or any governmental body, agency or
official which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the transactions contemplated hereby.
ARTICLE VI
COVENANTS OF THE COMPANY AND SELLERS
The Company and each Seller agree that:
6.01. CONDUCT OF THE COMPANY. From the date hereof until the Closing Date,
the Company shall conduct its business in the ordinary course consistent with
past practices and use its best efforts to preserve intact its business
organization and relationships with third parties and to keep available the
services of its present officers and employees. Without limiting the generality
of the foregoing, from the date hereof until the Closing Date, the Company will
not:
(a) adopt or propose any change in its corporate charter or bylaws;
(b) merge or consolidate with any other Person or acquire a material
amount of assets of any other Person;
(c) sell, lease, license or otherwise dispose of any material assets
or property except (i) pursuant to existing contracts or commitments and (ii) in
the ordinary course consistent with past practices;
(d) effect any direct or indirect redemption, purchase or other
acquisition of any Company Securities, or declare, set aside or pay any dividend
or make any other distribution of assets of any kind whatsoever with respect to
any Company Securities;
(e) issue any securities;
(f) lend to or borrow any money from any Person in excess of $5,000;
(g) make any single capital expenditure in excess of $25,000;
(h) terminate or amend any material contract; or
(i) agree or commit to do any of the foregoing.
The Company will not (i) take or agree or commit to take any action that would
make any representation and warranty of the Company or Sellers under this
Agreement on the date of its execution and delivery
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inaccurate in any respect at, or as of any time prior to, the Closing Date or
(ii) omit or agree or commit to omit to take any action necessary to prevent any
such representation or warranty from being inaccurate in any respect at any such
time.
6.02. ACCESS TO INFORMATION. From the date hereof until the Closing Date,
the Company (a) will give, Buyer, its counsel, financial advisors, financing
sources, auditors and other authorized representatives (at reasonable times and
upon reasonable notice) full access to the offices, properties, books and
records of the Company (b) will furnish, and will cause the Company to furnish
Buyer, its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information relating
to the Company as such Persons may reasonably request and (c) will instruct the
employees, counsel and financial advisors of the Company to cooperate with Buyer
in its investigation of the Company. Buyer acknowledges that it has had adequate
opportunity to review the business and affairs of the Company and to speak with
and ask questions of Sellers and other key employees of the Company. As of the
date hereof, Buyer does not have any knowledge (as defined in Section 11.03(d))
of any breach of representation or warranty of the Company or Sellers contained
herein.
6.03. NOTICES OF CERTAIN EVENTS. The Company will promptly notify Buyer of:
(i) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened against, relating to or involving
or otherwise affecting the Company disclosed pursuant to Section 3.11 or
that relate to the consummation of the transactions contemplated by this
Agreement.
6.04. RESIGNATIONS. The Company will deliver to Buyer the resignations of
all officers and directors, other than Sellers, of the Company from their
positions with the Company at or prior to the Closing Date, unless otherwise
specified by Buyer. Sellers will continue to serve as trustees of the Company's
Profit Sharing Plan until receipt of a determination letter from the IRS and
final distribution of the assets of such Profit Sharing Plan.
6.05. NO NEGOTIATIONS WITH THIRD PARTIES. From the date hereof until the
earlier of the Closing Date or the date on which this Agreement is terminated,
neither the Company, nor any of its respective agents or representatives, shall,
directly or indirectly, encourage, solicit or engage in any discussions or
negotiations with, or provide any information to, any Person or group concerning
the possible acquisition by such third party of all or any part of the business
of the Company, whether by purchase of assets, stock, merger or otherwise, other
than as contemplated or permitted by this Agreement. The Company and each Seller
agree promptly to notify Buyer of interest by any Person with respect to any
such possible acquisition.
6.06. CONFIDENTIALITY. The Company, and Sellers and their Affiliates, will
hold, and will use their best efforts to cause their respective officers,
directors, employees, accountants, counsel,
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consultants, advisors and agents to hold, in confidence, unless compelled to
disclose by judicial or administrative process or by other requirements of law,
all confidential documents and information concerning Buyer furnished to the
Company, or to Sellers or their Affiliates, in connection with the transactions
contemplated by this Agreement, and (after the Closing Date) all confidential
documents and information concerning the Company, except to the extent that such
information can be shown to have been (i) previously known on a nonconfidential
basis by Sellers, (ii) in the public domain through no fault of Sellers or (iii)
later lawfully acquired by Sellers from sources other than the Company or Buyer;
PROVIDED that Sellers may disclose such information to their respective
officers, directors, employees, accountants, counsel, consultants, advisors and
agents in connection with the transactions contemplated by this Agreement so
long as such persons are informed by Sellers of the confidential nature of such
information and are directed by Sellers to treat such information
confidentially. The obligation of the Company, and Sellers and their Affiliates,
to hold any such information in confidence shall be satisfied if they exercise
the same care with respect to such information as they would take to preserve
the confidentiality of their own similar information. If this Agreement is
terminated, the Company, and Sellers and their Affiliates, will, and will use
their best efforts to cause their respective officers, directors, employees,
accountants, counsel, consultants, advisors and agents to, destroy or deliver to
Buyer, upon request, all documents and other materials, and all copies thereof,
obtained by the Company, or by Sellers or their Affiliates, or on their behalf
from Buyer in connection with this Agreement that are subject to such
confidence.
6.07. CONTINUING DISCLOSURE. Prior to the Closing, the Company and Sellers
shall have the continuing obligation promptly to advise Buyer with respect to
any matter hereafter arising or discovered that, if existing or known at the
date of this Agreement, would have been required to be set forth or described in
a schedule to this Agreement, or that constitutes a breach or prospective breach
of this Agreement by the Company or a Seller. The delivery of any such notice
shall not affect Buyer's remedies hereunder.
6.08 CERTAIN TAX MATTERS. At the Buyer's option, Sellers will join with the
Buyer in making an election under Section 338(h)(10) of the Code, and any
corresponding elections under state, local or foreign tax law (collectively a
"Section 338(h)(10) Election"). The Sellers will cooperate to take all necessary
actions to effect the Section 338(h)(10) Election. Buyer will be responsible for
preparation and delivery of Form 8023 within a reasonable period of time
following the Closing Date for Sellers' signature. Sellers shall provide Buyer
with reasonable access to Tax information necessary to evaluating whether or not
to make a Section 338(h)(10) Election. Buyer shall reimburse Sellers for any
sales or use tax imposed on Sellers by the California State Board of
Equalization as a result of a Section 338(h)(10) Election in connection with
this transaction.
ARTICLE VII
COVENANTS OF BUYER
7.01 CONFIDENTIALITY. Buyer agrees that prior to the Closing Date and after
any termination of this Agreement, Buyer and its Affiliates will hold, and will
use their best efforts to cause their respective officers, directors, employees,
accountants, counsel, consultants, advisors and agents to hold, in confidence,
unless compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning the
Company furnished to Buyer or its Affiliates in connection with the transactions
contemplated by this Agreement, except to the extent that
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such information can be shown to have been (i) previously known on a
nonconfidential basis by Buyer, (ii) in the public domain through no fault of
Buyer or (iii) later lawfully acquired by Buyer from sources other than the
Company; PROVIDED that Buyer may disclose such information to its officers,
directors, employees, accountants, counsel, consultants, advisors and agents in
connection with the transactions contemplated by this Agreement and to its
financing sources in connection with obtaining the financing for the
transactions contemplated by this Agreement (unless the Company or Sellers in
their transmittal of such information reasonably expressly identify a narrower
class of recipients, in which case the dissemination of such information shall
be limited to such designated recipients) so long as such Persons are informed
by Buyer of the confidential nature of such information and are directed by
Buyer to treat such information confidentially. The obligation of Buyer and its
Affiliates to hold any such information in confidence shall be satisfied if the
exercise the same care with respect to such information as they would take to
preserve the confidentiality of their own similar information. If this Agreement
is terminated, Buyer and its Affiliates will, and will use their best efforts to
cause their respective officers, directors, employees, accountants, counsel,
consultants, advisors and agents to, destroy or deliver to Sellers, upon
request, all documents and other materials, and all copies thereof, obtained by
Buyer or its Affiliates or on their behalf from a Seller or the Company in
connection with this Agreement that are subject to such confidence.
7.02 SALES AND OTHER RESOURCES. Buyer agrees that through the end of the
year 2000, it will devote sales and other resources that Buyer believes in
Buyer's good faith reasonable discretion is sufficient to support and promote
the Company in the manner generally described in the business plan developed by
Sellers attached hereto as SCHEDULE 7.02.
ARTICLE VIII
COVENANTS OF ALL PARTIES
The parties hereto agree that:
8.01. BEST EFFORTS. Subject to the terms and conditions of this Agreement,
each party will use its best efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things reasonably necessary or desirable
under applicable laws and regulations to consummate the transactions
contemplated by this Agreement. Sellers and Buyer each agree, and Sellers, prior
to the Closing, and Buyer, after the Closing, agree to cause the Company, to
execute and deliver such other documents, certificates, agreements and other
writings and to take such other actions as may be reasonably necessary or
desirable in order to consummate or implement expeditiously the transactions
contemplated by this Agreement.
8.02. CERTAIN FILINGS. The Company, Sellers and Buyer shall cooperate with
each other (a) in determining whether any action by or in respect of, or filing
with, any governmental body, agency, official or authority is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement and (b) in taking such actions or
making any such filings, furnishing information required in connection therewith
and seeking timely to obtain any such actions, consents, approvals or waivers.
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8.03. PUBLIC ANNOUNCEMENTS. The parties agree to consult with each other
before issuing any press release or making any public statement with respect to
this Agreement or the transactions contemplated hereby and, except as may be
required by applicable law or any listing agreement with any national securities
exchange, will not issue any such press release or make any such public
statement prior to such consultation.
8.04 TAXES. (a) Each party to this Agreement shall provide, at the request
of any other party, and upon reasonable prior notice to such other party (at the
expense of such other party) reasonable access to information, books, records
and documents which are reasonably required by such other party in connection
with (i) the preparation of any Tax Return, (ii) any determination of liability
for Taxes or (iii) any audit, examination or other proceeding in respect of
Taxes.
(b) In the event that a Section 338(h)(10) Election is made, Buyer and
Sellers agree (i) to allocate the "modified ADSP" (within the meaning of
Treasury Regulation Section 1.338(h)(10)-1(f)) in accordance with SCHEDULE 8.04
and (ii) to not take any position on any Tax Return, audit, suit or proceeding
inconsistent with such allocation.
ARTICLE IX
EMPLOYEE BENEFITS
9.01. EMPLOYEE BENEFITS DEFINITIONS. The following terms, as used herein,
having the following meanings:
"BENEFIT ARRANGEMENT" means each employment, severance or other similar
contract, arrangement or policy (written or oral) and each plan or arrangement
(written or oral) providing for severance benefits, insurance coverage
(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits or for deferred compensation, profit-sharing, bonuses, stock options,
stock appreciation rights or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which (i) is not an Employee
Plan, (ii) is entered into, maintained or contributed to, as the case may be, by
the Company or any of its ERISA Affiliates and (iii) covers any employee or
former employee of the Company.
"EMPLOYEE PLANS" means each "employee benefit plan", as such term is
defined in Section 3(3) of ERISA, that (i) is subject to any provision of ERISA
and (ii) is maintained or contributed to by the Company or any of its ERISA
Affiliates, as the case may be.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" of any entity means any other entity that, together with
such entity, would be treated as a single employer under Section 414 of the
Code.
"MULTIEMPLOYER PLAN" means each Employee Plan that is a multiemployer plan,
as defined in Section 3(37) of ERISA.
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9.02. ERISA REPRESENTATIONS. The Company and each Seller, jointly and
severally, hereby represent and warrant to Buyer that:
(a) SCHEDULE 9.02 lists each Employee Plan that covers any employee of
the Company, copies or descriptions of all of which have previously been made
available or furnished to Buyer. With respect to each Employee Plan, the Company
has provided the most recently filed Form 5500 and an accurate summary
description of such plan. The Company has provided Buyer with complete age,
salary, service and related data as of the most recent practicable date for
employees of the Company.
(b) SCHEDULE 9.02 also includes a list of each Benefit Arrangement of
the Company, copies or descriptions of which have been made available or
furnished previously to Buyer.
(c) None of the Employee Plans or other arrangements listed on
SCHEDULE 9.02 covers any non-United States employee or former employee of the
Company.
(d) No "prohibited transaction", as defined in Section 406 of ERISA or
Section 4975 of the Code, has occurred with respect to any Employee Plan.
(e) No Employee Plan is a Multiemployer Plan and no Employee Plan is
subject to Title IV of ERISA. The Company and its Affiliates have not incurred,
nor do they reasonably expect to incur, any liability under Title IV ERISA
arising in connection with the termination of any plan covered or previously
covered by Title IV of ERISA.
(f) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
from its adoption to date, and each trust forming a part thereof is exempt from
tax pursuant to Section 501(a) of the Code. The Company has furnished to Buyer a
copy of the most recent Internal Revenue Service determination letter with
respect to each such plan. Each Employee Plan has been maintained in material
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, which are applicable to such plan.
(g) Each Benefit Arrangement has been maintained in substantial
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations which are applicable to such Benefit
Arrangement.
(h) With respect to the employees and former employees of the Company,
there are no employee post-retirement medical or health plans in effect, except
as required by Section 4980B of the Code.
(i) Except as disclosed on SCHEDULE 9.02(i), all contributions and
payments accrued under each Employee Plan and Benefit Arrangement, determined in
accordance with prior funding and accrual practices, as adjusted to include
proportional accruals for the period ending on the Closing Date, will be
discharged and paid on or prior to the Closing Date. Except in connection with
termination of the Company's Profit Sharing Plan or as disclosed in writing to
Buyer prior to the date hereof, there has been no amendment to, written
interpretation of or announcement (whether or not written) by the Company or any
of its ERISA Affiliates relating to, or change in employee participation or
coverage under, any Employee Plan or Benefit Arrangement that would increase
materially the expense of maintaining such
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Employee Plan or Benefit Arrangement above the level of the expense incurred in
respect thereof for the fiscal year ended prior to the date hereof.
(j) No tax under Section 4980B or Section 4980D of the Code has been
incurred in respect of any Employee Plan that is a group health plan, as defined
in Section 5000(b)(1) of the Code.
(k) No employee of the Company will become entitled to any bonus,
retirement, severance or similar benefit or enhanced benefit solely as a result
of the transactions contemplated hereby.
9.03. NO THIRD PARTY BENEFICIARIES. No provision of this Article IX shall
create any third party beneficiary or other rights in any employee or former
employee (including any beneficiary or dependent thereof) of the Company in
respect of continued employment (or resumed employment) with the Company and no
provision of this Article IX shall create any such rights in any such Persons in
respect of any benefits that may be provided, directly or indirectly, under any
Employee Plan or Benefit Arrangement or any plan or arrangement that may be
established by Buyer or any of its Affiliates. No provision of this Agreement
shall constitute a limitation on rights to amend, modify or terminate after the
Closing Date any Employee Plan or Benefit Arrangement.
ARTICLE X
CONDITIONS TO CLOSING
10.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations of
Buyer, the Company and Sellers to consummate the Closing are subject to the
satisfaction of the following conditions:
(a) No proceeding challenging this Agreement or the transactions
contemplated hereby or seeking to prohibit, alter, prevent or materially delay
the Closing shall have been instituted by any Person before any court,
arbitrator, or governmental body, agency, or official and be pending.
(b) Each other party shall have executed and delivered each of the
Ancillary Agreements to be entered into by it at Closing, in each case
substantially in the form attached as an exhibit to this Agreement.
10.02. CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to
consummate the Closing is subject to the satisfaction of the following further
conditions:
(a)(i) the Company and each Seller shall have performed in all
material respects all of his or its obligations hereunder required to be
performed on or prior to the Closing Date, (ii) the representations and
warranties of the Company and each Seller contained in this Agreement at the
time of its execution and delivery and in any certificate or other writing
delivered by the Company or a Seller pursuant hereto, shall be true at and as of
the Closing Date, as if made at and as of such date with only such additional
exceptions as would not in the aggregate reasonably be expected to have a
Material Adverse Effect and (iii) Buyer shall have received a certificate signed
by the President of the Company and by each Seller to the foregoing effect.
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(b) No court, arbitrator or governmental body, agency or official
shall have issued any order, and there shall not be any statute, rule or
regulation, restraining the effective operation by Buyer of the business of the
Company after the Closing Date, and no proceeding challenging this Agreement or
the transactions contemplated hereby or seeking to prohibit, alter, prevent or
materially delay the Closing shall have been instituted by any Person before any
court, arbitrator or governmental body, agency or official and be pending.
(c) Buyer shall have received an opinion of Sellers' Counsel, dated
the Closing Date, reasonably satisfactory to the Buyer in form and substance and
including representations as set forth on EXHIBIT 10.02(c). In rendering such
opinion, such counsel may rely upon certificates of public officers, as to
matters governed by the laws of jurisdictions other than California or the
federal laws of the United States of America, upon opinions of counsel
reasonably satisfactory to Buyer, copies of which shall be contemporaneously
delivered to Buyer, and as to matters of fact, upon certificates of officers of
Seller, the Company and the Subsidiaries.
(d) The Company shall have received all consents, authorizations or
approvals from the governmental agencies referred to in Section 3.03(a), in each
case in form and substance reasonably satisfactory to Buyer, and no such
consent, authorization or approval shall have been revoked.
(e) Sellers shall have entered into a Subordination and Intercreditor
Agreement with Silicon Valley Bank and Buyer, and Silicon Valley Bank shall have
consented to the acquisition of the Shares by Buyer.
(f) Buyer shall have received all other closing documents specified in
Section 2.02 of this Agreement and all other closing documents that it may
reasonably request, all in form and substance reasonably satisfactory to Buyer.
10.03. CONDITIONS TO OBLIGATION OF SELLERS. The obligation of Sellers to
consummate the Closing is subject to the satisfaction of the following further
conditions:
(a)(i) Buyer shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the Closing
Date, (ii) the representations and warranties of Buyer contained in this
Agreement at the time of its execution and delivery and in any certificate or
other writing delivered by Buyer pursuant hereto shall be true in all material
respects at and as of the Closing Date, as if made at and as of such date and
(iii) Sellers shall have received a certificate signed by the President of Buyer
to the foregoing effect.
(b) No proceeding challenging this Agreement or the transactions
contemplated hereby or seeking to prohibit, alter, prevent or materially delay
the Closing shall have been instituted by any Person before any court,
arbitrator or governmental body, agency or official and be pending.
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(c) Sellers shall have received all items specified in Section 2.02 of
this Agreement and all other closing documents that they may reasonably request,
all in form and substance reasonably satisfactory to them.
ARTICLE XI
SURVIVAL; INDEMNIFICATION
11.01. SURVIVAL. The covenants, agreements, representations and warranties
of the parties hereto contained in this Agreement or in any certificate or other
writing delivered pursuant hereto or in connection herewith shall survive the
Closing until June 30, 1999, in the case of Section 6.06 and Section 7.01,
indefinitely, and in the case of the covenants, agreements, representations and
warranties contained in Sections 3.18 and Article IX, until expiration of the
applicable statutory period of limitations (giving effect to any waiver,
mitigation or extension thereof), if later. Notwithstanding the preceding
sentence, any covenant, agreement, representation or warranty in respect of
which indemnity may be sought under Section 11.02 shall survive the time at
which it would otherwise terminate pursuant to the preceding sentence, if notice
of the inaccuracy or breach thereof giving rise to such right to indemnity shall
have been given to the party against whom such indemnity may be sought prior to
such time.
11.02. INDEMNIFICATION. (a) Each Seller, jointly and severally, hereby
indemnifies Buyer and, effective at the Closing, without duplication, the
Company against and agrees to hold them harmless from any and all damage, loss,
liability and expense (including without limitation reasonable expenses of
investigation and reasonable attorneys' fees and expenses in connection with any
action, suit or proceeding) ("Damages") incurred or suffered by Buyer and the
Company proximately caused by any misrepresentation or breach of warranty,
covenant or agreement made or to be performed by the Company prior to the
Closing or a Seller pursuant to this Agreement (other than the representations,
warranties and covenants and agreements of Sellers contained in Articles II and
IV); PROVIDED that Sellers shall not be liable under this Section 11.02(a)
unless the aggregate amount of Damages with respect to all matters referred to
in this Section 11.02(a) exceeds $50,000 and then only to the extent of such
excess; PROVIDED, further that the maximum aggregate liability of Sellers under
this Agreement for any misrepresentation, breach of any representation, warranty
or other covenant or any other matter (other than the covenants and agreements
contained in Articles II and IV) shall not exceed $3,000,000.
(b) Each Seller hereby jointly and severally indemnifies Buyer and,
effective at the Closing, without duplication, the Company against and agrees to
hold them harmless from and against all Damages incurred or suffered by Buyer or
the Company arising out of any breach of any covenant or agreement of such
Seller contained in Article II or the inaccuracy or breach of any
representation, warranty, covenant or agreement made by such Seller contained in
Article IV; PROVIDED that the maximum aggregate liability of the Sellers under
this Agreement for any misrepresentation, breach of any representation, warranty
or other covenant contained in Articles II and IV shall be limited to the
Purchase Price.
(c) Buyer hereby indemnifies each Seller against and agrees to hold
him harmless from any and all Damages incurred or suffered by Sellers and
proximately caused by any misrepresentation or breach of warranty, covenant or
agreement made or to be performed by Buyer pursuant to this Agreement (other
than pursuant to Articles II and VIII); PROVIDED that (i) Buyer shall not be
liable under this Section 11.02(c) unless the aggregate amount of Damages with
respect to all matters
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referred to in this Section 11.02(c) exceeds $50,000 and then only to the extent
of such excess; PROVIDED FURTHER that the maximum aggregate liability of Buyer
under this Agreement for any breach of any representation, warranty or other
covenant or any other matter (other than the covenants and agreements pursuant
to Articles II and VIII) shall not exceed $3,000,000.
(d) Sellers shall have no right of indemnification, contribution or
subrogation against the Company with respect to any indemnification by any
Seller or Sellers under this Section 11.02 if the transactions contemplated by
this Agreement are consummated. Sellers shall have a right of contribution
against each other with respect to amounts actually paid pursuant to this
Section 11.02, but such right of contribution shall in no way limit or affect
Buyer's and the Company's rights contained in this Article XI. Notwithstanding
the foregoing, each Seller shall have the right to be indemnified by the Company
to the maximum extent permitted by the Company's Articles of Incorporation and
Bylaws and to the fullest extent of California law in connection with any claim,
loss, liability, cost or damage arising out of or in connection with any act or
omission by such Seller in his capacity as an officer or director of the Company
prior to the Closing, except to the extent such claim, loss, liability, cost or
damage has been proximately caused by any breach of any representation,
warranty, covenant or agreement of such Seller contained in this Agreement.
11.03. PROCEDURES; NO WAIVER. (a) The party seeking indemnification under
Section 11.02 (the "Indemnified Party") agrees to give prompt notice to the
party against whom indemnity is sought (the "Indemnifying Party") of the
assertion of any claim, or the commencement of any suit, action or proceeding in
respect of which indemnity may be sought under such Section. The Indemnifying
Party may, and at the request of the Indemnified Party shall, participate in and
control the defense of any third party suit, action or proceeding at its own
expense. The Indemnifying Party shall not be liable under Section 11.02 for any
settlement effected without its consent of any claim, litigation or proceeding
in respect of which indemnity may be sought hereunder.
(b) No waiver of a closing condition by either Buyer or Seller shall
limit its rights under Section 11.02.
(c) After the Closing, this Article XI shall provide the exclusive
remedy (other than injunctive relief) for any misrepresentation or inaccuracy,
breach of warranty, covenant or other agreement or other claims arising out of
this Agreement or the transactions contemplated thereby.
(d) Notwithstanding anything to the contrary contained herein, in any
proceeding in which Buyer is bringing an indemnity claim against Sellers
pursuant to Section 11.02(a) above (a "SECTION 11.02(a) Claim"), it shall be a
defense of Sellers and Sellers shall not be required to provide any
indemnification pursuant to such Section 11.02(a) Claim to the extent Sellers
demonstrate, by a preponderance of the evidence, that Rory J. Cowan or Stephen
J. Lifshatz had knowledge as of the date of this Agreement of the
misrepresentation or breach of warranty, covenant or agreement giving rise to
such Section 11.02(a) Claim. For purposes of this Section 11.03(d), Rory Cowan
or Stephen Lifshatz shall be deemed to have knowledge of any misrepresentation
or breach of warranty, covenant or agreement if as of the date of this Agreement
(i) he had actual knowledge of such misrepresentation or breach, or (ii) based
upon the information in his possession, a reasonable person under similar
circumstances should have known of such misrepresentation or breach.
(e) Notwithstanding anything to the contrary contained herein, in any
proceeding in which a Seller is bringing an indemnity claim against Buyer
pursuant to Section 11.02(c) above (a
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"SECTION 11.02(c) CLAIM"), it shall be a defense of Buyer and Buyer shall not be
required to provide any indemnification pursuant to such Section 11.02(c) Claim
to the extent Buyer demonstrates, by a preponderance of the evidence, that
Steven Nemzer or Marc Porter Zasada had knowledge as of the date of this
Agreement of the misrepresentation or breach of warranty, covenant or agreement
giving rise to such Section 11.02(c) Claim. For purposes of this Section
11.03(e), Steven Nemzer or Marc Porter Zasada shall be deemed to have knowledge
of any misrepresentation or breach of warranty, covenant or agreement if as of
the date of this Agreement (i) he had actual knowledge of such misrepresentation
or breach, or (ii) based upon the information in his possession, a reasonable
person under similar circumstances should have known of such misrepresentation
or breach.
ARTICLE XII
TERMINATION
12.01. GROUNDS FOR TERMINATION. This Agreement may be terminated at any
time prior to the Closing:
(i) by written agreement of Sellers and Buyer;
(ii) by either Sellers or Buyer if the Closing shall not have been
consummated on or before January 12, 1999;
(iii) by either Sellers or Buyer in the event of a material breach by
the other of the breaching party's covenants, representations and
warranties contained herein; or
(iv) by either Sellers or Buyer if there shall be any law or
regulation that makes consummation of the transactions contemplated hereby
illegal or otherwise prohibited or if consummation of the transactions
contemplated hereby would violate any nonappealable final order, decree or
judgment of any court or governmental body having competent jurisdiction.
The party desiring to terminate this Agreement pursuant to clauses (ii),
(iii), or (iv) shall give notice of such termination to the other parties.
12.02. EFFECT OF TERMINATION. If this Agreement is terminated as permitted
by Section 12.01, such termination shall be without liability of either party
(or any shareholder, director, officer, employee, agent, consultant or
representative of such party) to the other party to this Agreement; PROVIDED
that if such termination shall result from the willful failure of any party to
fulfill a condition to the performance of the obligations of another party or to
perform a covenant of this Agreement or from a willful breach by any party to
this Agreement, such party shall be fully liable for any and all Damages
incurred or suffered by the other parties as a result of such failure or breach.
The provisions of Sections 6.06, 7.01 and 13.03 shall survive any termination
hereof pursuant to Section 12.01.
ARTICLE XIII
- 26 -
<PAGE>
MISCELLANEOUS
13.01. NOTICES. All notices, requests and other communications to either
party hereunder shall be in writing (including telecopy or similar writing) and
shall be given,
if to Buyer, to:
Rory J. Cowan
Lionbridge Technologies Holdings, Inc.
950 Winter Street, Suite 4300
Waltham, MA 02154
Telecopy: (781) 890-3122
with a copy to:
George W. Lloyd, Esq.
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Telecopy: (617) 248-7100
if to the Company or a Seller, to each of:
Steven Nemzer
3420 Ocean Park Boulevard
Suite 2030
Santa Monica, CA 90405
Telecopy: (310) 450-1571
and
Marc Porter Zasada
3420 Ocean Park Boulevard
Suite 2030
Santa Monica, CA 90405
Telecopy: (310) 450-1571
with a copy to:
Ronald W. Buckly, Esq.
Bryan Cave, LLP
120 Broadway
Suite 300
Santa Monica, CA 90401
Telecopy: (310) 576-2200
- 27 -
<PAGE>
13.02. AMENDMENTS; NO WAIVERS. (a) Any provision of this Agreement may be
amended or waived prior to the Closing Date if, and only if, such amendment or
waiver is in writing and signed by Buyer, the Company and Sellers.
(b) No failure or delay by either party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
13.03. EXPENSES. All costs and expenses incurred in connection with this
Agreement shall be paid by the party incurring such cost or expense (including
without limitation the fees and expenses of the Company's and Sellers'
financial, legal, and accounting advisors); provided, however, that, if the
Closing shall occur, all such costs and expenses in excess of $36,000 incurred
by the Company, whether or not paid by the Company prior to Closing, shall be
paid or reimbursed by Sellers.
13.04. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; PROVIDED that no party may assign, delegate or otherwise
transfer any of his or its rights or obligations under this Agreement without
the consent of the other parties hereto, except that Buyer may transfer or
assign, in whole or from time to time in part, to one or more of its Affiliates,
the right to purchase all or a portion of the Shares, but no such transfer or
assignment will relieve Buyer of its obligations hereunder, and Buyer may
collaterally assign its rights to receive payments pursuant to Article XI
hereof.
13.05. FURTHER ASSURANCES. From time to time after the Closing, at the
request of Buyer and without further consideration, Sellers will execute and
deliver to Buyer such other documents, and take such other action, as Buyer may
reasonably request in order to consummate more effectively the transactions
contemplated hereby and to vest in Buyer good, valid and marketable title to the
Shares.
13.06. GOVERNING LAW. This Agreement and the Ancillary Agreements shall be
construed in accordance with and governed by the law of the Commonwealth of
Massachusetts, without regard to the conflicts of law rules of such state.
13.07. COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received a
counterpart hereof signed by the other parties hereto.
13.08. ENTIRE AGREEMENT. This Agreement and the Ancillary Agreements
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter hereof. No representation, inducement, promise, understanding,
condition or warranty not set forth herein has been made or relied upon by
either party hereto. Neither this Agreement nor any provision hereof is intended
to confer upon any Person other than the parties hereto any rights or remedies
hereunder.
- 28 -
<PAGE>
13.09. CAPTIONS. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
13.10. JURISDICTION. Sellers agree that if they bring suit against Buyer to
enforce their rights under this Agreement or the Ancillary Agreements, they
shall file such suit in the courts of the Commonwealth of Massachusetts or any
federal court sitting therein. Buyer agrees that if it brings suit against
Sellers or either of them to enforce its rights under this Agreement or the
Ancillary Documents, it shall file such suit in Los Angeles County in the State
of California.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 29 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
LIONBRIDGE TECHNOLOGIES HOLDINGS, INC.
By /s/ Rory J. Cowan
--------------------------------
VERITEST, INC.
By /s/ Steven Nemzer
--------------------------------
Title: President
SELLERS:
/s/ Steven Nemzer
-----------------------------------
Steven Nemzer
/s/ Marc Porter Zasada
-----------------------------------
Marc Porter Zasada
- 30 -
<PAGE>
VERITEST, INC.
STOCK PURCHASE AGREEMENT
Index to Exhibits and Schedules
-------------------------------
Exhibits:
- ---------
Exhibit A - Form of Employment Agreement
Exhibit B - Form of Employee Non-Disclosure and Developments Agreement
Exhibit C - Form of Non-Competition Agreement
Exhibit D - Form of Promissory Note
Exhibit 10.01(c) - Form of Bryan Cave Opinion
Schedules:
- ---------
Schedule 2.01 - List of Stockholders
Schedule 3.07 - Financial Statements
Schedule 3.08 - Certain Changes
Schedule 3.10 - Liabilities
Schedule 3.12 - Material Contracts
Schedule 3.14 - Permits
Schedule 3.16 - Intellectual Property
Schedule 3.19 - Tax Matters
Schedule 3.20 - Employees
Schedule 3.22 - Environmental Matters
Schedule 8.04 - Section 338(h)(10) Election
Schedule 9.02 - Employee Plans
<PAGE>
COMMON STOCK COMMON STOCK
NUMBER SHARES
[LOGO] LIONBRIDGE
INCORPORATED UNDER SEE REVERSE FOR
THE LAWS OF DELAWARE CERTAIN DEFINITIONS
CUSIP 536252 10 9
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NOW-ASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF
- ---------------------- LIONBRIDGE TECHNOLOGIES, INC.-------------------------
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[SEAL]
[SIGNATURE] [SIGNATURE]
SECRETARY CHAIRMAN AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER AND TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
The Company is authorized to issue more than one class or series of stock. A
copy of the powers, designations, preferences and relative, participating,
optional, or other special rights of each class of stock or series thereof
and the qualifications or restrictions of such preferences and/or rights will
be furnished by the Company upon written request and without charge.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM- as tenants in common UNIF GIFT MIN ACT-__________Custodian_________
TEN ENT- as tenants by the (CUST) (Minor)
entireties
JT TEN- as joint tenants with under Uniform Gifts to Minors
right of survivorship
and not as tenants in
common Act __________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received,_____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint_____________________________________Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated,____________________________ X ______________________________________
X ______________________________________
NOTICE: THE SIGNATURE(S) TO THE
ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR
ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED: ____________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION, (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 5.1
[ Testa, Hurwitz & Thibeault, LLP Letterhead ]
August 16, 1999
Lionbridge Technologies, Inc.
950 Winter Street
Waltham, Massachusetts 02451
RE: Registration Statement on Form S-1
(FILE NO. 333-81233)
----------------------------------
Ladies and Gentlemen:
This opinion relates to an aggregate of 4,600,000 shares of common
stock, par value $.01 per share ("common stock"), of Lionbridge Technologies,
Inc. (the "Company"), which are the subject matter of a Registration Statement
on Form S-1 as filed with the Securities and Exchange Commission (the
"Commission") on June 21, 1999, as amended (the "Registration Statement").
The 4,600,000 shares of common stock covered by the Registration
Statement consist of 4,000,000 shares being sold by the Company and 206,666
shares and 393,334 shares subject to an over-allotment option granted by the
Company and certain stockholders of the Company (the "Selling Stockholders"),
respectively, to the underwriters named in the prospectus (the "Prospectus")
incorporated by reference in the Registration Statement.
Based upon such investigation as we have deemed necessary, we are of
the opinion that when the 4,206,666 shares of common stock to be sold by the
Company pursuant to the Prospectus have been issued and paid for in accordance
with the terms described in the Prospectus, such shares of common stock will
have been validly issued and will be fully paid and nonassessable. Further, we
are of the opinion that the 393,334 shares of common stock to be sold by the
Selling Stockholders pursuant to the Prospectus are validly issued, fully paid
and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm in the Prospectus under
the caption "Legal Matters."
Very truly yours,
/s/ Testa, Hurwitz & Thibeault, LLP
TESTA, HURWITZ & THIBEAULT, LLP
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 3 to the Registration
Statement on Form S-1 of our report dated March 9, 1999, except as to the
information presented under Reverse Stock Split in Note 1, which is as of
August 13, 1999, relating to the consolidated financial statements of
Lionbridge Technologies, Inc., and our report dated November 7, 1997 relating
to the combined financial statements of The Localization Businesses of Stream
International Holdings, Inc. in Ireland, The Netherlands and France, which
appear in such Registration Statement. We also consent to the references to
us under the headings "Experts" and "Selected Consolidated Financial Data" in
such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
August 16, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 3 to the Registration
Statement on Form S-1 of our report dated June 16, 1999 relating to the
financial statements of VeriTest, Inc., which appears in such Registration
Statement. We also consent to the reference to us under the heading "Experts"
in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Woodland Hills, California
August 16, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Amendment
No. 3 to S-1 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0001058299
<NAME> LIONBRIDGE TECHNOLOGIES, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<EXCHANGE-RATE> 1 1
<CASH> 732 1,455
<SECURITIES> 0 0
<RECEIVABLES> 7,894 9,679
<ALLOWANCES> (573) (546)
<INVENTORY> 0 0
<CURRENT-ASSETS> 12,787 15,307
<PP&E> 3,070 4,904
<DEPRECIATION> (1,230) (2,749)
<TOTAL-ASSETS> 22,402 28,107
<CURRENT-LIABILITIES> 20,505 18,226
<BONDS> 0 0
15,418 15,949
0 0
<COMMON> 20 24
<OTHER-SE> (13,541) (17,056)
<TOTAL-LIABILITY-AND-EQUITY> 22,402 28,107
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<TOTAL-REVENUES> 38,412 23,783
<CGS> 0 0
<TOTAL-COSTS> 41,816 27,925
<OTHER-EXPENSES> (49) 320
<LOSS-PROVISION> 207 45
<INTEREST-EXPENSE> 648 4,988
<INCOME-PRETAX> (4,003) (9,450)
<INCOME-TAX> 259 315
<INCOME-CONTINUING> (4,262) (9,765)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,262) (9,765)
<EPS-BASIC> (2.99) (4.64)
<EPS-DILUTED> (2.99) (4.64)
</TABLE>
