<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-4
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 (I.R.S. Employer
of Incorporation or Industrial Identification Number)
Organization) Classification Code Number)
</TABLE>
950 WINTER STREET
WALTHAM, MASSACHUSETTS 02451
(781) 434-6000
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
RORY J. COWAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
950 WINTER STREET
WALTHAM, MASSACHUSETTS 02451
(781) 434-6000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
GEORGE W. LLOYD, ESQ. JONATHAN D. WASSERMAN, ESQ.
KATHY A. FIELDS, ESQ. ROSS D. EMMERMAN, ESQ.
Testa, Hurwitz & Thibeault, LLP Neal, Gerber & Eisenberg
125 High Street Two North La Salle Street
Boston, Massachusetts 02110 Suite 2200
Chicago, Illinois 60602
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: AS SOON
AS PRACTICABLE AFTER THE EFFECTIVE TIME OF THE MERGER DESCRIBED IN THIS
REGISTRATION STATEMENT.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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(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. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE OFFERING PRICE(2) REGISTRATION FEE(2)
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share 8,201,082 shares $.01 $35,806 $100.00
</TABLE>
(1) Represents an estimate of the maximum number of shares of the common stock
of Lionbridge which may be issued pursuant to the merger described herein.
(2) Estimated solely for the purpose of calculating the registration fee and
computed pursuant to Rule 457(f)(2) under the Securities Act of 1933, as
amended, and computed on the basis of one-third of the total par value of
INT'L.com common stock and preferred stock (on an as-converted basis) of
$107,417.
------------------------------
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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
To the Stockholders of Lionbridge and INT'L.com:
The board of directors of Lionbridge Technologies, Inc. and of
INT'L.com, Inc. have approved an amended and restated agreement and plan of
reorganization that will result in INT'L.com becoming a wholly owned subsidiary
of Lionbridge through the merger of INT'L.com with and into a wholly owned
subsidiary of Lionbridge.
If the merger is completed:
- Lionbridge stockholders will continue to own their existing shares of
Lionbridge common stock;
- it is estimated that each outstanding share of INT'L.com Series A common
stock, Series B common stock, Series A preferred stock and Series B
preferred stock, will be exchanged for approximately 0.7485 of a share of
Lionbridge common stock;
- it is estimated that each outstanding share of INT'L.com Series C
preferred stock will be exchanged for approximately 5.5753 shares of
Lionbridge common stock;
- it is estimated that each outstanding share of INT'L.com Series D
preferred stock will be exchanged for approximately 0.5505 of a share of
Lionbridge common stock;
- it is estimated that the holders of the $5.0 million (estimated principal
amount outstanding as of June 30, 2000) subordinated debt of INT'L.com
will receive approximately 260,882 shares of Lionbridge common stock;
- it is estimated that the holders of the $2.0 million convertible debt of
INT'L.com will receive approximately 110,239 shares of Lionbridge common
stock; and
- Roger Jeanty will be elected to the Board of Directors of Lionbridge as a
Class I director.
The shares of Lionbridge common stock to be issued to holders of INT'L.com
stock and convertible and subordinated debt will be determined by conversion
formulas and, for purposes of calculating the conversion formulas, we have
assumed the merger is completed on June 30, 2000. It is estimated that INT'L.com
stockholders and holders of convertible and subordinated debt of INT'L.com will
receive approximately 8,201,082 shares of Lionbridge common stock in the merger,
or approximately 33.0% of the issued and outstanding shares of Lionbridge common
stock following the merger. The outstanding options to purchase INT'L.com common
stock will be assumed by Lionbridge following the merger and it is estimated
that such options will be converted into options to purchase approximately
753,926 shares of Lionbridge common stock. A vote in favor of the merger and the
agreement and plan of reorganization or the related issuance of Lionbridge
common stock will be effective whether or not the actual shares of Lionbridge
common stock to be issued in the merger or the actual conversion ratios differ
from the estimated conversion ratios set forth above. Lionbridge common stock is
quoted on the Nasdaq National Market under the symbol "LIOX." As of
February 29, 2000, Lionbridge had 16,617,801 shares of common stock outstanding.
The merger cannot be completed unless INT'L.com's stockholders approve the
merger and the agreement and plan of reorganization and Lionbridge's
stockholders approve the issuance of Lionbridge common stock pursuant to the
agreement and plan of reorganization. We have scheduled special meetings for you
to vote on the merger and the agreement and plan of reorganization and the
related issuance of shares of Lionbridge common stock. The exact conversion
formulas will not be determined by the date of the special meetings. Whether or
not you plan to attend a special meeting, please take the time to vote by
completing and mailing the enclosed proxy card to us. YOUR VOTE IS VERY
IMPORTANT.
The dates, times and places of the special meetings are as follows:
<TABLE>
<CAPTION>
<S> <C>
For Lionbridge stockholders: For INT'L.com stockholders:
, 2000 at 10:00 a.m., at , 2000 at 10:00 a.m., at
Testa, Hurwitz & Thibeault, LLP INT'L.com, Inc.
125 High Street 492 Old Connecticut Path
Boston, Massachusetts 02110. Framingham, Massachusetts 01701.
</TABLE>
This document provides you with detailed information about the proposed
merger. We encourage you to read this entire document carefully. IN PARTICULAR,
PLEASE SEE THE SECTION ENTITLED "RISK FACTORS" ON PAGE 9 OF THIS DOCUMENT FOR A
DISCUSSION OF RISKS ASSOCIATED WITH THE MERGER.
<TABLE>
<S> <C>
Rory J. Cowan Roger O. Jeanty
CHIEF EXECUTIVE OFFICER CHIEF EXECUTIVE OFFICER
Lionbridge Technologies, Inc. INT'L.com, Inc.
</TABLE>
NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE LIONBRIDGE COMMON STOCK
TO BE ISSUED IN THE MERGER OR DETERMINED IF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Joint proxy statement/prospectus dated , 2000
First mailed to stockholders on or about , 2000
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
950 WINTER STREET, SUITE 2410
WALTHAM, MASSACHUSETTS 02451
NOTICE OF SPECIAL MEETING IN LIEU OF
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000
To the Stockholders of Lionbridge:
A special meeting in lieu of the annual meeting of stockholders of
Lionbridge Technologies, Inc., a Delaware corporation, will be held on
, 2000, at 10:00 a.m., local time, at Testa, Hurwitz & Thibeault,
LLP, 125 High Street, Boston, Massachusetts, to consider and act upon the
following proposals:
1. To consider and vote upon a proposal to approve the issuance of up to an
estimated maximum of 8,201,082 shares of Lionbridge common stock to
INT'L.com stockholders and holders of convertible and subordinated debt
of INT'L.com as contemplated by the amended and restated agreement and
plan of reorganization, dated as of March 30, 2000, among Lionbridge,
LTI Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Lionbridge, and INT'L.com, Inc., a Delaware corporation,
pursuant to which LTI Acquisition Corp. will be merged with and into
INT'L.com, with INT'L.com being the surviving corporation. If this
proposal is approved, outstanding INT'L.com stock options will be
assumed by Lionbridge and will convert into options to purchase up to an
additional estimated maximum of 753,926 shares of Lionbridge common
stock at various exercise prices.
2. To elect one (1) member to the Board of Directors, to serve for a
three-year term as a Class I Director.
3. To ratify selection of the firm of PricewaterhouseCoopers LLP,
independent public accountants, as auditors for the fiscal year ending
December 31, 2000.
4. To transact such other business as may properly come before the
Lionbridge special meeting or any adjournment or postponement of the
Lionbridge special meeting, including without limitation, potential
adjournments or postponements of the Lionbridge special meeting for the
purpose of soliciting additional proxies in order to approve the
proposed issuance of Lionbridge common stock in connection with the
merger.
Lionbridge's board of directors has approved the merger, the amended and
restated agreement and plan of reorganization and the proposals set forth above
and recommends that you vote FOR approval of each of the proposals. A vote in
favor of the proposed issuance of Lionbridge common stock will be effective
whether or not the actual shares of Lionbridge common stock to be issued in the
merger exceeds 8,201,082 shares. We have described the proposals in more detail
in the accompanying joint proxy statement/prospectus, which you should read in
its entirety before voting. A copy of the agreement and plan of reorganization
is attached as Annex A to the accompanying joint proxy statement/prospectus.
The close of business on , 2000 has been fixed as the record
date for the determination of stockholders entitled to notice of, and to vote
at, the Lionbridge special meeting or any adjournment or postponement of the
meeting. Only holders of record of Lionbridge common stock at the close of
business on the record date may vote at the Lionbridge special meeting.
In the election of directors, the nominee receiving the highest number of
affirmative votes of the shares of Lionbridge common stock present in person or
represented by proxy and entitled to vote at the Lionbridge special meeting
shall be elected as a Class I Director of Lionbridge. For the issuance of
Lionbridge common stock in connection with the merger and on all other matters
being submitted to the stockholders of Lionbridge, the affirmative vote of the
holders of a majority of the shares of
<PAGE>
Lionbridge common stock present in person or represented by proxy and voting on
each such matter is required for approval.
The representation in person or by proxy of at least a majority of the
outstanding shares of Lionbridge common stock entitled to vote at the Lionbridge
special meeting is necessary to establish a quorum for the transaction of
business at the Lionbridge special meeting. Votes withheld from any nominee for
director, abstentions and broker "non-votes" are counted as present or
represented for purposes of determining the presence or absence of a quorum. A
broker "non-vote" occurs when a broker holding shares for a beneficial owner
votes on one proposal, but does not vote on another proposal because, in respect
of such other proposal, the broker does not have discretionary voting power and
has not received instructions from the beneficial owner with respect to such
other proposal. Abstentions are included in the number of shares present or
represented and voting on each matter. Broker "non-votes" are not considered
voted for the particular matter and have the effect of reducing the number of
affirmative votes required to achieve a majority for such matter by reducing the
total number of shares from which the majority is calculated.
All holders of Lionbridge common stock are cordially invited to attend the
Lionbridge special meeting in person. HOWEVER, TO ENSURE YOUR REPRESENTATION AT
THE LIONBRIDGE SPECIAL MEETING, YOU ARE URGED TO COMPLETE, SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. You may revoke your proxy in the manner described in the accompanying
joint proxy statement/prospectus at any time before it is voted at the
Lionbridge special meeting. Any stockholder attending the Lionbridge special
meeting may vote in person even if he or she has returned a proxy.
Properly executed proxies will be voted in accordance with the
specifications on the proxy card. Executed proxies with no instructions
indicated thereon will be voted FOR approval of the issuance of Lionbridge
common stock in connection with the merger, the election of Claude P. Sheer as a
Class I Director of Lionbridge and the other matters set forth in this Notice of
Special Meeting of Stockholders.
By Order of the Lionbridge Board of
Directors,
Stephen J. Lifshatz
SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER, TREASURER AND SECRETARY
Waltham, Massachusetts
, 2000
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE
ENCLOSED POSTAGE-PREPAID ENVELOPE.
<PAGE>
INT'L.COM, INC.
492 OLD CONNECTICUT PATH
FRAMINGHAM, MASSACHUSETTS 01701
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000
To the Stockholders of INT'L.com:
A special meeting of stockholders of INT'L.com, a Delaware corporation, will
be held on , 2000, at 10:00 a.m., local time at INT'L.com Inc.,
492 Old Connecticut Path, Framingham, Massachusetts, for the following purposes:
1. To approve and adopt the merger and the amended and restated agreement
and plan of reorganization, dated as of March 30, 2000, among Lionbridge
Technologies, Inc., a Delaware corporation, LTI Acquisition Corporation,
a Delaware corporation and a wholly owned subsidiary of Lionbridge, and
INT'L.com, that will result in INT'L.com becoming a wholly owned
subsidiary of Lionbridge.
2. To approve the appointment of Steven L. Fingerhood, currently
INT'L.com's Chairman of the Board and Chief Strategic Officer, as the
indemnification representative to act on behalf of the INT'L.com
stockholders in connection with the merger and the escrow agreement
referred to in the amended and restated agreement and plan of
reorganization.
3. To transact such other business as may properly come before the
INT'L.com special meeting or any adjournment or postponement of the
INT'L.com special meeting, including without limitation, potential
adjournments or postponements of the INT'L.com special meeting for the
purpose of soliciting additional proxies in order to approve and adopt
the amended and restated agreement and plan of reorganization.
INT'L.com's board of directors has approved the merger, the amended and
restated agreement and plan of reorganization and the proposals set forth above
and recommends that you vote FOR approval and adoption of the merger and the
amended and restated agreement and plan of reorganization and approval of the
related appointment of Steven L. Fingerhood as the indemnification
representative under the escrow agreement referred to in the amended and
restated agreement and plan of reorganization. We have described the proposals
in more detail in the accompanying joint proxy statement/prospectus, which you
should read in its entirety before voting. A copy of the amended and restated
agreement and plan of reorganization is attached as Annex A to the accompanying
joint proxy statement/prospectus.
The close of business on , 2000 has been fixed as the record
date for the determination of stockholders entitled to notice of, and to vote
at, the INT'L.com special meeting or any adjournment or postponement of the
meeting. Only holders of record of INT'L.com Series A common stock, Series B
common stock, Series A preferred stock, Series B preferred stock and Series D
preferred stock at the close of business on the record date may vote at the
INT'L.com special meeting. The board of directors of INT'L.com recommends that
stockholders vote for approval and adoption of the merger and the amended and
restated agreement and plan of reorganization.
The affirmative vote of the holders of 90% of the votes represented by the
outstanding shares of INT'L.com Series A common stock, Series B common stock,
Series A preferred stock, Series B preferred stock and Series D preferred stock
is required to approve the amended and restated agreement and plan of
reorganization. The holders of shares of INT'L.com Series A common stock,
Series A preferred stock, Series B preferred stock and Series D preferred stock
are each entitled to one vote per share. The holders of shares of INT'L.com
Series B common stock are entitled to .6774 votes per share. The holders of
shares of INT'L.com Series C preferred stock are not entitled to vote.
Abstentions are counted as present or represented for purposes of determining
the presence or absence of a quorum.
<PAGE>
All holders of INT'L.com Series A common stock, Series B common stock,
Series A preferred stock, Series B preferred stock, Series C preferred stock and
Series D preferred stock are cordially invited to attend the INT'L.com special
meeting in person. HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE INT'L.COM
SPECIAL MEETING, YOU ARE URGED TO COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY
CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. You may
revoke your proxy in the manner described in the accompanying joint proxy
statement/prospectus at any time before it is voted at the INT'L.com special
meeting. Any stockholder attending the INT'L.com special meeting may vote in
person even if he or she has returned a proxy.
Properly executed proxies will be voted in accordance with the
specifications on the proxy card. Executed proxies with no instructions
indicated thereon will be voted FOR approval and adoption of the merger and the
amended and restated agreement and plan of reorganization and the transactions
contemplated thereby.
By Order of the INT'L.com Board of
Directors,
Steven L. Fingerhood
CHAIRMAN, CHIEF STRATEGIC OFFICER
AND SECRETARY
Framingham, Massachusetts
, 2000
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE
ENCLOSED POSTAGE-PREPAID ENVELOPE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY..................................................... 1
RISK FACTORS................................................ 9
SELECTED FINANCIAL DATA OF LIONBRIDGE AND INT'L.COM......... 19
MARKET PRICE INFORMATION.................................... 23
THE LIONBRIDGE SPECIAL MEETING.............................. 24
General................................................... 24
Matters to be Considered.................................. 24
Lionbridge Board of Directors' Recommendation............. 24
Record Date and Voting.................................... 25
Voting and Revocation of Proxies.......................... 25
THE INT'L.COM SPECIAL MEETING............................... 27
General................................................... 27
Matters to be Considered.................................. 27
INT'L.com Board of Directors' Recommendation.............. 27
Record Date and Voting.................................... 27
Voting and Revocation of Proxies.......................... 28
THE MERGER.................................................. 30
Background of the Merger.................................. 30
Joint Reasons for the Merger.............................. 31
Recommendation of the Board of Directors of Lionbridge;
Lionbridge's Reasons for the Merger..................... 32
Recommendation of the Board of Directors of INT'L.com;
INT'L.com's Reasons for the Merger...................... 32
Opinion of Financial Advisor to Lionbridge................ 33
Interests of Executive Officers and Directors of INT'L.com
in the Merger........................................... 36
Treatment of INT'L.com Common Stock, Preferred Stock,
Options, Warrants,
Convertible Debt and Subordinated Debt.................. 39
Accounting Treatment of the Merger........................ 41
Regulatory Approvals...................................... 41
Material United States Federal Income Tax
Considerations.......................................... 41
Nasdaq National Market Quotation.......................... 43
Resales of Lionbridge Common Stock Issued in Connection
with the Merger; Affiliate Agreements................... 43
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS.................................................. 45
THE AGREEMENT AND PLAN OF REORGANIZATION.................... 46
General................................................... 46
Exchange of Shares........................................ 46
Creation of Escrow........................................ 47
Treatment of INT'L.com Stock Options and Warrants......... 47
Treatment of Convertible Debt............................. 48
Treatment of Subordinated Debt............................ 48
Exchange of Stock Certificates............................ 48
Representations and Warranties............................ 49
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Certain Covenants......................................... 50
Related Matters After the Merger.......................... 51
Indemnification of Lionbridge by INT'L.com Stockholders... 52
Conditions to Obligations to Effect Merger................ 52
Termination; Fees and Expenses............................ 54
Amendment and Waiver...................................... 55
OTHER AGREEMENTS............................................ 56
Voting Agreements......................................... 56
Affiliate Letters......................................... 56
Escrow Agreement.......................................... 56
DESCRIPTION OF LIONBRIDGE................................... 58
Business.................................................. 58
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 63
Quantitative and Qualitative Disclosures About Market
Risk.................................................... 71
Management................................................ 71
Executive Compensation.................................... 73
Section 16(a) Beneficial Ownership Reporting Compliance of
Lionbridge.............................................. 79
Certain Relationships and Related Transactions............ 79
DESCRIPTION OF INT'L.COM.................................... 83
Business.................................................. 83
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 84
Quantitive and Qualitative Disclosures About Market
Risk.................................................... 90
Management................................................ 90
Executive Compensation.................................... 91
Certain Relationships and Related Transactions............ 92
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS................................................ 97
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF LIONBRIDGE.................................. 103
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF INT'L.COM................................... 106
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF LIONBRIDGE FOLLOWING THE MERGER............. 109
DESCRIPTION OF LIONBRIDGE CAPITAL STOCK..................... 112
General................................................... 112
Lionbridge Common Stock................................... 112
Lionbridge Preferred Stock................................ 112
APPRAISAL RIGHTS............................................ 113
COMPARISON OF STOCKHOLDER RIGHTS............................ 115
General................................................... 115
Capitalization............................................ 115
Voting Rights............................................. 115
Number and Classification of Directors.................... 115
Removal of Directors...................................... 116
Filling Vacancies on the Board of Directors............... 116
Charter Amendments........................................ 116
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Amendments to By-Laws..................................... 116
Action by Written Consent................................. 117
Notice of Stockholder Actions............................. 117
Right to Call Special Meeting of Stockholders............. 117
Limitation of Personal Liability of Directors............. 117
Dividends................................................. 118
Conversion and Redemption................................. 118
Liquidation............................................... 120
- ----------------------------------------------------------------------
ELECTION OF LIONBRIDGE DIRECTORS............................ 121
RATIFICATION OF SELECTION OF LIONBRIDGE AUDITORS............ 121
STOCK PERFORMANCE GRAPH OF LIONBRIDGE....................... 122
STOCKHOLDER PROPOSALS....................................... 123
LEGAL MATTERS............................................... 123
EXPERTS..................................................... 123
WHERE YOU CAN FIND MORE INFORMATION......................... 124
INDEX TO FINANCIAL STATEMENTS............................... F-1
FINANCIAL STATEMENTS OF LIONBRIDGE TECHNOLOGIES, INC........ F-2
FINANCIAL STATEMENTS OF INT'L.COM AND SUBSIDIARIES.......... F-27
FINANCIAL STATEMENTS OF INTERNATIONAL LANGUAGE ENGINEERING
CORPORATION AND SUBSIDIARIES................................ F-52
INT'L.COM, INC. AND SUBSIDIARIES PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS.............................. F-69
ANNEXES
A. Agreement and Plan of Reorganization................. A-1
B. Opinion of Prudential Securities Incorporated........ B-1
C. Section 262 of the Delaware General Corporation
Law.................................................... C-1
</TABLE>
iii
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE DOCUMENTS TO
WHICH WE HAVE REFERRED YOU. SEE "WHERE YOU CAN FIND MORE INFORMATION" ON
PAGE 124. WE HAVE INCLUDED PAGE REFERENCES PARENTHETICALLY TO DIRECT YOU TO A
MORE COMPLETE DESCRIPTION OF THE TOPICS IN THIS SUMMARY.
THE COMPANIES
LIONBRIDGE TECHNOLOGIES, INC.
950 Winter Street, Suite 2410
Waltham, Massachusetts 02451-1291
(781) 434-6000
Lionbridge provides testing, localization, internationalization and other
globalization and multilingual Internet services to the world's leading
technology companies, including Cisco, IBM, Microsoft, Motorola, Novell, Oracle,
and Sun Microsystems. Lionbridge's multilingual eRelease, eSupport, eLearning
and eCommerce services are based on its RAPID GLOBALIZATION METHODOLOGY-TM-. The
RAPID GLOBALIZATION METHODOLOGY integrates engineering, linguistics, testing,
and project management with automated workflow management to enable simultaneous
worldwide release, via the Internet, of products as well as related customer
support, training, and marketing materials.
INT'L.COM, INC.
492 Old Connecticut Path
Framingham, Massachusetts 01701
(508) 620-3900
INT'L.com is a leading provider of technical and language services to more
than 250 businesses based in the United States and abroad. INT'L.com's services
include: (i) Web site design and programming for e-commerce companies seeking to
transact business with corporate partners and customers on a multilingual basis;
(ii) development of multilingual intranets and extranets; (iii) localization of
software code to maintain its functionality in languages other than English;
(iv) assistance with the design and positioning of global marketing campaigns to
ensure their effectiveness in local markets; and (v) translation of printed
catalogs, marketing materials, and product manuals from English into more than
30 languages. Significant INT'L.com clients as of December 31, 1999 included
Hewlett-Packard, Microsoft, SAP, Ericsson Inc., General Dynamics, Cognos, Boston
Scientific and L.L. Bean.
THE MERGER
(PAGE 30)
Through the merger, INT'L.com will become a wholly owned subsidiary of
Lionbridge. INT'L.com stockholders will receive Lionbridge common stock in
exchange for their shares of INT'L.com Series A common stock, Series B common
stock, Series A preferred stock, Series B preferred stock, Series C preferred
stock and Series D preferred stock. Holders of INT'L.com convertible debt will
receive Lionbridge common stock in payment in full of all principal and interest
amounts due under the INT'L.com convertible debt. The agreement and plan of
reorganization, as amended and restated, is attached to this joint proxy
statement/prospectus as Annex A. We encourage you to read the agreement and plan
of reorganization as it is the legal document that governs the merger.
1
<PAGE>
THE SPECIAL MEETINGS; VOTES REQUIRED
(PAGES 24 AND 27)
THE LIONBRIDGE SPECIAL MEETING
Lionbridge will hold a special meeting of its stockholders to:
- approve the issuance of Lionbridge common stock pursuant to the agreement
and plan of reorganization;
- elect one (1) member to the Board of Directors, to serve for a three-year
term as a Class I Director;
- ratify selection of the firm of PricewaterhouseCoopers LLP, independent
public accountants, as auditors for the fiscal year ending December 31,
2000; and
- transact such other business as may properly come before the Lionbridge
special meeting.
Pursuant to applicable rules of the Nasdaq National Market, approval of the
proposed issuance of Lionbridge common stock in connection with the merger
requires the affirmative vote of the holders of a majority of the shares of
Lionbridge common stock present in person or represented by proxy at the
Lionbridge special meeting because such issuance of shares of Lionbridge common
stock may exceed 20% of the outstanding shares of Lionbridge common stock after
the merger. The nominee receiving the highest number of affirmative votes of the
shares of Lionbridge common stock present in person or represented by proxy and
entitled to vote at the Lionbridge special meeting shall be elected as a
Class I Director. The ratification of PricewaterhouseCoopers LLP as auditors for
the fiscal year ending December 31, 2000 requires the affirmative vote of the
holders of a majority of the shares of Lionbridge common stock present in person
or represented by proxy at the Lionbridge special meeting.
As of February 29, 2000, the directors and officers of Lionbridge and their
affiliates who collectively beneficially own approximately 69% of the
outstanding voting power of Lionbridge have already agreed under voting
agreements to vote in favor of the issuance of the Lionbridge common stock in
connection with the merger.
THE INT'L.COM SPECIAL MEETING
INT'L.com will hold a special meeting of its stockholders to:
- approve and adopt the merger and the agreement and plan of reorganization;
- approve the appointment of Steven L. Fingerhood as the indemnification
representative pursuant to the agreement and plan of reorganization; and
- transact such other business as may properly come before the INT'L.com
special meeting.
The approval and adoption of the merger and the agreement and plan of
reorganization will require the affirmative vote of the holders of 90% of the
votes represented by the outstanding shares of INT'L.com Series A common stock,
Series B common stock, Series A preferred stock, Series B preferred stock and
Series D preferred stock, voting together as a single class. The appointment of
Steven L. Fingerhood as the indemnification representative will require the
affirmative vote of the holders of a majority of the votes represented by the
shares of INT'L.com Series A common stock, Series B common stock, Series A
preferred stock, Series B preferred stock and Series D preferred stock, voting
together as a single class. The INT'L.com Series C preferred stock is not
entitled to vote on the approval and adoption of the merger and the agreement
and plan of reorganization.
As of February 29, 2000, the directors, executive officers and 5%
stockholders of INT'L.com and their affiliates who collectively beneficially own
approximately 71.5% of the outstanding voting power of
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INT'L.com have already agreed under voting agreements to vote in favor of
approval and adoption of the merger and the agreement and plan of
reorganization.
OUR RECOMMENDATIONS TO STOCKHOLDERS
(PAGE 32)
TO LIONBRIDGE STOCKHOLDERS:
The Lionbridge board of directors voted unanimously to approve the merger
and the agreement and plan of reorganization and the proposed issuance of
Lionbridge common stock in connection with the merger. The Lionbridge board
believes that the merger is advisable and in your best interests and unanimously
recommends that you vote FOR the proposed issuance of Lionbridge common stock in
the merger.
The Lionbridge board of directors nominated Mr. Claude P. Sheer as a
Class I Director of Lionbridge and recommends that you vote FOR the election of
Mr. Sheer as a Class I member of the Lionbridge board of directors. Shares
represented by all proxies received by the board of directors and not so marked
as to withhold authority to vote for the nominees will be voted FOR the election
of the nominee.
In addition, the Lionbridge board of directors voted unanimously to approve
the other Lionbridge proposals, has declared their advisability and believes
each of the other Lionbridge proposals is in your best interests and recommends
that you vote FOR each such other Lionbridge proposals.
TO INT'L.COM STOCKHOLDERS:
The INT'L.com board of directors voted unanimously to approve the merger and
the agreement and plan of reorganization and the transactions contemplated
thereby. The INT'L.com board believes that the merger is advisable and in your
best interests and unanimously recommends that you vote FOR the proposal to
approve the merger and the agreement and plan of reorganization and the
transactions contemplated thereby.
WHAT HOLDERS OF INT'L.COM
STOCK, CONVERTIBLE DEBT, SUBORDINATED DEBT, OPTIONS AND WARRANTS WILL RECEIVE
(PAGE 39)
If the merger is completed, it is estimated that the holders of: (i) shares
of INT'L.com Series A common stock, Series B common stock, Series A preferred
stock and Series B preferred stock will be entitled to receive approximately
0.7485 of a share of Lionbridge common stock for each such share of INT'L.com
stock held at the effective time of the merger; (ii) shares of INT'L.com
Series C preferred stock will be entitled to receive approximately 5.5753 shares
of Lionbridge common stock for each such share of INT'L.com stock held at the
effective time of the merger, (iii) shares of INT'L.com Series D preferred stock
will be entitled to receive approximately 0.5505 of a share of Lionbridge common
stock for each such share of INT'L.com stock held at the effective time of the
merger, (iv) the holders of $2.0 million of convertible debt of INT'L.com will
be entitled to receive approximately 110,239 shares of Lionbridge common stock
in payment in full of all principal and interest amounts due under such
convertible debt at the effective time of the merger and (v) the holders of an
estimated $5.0 million of subordinated debt of INT'L.com will be entitled to
receive approximately 260,882 shares of Lionbridge common stock in payment in
full of all principal and interest amounts due under such subordinated debt at
the effective time of the merger. The holders of a majority of the shares of
INT'L.com Series A preferred stock and Series B preferred stock have agreed to
cause all shares of Series A preferred stock and Series B preferred stock to be
converted into shares of INT'L.com Series A common stock immediately prior to
the effective time of the merger. The holders of all outstanding warrants to
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purchase shares of INT'L.com common stock have indicated their intention to
exercise their warrants prior to the effective time of the merger. In addition,
each unexpired and unexercised outstanding option or warrant to purchase shares
of INT'L.com common stock, whether currently exercisable or not, previously
issued by INT'L.com will be assumed by Lionbridge and will become exercisable
for options to purchase shares of Lionbridge common stock. The number of shares
of Lionbridge common stock subject to the assumed INT'L.com stock options and
warrants will be adjusted pursuant to the conversion ratio set forth in
clause (i) above and the exercise price per share of Lionbridge common stock
under the INT'L.com stock options and warrants will equal the exercise price per
share of the INT'L.com common stock under the original stock options or
warrants, as the case may be, divided by the same conversion ratio.
In lieu of fractional shares, any holder of INT'L.com stock who would
otherwise be entitled to a fraction of a share of Lionbridge common stock (after
aggregating all fractional shares of Lionbridge common stock to be received by
such holder) will be paid the cash value of such fraction (rounded down to the
nearest whole cent), which will be equal to such fraction MULTIPLIED BY $19.7266
(the weighted-average closing price of Lionbridge common stock as calculated in
accordance with the terms of the agreement and plan of reorganization).
Based on 5,764,049 shares of INT'L.com Series A common stock, 133,372 shares
of INT'L.com Series B common stock, 867,047 shares of INT'L.com Series A
preferred stock, 2,621,477 shares of INT'L.com Series B preferred stock, 5,000
shares of INT'L.com Series C preferred stock and 936,991 shares of INT'L.com
Series D preferred stock outstanding on February 29, 2000, warrants to purchase
348,553 shares of INT'L.com common stock, the estimated $2,174,648 in principal
and accrued interest due and payable under the INT'L.com convertible debt as of
June 30, 2000 and the estimated $5,146,311 in principal and accrued interest
that will be due and payable under the INT'L.com subordinated debt as of
June 30, 2000, it is estimated that INT'L.com stockholders and holders of
convertible and subordinated debt of INT'L.com will receive approximately
8,201,082 shares of Lionbridge common stock in the merger, or approximately
33.0% of the issued and outstanding shares of Lionbridge common stock following
the merger. The actual number of shares of Lionbridge common stock issued may
not fall within these estimated ranges because the exact conversion ratios are
dependent on a number of variables that cannot be calculated until shortly
before the closing, including the date of closing, the number of shares of
INT'L.com common stock outstanding at the closing and the amount of debt and
expenses incurred by INT'L.com. Lionbridge had 16,617,801 shares of common stock
outstanding as of February 29, 2000.
CONDITIONS TO THE MERGER
(PAGE 52)
The completion of the merger depends upon meeting a number of conditions,
including the following:
- the approval of the holders of at least 90% of the outstanding voting
power of INT'L.com;
- the approval of the stockholders of Lionbridge of the issuance of the
shares of Lionbridge common stock to be issued to INT'L.com stockholders
in connection with the merger and the listing on the Nasdaq National
Market of such shares of Lionbridge common stock;
- the termination by INT'L.com of its 401(k) plans;
- the receipt of accountants' letters regarding the "poolability" of the
merger;
- the termination, waiver or satisfaction of any registration rights, rights
of first refusal, voting rights, liquidation preference or redemption
rights relating to any security of INT'L.com;
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- the signing by the affiliates of INT'L.com of the Third Amended and
Restated Registration Rights Agreement among Lionbridge and the other
parties thereto;
- the receipt of a legal opinion regarding material tax consequences of the
merger;
- other customary contractual conditions specified in the agreement and plan
of reorganization; and
- the election of Roger O. Jeanty to Lionbridge's board of directors.
Certain of the conditions to the merger may be waived by the company
entitled to assert the condition.
INDEMNIFICATION
(PAGE 52)
If the agreement and plan of reorganization is approved and the merger
occurs, all stockholders of INT'L.com who have not perfected appraisal rights
under the Delaware General Corporation Law, by receipt of Lionbridge common
stock in the merger, will be deemed to have agreed to the terms of the escrow
agreement referred to in the agreement and plan of reorganization and to
indemnify Lionbridge against damages due to the misrepresentation or breach of
any representation, warranty or covenant of INT'L.com contained in the agreement
and plan of reorganization. To secure the indemnification obligations of the
INT'L.com stockholders in the agreement and plan of reorganization, ten percent
of the Lionbridge common stock that would otherwise be issuable at the closing
will be held in escrow. If the INT'L.com stockholders approve his appointment,
Steven L. Fingerhood, currently a director and officer of INT'L.com, will serve
as the indemnification representative with respect to the escrow on behalf of
all former INT'L.com stockholders. Except for indemnification obligations
arising out of criminal activity or fraud or as set forth in the next paragraph
below, the total liability of the INT'L.com stockholders for their
indemnification obligations shall not exceed the value of the shares held in
escrow which will be valued at $19.7266 per share, and the INT'L.com
stockholders shall not be liable until the aggregate claim for damages exceeds
$500,000, at which time the INT'L.com stockholders shall be liable for all
damages, including the $500,000. The escrow and indemnification obligations will
end one year following the closing. At that time, if Lionbridge has not made a
claim for the escrowed property, the escrowed property will be released to the
former INT'L.com stockholders.
Each stockholder of INT'L.com will also be required to agree to indemnify
Lionbridge against damages due to the breach of any representation, warranty or
covenant of such stockholder relating to such stockholder's ownership and
authority with respect to the INT'L.com stock. Such representations, warranties
and covenants will be contained in the letter of transmittal to be used by such
stockholder to submit their shares of INT'L.com stock in exchange for shares of
Lionbridge common stock.
NO SOLICITATION BY INT'L.COM
(PAGE 50)
INT'L.com has agreed that it will not solicit, encourage, initiate or
participate in any discussion regarding a business combination of INT'L.com with
any other party. INT'L.com has further agreed to use its reasonable best efforts
to ensure that none of its officers, directors, stockholders, agents,
representatives and affiliates do any of these things.
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TERMINATION OF THE AGREEMENT AND PLAN OF REORGANIZATION
(PAGE 54)
The agreement and plan of reorganization may be terminated in the following
ways at any time prior to the effective time of the merger:
- Lionbridge and INT'L.com may terminate the agreement and plan of
reorganization by mutual written consent;
- Lionbridge may terminate the agreement and plan of reorganization if it is
not in material breach of any representation, warranty, covenant or
agreement contained in the agreement and plan of reorganization and
INT'L.com is in material breach of any representation, warranty, covenant
or agreement contained in the agreement and plan of reorganization;
- INT'L.com may terminate the agreement and plan of reorganization if it is
not in material breach of any representation, warranty, covenant or
agreement contained in the agreement and plan of reorganization and
Lionbridge is in material breach of any representation, warranty, covenant
or agreement contained in the agreement and plan of reorganization; or
- Either party may terminate the agreement and plan of reorganization by
giving written notice to the other party if the effective time of the
merger has not occurred on or before June 30, 2000.
In addition, the agreement and plan of reorganization may be terminated by
INT'L.com upon the payment of a termination fee, equal to 5% of the aggregate
merger purchase price, to Lionbridge if it has complied with its obligation
under the agreement and plan of reorganization and the stockholders of INT'L.com
owning a majority of the voting power fail to approve and adopt the merger and
the agreement and plan of reorganization.
OPINION OF FINANCIAL ADVISOR
(PAGE 33)
In deciding to approve the merger, Lionbridge's board of directors received
an opinion from its financial advisor Prudential Securities Incorporated as to
the fairness of the purchase price from a financial point of view. The full text
of the opinion is attached as Annex B to this joint proxy statement/prospectus
and should be read carefully in its entirety. THE OPINION OF PRUDENTIAL
SECURITIES IS DIRECTED TO THE BOARD OF DIRECTORS OF LIONBRIDGE AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER WITH RESPECT TO MATTERS RELATING
TO THE MERGER.
INTERESTS OF EXECUTIVE OFFICERS AND
DIRECTORS OF INT'L.COM IN THE MERGER
(PAGE 36)
In considering the recommendation of the INT'L.com board of directors, you
should be aware of the interests that the executive officers and directors of
INT'L.com have in the merger. These interests include:
- acceleration of the lapse of INT'L.com's repurchase right;
- employment agreements;
- indemnification of directors and officers; and
- becoming officers and/or directors of Lionbridge.
In discussing the fairness of the merger to stockholders of INT'L.com,
INT'L.com's board of directors took these interests into account. These
interests are different from and in addition to your interests as stockholders.
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As of February 29, 2000, executive officers and directors of INT'L.com held
options to purchase 454,480 shares of INT'L.com Series A common stock, all of
which are currently exercisable, and 2,650,286 shares of INT'L.com Series A
common stock and Series B common stock, 466,038 shares of Series A preferred
stock, 94,087 shares of Series B preferred stock and 4,447 shares of Series C
preferred stock. All of these shares, as well as any shares acquired upon
exercise of options, are subject to INT'L.com's right of repurchase at specified
prices based upon whether certain vesting criteria have been satisfied.
Lionbridge has entered into employment and noncompetition agreements with
Roger O. Jeanty and Steven L. Fingerhood, which will become effective upon
completion of the merger. These agreements provide for base salary, bonus plan
participation, noncompetition provisions and other restrictive covenants and
severance payments.
ACCOUNTING TREATMENT
(PAGE 41)
Lionbridge expects the merger to qualify as a pooling of interests under
United States generally accepted accounting principles. This means that, for
accounting and financial reporting purposes, Lionbridge will treat Lionbridge
and INT'L.com as if they had always been a combined entity.
REGULATORY APPROVALS
(PAGE 41)
While no antitrust approvals are required to consummate the merger, at any
time before the effective time of the merger, the Antitrust Division of the
Department of Justice, the Federal Trade Commission or a private person or
entity could seek under antitrust laws, among other things, to enjoin the merger
and any time after the effective time of the merger, to cause Lionbridge to
divest itself, in whole or in part, of the surviving corporation of the merger
or of certain businesses conducted by the surviving corporation of the merger.
MATERIAL UNITED STATES
FEDERAL INCOME TAX CONSIDERATIONS
(PAGE 41)
We have structured the merger so that no gain or loss generally will be
recognized by INT'L.com stockholders for federal income tax purposes on the
exchange of shares of INT'L.com Series A common stock, Series B common stock,
Series A preferred stock, Series B preferred stock, Series C preferred stock or
Series D preferred stock for shares of Lionbridge common stock.
Tax matters are very complicated, and the tax consequences of the merger to
you will depend on the facts of your own situation. You should consult your tax
advisor for a full understanding of the tax consequences of the merger to you.
INT'L.COM STOCKHOLDERS'
RIGHT OF APPRAISAL
(PAGE 113)
Under Delaware law, INT'L.com stockholders who vote against the merger and
comply with notice requirements and other procedures will have the right to
receive the "fair value" of their shares in cash rather than the Lionbridge
common stock specified in the agreement and plan of reorganization. "Fair value"
will be determined by a Delaware court and may be more than, the same as, or
less than the value of the consideration to be paid to other INT'L.com
stockholders. In addition to reading "Appraisal Rights," see Annex C which sets
forth Section 262 of the Delaware General Corporation Law.
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HOW THE RIGHTS OF
INT'L.COM STOCKHOLDERS
WILL DIFFER AS A
LIONBRIDGE STOCKHOLDER
(PAGE 115)
The rights of investors as stockholders of Lionbridge after the merger will
be governed by Lionbridge's charter and by-laws. Those rights differ from rights
of INT'L.com stockholders under INT'L.com's charter and by-laws.
FORWARD-LOOKING STATEMENTS
MAY PROVE INACCURATE
(PAGE 9)
We have made forward-looking statements in this document that are subject to
risks and uncertainties. Forward-looking statements include the information
concerning possible or assumed future results of operations of Lionbridge,
including the anticipated cost savings and revenue enhancements from the merger.
Also, when we use words such as "believes", "expects", "anticipates" or similar
expressions, we are making forward-looking statements. Stockholders should note
that many factors could affect the future financial results of Lionbridge and
INT'L.com, and could cause these results to differ materially from those
expressed in our forward-looking statements. These factors include the
following:
- the risk that we are unable to achieve the anticipated cost savings and
revenue enhancements;
- the risk that we encounter greater than expected costs and difficulties
related to the integration of the businesses of Lionbridge and INT'L.com;
- the risk that customers of Lionbridge and INT'L.com may delay or cancel
orders as a result of concerns over the merger
- economic, political and competitive forces affecting our businesses; and
- the risk that our analyses of these risks and forces could be incorrect
and/or that the strategies developed to address them could be
unsuccessful.
LIONBRIDGE PRICE INFORMATION
(PAGE 23)
Shares of Lionbridge common stock are listed on the Nasdaq National Market.
On January 19, 2000, the last full trading day prior to the public announcement
of the proposed merger, Lionbridge common stock closed at $21.25 per share. On
, 2000, Lionbridge common stock closed at $ per share.
INT'L.com common stock is not publicly traded.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS RELATING TO THE
MERGER BEFORE YOU DECIDE WHETHER TO VOTE TO APPROVE AND ADOPT THE AGREEMENT AND
PLAN OF REORGANIZATION AND THE PROPOSED ISSUANCE OF LIONBRIDGE COMMON STOCK IN
CONNECTION WITH THE MERGER. YOU SHOULD ALSO CONSIDER THE OTHER INFORMATION IN
THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE ADDITIONAL INFORMATION IN
LIONBRIDGE'S OTHER REPORTS ON FILE WITH THE SEC. SEE "WHERE YOU CAN FIND MORE
INFORMATION" ON PAGE 124.
RISKS RELATING TO THE MERGER
LIONBRIDGE MAY FACE CHALLENGES IN INTEGRATING LIONBRIDGE AND INT'L.COM AND,
AS A RESULT, MAY NOT REALIZE THE EXPECTED BENEFITS OF THE ANTICIPATED
MERGER.
Integrating the operations, technologies, services and personnel of
Lionbridge and INT'L.com will be a complex process, and Lionbridge is uncertain
that the integration will be completed rapidly or will achieve the anticipated
benefits of the merger. The successful integration of our companies will
require, among other things, integration of our sales and marketing groups and
our consulting and service delivery organizations. The diversion of the
attention of our management and any difficulties encountered in the process of
combining our companies could cause the disruption of, or a loss of momentum in,
the activities of the combined company's business. Further, the process of
combining our companies could negatively affect employee morale and the ability
of the combined company to retain some of its key employees after the merger.
The inability to successfully integrate the operations and personnel of
Lionbridge and INT'L.com, or any significant delay in achieving integration,
could have a material adverse effect on the business, financial condition and
operating results of the combined company after the merger.
LIONBRIDGE'S STOCK PRICE IS VOLATILE AND THE VALUE OF THE LIONBRIDGE COMMON
STOCK ISSUED IN THE MERGER WILL DEPEND ON ITS MARKET PRICE AT THE TIME OF
THE MERGER, AND NO ADJUSTMENT WILL BE MADE AS A RESULT OF CHANGES IN THE
MARKET PRICE OF LIONBRIDGE'S COMMON STOCK.
Under the agreement and plan of reorganization, the conversion ratios used
to determine the number of shares of Lionbridge's common stock that INT'L.com
stockholders will receive is unaffected by the share price of Lionbridge's
common stock. Increases in the value of Lionbridge's common stock will result in
a higher price being paid by Lionbridge for INT'L.com and more value received by
INT'L.com stockholders in the merger. Decreases in the value of Lionbridge's
common stock will result in a lower price being paid by Lionbridge for INT'L.com
and less value received by INT'L.com's stockholders in the merger. It is likely
that you will not know the value of Lionbridge's common stock to be issued in
the merger at the time of either the Lionbridge special meeting of stockholders
or the INT'L.com special meeting of stockholders. Under the agreement and plan
of reorganization, neither Lionbridge nor INT'L.com will have the right to
terminate or renegotiate the agreement and plan of reorganization or to
resolicit proxies as a result of any increase or decrease in the value of
Lionbridge's common stock. The market price of Lionbridge's common stock, like
that for the shares of many other high technology and Internet-related
companies, has been and may continue to be volatile. Recently, the stock market
in general and the shares of software and Internet-related companies in
particular have experienced significant price fluctuations. The market price may
continue to fluctuate significantly in response to various factors, including:
- quarterly variations in operating results;
- the announcement of technological innovations;
- the introduction of new services by Lionbridge and its competitors;
- changes in estimates by securities analysts;
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- market conditions in the industry;
- announcements and actions by competitors;
- regulatory and judicial actions; and
- general economic conditions.
SIGNIFICANT MERGER-RELATED CHARGES AGAINST EARNINGS WILL INCREASE
LIONBRIDGE'S LOSSES IN THE QUARTER IN WHICH WE CONSUMMATE THE MERGER AND
DURING THE POST-MERGER INTEGRATION PERIOD.
We expect to incur charges of approximately $1.5 million in connection with
the merger which relates to financial advisory, legal and accounting services
and other integration costs. These costs may be higher than we anticipate. In
addition, we may incur other additional unanticipated merger costs. These costs
may delay the anticipated benefits of the merger. Some of these nonrecurring
costs will be charged to operations in the fiscal quarter in which the merger is
consummated while others will be expensed as incurred during the post-merger
integration period. The Unaudited Pro Forma Combined Condensed Balance Sheet
reflects these estimated transaction costs, but the effects of these costs are
not reflected in the Unaudited Pro Forma Combined Condensed Statements of
Operations.
CUSTOMERS OF LIONBRIDGE AND INT'L.COM MAY DELAY OR CANCEL ORDERS AS A RESULT
OF CONCERNS OVER THE MERGER.
The announcement and closing of the merger could cause customers and
potential customers of Lionbridge and INT'L.com to delay or cancel orders for
services as a result of customer concerns and uncertainty over integration and
support over the combined company's services. Such a delay or cancellation of
orders could have a material adverse effect on the business, operating results
and financial condition of Lionbridge or INT'L.com.
RISKS RELATING TO LIONBRIDGE
LIONBRIDGE'S REVENUE COULD BE NEGATIVELY AFFECTED BY THE DELAY OF ONE OF ITS
CLIENTS' PRODUCT RELEASES OR THE LOSS OF A MAJOR CLIENT.
A significant portion of Lionbridge's revenue is linked to the product
release cycle of its clients. As a result, Lionbridge performs 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, Lionbridge derives a
significant portion of its revenues from large projects and programs for a
limited number of clients. In 1999, IBM accounted for approximately 15% of
Lionbridge's revenue and Lionbridge's five largest clients (including IBM)
accounted for approximately 35% of its revenue. In 1998, IBM accounted for
approximately 14% of Lionbridge's revenue and its five largest clients
(including IBM) accounted for approximately 39% of its revenue. As a result, the
loss of any major client or a significant reduction in a large project's scope
could materially reduce its revenue and cash flow, and adversely affect its
ability to achieve and maintain profitability.
LIONBRIDGE GENERALLY DOES NOT HAVE LONG-TERM CONTRACTS, WHICH MAKES REVENUE
FORECASTING DIFFICULT.
A majority of Lionbridge's revenue is derived from individual projects
rather than long-term contracts. Lionbridge cannot assure you that a client will
engage it 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 Lionbridge's future revenues based on the
number of clients Lionbridge has or the size of its existing projects. The
absence of long-term contracts makes it difficult to predict Lionbridge's future
revenues.
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LIONBRIDGE HAS AN ACCUMULATED DEFICIT, IS NOT CURRENTLY PROFITABLE, AND
ANTICIPATES FUTURE LOSSES.
Lionbridge had an accumulated deficit of approximately $32.5 million as of
December 31, 1999 and a net loss of $17.6 million for the year ended
December 31, 1999. Although Lionbridge's revenues have grown significantly since
1997, this growth may not be sustainable or indicative of future results of
operations. Lionbridge intends to continue to invest in internal expansion,
infrastructure, integration of its acquired companies into existing operations,
select acquisitions, and sales and marketing efforts. In addition, Lionbridge's
previous acquisitions have significantly increased its intangible assets, such
as goodwill, and the charges it expects to incur in connection with the
amortization of these intangible assets will have a material adverse impact on
its ability to achieve and maintain profitability for the foreseeable future.
Lionbridge cannot predict when it will operate profitably, if ever.
IF LIONBRIDGE'S LOSSES CONTINUE, IT WILL NEED TO RAISE ADDITIONAL CAPITAL.
IF IT IS UNABLE TO DO SO OR IT DOES SO ON UNFAVORABLE TERMS, THE VALUE OF
LIONBRIDGE STOCK MAY DECLINE.
If Lionbridge's losses continue, it will be unable to pay its expenses
unless it raises additional capital. If Lionbridge needs to raise additional
capital but is unable to do so, it may not be able to continue as a going
concern. If Lionbridge needs to raise additional capital but is able to do so
only on unfavorable terms, the value of Lionbridge stock may decline.
POTENTIAL FLUCTUATIONS IN LIONBRIDGE'S QUARTERLY RESULTS MAKE FINANCIAL
FORECASTING DIFFICULT AND COULD AFFECT ITS COMMON STOCK TRADING PRICE.
As a result of fluctuations in Lionbridge's revenues tied to its clients'
product release cycles, the length of its sales cycle, rapid growth,
acquisitions, the emerging nature of the markets in which it competes, and other
factors outside its control, Lionbridge believes 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 Lionbridge's
future performance. Lionbridge may not experience revenue increases in future
years comparable to the revenue increases in prior years. If, in some future
quarter, Lionbridge's results of operations were to fall below the expectations
of securities analysts and investors, the trading price of Lionbridge stock
would likely decline.
IF LIONBRIDGE FAILS TO ATTRACT AND RETAIN PROFESSIONAL STAFF, ITS ABILITY TO
COMPLETE ITS PROJECTS AND OBTAIN NEW PROJECTS COULD SUFFER.
Lionbridge's failure to attract and retain qualified employees could impair
its ability to complete existing projects and bid for or obtain new projects
and, as a result, could have a material adverse effect on its business and
revenues. Lionbridge's ability to grow and increase its market share largely
depends on its 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 provided by Lionbridge.
In addition, Lionbridge must make sure its employees maintain their technical
expertise and business skills. Lionbridge cannot assure you that it will be able
to attract a sufficient number of qualified employees or that Lionbridge will
successfully train and manage the employees hired.
LIONBRIDGE MAY BE UNABLE TO CONTINUE TO GROW AT ITS HISTORICAL GROWTH RATES
OR TO MANAGE ITS GROWTH EFFECTIVELY.
Continued, planned growth is a key component of increasing the value of
Lionbridge's common stock. In the past three years, its business has grown
significantly and Lionbridge anticipates future internal growth and growth
through acquisitions. From December 31, 1996 to December 31, 1999, Lionbridge's
staff increased from approximately 270 to approximately 480 employees. This
rapid growth places a significant demand on management and operational
resources. In order to manage growth
11
<PAGE>
effectively, Lionbridge must implement and improve its operational systems and
controls. Lionbridge could also be adversely affected by many other factors,
including economic downturns. As a result of these concerns, Lionbridge cannot
be sure that it will continue to grow, or, if it does grow, that it will be able
to maintain its historical growth rate.
LIONBRIDGE'S OUTSOURCE ACQUISITION STRATEGY MAY CAUSE IT TO LOSE MONEY.
Part of Lionbridge's 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, Lionbridge's strategy is to buy these operations
with the objective of recouping its up-front purchase price out of future
revenues from the sellers. If Lionbridge pays too much for these acquisitions or
these contracts prove unprofitable, its revenues and profitability will suffer.
LIONBRIDGE'S INTANGIBLE ASSETS REPRESENT A SIGNIFICANT PORTION OF ITS
ASSETS; AMORTIZATION OF ITS INTANGIBLE ASSETS WILL ADVERSELY IMPACT
LIONBRIDGE'S NET INCOME, AND LIONBRIDGE MAY NEVER REALIZE THE FULL VALUE OF
ITS INTANGIBLE ASSETS.
Lionbridge's 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 December 31, 1999, Lionbridge had goodwill
and other acquisition-related intangible assets of approximately $8.3 million,
net of accumulated amortization, which represented approximately 23% of its
total assets. The amount of goodwill associated with Lionbridge's acquisition of
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 VeriTest are
fully met. Lionbridge will continue to incur non-cash charges in connection with
the amortization of its intangible assets over their respective useful lives,
and Lionbridge expects these charges will have a significant adverse impact on
its ability to achieve and maintain profitability for the foreseeable future.
Lionbridge cannot assure you that it will ever realize the value of these
intangible assets. In the future, as events or changes in circumstances indicate
that the carrying amount of its intangible assets may not be recoverable,
Lionbridge will evaluate the carrying value of its intangible assets and may
take an accelerated charge to its 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.
LIONBRIDGE MAY HAVE DIFFICULTY IN IDENTIFYING AND COMPETING FOR ACQUISITION
OPPORTUNITIES.
Lionbridge's business strategy includes the pursuit of strategic
acquisitions. From time to time, Lionbridge has engaged in discussions with
third parties concerning potential acquisitions of niche expertise, businesses,
and operations. Except for Lionbridge's January 2000 agreement, as amended and
restated in March 2000, to acquire INT'L.com, its January 2000 acquisition of
certain assets and operations of Nortel Networks and its March 2000 agreement to
acquire Harvard Translations, Inc., Lionbridge currently does not have
commitments or agreements with respect to any acquisitions. In executing its
acquisition strategy, Lionbridge may be unable to identify suitable acquisition
candidates. In addition, Lionbridge expects 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 its growth strategy, Lionbridge intends to pursue and make
acquisitions of other complementary businesses. Lionbridge does not have
specific personnel dedicated solely to pursuing
12
<PAGE>
and making acquisitions. As a result, if it pursues any acquisition,
Lionbridge's 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 Lionbridge's existing
business. To pay for future acquisitions, Lionbridge might use capital stock,
cash or a combination of both. Alternatively, Lionbridge may borrow money from a
bank or other lender. If it uses capital stock, its stockholders will experience
dilution. If Lionbridge uses cash or debt financing, its 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 Lionbridge's ability to achieve and
maintain profitability.
IF LIONBRIDGE FAILS TO KEEP PACE WITH CHANGING TECHNOLOGIES, IT MAY LOSE
CLIENTS.
Lionbridge's market is characterized by rapidly changing client
requirements, and evolving technologies and industry standards. If Lionbridge
cannot keep pace with these changes, its business could suffer. The Internet's
recent growth and strong influence in Lionbridge's industry magnifies these
characteristics. To achieve its goals, Lionbridge needs to develop strategic
business solutions and methodologies that keep pace with continuing changes in
industry standards, information technology, and client preferences.
IF LIONBRIDGE LOSES THE SERVICES OF ITS PRESIDENT AND CHIEF EXECUTIVE
OFFICER, RORY J. COWAN, OR OTHER KEY PERSONNEL, ITS BUSINESS AND STOCK PRICE
COULD SUFFER.
In order to continue to provide quality services in its rapidly changing
business, Lionbridge believes it is particularly important to retain personnel
with experience and expertise relevant to its business. Lionbridge's future
success, therefore, depends in large part on the continued services of a number
of its key personnel, including its President and Chief Executive Officer, Rory
J. Cowan. The loss of the services of Mr. Cowan or any of Lionbridge's other key
personnel could seriously impede its success. Lionbridge might not be able to
prevent key personnel, who may leave Lionbridge's employ in the future, from
disclosing or using Lionbridge's technical knowledge, practices or procedures.
One or more of Lionbridge's key personnel might resign and join a competitor or
form a competing company. As a result, Lionbridge might lose existing or
potential clients.
DIFFICULTIES PRESENTED BY INTERNATIONAL ECONOMIC, POLITICAL, LEGAL,
ACCOUNTING, AND BUSINESS FACTORS COULD NEGATIVELY AFFECT LIONBRIDGE'S
BUSINESS IN INTERNATIONAL MARKETS.
A large component of Lionbridge's operations is its ability to conduct
business in international markets, as evidenced by the fact that a majority of
its current operations are outside of the United States. As a result,
Lionbridge's business is subject to the political and economic fluctuations in
various countries, including Japan and other Asian countries. For example, in
the past, Lionbridge has experienced periods of slowdowns in revenue growth as
its clients reassessed their strategies in China and Japan based on political
and economic conditions.
Lionbridge must employ and retain personnel throughout the world.
Furthermore, employment laws vary widely from country to country where it
operates. To date, Lionbridge has been able to successfully staff its
international operations, but if Lionbridge continues to grow its operations, it
may become more difficult to manage its business. If Lionbridge fails to manage
these operations successfully, its ability to service its clients and grow our
business will be seriously impeded.
Lionbridge has experienced long payment cycles and occasional problems in
collecting accounts receivable originating outside of the United States.
Lionbridge has experienced foreign currency fluctuations and they may have a
more significant impact on Lionbridge revenues, cash flow and ability to achieve
and maintain profitability as it attempts to grow its business.
13
<PAGE>
LIONBRIDGE COMPETES IN A HIGHLY COMPETITIVE MARKET THAT HAS LOW BARRIERS TO
ENTRY.
The market for Lionbridge's services is very competitive and it faces many
competitors. Lionbridge cannot assure you that it 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 Lionbridge fails to be competitive with these
companies in the future, it may lose market share and its revenues could fail to
grow or could decline.
There are relatively few barriers preventing companies from competing with
Lionbridge. Lionbridge does 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 Lionbridge's business. In addition to Lionbridge's existing
competitors, it 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 Lionbridge currently uses translation memory
software and, to a lesser extent, machine translation software in its
localization process, these technologies may improve and become sophisticated
enough to enable more companies to offer localization services and thus to
compete with Lionbridge. Lionbridge cannot assure you that it will be able to
compete effectively with these potential future competitors.
STOCKHOLDERS SHOULD NOT EXPECT TO RECEIVE DIVIDENDS FROM LIONBRIDGE.
Lionbridge's commercial credit facility and subordinated debt restrict its
ability to pay dividends and it does not expect to declare or pay any cash
dividends in the near future.
RISKS RELATING TO INT'L.COM
INT'L.COM'S REVENUE COULD BE NEGATIVELY AFFECTED BY THE DELAY OF ONE OF ITS
CLIENTS' PRODUCT RELEASES.
A significant portion of INT'L.com's revenue is linked to the product
release cycle of its clients. As a result, INT'L.com performs 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
INT'L.com's services in another year. Furthermore, INT'L.com often performs its
services at the end of its clients' project release cycles. As a result, any
delays caused by product cycles could delay revenues or a significant reduction
in a large project's scope could materially reduce INT'L.com's revenue and cash
flow, and adversely affect its ability to achieve and maintain profitability.
INT'L.COM'S REVENUE COULD BE NEGATIVELY AFFECTED BY THE LOSS OF A MAJOR
CLIENT.
INT'L.com derives a significant portion of its revenues from large projects
and programs for a limited number of clients. In 1999, Hewlett-Packard and
Microsoft accounted for approximately 24% of INT'L.com's revenue. In 1999,
INT'L.com's five largest clients (including Hewlett-Packard and Microsoft)
accounted for approximately 37% of its revenue. In 1998, Microsoft accounted for
approximately 16% of INT'L.com's revenue and INT'L.com's five largest clients
(including Microsoft) accounted for approximately 32% of all its revenues. As a
result, the loss of any major client could materially reduce INT'L.com's revenue
and cash flow, and adversely affect its ability to achieve and maintain
profitability.
INT'L.COM GENERALLY DOES NOT HAVE LONG-TERM CONTRACTS, WHICH MAKES REVENUE
FORECASTING DIFFICULT.
Historically, a majority of INT'L.com's revenue is derived from individual
projects rather than long-term contracts. There can be no assurances that a
client will engage INT'L.com for further services once a project is completed or
that a client will not unilaterally reduce the scope of, or
14
<PAGE>
terminate, existing projects. The absence of long-term contracts makes it
difficult to predict INT'L.com's future revenues.
INT'L.COM'S LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO PREDICT ITS
SUCCESS.
INT'L.com was formed in August 1998 as a result of a merger and
consolidation of the localization businesses and assets of Direct Language
Communications, Inc. and International Communications, Inc. (which prior to the
consolidation had acquired Sprache und Dokumentation GmbH). In 1999, INT'L.com
acquired the localization businesses of International Language Engineering
Corporation and Motus! S.A.R.L. As a result, INT'L.com has a brief operating
history as a consolidated company upon which one can evaluate its business and
prospects. As a result, INT'L.com's historical results of operations may not
present an accurate indication of its future results of operations or prospects.
INT'L.com, as a consolidated company, is in an early stage of development and
the market for some of its services is new and rapidly evolving and changing.
INT'L.com cannot be sure that it will be successful in meeting the challenges it
faces. If it is unable to do so, INT'L.com's business may not be successful and
the value of any investment in INT'L.com may decline.
INT'L.COM IS CURRENTLY NOT PROFITABLE AND EXPECTS TO INCUR FUTURE LOSSES.
INT'L.com experienced operating losses in 1999 due to integration issues
associated with acquisitions, product introduction cycles and the delay of
projects related to year 2000 issues. INT'L.com expects revenues to increase in
fiscal 2000 as its web-integration initiatives accelerate. However, this growth
may not occur and if INT'L.com's revenues do grow, the growth may not be
sustainable or indicative of future results of operations. INT'L.com intends to
continue to invest in internal expansion, infrastructure, technological growth,
integration of its acquired companies into existing operations and sales and
marketing efforts.
INT'L.COM'S OPERATING RESULTS ARE LARGELY DEPENDENT UPON THE CONTINUED
DEVELOPMENT AND ACCEPTANCE OF INTERNET COMMERCE.
The market for Internet services and products is rapidly evolving and
INT'L.com's industry had an increasing number of market entrants that have
introduced and developed products and services for Internet commerce that
compete with INT'L.com. INT'L.com's future operating results depend upon the
development and growth of the market for Internet-based technical language
services. The widespread acceptance of electronic commerce in general and, in
particular, the Internet as a sales, marketing, order receipt and processing
medium is highly uncertain and subject to a number of risks. The following
critical issues remain unresolved and may impact the growth of Internet
commerce: security, reliability, ease of use, quality, service and government
regulation. If the Internet commerce market fails to continue to develop or
develops more slowly than expected, INT'L.com's business, operating results and
financial condition could be materially adversely affected.
GOVERNMENT REGULATION OF AND LEGAL UNCERTAINTIES RELATING TO THE INTERNET
MAY ADVERSELY AFFECT INT'L.COM'S ABILITY TO MARKET PRODUCTS FACILITATING
INTERNET COMMERCE.
INT'L.com is not currently subject to direct regulation by any U.S.
government agency, other than regulations applicable to businesses generally,
and there are currently few laws or regulations directly applicable to access
to, or commerce on, the Internet. Moreover, the applicability to the Internet of
existing laws governing issues such as property ownership, libel and personal
privacy is uncertain. However, due to the increasing popularity and use of the
Internet, it is possible that a number of laws and regulations may be adopted
with respect to the Internet both in the U.S. and internationally, covering
issues such as user privacy, taxation, the content of products and the nature of
services. The adoption of any such laws or regulations may decrease the growth
of the Internet or inhibit electronic
15
<PAGE>
commerce, which could in turn adversely affect INT'L.com's business, operating
results or financial condition.
INT'L.COM IS GROWING RAPIDLY AND MANAGING ITS GROWTH EFFECTIVELY MAY BE
DIFFICULT.
INT'L.com's business and its employee base have expanded significantly in
the past two years through acquisitions. Continued, planned growth is a key
component of INT'L.com's growth strategy. In the past year and a half,
INT'L.com's business has grown significantly and INT'L.com anticipates future
internal growth. From August 1998 to December 31, 1999, INT'L.com's staff
increased from approximately 120 to approximately 450 employees. This rapid
growth places a significant demand on management and operational resources. In
order to manage growth effectively, INT'L.com must implement and improve its
operational systems and controls. INT'L.com could also be adversely affected by
many other factors, including economic downturns. As a result of these concerns,
there can be no assurance that INT'L.com will continue to grow, or, if it does
grow, that it will be able to maintain its historical growth rate.
INT'L.COM MAY BE UNABLE TO HIRE AND RETAIN THE SKILLED PERSONNEL IT NEEDS,
AND ITS ABILITY TO COMPLETE ITS PROJECTS AND OBTAIN NEW PROJECTS COULD
SUFFER.
Qualified personnel are in great demand throughout the information
technology industry. There is a significant shortage of, and intense competition
for, personnel who are qualified to perform the services provided by INT'L.com.
INT'L.com's success depends in large part upon its ability to attract, motivate,
train and retain highly skilled employees, particularly senior personnel,
project managers, research and development personnel and technical, translation,
sales and marketing personnel. INT'L.com's failure to attract and retain
qualified employees could impair its ability to complete existing projects and
bid for or obtain new projects and, as a result, could have a material adverse
effect on its business and revenues. In addition, INT'L.com must make sure its
employees maintain their technical expertise and business skills. INT'L.com
cannot assure you that it will be able to attract a sufficient number of
qualified employees or that INT'L.com will successfully train and manage the
employees hired.
INT'L.COM WILL CONTINUE TO DEPEND ON INTELLECTUAL PROPERTY RIGHTS TO PROTECT
ITS PRODUCTS AND SERVICES ALTHOUGH IT MAY NOT BE ABLE TO PROTECT SUCH
RIGHTS.
INT'L.com's success is dependent to a significant degree on its proprietary
technology, including the Foreign Desk-Registered Trademark- Globalization
Suite, and its ability to deploy new Webstream services for clients. INT'L.com
provides its products and services to end users generally under non-exclusive,
non-transferable licenses for the term of the agreement. INT'L.com's policy is
to enter into confidentiality agreements with its employees, consultants and
independent contractors and to use its best efforts to control access to, and
distribution of, its documentation and other proprietary information. INT'L.com
also uses patent, trademark, trade secret and copyright law, in addition to
contractual restrictions to protect its technology. Notwithstanding these
precautions, it may be possible for a third party to copy or otherwise obtain
and use INT'L.com's proprietary information without authorization. Although
INT'L.com holds three registered or pending United States patents and two
registered or pending foreign patents covering certain aspects of its
translation technology, it cannot be sure of the degree of intellectual property
protection such patents will provide. Policing unauthorized use of INT'L.com's
intellectual property is difficult, particularly because the global nature of
the Internet makes it difficult to control the ultimate destination or security
of data transmitted. The laws of other countries may afford INT'L.com little or
no effective protection of its intellectual property. There can be no assurance
that the steps taken by INT'L.com will prevent misappropriation of its
technology and proprietary information or that agreements entered into for that
purpose would be enforceable.
16
<PAGE>
OTHER PARTIES MAY CLAIM THAT INT'L.COM HAD INFRINGED THEIR INTELLECTUAL
PROPERTY RIGHTS AND SUCH CLAIMS MAY INTERRUPT INT'L.COM'S REGULAR BUSINESS
OPERATIONS.
In recent years, there has been significant litigation in the United States
involving patents, trademarks and other intellectual property rights. INT'L.com
could incur substantial costs to prosecute or defend any such litigation.
Although INT'L.com is not currently involved in any intellectual property
litigation, it may be a party to litigation in the future to protect its
intellectual property or as a result of an alleged infringement of others
intellectual property, forcing INT'L.com to do one or more of the following:
- Cease using products or services that incorporate the challenged
intellectual property;
- Obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms; and
- Redesign those products or services that incorporate such intellectual
property.
If INT'L.com were to litigate to enforce its rights, it would be expensive,
divert management resources and may not be adequate to protect its business.
BECAUSE OF THE CRITICAL NATURE OF THE SERVICES INT'L.COM PROVIDES TO ITS
CLIENTS, INT'L.COM MAY BE LIABLE FOR DEFECTS OR ERRORS IN THE SOLUTIONS IT
DEVELOPS.
Many of the services INT'L.com provides are critical to its clients'
businesses. Any defects or errors in these solutions could result in any one or
more of the following: delayed or lost client revenues; adverse reaction to
INT'L.com's clients from their end users and, ultimately, toward INT'L.com;
claims against INT'L.com; negative publicity; and additional expenditures to
correct the problem.
Liability claims could require INT'L.com to spend significant time and money
in litigation or to pay significant damages. Although INT'L.com maintains
general liability insurance, including coverage for errors and omissions,
INT'L.com 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 such claim.
IF INT'L.COM FAILS TO KEEP PACE WITH CHANGING TECHNOLOGIES, PARTICULARLY
CHANGES IN INTERNET TECHNOLOGY, IT MAY LOSE CLIENTS.
INT'L.com's market is characterized by rapidly changing client requirements,
and evolving technologies and industry standards. If INT'L.com cannot keep pace
with these changes, its business could suffer. The Internet's recent growth and
strong influence in INT'L.com's industry magnifies these characteristics. To
achieve its goals, INT'L.com needs to develop strategic business solutions and
methodologies that keep pace with continuing changes in industry standards,
information technology, and client preferences. INT'L.com can not be certain
that it will successfully develop and market new products and services, new
product enhancements or new products compliant with present and emerging
Internet technology standards. Any delays in developing and releasing enhanced
or new products and services could have a material adverse effect on INT'L.com's
business, operating results and financial condition.
IF INT'L.COM LOSES THE SERVICES OF ITS KEY PERSONNEL, ITS BUSINESS COULD
SUFFER.
In order to continue to provide quality services in its rapidly changing
business, INT'L.com believes it is particularly important to retain personnel
with experience and expertise relevant to its business. INT'L.com's future
success, therefore, depends in large part on the continued services of Roger O.
Jeanty, its current Chief Executive Officer. The loss of the services of
Mr. Jeanty or any of
17
<PAGE>
INT'L.com's other key personnel could seriously impede its success. INT'L.com
might not be able to prevent key personnel, who may leave INT'L.com's employ in
the future, from disclosing or using INT'L.com's technical knowledge, practices
or procedures. One or more of INT'L.com's key personnel might resign and join a
competitor or form a competing company. As a result, INT'L.com might lose
existing or potential clients.
DIFFICULTIES PRESENTED BY INTERNATIONAL ECONOMIC, POLITICAL, LEGAL,
ACCOUNTING, AND BUSINESS FACTORS COULD NEGATIVELY AFFECT INT'L.COM'S
BUSINESS IN INTERNATIONAL MARKETS.
A large component of INT'L.com's operations is its ability to conduct
business in international markets. As a result, INT'L.com's business is subject
to the political and economic fluctuations in various countries, including Japan
and other Asian countries.
INT'L.com must employ and retain personnel throughout the world. Employment
laws vary widely from country to country where it operates. To date, INT'L.com
has been able to successfully staff its international operations, but if
INT'L.com continues to grow its operations, it may become more difficult to
manage its business. If INT'L.com fails to manage these operations successfully,
its ability to service its clients and grow its business will be seriously
impeded.
INT'L.com has experienced foreign currency fluctuations and currency
conversion risks and they may have a more significant impact on INT'L.com
revenues, cash flow and ability to achieve and maintain profitability as it
attempts to grow its business.
INT'L.COM COMPETES IN A HIGHLY COMPETITIVE MARKET THAT HAS LOW BARRIERS TO
ENTRY.
The market for INT'L.com's services is very competitive and INT'L.com faces
many competitors. INT'L.com cannot be assured that it 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 INT'L.com. If INT'L.com fails to be competitive with these
companies in the future, its revenues could fail to grow or could decline.
There are relatively few barriers preventing companies from competing with
INT'L.com. In addition to INT'L.com's existing competitors, it 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 INT'L.com currently uses translation memory software and, to a lesser
extent, machine translation software in its localization process, these
technologies may improve and become sophisticated enough to enable more
companies to offer localization services and thus to compete with INT'L.com.
INT'L.com cannot assure you that it will be able to compete effectively with
these potential future competitors.
18
<PAGE>
SELECTED FINANCIAL DATA OF LIONBRIDGE AND INT'L.COM
The following information is being provided to assist in analyzing the
financial aspects of the merger.
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 those localization businesses.
As a result, the accounting information required to prepare financial statements
for any period prior to 1996 is not available and, therefore, selected financial
data cannot be presented for 1995.
The selected financial data presented for Lionbridge for the year ended
December 31, 1996 relate to Stream's European localization businesses and have
been derived from the combined financial statements of The Localization
Businesses of Stream International Holdings, Inc. in Ireland, The Netherlands
and France. These statements have been audited by PricewaterhouseCoopers LLP,
independent public accountants. The selected financial data for Lionbridge as of
December 31, 1999, 1998, 1997 and 1996, and for the years ended December 31,
1999, 1998 and 1997 have been derived from the consolidated financial statements
of Lionbridge. These statements have been audited by PricewaterhouseCoopers LLP,
independent public accountants. Lionbridge's audited consolidated financial
statements as of December 31, 1999 and 1998 and for each of the three years in
the period ended December 31, 1999 are included elsewhere in this joint proxy
statement/prospectus. 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, no selected
financial data is presented for this period.
The selected financial data presented for INT'L.com as of December 31, 1999,
1998, 1997 and 1996 and for the years then ended have been derived from
INT'L.com's consolidated financial statements. These statements have been
audited by Arthur Andersen LLP, independent public accountants. The selected
financial data presented for INT'L.com as of December 31, 1995 and for the year
then ended have been derived from INT'L.com's unaudited financial statements.
INT'L.com's audited consolidated financial statements as of December 31, 1999
and 1998 and for each of the three years in the period ended December 31, 1999
are included elsewhere in this joint proxy statement/ prospectus.
The selected unaudited pro forma combined financial data gives effect to the
merger as a pooling of interest. We present the selected unaudited pro forma
combined financial information for illustrative purposes only. This information
is not necessarily indicative of the operating results or financial position
that would have occurred if the merger had been consummated as of the beginning
of the periods presented. In addition, it does not necessarily represent or
predict the future operating results or the financial position of the combined
company.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF LIONBRIDGE
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 (2) 1997 (3) 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue................................................. $49,508 $38,412 $26,462 $28,134
Income (loss) from operations........................... (9,070) (3,404) (6,909) 13
Basic and diluted net loss per share attributable to
common stockholders (1)(4)(5)......................... (2.45) (2.99) (8.85)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1999 1998 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets............................................ $35,612 $22,402 $18,756 $28,576
Long-term debt.......................................... 6,731 -- -- --
Redeemable convertible preferred stock.................. -- 15,418 14,356 13,696
Stockholders' equity (deficit).......................... 7,403 (13,521) (8,086) (167)
Book value per common share............................. 0.45 (6.89) (5.95) (0.17)
</TABLE>
- ------------------------
(1) Net loss for the year ended December 31, 1999 includes interest expense of
$6.0 million relating to accretion of the original issue discount on
subordinated notes with detachable warrants.
(2) Loss from operations for the year ended December 31, 1998 includes
restructuring charges of $501,000 relating to reductions of Lionbridge's
workforce.
(3) Loss from operations for the year ended December 31, 1997 includes
restructuring charges of $541,000 relating to reductions of Lionbridge's
workforce.
(4) 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.
(5) Income from operations in 1996 reflects the combined activities of a number
of subsidiaries, branches and divisions of Stream International. As these
entities had no common capital structure, net income per share cannot be
presented.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF INT'L.COM
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1999(1) 1998(3) 1997 1996 1995
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue....................................... $ 34,902 $ 17,317 $9,407 $8,679 $ 6,247
Income (loss) from operations................. (14,653) (1,559) (649) 968 1,038
Basic and diluted net income (loss) per share
attributable to common stockholders (2)..... (3.39) (0.53) (0.24) 0.95 4,770.55
Cash dividends declared per common share...... -- 0.89 -- -- --
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets.................................. $ 26,976 $ 11,113 $3,001 $3,144 $ 2,282
Long-term debt................................ 8,721 3,577 -- 91 --
Redeemable preferred stock.................... 17,976 6,536 -- -- --
Stockholders' equity (deficit)................ (13,673) (3,570) 1,068 1,537 994
Book value per common share................... (2.30) (1.14) 0.53 0.77 9,940.00
</TABLE>
- ------------------------
(1) Loss from operations for the year ended December 31, 1999 includes charges
of $300,000 for in-process research and development acquired as part of the
acquisition of International Language Engineering and $1.2 million for
restructuring activities related to two separate workforce reductions.
(2) See Note 1 to INT'L.com's consolidated financial statements for an
explanation of the basis used to calculate net loss per share attributable
to common stockholders.
(3) In 1998, INT'L.com declared a cash dividend of $2.0 million, of which $1.6
million was paid in 1998 and $400,000 was paid in 1999.
21
<PAGE>
SELECTED LIONBRIDGE AND INT'L.COM UNAUDITED
PRO FORMA COMBINED FINANCIAL DATA
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998(2) 1997(3) 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue................................................ $ 84,410 $55,729 $35,869 $36,813
Income (loss) from operations.......................... (23,723) (4,963) (7,558) 981
Basic and diluted net loss per share attributable to
common stockholders (1)(4)........................... (2.43) (1.48) (3.71)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1999 1998 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets........................................... $ 62,588 $ 33,515 $21,757 $31,720
Long-term debt......................................... 15,452 3,577 -- 91
Redeemable convertible preferred stock................. -- 15,418 14,356 13,696
Stockholders' equity (deficit)......................... 10,206 (10,555) (7,018) 1,370
Book value per common share............................ 0.42 (1.50) (2.40) 0.54
</TABLE>
- ------------------------
(1) Net loss for the year ended December 31, 1999 includes (i) interest expense
of $6.0 million relating to the accretion of the original issue discount on
subordinated notes with detachable warrants issued by Lionbridge, (ii) a
charge of $300,000 for in-process research and development acquired as part
of INT'L.com's acquisition of International Language Engineering, and (iii)
a charge of $1.2 million for restructuring activities related to two
separate workforce reductions at INT'L.com.
(2) Loss from operations for the year ended December 31, 1998 includes
restructuring charges of $501,000 relating to reductions of Lionbridge's
workforce.
(3) Loss from operations for the year ended December 31, 1997 includes
restructuring charges of $541,000 relating to reductions of Lionbridge's
workforce.
(4) The unaudited pro forma combined per share data are based on INT'L.com
stockholders receiving 0.7485 of a Lionbridge common share for each share of
INT'L.com stock held.
22
<PAGE>
MARKET PRICE INFORMATION
LIONBRIDGE
Lionbridge common stock has traded on the Nasdaq National Market under the
symbol "LIOX" since August 20, 1999.
The table below sets forth, for the periods indicated, the reported high and
low sale prices of Lionbridge common stock on the Nasdaq National Market since
its initial public offering. The quotations represent interdealer quotations,
without adjustments for retail mark ups, mark downs, or commissions, and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
LIONBRIDGE
COMMON STOCK
-------------------
HIGH LOW
-------- --------
<S> <C> <C>
CALENDAR 1999
August 20, 1999 through September 30, 1999.................. $37.3750 $10.3750
October 1, 1999 through December 31, 1999................... $25.7500 $14.8125
CALENDAR 2000
January 1, 2000 through March 16, 2000...................... $28.0000 $14.7500
</TABLE>
On January 19, 2000, the last full trading day prior to the public
announcement of the proposed merger, the last reported sale price of Lionbridge
common stock on the Nasdaq National Market was $21.2500 per share. On
, 2000, the most recent practicable date prior to the printing of
this joint proxy statement/prospectus, the last reported sale price of
Lionbridge common stock on the Nasdaq National Market was $ per share.
Because the market price of Lionbridge common stock may fluctuate, the
market price per share of the shares of Lionbridge common stock that holders of
INT'L.com stock will receive in the merger may increase or decrease prior to the
merger.
Lionbridge has not paid any cash dividends on its common stock and currently
intends to retain any future earnings for use in its business. In addition, the
terms of its credit facility with Silicon Valley Bank prohibit the payment of
cash dividends to Lionbridge by its European subsidiaries, and the terms of the
subordinated notes held by Capital Resource Lenders and two Morgan Stanley
limited partnerships prohibit Lionbridge from paying any dividends to its
stockholders. Accordingly, Lionbridge does not anticipate that any cash
dividends will be declared or paid on the common stock in the foreseeable
future.
WE URGE INT'L.COM STOCKHOLDERS TO OBTAIN A CURRENT MARKET QUOTATION FOR
LIONBRIDGE COMMON STOCK.
INT'L.COM
INT'L.com common stock is not publicly traded. At the record date, there
were INT'L.com stockholders. In 1998, INT'L.com declared a cash dividend of
$2.0 million, of which $1.6 million was paid in 1998 and $400,000 was paid in
1999. INT'L.com has not paid any other dividends since its inception.
23
<PAGE>
THE LIONBRIDGE SPECIAL MEETING
GENERAL
This joint proxy statement/prospectus is being furnished to stockholders of
Lionbridge Technologies, Inc., a Delaware corporation, as part of the
solicitation of proxies by the Lionbridge board of directors for use at a
special meeting of stockholders of Lionbridge to be held on , 2000,
at 10:00 a.m., local time, at Testa, Hurwitz & Thibeault, LLP, 125 High Street,
Boston, Massachusetts, and at any adjournment or postponement of such meeting.
This joint proxy statement/prospectus and the enclosed form of proxy are first
being mailed to stockholders of Lionbridge on or about , 2000.
MATTERS TO BE CONSIDERED
The purpose of the Lionbridge special meeting is:
1. To consider and vote upon a proposal to approve the issuance of up to an
estimated maximum of 8,201,082 shares of Lionbridge common stock to
INT'L.com stockholders and holders of INT'L.com convertible and
subordinated debt as contemplated by the amended and restated agreement
and plan of reorganization, dated as of March 30, 2000, among Lionbridge,
LTI Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Lionbridge, and INT'L.com, Inc., a Delaware corporation,
pursuant to which LTI Acquisition Corp. will be merged with and into
INT'L.com, with INT'L.com being the surviving corporation. If this
proposal is approved, outstanding INT'L.com stock options will be assumed
by Lionbridge and will convert into options to purchase up to an
additional estimated maximum of 753,926 shares of Lionbridge common stock
at various exercise prices.
A vote in favor of the proposed issuance of Lionbridge common stock will
be effective whether or not the actual number of shares to be issued in
the merger and options to be assumed by Lionbridge exceeds the above
estimated maximums.
2. To elect one (1) member to the Board of Directors, to serve for a
three-year term as a Class I Director.
3. To ratify selection of the firm of PricewaterhouseCoopers LLP,
independent public accountants, as auditors for the fiscal year ending
December 31, 2000.
4. To transact such other business as may properly come before the
Lionbridge special meeting or any adjournment or postponement of the
Lionbridge special meeting, including without limitation, potential
adjournments or postponements of the Lionbridge special meeting for the
purpose of soliciting additional proxies in order to approve the proposed
issuance of Lionbridge common stock in connection with the merger.
LIONBRIDGE BOARD OF DIRECTORS' RECOMMENDATION
The Lionbridge board of directors, after careful consideration, has
unanimously approved the agreement and plan of reorganization and the merger and
recommends a vote FOR the proposed issuance of Lionbridge common stock in
connection with the merger. The Lionbridge board of directors has nominated
Mr. Claude P. Sheer as a Class I Director of Lionbridge and recommends that you
vote FOR the election of Mr. Sheer to the Lionbridge board of directors as a
Class I member. In addition, the Lionbridge board of directors has appointed
Roger O. Jeanty, INT'L.com's Chief Executive Officer, as a Class I Director
effective upon the consummation of the merger. The Lionbridge board of directors
has approved the selection of the firm of PricewaterhouseCoopers LLP,
independent public accountants, as auditors of Lionbridge for the fiscal year
ending December 31, 2000 and recommends a vote FOR the ratification of this
selection of PricewaterhouseCoopers LLP as auditors of Lionbridge.
24
<PAGE>
RECORD DATE AND VOTING
Holders of record of shares of Lionbridge common stock at the close of
business on , 2000, referred to in this joint proxy
statement/prospectus as the Lionbridge record date, are entitled to notice of
and to vote at the Lionbridge special meeting. On the record date, there were
outstanding shares of Lionbridge common stock, each of which will be
entitled to one vote. The representation, in person or by properly executed
proxy, of the holders of a majority of all of the shares of common stock
entitled to vote at the Lionbridge special meeting is necessary to constitute a
quorum at the Lionbridge special meeting.
Pursuant to applicable rules of the Nasdaq National Market, the proposed
issuance of Lionbridge common stock in connection with the merger will require
the affirmative vote of the holders of a majority of the shares of Lionbridge
common stock present in person or represented by proxy at the Lionbridge special
meeting because such issuance of shares of Lionbridge common stock in the merger
may exceed 20% of the outstanding shares of Lionbridge common stock after the
merger. Ratification of the selection of PricewaterhouseCoopers LLP as
Lionbridge's auditors also requires the affirmative vote of the holders of a
majority of the shares of Lionbridge common stock present in person or
represented by proxy at the Lionbridge special meeting. In the election of
directors, the nominee receiving the highest number of affirmative votes of the
shares of Lionbridge common stock present in person or represented by proxy and
entitled to vote at the Lionbridge special meeting shall be elected as a
Class I Director of Lionbridge.
Shares of Lionbridge common stock represented in person or by proxy will be
counted for the purposes of determining whether a quorum is present at the
Lionbridge special meeting. Votes withheld from any nominee for director,
abstentions and broker "non-votes" are counted as present or represented and
entitled to vote at the Lionbridge special meeting for purposes of determining
the presence or absence of a quorum. A broker "non-vote" occurs when a broker
holding shares for a beneficial owner votes on one proposal, but does not vote
on another proposal because, in respect of such other proposal, the broker does
not have discretionary voting power and has not received instructions from the
beneficial owner with respect to such other proposal. Abstentions are included
in the number of shares present or represented and voting on each matter. Broker
"non-votes" are not considered voted for the particular matter and have the
effect of reducing the number of affirmative votes required to achieve a
majority for such matter by reducing the total number of shares from which the
majority is calculated.
As of February 29, 2000, the directors and executive officers of Lionbridge,
and their affiliates, who collectively beneficially own approximately 69% of the
outstanding shares of Lionbridge common stock have agreed to vote their shares
in favor of the issuance of Lionbridge common stock in connection with the
merger. See "Other Agreements--Voting Agreements."
VOTING AND REVOCATION OF PROXIES
All shares of Lionbridge common stock which are entitled to vote and are
represented at the Lionbridge special meeting by properly executed proxies
received prior to or at such meeting, and not revoked, will be voted at such
meeting in accordance with the instructions indicated on such proxies. If no
instructions are indicated (other than broker non-votes), such proxies will be
voted FOR approval of the proposed issuance of Lionbridge common stock in
connection with the merger, the election of Claude P. Sheer as a Class I
Director of Lionbridge and the ratification of PricewaterhouseCoopers LLP as
Lionbridge's auditors.
The Lionbridge board of directors does not know of any matters other than
those described in the notice of the Lionbridge special meeting that are to come
before such meeting. If any other matters are properly presented at the
Lionbridge special meeting for consideration, including, among other things,
consideration of a motion to adjourn or postpone such meeting to another time
and/or place
25
<PAGE>
(including, without limitation, for the purposes of soliciting additional
proxies or allowing additional time for the satisfaction of conditions to the
merger), the persons named in the enclosed forms of proxy and acting thereunder
generally will have discretion to vote on such matters in accordance with their
best judgment. Notwithstanding the foregoing, proxies voting against a specific
proposal may not be used by the persons named in the proxies to vote for
adjournment or postponement of the meeting for the purpose of giving management
additional time to solicit votes to approve such proposal.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (1) filing
with the Secretary of Lionbridge, at or before the taking of the vote at the
Lionbridge special meeting, a written notice of revocation bearing a later date
than the proxy, (2) duly executing a later dated proxy relating to the same
shares and delivering it to the Secretary of Lionbridge before the taking of the
vote at the Lionbridge special meeting or (3) attending the Lionbridge special
meeting and voting in person (although attendance at the Lionbridge special
meeting will not in and of itself constitute a revocation of a proxy). Any
written notice of revocation or subsequent proxy should be sent to Lionbridge
Technologies, Inc., 950 Winter Street, Waltham, Massachusetts 02451, Attention:
Secretary, or hand delivered to the Secretary of Lionbridge at or before the
taking of the vote at the Lionbridge special meeting. Stockholders that have
instructed a broker to vote their shares must follow directions received from
such broker in order to change their vote or to vote at the Lionbridge special
meeting.
All expenses of Lionbridge's solicitation of proxies for the Lionbridge
special meeting will be borne by Lionbridge. In addition to solicitation by use
of the mails, proxies may be solicited from Lionbridge stockholders by
directors, officers and employees of Lionbridge in person or by telephone,
facsimile or other means of communication. Such directors, officers and
employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation.
Arrangements will also be made with brokerage houses, custodians, nominees and
fiduciaries for forwarding of proxy solicitation materials to beneficial owners
of shares held of record by such brokerage houses, custodians, nominees and
fiduciaries, and Lionbridge will reimburse such brokerage houses, custodians,
nominees and fiduciaries for their reasonable expenses incurred in connection
therewith.
26
<PAGE>
THE INT'L.COM SPECIAL MEETING
GENERAL
This joint proxy statement/prospectus is being furnished to stockholders of
INT'L.com, Inc., a Delaware corporation, as part of the solicitation of proxies
by the INT'L.com board of directors for use at a special meeting of stockholders
of INT'L.com to be held on , at 10:00 a.m., local time, at INT'L.com,
Inc., 492 Old Connecticut Path, Framingham, Massachusetts, and at any
adjournment or postponement of such meeting. This joint proxy
statement/prospectus and the enclosed form of proxy are first being mailed to
stockholders of INT'L.com on or about .
MATTERS TO BE CONSIDERED
The purpose of the INT'L.com special meeting is:
1. To approve and adopt the merger and the amended and restated agreement
and plan of reorganization, dated as of March 30, 2000, among Lionbridge
Technologies, Inc., a Delaware corporation, LTI Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of Lionbridge, and
INT'L.com, that will result in INT'L.com becoming a wholly owned
subsidiary of Lionbridge.
2. To approve the appointment of Steven L. Fingerhood, currently the
Chairman of the Board and Chief Strategic Officer of INT'L.com, as the
indemnification representative to act on behalf of the INT'L.com
stockholders in connection with the merger and the escrow agreement
referred to in the agreement and plan of reorganization.
3. To transact such other business as may properly come before the
INT'L.com special meeting or any adjournment or postponement of the
INT'L.com special meeting, including without limitation, potential
adjournments or postponements of the INT'L.com special meeting for the
purpose of soliciting additional proxies in order to approve and adopt
the merger and the agreement and plan of reorganization.
INT'L.COM BOARD OF DIRECTORS' RECOMMENDATION
The INT'L.com board of directors, after careful consideration, has
unanimously approved the merger and the agreement and plan of reorganization and
the appointment of the indemnification representative and has determined that
the merger and the agreement and plan of reorganization are advisable and in the
best interests of INT'L.com and its stockholders. The INT'L.com board of
directors recommends a vote FOR the approval and adoption of the merger and the
agreement and plan of reorganization and the approval of the related appointment
of Steven L. Fingerhood as the indemnification representative under the escrow
agreement referred to in the agreement and plan of reorganization.
RECORD DATE AND VOTING
Holders of record of shares of INT'L.com Series A common stock, Series B
common stock, Series A preferred stock, Series B preferred stock, Series C
preferred stock and Series D preferred stock at the close of business on
, 2000, referred to in this joint proxy statement/ prospectus as of
the INT'L.com record date, are entitled to notice of and (except for holders of
Series C preferred stock), to vote at the INT'L.com special meeting. Holders of
Series C preferred stock are not entitled to vote on any matter at the INT'L.com
special meeting. At the INT'L.com record date, there were 5,764,049, 133,372,
867,047, 2,621,477, 5,000 and 936,991 outstanding shares of INT'L.com Series A
common stock, Series B common stock, Series A preferred stock, Series B
preferred stock, Series C preferred stock and Series D preferred stock,
respectively. Each share of INT'L.com Series A common stock, Series A preferred
stock, Series B preferred stock and Series D
27
<PAGE>
preferred stock will entitle the holder to one vote per share. Each share of
Series B common stock will entitle the holder to 0.6774 votes per share. The
shares of Series C preferred stock are not entitled to vote. The representation,
in person or by properly executed proxy of the holders of a majority in number
of all of the outstanding shares of Series A common stock, Series B common
stock, Series A preferred stock, Series B preferred stock and Series D preferred
stock entitled to vote at the INT'L.com special meeting is necessary to
constitute a quorum at the INT'L.com special meeting.
The approval and adoption of the merger and the agreement and plan of
reorganization will require the affirmative vote of the holders of a majority of
the votes represented by the shares of INT'L.com Series A common stock,
Series B common stock, Series A preferred stock, Series B preferred stock and
Series D preferred stock, voting together as a single class, for purposes of
Delaware General Corporation law. In addition, the agreement and plan of
reorganization requires the affirmative vote of the holders of at least 90% of
the votes represented by the shares of INT'L.com Series A common stock,
Series B common stock, Series A preferred stock, Series B preferred stock and
Series D preferred stock voting together as a single class. The appointment of
Steven L. Fingerhood as the indemnification representative will require the
affirmative vote of the holders of a majority of the votes represented by the
outstanding shares of INT'L.com Series A common stock, Series B common stock,
Series A preferred stock, Series B preferred stock and Series D preferred stock
voting together as a class.
Shares of INT'L.com Series A common stock, Series B common stock, Series A
preferred stock, Series B preferred stock and Series D preferred stock
represented in person or by proxy will be counted for the purposes of
determining whether a quorum is present at the INT'L.com special meeting. All
shares with respect to which holders abstain from voting as to the proposal to
adopt the agreement and plan of reorganization will be treated as shares that
are present and entitled to vote at the INT'L.com special meeting for the
purposes of determining whether a quorum exists, but abstentions will have the
same effect as votes against approval of the merger and the agreement and plan
of reorganization.
As of February 29, 2000, the directors, executive officers and 5%
stockholders of INT'L.com and their affiliates who collectively beneficially own
approximately 71.5% of the outstanding shares of INT'L.com Series A common
stock, Series B common stock, Series A preferred stock, Series B preferred stock
and Series D preferred stock have agreed to vote their shares in favor of the
approval and adoption of the merger and the agreement and plan of
reorganization. See "Other Agreements--Voting Agreements."
VOTING AND REVOCATION OF PROXIES
All shares of INT'L.com Series A common stock, Series B common stock,
Series A preferred stock, Series B preferred stock and Series D preferred stock
which are entitled to vote and are represented at the INT'L.com special meeting
by properly executed proxies received prior to or at such meeting, and not
revoked, will be voted at such meeting in accordance with the instructions
indicated on such proxies. If no instructions are indicated, such proxies will
be voted FOR each proposal.
The INT'L.com board does not know of any matters other than those described
in the notice of the INT'L.com special meeting that are to come before such
meeting. If any other matters are properly presented at the INT'L.com special
meeting for consideration, including, among other things, consideration of a
motion to adjourn or postpone such meeting to another time and/or place
(including, without limitation, for the purposes of soliciting additional
proxies or allowing additional time for the satisfaction of conditions to the
merger), the persons named in the enclosed forms of proxy and acting thereunder
generally will have discretion to vote on such matters in accordance with their
best judgment. Notwithstanding the foregoing, proxies voting against a specific
proposal may not
28
<PAGE>
be used by the persons named in the proxies to vote for adjournment or
postponement of the meeting for the purpose of giving management additional time
to solicit votes to approve such proposal.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (1) filing
with the Secretary of INT'L.com, at or before the taking of the vote at the
INT'L.com special meeting, a written notice of revocation bearing a later date
than the proxy, (2) duly executing a later dated proxy relating to the same
shares and delivering it to the Secretary of INT'L.com before the taking of the
vote at the INT'L.com special meeting or (3) attending the INT'L.com special
meeting and voting in person (although attendance at the INT'L.com special
meeting will not in and of itself constitute a revocation of a proxy). Any
written notice of revocation or subsequent proxy should be sent to
INT'L.com, Inc., 492 Old Connecticut Path, Framingham, Massachusetts 01701,
Attention: Secretary, or hand delivered to the Secretary of INT'L.com at or
before the taking of the vote at the INT'L.com special meeting.
All expenses of INT'L.com's solicitation of proxies for the INT'L.com
special meeting will be borne by INT'L.com. In addition to solicitation by use
of the mails, proxies may be solicited from INT'L.com stockholders by directors,
officers and employees of INT'L.com in person or by telephone, facsimile or
other means of communication. Such directors, officers and employees will not be
additionally compensated, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation.
29
<PAGE>
THE MERGER
BACKGROUND OF THE MERGER
Lionbridge regularly reviews private and public companies which it may
acquire to further its objectives in the globalization services market.
Lionbridge was made aware of the potential for a transaction with INT'L.com by
Michael Najjar, a partner of Cornerstone Equity Investors IV, L.P., a leveraged
buy-out firm, in a discussion on September 13, 1999 with Rory J. Cowan,
Lionbridge's President and Chief Executive Officer. Stephen J. Lifshatz,
Lionbridge's Chief Financial Officer, also had a discussion with Mr. Najjar to
review financial matters regarding INT'L.com.
Mr. Lifshatz and Mr. Najjar met at Lionbridge's offices in Waltham,
Massachusetts on September 17, 1999. The discussion focused on an introduction
of INT'L.com's strategy, products, customers and financial results.
Mr. Cowan met with Roger O. Jeanty, INT'L.com's Chief Executive Officer on
September 24, 2000. At this meeting Mr. Cowan and Mr. Jeanty discussed the
possibility of Lionbridge acquiring INT'L.com.
On September 28, 1999, Mr. Cowan sent a letter to Mr. Jeanty expressing an
interest in exploring a potential acquisition. On October 7, 1999, Lionbridge
and INT'L.com entered into a confidentiality agreement providing for the
exchange of certain confidential information.
Between the dates of September 28, 1999 and December 13, 1999,
Messrs. Cowan, Lifshatz and Jeanty, along with Steven L. Fingerhood, Chairman
and Chief Strategic Officer of INT'L.com, negotiated a letter of intent related
to the potential acquisition. Lionbridge's legal advisors, Testa, Hurwitz &
Thibeault, LLP and INT'L.com's legal advisors, Gundersen Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, participated in some of the negotiations.
On December 15, 1999 Lionbridge and INT'L.com executed a non-binding letter
of intent which broadly defined the terms of a potential acquisition of
INT'L.com by Lionbridge in the form of a tax free, pooling of interests
transaction.
On December 22, 1999, Lionbridge retained the services of Prudential
Securities Incorporated as financial advisors to Lionbridge related to the
potential acquisition.
On December 23, 1999, Mr. Lifshatz met with Messrs. Jeanty and Fingerhood,
Christoph A. Heck, John Arcari and various other executives and managers of
INT'L.com at INT'L.com's offices to initiate the due diligence process. During
the period December 23, 1999 to January 19, 2000, due diligence teams
representing Lionbridge met with representatives of INT'L.com and due diligence
teams representing INT'L.com met with representatives of Lionbridge. The teams
focused on an in-depth analysis of the financial results, customer
relationships, organizational processes and business operations of both
Lionbridge and INT'L.com.
On December 13, 1999, INT'L.com retained the services of Neal, Gerber &
Eisenberg as special mergers and acquisitions legal advisors to INT'L.com
related to the potential acquisition. Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP continued as INT'L.com's general legal counsel.
On December 9, 1999, January 12, 2000 and January 14, 2000, the Lionbridge
board of directors met telephonically and discussed the potential acquisition.
During these discussions, the board of directors of Lionbridge reviewed the
strategic fit between the companies, the results of the due diligence and the
status of the negotiations.
Between the dates of December 13, 1999 and January 19, 2000, Messrs. Cowan,
Lifshatz, Jeanty and Fingerhood, as well as representatives of Cornerstone
Equity Investors and Dakota/EGI, L.L.C., two of INT'L.com's stockholders, and
the respective financial and legal advisors for Lionbridge and INT'L.com
negotiated the terms of the agreement and plan of reorganization.
On January 19, 2000, at a special meeting of the Lionbridge board of
directors, management reported on the status of the merger discussions with
INT'L.com, and the Lionbridge board of directors
30
<PAGE>
discussed various issues relating to the proposed business combination. The
board considered and voted upon the proposed agreement and plan of
reorganization and related transactions. At such meeting, Prudential Securities,
Lionbridge's financial advisor, presented their opinion regarding the fairness
to Lionbridge, from a financial point of view, of the purchase price.
Additionally, Lionbridge's outside legal counsel made a presentation regarding
the significant terms of the merger and the agreement and plan of reorganization
and the voting agreement to be entered into by certain stockholders of
Lionbridge. Following such presentations and further discussion, the execution
of such documents and related matters were approved by the Lionbridge board.
On January 19, 2000, at a special meeting of the INT'L.com board of
directors, the management of INT'L.com reported on the business terms of the
proposed merger, Neal, Gerber & Eisenberg, legal counsel to INT'L.com, reviewed
the material terms of the agreement and plan of reorganization, and the
INT'L.com board of directors, after further discussion, approved the merger and
agreement and plan of reorganization and related matters.
On January 19, 2000, following final approval by the Lionbridge board of
directors and the INT'L.com board of directors, the agreement and plan of
reorganization was executed by both companies.
On January 20, 2000, before the opening of trading on the Nasdaq National
Market, Lionbridge and INT'L.com issued a joint press release announcing the
merger.
Between March 24, 2000 and March 30, 2000, Messrs. Cowan, Lifshatz, Jeanty,
Najjar and Fingerhood reviewed the audited consolidated financial results of
INT'L.com and its acquired subsidiaries for the period ended December 31, 1999
and the implications of the debt covenants in the agreement and plan of
reorganization. Changes to these covenants, the consideration to be paid and
representations were also discussed.
On March 30, 2000, following approval by the Lionbridge board of directors
and the INT'L.com board of directors, the amended and restated agreement and
plan of reorganization was executed by both companies.
JOINT REASONS FOR THE MERGER
The Lionbridge board of directors and the INT'L.com board of directors each
believe that the combined company will have potential for greater financial
strength, market power and growth than either Lionbridge or INT'L.com would have
on its own. The Lionbridge board of directors and the INT'L.com board of
directors identified a number of potential benefits to the merger which they
believe could contribute to the success of the combined company and thus benefit
stockholders of both companies, including the following:
- the merger may enhance the opportunity for the potential realization of
the strategic objective of the combined company to expand its market share
and increase the combined company's ability to compete effectively in the
highly competitive globalization services market;
- the merger may provide the combined company with the financial resources
and expanded service offerings to expand the scope of the combined
company's services and to obtain efficiencies in the marketing, selling
and provision of its service offerings;
- the combined experience, financial resources, size, and breadth of service
offerings of the combined company may allow it to respond more quickly and
effectively to technological change, increased competition, and market
demands in an industry experiencing rapid innovation and change;
- combined financial, technological and personnel resources may allow the
combined company to compete more effectively in a rapidly consolidating
market by providing the combined company with enhanced ability to develop
and offer new services.
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RECOMMENDATION OF THE BOARD OF DIRECTORS OF LIONBRIDGE; LIONBRIDGE'S REASONS FOR
THE MERGER
THE LIONBRIDGE BOARD HAS APPROVED THE MERGER AND AGREEMENT AND PLAN OF
REORGANIZATION AND THE TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE
TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, LIONBRIDGE AND
ITS STOCKHOLDERS. THE LIONBRIDGE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
PROPOSED ISSUANCE OF LIONBRIDGE COMMON STOCK IN CONNECTION WITH THE MERGER.
In reaching its conclusion to approve the merger and agreement and plan of
reorganization, the Lionbridge board of directors considered the factors
described above under "Joint Reasons for the Merger," as well as the opportunity
of the Lionbridge stockholders to participate in the potential growth of the
combined company after the merger.
The Lionbridge board of directors also considered and reviewed with
management the additional reasons listed below in reaching its decision to
approve the merger and the agreement and plan of reorganization and to recommend
that Lionbridge's stockholders vote to approve the proposed issuance of
Lionbridge common stock in connection with the merger:
- acquiring INT'L.com may enable Lionbridge to strengthen its industry
leadership position and global presence by capitalizing on INT'L.com's
language expertise and personnel resources, thereby increasing the
solutions available to Lionbridge's customers;
- INT'L.com's research and development staff may enable Lionbridge to
accelerate its product and service development activities, and INT'L.com's
professional services staff will enable Lionbridge to accelerate its
product and service offerings to Lionbridge's clients;
- the combined businesses may bring Lionbridge additional geographic
coverage, management depth, language and project management resources to
address larger client projects, and economies of scale;
- the technologies in INT'L.com's Foreign Desk-Registered Trademark-
language management product and Lionbridge's LIONTRACK process management
product fit together to provide a more robust suite of language management
and process management solutions for the localization process; and
- owning INT'L.com will enhance Lionbridge's technical and sales staff with
experienced INT'L.com technical and sales personnel.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF INT'L.COM; INT'L.COM'S REASONS FOR
THE MERGER
THE INT'L.COM BOARD HAS APPROVED THE MERGER AND THE AGREEMENT AND PLAN OF
REORGANIZATION AND THE TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE
TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, INT'L.COM AND ITS
STOCKHOLDERS. THE INT'L.COM BOARD RECOMMENDS A VOTE FOR THE APPROVAL AND
ADOPTION OF THE MERGER AND THE AGREEMENT AND PLAN OF REORGANIZATION.
In addition to the anticipated joint benefits described above, the INT'L.com
board believes that the following are additional reasons the merger will be
beneficial to INT'L.com and its stockholders:
- the merger may enable INT'L.com to attain industry leadership, strengthen
the company's global presence and capitalize on Lionbridge's sales and
marketing expertise and personnel resources;
- Lionbridge's research and development staff may enable INT'L.com to
accelerate its product and service development activities and Lionbridge's
professional services staff should enable INT'L.com to accelerate its
product and service implementation activities;
- the merger should provide INT'L.com with immediate access to additional
financial resources to accelerate its growth; and
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- the consideration to be paid to INT'L.com stockholders in the merger will
be shares of Lionbridge common stock, securities that are traded on the
Nasdaq National Market and are more readily marketable than shares of
INT'L.com stock.
OPINION OF FINANCIAL ADVISOR TO LIONBRIDGE
THE FULL TEXT OF THE OPINION OF PRUDENTIAL SECURITIES INCORPORATED, DATED
JANUARY 19, 2000, WHICH SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS
ANNEX B TO THIS DOCUMENT. LIONBRIDGE STOCKHOLDERS ARE URGED TO READ SUCH OPINION
CAREFULLY AND IN ITS ENTIRETY. THE SUMMARY OF THE PRUDENTIAL SECURITIES OPINION
SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
On January 19, 2000, Prudential Securities delivered its oral opinion to the
Lionbridge board of directors, which opinion was confirmed in writing as of such
date, to the effect that, as of such date, the conversion ratio was fair to
Lionbridge from a financial point of view. Prudential Securities presented the
financial analysis underlying its opinion at a meeting of the board of directors
on January 19, 2000.
A copy of the Prudential Securities opinion, which sets forth the
assumptions made, matters considered and limits on the review undertaken, is
attached to this joint proxy statement/prospectus as Annex B and is incorporated
herein by reference. The summary of the Prudential Securities opinion set forth
below is qualified in its entirety by reference to the full text of the
Prudential Securities opinion. Lionbridge stockholders are urged to read the
Prudential Securities opinion in its entirety.
THE PRUDENTIAL SECURITIES OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE
CONVERSION RATIO TO LIONBRIDGE FROM A FINANCIAL POINT OF VIEW. IT DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD
VOTE AT THE MEETING OR AS TO ANY OTHER ACTION SUCH STOCKHOLDER SHOULD TAKE
REGARDING THE MERGER.
In conducting its analysis and arriving at the Prudential Securities
opinion, Prudential Securities reviewed such information and considered such
financial data and other factors as Prudential Securities deemed relevant under
the circumstances, including the following:
(i) a draft, dated January 18, 2000, of the agreement and plan of
reorganization;
(ii) certain publicly available historical financial and operating data for
Lionbridge including, but not limited to (a) the Registration Statement on
Form S-1, as amended, filed on August 20, 1999 and (b) the Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1999;
(iii) certain information relating to Lionbridge, including projected balance
sheets, income statements and statements of cash flow for the fiscal
years ending December 31, 1998 through December 31, 2002, prepared by the
management of Lionbridge;
(iv) historical stock market prices and trading volumes for Lionbridge's common
stock;
(v) certain information relating to INT'L.com, including a projected income
statement for the fiscal year ending December 31, 2000, prepared by the
management of INT'L.com and adjusted by the management of Lionbridge;
(vi) certain information relating to INT'L.com, including projected balance
sheets, income statements and statements of cash flow for the fiscal years
ending December 31, 2001 and December 31, 2002, prepared by the management
of INT'L.com;
(vii) certain historical pro forma financial statements relating to INT'L.com
and its subsidiaries for the calendar years ended December 31, 1997
through December 31, 1999 and for the nine-month periods ended
September 30, 1998 and September 30, 1999, prepared by the management of
INT'L.com;
(viii) audited consolidated balance sheets, statements of operations and
statements of cash flows for INT'L.com and its subsidiaries as of
December 31, 1997 and February 28, 1999;
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(ix) audited consolidated balance sheets, statements of operations and
statements of cash flows for International Language Engineering
Corporation and its subsidiaries as of December 28, 1997 and December 27,
1998;
(x) audited and compiled balance sheets, income statements and statements of
cash flow for Direct Language Communications, Inc. for the years ended
February 28, 1997 and February 28, 1998, respectively;
(xi) publicly available financial, operating and stock market data concerning
certain companies engaged in business that Prudential Securities deemed
reasonably similar to INT'L.com and Lionbridge;
(xii) the financial terms of certain recent transactions that Prudential
Securities deemed relevant to their inquiry;
(xiii) the pro forma financial impact of the merger on Lionbridge's earnings for
the calendar year ending December 31, 2000; and
(xiv) such other financial studies, analyses and investigations as Prudential
Securities deemed relevant to their inquiry.
Prudential Securities assumed, with Lionbridge's consent, that the draft of
the agreement and plan of reorganization that they reviewed would conform in all
material respects to the agreement and plan of reorganization when in final
form. Prudential Securities discussed with the senior management of Lionbridge
and INT'L.com: (1) the past and current operating and financial condition of
their respective businesses, (2) the prospects for their respective businesses,
(3) their estimates of the respective companies' future financial performance,
and (4) such other matters as Prudential Securities deemed relevant.
In connection with their review and analysis and in the preparation of the
Prudential Securities opinion, Prudential Securities relied upon the accuracy
and completeness of the financial and other information publicly available or
provided to them by Lionbridge and has not undertaken any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of Lionbridge. With respect to certain
financial forecasts Lionbridge's management provided to Prudential Securities
for Lionbridge, Prudential Securities assumed that such information, and the
assumptions and bases therefor, represented Lionbridge's management's best then
available estimate as to the future financial performance of Lionbridge.
Further, the Prudential Securities opinion was based on economic, financial and
market conditions as they existed on the date thereof and can only be evaluated
as of the date of the Prudential Securities opinion, and Prudential Securities
assumes no responsibility to update or revise the Prudential Securities opinion
based upon events or circumstances occurring after such date.
The Prudential Securities opinion, including Prudential Securities'
presentation of such opinion to the Lionbridge board of directors, was one of
the many factors that the Lionbridge board of directors took into consideration
in making its determination to recommend adoption of the agreement and plan of
reorganization. Consequently, Prudential Securities' analyses described below
should not be viewed as determinative of the opinion of the Lionbridge board of
directors with respect to the conversion ratio. The Prudential Securities
opinion does not address nor should it be construed to address the relative
merits of the merger or alternative business strategies that may be available to
Lionbridge. In addition, the Prudential Securities opinion does not in any
manner address the prices at which Lionbridge common stock will trade following
consummation of the merger.
In arriving at the Prudential Securities opinion, Prudential Securities
performed a variety of financial analyses, including those summarized herein.
The summary set forth below of the analyses presented to the Lionbridge board of
directors at the January 19, 2000 meeting does not purport to be a complete
description of the analyses performed. The preparation of a fairness opinion is
a complex process that involves various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
these methods to the particular circumstance. Therefore, such
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an opinion is not necessarily susceptible to partial analysis or summary
description. Prudential Securities believes that its analyses must be considered
as a whole and selecting portions thereof or portions of the factors considered
by it, without considering all analyses and factors, could create an incomplete
view of the evaluation process underlying the Prudential Securities opinion.
Prudential Securities made numerous assumptions with respect to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Lionbridge. Any estimates
contained in Prudential Securities' analyses are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. Additionally, estimates of the values
of businesses and securities do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities may be sold. Accordingly,
such analyses and estimates are inherently subject to substantial uncertainty.
Subject to the foregoing, the following is a summary of the material financial
analyses presented by Prudential Securities to the board of directors on
January 19, 2000 in connection with the delivery of the Prudential Securities
opinion.
COMPARABLE COMPANIES ANALYSIS FOR GLOBALIZATION SERVICE PROVIDERS. A
comparable companies analysis of globalization service providers was employed by
Prudential Securities to establish a range of implied conversion ratios.
Prudential Securities analyzed publicly available historical and projected
financial results, including:
- current unlevered market value as a multiple of: revenues for the latest
twelve months ended September 30, 1999 ("LTM Revenues"), projected
revenues for calendar year 1999 ("1999 Revenues"), projected revenues for
calendar year 2000 ("2000 Revenues") and projected earnings before
interest and taxes for calendar year 2000 ("2000 EBIT") of certain
companies considered by Prudential to be reasonably similar to INT'L.com.
The companies included Alpnet, Inc., Lernout & Hauspie and Lionbridge (the
"GSP Comparable Companies").
The GSP Comparable Companies were found to have a range of unlevered market
values as a multiple of LTM Revenues of 3.4x to 10.6x; as a multiple of 1999
Revenues of 7.3x to 9.9x; as a multiple of 2000 Revenues of 5.1x to 6.8x; and as
a multiple of 2000 EBIT of 25.8x to 284.2x. Applying such multiples to
INT'L.com's LTM Revenues, 1999 Revenues, 2000 Revenues and 2000 EBIT resulted in
an implied range of equity value per share of $15.12 to $36.62 with a mean of
$24.09 and median of $24.54, which resulted in implied conversion ratios ranging
from 0.7329 to 1.5817. The Conversion Ratio of 0.7485 falls within the range of
implied conversion ratios, which Prudential Securities believes supports its
opinion.
COMPARABLE COMPANIES ANALYSIS FOR INTERNET PROFESSIONAL SERVICE PROVIDERS. A
comparable companies analysis of Internet Professional Service Providers was
employed by Prudential Securities to establish a range of implied conversion
ratios. Prudential Securities analyzed publicly available historical and
projected financial results, including:
- current unlevered market value as a multiple of: LTM Revenues, 1999
Revenues, 2000 Revenues and 2000 EBIT of certain companies considered by
Prudential to be reasonably similar to INT'L.com. The companies included
Braun Consulting, Inc., Cysive, Inc., Luminant Worldwide Corp., Modem
Media, Poppe Tyson, Inc., Rare Medium Group, Inc., Tanning Technology
Corporation and US Interactive Inc. (the "IPS Comparable Companies").
The IPS Comparable Companies were found to have a range of unlevered market
values as a multiple of LTM Revenues of 10.7x to 75.1x; as a multiple of 1999
Revenues of 9.4x to 44.2x; as a multiple of 2000 Revenues of 6.0x to 23.5x; and
as a multiple of 2000 EBIT of 65.3x to 327.6x. Applying such multiples to
INT'L.com's LTM Revenues, 1999 Revenues, 2000 Revenues and 2000 EBIT resulted in
an implied range of equity value per share of $25.98 to $148.08 with a mean of
$74.88 and median of $65.47, which resulted in implied conversion ratios ranging
from 1.2594 to 7.1797. The Conversion Ratio of 0.7485 falls below the range of
implied conversion ratios, which Prudential Securities believes supports its
opinion.
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COMPARABLE TRANSACTIONS ANALYSIS. Prudential Securities also analyzed the
consideration paid in several recent merger and acquisition transactions that
Prudential Securities deemed to be reasonably similar to the merger, and
considered the multiple of the acquired entity's unlevered market value to its
LTM Revenues based upon publicly available information for such transactions.
The transactions considered were the combinations of: (1) Tessera Enterprise
Systems, Inc. and iXL Enterprises, Inc., (2) Think New Ideas, Inc. and
AnswerThink Consulting Group, (3) Conduit Communications Ltd. and International
Integration, Inc., (4) Century Computing, Inc. and Appnet Systems Inc.,
(5) Software Services Corporation and Appnet Systems Inc., and
(6) Globalink, Inc. and Lernout & Hauspie (the "Comparable Transactions"). The
Comparable Transactions were found to imply for each acquired entity a range of
equity value as a multiple of LTM Revenues of 1.7x to 5.5x. Applying such
multiples to INT'L.com's LTM revenues resulted in an implied range of equity
value per share of $4.43 per share to $18.63 with a mean of $12.12 and a median
of $13.50, which resulted in implied conversion ratios of 0.2150 to 0.9033. The
Conversion Ratio of 0.7485 falls within the range of implied conversion ratios,
which Prudential Securities believes supports its opinion.
None of the acquired entities used in the comparable transactions analysis
or the GSP Comparable Companies or IPS Comparable Companies in the above
analyses for comparative purposes is, of course, identical to INT'L.com.
Accordingly, a complete analysis of the results of the foregoing calculations
cannot be limited to a quantitative review of such results and involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the GSP Comparable Companies, the IPS Comparable Companies
and the acquired entities and other factors that could affect the operating
results for each of the GSP Comparable Companies and the IPS Comparable
Companies and the consideration paid for each of the acquired entities as well
as that of INT'L.com.
The board of directors selected Prudential Securities to provide a fairness
opinion because it is a nationally recognized investment banking firm engaged in
the valuation of businesses and their securities in connection with merger and
acquisition transactions and because it has substantial experience in
transactions similar to the merger. Upon execution of an engagement letter with
Prudential Securities, Lionbridge paid Prudential Securities a retainer of
$50,000. Pursuant to the engagement letter with Prudential Securities,
Lionbridge also paid Prudential Securities $250,000 upon the delivery of the
Prudential Securities opinion. An additional fee of $200,000 will be payable
upon the consummation of the merger. In addition, the engagement letter with
Prudential Securities provides that Lionbridge will reimburse Prudential
Securities for its out-of-pocket expenses and will indemnify Prudential
Securities and certain related persons against certain liabilities, including
liabilities under securities laws, arising out of the merger or its engagement.
In the ordinary course of business, Prudential Securities may actively trade
shares of Lionbridge common stock for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. In addition, Prudential Securities lead managed Lionbridge's
initial public offering on August 20, 1999 and provides equity research coverage
on Lionbridge.
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS OF INT'L.COM IN THE MERGER
You should be aware of the interests that executive officers and directors
of INT'L.com have in the merger. These interests are different from and in
addition to your and their interests as stockholders. These include:
- acceleration of the lapse of INT'L.com's repurchase right;
- employment agreements; and
- indemnification of directors and officers; and
- an invitation to Roger O. Jeanty to join the Lionbridge board of directors
and be appointed as the President of Lionbridge upon the completion of the
merger.
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In discussing the fairness of the merger to the stockholders of INT'L.com,
the INT'L.com board of directors took into account these interests. These
interests are summarized below:
STOCK OPTIONS; LAPSE OF INT'L.COM REPURCHASE RIGHT
INT'L.com has adopted the INT'L.com 1998 Stock Plan (formerly known as the
IC Global Services, Inc. 1998 Stock Plan). The 1998 Stock Plan provides for the
discretionary grant of stock options to employees and other eligible persons to
purchase up to a total of 1,899,729 shares of INT'L.com Series A common stock.
As of February 29, 2000, options to purchase a total of 881,316 shares of
INT'L.com common stock were outstanding under the 1998 Stock Plan. Options
granted under the 1998 Stock Plan expire 10 years from the date of grant. The
exercise prices of options granted under the 1998 Stock Plan range from $1.30
per share to $13.30 per share.
Under the 1998 Stock Plan, as amended to date, grantees of options are
permitted to exercise their options and purchase the underlying shares of
INT'L.com common stock at any time after the date of grant. However, the shares
of INT'L.com common stock are subject to a repurchase right in favor of
INT'L.com exercisable upon termination of the grantee's employment. The
repurchase price for any unvested shares of INT'L.com common stock is equal to
the grantee's cost therefore, and the repurchase price for any vested shares of
INT'L.com common stock is equal to the greater of the grantee's cost therefore
and fair market value. This repurchase right generally lapses over five years.
In addition, all unvested shares subject to the repurchase right become vested
shares upon the occurrence of a change in control if the successor corporation
does not assume the options. Lionbridge has agreed to assume all of these
options as part of the merger and convert them into options to purchase
Lionbridge common stock. Also, upon the occurrence of a change in control, the
repurchase right with respect to vested shares terminates.
On April 6, 1999, INT'L.com granted Roger O. Jeanty, INT'L.com's Chief
Executive Officer, options to purchase a total of 180,000 shares of INT'L.com
common stock under the 1998 Stock Plan for an exercise price of $3.72 per share.
In addition, on April 6, 1999, INT'L.com granted Steven L. Fingerhood,
INT'L.com's Chairman and Chief Strategic Officer, options to purchase a total of
220,000 shares of INT'L.com common stock under the 1998 Stock Plan for an
exercise price of $3.72 per share. All of these options will be assumed by
Lionbridge in the merger and converted into options to purchase Lionbridge
common stock, and Lionbridge will retain INT'L.com's repurchase right. Of these
options, a total of 50,000 options for each of Mr. Jeanty and Mr. Fingerhood
vest over five years and INT'L.com's repurchase right thereto will not lapse as
a result of the consummation of the merger. The remaining 130,000 options
granted to Mr. Jeanty and the remaining 170,000 options granted to
Mr. Fingerhood generally vest only after the expiration of seven years. However,
INT'L.com's repurchase right with respect to all or a portion of the underlying
shares of INT'L.com common stock may lapse upon consummation of the merger
depending upon the valuation of INT'L.com's shares in the merger. If INT'L.com's
repurchase right with respect to the underlying shares of INT'L.com common stock
does not fully lapse upon consummation of the merger, the repurchase right for
the balance of the underlying shares will lapse at the end of the seven year
period or at such time as the price of Lionbridge common stock attains specified
levels, which ever occurs earlier. The specified levels which must be attained
for the repurchase right to lapse are levels which equate to a value of
INT'L.com common stock (before conversion for the merger) of $10.00, $14.00,
$18.00 and $22.00 per share of INT'L.com common stock.
EMPLOYMENT AGREEMENTS
In August 1998, INT'L.com entered into an employment agreement with each of
Roger O. Jeanty and Steven L. Fingerhood. Each of these employment agreements
provides for a three-year term, an annual base salary of $150,000, an annual
incentive bonus in an amount to be determined by INT'L.com's board of directors,
and the participation by Mr. Jeanty and Mr. Fingerhood in
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INT'L.com's employee benefit plans. In the event that INT'L.com's employment of
Mr. Jeanty or Mr. Fingerhood is terminated due to death or disability, the
employment agreements provide that the base salary will be continued for twelve
months, and in the event that INT'L.com's employment of Mr. Jeanty or
Mr. Fingerhood is terminated without cause, the employment agreements provide
that the base salary will be continued for 24 months. Under the employment
agreements, each of Messrs. Jeanty and Fingerhood is subject to certain
covenants, including a covenant restricting competition and a covenant
restricting disclosure of confidential information, and a work-made-for-hire
provision.
Upon consummation of the merger, Mr. Jeanty will be appointed the President
of Lionbridge. Mr. Jeanty has entered into a new employment agreement with
Lionbridge, which will become effective upon the consummation of the merger, and
will supersede his employment agreement with INT'L.com. This new employment
agreement provides for a one-year term with automatic one-year renewals, an
annual base salary of $200,000, subject to increase from time to time by the
Lionbridge board of directors in its sole discretion, an annual discretionary
bonus, and the participation by Mr. Jeanty in Lionbridge's employee benefit
plans. Pursuant to his employment agreement, Lionbridge intends to issue
Mr. Jeanty an option to purchase shares of its common stock at the first meeting
of the Lionbridge board of directors following the effective time of the merger.
The option will have an exercise price equal to the fair market value of
Lionbridge common stock at the time of the option grant, vest over a four-year
period and be for such number of shares of Lionbridge common stock as is
commensurate with Mr. Jeanty's position as President of Lionbridge. If
Lionbridge terminates Mr. Jeanty'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., 1/12th of Mr. Jeanty's base
salary). If Mr. Jeanty is terminated for cause, he will not be entitled to any
severance payments or other benefits except as required by law.
Mr. Jeanty has also entered into a non-competition agreement with
Lionbridge, which will become effective upon the consummation of the merger. The
agreement provides that Mr. Jeanty 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 Lionbridge's employees or (3) solicit
or do business with any present or past customer of Lionbridge's, or any
prospective customer of Lionbridge's in connection with any business activity
which would be in violation of the non-competition agreement.
Mr. Fingerhood has entered into an Amended and Restated Employment Agreement
with Lionbridge, which will become effective upon the consummation of the
merger, and will supersede his employment agreement with INT'L.com. This amended
and restated employment agreement contemplates that Mr. Fingerhood will not be
an officer of Lionbridge, and will provide a reduced level of services to the
business. This agreement also provides for a three-year term, an annual base
salary of $100,000, and the participation by Mr. Fingerhood in Lionbridge's
employee benefit plans. In the event that Mr. Fingerhood's employment is
terminated for any reason, Mr. Fingerhood will be entitled to his base salary
for the remainder of the three-year term, payable over a period not to exceed
the shorter of 24 months or the remainder of the three-year term. Under the
amended and restated employment agreement, Mr. Fingerhood will continue to be
subject to certain covenants in his existing agreement, including a covenant
restricting competition and a covenant restricting disclosure of confidential
information.
INDEMNIFICATION
The agreement and plan of reorganization provides that all rights to
indemnification and all limitations on liability in effect for the benefit of
present and former officers and directors of INT'L.com with respect to actions
taken in such capacities will continue in effect after the merger.
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TREATMENT OF INT'L.COM COMMON STOCK, PREFERRED STOCK, OPTIONS, WARRANTS,
CONVERTIBLE DEBT AND SUBORDINATED DEBT
TREATMENT OF INT'L.COM SERIES A COMMON STOCK, SERIES B COMMON STOCK,
SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK. At the effective time of
the merger, each issued and outstanding share of INT'L.com Series A common
stock, Series B common stock, Series A preferred stock and Series B preferred
stock other than shares held by INT'L.com, shares held by Lionbridge or LTI
Acquisition Corp. or dissenting shares, will be converted into the right to
receive a number of shares of Lionbridge common stock equal to the conversion
ratio. The holders of shares of INT'L.com Series A preferred stock and Series B
preferred stock will convert such shares of Series A preferred stock and
Series B preferred stock into shares of INT'L.com Series A common stock
immediately prior to the effective time of the merger. The conversion ratio will
equal the number determined by dividing (a) the difference between
(1) 8,150,000 and (2) the sum of the number of shares of Lionbridge common stock
to be issued to the holders of $2.0 million of convertible debt, as described
below, and the number of shares of Lionbridge common stock related to any
additional debt (other than up to $2.0 million in subordinated debt issued
pursuant to the terms of the agreement and plan of reorganization, incurred by
INT'L.com after March 30, 2000 and expenses to be borne by the stockholders of
INT'L.com by (b) the sum of (1) the number of shares of Series A common stock,
Series B common stock, Series A preferred stock and Series B preferred stock of
INT'L.com issued and outstanding and (2) the number of shares of common stock of
INT'L.com issuable upon exercise of outstanding options and warrants whether
vested, unvested or subject to repurchase by INT'L.com following the exercise.
Lionbridge will reduce the number of shares of common stock to be issued in the
merger if INT'L.com incurs indebtedness in excess of the amounts prescribed in
the agreement and plan of reorganization without the written consent of
Lionbridge. The number by which the shares of common stock will be reduced will
be equal to the number determined by dividing (a) the amount of such debt and
any accrued interest by (b) $19.7266. Lionbridge will also reduce the number of
shares of common stock to be issued in the merger if the expenses incurred by
INT'L.com in connection with the merger exceed $400,000. The number by which the
shares of common stock will be reduced will be equal to the number determined by
dividing (a) the amount by which the expenses incurred exceeds $400,000 by
(b) $19.7266.
TREATMENT OF INT'L.COM SERIES C PREFERRED STOCK AND SERIES D PREFERRED
STOCK. At the effective time of the merger, each issued and outstanding share
of INT'L.com Series C preferred stock, other than shares held in the treasury of
INT'L.com, shares held by Lionbridge or LTI Acquisition Corp. or dissenting
shares, will be converted into the right to receive a number of shares of
Lionbridge common stock equal to the Series C conversion ratio. The Series C
conversion ratio will equal the number determined by dividing the quotient
obtained by dividing (a) (1) the aggregate accrued liquidation preference of the
Series C preferred stock at that time by (2) $19.7266 by (b) the number of
shares of INT'L.com Series C preferred stock issued and outstanding. At the
effective time of the merger, each issued and outstanding share of INT'L.com
Series D preferred stock, other than shares held in the treasury of INT'L.com,
shares held by Lionbridge or LTI Acquisition Corp. or dissenting shares, will be
converted into the right to receive a number of shares of Lionbridge common
stock equal to the Series D conversion ratio. The Series D conversion ratio will
equal the number determined by dividing the quotient obtained by dividing
(a) (1) the aggregate accrued liquidation preference of the Series D preferred
stock at that time by (2) $19.7266 by (b) the number of shares of INT'L.com
Series D preferred stock issued and outstanding.
For the purposes of estimating the conversion ratios, Lionbridge has assumed
the merger will occur June 30, 2000 and that INT'L.com has not incurred debt in
excess of the amounts permitted by the agreement and plan of reorganization. It
is estimated that each share of INT'L.com Series A common stock, Series B common
stock, Series A preferred stock and Series B preferred stock outstanding
immediately prior to the effective time of the merger will be exchanged for
approximately 0.7485 of a share of Lionbridge common stock. Based on the
estimated conversion ratio and assuming
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the exercise of warrants to purchase 348,553 shares of Series A common stock,
approximately 7,286,273 shares of Lionbridge common stock will be issued to the
holders of Series A common stock, Series B common stock, Series A preferred
stock and Series B preferred stock in the merger. It is estimated that each
share of INT'L.com Series C preferred stock outstanding immediately prior to the
effective time of the merger will be exchanged for approximately 5.5753 shares
of Lionbridge common stock. Based on the estimated Series C conversion ratio,
approximately 27,877 shares of Lionbridge common stock will be issued to the
holders of Series C preferred stock in the merger. It is estimated that each
share of INT'L.com Series D preferred stock outstanding immediately prior to the
effective time of the merger will be exchanged for approximately 0.5505 of a
share of Lionbridge common stock. Based on the estimated Series D conversion
ratio, approximately 515,814 shares of Lionbridge common stock will be issued to
the holders of Series D preferred stock of INT'L.com in the merger. The actual
number of shares of Lionbridge common stock issued may differ because the exact
conversion ratios are dependent on a number of variables that cannot be
calculated until shortly before the closing, including the date of closing, the
number of shares of INT'L.com common stock outstanding at the closing and the
amount of debt and expenses incurred by INT'L.com.
TREATMENT OF INT'L.COM OPTIONS. At the effective time of the merger, each
unexpired and unexercised outstanding option to purchase shares of INT'L.com
common stock, whether vested or unvested, previously granted by INT'L.com will
be assumed by Lionbridge and converted into options to purchase approximately
753,926 shares of Lionbridge common stock based on options to purchase 1,007,249
shares of INT'L.com common stock outstanding as of February 29, 2000. At the
effective time of the merger, each unexpired and unexercised outstanding
warrant, if any, to purchase shares of INT'L.com common stock, whether currently
exercisable or not, previously issued by INT'L.com will be assumed by Lionbridge
and will become exercisable to purchase shares of Lionbridge common stock. The
holders of warrants to purchase 348,553 shares of INT'L.com common stock,
representing all outstanding warrants to purchase INT'L.com capital stock as of
February 29, 2000, have indicated their intention to exercise such warrants
prior to the effective time of the merger. The number of shares of Lionbridge
common stock subject to the assumed INT'L.com stock options and warrants will be
adjusted pursuant to the conversion ratio. Any fractional shares of Lionbridge
common stock resulting from such adjustment will be rounded down to the nearest
share. The exercise price per share of Lionbridge common stock under the
INT'L.com stock options and warrants will equal the exercise price per share of
the INT'L.com common stock under the original stock options or warrants, as the
case may be, divided by the conversion ratio. The exercise prices will be
rounded up to the next highest whole cent.
TREATMENT OF INT'L.COM CONVERTIBLE DEBT. At the effective time of the
merger, the $2.0 million of convertible debt of INT'L.com issued on August 20,
1999 and any accrued interest shall be paid in full by the receipt of a number
of shares of Lionbridge common stock determined by dividing (a) $2.0 million
plus any accrued interest by (b) $19.7266. Assuming the effective time of the
merger is June 30, 2000, the holders of the convertible debt of INT'L.com will
be issued approximately 110,239 shares of Lionbridge common stock as payment in
full of such convertible debt.
TREATMENT OF INT'L.COM SUBORDINATED DEBT. At the effective time of the
merger, the $3.0 million of subordinated debt of INT'L.com issued during the
first quarter of 2000, and up to $2.0 million of subordinated debt to be issued
during the second quarter of 2000 and any accrued interest shall be paid in full
by the receipt of a number of shares of Lionbridge common stock determined by
dividing (a) $5.0 million plus any accrued interest by (b) $19.7266. Assuming
the effective time of the merger is June 30, 2000, and that $5.0 million of
subordinated debt is outstanding on June 30, 2000, the holders of the
subordinated debt of INT'L.com will be issued approximately 260,882 shares of
Lionbridge common stock as payment in full of such subordinated debt.
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ACCOUNTING TREATMENT OF THE MERGER
The merger is intended to qualify as a pooling of interests for financial
reporting purposes under United States general accepted accounting principles.
Under this method of accounting, the recorded assets and liabilities of
INT'L.com will be carried forward to Lionbridge at their recorded amounts, the
operating results of Lionbridge will include the operating results of INT'L.com
for the entire year in which the combination occurs and the reported operating
results of the separate companies for periods prior to the year in which the
combination occurs will be combined and restated as the operating results of
Lionbridge.
REGULATORY APPROVALS
While no antitrust approvals are required to consummate the merger, at any
time before the effective time of the merger, the Antitrust Division of the
Department of Justice, the Federal Trade Commission or a private person or
entity could seek under antitrust laws, among other things, to enjoin the merger
and any time after the effective time of the merger, to cause Lionbridge to
divest itself, in whole or in part, of the surviving corporation of the merger
or of certain businesses conducted by the surviving corporation of the merger.
There can be no assurance that a challenge to the merger will not be made or
that, if such a challenge is made, Lionbridge will prevail. See "The Agreement
and Plan of Reorganization--Conditions to Obligations to Effect Merger."
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERALLY. In the opinion of Neal, Gerber & Eisenberg, counsel to
INT'L.com, the material United States federal income tax considerations
generally applicable to United States holders of INT'L.com common stock,
Series A preferred stock, Series B preferred stock, Series C preferred stock and
Series D preferred stock who, pursuant to the merger, exchange their INT'L.com
common stock or INT'L.com preferred stock solely for Lionbridge common stock,
are described below. The discussion is based on and subject to the Internal
Revenue Code of 1986, as amended, Treasury Regulations under the Internal
Revenue Code, existing administrative interpretations and court decisions as of
the date of this joint proxy statement/prospectus, all of which are subject to
change (possibly with retroactive effect) and all of which are subject to
differing interpretation. The discussion does not address the effects of the
merger under any state, local or foreign tax laws.
The discussion below and the opinion of Neal, Gerber & Eisenberg do not
purport to deal with all aspects of federal income taxation that may affect
particular stockholders in light of their individual circumstances, and they do
not address any tax consequences for stockholders subject to special treatment
under the federal income tax law (including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, persons who are not
citizens or residents of the United States or foreign entities (as defined for
United States federal income tax purposes), stockholders who hold their stock as
part of a hedge, appreciated financial position, straddle or conversion
transaction, stockholders with a "functional currency" other than the United
States dollar, stockholders who do not hold their stock as capital assets and
stockholders who have acquired their stock upon the exercise of employee stock
options or otherwise as compensation). The discussion below and such opinion do
not address any of the tax consequences associated with the issuance, holding or
surrender of promissory notes or other debt instruments of INT'L.com including,
but not limited to, the surrender of such debt instruments in exchange for
shares of Lionbridge common stock or the effect of the issuance, holding or
surrender of such debt instruments or the tax consequences of the merger
otherwise applicable to a holder of such promissory notes or other debt
instruments. In addition, the discussion below and such opinion do not consider
the effect of any applicable state, local or foreign laws. EACH INT'L.COM
STOCKHOLDER IS URGED TO CONSULT ITS TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE EFFECT OF UNITED STATES
FEDERAL, STATE AND LOCAL, AND FOREIGN AND OTHER TAX RULES, AND THE EFFECT OF
POSSIBLE CHANGES IN TAX LAWS.
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It is a condition to the obligation of INT'L.com to effect the merger that
INT'L.com receive an opinion from its counsel, Neal, Gerber & Eisenberg, to the
effect that the merger constitutes a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code for federal income tax purposes.
Assuming the merger qualifies as a reorganization, there are the following
United States federal income tax consequences:
TAX CONSEQUENCES TO LIONBRIDGE, LTI ACQUISITION CORP. AND INT'L.COM. For
United States federal income tax purposes, no gain or loss will be recognized by
Lionbridge, LTI Acquisition Corp. or INT'L.com upon the exchange of shares of
INT'L.com stock for shares of Lionbridge common stock pursuant to the merger.
TAX CONSEQUENCES TO INT'L.COM STOCKHOLDERS. For United States federal
income tax purposes, (1) no gain or loss will be recognized by the stockholders
of INT'L.com upon the exchange of their shares of INT'L.com stock for shares of
Lionbridge common stock pursuant to the merger, except with respect to cash, if
any, received in lieu of fractional shares of Lionbridge common stock, (2) the
aggregate tax basis of the shares of Lionbridge common stock received in
exchange for shares of INT'L.com stock pursuant to the merger (including a
fractional share of Lionbridge common stock for which cash is received) will be
the same as the aggregate tax basis of such shares of INT'L.com stock, (3) the
holding period for shares of Lionbridge common stock received in exchange for
shares of INT'L.com stock will include the holder's holding period for such
shares of INT'L.com stock, provided that the INT'L.com stock so surrendered is
held as a capital asset at the time of the merger, and (4) a stockholder of
INT'L.com who receives cash in lieu of a fractional share of Lionbridge common
stock will be treated as if such fractional share of Lionbridge common stock had
been issued in the merger and then redeemed by Lionbridge. An INT'L.com
stockholder receiving such cash generally will recognize capital gain or loss
(provided that the shares surrendered are held as capital assets immediately
prior to the merger) equal to the difference, if any, between such stockholder's
basis in the fractional share (determined under clause (2) above) and the amount
of cash received and such capital gain or loss will be long-term capital gain or
loss if the holding period for such shares is more than one year.
The opinion described above does not apply to stockholders who exercise
appraisal rights. A holder of INT'L.com stock who exercises appraisal rights
with respect to the merger and receives cash in exchange for shares of INT'L.com
stock will generally recognize capital gain or loss measured by the difference
between the amount of cash received and the stockholder's basis in those shares,
provided that the payment is not treated as a dividend pursuant to Section 302
of the Internal Revenue Code or otherwise. A sale of shares based on an exercise
of appraisal rights generally will not be treated as a dividend if the
stockholder exercising appraisal rights owns no shares of Lionbridge immediately
after the merger, after giving effect to the constructive ownership rules
pursuant to the Internal Revenue Code. A sale based on appraisal rights will
generally result in capital gain or loss (provided that the shares surrendered
are held as capital assets immediately prior to such sale) and such gain or loss
will be long-term capital gain or loss if the holder's holding period in the
shares is more than one year. Different rules may apply with respect to any
interest paid in connection with the exercise of such appraisal rights. Any
payment in respect of an exercise of appraisal rights may be subject to backup
withholding where required by the Internal Revenue Code.
Moreover, the opinion described above will be based on certain assumptions,
and Neal, Gerber & Eisenberg will receive and rely upon representations,
unverified by counsel, contained in certificates of Lionbridge, INT'L.com and
possibly others. The inaccuracy of any of those assumptions or representations
might jeopardize the validity of the opinion rendered. Such opinion will neither
bind the Internal Revenue Service nor preclude the Internal Revenue Service from
adopting positions contrary to those expressed above, and no assurance can be
given that contrary positions will not be asserted successfully by the Internal
Revenue Service or adopted by a court if the issues are litigated.
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Neither Lionbridge nor INT'L.com intends to obtain a ruling from the Internal
Revenue Service with respect to the tax consequences of the merger.
If the IRS were to successfully challenge the "reorganization" status of the
merger, each INT'L.com stockholder would recognize taxable gain or loss with
respect to the INT'L.com stock surrendered, measured by the difference between
(1) the fair market value, as of the time of the merger, of the Lionbridge
common stock received in the merger and (2) the stockholder's tax basis in the
INT'L.com stock surrendered therefor in the merger. In such event, a
stockholder's aggregate basis in the Lionbridge common stock so received would
equal its fair market value as of the time of the merger and the holding period
for such stock would begin the day after the merger.
Under the agreement and plan of reorganization, each INT'L.com stockholder
(other than a stockholder validly asserting appraisal rights) will receive
outright, upon surrender of its shares of INT'L.com stock, shares of Lionbridge
common stock equal to 90% of the whole number of shares of Lionbridge common
stock into which the shares of INT'L.com stock surrendered by the stockholder
are to be exchanged. The remaining 10% of the whole number of shares of
Lionbridge common stock for which the INT'L.com stock are to be exchanged will
be placed in escrow as security for indemnification obligations incurred by the
INT'L.com stockholders pursuant to the agreement and plan of reorganization.
Each INT'L.com stockholder will be credited with the number of shares placed in
escrow on its behalf. See "The Agreement and Plan of
Reorganization--Indemnification of Lionbridge by Stockholders." This discussion
does not address any of the tax consequences associated with the escrow
arrangement including, but not limited to, the deposit of the Lionbridge common
stock in the escrow account, the release of the Lionbridge common stock to
former INT'L.com stockholders or to other persons, the payment or accrual of
dividends with respect to the Lionbridge common stock or the use of the
Lionbridge common stock to make indemnification payments to Lionbridge. These
tax consequences are complex, and INT'L stockholders subject to the terms of the
escrow arrangement should consult their own tax advisors as to the consequences
to them of participation in the escrow.
INT'L.com stockholders will be required to attach a statement to their tax
returns for the year of the merger that contains the information listed in
Treasury Regulation Section 1.368-3(b). Such statement must include the
stockholder's tax basis in the stockholder's INT'L.com stock and a description
of the Lionbridge common stock received therefor. INT'L.COM STOCKHOLDERS ARE
URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THIS STATEMENT AND ANY OTHER
TAX REPORTING REQUIREMENTS.
WE INTEND THIS DISCUSSION TO PROVIDE ONLY A SUMMARY OF THE MATERIAL UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. WE DO NOT INTEND THAT IT
BE A COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER. WE DO NOT ADDRESS CERTAIN CATEGORIES OF
STOCKHOLDERS, AND WE DO NOT ADDRESS STATE, LOCAL OR FOREIGN TAX CONSEQUENCES. IN
ADDITION, AS NOTED ABOVE, WE DO NOT ADDRESS TAX CONSEQUENCES THAT MAY VARY WITH,
OR ARE CONTINGENT UPON, INDIVIDUAL CIRCUMSTANCES. WE STRONGLY URGE YOU TO
CONSULT YOUR TAX ADVISOR TO DETERMINE YOUR PARTICULAR UNITED STATES FEDERAL,
STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES RESULTING FROM THE
MERGER, IN LIGHT OF YOUR INDIVIDUAL CIRCUMSTANCES.
NASDAQ NATIONAL MARKET QUOTATION
It is a condition to the closing of the merger that the shares of Lionbridge
common stock to be issued pursuant to the agreement and plan of reorganization
be listed on the Nasdaq National Market.
RESALES OF LIONBRIDGE COMMON STOCK ISSUED IN CONNECTION WITH THE MERGER;
AFFILIATE AGREEMENTS
Lionbridge common stock issued in connection with the merger will be freely
transferable, except that shares of Lionbridge common stock received by persons
who are deemed to be "affiliates," as such term is defined by Rule 144 under the
Securities Act of 1933, of INT'L.com at the effective time of the merger may be
resold by them only in transactions permitted by the resale provisions of
Rule 145
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under the Securities Act of 1933 or as otherwise permitted under the Securities
Act of 1933. The executive officers, the directors and persons who may be
affiliates of INT'L.com have executed a written affiliate agreement providing,
among other things, that such person may not take a number of actions that would
jeopardize the accounting treatment of the merger as a pooling of interests. The
executive officers and directors and persons who may be affiliates of Lionbridge
have executed a written agreement providing that the affiliate covered by such
agreement may not take actions that would jeopardize the accounting treatment of
the merger as a pooling of interests.
Securities and Exchange Commission guidelines regarding qualifying for the
pooling of interests method of accounting also limit sales of shares of
Lionbridge and INT'L.com by their affiliates. The pooling of interests method of
accounting will generally not be challenged by the Securities and Exchange
Commission on the basis of sales by affiliates if they do not dispose of any of
the shares of Lionbridge or INT'L.com during the period beginning 30 days before
the merger and ending when financial results covering at least 30 days of
post-merger operations of Lionbridge have been published.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Lionbridge and INT'L.com believe this document contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are subject to risks and uncertainties and are based
on the beliefs and assumptions of management of Lionbridge and INT'L.com, based
on information currently available to each company's management. When we use
words such as "believes," "expects," "anticipates," "intends," "plans,"
"estimates," "should," "likely" or similar expressions, we are making
forward-looking statements. Forward-looking statements include the information
concerning possible or assumed future results of operations of Lionbridge set
forth:
- under "Summary," "Selected Financial Data of Lionbridge and INT'L.com,"
"Risk Factors" "--Background of the Merger," "--Recommendation of the
Board of Directors of Lionbridge; Lionbridge's Reasons for the Merger,"
"--Recommendation of the Board of Directors of INT'L.com; INT'L.com's
Reasons for the Merger," "--Opinion of Financial Advisor to Lionbridge,"
"Business" of Lionbridge and INT'L.com, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of Lionbridge
and INT'L.com and "Unaudited Pro Forma Combined Condensed Financial
Statements."
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and stockholder values
of Lionbridge or INT'L.com may differ materially from those expressed in the
forward-looking statements. Many of the factors that will determine these
results and values are beyond our ability to control or predict. Stockholders
are cautioned not to put undue reliance on any forward-looking statements. For
those statements, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
For a discussion of some of the factors that may cause actual results to
differ materially from those suggested by the forward-looking statements, please
read carefully the information under "Risk Factors" beginning on page 9. In
addition to the risk factors and other important factors discussed elsewhere in
the documents which are incorporated by reference into this joint proxy
statement/ prospectus, you should understand that the following important
factors could affect the future results of Lionbridge and could cause results to
differ materially from those suggested by the forward-looking statements:
- increased competitive pressures, both domestically and internationally,
which may affect sales of Lionbridge's services and impede Lionbridge's
ability to maintain its market share and pricing goals;
- changes in United States, global or regional economic conditions which may
affect sales of the combined company's services and increase costs
associated with providing such services;
- changes in United States and global financial and equity markets,
including significant interest rate fluctuations, which may increase the
cost of external financing for Lionbridge's operations, and currency
fluctuations, which may negatively impact Lionbridge's reportable income;
- changes in laws or regulations, third party relations and approvals,
decisions of courts, regulators and governmental bodies which may
adversely affect Lionbridge's business or ability to compete; and
- other risks and uncertainties as may be detailed from time to time in
Lionbridge's public announcements and Securities and Exchange Commission
filings.
This list of factors that may affect future performance and the accuracy of
forward-looking statements is illustrative, but by no means exhaustive.
Accordingly, all forward-looking statements should be evaluated with the
understanding of their inherent uncertainty.
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THE AGREEMENT AND PLAN OF REORGANIZATION
THE FOLLOWING IS A BRIEF SUMMARY OF THE MATERIAL PROVISIONS OF THE AGREEMENT
AND PLAN OF REORGANIZATION, AS AMENDED AND RESTATED, A COPY OF WHICH IS ATTACHED
AS ANNEX A TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED BY
REFERENCE INTO THIS SUMMARY. THE SUMMARY IS NOT COMPLETE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE AGREEMENT AND PLAN OF REORGANIZATION. WE URGE ALL
STOCKHOLDERS OF LIONBRIDGE AND INT'L.COM TO READ THE AGREEMENT AND PLAN OF
REORGANIZATION IN ITS ENTIRETY FOR A MORE COMPLETE DESCRIPTION OF THE TERMS AND
CONDITIONS OF THE MERGER.
GENERAL
Following the adoption of the agreement and plan of reorganization by the
stockholders of INT'L.com, the approval of the issuance of shares of Lionbridge
common stock as contemplated by the agreement and plan of reorganization by the
stockholders of Lionbridge and the satisfaction or waiver of the other
conditions to the merger, a wholly owned subsidiary of Lionbridge, named "LTI
Acquisition Corp.," will be merged into INT'L.com. INT'L.com will survive the
merger as a wholly owned subsidiary of Lionbridge. If all conditions to the
merger are satisfied or waived, the merger will become effective at the time of
the filing by the surviving corporation of a duly executed certificate of merger
with the Secretary of State of the State of Delaware.
EXCHANGE OF SHARES
TREATMENT OF INT'L.COM SERIES A COMMON STOCK, SERIES B COMMON STOCK,
SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK. At the effective time of
the merger, each issued and outstanding share of INT'L.com Series A common
stock, Series B common stock, Series A preferred stock and Series B preferred
stock other than shares held by INT'L.com, shares held by Lionbridge or LTI
Acquisition Corp. or dissenting shares, will be converted into the right to
receive a number of shares of Lionbridge common stock equal to the conversion
ratio. The conversion ratio will equal the number determined by dividing
(a) the difference between (1) 8,150,000 and (2) the sum of the number of shares
of Lionbridge common stock to be issued to the holders of $2.0 million of
convertible debt of INT'L.com and the number of shares of Lionbridge common
stock related to any additional debt (other than up to $2.0 million in
subordinated debt pursuant to the terms of the agreement and plan of
reorganization) incurred by INT'L.com after March 30, 2000 and expenses to be
borne by the stockholders of INT'L.com by (b) the sum of (1) the number of
shares of Series A common stock, Series B common stock, Series A preferred stock
and Series B preferred stock of INT'L.com issued and outstanding and (2) the
number of shares of common stock of INT'L.com issuable upon exercise of
outstanding options and warrants whether vested, unvested or subject to
repurchase by INT'L.com following the exercise. Lionbridge will reduce the
number of shares of common stock to be issued in the merger if INT'L.com incurs
indebtedness without the written consent of Lionbridge. The holders of a
majority of the shares of INT'L.com Series A preferred stock and Series B
preferred stock have agreed to cause all shares of Series A preferred stock and
Series B preferred stock to be converted into shares of INT'L.com Series A
common stock immediately prior to the effective time of the merger. The number
by which the shares of common stock will be reduced will be equal to the number
determined by dividing (a) the amount of such debt and any accrued interest by
(b) $19.7266. Lionbridge will also reduce the number of shares of common stock
to be issued in the merger if the expenses incurred by INT'L.com in connection
with the merger exceed $400,000. The number by which the shares of common stock
will be reduced will be equal to the number determined by dividing (a) the
amount by which the expenses incurred exceeds $400,000 by (b) $19.7266.
TREATMENT OF INT'L.COM SERIES C PREFERRED STOCK AND SERIES D PREFERRED
STOCK. At the effective time of the merger, each issued and outstanding share
of INT'L.com Series C preferred stock, other than shares held in the treasury of
INT'L.com, shares held by Lionbridge or LTI Acquisition Corp. or dissenting
shares, will be converted into the right to receive a number of shares of
Lionbridge common
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stock equal to the Series C conversion ratio. The Series C conversion ratio will
equal the number determined by dividing the quotient obtained by dividing (a)
(1) the aggregate accrued liquidation preference of the Series C preferred stock
at that time by (2) $19.7266 by (b) the number of shares of INT'L.com Series C
preferred stock issued and outstanding. At the effective time of the merger,
each issued and outstanding share of INT'L.com Series D preferred stock, other
than shares held in the treasury of INT'L.com, shares held by Lionbridge or LTI
Acquisition Corp. or dissenting shares, will be converted into the right to
receive a number of shares of Lionbridge common stock equal to the Series D
conversion ratio. The Series D conversion ratio will equal the number determined
by dividing the quotient obtained by dividing (a) (1) the aggregate accrued
liquidation preference of the Series D preferred stock at that time by
(2) $19.7266 by (b) the number of shares of INT'L.com Series D preferred stock
issued and outstanding.
It is estimated that each share of INT'L.com Series A common stock
(including the 348,553 shares of INT'L.com Series A common stock issuable upon
the exercise of warrants), Series B common stock, Series A preferred stock and
Series B preferred stock outstanding immediately prior to the effective time of
the merger will be exchanged for approximately 0.7485 of a share of Lionbridge
common stock. Based on the estimated conversion ratio, approximately 7,286,273
shares of Lionbridge common stock will be issued to the holders of Series A
common stock, Series B common stock, Series A preferred stock and Series B
preferred stock in the merger. It is estimated that each share of INT'L.com
Series C preferred stock outstanding immediately prior to the effective time of
the merger will be exchanged for approximately 5.5753 shares of Lionbridge
common stock. Based on the estimated Series C conversion ratio, approximately
27,877 shares of Lionbridge common stock will be issued to the holders of
Series C preferred stock in the merger. It is estimated that each share of
INT'L.com Series D preferred stock outstanding immediately prior to the
effective time of the merger will be exchanged for approximately 0.5505 of a
share of Lionbridge common stock. Based on the estimated Series D conversion
ratio, approximately 515,814 shares of Lionbridge common stock will be issued to
the holders of Series D preferred stock of INT'L.com in the merger. The actual
number of shares of Lionbridge common stock issued may differ because the exact
conversion ratios are dependent on a number of variables that cannot be
calculated until shortly before the closing, including the date of closing, the
number of shares of INT'L.com common stock outstanding at the closing and the
amount of debt and expenses incurred by INT'L.com.
CREATION OF ESCROW
By approving the merger, the INT'L.com stockholders will authorize the
creation of the escrow, the terms of the escrow agreement and the appointment of
Steven L. Fingerhood as their representative with respect to indemnification
matters.
TREATMENT OF INT'L.COM STOCK OPTIONS AND WARRANTS
At the effective time of the merger, each unexpired and unexercised
outstanding option to purchase shares of INT'L.com common stock, whether vested
or unvested, previously granted by INT'L.com will be assumed by Lionbridge and
converted into options to purchase approximately 753,926 shares of Lionbridge
common stock based on options to purchase 1,007,249 shares of INT'L.com common
stock outstanding as of February 29, 2000. At the effective time of the merger,
each unexpired and unexercised outstanding warrant to purchase shares of
INT'L.com common stock, whether currently exercisable or not, previously issued
by INT'L.com will be assumed by Lionbridge and will become exercisable to
purchase shares of Lionbridge common stock. The holders of outstanding warrants
to purchase 348,553 shares of INT'L.com common stock have indicated their
intention to exercise such warrants prior to the effective time of the merger.
The number of shares of Lionbridge common stock subject to the assumed INT'L.com
stock options and warrants will be adjusted pursuant to the conversion ratio.
Any fractional shares of Lionbridge common stock resulting
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from such adjustment will be rounded down to the nearest share. The exercise
price per share of Lionbridge common stock under the INT'L.com stock options and
warrants will equal the exercise price per share of the INT'L.com common stock
under the original stock options or warrants, as the case may be, divided by the
conversion ratio. The exercise prices will be rounded up to the next highest
whole cent.
TREATMENT OF CONVERTIBLE DEBT
At the effective time of the merger, the $2.0 million of convertible debt of
INT'L.com issued on August 20, 1999 and any accrued interest shall be paid in
full by the receipt of a number of shares of Lionbridge common stock determined
by dividing (a) $2.0 million plus any accrued interest by (b) $19.7266. Assuming
the effective time of the merger is June 30, 2000, the holders of the
convertible debt of INT'L.com will be issued approximately 110,239 shares of
Lionbridge common stock as payment in full of such convertible debt.
TREATMENT OF SUBORDINATED DEBT
At the effective time of the merger, up to $5.0 million of subordinated debt
of INT'L.com issued during the first and second quarters of 2000 and any accrued
interest shall be paid in full by the receipt of a number of shares of
Lionbridge common stock determined by dividing (a) the principal amount of such
subordinated debt plus any accrued interest by (b) $19.7266. Assuming the
effective time of the merger is June 30, 2000 and $5.0 million of subordinated
debt is outstanding on June 30, 2000, the holders of the subordinated debt of
INT'L.com will be issued approximately 260,882 shares of Lionbridge common stock
as payment in full of such subordinated debt.
EXCHANGE OF STOCK CERTIFICATES
FRACTIONAL SHARES. Lionbridge will not issue any fractional shares of
Lionbridge common stock in the merger. Instead, each holder of shares of
INT'L.com common stock or INT'L.com preferred stock exchanged pursuant to the
merger who would otherwise have been entitled to receive a fraction of a share
of Lionbridge common stock will be entitled to receive cash (without interest)
in an amount equal to the product of such fractional part of Lionbridge common
stock multiplied by $19.7266.
SURRENDER OF SHARES OF INT'L.COM STOCK; STOCK TRANSFER BOOKS. Prior to the
effective time of the merger, Lionbridge will mail a notice and letter of
transmittal to each record holder of certificates representing INT'L.com stock
advising the holders of the anticipated effectiveness of the merger and the
instructions for surrendering the certificates for Lionbridge common stock and
for the payment in lieu of fractional shares. Holders of certificates who
properly surrender their certificates in accordance with the instructions in the
notice will receive certificates representing the number of shares of Lionbridge
common stock (other than the shares placed in the escrow), cash in lieu of any
fractional shares of Lionbridge common stock and any dividends or distributions
to which they are entitled. The surrendered certificates will be cancelled.
NO FURTHER REGISTRATION OR TRANSFER OF INT'L.COM COMMON STOCK AND INT'L.COM
PREFERRED STOCK. At the effective time of the merger, the stock transfer books
of INT'L.com will be closed and there will be no further transfers of shares of
INT'L.com common stock or INT'L.com preferred stock on the records of INT'L.com.
After the effective time of the merger, the holders of INT'L.com stock
certificates will cease to have any rights with respect to such shares of
INT'L.com common stock and INT'L.com preferred stock except as otherwise
provided for in the agreement and plan of reorganization or by applicable law.
DIVIDENDS AND DISTRIBUTIONS. No dividends or other distributions declared
or made on or after the closing date of the merger with respect to shares of
Lionbridge common stock will be paid to the holder of any unsurrendered
INT'L.com certificate with respect to the shares of Lionbridge common
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stock that the holder thereof is entitled to receive until the holder surrenders
such INT'L.com certificate as provided above and provides such customary
representations and certifications as are requested in the transmittal form sent
to each holder. Upon such surrender, Lionbridge will pay to the person in whose
name the INT'L.com certificates representing such shares of Lionbridge common
stock will be issued, without interest, any dividends or distributions with
respect to the shares of Lionbridge common stock which have a record date on or
after the closing date of the merger and have become payable between the
effective time of the merger and the time of such surrender.
LOST CERTIFICATES. If any INT'L.com certificates are lost, stolen or
destroyed, an INT'L.com stockholder must provide an appropriate affidavit of
that fact. Lionbridge may require the owner of such lost, stolen or destroyed
INT'L.com certificates to deliver a bond as indemnity against any claim that may
be made against Lionbridge with respect to the INT'L.com certificates alleged to
have been lost, stolen or destroyed.
HOLDERS OF INT'L.COM COMMON STOCK OR INT'L.COM PREFERRED STOCK SHOULD NOT
SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL FROM
LIONBRIDGE.
REPRESENTATIONS AND WARRANTIES
The agreement and plan of reorganization contains representations and
warranties of Lionbridge, INT'L.com and LTI Acquisition Corp. These relate to:
- their organization, standing and power;
- their capitalization;
- their authorization, execution and delivery of, and the enforceability of,
the agreement and plan of reorganization and related matters;
- compliance with laws and the absence of conflicts, violations and defaults
under their corporate charters and by-laws and other agreements and
documents;
- accounting matters and financial statements;
- brokers and finders; and
- the accuracy of information provided to the other party.
INT'L.com has also represented and warranted as to:
- its licenses and permits;
- required governmental and third-party consents;
- its subsidiaries;
- the absence of certain changes and events;
- the absence of undisclosed liabilities;
- litigation;
- the absence of restrictions on its business activities;
- its employee benefit plans;
- its material contracts;
- insurance and banking facilities;
- intellectual property;
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- its employees and consultants;
- environmental, health and safety matters;
- accounts receivable;
- its customers;
- its suppliers;
- business relationships with affiliates; and
- its books and records.
Lionbridge has also represented and warranted as to the validity of the
shares of common stock to be issued in connection with the merger and as to the
accuracy and completeness of documents and reports filed by Lionbridge with the
SEC.
CERTAIN COVENANTS
CONDUCT OF BUSINESS PRIOR TO THE MERGER. INT'L.com has agreed that it will
carry on its business in the ordinary course in substantially the same manner as
previously conducted, except as contemplated by the agreement and plan of
reorganization. Specifically, INT'L.com has agreed not to, without the prior
written consent of Lionbridge:
- with certain exceptions, issue or sell any shares of capital stock or
other securities, except pursuant to the conversion or exercise of
convertible securities, options or warrants;
- repurchase or acquire any shares of its capital stock;
- effect a stock split or declare or make any dividends or other
distribution on its shares of capital stock;
- with certain exceptions, enter into any material commitment or
transaction;
- with certain exceptions, create, incur or assume indebtedness other than
existing agreements, guarantee the obligations of any other person or
entity or make any loans or investments in any other person or entity;
- enter into, adopt or amend any employee benefit plan or employment or
severance arrangement or increase the compensation or fringe benefits of,
or materially modify the employment terms of, its directors, officers or
employees generally, or pay any benefit not required by any existing
employee benefit plan;
- acquire, sell, lease, encumber or otherwise dispose of any assets or
property other than in the ordinary course of business;
- amend its charter or by-laws;
- with certain exceptions, commence a lawsuit or settle any claim, action or
proceeding;
- take or fail to take any action with the knowledge that the action or
failure to take action would cause or constitute a breach of any of its
representations and warranties in the agreement and plan of
reorganization;
- with certain exceptions, enter into or amend any agreements pursuant to
which any other party is granted support, service, marketing or publishing
rights, or is granted distribution rights of any type or scope with
respect to any products of INT'L.com;
- with certain exceptions, enter into or terminate any contracts,
arrangements, plans, agreements, leases, licenses, franchises, permits,
indentures, authorizations, instruments, or commitments, or
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amend or otherwise change in any material respect the terms thereof in a
manner adverse to INT'L.com;
- modify in any material respect existing discounts or other terms and
conditions with dealers, distributors and other resellers of INT'L.com's
products or services in a manner adverse to INT'L.com; or
- grant any bonus, severance or termination pay.
Lionbridge and INT'L.com have each agreed to use its reasonable efforts to
take all actions and to do all things necessary, proper or advisable to
consummate the transactions contemplated by the agreement and plan of
reorganization.
INT'L.COM IS RESTRICTED FROM TRYING TO SELL TO ANOTHER PARTY. INT'L.com has
agreed that it will not, and will use its reasonable best efforts to ensure that
none of its officers, directors, stockholders, agents, representatives or
affiliates (1) solicit, encourage, initiate or participate in discussions,
inquiries or negotiations with respect to any offer or proposal to acquire all
or a significant part of INT'L.com's business, assets or capital stock whether
by merger, consolidation, other business combination, purchase of assets, tender
or exchange offer or otherwise; (2) provide any non-public information
concerning the business, properties or assets of INT'L.com to any person or
entity (other than Lionbridge) in connection with any proposal relating to any
such acquisition, (3) enter into any agreement relating to a transaction
described in (1); or (4) make or authorize any public statement in support of
any transaction described in (1). Lionbridge has agreed that INT'L.com may take
actions inconsistent with this agreement if the INT'L.com board concludes in
good faith that such actions are necessary or appropriate because failure to
take such actions would be inconsistent with the fiduciary duties owed by the
INT'L.com board to the INT'L.com stockholders under applicable law. INT'L.com
has agreed that it will immediately notify Lionbridge about inquiries,
discussions or negotiations of the nature described above.
DIRECTOR AND OFFICER INDEMNIFICATION. Lionbridge has agreed that all rights
to indemnification and exculpation existing on the date of the agreement and
plan of reorganization in favor of the present officers and directors of
INT'L.com with respect to actions taken in their capacities as such as provided
in INT'L.com's certificate of incorporation or by-laws prior to the effective
time of the merger shall continue in full force and effect.
THIRD-PARTY APPROVALS. INT'L.com and Lionbridge have agreed to use their
respective reasonable best efforts to obtain all consents, and make all filings
with governmental entities, which are necessary to be obtained by them to
consummate the merger. They have also agreed to advise and consult with each
other regarding material events.
DIRECTOR. Lionbridge has agreed that Roger O. Jeanty will become a Class I
director as of the effective time of the merger.
RELATED MATTERS AFTER THE MERGER
At the time of the merger, LTI Acquisition Corp. will be merged into
INT'L.com and INT'L.com will become the surviving corporation in the merger and
a wholly owned subsidiary of Lionbridge. Each share of LTI Acquisition Corp.
common stock issued and outstanding immediately prior to the merger will be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock of the surviving corporation. The
certificate of incorporation of LTI Acquisition Corp., as in effect immediately
prior to the time of the merger, will become the certificate of incorporation of
the surviving corporation, except that the name shall be changed to the name of
INT'L.com. The by-laws of LTI Acquisition Corp. will become the by-laws of the
surviving corporation, except that the name shall be changed to the name of
INT'L.com.
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INDEMNIFICATION OF LIONBRIDGE BY INT'L.COM STOCKHOLDERS
The agreement and plan of reorganization provides that the INT'L.com
stockholders who receive Lionbridge common stock in the merger will indemnify
Lionbridge for any and all damages, subject to the limitations described below,
Lionbridge may suffer as a result of a misrepresentation or breach of any
representation, warranty or covenant contained in the agreement and plan of
reorganization. The representations, warranties and obligations contained in the
agreement and plan of reorganization continue in effect for one year following
the closing.
To secure the indemnification obligations of the INT'L.com stockholders in
the agreement and plan of reorganization, ten percent of the Lionbridge common
stock that would otherwise be issuable at the closing will be held in escrow.
Pursuant to the agreement and plan of reorganization, Steven L. Fingerhood has
been designated as the representative of the INT'L.com stockholders with respect
to indemnification matters. The escrow will terminate on the earlier of (i)
publication of Lionbridge's audited financial results for the year ended
December 31, 2000 and (ii) one year after the closing of the merger.
Except for indemnification obligations arising out of criminal activity or
fraud or under the letters of transmittal set forth below, the total liability
of the INT'L.com stockholders for their indemnification obligations shall not
exceed the value of the shares held in escrow which will be valued at $19.7266
per share and the INT'L.com stockholders shall not be liable until the aggregate
claim for damages exceeds $500,000, at which time the INT'L.com stockholders
shall be liable for all damages, including the $500,000.
No INT'L.com stockholder shall have a right of contribution against
INT'L.com with respect to any breach by INT'L.com of any representation,
warranty, covenant or agreement.
Each stockholder of INT'L.com will also be required to agree to indemnify
Lionbridge against damages due to the breach of any representation, warranty or
covenant of such stockholder relating to such stockholder's ownership and
authority with respect to the INT'L.com stock. Such representations, warranties
and covenants will be contained in the letter of transmittal to be used by such
stockholder to submit their shares of INT'L.com stock in exchange for shares of
Lionbridge common stock.
CONDITIONS TO OBLIGATIONS TO EFFECT MERGER
The respective obligations of Lionbridge and INT'L.com to effect the merger
are subject to the satisfaction or waiver of the following conditions: (1) the
authorization of the issuance of shares of Lionbridge common stock in connection
with the merger must have been approved by the stockholders of Lionbridge and
those shares must have been approved for quotation on the Nasdaq National
market, subject to notice of issuance; (2) INT'L.com must receive a letter from
Arthur Andersen LLP that it is "poolable" for accounting purposes under
Accounting Principles Board Opinion No. 16 and (3) Lionbridge must receive a
letter from PricewaterhouseCoopers LLP as to the appropriateness of accounting
for the merger as a pooling of interests under Accounting Principles Board
Opinion No. 16.
In addition, the obligations of Lionbridge and LTI Acquisition Corp. to
effect the merger are subject to the satisfaction or waiver of the following
conditions:
- INT'L.com must have obtained all waivers, permits, consents, approvals or
other authorizations required by Lionbridge except where the failure to
obtain such consent would not have a material adverse effect on the
business condition of INT'L.com;
- the representations and warranties of INT'L.com in the agreement and plan
of reorganization must be true and correct in all material respects as of
the date of the original agreement and plan of reorganization and at the
effective time of the merger except to the extent that the inaccuracy of
any representation or warranty (i) is contemplated by the agreement and
plan of
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reorganization; (ii) relates to a representation or warranty specifically
limited to an earlier date; (iii) results from actions taken or not taken
pursuant to the agreement and plan of reorganization or with the written
concurrence of Lionbridge or (iv) would not, alone or in the aggregate,
have a material adverse effect on the business conditions of INT'L.com;
- INT'L.com shall have performed all agreements and covenants required to be
performed under the agreement and plan of reorganization at or prior to
the effective time of the merger, except (i) as otherwise contemplated by
the agreement and plan of reorganization; (ii) as a result of actions
taken or not taken with the written concurrence of Lionbridge; or
(iii) for such failures to perform which, individually or in the
aggregate, would not have a material adverse effect on the business
condition of INT'L.com;
- Lionbridge shall have received certificates executed on behalf of
INT'L.com regarding representations and performance as required by the
agreement and plan of reorganization;
- no action, suit or proceeding shall be pending or threatened in writing
where an unfavorable judgment, order, decree, stipulation or injunction
would prevent or cause the recision of the merger or have a material
adverse effect on the business conditions of INT'L.com;
- Lionbridge shall have received an opinion from counsel to INT'L.com in a
form satisfactory to Lionbridge;
- the indemnification representative and the escrow agent must have entered
into the escrow agreement;
- Lionbridge must have received a letter from Arthur Andersen LLP containing
statements and information of the type ordinarily included in accountants'
"comfort letters";
- stockholders of INT'L.com representing at least 90% of the outstanding
voting power of INT'L.com shall have approved and adopted the merger and
the agreement and plan of reorganization;
- INT'L.com shall have terminated its 401(k) plans;
- any registration rights, rights of first refusal, voting rights,
liquidation preference or redemption rights relating to any security of
INT'L.com shall be terminated, waived or satisfied;
- the $2.0 million of convertible promissory notes dated August 20, 1999 and
the subordinated promissory notes up to $5.0 million issued by INT'L.com
during the first and second quarters of 2000 shall have been cancelled;
- the affiliates of INT'L.com must have entered into the Third Amended and
Restated Registration Rights Agreement among Lionbridge and the other
parties; and
- the agreements and arrangements previously identified by Lionbridge must
have been terminated with no liability to INT'L.com.
In addition, the obligation of INT'L.com to effect the merger is subject to
the satisfaction or waiver of the following conditions:
- INT'L.com must have received an opinion from counsel to Lionbridge in a
form satisfactory to INT'L.com;
- Lionbridge must have entered into the escrow agreement;
- INT'L.com shall have received an opinion from its counsel to the effect
the merger is a reorganization for United States federal income tax
purposes under Section 368 of the Internal Revenue Code;
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- the representations and warranties of Lionbridge and LTI Acquisition Corp.
in the agreement and plan of reorganization must be true and correct in
all material respects as of the date of the original agreement and plan of
reorganization and at the effective time of the merger except to the
extent that the inaccuracy of any representation or warranty (i) is
contemplated by the agreement and plan of reorganization; (ii) relates to
a representation or warranty specifically limited to an earlier date;
(iii) results from actions taken or not taken pursuant to the agreement
and plan of reorganization or (iv) would not, alone or in the aggregate,
have a material adverse effect on the business conditions of Lionbridge;
- Lionbridge and LTI Acquisition Corp. shall have performed all agreements
and covenants required to be performed under the agreement and plan of
reorganization at or prior to the effective time of the merger, except (i)
as otherwise contemplated by the agreement and plan of reorganization; or
(ii) for such failures to perform which, individually or in the aggregate,
would not have a material adverse effect on the business condition of
Lionbridge;
- no action, suit or proceeding shall be pending or threatened in writing
where an unfavorable judgment, order, decree, stipulation or injunction
would prevent or cause the recision of the merger or have a material
adverse effect on the business conditions of Lionbridge;
- at least a majority of the stockholders of LTI Acquisition Corp. shall
have approved and adopted the merger and the agreement and plan of
reorganization;
- Lionbridge must have entered into the Third Amended and Restated
Registration Rights Agreement among Lionbridge and the other parties; and
- Roger O. Jeanty shall have been elected to Lionbridge's board of
directors.
TERMINATION; FEES AND EXPENSES
The agreement and plan of reorganization may be terminated in the following
ways at any time prior to the time of the merger:
(1) Lionbridge and INT'L.com may terminate the agreement and plan of
reorganization by mutual written consent;
(2) Lionbridge may terminate the agreement and plan of reorganization if it
is not in material breach of any representation, warranty, covenant or
agreement contained in the agreement and plan of reorganization and
INT'L.com is in material breach of any representation, warranty, covenant
or agreement contained in the agreement and plan of reorganization if
such breach would, in Lionbridge's reasonable opinion, render it
impossible for INT'L.com to satisfy the closing conditions and such
breach is not remedied within 20 business days of notice;
(3) INT'L.com may terminate the agreement and plan of reorganization if it
is not in material breach of any representation, warranty, covenant or
agreement contained in the agreement and plan of reorganization and
Lionbridge is in material breach of any representation, warranty,
covenant or agreement contained in the agreement and plan of
reorganization if such breach would, in INT'L.com's reasonable opinion,
render it impossible for Lionbridge to satisfy the closing conditions and
such breach is not remedied within 20 business days of notice; or
(4) Either party may terminate the agreement and plan of reorganization by
giving written notice to the other party if the effective time of the
merger has not occurred on or before June 30, 2000 except that such right
to terminate the agreement and plan of reorganization is not available to
any party whose failure to fulfill any obligation under the agreement and
plan of
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reorganization has been a significant cause of, or resulted in, the
failure of the effective time of the merger to occur by such date.
If either Lionbridge or INT'L.com terminates the agreement and plan of
reorganization pursuant to the reasons above, all obligations of the parties
under the agreement and plan of reorganization shall terminate and there will be
no liability, except for any liability of a party for willful breaches of the
agreement and plan of reorganization, on the part of Lionbridge, INT'L.com, LTI
Acquisition Corp.
In addition, the agreement and plan of reorganization may be terminated by
INT'L.com upon the payment of the termination fee described below to Lionbridge
if it has complied with its obligation under the agreement and plan of
reorganization to prepare the joint proxy statement/prospectus and the
stockholders of INT'L.com owning a majority of the voting power fail to approve
and adopt the agreement and plan of reorganization. The termination fee will be
equal to 5% of the number determined by multiplying (a) $19.7266 by (b) the
number of shares of Lionbridge common stock that would have been issued if the
closing had occurred on the date of the termination assuming no shares were
excluded and that all options were exercised immediately prior to that date.
Except as described below, whether or not the merger is consummated, all
fees, costs and expenses incurred in connection with the agreement and plan of
reorganization and the transactions contemplated thereby shall be paid by the
party incurring the expenses. Lionbridge shall pay all expenses incurred in
relation to the printing of this proxy statement/prospectus, and the
stockholders of INT'L.com shall pay all expenses incurred by INT'L.com in excess
of $400,000, by means of a reduction in the number of shares of Lionbridge
common stock issued in the merger.
INT'L.com does not have a right to terminate the agreement and plan of
reorganization because of a decline in the share price of Lionbridge common
stock.
AMENDMENT AND WAIVER
Generally, the boards of directors of Lionbridge and INT'L.com may amend the
agreement and plan of reorganization at any time prior to the effective time.
However, after the stockholders of INT'L.com approve the merger, any amendment
will be restricted by the Delaware corporation statute. Amendments must be in
writing and signed by all parties.
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OTHER AGREEMENTS
VOTING AGREEMENTS
In connection with the execution of the original agreement and plan of
reorganization, Lionbridge entered into voting agreements with certain officers,
directors, and 5% stockholders of INT'L.com and their affiliates owning
approximately 71.5% of the combined voting power of the outstanding capital
stock of INT'L.com as of February 29, 2000. Pursuant to the voting agreements,
each such stockholder has agreed to vote all shares of INT'L.com common stock
and INT'L.com preferred stock in favor of approval and adoption of the agreement
and plan of reorganization and the merger and has agreed to grant Lionbridge an
irrevocable proxy to vote his or her shares in favor of approval and adoption of
the agreement and plan of reorganization and the merger. The voting agreements
will terminate upon the earliest to occur of (1) the effective time of the
merger or (2) any termination of the agreement and plan of reorganization in
accordance with the terms thereof.
In connection with the execution of the original agreement and plan of
reorganization, INT'L.com entered into voting agreements with the executive
officers and directors of Lionbridge and their affiliates owning approximately
69% of the outstanding common stock of Lionbridge as of February 29, 2000.
Pursuant to the voting agreements, each executive officer and director and
affiliate thereof has agreed to vote all of his, her or its shares of Lionbridge
common stock in favor of approval of the issuance of Lionbridge common stock in
connection with the merger and has granted INT'L.com an irrevocable proxy to
vote his or her shares in favor of approval of the issuance of Lionbridge common
stock in connection with the merger. The voting agreements will terminate upon
the earliest to occur of (1) the effective time of the merger or (2) any
termination of the agreement and plan of reorganization in accordance with the
terms thereof.
AFFILIATE LETTERS
In connection with the execution of the original agreement and plan of
reorganization, INT'L.com entered into affiliate letters with those Lionbridge
directors, officers and stockholders who are "affiliates" within the meaning of
Securities and Exchange Commission rules. Pursuant to these affiliate letters,
each Lionbridge affiliate has agreed not to dispose of his, her or its shares of
Lionbridge common stock and any shares INT'L.com capital stock held by such
affiliate in a manner that would preclude the merger qualifying for pooling of
interests accounting treatment. Lionbridge may place appropriate legends on any
certificates representing Lionbridge common stock held by such affiliates and
may issue appropriate stop transfer instructions to the transfer agent for
Lionbridge with regard to such Lionbridge common stock, consistent with the
terms of the affiliate letters.
In connection with the execution of the original agreement and plan of
reorganization, Lionbridge entered into affiliate letters with those INT'L.com
directors, officers and stockholders who are "affiliates" within the meaning of
Securities and Exchange Commission rules. Pursuant to these affiliate letters,
each INT'L.com affiliate has agreed not to dispose of his, her or its shares of
INT'L.com capital stock and any shares of Lionbridge common stock to be received
in the merger in a manner that would preclude the merger qualifying for pooling
of interests accounting treatment. Lionbridge may place appropriate legends on
the certificates representing any Lionbridge common stock to be received by such
affiliates pursuant to the terms of the agreement and plan of reorganization and
may issue appropriate stop transfer instructions to the transfer agent for
Lionbridge with regard to such Lionbridge common stock, consistent with the
terms of the affiliate letters.
ESCROW AGREEMENT
Lionbridge will deposit in escrow with the escrow agent certificates,
together with stock powers signed in blank with guaranteed signatures,
representing ten percent of the Lionbridge common stock that would otherwise be
issuable at the closing to each of the INT'L.com stockholders for the purpose
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of securing the indemnification obligations of the INT'L.com stockholders
pursuant to the agreement and plan of reorganization. The escrow shares to be
deposited with the escrow agent will be issued in the name of such INT'L.com
stockholders.
During the term of the escrow agreement, each holder of escrow shares shall
have the right to vote such escrow shares held in escrow.
Under the escrow agreement, the indemnification representative may authorize
delivery to Lionbridge of Lionbridge common stock held in the escrow in
satisfaction of indemnification claims and agree, negotiate and enter into
settlements and compromises of, and otherwise resolve, indemnification claims.
Steven L. Fingerhood, currently a director and executive officer of INT'L.com,
is the initial indemnification representative.
The escrow will terminate on the earlier of (i) publication of Lionbridge's
audited financial results for the year ended December 31, 2000 and (ii) one year
after the closing of the merger.
Promptly following the termination of the escrow, the escrow agent will
deliver to the INT'L.com stockholders entitled to receive them the number of
shares remaining in escrow; provided, however, that the escrow agent will retain
such number of escrow shares as is necessary to satisfy the remaining indemnity
obligations of the INT'L.com stockholders relating to any pending or contested
indemnification claims. Once any such pending or contested claim is resolved,
the escrow agent will then deliver any remaining escrow shares (taking into
account any escrow shares delivered to Lionbridge in connection with the
resolution of such claim) relating to such resolved claim to the INT'L.com
stockholders entitled to receive them.
The escrow agent will distribute any cash dividends or property (other than
securities) distributed with respect to the shares to the INT'L.com
stockholders.
Lionbridge shall be liable for the fees and expenses of the escrow agent.
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DESCRIPTION OF LIONBRIDGE
BUSINESS
GENERAL
Lionbridge is a leading 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, Lionbridge has
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, Lionbridge has in turn begun to offer multilingual Internet
services. While the Internet has been an integral part of its operations and its
customer relationships for several years, in the last year Lionbridge has
developed new multilingual Internet service offerings that are focused on this
rapidly changing business opportunity.
Lionbridge provides a complete globalization and multilingual Internet
offering to businesses, particularly industry-leading software publishers,
computer hardware manufacturers, and telecommunications companies. Lionbridge's
full suite of services improve the quality, consistency, and timeliness of its
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.
Lionbridge invested in the development of its proprietary RAPID
GLOBALIZATION METHODOLOGY, a process which is at the heart of each client
engagement. The RAPID GLOBALIZATION METHODOLOGY standardizes processes, defines
key activities, and specifies goals for each project. This approach to a project
benefits Lionbridge's clients by enabling Lionbridge to provide consistent
quality and timely delivery of localized versions of products and related
materials across multiple geographies and languages. Lionbridge's 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 the organization, enabling Lionbridge to continuously improve the
quality and efficiency of its services. The RAPID GLOBALIZATION METHODOLOGY is
generally supported by Lionbridge's proprietary internal LIONTRACK-TM- workflow
system.
LIONTRACK can answer the demanding localization requirements of large,
complex Web sites that are subject to continuous updating. LIONTRACK, which
became operational in July 1999, connects directly to clients' Web sites,
automatically detecting and extracting required changes through its Web-crawling
technology. LIONTRACK routes these changes for translation and localization, and
automatically inserts the localized material into the client's multilingual Web
sites. LIONTRACK enables Lionbridge's clients to maintain continuously updated
multilingual Web sites without disruption, freeing them to focus on content
development. LIONTRACK also enables its clients to submit files and translation
instructions via the Internet for automated routing throughout the localization
process. Clients can then use LIONTRACK to monitor the real-time progress of
individual components of an assignment, which allows them to plan their product
release schedule more effectively.
Lionbridge, through its predecessor and current wholly owned subsidiary,
Lionbridge America, Inc., was incorporated in Delaware in September, 1996.
Lionbridge's principal executive offices are located
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at 950 Winter Street, Waltham, Massachusetts 02451, its telephone number is
(781) 434-6000, and its web site is www.lionbridge.com.
LIONBRIDGE SERVICES
Lionbridge provides 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. Lionbridge's
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. Lionbridge provides its 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, Lionbridge re-engineers code to
support the "double-byte" character set requirements of the Japanese,
Chinese, and Korean languages.
- TRANSLATION. Lionbridge uses a combination of internal and external
translators, as well as translation software, for its projects. Lionbridge
has approximately 35 translators who are employees and also has
established relationships with a global network of over 2,000 in-country
translators, including independent agencies and freelance professionals. A
majority of its translation costs are attributable to outsourcing these
services to in-country translators. Lionbridge develops and applies
glossaries to ensure consistent terminology across projects for a specific
company or industry. Lionbridge also use translation memory software to
identify previously translated material for re-use. Lionbridge's project
editors review translated material to ensure that it meets internal
standards for quality and accuracy. Historically, a majority of
Lionbridge's revenue from translation services has involved translating
information from English to various foreign languages.
- LOCALIZATION AND INTERNATIONALIZATION TESTING. Lionbridge provides both
localization testing, and software, hardware, and telecommunications
internationalization testing through its 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 services 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. Lionbridge localizes 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 its clients in formats ready for printing or Internet
delivery.
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Lionbridge's revenues from services, excluding non-multilingual
compatibility testing and logo certification, were approximately 90%, 100% and
100% of consolidated revenues for the years ended December 31, 1999, 1998 and
1997, respectively.
As its clients increasingly use the Internet to deliver products, technical
support, training materials, and sales and marketing information, Lionbridge is
continuously adapting its service offerings to support its clients' Web-based
initiatives. Lionbridge organizes its multilingual Internet services in four key
areas:
eRELEASE
Lionbridge localizes software products and Web applications into multiple
languages. With the emergence of the Internet, Lionbridge's 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.
eSUPPORT
Lionbridge offers localization and maintenance of technical support Web
sites, including frequently asked questions, product specifications, white
papers, and technical support databases. As its clients continuously update this
Web-based information, Lionbridge automatically updates the multilingual
versions as well. Lionbridge also assists its clients in providing local
language responses to technical support questions through e-mail.
eLEARNING
Lionbridge's multilingual eLearning services enable its 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
Lionbridge localizes Web-based sales and marketing materials for its clients
who sell their products via the Internet. Lionbridge's services support
continuous updates and revisions to these materials. As corporate Web sites
become an integrated global resource, Lionbridge believes that its multilingual
Internet services will assist multinational corporations in maintaining the
quality and consistency of their Web-based products and content in multiple
languages.
See Note 13 to Consolidated Financial Statements of Lionbridge for financial
information relating to Lionbridge's operating segments and geographic areas of
operation.
SALES AND MARKETING
Substantially all of Lionbridge's revenue has been generated through its
dedicated direct sales force. As of February 29, 2000, Lionbridge had 25 direct
sales professionals based in the United States, Europe, and Asia who sell the
full range of Lionbridge globalization and multilingual Internet services.
Lionbridge's 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 its clients do not coordinate these purchases but buy these services at
the department head level. As a result, Lionbridge's sales professionals may
call on several functional departments and at various management levels within
the same client organization. The sales cycle varies significantly, but
typically takes six to twelve months.
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Lionbridge's marketing efforts are designed to create brand recognition and
demand for Lionbridge services throughout the world. Lionbridge's 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.
Lionbridge plans to continue expanding its sales and marketing activities.
CLIENTS
Lionbridge customers are generally large multinational organizations in the
software, hardware and telecommunications industries. The following companies
are representative of Lionbridge's clients in 1999:
Autodesk
Baan
Bentley Systems
Bull
Candle
Cisco Systems
Corel
Hewlett-Packard
IBM
Kodak
Microsoft
Motorola
Network Associates
Nokia
Nortel Networks
Novell
Oce
Oracle
Page Factory
Parametric Technology
Sonic Foundry
Sun Microsystems
Sybase
Symantec
In 1999, Lionbridge's largest client, IBM, accounted for approximately 15%
of total revenue. In 1999 and 1998, its five largest clients accounted for
approximately 35% and 39%, respectively, of revenue.
COMPETITION
Lionbridge provides a broad range of globalization and multilingual Internet
service offerings to its clients. The market for its services is highly
fragmented, and Lionbridge has many competitors. Lionbridge's current
competitors include the following:
- localization or translation services providers such as Berlitz
International, Bowne & Co., Lernout and Hauspie, 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 (a subsidiary of Exodus Communications).
Lionbridge also faces competition from internal localization departments in
large multinational 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.
Lionbridge 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.
Lionbridge believes that 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.
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Lionbridge believes that it competes favorably with respect to these
factors. Lionbridge has developed significant expertise in project management
which has allowed it to provide high-quality and quick service in its clients'
particular industries and geographic regions. Lionbridge has been able to
successfully provide its customers with a one-stop globalization service and, in
1999, began offering Internet-related services. As a result, Lionbridge has
developed a strong reputation in its industry.
There are relatively few barriers preventing companies from competing with
Lionbridge. In addition to its existing competitors, Lionbridge 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 Lionbridge presently uses translation memory software licensed from third
parties and, to a lesser extent, machine translation software also licensed from
third parties in its localization process, these technologies may improve and
become sophisticated enough to compete with Lionbridge's localization service
offering. Lionbridge cannot assure you that it will be able to compete
effectively with these potential future competitors.
INTELLECTUAL PROPERTY RIGHTS
Lionbridge's success is dependent, in part, upon its proprietary RAPID
GLOBALIZATION METHODOLOGY, its LIONTRACK workflow system, and other intellectual
property rights. Lionbridge does 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 Lionbridge
only limited protection. Lionbridge enters into confidentiality agreements with
its employees, requires that its consultants and generally its clients enter
into these agreements, and limits access to and distribution of Lionbridge's
proprietary information. Lionbridge cannot assure you that these arrangements
will be adequate to deter misappropriation of its proprietary information or
that it will be able to detect unauthorized use and take appropriate steps to
enforce its intellectual property rights.
EMPLOYEES
As of December 31, 1999, Lionbridge had 480 employees. Of these, 349 were
consulting and service delivery professionals and 131 were management and
administrative personnel performing marketing, sales, operations, process and
technology, research and development, finance, accounting, and administrative
functions. Lionbridge's employees in Paris, France are represented by a labor
union, and Lionbridge has a works council in The Netherlands. Lionbridge has
never experienced a work stoppage. Lionbridge believes that its employee
relations are good.
PROPERTIES
Lionbridge maintains offices in the United States, Ireland, France, The
Netherlands, China, Japan, and South Korea. Lionbridge also maintains sales
offices in Charlotte, North Carolina and the metropolitan areas of Chicago,
Seattle, Houston, Los Angles, and San Francisco in the United States; Dublin,
Ireland; Paris, France; and Tokyo, 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 31, 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. Lionbridge also leases office space in
Santa Monica, California; Monterey, California; Ballina, Ireland; Velizy,
France; Sophia Antipolis, France; Amsterdam, The Netherlands; Seoul, South
Korea; Beijing, China; and Tokyo, Japan. Lionbridge expects to close its
Monterey, California office by March 31, 2000. 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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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE
RISKS AND UNCERTAINTIES. LIONBRIDGE MAKES SUCH FORWARD-LOOKING STATEMENTS UNDER
THE PROVISION OF THE "SAFE HARBOR" SECTION OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. ANY FORWARD-LOOKING STATEMENTS SHOULD BE CONSIDERED IN LIGHT
OF THE FACTORS DESCRIBED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. SEE "RISK
FACTORS." ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE PROJECTED, ANTICIPATED
OR INDICATED IN ANY FORWARD-LOOKING STATEMENTS. IN THIS MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, THE WORDS
"ANTICIPATES," "BELIEVES," "EXPECTS," "INTENDS," "FUTURE," "COULD," AND SIMILAR
WORDS OR EXPRESSIONS (AS WELL AS OTHER WORDS OR EXPRESSIONS REFERENCING FUTURE
EVENTS, CONDITIONS, OR CIRCUMSTANCES) IDENTIFY FORWARD-LOOKING STATEMENTS. THE
FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH "SELECTED
FINANCIAL DATA OF LIONBRIDGE AND INT'L.COM" AND THE CONSOLIDATED HISTORICAL
FINANCIAL STATEMENTS, AND THE RELATED NOTES THERETO, OF LIONBRIDGE PRESENTED IN
THIS JOINT PROXY STATEMENT/PROSPECTUS. SEE "WHERE YOU CAN FIND MORE
INFORMATION."
OVERVIEW
Lionbridge is a provider of globalization and multilingual Internet services
to industry-leading software publishers, computer hardware manufacturers, and
telecommunications companies. Since 1996, Lionbridge has 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, Lionbridge has offered multilingual Internet services.
Lionbridge's revenues are generally derived from fees for services generated
on a project-by-project basis. Projects are generally billed on a time and
expense 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 expenses incurred
through the termination date. If clients terminate existing projects or if
Lionbridge is unable to enter into new engagements, its financial condition and
results of operations could be materially and adversely affected.
Lionbridge has experienced operating losses, as well as net losses, for each
year of its operations and, as of December 31, 1999, had an accumulated deficit
of $32.5 million.
ACQUISITIONS
Lionbridge has grown its business through a combination of acquisitions and
organic growth. Since its inception, Lionbridge has acquired the following
businesses and assets.
In 1996, Lionbridge 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. Lionbridge acquired these
businesses on December 23, 1996 for $11.3 million in cash and the assumption of
$100,000 of liabilities. Lionbridge's 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, Lionbridge recorded $9.2 million of goodwill, which is being
amortized
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over five years. Additionally, during 1997, Lionbridge 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. Lionbridge 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, Lionbridge entered into an agreement with Stream settling
outstanding intercompany balances as well as claims that it had made that Stream
had breached some of the representations, warranties and covenants that Stream
had made in connection with our acquisition of the European businesses.
Lionbridge's principal claim was that, in connection with this acquisition,
Lionbridge had assumed more liabilities and fewer assets than Stream had
previously disclosed to it. Under the terms of the settlement agreement, our
purchase price for the European business was reduced by $531,000.
In January 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 $2.3 million consisting of
cash of $2.2 million 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 approximately $35,000, in connection with the
purchase. In connection with this acquisition, Lionbridge has recorded
$2.7 million of goodwill. 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 Lionbridge with a West Coast,
U.S.-based operation to enable it 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 its 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 initially recorded $3.2 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 January 2000, Lionbridge acquired certain assets and operations of the
Language Services Operation of Nortel Networks Corporation in Montreal and
Ottawa, Canada; Beijing, China; Sao Paulo, Brazil; and Bogota, Columbia for
total initial consideration of $2.5 million. In connection with the acquisition,
Nortel Networks awarded a preferred vendor designation to Lionbridge as part of
a three-year services agreement. The purchase agreement provides for certain
contingent payments to be made by Lionbridge during the first three years of the
services agreement, dependent on the level of revenues generated under the
services agreement during those periods.
In January 2000, Lionbridge entered into an agreement to acquire
INT'L.com, Inc., a company based in Framingham, Massachusetts, with operations
in the United States, France, The Netherlands, Germany and China. The agreement
was amended and restated on March 30, 2000. The transaction is intended to be a
tax-free, stock-for-stock transaction, accounted for as a pooling of interests.
Lionbridge will issue approximately 8,201,082 shares of its common stock in
exchange for all of the capital stock and convertible and subordinated debt of
INT'L.com. The acquisition is expected to be consummated in the second quarter
of 2000.
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In March 2000, Lionbridge entered into an agreement to acquire Harvard
Translations, Inc., a company based in Cambridge, Massachusetts, with operations
in the United States. The transaction is intended to be a tax-free,
stock-for-stock transaction, accounted for as a pooling of interests. Lionbridge
will issue approximately 387,000 shares of its common stock in exchange for all
the capital stock of Harvard Translations, Inc. The acquisition is expected to
be consummated in the second quarter of 2000.
Lionbridge believes that its acquisitions contributed to its growth by
rapidly expanding its 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, products, and technologies into its
organization effectively; to retain and motivate key personnel of acquired
businesses; and to retain customers of acquired businesses. 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 its workforce in France, where Lionbridge reduced its 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 Lionbridge does not anticipate any future costs related to these actions nor
does it anticipate any further resource reductions associated with the customer
contract. Lionbridge 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
1999, representing the difference between the exercise price of stock options
granted to employees 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, $730,000 had been amortized and $236,000
had been reversed due to forfeitures of the underlying options at December 31,
1999. The amortization of deferred compensation is recorded as an operating
expense. Lionbridge currently expects to amortize the following remaining
amounts of deferred compensation as of December 31, 1999 in the fiscal periods
ending:
<TABLE>
<S> <C>
December 31, 2000........................................... $860,000
December 31, 2001........................................... $860,000
December 31, 2002........................................... $860,000
December 31, 2003........................................... $257,000
</TABLE>
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ORIGINAL ISSUE DISCOUNT ON SUBORDINATED NOTES
Interest expense for the year ended December 31, 1999 includes approximately
$6.0 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 Lionbridge was previously required to
repay the subordinated notes in full upon the closing of its initial public
offering, it recorded 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 it expected
the initial public offering to occur. Pursuant to an amendment of the debt
agreements effective August 19, 1999, Lionbridge was required to redeem only
$6.0 million of the subordinated notes upon the closing of its initial public
offering of securities on August 25, 1999.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated financial data as a
percentage of total revenues.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue..................................................... 100.0% 100.0% 100.0%
Cost of revenue............................................. 67.6 66.5 71.5
----- ----- -----
Gross profit.............................................. 32.4 33.5 28.5
Operating expenses:
Sales and marketing....................................... 11.2 7.1 4.9
General and administrative................................ 28.6 28.4 31.1
Research and development.................................. 3.0 -- --
Amortization of acquisition-related intangible assets..... 6.4 5.6 16.6
Restructuring charges..................................... -- 1.3 2.0
Stock-based compensation.................................. 1.5 -- --
----- ----- -----
Total operating expenses................................ 50.7 42.4 54.6
Loss from operations........................................ (18.3) (8.9) (26.1)
Interest expense:
Interest on outstanding debt.............................. (3.0) (1.6) (0.5)
Accretion of discount on subordinated notes payable....... (12.1) -- --
Other income (expense), net................................. (0.7) 0.1 (1.9)
----- ----- -----
Loss before income taxes.................................... (34.1) (10.4) (28.5)
Provision for income taxes.................................. 1.4 0.7 0.4
----- ----- -----
Net loss.................................................. (35.5)% (11.1)% (28.9)%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUE. In 1999, revenue increased 28.9% to $49.5 million from
$38.4 million in 1998. This increase results from additional project volume
during 1999 as compared to 1998, reflecting the continued impact of a
strengthened sales organization. Additionally, the 1999 results reflect the
impact of the VeriTest acquisition, which accounted for approximately
$5.7 million of revenue in 1999.
COST OF REVENUE. Cost of revenue consists primarily of expenses 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 was 67.6% in 1999, remaining relatively
consistent compared with 66.5% during 1998. However, Lionbridge's fixed cost of
revenue as a
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percentage of revenue was impacted in fiscal 1999 compared to fiscal 1998 by the
acquisition in January 1999 of VeriTest, which had a higher ratio of fixed cost
to revenue.
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 costs
increased 103.1% to $5.6 million in 1999 from $2.7 million in 1998. This
increase was primarily due to expenses associated with the continued hiring of
additional direct sales personnel in fiscal 1999, as well as expanded marketing
activities including advertising and public relations initiatives. As a
percentage of revenue, sales and marketing expenses increased to 11.2% from 7.1%
during 1998. Sales and marketing expenses are expected to continue to increase
in absolute dollars as Lionbridge continues to expand its marketing programs.
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 related depreciation and amortization; information systems costs;
professional fees; travel; and all other site and corporate costs. General and
administrative costs increased 29.9% to $14.1 million in 1999 from
$10.9 million in 1998 as a result of higher depreciation, the hiring of
additional employees and other personnel-related costs, as well as the
additional infrastructure costs of adding the VeriTest facilities. As a
percentage of revenue, general and administrative expenses were 28.6% in 1999
compared to 28.4% in 1998.
RESEARCH AND DEVELOPMENT. Research and development expenses relate to
LIONTRACK, Lionbridge's proprietary internal workflow system, and include
salaries and associated employee benefits, equipment depreciation and
third-party contractor expenses. Research and development expense totaled
$1.5 million for the year ended December 31, 1999. No research and development
expense was incurred in 1998. Lionbridge expects that research and development
expense relating to LIONTRACK will increase in absolute dollars in the
foreseeable future.
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 47.8% to $3.2 million in 1999 from $2.1 million in 1998. This increase
is primarily attributable to the amortization of goodwill and other intangible
assets from the acquisition of VeriTest in 1999.
INTEREST EXPENSE. Interest expense represents interest paid or payable on
debt and the accretion of original issue discount on subordinated notes with
detachable warrants. Interest expense increased 1,054% to $7.5 million in 1999
from $648,000 in 1998. The increase is principally due to the accretion of
$6.0 million of original issue discount on 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 translation 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, decreased to (0.7%) from
0.1% for the years ended December 31, 1999 and 1998, respectively.
PROVISION FOR INCOME TAXES. The provision for income taxes for the years
ended December 31, 1999 and 1998 represents taxes generated in foreign
jurisdictions for which U.S. tax credit utilization is currently uncertain. The
benefit from Lionbridge's utilization of net operating loss carryforwards in
Europe during these 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 Lionbridge acquired Stream
International's localization businesses. Lionbridge recorded no tax benefit for
losses generated during these periods due to the uncertainty of realizing any
benefit.
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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.
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 Lionbridge continued to establish its 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
Lionbridge began to realize the operating leverage from its 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 Lionbridge's 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 Lionbridge's utilization of net operating loss carryforwards in
Europe during these 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 Lionbridge acquired Stream
International's localization businesses. Lionbridge recorded no tax benefit for
losses generated during these periods due to the uncertainty of realizing any
benefit.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Lionbridge has relied upon sales of equity securities and
borrowings to fund operations. On August 25, 1999, Lionbridge completed its
initial public offering of 3,500,000 shares of common stock. After deducting
expenses, Lionbridge received approximately $31.8 million in cash proceeds from
this transaction.
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Lionbridge has incurred significant losses since its inception and, at
December 31, 1999, had an accumulated deficit of $32.5 million. Lionbridge
conducts its business through its wholly owned subsidiaries in the United States
and overseas.
Lionbridge has a commercial credit facility with Silicon Valley Bank that
was amended in March 2000 to borrow up to $8.0 million, expiring on May 20,
2000. 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% (9.5% at December 31, 1999) and is collateralized by
worldwide accounts receivable and work in process. As of December 31, 1999,
$6.6 million was outstanding under the facility.
In the first quarter of 1999, Lionbridge entered into subordinated loan
agreements with Morgan Stanley Venture Capital Fund II Annex, L.P. and Morgan
Stanley Venture Investors Annex, L.P., existing stockholders of Lionbridge, and
Capital Resource Lenders III, L.P. Under the terms of the agreements, Lionbridge
issued $12.0 million of subordinated notes with detachable warrants to purchase
1,533,260 shares of its common stock at an exercise price of $0.015 per share.
The agreements require Lionbridge to comply with several operating and financial
covenants, including a prohibition on the payment of dividends to its
stockholders. In connection with its initial public offering, Lionbridge repaid
$6.0 million of the subordinated notes and Capital Resource Lenders and the
Morgan Stanley-sponsored limited partnerships agreed to defer the repayment of
the remaining $6.0 million of the subordinated notes that would otherwise have
been due upon the completion of its initial public offering in order to enable
it to meet its anticipated liquidity needs over the next 18 months with
reasonable liquidity reserves to meet unanticipated contingencies. The
$6.0 million of notes bear interest at 12% per year and are due upon the earlier
of August 25, 2001 or the completion of an underwritten public offering of
securities (other than Lionbridge's initial public offering) with aggregate
gross proceeds of at least $10.0 million. As of March 31, 1999, Lionbridge was
not in compliance with one of the covenants common to each of the above loan
agreements. Lionbridge subsequently obtained waivers from the Morgan
Stanley-sponsored limited partnerships and Capital Resource Lenders which
released it from the requirement to comply with that covenant for the quarter
ended March 31, 1999 and for the quarters ended June 30 and September 30, 1999.
As of December 31, 1999, Lionbridge was in compliance with all of the required
covenants.
Net cash used in operations was $3.5 million in 1999, $1.7 million in 1998,
and $1.4 million in 1997. Cash used in these periods was primarily to fund the
net losses of $17.6 million, $4.3 million and $7.7 million incurred during these
years, respectively, offset in part by depreciation, amortization and other
non-cash expenses, and movements in operating assets and liabilities. Movements
in operating assets and liabilities were largely the result of the growth of
business operations during these periods. Lionbridge has 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 $5.6 million in 1999,
$4.5 million in 1998, and $426,000 in 1997. 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 $20.3 million in 1999,
$5.9 million in 1998, and $1.3 million in 1997. The primary financing activity
was the completion of Lionbridge's initial public offering in 1999, with
additional resources being provided by borrowings against its bank line of
credit in each year as well as the issuance of the subordinated debt in 1999.
As of December 31, 1999, Lionbridge's other significant financial
commitments consisted of $750,000 of notes payable as well as obligations under
operating leases.
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<PAGE>
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. In addition, Lionbridge's
European subsidiaries, including its Irish subsidiary, are restricted from
paying dividends to it under the terms of its commercial credit facility with
Silicon Valley Bank. These restrictions have not had a material impact on
Lionbridge or any of its subsidiaries and Lionbridge does not expect that these
restrictions will have a material impact in the future.
As of December 31, 1999, Lionbridge had cash and cash equivalents of
$11.5 million and an additional $1.4 million available for borrowing under the
bank line of credit. Lionbridge's future financing requirements will depend upon
a number of factors, including its operating performance and increases in
operating expenses associated with growth in its business. Lionbridge
anticipates that its present cash position and available financing should
provide adequate cash to fund its currently anticipated cash needs through at
least the next 12 months. It cannot be assured that additional financing, if
needed, will be available to Lionbridge at terms acceptable to it, if at all.
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 Lionbridge continues to monitor the effects
of the conversion.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 was amended on July 7, 1999 by the issuance of
Statement of Financial Accounting Standards No. 137 ("SFAS No. 137"),
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133--an amendment of FAS Statement
No. 133." SFAS No. 137 defers the implementation of SFAS No. 133 by one year.
SFAS No. 133, as amended, is effective for fiscal quarters beginning after
January 1, 2001 for Lionbridge, and Lionbridge does not expect its adoption to
have a material impact on its financial position or results of operations.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." This
bulletin summarized certain views of the staff on applying generally accepted
accounting principles to revenue recognition in financial statements. The staff
believes that revenue is realized or realizable and earned when all of the
following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred or services have been rendered; the seller's price to the
buyer is fixed or determinable; and collectibility is reasonably assured.
Lionbridge believes that its current revenue recognition policy complies with
the Commission's guidelines.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Lionbridge is exposed to market risk related to changes in interest rates
and foreign currency exchange rates. Lionbridge does not use derivative
financial instruments for speculative or trading purposes.
INTEREST RATE RISK. Lionbridge is exposed to market risk from changes in
interest rates primarily through its investing activities. In addition, its
ability to finance future acquisition transactions may be impacted if it is
unable to obtain appropriate financing at acceptable rates. Its investment
portfolio consists solely of investments in high-grade commercial bank money
market accounts.
FOREIGN CURRENCY EXCHANGE RATE LOSSES. The majority of Lionbridge's
contracts with clients are denominated in U.S. dollars. However, 59% of its
costs and expenses in 1999 and 73% of its costs and expenses in 1998 were
denominated in foreign currencies. 52% and 59% of our assets were recorded in
foreign currencies as of December 31, 1999 and 1998, respectively. 29% and 48%
of its liabilities were recorded in foreign currencies as of December 31, 1999
and 1998, respectively. Therefore, Lionbridge is exposed to foreign currency
exchange risks. Lionbridge has not historically tried to reduce its exposure to
exchange rate fluctuations by using hedging transactions. However, it may choose
to do so in the future. It may not be able to do this successfully. Accordingly,
Lionbridge may experience economic loss and a negative impact on earnings and
equity as a result of foreign currency exchange rate fluctuations.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table presents information about each of Lionbridge's
executive officers and directors as of February 29, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Rory J. Cowan............................. 47 Chairman of the Board, Chief Executive
Officer, President and
Class III Director
Stephen J. Lifshatz....................... 41 Senior Vice President, Chief Financial
Officer, Treasurer and Secretary
Myriam Martin-Kail........................ 46 Senior Vice President, Operations
Peter H. Wright........................... 38 Senior Vice President, Sales
Guy L. de Chazal.......................... 52 Class II Director
Marcia J. Hooper.......................... 45 Class II Director
Paul Kavanagh............................. 58 Class III Director
Claude P. Sheer........................... 49 Class I 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.
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.
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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
Weblink 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.
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 and Chief Internet Strategist of Ziff
Davis since November 1998. 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.
Lionbridge's executive officers are elected by and serve at the discretion
of the board of directors. There are no family relationships among any of its
executive officers and directors.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The board of directors is currently fixed at six and has five elected
members. Lionbridge's second amended and restated certificate of incorporation
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 (Mr. Sheer and an open position), 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. The board of directors has appointed Roger O.
Jeanty as a Class I director effective upon the closing of the merger. The board
of directors met nine times and took action by unanimous written consent nine
times during the fiscal year ended December 31, 1999.
Lionbridge has 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 Lionbridge's
management and employees and administer its 1998 Stock Plan and its 1999
Employee
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Stock Purchase Plan. The compensation committee met one time during the fiscal
year ended December 31, 1999.
The members of the audit committee consist of Mr. 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 Lionbridge's independent
public accountants and reviewing Lionbridge's system of internal accounting and
financial controls. The audit committee also reviews other matters with respect
to Lionbridge's accounting, auditing, and financial reporting practices and
procedures as it may find appropriate or may be brought to its attention. The
audit committee met one time during the fiscal year ended December 31, 1999.
Each of the directors attended at least 75% of the total number of meetings
of the Board of Directors and all committees on which he or she served during
fiscal year ended December 31, 1999.
COMPENSATION OF DIRECTORS
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
common stock under Lionbridge's 1998 Stock Plan.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION SUMMARY
The following Summary Compensation Table sets forth certain information with
respect to the annual and long-term compensation of Lionbridge's Chief Executive
Officer and each of Lionbridge's other highly compensated executive officers
(the "named executive officers") whose total compensation exceeded $100,000 for
the fiscal years ended December 31, 1999, 1998 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS
- --------------------------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Rory J. Cowan............................ 1999 $259,875 $ 65,000 -- 66,667
Chairman, Chief Executive Officer 1998 $249,144 $175,725 -- --
and President 1997 $225,000 $112,500 -- --
Stephen J. Lifshatz...................... 1999 $190,575 $ 47,500 -- 50,000
Senior Vice President and Chief Financial 1998 $182,705 $ 64,433 -- 36,667
Officer 1997 $158,125 $ 41,250 -- 259,082
Myriam Martin-Kail....................... 1999 $167,679 $ 40,000 -- 50,000
Senior Vice President, Operations 1998 $147,585 $ 37,815 -- 20,000
1997 $143,624 $ 34,739 -- 323,886
Peter H. Wright.......................... 1999 $151,250 $ 37,750 -- 50,000
Senior Vice President, Sales 1998 $137,863 $ 47,410 -- 33,334
1997 $124,218 $ 30,000 -- 130,500
</TABLE>
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OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to the stock
options granted during the fiscal year ended December 31, 1999 to each named
executive officer of Lionbridge listed in the Summary Compensation Table above.
Lionbridge did not grant any stock appreciation rights in 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL RATE
NUMBER OF TOTAL EXERCISE OF STOCK PRICE
SECURITIES OPTIONS/SARS PRICE IN APPRECIATION FOR
UNDERLYING GRANTED TO DOLLARS OPTION TERM (2)
OPTIONS/SARS EMPLOYEES IN PER EXPIRATION ---------------------------
NAME GRANTED FISCAL YEAR SHARE (1) DATE 5% 10%
- ---- ------------ ------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Rory J. Cowan.................... 66,667 7.2% $1.65 3/11/04 $69,179 $175,313
Stephen J. Lifshatz.............. 50,000 5.4% $1.50 3/11/09 $47,167 $119,531
Myriam Martin-Kail............... 50,000 5.4% $1.50 3/11/09 $47,167 $119,531
Peter H. Wright.................. 50,000 5.4% $1.50 3/11/09 $47,167 $119,531
</TABLE>
- ------------------------
(1) The exercise price equals the fair market value of the common stock as of
the grant date as determined by Lionbridge's board of directors.
(2) Amounts reported in these columns represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock price appreciation of
5% and 10% compounded annually from the date the respective options were
granted to their expiration date. These assumptions are not intended to
forecast future appreciation of Lionbridge's stock price. The potential
realizable value computation does not take into account federal or state
income tax consequences of option exercises or sales of appreciated stock.
Actual gains, if any, on stock option exercises and common stock holdings
are dependent on the timing of such exercise and the future performance of
Lionbridge's common stock. Lionbridge cannot assure that the rates of
appreciation assumed in this table can be achieved or that the amounts
reflected will be received by the individuals. This table does not take into
account any appreciation in the price of the common stock since the date of
grant.
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AGGREGATE OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth certain information with respect to the
options exercised by each named executive officer of Lionbridge listed in the
Summary Compensation Table above during the year ended December 31, 1999 or held
by such persons at December 31, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT DECEMBER 31, 1999 AT DECEMBER 31, 1999 (2)
ACQUIRED ON VALUE ------------------------------- -------------------------------
NAME EXERCISE (#) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Rory J. Cowan......... 375,383 $2,049,588 187,691 442,048 $3,425,376 $8,067,363
Stephen J. Lifshatz... 78,522 $ 421,391 -- 170,075 -- $3,103,869
Myriam Martin-Kail.... -- -- 209,926 183,960 $3,831,150 $3,357,270
Peter H. Wright....... 94,060 $ 798,642 -- 119,774 -- $2,185,876
</TABLE>
- ------------------------
(1) Amounts calculated by subtracting the aggregate exercise price of the
options from the market value of the underlying common stock on the date of
exercise, and do not reflect amounts actually received by the named
executive officers.
(2) Amounts calculated by subtracting the exercise price of the options from the
fair market value of the underlying common stock as quoted on The NASDAQ
Stock Market of $18.25 per share on December 31, 1999, multiplied by the
number of shares underlying the options, and do not reflect amounts that may
be actually received by the named executive officers upon exercise of
options.
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 Lionbridge 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, Lionbridge also issued Mr. Cowan options
to purchase up to 1,501,529 shares of its 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., 1/12th 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 Lionbridge's
employees or (3) solicit or do business with any present or past customer of
Lionbridge's, or any prospective customer of
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<PAGE>
Lionbridge's 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 Lionbridge 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, Lionbridge also issued
Mr. Lifshatz options to purchase up to 259,082 shares of its 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 diminuation 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., 1/12th 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 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 Lionbridge's
employees or (3) solicit or do business with any present or past customer of
Lionbridge's, or any prospective customer of Lionbridge's 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 Lionbridge 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, Lionbridge also issued Ms. Martin-Kail options to purchase
up to 323,885 shares of its 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., 1/12th 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 Lionbridge's
employees or (3) solicit or do business with any present or past customer of
Lionbridge's, or any prospective customer of Lionbridge's 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 Lionbridge 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
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employment agreement, Lionbridge issued Mr. Wright options to purchase up to
97,166 shares of its 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 casue, he is entitled to receive six
monthly severance payments, each in an amount equal to his then current monthly
base compensation (i.e., 1/12th 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 Lionbridge's
employees or (3) solicit or do business with any present or past customer of
Lionbridge's, or any prospective customer of Lionbridge's which would be in
violation of the non-competition agreement.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report is submitted by the compensation committee. The compensation
committee during fiscal year 1999 was comprised of Messrs. de Chazal, Kavanagh
and Sheer, all of whom are non-employee directors. Pursuant to authority
delegated by the board of directors, the compensation committee is responsible
for reviewing and administering Lionbridge's 1998 Stock Plan and 1999 Employee
Stock Purchase Plan and reviewing and approving salaries and other incentive
compensation of Lionbridge's officers and employees, including the grant of
stock options to officers and employees.
COMPENSATION PHILOSOPHY
The goal of Lionbridge is to attract and retain qualified executives in a
competitive industry. To achieve this goal, the compensation committee applies
the philosophy that compensation of executive officers, specifically including
that of the the Chief Executive Officer and President, should be linked to
revenue growth, operating results and earnings per share performance.
Under the supervision of the compensation committee, Lionbridge has
developed and implemented compensation policies. The compensation committee's
executive compensation policies are designed to (i) enhance profitability of
Lionbridge and stockholder value, (ii) integrate compensation with Lionbridge's
annual and long-term performance goals, (iii) reward corporate performance, (iv)
recognize individual initiative, achievement and hard work, and (v) assist
Lionbridge in attracting and retaining qualified executive officers. Currently,
compensation under the executive compensation program is comprised of cash
compensation in the form of annual base salary, bonus, and long-term incentive
compensation in the form of stock options.
BASE SALARY
In setting cash compensation for the Chief Executive Officer and President
and reviewing and approving the cash compensation for all other officers, the
compensation committee reviews salaries annually. The compensation committee's
policy is to fix base salaries at levels comparable to the amounts paid to
senior executives with comparable qualifications, experience and
responsibilities at other companies of similar size and engaged in a similar
business to that of Lionbridge. In addition, the base salaries take into account
Lionbridge's relative performance as compared to comparable companies.
The salary compensation for the executive officers is based upon their
qualifications, experience and responsibilities, as well as the attainment of
planned objectives. The Chief Executive Officer and President makes
recommendations to the compensation committee regarding the planned objectives
and executive compensation levels. The overall plans and operating performance
levels upon which
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management compensation is based are approved by the compensation committee on
an annual basis. During 1999, the Chief Executive Officer and President made
recommendations for salary increases for the executive group, and the
compensation committee approved salary increases ranging from 5% to 10% to
Lionbridge's executive officers. These increases reflect the impact of
promotions as well as incentive changes.
BONUS COMPENSATION
In addition to salary compensation, the compensation committee recommended
the continuation of the bonus program adopted by the Board of Directors in the
previous year, whereby senior executives recommended by the Chief Executive
Officer and President and approved by the compensation committee for inclusion
in the program receive bonus compensation based on a percentage of base salary.
Bonuses paid under this program in 1999 were a percentage of base salary for
calendar 1998 and were based on attainment of target annualized contract levels
and operating expenses for 1998.
STOCK OPTIONS
The compensation committee relies on incentive compensation in the form of
stock options to retain and motivate executive officers and employees. Incentive
compensation in the form of stock options is designed to provide long-term
incentives to executive officers and other employees, to encourage the executive
officers and other employees to remain with Lionbridge and to enable them to
develop and maintain a stock ownership position in Lionbridge's common stock.
Lionbridge's 1998 Stock Plan permits the compensation committee to
administer the granting of stock options to eligible employees, including
executive officers. Options generally become exercisable based upon a vesting
schedule tied to years of future service to Lionbridge. The value realizable
from exercisable options is dependent upon the extent to which Lionbridge's
performance is reflected in the market price of Lionbridge's common stock at any
particular point in time. Equity compensation in the form of stock options is
designed to provide long-term incentives to executive officers and other
employees. The compensation committee approves the granting of options in order
to motivate these employees to maximize shareholder value. Generally, options
are granted to officers and employees at fair market value on the date of grant
and vest over a four-year period.
Option grants to employees are based on such factors as initiative,
achievement and performance. In administering grants to executive officers, the
compensation committee evaluates each officer's total equity compensation
package. The compensation committee generally reviews the option holdings of
each of the executive officers, including their vesting and exercise prices and
the then current value of any unvested options. The compensation committee
considers equity compensation to be an integral part of a competitive executive
compensation package and an important mechanism to align the interests of
management with those of Lionbridge's stockholders.
MR. COWAN'S COMPENSATION
The cash compensation program for the Chief Executive Officer and President
of Lionbridge is designed to reward performance that enhances shareholder value.
Mr. Cowan's compensation package is comprised of base pay, bonus and stock
options, and is in part based on Lionbridge's revenue growth, profitability, and
growth in earnings per share. In 1999, Mr. Cowan's annual base salary was
increased to $247,500. The compensation committee believes that Mr. Cowan's
compensation is now comparable to the salary of Chief Executive Officers in
other globalization services companies, considering the size and rate of
profitability of those companies.
The compensation committee is satisfied that the executive officers of
Lionbridge are dedicated to achieving significant improvements in the long-term
financial performance of Lionbridge and that the
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compensation policies and programs implemented and administered have contributed
and will continue to contribute toward achieving this goal.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
In general, under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), Lionbridge cannot deduct, for federal income tax purposes,
compensation in excess of $1,000,000 paid to certain executive officers. This
deduction limitation does not apply, however, to compensation that constitutes
"qualified performance-based compensation" within the meaning of Section 162(m)
of the Code and the regulations promulgated thereunder. Lionbridge has
considered the limitations on deductions imposed by Section 162(m) of the Code,
and it is Lionbridge's present intention that, for so long as it is consistent
with its overall compensation objective, substantially all tax deductions
attributable to executive compensation will not be subject to the deduction
limitations of Section 162(m) of the Code.
Respectfully Submitted by the
Compensation Committee:
Guy L. de Chazal
Paul Kavanagh
Claude P. Sheer
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. de Chazal, Kavanagh and Sheer comprised the compensation committee
for fiscal year 1999. No member of the compensation committee was at any time
during the past year an officer or employee of Lionbridge or any of its
subsidiaries, was formerly an officer of Lionbridge or any of its subsidiaries,
or had any relationship with Lionbridge requiring disclosure herein.
No executive officer of Lionbridge served as a member of the compensation
committee (or other board committee performing similar functions or, in the
absence of any such committee, the entire board of directors) of another
corporation, one of whose executive officers served on the compensation
committee. No executive officer of Lionbridge served as a director of another
corporation, one of whose executives served on the compensation committee. No
executive officer of Lionbridge served as a member of the compensation committee
(or other board committee performing equivalent functions or, in the absence of
any such committee, the entire board of directors) of another corporation, one
of whose executive officers served as a director of Lionbridge.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE OF LIONBRIDGE
Section 16(a) of the Securities Exchange Act of 1934 requires Lionbridge's
executive officers and directors, and holders of more than 10% of Lionbridge's
common stock (collectively, the "Reporting Persons") to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of common stock of Lionbridge. Such persons are required by
regulations of the Commission to furnish Lionbridge with copies of all such
filings. Based solely a review of the forms and written representations received
by Lionbridge pursuant to Section 16(a) of the Securities Exchange Act of 1934,
Lionbridge believes that all Reporting Persons complied with Section 16(a)
filing requirements in the period ended December 31, 1999.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1996, Lionbridge America, Inc., Lionbridge's predecessor holding
company and current wholly owned subsidiary, acquired the localization
businesses of Stream International in Ireland,
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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 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.
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 purchasing 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 a
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, 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
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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.
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 $4.0 million from Capital Resource
Lenders, III, L.P. under a 12% senior subordinated convertible note due
January 8, 2000. In connection with the issuance of the note to Capital Resource
Lenders, many of Lionbridge's subsidiaries executed guarantees in favor of
Capital Resource Lenders. In February 1999, Lionbridge borrowed an additional
$2.0 million from Capital Resource Lenders under an amended and restated 12%
senior subordinated note due February 26, 2006 in the aggregate principal amount
of $6.0 million 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 its common stock at an exercise price of $0.015
per share. In August 1999, Capital Resource Lenders and the affiliated entity
exercised the common stock purchase warrants in full.
In February 1999, Lionbridge's indirect wholly owned subsidiary, Lionbridge
Technologies Holdings, B.V. borrowed $4.0 million 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 Lionbridge's 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,
served as a member of Lionbridge's board of directors from March 1999 to
August 1999 and Capital Resource Lenders holds 7.7% of the outstanding shares of
Lionbridge common stock as of January 31, 2000.
In March 1999, Lionbridge and Lionbridge Technologies Holdings, B.V.
borrowed an aggregate of $2.0 million from two certain limited partnerships
sponsored by Morgan Stanley (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 Lionbridge's common
stock at an exercise price of $0.015 per share. In connection with the issuance
of the notes to the Morgan Stanley-sponsored limited partnerships, many of
Lionbridge's subsidiaries executed guarantees in favor of the Morgan
Stanley-sponsored limited partnerships. In November 1999, the Morgan
Stanley-sponsored limited partnerships exercised the common stock purchase
warrants in full. Guy L. de Chazal, the Chairman of Morgan Stanley Venture
Capital II, Inc., the managing general partner of Morgan Stanley Venture
Partners II, L.P. which is 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 August 1999, Capital Resource Lenders and the Morgan Stanley-sponsored
limited partnerships agreed to defer, until the earlier of August 25, 2001 and
the completion of an underwritten public offering (other than Lionbridge's
initial public offering) with aggregate gross proceeds of at least
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$10.0 million, Lionbridge's repayment of $5.0 million and $1.0 million,
respectively, of the principal amount of the subordinated notes due in 2006.
These notes had previously required all of the principal amount to be repaid
upon the closing of Lionbridge's initial public offering in August 1999.
In connection with the closing of Lionbridge's initial public offering in
August 1999, the following transactions occurred:
- 50% of the principal amount of the $12.0 million notes issued to Capital
Resource Lenders and the Morgan Stanley-sponsored limited partnerships
were paid in full;
- the 13,271,314 outstanding shares of its Series A convertible preferred
stock and 140 outstanding shares of its Series D nonvoting convertible
preferred stock held by its preferred stockholders including Mr. Cowan,
Mr. Kavanagh, five certain limited partnerships sponsored by Advent
International Corporation (the "Advent-sponsored limited partnerships")
and the Morgan Stanley-sponsored limited partnerships were exchanged for
an aggregate of 132.7145 shares of its Series B redeemable preferred stock
and 8,847,649 shares of its Series C convertible preferred stock.
Ms. Hooper, a partner of Advent International Corporation, which is the
general partner of Advent International Limited Partnership, the general
partner of the Advent-sponsored entities, has served as a member of the
Board of Directors of Lionbridge since December 1996;
- the 132.7145 outstanding shares of Lionbridge's Series B redeemable
preferred stock was redeemed for $100,000 per share plus an 8% annual
premium. The redemption amount paid to Mr. Cowan, the Advent-sponsored
limited partnerships, the Morgan Stanley-sponsored limited partnerships,
and Mr. Kavanagh was $150,000, $1.3 million, $1.3 million, and $21,000,
respectively.
- the 8,847,649 outstanding shares of Lionbridge's Series C convertible
preferred stock held by its preferred stockholders including Mr. Cowan,
Mr. Kavanagh, the Advent-sponsored limited partnerships and the Morgan
Stanley-sponsored limited partnerships were converted into 8,847,649
shares of its common stock.
In addition, the Advent-sponsored limited partnerships and the Morgan
Stanley-sponsored limited partnerships each purchased 364,000 shares of
Lionbridge common stock for $10.00 per share as part of Lionbridge's initial
public offering.
Lionbridge has 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 and certain other stockholders of Lionbridge. This registration
rights agreement provides these holders with rights with respect to the
registration by Lionbridge of their shares of Lionbridge common stock under the
Securities Act of 1933, as amended.
Lionbridge believes that all transactions described above were made on terms
no less favorable to it than would have been obtained from unaffiliated third
parties. All future transactions, if any, with its executive officers, directors
and affiliates will be on terms no less favorable to it 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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DESCRIPTION OF INT'L.COM
BUSINESS
INT'L.com is a leading provider of technical and language services,
globalization services and multilingual Internet solutions to more than 250
enterprises based in the U.S., Europe and Asia which are conducting business in
markets where the dominant language is other than English. The services and
solutions provided by INT'L.com help clients solve issues related to operating
globally including: technical product issues, linguistic and translation issues,
product and corporate marketing issues and issues surrounding the building and
maintenance of an international Web presence for companies involved in
e-commerce and e-services. INT'L.com's services include: (1) Web site design,
development, programming and real-time Web site maintenance for e-commerce
companies seeking to transact business with corporate partners and customers on
a multilingual basis; (2) the development of multilingual intranets and
extranets; (3) localization of software codes to maintain their functionality in
languages other than English; (4) assistance with the design and positioning of
global marketing campaigns to ensure their effectiveness in local markets; and
(5) translation of printed catalogs, marketing materials, and product manuals
from English into more than 30 languages.
INT'L.com focuses its activity in four principal market sectors, which it
has defined as: information technology and telecommunications, enterprise
solutions, global direct media and life sciences.
For clients in the information technology and telecommunications industries,
INT'L.com provides cost-effective service and technology solutions for
localization of software and hardware products, multilingual Web sites and
localization of marketing materials, technical publications and on-line learning
and help systems. Key clients in these industries include: Hewlett Packard,
Microsoft, Ericsson Inc., General Dynamics, Parametric Technologies, Pervasive
Software and Cognos.
For clients in industries focused on enterprise solutions, INT'L.com
provides service and technology solutions that enable these companies and their
clients to automate, integrate, analyze and process information in their
end-user's language. Key clients in this sector include: SAP, Siebel, Vantive
(PeopleSoft) and Saleslogix.
For clients engaged in traditional and Web-enabled direct marketing
activities for business-to-business or business-to-consumer sales, INT'L.com
provides service and technology solutions to meet their multilingual
requirements and enable them to communicate in the local language of their
customers. Key clients in this sector include: Hewlett-Packard and L.L. Bean.
For clients in life science industries, such as pharmaceuticals, healthcare
providers, biotechnology firms and manufacturers of medical devices and medical
instrumentation, INT'L.com provides service and technology solutions, including
specialized terminology and quality processes that enable them to engage in
product marketing, regulatory and product usage activities across multiple
languages. Key clients in these industries include: Boston Scientific, ATL
Ultrasound, Target Therapeutics and United Healthcare.
As of December 31, 1999, INT'L.com had 38 sales and marketing personnel.
INT'L.com's marketing efforts are geared primarily to the purchasers of its
services. In addition to sales personnel, INT'L.com account and client service
managers participate in the structuring and management of client engagements,
which can be both complex and very specific for each client.
INT'L.com believes that it has developed a unique technological approach to
meeting the globalization requirements of its customers. INT'L.com does not
impose a single tool or a single data architecture on a client's requirements,
but works with a client's existing technologies and Web structures to provide
cost-effective, efficient and accurate solutions for the long-term maintenance
of multilingual information. INT'L.com has supported this approach by developing
pioneering technologies in a few select areas and incorporating third-party
tools and technologies.
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A core component of INT'L.com pioneering technology is the
ForeignDesk-Registered Trademark- Globalization Suite. ForeignDesk was
originally developed in 1996 and includes a powerful translation memory engine
for the recycling of existing translations and a translator work environment
with the following key features: (1) the ability to process large volumes of
files at very high speed; (2) the ability to work natively on most file formats
(Word, HTML, XML) through a customization language; (3) the ability to interact
through APIs with other third-party tools, including machine translation
technologies and Web-based content authoring systems; (4) a series of extensions
that enable the detection of changes in source material, their extraction for
translation, and the reinsertion of translated text into traditional or web-
enable client data repositories.
Other INT'L.com technology includes Webstream-TM-, which provides a
continuous Web-based localization solution for streaming content; OpenTag, an
encoding technology, and ChinaConnect-TM-, a Web integration service and Web
site focused on multilingual Web sites for the Chinese-speaking market.
INT'L.com believes its advanced and unique web-enabled technologies allow
INT'L.com to offer its clients automated, leading-edge globalization and
localization services.
Along with its technology, INT'L.com believes a strong global presence
allows INT'L.com to provide comprehensive globalization services and monitor
client companies to ensure services are culturally appropriate. At December 31,
1999, INT'L.com had approximately 460 employees in offices located in
Framingham, Massachusetts; San Francisco, California; Boulder, Colorado and
overseas in The Netherlands, Germany, France, China and Taiwan. INT'L.com has
developed strategic alliances and joint ventures in overseas locations where
INT'L.com does not maintain an office, including Spain, Italy, Brazil and Japan.
INT'L.com's workforce is comprised of highly skilled professionals with
expertise in engineering, information systems, linguistic and language
translation, Web design, management and publishing, and baseline corporate
functions (marketing, human resources, finance). INT'L.com regularly utilizes
independent contractors and subcontractors to support its permanent workforce.
INT'L.com's headquarter offices are located at 492 Old Connecticut Path,
Framingham, Massachusetts 01701. Its telephone number is (508) 620-3900.
ForeignDesk is a registered U.S. and foreign trademark of INT'L.com. INT'L.com
has two registered patents (U.S. and foreign), two pending U.S. patents and one
pending foreign patent associated with the elements of ForeignDesk's structure.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
INT'L.com's predecessor, International Communications, Inc., was
incorporated in January 1988. Since its organization, INT'L.com has completed
the following material acquisitions and transactions:
- In May 1998, International Communications acquired substantially all of
the assets of Sprache und Dokumentation GmbH, and merged the entity into
International Communications' wholly owned subsidiary, International
Communications Europe GmbH.
- In August 1998, International Communications acquired Direct Language
Communications, Inc. and merged with and into a newly formed entity, IC
Global Services, Inc.
- In April 1999, IC Global Services acquired International Language
Engineering Corporation.
- In September 1999, IC Global Services acquired MOTUS!
- In November 1999, IC Global Services changed its name to INT'L.com, Inc.
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- In December 1999, INT'L.com obtained a license to operate a subsidiary in
China under the name HongQui TongLian Software Technology Services
Co., Ltd.
- In January 2000, INT'L.com signed a definitive agreement to be acquired by
Lionbridge. The agreement was amended and restated on March 30, 2000.
INT'L.com's acquisitions have increased its customer base, technical
capabilities and employee base, as well as INT'L.com's ability to fully service
the demands of customers on a global basis. The future success of INT'L.com's
acquisition strategy depends primarily on the ability of INT'L.com to
effectively integrate acquired operations and to leverage its operations to
increase future financial performance.
INT'L.com has a diversified revenue stream derived from several industries.
Approximately 66% of INT'L.com's revenues are from clients in the information
technology and telecommunications industries. Approximately 15% of INT'L.com's
revenues are generated from the enterprise solutions industry. Approximately 10%
of INT'L.com's revenues are generated from clients engaged in traditional and
web-enabled direct marketing activities that involve multilingual requirements,
e-retailers, traditional direct mail and catalog marketers, airlines, travel and
leisure companies and other enterprises engaged in multilingual commerce.
Approximately 9% of INT'L.com's revenues are generated from clients in the life
sciences industry such as pharmaceutical companies, medical instrument
manufacturers and distributors and other biotechnology enterprises.
Historically, INT'L.com performed services for clients on a fixed-price,
project-by-project basis. Fixed-price contracts continue to represent a majority
of INT'L.com's revenues. During 1998 and 1999, INT'L.com has performed an
increasing portion of services under pricing agreements having terms of
approximately one to three years, such that approximately 30% of INT'L.com's
revenue is generated pursuant to these agreements. In addition, approximately
20% of INT'L.com's revenue is generated pursuant to time and materials based
engagements, particularly in recently developing areas requiring significant
consulting, re-engineering and internationalization services. INT'L.com
anticipates that its revenue generated by these time and materials based
engagements will increase as a percentage of overall revenue.
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RESULTS OF OPERATIONS
The following table sets forth certain consolidated financial data as a
percentage of total revenues.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0%
Cost of revenues............................................ 90.9 80.7 74.0
------ ------ ------
Gross profit.............................................. 9.1 19.3 26.0
Operating expenses:
General and administrative................................ 21.5 12.4 19.1
Selling and marketing..................................... 14.2 12.3 11.2
Research and development.................................. 2.6 1.9 2.6
Amortization of goodwill and other intangibles............ 8.5 1.7 --
Reorganization............................................ 3.4 -- --
Acquired in-process research and development.............. 0.9 -- --
------ ------ ------
Total operating expenses................................ 51.1 28.3 32.9
Loss from operations........................................ (42.0) (9.0) (6.9)
Interest and other income (expense), net:
Interest expense, net..................................... (2.4) (0.9) (0.1)
Other income (expense), net............................... -- 0.1 0.3
------ ------ ------
Total interest and other income (expense), net.......... (2.4) (0.8) 0.2
Loss before benefit from income taxes....................... (44.4) (9.8) (6.7)
Benefit from income taxes................................... -- 3.2 1.6
------ ------ ------
Net loss.................................................. (44.4)% (6.6)% (5.1)%
====== ====== ======
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
For the year ended December 31, 1999, INT'L.com recognized revenues of
$34.9 million compared to $17.3 million for the year ended December 31, 1998, an
increase of approximately 101.5%. This increase is primarily due to INT'L.com's
acquisition of International Language Engineering Corporation in April 1999,
which provided revenues of $13.0 million subsequent to its acquisition,
increased revenues from existing customers as well as revenues attributable to
new strategic global customers.
Cost of revenues increased from $14.0 million in 1998 to $31.7 million in
1999, an increase of 127.0%. Cost of revenue as a percentage of revenues
increased from 80.7% in 1998 to 90.9% in 1999. This increase in cost of revenues
as a percentage of revenues is primarily due to the increased compensation and
other costs associated with the increase in INT'L.com's employee base as a
result of the acquisitions which were completed during the year, as well as an
increased reliance on outsourcing of certain services. In addition, cost of
revenues increased due to increased service levels in order to meet anticipated
revenue growth as well as customer timing requirements.
General and administrative expenses consist primarily of compensation
expense for management, finance, administrative and executive personnel;
depreciation costs; communication costs; merger and integration expense;
professional fees and other general corporate costs. General and administrative
expenses increased approximately 250.4% from $2.1 million in 1998 to
$7.5 million in 1999. As a percentage of revenues, general and administrative
expenses increased from 12.4% for 1998 to 21.5% for 1999. This increase was
primarily due to the full year impact of the 1998 acquisitions, partial year
impact of the 1999 acquisitions, integration expenses of acquisitions which were
consummated in the
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second half of 1998 and the first half of 1999 and initial increased headcount
in INT'L.com's management and support functions caused by the integration
process associated with these acquisitions.
Selling and marketing expenses, which consist principally of compensation
paid to sales and marketing personnel and related travel costs increased 133.0%,
from $2.1 million in 1998 to $5.0 million in 1999. This increase is the result
of expanding INT'L.com's direct sales organization in anticipation of revenue
growth and an expansion of marketing programs. Total sales and marketing
personnel increased to 38 individuals at December 31, 1999 from 22 individuals
at December 31, 1998. As a percentage of revenues, sales and marketing expenses
increased from 12.3% for 1998 to 14.2% for 1999.
Research and development expenses consist primarily of compensation paid for
developers and independent consultant costs associated with the development of
translation memory tools. Research and development expense increased
approximately 180.2%, from $321,000 in 1998 to $900,000 in 1999. As a percentage
of revenues, research and development expense increased to 2.6% for 1999 from
1.9% for 1998. This increase is due primarily to increased personnel costs
relating to the expansion of INT'L.com's development staff during the year.
Amortization of goodwill and other intangibles consists of amortization of
goodwill and other intangible assets resulting from acquired businesses.
Amortization expense increased 880.4% from $300,000 in 1998 to $2.9 million in
1999. This increase was primarily due to the amortization of goodwill and other
intangible assets recognized in connection with INT'L.com's acquisition of
International Language Engineering Corporation in April 1999, which are being
amortized over periods of two to five years, and a full year of amortization of
goodwill recognized in connection with INT'L.com's 1998 acquisition of Sprache
und Dokumentation GmbH and Direct Language Communications, Inc., which is being
amortized over five years.
Reorganization expenses of $1.2 million in 1999 consist of severance and
outplacement benefits provided to approximately 50 employees terminated in
connection with two workforce reductions during the year, of which $357,000 is
in accrued expenses at December 31, 1999. These workforce reductions were
completed to more properly size the workforce after integrating companies
acquired in 1999.
Acquired in-process research and development expense of $300,000 in 1999
represents a portion of the International Language Engineering Corporation
acquisition purchase price which was allocated to projects to be continued by
INT'L.com that had no alternative future use and had not yet reached
technological feasibility, and therefore was charged to operations at the
acquisition date.
Interest expense, net increased 422.9% from $161,000 in 1998 to $841,000 in
1999. This increase is due to higher average borrowings under INT'L.com's bank
line of credit, the assumption of a $3.25 million note from the acquisition of
International Language Engineering Corporation and the issuance of $2.0 million
of convertible promissory notes in August 1999.
Other income (expense), net in 1999 consists of losses from foreign exchange
transactions and in 1998 consists of a gain from INT'L.com's equity in the
earnings of an affiliate which is accounted for under the equity method of
accounting.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
For the year ended December 31, 1998, INT'L.com recognized revenues of
$17.3 million compared to $9.4 million for the year ended December 31, 1997, an
increase of 84.1%. This increase is primarily due to an increase in the number
of new strategic global customers added during the year and increased project
volume from existing customers. This increase is also due to the acquisition of
Sprache und Dokumentation GmbH and Direct Language Communications Corporation in
May 1998 and August 1998, respectively.
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Cost of revenues increased from $7.0 million in 1997 to $14.0 million in
1998, an increase of 100.7%. Cost of revenues as a percentage of revenues
increased from 74.0% in 1997 to 80.7% in 1998. The increase in cost of revenues
is primarily due to the increased compensation and other costs associated with
the increased level of INT'L.com's employee base which occurred during the year,
as well as an increased reliance on outsourcing of certain services. In
addition, costs of revenues increased due to increased service levels in order
to meet anticipated revenue growth as well as customer timing requirements. Cost
of revenues as a percentage of revenue increased due to the two acquisitions by
INT'L.com in 1998. These two businesses had a higher cost of revenues percentage
than that of INT'L.com's and are indicative of a different cost structure for
services provided to customers in the life sciences, enterprise-wide solutions
and multimedia sectors as compared to the information technology and
telecommunications sector.
General and administrative expense increased 19.4%, from $1.8 million in
1997 to $2.1 million in 1998. This increase is due to the addition of finance
and management personnel to manage INT'L.com's planned growth. As a percentage
of revenues, general and administrative expense decreased to 12.4% for 1998 from
19.1% for 1997.
Selling and marketing expense increased 102.3%, from $1.1 million in 1997 to
$2.1 million in 1998. As a percentage of revenues, selling and marketing expense
increased to 12.3% for 1998 from 11.2% for 1997. This increase reflects the
payroll and related costs of an increased number of sales personnel believed
necessary to generate revenue growth in INT'L.com's existing operations as well
as sales and marketing personnel added in connection with INT'L.com's 1998
acquisitions.
Research and development expense increased 33%, from $242,000 in 1997 to
$321,000 in 1998. This increase is due to the addition of personnel to support
increased Internet focused development efforts. As a percentage of revenues,
research and development expense decreased to 1.9% for 1998 from 2.6% for 1997.
Amortization expense resulting from acquisition-related intangible assets
was $300,000 in 1998. This expense was due to the goodwill and other intangible
assets recognized in connection with INT'L.com's acquisitions of Sprache und
Dokumentation GmbH and Direct Language Communications, Inc. in May 1998 and
August 1998, respectively, which is being amortized over a periods of two to
five years.
Interest expense, net increased from $13,000 in 1997 to $161,000 in 1998.
This increase was due primarily to the incurrence of bank debt to support
growing working capital needs and an increase in subordinated debt during the
year.
Other income (expense), net for 1998 consists of income in 1998 from
INT'L.com's equity in the earnings of an affiliate which is accounted for under
the equity method of accounting. Other income (expense), net for 1997, consists
of income from miscellaneous services.
INT'L.com recorded a tax benefit of $151,000 in 1997 and $565,000 in 1998 as
a result of losses being carried back to prior profitable periods.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, INT'L.com has funded its operations from the combined
proceeds of private sales of equity securities, private sales of subordinated
notes and bank borrowings.
During the years ended December 31, 1999, 1998 and 1997, cash (used in)
provided by operating activities was $(6.8) million, $(647,000) and $201,000,
respectively. Cash used in operating activities in 1999 and 1998 was primarily
to fund net losses of $15.3 million and $1.1 million, respectively, offset in
part by depreciation and amortization and increases in operating liabilities.
Increases in operating liabilities were the result of growth in business
operations during the periods. Cash provided by
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<PAGE>
operations in 1997 was primarily the result of non-cash items such as
depreciation and amortization expense and enhanced collections of accounts
receivable in the period.
During the years ended December 31, 1999, 1998 and 1997, net cash provided
by (used in) investing activities was $439,000, $(3.1) million and $(615,000),
respectively. Cash provided by investing activities in 1999 was primarily
attributable to the sale of $2.2 million of marketable securities offset by the
purchases of property and equipment of $1.3 million. Cash used in investing
activities in 1998 and 1997 was primarily for the purchase or property and
equipment and the purchase of $2.2 million of marketable securities.
During the years ended December 31, 1999, 1998 and 1997, net cash provided
by financing activities was $6.9 million, $4.0 million and $422,000,
respectively. Net cash provided by financing activities was primarily from the
issuance of $8.9 million of Series B preferred stock, of which $3.9 million and
$5.0 million was issued in 1999 and 1998, respectively; the issuance of
$2.0 million of convertible promissory notes in 1999; and increased borrowings
against a bank line of credit of $1.1 million, $503,000 and $638,000 in 1999,
1998 and 1997, respectively, offset by the payment of $2.0 million in cash
dividends, of which $400,000 was paid in 1999 and $1.6 million was paid in 1998.
INT'L.com maintains a credit facility with Silicon Valley Bank that allows
INT'L.com to borrow up to $5.0 million on a formula basis. The lending
commitment under this credit agreement terminates on January 19, 2001 and
requires INT'L.com to maintain a minimum tangible net worth and restricts the
payment of dividends. Amounts outstanding under the credit agreement bear
interest at the prime rate publicly announced by Silicon Valley Bank plus 2.5%
(11.0% at December 31, 1999). INT'L.com's obligations under this credit facility
are secured by a security interest in all of INT'L.com's assets. At
December 31, 1999, $3.0 million was outstanding under a prior credit facility
and at February 29, 2000, $3.1 million was outstanding under this credit
facility.
At December 31, 1999, INT'L.com's other significant financial commitments
consisted of $8.75 million of promissory notes as well as obligations under
operating leases. These notes bear interest at rates ranging from 6.0% to 10.0%
and mature from January 2001 to April 2005. Of these notes, convertible
promissory notes having a principal amount of $2.0 million are being repaid in
connection with the merger by the delivery of shares of Lionbridge common stock.
At December 31, 1999, INT'L.com had cash on hand of $741,000. In addition,
assuming lending conditions were satisfied, an additional $2.1 million was
available for borrowing under INT'L.com's credit facility. However, this
additional borrowing capacity could only be accessed by INT'L.com if INT'L.com's
accounts receivable were increased by approximately $2.5 million. Since
December 31, 1999, INT'L.com has borrowed an aggregate of $3.0 million through
the issuance of notes to certain of its existing investors. These notes are
being repaid in connection with the merger by the delivery of shares of
Lionbridge common stock. If these borrowings and cash generated from INT'L.com's
operations are insufficient to satisfy INT'L.com's working capital needs,
INT'L.com will seek additional debt financing and/or equity financing from its
existing investors and third parties.
At December 31, 1999, INT'L.com had approximately $12.3 million of net
operating loss carryforwards that are available to offset future taxable income
through 2019. In the event of a change in ownership of INT'L.com, the ability to
utilize these tax carryforwards may be limited under certain circumstances. Due
to the current and projected future operating losses of INT'L.com, a full
valuation allowance has been recorded to offset the otherwise recognizable net
operating loss carryforwards.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES. SFAS No. 133, as amended by
SFAS No. 137, is effective for all fiscal quarters beginning with the quarter
ending September 30, 2000. SFAS No. 133 establishes accounting
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and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. INT'L.com
will adopt SFAS No. 133 in its quarter ending September 30, 2000 and does not
expect that such adoption to have an impact on INT'L.com's consolidated results
of operations, financial position or cash flows.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." This
bulletin summarized certain views of the staff on applying generally accepted
accounting principles to revenue recognition in financial statements. The staff
believes that revenue is realized or realizable and earned when all of the
following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred or services have been rendered; the seller's price to the
buyer is fixed or determinable; and collectibility is reasonably assured.
INT'L.com believes that its current revenue recognition policy complies with the
Commission's guidelines.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PRIMARY MARKET RISK EXPOSURES. INT'L.com is exposed to various market
risks, including changes in foreign currency exchange rates and interest rates.
INT'L.com's investment portfolio of cash equivalents is subject to interest rate
fluctuations, but INT'L.com believes this risk is immaterial due to the
short-term nature of these investments. The majority of INT'L.com's contracts
with clients are denominated in U.S. dollars. However, 10% of INT'L.com's costs
and expenses in 1999 and 8% of INT'L.com's costs and expenses in 1998 were
denominated in foreign currencies. Approximately 16% and 12% of INT'L.com's
assets were recorded in foreign currencies as of December 31, 1999 and
December 31, 1998, and 12% and 7% of INT'L.com's liabilities were recorded in
foreign currencies as of December 31, 1999 and December 31, 1998, respectively.
Therefore, INT'L.com is exposed to foreign currency exchange risks. INT'L.com
has not historically reduced its exposure to exchange rate fluctuations by using
hedging transactions. However, INT'L.com may choose to do so in the future.
DERIVATIVE FINANCIAL INSTRUMENTS. INT'L.com does not invest in derivative
financial instruments, other financial instruments or derivative commodity
instruments for trading or speculative purposes. All of INT'L.com's investments
are in investment grade securities with high credit ratings of relatively short
duration that trade in highly liquid markets and are carried at fair value on
INT'L.com's books. Accordingly, INT'L.com has no quantitative information
concerning the market risk of participating in such investment.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table presents information about each person who will become a
director or executive officer of Lionbridge following the merger:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- ------------------------ --------
<S> <C> <C>
Roger O. Jeanty........................... 49 Chief Executive Officer and Director
Christoph A. Heck......................... 47 Vice President of Operations
</TABLE>
ROGER O. JEANTY, a founder of one of INTL.com's predecessors, has been
employed by INT'L.com and its predecessors since 1984 and has served as a
director of INT'L.com since 1998. Prior thereto, Mr. Jeanty held a number of
management positions in international and technical areas, including Software
Localization manager at Data General and Executive Vice President of the
International Software Center.
CHRISTOPH A. HECK has been employed by INT'L.com as Vice President of
Operations since April 1999. Prior thereto, Mr. Heck was Director of
International Production and Marketing for Disney Interactive from April 1997 to
March 1999 and Director of Worldwide Localization and the European Software
Center for Autodesk from April 1993 to March 1997.
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EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the total compensation
paid or accrued for the year ended December 31, 1999 for INT'L.com's chief
executive officer and the other executive officer who was employed by INT'L.com
at December 31, 1999 and who will be executive officers of Lionbridge after the
merger (the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- -----------------------
AWARDS PAYOUTS
------------ --------
OTHER SECURITIES
ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS/SARS PAYOUTS COMPENSATION
--------------------------- -------- -------- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Roger O. Jeanty, Chief Executive
Officer........................... $150,000 -- -- 180,000 -- --
Christoph A. Heck(1)................ $ 92,920 -- -- 25,000 -- $64,498
</TABLE>
- ------------------------
(1) Mr. Heck joined INT'L.com in April 1999. All other compensation consists of
reimbursed relocation costs.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock options
granted in 1999 to the named executive officers. Each option listed in the table
below was granted under the INT'L.com 1998 Stock Plan, as amended. INT'L.com has
not granted any stock appreciation rights.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
PERCENT OF ASSUMED ANNUAL RATES
NUMBER OF TOTAL OF STOCK
SECURITIES OPTIONS/SARS EXERCISE OR PRICE APPRECIATION
UNDERLYING GRANTED TO BASE PRICE FOR OPTION TERM (2)
OPTIONS/SARS EMPLOYEES IN IN DOLLARS EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR PER SHARE (1) DATE 5% 10%
- ---- ------------ ------------ ------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Roger O. Jeanty................. 180,000 32.6% $3.72 04/08/09 $421,200 $1,067,400
Christoph A. Heck............... 25,000 4.5% $1.30 02/03/09 $ 20,500 $ 51,750
</TABLE>
- ------------------------
(1) The exercise price equals the fair market value of the common stock as of
the grant date as determined by INT'L.com's board of directors.
(2) Potential realizable values are net of exercise price, but before payment of
taxes associated with exercise. Amounts represent hypothetical gains that
could be achieved for the respective options if exercised at the end of the
option term. The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Securities Commission and do not
represent INT'L.com's estimate or projection of its future common stock
prices. These amounts represent assumed rates of appreciation in the value
of the INT'L.com common stock from the fair market value on the date of
grant. Actual gains, if any, on stock option exercises are dependent on the
future performance of INT'L.com common stock and overall market conditions.
The amounts reflected in the table may not necessarily be achieved.
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AGGREGATED OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth information regarding exercisable and
unexercisable stock options held as of December 31, 1999 by each of the named
executive officers of INT'L.com.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
OPTIONS AT DECEMBER 31,
DECEMBER 31, 1999 1999(1)(2)
---------------------- --------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- --------------- ------------ ---------------------- --------------------
<S> <C> <C> <C> <C>
Roger O. Jeanty............. -- -- 180,000/0 $1,854,360/$0
Christoph A. Heck........... -- -- 25,000/0 $318,050/$0
</TABLE>
- ------------------------
(1) There was no public trading market for the INT'L.com common stock as of
December 31, 1999. Accordingly, these values have been calculated on the
basis of the implied price of the INT'L.com common stock in the merger as if
the merger were consummated on December 31, 1999, less the applicable
exercise price per share, multiplied by the number of underlying shares.
(2) Unvested shares issuable upon exercise of options are subject to a
repurchase right in favor of INT'L.com in certain circumstances. This
repurchase right lapses at specified dates or over specified time periods,
and such lapse may accelerate in whole or in part upon completion of the
merger. As of December 31, 1999, 0 and 5,833 shares underlying the options
held by Messrs. Jeanty and Heck, respectively, were vested.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Since January 1, 1997, there has not been, nor is there proposed, any
transaction where INT'L.com was or will be a party in which the amount involved,
exceeded or will exceed $60,000 and in which Roger O. Jeanty or Christoph A.
Heck, or any member of the immediate family of either of the foregoing persons
had or will have a direct or indirect material interest, other than the
compensation agreements and transactions which are described in "Description of
INT'L.com--Management" and the transaction described below. Since January 1,
1998, there has not been, nor is there proposed, any transaction where INT'L.com
was or will be a party in which the amount involved exceeded, or will exceed
$60,000 and in which any director, executive officer, holder of more than 5% of
any class of INT'L.com voting securities, or any member of the immediate family
of any of the foregoing persons had or will have a direct or indirect material
interest, other than the compensation agreements and transactions which are
described in "Description of INT'L.com--Management" and the transactions
described below. These related party transactions were each negotiated on an
arms' length basis and were on no less favorable terms to INT'L.com than would
have been given to a third party. Furthermore, for each sale or other issuance
of securities to a related party, the shares were sold at the then current fair
market value determined in good faith by the INT'L.com Board of Directors.
SALE OF EQUITY SECURITIES
In connection with the closing of the merger of Direct Language
Communications, Inc. with and into INT'L.com in August 1998, INT'L.com issued
the following number of shares of common stock to certain individuals and
entities in exchange for the surrender of their shares of Direct Language
Communications or International Communications capital stock:
- 606,934 shares of INT'L.com common stock were issued to Steven L.
Fingerhood, the founder of Direct Language Communications and the current
Chairman of the board of directors, Chief
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Strategic Officer and a director of INT'L.com, in his capacity as Trustee
under a voting trust agreement. Of that amount, 307,771 shares were issued
for the beneficial account of Steven L. Fingerhood, 285,692 were issued
for the beneficial account of Barry Traub and the remaining 13,471 shares
were issued for the beneficial account of Dogwood Corporation, in each
case in exchange for shares of Direct Language Communication common stock.
- INT'L.com also issued 1,500,000 shares of common stock to Roger O. Jeanty,
founder and chief executive officer of International Communications and
current Chief Executive Officer and a director of INT'L.com and 500,000
shares of common stock to Tracy A. Jeanty, Mr. Jeanty's wife and then
Controller of International Communications, in exchange for their shares
of International Communications common stock.
- INT'L.com issued an aggregate of 54,191 shares of Series A preferred stock
to Steven L. Fingerhood in exchange for the surrender of his Direct
Language Communications Series A preferred shares.
- INT'L.com issued 1,424,876 shares of Series B preferred stock to
Dakota/EGI, L.L.C. Of that amount, 1,277,045 shares were issued at a
purchase price of $3.72 per share and 147,831 shares were issued to
Dakota/EGI in exchange for the surrender of its Direct Language
Communications Series B preferred shares. Dakota/EGI is the owner of more
than five percent of INT'L.com's total combined voting power. Rod
Dammeyer, one of INT'L.com's directors, is Managing Partner of Equity
Group Corporate Investments, an affiliate of Dakota/EGI. Jeffrey
A. Wellek, one of INT'L.com's directors, is a member of Dakota Capital
Partners, L.L.C., the Managing Member of Dakota/EGI.
- INT'L.com also issued 2,688 shares of Series B preferred stock to Steven
L. Fingerhood in exchange for the surrender of his Direct Language
Communications Series B preferred shares.
- INT'L.com issued 3,335 shares of Series C preferred stock to Roger O.
Jeanty and 1,112 shares of Series C preferred stock to Tracy A. Jeanty in
exchange for their International Communications shares.
In connection with the closing of INT'L.com's acquisition of International
Language Engineering Corporation in April 1999, the following transactions
occurred:
- The shares of common stock issued to each of Steven L. Fingerhood, in his
capacity as Trustee, Roger O. Jeanty and Tracy A. Jeanty in connection
with the 1998 merger with Direct Language Communications were cancelled
and exchanged for an equal number of shares of Series A common stock of
INT'L.com.
- INT'L.com issued 2,462,690 shares of Series B common stock to Cornerstone
Equity Investors IV, L.P. Cornerstone owns more than five percent of the
shares of a class of INT'L.com voting stock. Dana J. O'Brien and Michael
Najjar, two of INT'L.com's directors, are the Senior Managing Director and
Managing Director, respectively, of Cornerstone. In July 1999, pursuant to
the terms of a settlement agreement, the amount of shares issued to
Cornerstone was adjusted and reduced to 2,083,007. As of August 19, 1999,
Cornerstone's shares of Series B common stock were reclassified as
Series A common stock.
- INT'L.com issued an aggregate of 268,817 shares of Series B preferred
stock to each of Dakota/ EGI and Cornerstone at a purchase price of $3.72
per share pursuant to a Series B preferred stock purchase agreement.
- INT'L.com issued an aggregate of 887,096 shares of its Series D preferred
stock at a value of $6.22 per share to Cornerstone. In July 1999, pursuant
to the terms of a settlement agreement, the number of shares of Series D
preferred stock issued to Cornerstone was adjusted and reduced to 752,368.
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In connection with INT'L.com's sale of Series B preferred stock in
August 1999, INT'L.com issued an aggregate of 511,118 shares of Series B
preferred stock at a purchase price of $3.72 a share. Of that amount, 13,441
shares were issued to Roger O. Jeanty, 6,721 shares were issued to Steven L.
Fingerhood and 6,721 shares were issued to Steven L. Fingerhood's father,
Stanford Fingerhood.
In September 1999, INT'L.com issued 43,352 shares of Series A common stock
to Steven L. Fingerhood at a purchase price of $1.30 per share upon his exercise
of stock options.
In connection with these financings, INT'L.com entered into various
agreements with the purchasers of its securities, including an investment,
information and registration agreement and a stockholders agreement. Each of
these agreements will be terminated immediately prior to the consummation of the
merger.
ISSUANCE OF WARRANTS
In connection with the closing of the merger of Direct Language
Communications with and into INT'L.com in August 1998, the following
transactions occurred:
- INT'L.com issued warrants to Steven L. Fingerhood to purchase in the
aggregate 260,114 shares of INT'L.com common stock at an exercise price of
$1.08 per share in exchange for the surrender of his warrants to purchase
shares of Direct Language Communications common stock.
- INT'L.com issued warrants to Dakota Capital Partners, L.L.C. to purchase
in the aggregate 13,439 shares of INT'L.com common stock at an exercise
price of $3.72 per share in exchange for the surrender of its warrants to
purchase shares of Direct Language Communications common stock. Dakota
Capital Partners, L.L.C. is the Managing Member of Dakota/EGI, the owner
of more than five percent of INT'L.com's total combined voting power.
Jeffrey A. Wellek, one of INT'L.com's directors, is a member of Dakota
Capital Partners, L.L.C., the Managing Member of Dakota/EGI.
In connection with the closing of INT'L.com's Note and Warrant financing in
August 1999, the following transactions occurred:
- INT'L.com issued a warrant to Cornerstone to purchase in the aggregate
37,500 shares of INT'L.com common stock at an exercise price of $1.10 per
share. Cornerstone owns more than five percent of the shares of a class of
INT'L.com voting stock. Dana J. O'Brien and Michael Najjar, two of
INT'L.com's directors, are the senior managing director and managing
director, respectively, of Cornerstone.
- INT'L.com issued a warrant to Dakota/EGI to purchase in the aggregate
37,500 shares of INT'L.com common stock at an exercise price of $1.10 per
share. Rod Dammeyer, one of INT'L.com's directors, is the Managing Partner
of Equity Group Corporate Investments, an affiliate of Dakota/EGI. Jeffrey
A. Wellek, one of INT'L.com's directors, is a member of Dakota Capital
Partners, L.L.C., the Managing Member of Dakota/EGI.
Each of these warrants will be exercised prior to the consummation of the
merger in accordance with each of their terms.
ISSUANCE OF DEBT SECURITIES
In connection with the closing of the merger of Direct Language
Communications with and into INT'L.com in August 1998, the following
transactions occurred:
- INT'L.com issued two subordinated promissory notes in an aggregate
original principal amount of $2.3 million to Roger O. Jeanty. In
April 1999 in connection with the International Language Corporation
acquisition, these promissory notes were amended to extend the maturity
date to April 9, 2005, subject to acceleration upon the occurrence of
specified events.
94
<PAGE>
- INT'L.com issued two subordinated promissory notes in an aggregate
original principal amount of $778,000 to Tracy A. Jeanty. In April 1999 in
connection with the International Language Corporation acquisition, these
promissory notes were amended to extend the maturity date to April 9,
2005, subject to acceleration upon the occurrence of specified events.
In connection with the closing of INT'L.com's Note and Warrant financing in
August 1999, the following transactions occurred:
- INT'L.com issued a convertible promissory note in favor of Cornerstone in
the original principal amount of $1.0 million.
- INT'L.com issued a convertible promissory note in favor of Dakota/EGI in
the original principal amount of $1.0 million.
At the holder's option, the principal and interest on each of the
convertible notes become immediately due and payable upon the consummation of
the merger. Pursuant to the terms of the reorganization agreement, each of these
notes shall be paid in full by delivery of shares of Lionbridge common stock.
In January 2000, INT'L.com issued a subordinated promissory note in favor of
Cornerstone in the original principal amount of $1.0 million, which note matures
on July 14, 2000.
In January 2000, INT'L.com issued a subordinated promissory note in favor of
SZ Investments, L.L.C., an affiliate of Dakota/EGI, in the original principal
amount of $1.0 million, which note matures on July 14, 2000.
In March 2000, INT'L.com issued a subordinated promissory note in favor of
Cornerstone in the original principal amount of $500,000, which note matures on
July 14, 2000.
In March 2000, INT'L.com issued a subordinated promissory note in favor of
SZ Investments in the original principal amount of $500,000, which note matures
on July 14, 2000.
ISSUANCE OF OPTIONS UNDER THE 1998 STOCK PLAN
Pursuant to the 1998 Stock Plan, in April 1999, INT'L.com issued options to
purchase 180,000 shares of INT'L.com common stock at an exercise price of $3.72
per share to Roger O. Jeanty.
Pursuant to the 1998 Stock Plan, in April 1999, INT'L.com issued options to
purchase 220,000 shares of INT'L.com common stock at an exercise price of $3.72
per share to Steven L. Fingerhood.
Pursuant to the 1998 Stock Plan, in October 1999, INT'L.com issued options
to purchase 50,000 shares of INT'L.com common stock at an exercise price of
$13.30 per share to John Arcari, the current Chief Financial Officer of
INT'L.com.
See "The Merger--Interests of Executive Officers and Directors of INT'L.com
in the Merger" for a description of the terms and conditions of options granted
under the 1998 Stock Plan.
EMPLOYMENT AGREEMENTS
In August 1998, INT'L.com entered into employment agreements with each of
Roger O. Jeanty and Steven L. Fingerhood. Each of Mr. Jeanty's and
Mr. Fingerhood's employment agreement provides for a three-year employment term,
an annual base salary of $150,000, an annual incentive bonus in an amount to be
determined by INT'L.com's board, and certain confidentiality, non-compete and
work-for-hire provisions.
In April 1999, INT'L.com entered into an employment agreement with Christoph
A. Heck, which employment agreement provides for an annual base salary of
$132,500, incentive bonuses pursuant to INT'L.com's bonus plan, an option grant
to purchase 25,000 shares of INT'L.com's Series A common stock and certain
confidentiality and non-compete provisions.
95
<PAGE>
Effective upon the consummation of the merger, Mr. Jeanty will enter into a
new employment agreement with Lionbridge superseding this employment arrangement
and Mr. Fingerhood will have executed an Amended and Restated Employment
Agreement. See "The Merger--Interests of Executive Officers and Directors of
INT'L.com in the Merger" for a description of the terms and conditions of these
employment agreements.
OTHER AGREEMENTS AND RELATED MATTERS
In connection with the closing of the merger of Direct Language
Communications with and into INT'L.com in August 1998, INT'L.com and
Interlingual Technologies, Inc., the owner of the patents, underlying technology
and source code related to ForeignDesk-Registered Trademark- executed an Amended
and Restated License Agreement whereby Interlingual granted INT'L.com an
exclusive, fully-paid, royalty-free, perpetual worldwide license for
ForeignDesk. Roger O. Jeanty and Tracy A. Jeanty own 51% of the outstanding
capital stock of Interlingual Technologies. In January 2000, INT'L.com and
Interlingual executed a patent and technology assignment agreement whereby
Interlingual transferred the patents and underlying technology related to
ForeignDesk in accordance with the terms of the License Agreement to INT'L.com.
96
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The merger is to be accounted for in accordance with the pooling of
interests method of accounting pursuant to APB Opinion No. 16. Accordingly, the
accompanying unaudited pro forma combined condensed financial information gives
effect to the transaction in accordance with the pooling of interests method of
accounting.
The unaudited pro forma combined condensed financial information should be
read in conjunction with the historical financial statements and the related
notes thereto of Lionbridge and INT'L.com which are presented in this joint
proxy statement/prospectus. See "Where You can Find More Information." The
unaudited pro forma combined condensed balance sheet combines Lionbridge's
December 31, 1999 consolidated balance sheet with INT'L.com's December 31, 1999
consolidated balance sheet. The unaudited pro forma combined condensed
statements of operations combine Lionbridge's operating results for the years
ended December 31, 1999, 1998 and 1997 with the operating results of INT'L.com
for the corresponding periods.
Lionbridge expects to incur merger-related pre-tax charges covering the
costs of the merger principally in the quarter in which the merger is
consummated. Such pre-tax charges, which are currently estimated be
approximately $1.5 million, will primarily consist of fees to financial
advisors, legal counsel and independent accountants, and printing and other fees
and expenses relating to holding a meeting of stockholders and preparing this
joint proxy statement/prospectus. However, additional unanticipated expenses may
be incurred in connection with this transaction. The unaudited pro forma
combined condensed balance sheet reflects these estimated transaction costs, but
the effect of these costs is not reflected in the unaudited pro forma combined
condensed statements of operations.
The unaudited pro forma combined condensed financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the operating results or financial position that would have been achieved if the
merger had been consummated as of the beginning of the periods presented, nor
are they necessarily indicative of future operating results or financial
position of the combined company.
97
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
LIONBRIDGE INT'L.COM ADJUSTMENTS(2) COMBINED
---------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Revenue.......................................... $ 49,508 $ 34,902 $ 84,410
Cost of revenue.................................. 33,486 31,739 $ (5,069) 60,156
-------- -------- -------- --------
Gross profit................................. 16,022 3,163 5,069 24,254
-------- -------- -------- --------
Operating expenses:
Sales and marketing............................ 5,554 4,962 (777) 9,739
General and administrative..................... 14,147 7,514 6,022 27,683
Research and development....................... 1,491 900 (176) 2,215
Amortization of acquisition-related intangible
assets....................................... 3,170 2,943 6,113
Restructuring charges.......................... -- 1,197 1,197
Acquired in-process research and development... -- 300 300
Stock-based compensation....................... 730 -- 730
-------- -------- -------- --------
Total operating expenses..................... 25,092 17,816 5,069 47,977
-------- -------- -------- --------
Loss from operations............................. (9,070) (14,653) -- (23,723)
Interest expense:
Interest on outstanding debt................... (1,511) (841) (2,352)
Accretion of discount on subordinated notes
payable...................................... (5,967) -- (5,967)
Other income (expense), net...................... (339) (14) (353)
-------- -------- -------- --------
Loss before income taxes......................... (16,887) (15,508) -- (32,395)
Provision for income taxes....................... 699 -- 699
-------- -------- -------- --------
Net loss......................................... (17,586) (15,508) -- (33,094)
Accrued dividends on preferred stock............. (687) (1,709) 1,709 (6) (687)
-------- -------- -------- --------
Net loss attributable to common stockholders..... $(18,273) $(17,217) $ 1,709 $(33,781)
======== ======== ======== ========
Basic and diluted net loss per share attributable
to common stockholders......................... $ (2.45) $ (3.39) $ (2.43)
Shares used in computing basic and diluted net
loss per share attributable to common
stockholders................................... 7,450 5,072 13,914
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
98
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
LIONBRIDGE INT'L.COM ADJUSTMENTS(2) COMBINED
---------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Revenue.......................................... $38,412 $17,317 $55,729
Cost of revenue.................................. 25,546 13,980 $(1,724) 37,802
------- ------- ------- -------
Gross profit................................. 12,866 3,337 1,724 17,927
------- ------- ------- -------
Operating expenses:
Sales and marketing............................ 2,735 2,130 (223) 4,642
General and administrative..................... 10,889 2,145 2,004 15,038
Research and development....................... -- 321 (57) 264
Amortization of acquisition-related intangible
assets....................................... 2,145 300 2,445
Restructuring charges.......................... 501 -- 501
------- ------- ------- -------
Total operating expenses..................... 16,270 4,896 1,724 22,890
------- ------- ------- -------
Loss from operations............................. (3,404) (1,559) -- (4,963)
Interest on outstanding debt..................... (648) (161) (809)
Other income (expense), net...................... 49 20 69
------- ------- ------- -------
Loss before income taxes......................... (4,003) (1,700) -- (5,703)
Provision for (benefit from) income taxes........ 259 (565) (306)
------- ------- ------- -------
Net loss......................................... (4,262) (1,135) -- (5,397)
Accrued dividends on preferred stock............. (1,062) (185) 185 (6) (1,062)
------- ------- ------- -------
Net loss attributable to common stockholders..... $(5,324) $(1,320) $ 185 $(6,459)
======= ======= ======= =======
Basic and diluted net loss per share attributable
to common stockholders......................... $ (2.99) $ (0.53) $ (1.48)
Shares used in computing basic and diluted net
loss per share attributable to common
stockholders................................... 1,782 2,489 4,351
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
99
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
LIONBRIDGE INT'L.COM ADJUSTMENTS(2) COMBINED
---------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Revenue.......................................... $26,462 $9,407 $35,869
Cost of revenue.................................. 18,914 6,964 25,878
------- ------ -------
Gross profit................................. 7,548 2,443 9,991
------- ------ -------
Operating expenses:
Sales and marketing............................ 1,306 1,053 $ (144) 2,215
General and administrative..................... 8,210 1,797 187 10,194
Research and development....................... -- 242 (43) 199
Amortization of acquisition-related intangible
assets....................................... 4,400 -- 4,400
Restructuring charges.......................... 541 -- 541
------- ------ ------ -------
Total operating expenses..................... 14,457 3,092 -- 17,549
------- ------ ------ -------
Loss from operations............................. (6,909) (649) -- (7,558)
Interest expense................................. (127) (13) (140)
Other income (expense), net...................... (506) 30 (476)
------- ------ ------ -------
Loss before income taxes......................... (7,542) (632) -- (8,174)
Provision for (benefit from) income taxes........ 112 (151) (39)
------- ------ ------ -------
Net loss......................................... (7,654) (481) -- (8,135)
Accrued dividends on preferred stock............. (1,062) -- (1,062)
------- ------ ------ -------
Net loss attributable to common stockholders..... $(8,716) $ (481) $ -- $(9,197)
======= ====== ====== =======
Basic and diluted net loss per share attributable
to common stockholders......................... $ (8.85) $(0.24) $ (3.71)
Shares used in computing basic and diluted net
loss per share attributable to common
stockholders................................... 985 2,000 2,482
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
100
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
LIONBRIDGE INT'L.COM ADJUSTMENTS(2) COMBINED
---------- --------- -------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $11,537 $ 741 $12,278
Accounts receivable, net..................... 8,918 5,368 14,286
Work in process.............................. 3,705 1,372 5,077
Other current assets......................... 634 731 1,365
------- ------- -------
Total current assets....................... 24,794 8,212 33,006
Property and equipment, net...................... 2,171 3,874 6,045
Goodwill and other intangible assets, net........ 8,288 14,831 23,119
Other assets..................................... 359 59 418
------- ------- -------
Total assets............................... $35,612 $26,976 $62,588
======= ======= =======
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term debt.............................. $ 6,593 $ 3,690 $10,283
Accounts payable............................. 4,667 4,736 9,403
Deferred income taxes........................ -- 224 224
Other current liabilities.................... 7,694 3,947 $ 1,500 (4) 13,141
Deferred revenue............................. 2,524 1,085 3,609
------- ------- ------- -------
Total current liabilities.................. 21,478 13,682 1,500 36,660
------- ------- ------- -------
Long-term liabilities............................ 6,731 8,991 15,722
Redeemable preferred stock....................... -- 17,976 (17,976)(6) --
Accumulated deficit.............................. (32,495) (23,489) 394 (4) (55,590)
Other stockholders' equity....................... 39,898 9,816 16,082 (6) 65,796
------- ------- ------- -------
Total stockholders' equity (deficit)....... 7,403 (13,673) 16,476 10,206
------- ------- ------- -------
Total liabilities, redeemable preferred
stock and stockholders' equity
(deficit).............................. $35,612 $26,976 $ -- $62,588
======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
101
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
(1) The unaudited pro forma combined per share amounts are based on the combined
weighted-average number of Lionbridge common shares and INT'L.com common
shares outstanding for all periods presented based on INT'L.com stockholders
receiving 0.7485 of a Lionbridge common share for each share of INT'L.com
common stock held. The actual exchange ratio may not be 0.7485 because the
ratio is dependent on a number of variables that cannot be calculated until
shortly before the closing, including the date of closing, the number of
shares of INT'L.com common stock outstanding at the closing and the amount
of debt and expenses incurred by INT'L.com.
(2) Certain reclassifications, none of which affect loss from operations, have
been made to the INT'L.com statements of operations in the unaudited pro
forma combined condensed statements of operations to classify certain
expense items on a basis consistent with the Lionbridge presentation.
(3) There were no financial transactions between Lionbridge and INT'L.com during
any of the periods presented.
(4) Total transaction costs to be incurred by Lionbridge and INT'L.com in
connection with the merger are estimated to be approximately $1.5 million.
These costs, related to legal, printing, accounting, financial advisory
services and other expenses, will be charged to operations upon consummation
of the merger. These costs were not considered in the unaudited pro forma
combined condensed statements of operations.
(5) A restructuring charge to operations is expected to be recognized in
connection with the merger to reflect the combination of the two companies.
Such charge, which has not yet been estimated, may include amounts with
respect to the elimination of excess facilities, the write-off of certain
fixed assets, employee severance costs and the satisfaction of certain
liabilities. The effects of these costs have not been reflected in the
unaudited pro forma combined condensed financial statements.
(6) Net loss attributable to common stockholders has been adjusted to remove the
accretion of dividends on INT'L.com preferred stock, as such preferred stock
is automatically redeemable on the consummation of the merger and will be
settled in shares of Lionbridge common stock. The unaudited pro forma
combined net loss per share amounts give effect to the merger between
Lionbridge and INT'L.com as though it had occurred at the beginning of the
earliest period presented. The number of shares used in computing pro forma
basic and diluted net loss per share attributable to common stockholders is
determined based upon the sum of (i) the weighted-average number of common
shares outstanding of Lionbridge (7,450,000 shares, 1,782,000 shares and
985,000 shares for the years ended December 31, 1999, 1998 and 1997,
respectively), (ii) the weighted-average number of common shares outstanding
of INT'L.com (5,072,000 shares, 2,489,000 shares and 2,000,000 shares for
the years ended December 31, 1999, 1998 and 1997, respectively), adjusted to
reflect an assumed conversion factor of 0.7485 on consummation of the
merger, (iii) the weighted-average number of shares of INT'L.com Series A
and Series B preferred stock (3,025,000 shares and 929,000 shares for the
years ended December 31, 1999 and 1998, respectively), which will convert
into common shares of INT'L.com on a one-for-one basis immediately prior to
consummation of the merger, adjusted to reflect an assumed conversion factor
of 0.7485 on consummation of the merger, and (iv) the weighted-average
number of shares of Lionbridge common stock expected to be issued to redeem
the INT'L.com Series C and Series D preferred stock on consummation of the
merger (404,000 shares and 11,000 shares for the years ended December 31,
1999 and 1998, respectively). In addition, redeemable preferred stock has
been removed from the balance sheet at December 31, 1999 with a
corresponding adjustment to accumulated deficit and other stockholders'
equity.
102
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF LIONBRIDGE
The following table sets forth certain information regarding the beneficial
ownership of Lionbridge's common stock as of February 29, 2000 for (i) each
person who is known by Lionbridge to own beneficially more than 5% of the
outstanding shares of common stock, (ii) each director of Lionbridge,
(iii) each named executive officer of Lionbridge and (iv) all of the directors
and executive officers of Lionbridge as a group.
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.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF COMMON
BENEFICIAL STOCK
NAME OF BENEFICIAL OWNER OWNERSHIP (1)(2) OUTSTANDING
- ------------------------ ---------------- -----------
<S> <C> <C>
Rory J. Cowan (3)........................................... 2,376,363 14.1%
Marcia J. Hooper (4)........................................ 4,364,004 26.3%
c/o Advent International Corporation
75 State Street
Boston, MA 02109
Guy L. de Chazal (5)........................................ 4,619,340 27.8%
c/o Morgan Stanley Dean Witter Venture Capital 1221
Avenue of the Americas, 33(rd) Floor
New York, New York 10020
Paul Kavanagh (6)........................................... 72,000 *
"Arcachon"
Strathmore Road
Killiney, Co. Dublin, Ireland
Claude P. Sheer (7)......................................... 3,333 *
240 Main Street
Boxford, MA 01921
Myriam Martin-Kail (8)...................................... 252,913 1.5%
Stephen J. Lifshatz (9)..................................... 174,764 1.0%
Peter H. Wright (10)........................................ 76,660 *
Morgan Stanley-sponsored limited partnerships (11).......... 4,619,340 27.8%
1221 Avenue of the Americas, 33(rd) Floor
New York, New York 10020
Advent-sponsored limited partnerships (12).................. 4,364,004 26.3%
75 State Street
Boston, MA 02109
Capital Resource Lenders III, L.P. (13)..................... 1,277,712 7.7%
85 Merrimac Street, Suite 200
Boston, MA 02114
All executive officers and directors as a group (8 persons)
(14)........................................................ 11,939,377 69.7%
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares.
103
<PAGE>
(1) The persons identified in the table possess sole voting and investment
power with respect to all shares shown as beneficially owned by them,
except as noted in the footnotes below and subject to applicable community
property laws.
(2) The inclusion herein of any shares of common stock deemed beneficially
owned does not constitute an admission of beneficial ownership of those
shares.
(3) Includes an aggregate of 286,160 shares held by affiliated trusts and an
affiliated foundation of Mr. Cowan. Includes 187,691 shares deemed to be
beneficially owned by Mr. Cowan pursuant to options exercisable within
60 days of February 29, 2000.
(4) Includes 357,849 shares held by Advent Euro-Italian Direct Investment
Program Limited Partnership; 96,191 shares held by Advent Partners Limited
Partnership; 2,613,975 shares held by Global Private Equity II Limited
Partnership; 549,683 shares held by Global Private Equity II-Europe Limited
Partnership; and 746,306 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 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.
(5) Includes 4,063,671 shares held by Morgan Stanley Venture Capital Fund II
Annex, L.P. and 555,669 shares held by Morgan Stanley Venture Investors
Annex, L.P. Mr. de Chazal is the Chairman of Morgan Stanley Venture Capital
II, Inc., the managing general partner of Morgan Stanley Venture Partners
II, L.P., which is the general partner of each of the Morgan Stanley-
sponsored limited 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.
(6) Includes 5,333 shares deemed to be beneficially owned by Mr. Kavanagh
pursuant to options exercisable within 60 days of February 29, 2000.
(7) Represents 3,333 shares deemed to be beneficially owned by Mr. Sheer
pursuant to options exercisable within 60 days of February 29, 2000.
(8) Represents 252,913 shares deemed to be beneficially owned by
Ms. Martin-Kail pursuant to options exercisable within 60 days of
February 29, 2000.
(9) Includes 36,968 shares deemed to be beneficially owned by Mr. Lifshatz
pursuant to options exercisable within 60 days of February 29, 2000.
(10) Includes an aggregate of 6,668 shares held in trusts for the benefit of
Mr. Wright's children and 20,479 shares deemed to be beneficially owned by
Mr. Wright pursuant to options exercisable within 60 days February 29,
2000.
(11) Includes 4,063,671 shares held by Morgan Stanley Venture Capital Fund II
Annex, L.P. and 555,669 shares held by Morgan Stanley Venture Investors
Annex, L.P. The 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.
(12) Includes 357,849 shares held by Advent Euro-Italian Direct Investment
Program Limited Partnership; 96,191 shares held by Advent Partners Limited
Partnership; 2,613,975 shares held by
104
<PAGE>
Global Private Equity II Limited Partnership; 549,683 shares held by
Global Private Equity II-Europe Limited Partnership; and 746,306 shares
held by Global Private Equity II-PGGM Limited Partnership. The general
partner 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.
(13) Includes 3,510 shares held by CRP Investment Partners III, L.L.C., an
affiliated company of Capital Resource Lenders III, L.P.
(14) The group is comprised of the named executive officers of Lionbridge and
those persons who were directors of Lionbridge on February 29, 2000.
Includes 506,717 shares of common stock which the directors and executive
officers as a group have the right to acquire pursuant to options
exercisable within 60 days of February 29, 2000. Includes 4,364,004 shares
held by the Advent-sponsored entities that Ms. Hooper may be deemed to
beneficially own and 4,619,340 shares held by the Morgan Stanley-sponsored
limited partnerships that Mr. de Chazal may be deemed to beneficially own.
105
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF INT'L.COM
The following table sets forth certain information as to the number of
shares of each class of INT'L.com capital stock owned as of February 29, 2000 by
(i) each person that beneficially owns more than 5% of the outstanding shares of
any class of INT'L.com capital stock; (ii) each director of INT'L.com;
(iii) the chief executive officer and each of the other named executive officers
of INT'L.com; and (iv) all INT'L.com executive officers and directors as a
group.
Except as noted below, the address of each person listed on the table is 492
Old Connecticut Path, Framingham, Massachusetts 01707.
106
<PAGE>
<TABLE>
<CAPTION>
SERIES A SERIES B
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
----------------------- ------------------------- -------------------------
SHARES PERCENT SHARES SHARES
BENEFICIALLY OF BENEFICIALLY PERCENT OF BENEFICIALLY PERCENT OF
NAME OF SHAREHOLDER OWNED(1) CLASS OWNED SERIES OWNED SERIES
- ------------------- ------------ -------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
5% BENEFICIAL HOLDERS
Cornerstone Equity Investors
IV, L.P. (2).............. 2,120,507 35.7% 0 * 268,817 10.3%
Dakota/EGI, L.L.C. (3)...... 37,500 * 0 * 1,693,693 64.6%
DIRECTORS AND NAMED
EXECUTIVE OFFICERS
Steven L. Fingerhood (4).... 1,130,400 17.7% 54,191 6.3% 9,409 *
Roger O. Jeanty (5)......... 2,180,000 35.9% 0 * 13,441 *
Rod Dammeyer (6)............ 37,500 * 0 * 1,693,693 64.6%
Jeffrey A. Wellek (7)....... 37,500 * 0 * 1,693,693 64.6%
Mark S. Hauser (8).......... 29,480 * 411,847 47.5% 71,237 2.7%
Alex McDonnell.............. 0 * 0 * 0 *
Dana J. O'Brien (9)......... 2,120,507 35.7% 0 * 268,817 10.3%
Michael Najjar (10)......... 2,120,507 35.7% 0 * 268,817 10.3%
Christoph A. Heck (11)...... 25,000 * 0 * 2,500 *
ALL DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP
(12)...................... 5,522,887 82.6% 466,038 53.8% 2,059,097 78.5%
<CAPTION>
SERIES C SERIES D
PREFERRED STOCK PREFERRED STOCK
------------------------- ------------------------- PERCENT OF PERCENT OF
SHARES SHARES OUTSTANDING OUTSTANDING
BENEFICIALLY PERCENT OF BENEFICIALLY PERCENT OF COMMON VOTING
NAME OF SHAREHOLDER OWNED SERIES OWNED SERIES STOCK(13) POWER
- ------------------- ------------ ---------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
5% BENEFICIAL HOLDERS
Cornerstone Equity Investors
IV, L.P. (2).............. 0 * 752,368 80.3% 25.4% 30.5%
Dakota/EGI, L.L.C. (3)...... 0 * 0 * 18.4% 16.8%
DIRECTORS AND NAMED
EXECUTIVE OFFICERS
Steven L. Fingerhood (4).... 0 * 0 * 12.1% 11.1%
Roger O. Jeanty (5)......... 4,447 88.9% 0 * 22.9% 21.0%
Rod Dammeyer (6)............ 0 * 0 * 18.4% 16.8%
Jeffrey A. Wellek (7)....... 0 * 0 * 18.4% 16.8%
Mark S. Hauser (8).......... 0 * 0 * 5.4% 5.0%
Alex McDonnell.............. 0 * 0 * * *
Dana J. O'Brien (9)......... 0 * 752,368 80.3% 25.4% 30.5%
Michael Najjar (10)......... 0 * 752,368 80.3% 25.4% 30.5%
Christoph A. Heck (11)...... 0 * 0 * * *
ALL DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP
(12)...................... 4,447 88.9% 752,368 80.3% 79.1% 79.5%
</TABLE>
107
<PAGE>
- ------------------------------
* Less than 1% of total.
(1) Gives effect to the shares of common stock issuable within 60 days of
February 29, 2000 upon the exercise of options and other rights beneficially
owned by the indicated stockholders on that date. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting and investment power with respect to shares.
Unless otherwise indicated, the persons named in the table have sole voting
and sole investment control with respect to all shares beneficially owned.
(2) The address of Cornerstone Equity Investors IV, L.P. is 717 Fifth Avenue,
Suite 1100, New York, New York 10022. Includes 37,500 shares of common stock
issuable upon exercise of presently exercisable warrants. Excludes shares
issuable upon conversion of certain convertible notes.
(3) The address of Dakota/EGI, L.L.C. is 225 West Washington Street, Suite 1600,
Chicago, Illinois 60606. Includes 37,500 shares of common stock issuable
upon exercise of presently exercisable warrants. Excludes shares issuable
upon conversion of certain convertible notes and presently exercisable
warrants to purchase 13,439 shares of INT'L.com common stock held by Dakota
Capital Partners L.L.C. the Managing Member of Dakota/EGI L.L.C.
(4) Includes 260,114 shares of common stock issuable upon exercise of warrants,
220,000 shares of common stock issuable upon exercise of options which are
exercisable within 60 days of February 29, 2000, 13,471 and 285,692 shares
of common stock held in trust for the beneficial account of Dogwood
Corporation and Barry Traub, respectively, pursuant to a voting trust
agreement. Mr. Fingerhood is the trustee of such voting trust and may be
deemed to have voting and investment power with respect to all shares held
in trust for the benefit of Dogwood Corporation and Barry Traub.
Mr. Fingerhood disclaims beneficial ownership of all such shares except with
respect to his pecuniary interest.
(5) Includes 180,000 shares of common stock issuable upon exercise of options
which are exercisable within 60 days of February 29, 2000, and 500,000
shares of common stock and 1,112 shares of Series C preferred stock held by
Tracy A. Jeanty, Mr. Jeanty's wife.
(6) Includes 1,693,693 shares of Series B Preferred Stock and presently
exercisable warrants to acquire 37,500 shares of common stock held by
Dakota/EGI, L.L.C. Mr. Dammeyer is the Managing Partner of Equity Group
Corporate Investments, an affiliate of Dakota/EGI, L.L.C. and may be deemed
to have voting and investment power with respect to all shares held by
Dakota/EGI, L.L.C. Mr. Dammeyer disclaims beneficial ownership of all such
shares except with respect to his pecuniary interest. Excludes warrants to
purchase 13,439 shares of common stock of INT'L.com held by Dakota Capital
Partners L.L.C. the Managing Member of Dakota/EGI L.L.C.
(7) Includes 1,693,693 shares of Series B Preferred Stock and presently
excercisable warrants to acquire 37,500 shares of common stock held by
Dakota/EGI, L.L.C. Mr. Wellek is a Member of Dakota Capital Partners,
L.L.C., the Managing Member of Dakota/EGI, L.L.C. and may be deemed to have
voting and investment power with respect to all shares held by Dakota/EGI,
L.L.C. Mr. Wellek disclaims beneficial ownership of all such shares except
with respect to his pecuniary interest. Excludes presently exercisable
warrants to purchase 13,439 shares of common stock of INT'L.com held by
Dakota Capital Partners L.L.C. the Managing Member of Dakota/ EGI L.L.C.
(8) The address of Mark S. Hauser is Tamarix Capital, 444 Madison Avenue, New
York, New York 10002. Includes 29,480 shares of common stock issuable upon
exercise of options which are exercisable within 60 days of February 29,
2000 and 2,688 shares of Series B Preferred Stock. Includes 411,847 shares
of Series A Preferred Stock and 68,549 shares of Series B Preferred Stock
held by DL Partners, LP. Mr. Hauser is a General Partner of DL Partners, LP
and may be deemed to have voting and investment power with respect to all
shares held by DL Partners, LP. Mr. Hauser disclaims beneficial ownership of
all such shares except with respect to his pecuniary interest.
(9) Includes 2,083,007 shares of common stock, 268,817 shares of Series B
Preferred Stock, 752,368 shares of Series D, Preferred Stock, and presently
exercisable warrants to acquire 37,500 shares of common stock held by
Cornerstone Equity Investors IV, L.P. Mr. O'Brien is the Senior Managing
Director of Cornerstone Equity Investors IV, L.P. and may be deemed to have
voting and investment power with respect to all shares held by Cornerstone
Equity Investors IV, L.P. Mr. O'Brien disclaims beneficial ownership of all
such shares except with respect to his pecuniary interest.
(10) Includes 2,083,007 shares of common stock, 268,817 shares of Series B
Preferred Stock, 752,368 shares of Series D, Preferred Stock, and presently
exercisable warrants to acquire 37,500 shares of common stock held by
Cornerstone Equity Investors IV, L.P. Mr. Najjar is the Managing Director of
Cornerstone Equity Investors IV, L.P. and may be deemed to have voting and
investment power with respect to all shares held by Cornerstone Equity
Investors IV, L.P. Mr. Najjar disclaims beneficial ownership of all such
shares except with respect to his pecuniary interest.
(11) Includes 25,000 shares of common stock issuable upon exercise of options
which are exercisable within 60 days of February 29, 2000.
(12) Includes warrants to acquire 335,114 shares of common stock and an
aggregate of 454,480 shares of INT'L.com common stock which may be acquired
upon the exercise of options within 60 days of February 29, 2000.
(13) Gives effect to conversion of INT'L.com Series A Preferred Stock and
INT'L.com Series B Preferred Stock.
108
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
LIONBRIDGE FOLLOWING THE MERGER
The following table sets forth certain information regarding the beneficial
ownership of Lionbridge's common stock as of February 29, 2000 for (i) each
person who is known by Lionbridge to own beneficially more than 5% of the
outstanding shares of common stock, (ii) each director of Lionbridge,
(iii) each named executive officer of Lionbridge and (iv) all of the directors
and executive officers of Lionbridge as a group assuming the merger had been
consummated on February 29, 2000.
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.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF COMMON
BENEFICIAL STOCK
NAME OF BENEFICIAL OWNER OWNERSHIP (1)(2) OUTSTANDING (3)
- ------------------------ ---------------- ---------------
<S> <C> <C>
Rory J. Cowan (4)........................................... 2,376,363 9.5%
Marcia J. Hooper (5)........................................ 4,364,004 17.6%
c/o Advent International Corporation
75 State Street
Boston, MA 02109
Guy L. de Chazal (6)........................................ 4,619,340 18.6%
c/o Morgan Stanley Dean Witter Venture Capital
1221 Avenue of the Americas, 33(rd) Floor
New York, New York 10020
Paul Kavanagh (7)........................................... 72,000 *
"Arcachon"
Strathmore Road
Killiney, Co. Dublin, Ireland
Claude P. Sheer (8)......................................... 3,333 *
240 Main Street
Boxford, MA 01921
Roger O. Jeanty (9)......................................... 1,666,583 6.7%
Myriam Martin-Kail (10)..................................... 252,913 1.0%
Stephen J. Lifshatz (11).................................... 174,764 *
Peter H. Wright (12)........................................ 76,660 *
Christoph A. Heck (13)...................................... 20,583 *
Morgan Stanley-sponsored limited partnerships (14).......... 4,619,340 18.6%
1221 Avenue of the Americas, 33(rd) Floor
New York, New York 10020
Advent-sponsored limited partnerships (15).................. 4,364,004 17.6%
75 State Street
Boston, MA 02109
Capital Resource Lenders III, L.P. (16)..................... 1,277,712 5.1%
85 Merrimac Street, Suite 200
Boston, MA 02114
</TABLE>
109
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF COMMON
BENEFICIAL STOCK
NAME OF BENEFICIAL OWNER OWNERSHIP (1)(2) OUTSTANDING (3)
- ------------------------ ---------------- ---------------
<S> <C> <C>
Cornerstone Equity Investors IV, L.P. (17).................. 2,388,148 9.6%
Dakota/EGI, L.L.C. (18)..................................... 1,350,917 5.4%
All executive officers and directors as a group (10 persons) 13,626,543 54.9%
(19)........................................................
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares.
(1) The persons identified in the table possess sole voting and investment power
with respect to all shares shown as beneficially owned by them, except as
noted in the footnotes below and subject to applicable community property
laws.
(2) The inclusion herein of any shares of common stock deemed beneficially owned
does not constitute an admission of beneficial ownership of those shares.
(3) Assumes the issuance of 8,201,082 shares of Lionbridge common stock in the
merger, which is the estimated maximum number of shares issuable under the
conversion formulas described in the agreement and plan of reorganization.
(4) Includes an aggregate of 286,160 shares held by affiliated trusts and an
affiliated foundation of Mr. Cowan. Includes 187,691 shares deemed to be
beneficially owned by Mr. Cowan pursuant to options exercisable within
60 days of February 29, 2000.
(5) Includes 357,849 shares held by Advent Euro-Italian Direct Investment
Program Limited Partnership; 96,191 shares held by Advent Partners Limited
Partnership; 2,613,975 shares held by Global Private Equity II Limited
Partnership; 549,683 shares held by Global Private Equity II-Europe Limited
Partnership; and 746,306 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 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.
(6) Includes 4,063,671 shares held by Morgan Stanley Venture Capital Fund II
Annex, L.P. and 555,669 shares held by Morgan Stanley Venture Investors
Annex, L.P. Mr. de Chazal is the Chairman of Morgan Stanley Venture Capital
II, Inc., the managing general partner of Morgan Stanley Venture Partners
II, L.P., which is the general partner of each of the Morgan
Stanley-sponsored limited 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.
(7) Includes 5,333 shares deemed to be beneficially owned by Mr. Kavanagh
pursuant to options exercisable within 60 days of February 29, 2000.
(8) Represents 3,333 shares deemed to be beneficially owned by Mr. Sheer
pursuant to options exercisable within 60 days of February 29, 2000.
(9) Includes 134,730 shares deemed to be beneficially owned by Mr. Jeanty
pursuant to options exercisable within 60 days of February 29, 2000 and
380,449 shares held by Tracy A. Jeanty, Mr. Jeanty's wife. Mr. Jeanty
disclaims beneficial ownership of all such shares held by Mrs. Jeanty.
(10) Represents 252,913 shares deemed to be beneficially owned by
Ms. Martin-Kail pursuant to options exercisable within 60 days of
February 29, 2000.
110
<PAGE>
(11) Includes 36,968 shares deemed to be beneficially owned by Mr. Lifshatz
pursuant to options exercisable within 60 days of February 29, 2000.
(12) Includes an aggregate of 6,668 shares held in trusts for the benefit of
Mr. Wright's children and 20,479 shares deemed to be beneficially owned by
Mr. Wright pursuant to options exercisable within 60 days February 29, 2000.
(13) Includes 18,712 shares deemed to be beneficially owned by Mr. Heck pursuant
to options exercisable within 60 days of February 29, 2000.
(14) Includes 4,063,671 shares held by Morgan Stanley Venture Capital Fund II
Annex, L.P. and 555,669 shares held by Morgan Stanley Venture Investors
Annex, L.P. The 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.
(15) Includes 357,849 shares held by Advent Euro-Italian Direct Investment
Program Limited Partnership; 96,191 shares held by Advent Partners Limited
Partnership; 2,613,975 shares held by Global Private Equity II Limited
Partnership; 549,683 shares held by Global Private Equity II-Europe Limited
Partnership; and 746,306 shares held by Global Private Equity II-PGGM
Limited Partnership. The general partner 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.
(16) Includes 3,510 shares held by CRP Investment Partners III, L.L.C., an
affiliated company of Capital Resource Lenders III, L.P.
(17) The address of Cornerstone Equity Investors IV, L.P. is 717 Fifth Avenue,
Suite 1100, New York, New York 10022.
(18) The address of Dakota/EGI, L.L.C. is 225 West Washington Street, Suite
1600, Chicago, Illinois 60606. Excludes 10,059 shares held by Dakota Capital
Partners L.L.C., the Managing Member of Dakota/EGI.
(19) The group is comprised of the named executive officers of Lionbridge, those
persons who were directors of the Corporation on February 29, 2000, Roger O.
Jeanty, Lionbridge's President upon the closing of the merger and
Christoph A. Heck. Includes 660,159 shares of common stock which the
directors and executive officers as a group have the right to acquire
pursuant to options exercisable within 60 days of February 29, 2000.
Includes 4,364,004 shares held by the Advent-sponsored entities that
Ms. Hooper may be deemed to beneficially own and 4,619,340 shares held by
the Morgan Stanley-sponsored limited partnerships that Mr. de Chazal may be
deemed to beneficially own.
111
<PAGE>
DESCRIPTION OF LIONBRIDGE CAPITAL STOCK
THE FOLLOWING IS A SUMMARY OF CERTAIN MATTERS WITH RESPECT TO THE CAPITAL
STOCK OF LIONBRIDGE. BECAUSE IT IS ONLY A SUMMARY, IT DOES NOT CONTAIN ALL
INFORMATION THAT MAY BE IMPORTANT TO YOU. THEREFORE, YOU SHOULD READ THE MORE
DETAILED PROVISIONS OF LIONBRIDGE'S AMENDED AND RESTATED CHARTER AND AMENDED AND
RESTATED BY-LAWS CAREFULLY.
GENERAL
As of the date of this joint proxy statement/prospectus, Lionbridge's
authorized capital stock consists of 100,000,000 shares of Lionbridge common
stock, par value $.01 per share, and 5,000,000 shares of preferred stock, par
value $.01 per share. No other classes of capital stock are authorized under the
Lionbridge charter. The issued and outstanding shares of Lionbridge common stock
are duly authorized, validly issued, fully paid and nonassessable.
LIONBRIDGE COMMON STOCK
Holders of Lionbridge common stock have no preemptive, redemption or
conversion rights. The holders of Lionbridge common stock are entitled to
receive dividends when and as declared by the Lionbridge board of directors out
of funds legally available therefor and subject to any preferential dividend
rights of any then outstanding preferred stock. Upon Lionbridge's liquidation,
dissolution or winding up, the holders of Lionbridge common stock may share
ratably in Lionbridge's net assets after payment of liquidating distributions to
holders of Lionbridge preferred stock, if any. Each holder of Lionbridge common
stock is entitled to one vote per share of Lionbridge common stock held of
record by such holder.
The registrar and transfer agent for the Lionbridge common stock is American
Stock Transfer & Trust Co.
LIONBRIDGE PREFERRED STOCK
The Lionbridge board of directors has the power, without further vote of
stockholders, to authorize the issuance of up to 5,000,000 shares of Lionbridge
preferred stock and to fix and determine the terms, limitations and relative
rights and preferences of any shares of Lionbridge preferred stock. This power
includes the authority to establish voting, dividend, redemption, conversion,
liquidation and other rights of any such shares. There are no shares of
Lionbridge preferred stock currently outstanding.
112
<PAGE>
APPRAISAL RIGHTS
If the merger is consummated, a holder of record of INT'L.com stock on the
date of making a demand for appraisal, as described below, who (1) continues to
hold those shares through the time of the merger; (2) strictly complies with the
procedures set forth under Section 262 of the Delaware corporation statute; and
(3) has not voted in favor of the merger will be entitled to have those shares
appraised by the Delaware General Court of Chancery under Section 262 and to
receive payment for the "fair value" of these shares in lieu of the
consideration provided for in the agreement and plan of reorganization. This
joint proxy statement/prospectus is being sent to all holders of record of
INT'L.com stock on the record date for the INT'L.com special meeting and
constitutes notice of the appraisal rights available to those holders under
Section 262. THE STATUTORY RIGHT OF APPRAISAL GRANTED BY SECTION 262 REQUIRES
STRICT COMPLIANCE WITH THE PROCEDURES SET FORTH IN SECTION 262. FAILURE TO
FOLLOW ANY OF SUCH PROCEDURES MAY RESULT IN A TERMINATION OR WAIVER OF
DISSENTERS' RIGHTS UNDER SECTION 262. THE FOLLOWING IS A SUMMARY OF THE
PRINCIPAL PROVISIONS OF SECTION 262. The following summary is not a complete
statement of Section 262 of the Delaware corporation statute, and is qualified
in its entirety by reference to Section 262 which is incorporated herein by
reference, together with any amendments to the laws that may be adopted after
the date of this joint proxy statement/prospectus. A copy of Section 262 is
attached as Annex C to this joint proxy statement/prospectus.
A holder of INT'L.com stock electing to exercise appraisal rights under
Section 262 must deliver a written demand for appraisal of such stockholder's
shares of INT'L.com prior to the vote on the merger. The written demand must
identify the stockholder of record and state the stockholder's intention to
demand appraisal of his or her shares. All demands should be delivered to
INT'L.com, Attention: Steven L. Fingerhood, Secretary, 301 Mission Street,
Suite 350, San Francisco, California, 94105, telephone: (415) 546-6885.
Only a holder of shares of INT'L.com stock on the date of making a written
demand for appraisal who continuously holds those shares through the time of the
merger is entitled to seek appraisal. Demand for appraisal must be executed by
or for the holder of record, fully and correctly, as that holder's name appears
on the holder's stock certificates representing shares of INT'L.com stock. If
INT'L.com stock is owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, the demand should be made in that capacity, and
if INT'L.com stock is owned of record by more than one person, as in a joint
tenancy or tenancy in common, the demand should be made by or for all owners of
record. An authorized agent, including one or more joint owners, may execute the
demand for appraisal for a holder of record; that agent, however, must identify
the record owner or owners and expressly disclose in the demand that the agent
is acting as agent for the record owner or owners of the shares.
A record holder such as a broker who holds shares of INT'L.com stock as a
nominee for beneficial owners, some of whom desire to demand appraisal, must
exercise appraisal rights on behalf of those beneficial owners with respect to
the shares of INT'L.com stock, held for those beneficial owners. In that case,
the written demand for appraisal should set forth the number of shares of
INT'L.com stock covered by it. Unless a demand for appraisal specifies a number
of shares, the demand will be presumed to cover all shares of INT'L.com stock
held in the name of the record owner.
BENEFICIAL OWNERS WHO ARE NOT RECORD OWNERS AND WHO INTEND TO EXERCISE
APPRAISAL RIGHTS SHOULD INSTRUCT THE RECORD OWNER TO COMPLY WITH THE STATUTORY
REQUIREMENTS WITH RESPECT TO THE EXERCISE OF APPRAISAL RIGHTS BEFORE THE DATE OF
THE INT'L.COM SPECIAL MEETING.
Within 10 days after the time of the merger, the surviving corporation is
required to send notice of the effectiveness of the merger to each stockholder
who prior to the time of the merger complies with the requirements of
Section 262.
Within 120 days after the time of the merger, the surviving corporation or
any stockholder who has complied with the requirements of Section 262 may
file a petition in the Delaware Court of Chancery demanding a determination of
the fair value of the shares of INT'L.com stock held by all stockholders
113
<PAGE>
seeking appraisal. A dissenting stockholder must serve a copy of the petition on
the surviving corporation. If no petition is filed by either the surviving
corporation or any dissenting stockholder within the 120-day period, the rights
of all dissenting stockholders to appraisal will cease. Stockholders seeking to
exercise appraisal rights should not assume that the surviving corporation will
file a petition with respect to the appraisal of the fair value of their shares
or that the surviving corporation will initiate any negotiations with respect to
the fair value of those shares. The surviving corporation is under no obligation
to and has no present intention to take any action in this regard. Accordingly,
stockholders who wish to seek appraisal of their shares should initiate all
necessary action with respect to the perfection of their appraisal rights within
the time periods and in the manner prescribed in Section 262. FAILURE TO FILE
THE PETITION ON A TIMELY BASIS WILL CAUSE THE STOCKHOLDER'S RIGHT TO AN
APPRAISAL TO CEASE.
Within 120 days after the time of the merger, any stockholder who has
complied with subsections (a) and (d) of Section 262 is entitled, upon written
request, to receive from the surviving corporation a statement setting forth the
aggregate number of shares of INT'L.com stock not voted in favor of the merger
with respect to which demands for appraisal have been received by INT'L.com and
the number of holders of those shares. The statement must be mailed within
10 days after the written request has been received by INT'L.com or within
10 days after expiration of the time for delivery of demands for appraisal under
subsection (d) of Section 262, whichever is later.
If a petition for an appraisal is filed in a timely manner, at the hearing
on the petition, the Delaware Court of Chancery will determine which
stockholders are entitled to appraisal rights and will appraise the shares of
INT'L.com stock owned by those stockholders, determining the fair value of those
shares, exclusive of any element of value arising from the accomplishment or
expectation of the merger, together with a fair rate of interest, to be paid, if
any, upon the amount determined to be the fair value.
Stockholders considering seeking appraisal should consider that the fair
value of their shares determined under Section 262 could be more than, the same
as, or less than, the value of the consideration provided for in the agreement
and plan of reorganization without the exercise of appraisal rights. The cost of
the appraisal proceeding may be determined by the Court of Chancery and assessed
against the parties as the Court deems equitable in the circumstances. Upon
application of a dissenting stockholder, the Court may order that all or a
portion of the expenses incurred by any dissenting stockholder in connection
with the appraisal proceeding (including, without limitation, reasonable
attorney's fees and the fees and expenses of experts) to be charged PRO RATA
against the value of all shares of INT'L.com stock entitled to appraisal. In the
absence of such a determination or assessment, each party bears its own
expenses.
Any stockholder who has demanded appraisal in compliance with Section 262
will not, after the time of the merger, be entitled to vote such stock for any
purpose or receive payment of dividends or other distributions, if any, on the
INT'L.com stock, except for dividends or distributions, if any, payable to
stockholders of record at a date prior to the merger.
A stockholder may withdraw a demand for appraisal and accept the INT'L.com
common stock at any time within 60 days after the time of the merger, or
thereafter may withdraw such a demand with the written approval of the surviving
corporation. If an appraisal proceeding is properly instituted, such proceeding
may not be dismissed as to any stockholder without the approval of the Delaware
Court of Chancery, and any such approval may be conditioned upon such terms as
the Court of Chancery deems just. If, after the merger, a holder of INT'L.com
stock who had demanded appraisal for the holder's shares fails to perfect or
loses his right to appraisal, those shares will be treated under the agreement
and plan of reorganization as if they had been converted as of the time of the
merger into Lionbridge common stock.
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF THE DELAWARE CORPORATE LAW,
ANY INT'L.COM STOCKHOLDER WHO IS CONSIDERING EXERCISING APPRAISAL RIGHTS SHOULD
CONSULT A LEGAL ADVISOR.
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COMPARISON OF STOCKHOLDER RIGHTS
GENERAL
Both Lionbridge and INT'L.com are corporations organized under the laws of
Delaware and are therefore subject to the Delaware corporation statute. However,
there are differences in the charters and by-laws of Lionbridge and INT'L.com.
CAPITALIZATION
LIONBRIDGE. Lionbridge is authorized to issue 100,000,000 shares of common
stock and 5,000,000 shares of preferred stock. On February 29, 2000, 16,617,801
shares of Lionbridge common stock were issued and outstanding and no shares of
preferred stock were issued and outstanding. Lionbridge's board has the
authority, without stockholder approval, to issue shares of authorized preferred
stock from time to time in one or more series and to fix the rights and
preferences, including voting rights, of each series of preferred stock, which
rights and preferences may be superior to that of Lionbridge common stock.
INT'L.COM. INT'L.com is authorized to issue 11,077,953 shares of Series A
common stock, 3,450,000 shares of Series B common stock, 867,047 shares of
Series A preferred stock, 3,500,000 shares of Series B preferred stock, 5,000
shares of Series C preferred stock and 1,100,000 shares of Series D preferred
stock. As of February 29, 2000, 5,764,049, 133,372, 867,047, 2,621,477, 5,000,
and 936,991 of the authorized shares of Series A common stock, Series B common
stock, Series A preferred stock, Series B preferred stock, Series C preferred
stock and Series D preferred stock, respectively, were issued and outstanding.
VOTING RIGHTS
LIONBRIDGE. Each holder of Lionbridge common stock is entitled to one vote
for each share and may not cumulate votes. Except as otherwise required by law
or provided in the Lionbridge charter, the holders of Lionbridge common stock
and Lionbridge preferred stock vote together as a single class on all matters
voted on by the Lionbridge stockholders.
INT'L.COM. Each holder of INT'L.com capital stock is entitled to the
following vote for each share of capital stock:
<TABLE>
<S> <C>
Series A common one vote per share
Series B common .6774 votes per share
Series A preferred one vote per share
Series B preferred one vote per share
Series C preferred no voting rights
Series D preferred one vote per share
</TABLE>
NUMBER AND CLASSIFICATION OF DIRECTORS
LIONBRIDGE. Lionbridge's by-laws provide that the number of directors may
not be less than three. Lionbridge's by-laws and charter provide that its board
of directors will be comprised of three classes with no one class having more
than one director more than any other class. Each class is elected for three
years and a different class of directors stands for election each year.
INT'L.COM. INT'L.com's by-laws provide that the number of directors may not
be less than seven. INT'L.com's by-laws further provide that the directors shall
be elected at an annual meeting of stockholders and hold office until the next
annual meeting or until their successors are elected and qualified or until
their earlier resignation or removal.
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REMOVAL OF DIRECTORS
LIONBRIDGE. Lionbridge's by-laws and charter provide that the stockholders
may remove a director for cause by the affirmative vote of the holders of at
least a majority of the shares of the capital stock of Lionbridge outstanding
and entitled to vote or without cause by the affirmative vote of holders of at
least 75% of the shares of the capital stock of Lionbridge outstanding and
entitled to vote.
INT'L.COM. INT'L.com's by-laws and charter provide that the stockholders
may remove a director with or without cause by the affirmative vote of the
holders of at least a majority of the shares of the capital stock of INT'L.com
outstanding and entitled to vote.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
LIONBRIDGE. Lionbridge's by-laws and charter provide that the directors
will fill a vacancy on the board, including a vacancy caused by an enlargement
of the board, by a vote of the majority of the directors then in office, even if
they constitute less than a quorum or by a sole remaining director. A director
elected to fill a vacancy will be elected to hold office until the next election
of the class for which the director was elected and until a successor is elected
and qualified.
INT'L.COM. INT'L.com's by-laws and charter provide that the directors may
fill a vacancy on the board for any reason, including a vacancy caused by an
enlargement of the board, by a vote of the majority of the directors then in
office, even if they constitute less than a quorum or by a sole remaining
director or at a special meeting of the stockholders, by the holders of shares
entitled to vote for the election of directors. A director elected to fill a
vacancy will be elected to hold office until the next election of the class for
which the director was elected and until a successor is elected and qualified.
CHARTER AMENDMENTS
LIONBRIDGE. Lionbridge's charter provides that any proposal amending
Lionbridge's charter to reduce or eliminate the number of its authorized shares
of common stock or preferred stock, or relating to Lionbridge's perpetual
existence, the board of directors generally, stockholder action and special
meetings of stockholders, personal liability of directors, indemnification,
factors the board may consider in connection with mergers and acquisitions or
amending the charter requires the affirmative vote of at least 75% of the shares
of capital stock of Lionbridge outstanding and entitled to vote.
INT'L.COM. INT'L.com's charter provides that any proposal amending
INT'L.com's charter to alter or waive any rights, preferences or privileges of
or change the number of authorized shares of any series of common stock or
preferred stock requires the approval of not less than a majority of the total
number of shares of the relevant series of common stock or preferred stock then
outstanding.
AMENDMENTS TO BY-LAWS
LIONBRIDGE. Lionbridge's by-laws provide that the directors may amend the
by-laws by the affirmative vote of a majority of the directors present at any
regular or special meeting at which a quorum is present. In addition,
Lionbridge's by-laws also provide that the stockholders may amend the by-laws by
the affirmative vote of 75% of the shares of Lionbridge capital stock
outstanding and entitled to vote at any regular or special meeting of
stockholders.
INT'L.COM. INT'L.com's by-laws provide that the directors may amend the
by-laws by the affirmative vote of a majority of the directors present at any
regular or special meeting at which a quorum is present. In addition,
INT'L.com's by-laws also provide that the stockholders may amend or repeal the
by-laws adopted by the board of directors, and the stockholders may provide that
such changed or new by-laws shall not be altered, amended or repealed by the
board of directors.
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ACTION BY WRITTEN CONSENT
LIONBRIDGE. Lionbridge's charter and by-laws provide that the stockholders
may not take any action by written consent in lieu of a meeting.
INT'L.COM. INT'L.com's by-laws provide that, unless otherwise restricted by
the INT'L.com charter or applicable law, any action required to be taken by
stockholders may be taken by written consent. To approve an action by written
consent, holders of at least 80% of votes that would be necessary to authorize
or take such action at a meeting must give written consent. Written notice of
stockholder action must be given to those stockholders who have not consented in
writing.
NOTICE OF STOCKHOLDER ACTIONS
LIONBRIDGE. Lionbridge's by-laws provide that to nominate directors or
bring business before an annual meeting, stockholders must give written notice
to the Secretary of Lionbridge at least 120 days, but not more than 150 days,
prior to the first anniversary of the date of the proxy statement delivered to
stockholders in connection with the preceding year's annual meeting. However, if
the annual meeting is more than 30 days before or 60 days after such anniversary
date or if no proxy statement was delivered to stockholders in connection with
the preceding year's annual meeting, stockholders must give written notice not
more than 90 days prior to such annual meeting and not less than the later of
60 days prior to such annual meeting and 10 days after Lionbridge makes the
first public announcement of the date of such meeting.
INT'L.COM. Neither INT'L.com's charter nor its by-laws require advance
notice of stockholder nominations of directors of any other business to be
brought by stockholders before a meeting of stockholders.
RIGHT TO CALL SPECIAL MEETING OF STOCKHOLDERS
LIONBRIDGE. Lionbridge's by-laws provide that the chairman of the board of
directors, a majority of the board of directors or the President may call a
special meeting of stockholders at any time.
INT'L.COM. INT'L.com's by-laws provide that the board of directors or a
majority of the stockholders entitled to vote at the meeting may call a special
meeting at any time.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
The Delaware General Corporation Law, or the DGCL, provides that a
corporation's charter may include a provision limiting the personal liability of
a director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director. However, no such provision can eliminate
or limit the liability of a director for:
- any breach of the director's duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law;
- willful or negligent violation of the laws governing the payment of
dividends or the purchase or redemption of stock; or
- any transaction from which the director devised an improper personal
benefit.
LIONBRIDGE. The Lionbridge charter provides that no director shall be
personally liable to Lionbridge or its stockholders for monetary damages for
breach of fiduciary duty as director, notwithstanding any provision of law
imposing such liability, except:
- for any breach of the director's duty of loyalty to Lionbridge or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
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- under Section 174 of the General Corporation Law of the State of Delaware;
or
- for any transaction from which the director derived an improper personal
benefit.
INT'L.COM. INT'L.com's charter provides that no director of INT'l.com shall
be personally liable to INT'L.com or to its stockholders for monetary damages
for any breach of fiduciary duty as a director (notwithstanding any provision of
law imposing such liability), except to the extent the DGCL prohibits the
limitation or elimination of liability.
DIVIDENDS
LIONBRIDGE. Lionbridge's charter provides that Lionbridge's board may
declare and pay dividends upon shares of Lionbridge common stock, but only out
of funds available for the payment of dividends as provided by law, and subject
to any preferential rights of any outstanding preferred stock. The terms of
Lionbridge's credit facility with Silicon Valley Bank prohibit the payment of
cash dividends to Lionbridge by its European subsidiaries and the terms of
Lionbridge's subordinated notes held by Capital Resource Lenders and the Morgan
Stanley limited partnerships prohibit Lionbridge from paying any dividends to
the Lionbridge stockholders.
INT'L.COM. INT'L.com's charter provides that dividends on its capital stock
shall be paid as follows:
Series D preferred stock: The holders of Series D preferred stock are
entitled to receive, as a preference before all other dividend payments,
cumulative dividends at a rate of $0.70 per share per annum, payable when, as,
and if declared by INT'L.com's board. A majority of the holders of Series D
preferred can vote to waive any dividend preference. If and when dividends are
declared and paid to holders of INT'L.com common stock, the same dividends shall
be paid contemporaneously to Series D preferred stockholders as if each share of
Series D preferred had been convertible into 7.69 shares of common stock.
Common stock, Series A preferred stock, Series B preferred stock and
Series D preferred stock: Subject to certain limitations, INT'L.com's board may
declare and pay dividends upon shares of its Series A common stock and Series B
common stock so long as the same dividends are paid contemporaneously to the
holders of Series A preferred stock, Series B preferred stock and Series D
preferred stock. For this purpose, each share of Series A preferred stock and
Series B preferred stock shall be treated as if converted to one share of common
stock and each share of Series D preferred stock shall be treated as if it was
converted into 7.69 shares of common stock.
Series C preferred stock: The holders of Series C preferred are not entitled
to receive dividends.
CONVERSION AND REDEMPTION
LIONBRIDGE. Holders of Lionbridge common stock have no right to convert
their shares into any other shares of capital stock of Lionbridge or any other
securities. Holders of Lionbridge common stock are not entitled to any
redemption rights.
INT'L.COM.
CONVERSION
(A) VOLUNTARY CONVERSION:
Common stock: Holders of Series A common stock and Series B common stock
have no right to convert their shares into any other shares of capital stock of
INT'L.com or any other securities.
Series A preferred stock: Holders of Series A preferred stock have the right
to convert each share of Series A preferred stock into one (1) share of
Series A common stock, subject to customary adjustments, at any time at the
option of the holder. INT'L.com is not required to make any payment or
adjustment on account of any declared or unpaid dividends on converted shares.
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Series B preferred stock: Holders of Series B preferred stock have the right
to convert each share of Series B preferred stock into one (1) share of
Series A common stock, subject to customary adjustments, at any time at the
option of the holder. INT'L.com is not required to make any payment or
adjustment on account of any declared or unpaid dividends on converted shares.
Series C preferred stock and Series D preferred stock: Holders of Series C
preferred stock and Series D preferred stock have no right to convert their
shares into any other shares of common stock or any other securities of
INT'L.com.
(B) AUTOMATIC CONVERSION:
Series A preferred stock: All outstanding shares of Series A preferred stock
shall be automatically converted into an equal number of shares of Series A
common stock upon (1) a public offering of INT'L.com's Series A common stock,
meeting certain requirements or (2) election by INT'L.com and a majority of the
holders of Series A preferred stock.
Series B preferred stock: All outstanding shares of Series B preferred stock
shall automatically convert into an equal number of shares of Series A common
stock upon (1) a public offering of INT'L.com's Series A common stock, meeting
certain requirements or (2) election by INT'L.com and a majority of the holders
of Series B preferred stock.
Series B common stock: All outstanding shares of Series B common stock shall
automatically convert into an equal number of shares of Series A common stock if
INT'L.com fully redeems all outstanding shares of Series D preferred stock.
MANDATORY REDEMPTION:
Subject to certain limitations, the Series B preferred stock, the Series C
preferred stock and the Series D preferred stock is entitled to the following
redemption rights:
Series B preferred stock: On August 10, 2006, INT'L.com is required to
redeem all outstanding shares of Series B preferred stock at a redemption price
equal to the original purchase price per share plus 8% interest compounded
annually from the date of issue.
Series C preferred stock: Subject to the satisfaction of certain conditions
which have not been satisfied, INT'L.com is required to redeem shares of its
Series C preferred stock as follows:
- On August 9, 2005, INT'L.com is required to redeem all outstanding shares
of Series C preferred stock at a redemption price equal to $100.00 per
share plus 6% interest compounded annually, which interest rate increases
for each subsequent 12-month period until a date specified in the charter.
- INT'L.com is required to redeem all outstanding shares of Series C
preferred stock at the redemption price in the event of a public offering
of INT'L.com's Series A common stock raising at least $20.0 million.
- Subject to certain financial conditions, INT'L.com shall redeem 17.5% (or
more at INT'L.com's option) of the outstanding shares of Series C
preferred stock at the redemption price in the event of a public offering
of INT'L.com's Series A common stock raising less than $20.0 million but
greater than $2.0 million.
Series D preferred stock: INT'L.com is required to redeem all outstanding
shares of its Series D preferred stock at a redemption price equal to
$10.00 per share plus accumulated dividends, less dividends paid on the earlier
of:
- April 9, 2004; or
- A public offering meeting certain requirements; or
- A change of control.
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LIQUIDATION
LIONBRIDGE. Lionbridge's charter provides that upon the dissolution or
liquidation of Lionbridge, holders of Lionbridge common stock will be entitled
to receive all assets of Lionbridge available for distribution to Lionbridge's
stockholders, subject to any preferential rights of any then outstanding
preferred stock.
INT'L.COM. INT'L.com's charter provides that upon the dissolution,
liquidation, sale, transfer or other disposition of all or substantially all of
the assets of INT'L.com (defined in the charter as a liquidation event), holders
of INT'L.com capital stock will be entitled to receive the following liquidation
preference out of the assets of INT'L.com available for distribution to
INT'L.com's stockholders in the following order of priority:
- Series D preferred stock: $10.00 per share plus accumulated dividends,
less dividends paid;
- Series B preferred stock: original purchase price per share plus 8%
interest compounded annually from the date of issue, less dividends paid;
- Series C preferred stock: $100.00 per share plus 6% interest compounded
annually, which interest rate increases for each subsequent 12-month
period until a date specified in the charter;
- Series A preferred stock: original purchase price per share plus 5%
interest compounded annually from November 24, 1993 and
- Common stockholders: receive 100% of remaining distributions pro rata.
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ELECTION OF LIONBRIDGE DIRECTORS
The Lionbridge board of directors is currently fixed at six members and
divided into three classes. Each class serves three years, with the terms of
office of the respective classes expiring in successive years. The present term
of office for the directors in Class I expires at the special meeting of the
stockholders of Lionbridge.
The Lionbridge board of directors has appointed Roger O. Jeanty as a
Class I director effective upon the closing of the merger. Mr. Jeanty is the
current Chief Executive Officer of INT'L.com. Upon the closing of the merger,
Mr. Jeanty will become the President of Lionbridge. The board of directors has
nominated and recommended that Mr. Claude P. Sheer be elected as a Class I
director of Lionbridge. Mr. Sheer, who is currently serving as a director of
Lionbridge, was appointed by the board of directors as a director in March 1999
and appointed as a Class I director effective August 1999. If elected, the
Class I nominee and, upon closing of the merger, Mr. Jeanty, will hold office
until the annual meeting of Lionbridge stockholders to be held in 2003, and
until their successors shall have been elected and shall have been qualified.
Shares represented by all proxies received by the board of directors and not so
marked as to withhold authority to vote for any individual nominee will be voted
(unless one or more nominees are unable or unwilling to serve) FOR the election
of the Class I nominee. The board of directors knows of no reason why the
nominee should be unable or unwilling to serve, but if such should be the case,
proxies will be voted for the election of some other person or the board of
directors will fix the number of directors at a lesser number.
The following table sets forth the nominee to be elected at the special
meeting and the year the nominee was first appointed or elected a director of
Lionbridge.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" THE NOMINEE LISTED BELOW
<TABLE>
<CAPTION>
DIRECTOR'S NAME AND YEAR POSITION(S) WITH CURRENT TERM EXPIRES AT
DIRECTOR FIRST BECAME A DIRECTOR LIONBRIDGE ANNUAL MEETING HELD IN
-------------------------------- ---------------- -----------------------
<S> <C> <C>
NOMINEE:
Claude P. Sheer........................................... Director 2000
</TABLE>
RATIFICATION OF SELECTION OF LIONBRIDGE AUDITORS
Subject to ratification by the stockholders, the Lionbridge board of
directors has selected the firm of PricewaterhouseCoopers LLP, independent
public accountants, to serve as auditors for the fiscal year ending
December 31, 2000. It is expected that a member of the firm of
PricewaterhouseCoopers LLP will be present at the special meeting with an
opportunity to make a statement if so desired and will be available to respond
to appropriate questions from the stockholders of Lionbridge. The ratification
of this selection is not required under the laws of the State of Delaware, where
Lionbridge is incorporated, but the results of this vote will be considered by
the board of directors in selecting auditors for future fiscal years.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" THE RATIFICATION OF THIS SELECTION
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STOCK PERFORMANCE GRAPH OF LIONBRIDGE
The following graph compares the percentage change in the cumulative total
stockholder return on Lionbridge's common stock during the period from
Lionbridge's initial public offering on August 20, 1999 through December 31,
1999, with the cumulative total return of the NASDAQ Composite Index and the
Media General Business and Software Services Index ("Business and Software
Services Index"). The comparison assumes $100 was invested on August 20, 1999 at
the $10.00 initial public offering price in Lionbridge's common stock and in
each of the foregoing indices and assumes dividends, if any, were reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG LIONBRIDGE TECHNOLOGIES, INC.,
NASDAQ MARKET INDEX AND BUSINESS AND SOFTWARE SERVICES INDEX(1)(2)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS LIONBRIDGE TECHNOLOGIES, INC. NASDAQ COMPOSITE INDEX THE MEDIA GENERAL BUSINESS & SOFTWARE SERVICES INDEX
<S> <C> <C> <C>
8/20/99 $100.00 $100.00 $100.00
8/31/99 $115.35 $102.22 $100.00
9/30/99 $123.27 $103.12 $105.65
10/31/99 $136.63 $111.00 $122.75
11/30/99 $167.33 $123.87 $144.77
12/31/99 $144.55 $151.78 $183.32
</TABLE>
<TABLE>
<CAPTION>
MONTHS ENDING
----------------------------------------------------------------
8/20/99 8/31/99 9/30/99 10/31/99 11/30/99 12/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Lionbridge Technologies, Inc........... 100.00 115.35 123.27 136.63 167.33 144.55
The Media General Business and Software
Services Index....................... 100.00 100.00 105.65 122.75 144.77 183.32
NASDAQ Composite Index................. 100.00 102.22 103.12 111.00 123.87 151.78
</TABLE>
- ------------------------
(1) Prior to August 20, 1999, Lionbridge's common stock was not publicly traded.
Comparative data is provided only for the period since that date. This graph
is not "soliciting material," is not deemed filed with the Securities and
Exchange Commission and is not to be incorporated by reference in any filing
of Lionbridge under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, whether made before or after
the date hereof and irrespective of any general incorporation language in
any such filing.
(2) The stock price information shown on the graph is not necessarily indicative
of future price performance. Information used on the graph was obtained from
Media General Financial Services,
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Inc., a source believed to be reliable, but Lionbridge is not responsible
for any errors or omissions in such information.
STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in proxy material for Lionbridge's 2000
Annual Meeting of Stockholders must be submitted to the Secretary of Lionbridge
in writing and received at the executive offices of Lionbridge by December 31,
2000. Such proposals must also meet the other requirements of the rules of the
SEC relating to stockholder proposals and must satisfy the notice procedures for
stockholder proposals set forth in the Lionbridge by-laws.
The Lionbridge by-laws require that for business to be properly brought
before an annual meeting by a stockholder, the stockholder must have given
timely written notice thereof, containing the information required by the
Lionbridge by-laws, to the Secretary of Lionbridge. To be timely, a
stockholder's notice containing the information required by the Lionbridge
by-laws must be delivered to the Secretary at the principal executive offices of
Lionbridge at least 120 days, but not more than 150 days, prior to the first
anniversary of the date of the proxy statement delivered to stockholders in
connection with the preceding year's annual meeting. However, if the annual
meeting is more than 30 days before or 60 days after such anniversary date or if
no proxy statement was delivered to stockholders in connection with the
preceding year's annual meeting, stockholders must give written notice not more
than 90 days prior to such annual meeting and not less than the later of
60 days prior to such annual meeting and 10 days after Lionbridge makes the
first public announcement of the date of such meeting.
LEGAL MATTERS
The validity of the shares of Lionbridge common stock to be issued in
connection with the merger will be passed upon for Lionbridge by Testa,
Hurwitz & Thibeault, LLP. Attorneys at Testa, Hurwitz & Thibeault, LLP owned
16,667 shares of Lionbridge common stock as of February 29, 2000.
EXPERTS
The consolidated financial statements of Lionbridge as of December 31, 1999
and 1998 and for each of the three years in the period ended December 31, 1999
included in this joint proxy statement/ prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The financial statements of INT'L.com as of December 31, 1999 and 1998 and
for each of the three years in the period ended December 31, 1999, included in
this joint proxy statement/prospectus have been audited by of Arthur Andersen
LLP, independent public accountants as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in auditing and accounting.
The financial statements of International Language Engineering Corporation
as of December 27, 1998 and December 28, 1997, and for each of the years then
ended, have been included herein and in the registration statement in reliance
upon the report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
Lionbridge files annual, quarterly and special reports and other information
with the Securities and Exchange Commission. You may read and copy any reports,
statements or other information filed by Lionbridge at the Securities and
Exchange Commission's public reference rooms in Washington, D.C., New York, New
York and Chicago, Illinois. Please call the Securities and Exchange Commission
at 1-800-SEC-0330 for further information on the public reference rooms.
Lionbridge's Securities and Exchange Commission filings are also available to
the public from commercial document retrieval services and at the web site
maintained by the Securities and Exchange Commission at "http://www.sec.gov."
Lionbridge filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act of 1933, as amended, to register
with the Securities and Exchange Commission the Lionbridge common stock issuable
pursuant to the agreement and plan of reorganization. This joint proxy
statement/prospectus does not contain all the information you can find in the
registration statement or the exhibits and schedules to the registration
statement. For further information with respect to Lionbridge, INT'L.com and the
Lionbridge common stock, please refer to the registration statement, including
the exhibits and schedules. You may inspect and copy the registration statement,
including the exhibits and schedules, as described above. Statements contained
in this joint proxy statement/prospectus about the contents of any contract or
other document are not necessarily complete, and we refer you, in each case, to
the copy of such contract or other document filed as an exhibit to the
registration statement.
Lionbridge has supplied all information contained in this joint proxy
statement/prospectus relating to Lionbridge, and INT'L.com has supplied all
information contained in this joint proxy statement/ prospectus relating to
INT'L.com.
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LIONBRIDGE TECHNOLOGIES, INC.
Attention: Stephen J. Lifshatz
950 Winter Street
Suite 2410
Waltham, Massachusetts 02451-1291
Telephone: (781) 434-6000
If you would like to request documents from Lionbridge, please do so by
, 2000 to receive them before the special meeting.
You should rely only on the information contained in this joint proxy
statement/prospectus to vote on the merger. We have not authorized anyone to
provide you with information that is different from what is contained in this
joint proxy statement/prospectus. This joint proxy statement/prospectus is dated
, 2000. You should not assume that the information contained in this joint
proxy statement/prospectus is accurate as of any date other than , 2000,
and neither the mailing of the joint proxy statement/prospectus to stockholders
nor the issuance of Lionbridge common stock in the merger shall create any
implication to the contrary.
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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, 1999 and
1998......................................................
F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997..........................
F-4
Consolidated Statements of Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit) for the years
ended December 31, 1999, 1998 and 1997....................
F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997..........................
F-6
Notes to Consolidated Financial Statements..................
F-7
INT'L.COM, INC. AND SUBSIDIARIES:
Report of Independent Public Accountants....................
F-27
Consolidated Balance Sheets as of December 31, 1999 and
1998......................................................
F-28
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997..........................
F-29
Consolidated Statements of Redeemable Preferred Stock,
Stockholders' Equity (Deficit) and Comprehensive Loss for
the years ended December 31, 1999, 1998 and 1997..........
F-30
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997..........................
F-31
Notes to Consolidated Financial Statements..................
F-32
INTERNATIONAL LANGUAGE ENGINEERING CORPORATION AND
SUBSIDIARIES:
Independent Auditors' Report................................
F-52
Consolidated Balance Sheets as of December 27, 1998 and
December 28, 1997.........................................
F-53
Consolidated Statements of Operations for the years ended
December 27, 1998 and December 28, 1997...................
F-54
Consolidated Statements of Stockholders' Deficit for the
years ended December 27, 1998 and December 28, 1997.......
F-55
Consolidated Statements of Cash Flows for the years ended
December 27, 1998 and December 28, 1997...................
F-56
Notes to Consolidated Financial Statements..................
F-57
Consolidated Balance Sheet as of March 31, 1999
(Unaudited)...............................................
F-65
Consolidated Statement of Operations for the three months
ended March 31, 1999 (Unaudited)..........................
F-66
Consolidated Statement of Cash Flows for the three months
ended March 31, 1999 (Unaudited)..........................
F-67
Notes to Consolidated Financial Statements (Unaudited)......
F-68
INT'L.COM, INC. AND SUBSIDIARIES PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS:
Overview....................................................
F-69
Pro Forma Combined Condensed Statement of Operations for the
year ended December 31, 1999 (Unaudited)..................
F-71
Notes to Pro Forma Combined Condensed Statement of
Operations for the year ended December 31, 1999
(Unaudited)...............................................
F-72
</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' equity (deficit) and cash flows present fairly, in all
material respects, the consolidated financial position of Lionbridge
Technologies, Inc. (the "Company") at December 31, 1999 and 1998 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States, 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 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
January 24, 2000
F-2
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 11,537 $ 732
Accounts receivable, net of allowances of $698 and $573 at
December 31, 1999 and 1998, respectively................ 8,918 7,321
Work in process........................................... 3,705 3,929
Other current assets...................................... 634 805
-------- --------
Total current assets.................................... 24,794 12,787
Property and equipment, net................................. 2,171 1,840
Goodwill and other intangible assets, net................... 8,288 7,370
Other assets................................................ 359 405
-------- --------
Total assets.......................................... $ 35,612 $ 22,402
======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Amounts owed to banks..................................... $ -- $ 416
Short-term debt........................................... 6,593 7,693
Accounts payable.......................................... 4,667 3,964
Accrued compensation and benefits......................... 2,985 2,356
Other accrued expenses.................................... 4,709 5,664
Deferred revenue.......................................... 2,524 412
-------- --------
Total current liabilities............................... 21,478 20,505
-------- --------
Long-term debt.............................................. 6,731 --
Redeemable convertible preferred stock, $0.01 par value:
Series A convertible preferred stock, 0 and 17,271,314
shares authorized at December 31, 1999 and 1998,
respectively; 0 and 13,271,314 shares issued and
outstanding at December 31, 1999 and 1998,
respectively............................................ -- 15,418
Series D nonvoting convertible preferred stock, 0 and 200
shares authorized at December 31, 1999 and 1998,
respectively; 0 and 140 shares issued and outstanding at
December 31, 1999 and 1998, respectively................ -- --
Commitments (Note 7)
Stockholders' equity (deficit):
Preferred stock, $0.01 par value; 5,000,000 shares
authorized at December 31, 1999; no shares issued and
outstanding............................................. -- --
Common stock, $0.01 par value; 100,000,000 and 25,950,867
shares authorized at December 31, 1999 and 1998,
respectively; 16,561,705 and 1,963,614 shares issued and
outstanding at December 31, 1999 and 1998,
respectively............................................ 166 20
Additional paid-in capital................................ 42,085 300
Accumulated deficit....................................... (32,495) (14,222)
Deferred compensation..................................... (2,837) --
Accumulated other comprehensive income.................... 484 381
-------- --------
Total stockholders' equity (deficit).................... 7,403 (13,521)
-------- --------
Total liabilities, redeemable convertible preferred
stock and stockholders' equity (deficit)............. $ 35,612 $ 22,402
======== ========
</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 AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenue..................................................... $ 49,508 $38,412 $26,462
Cost of revenue............................................. 33,486 25,546 18,914
-------- ------- -------
Gross profit.......................................... 16,022 12,866 7,548
-------- ------- -------
Operating expenses:
Sales and marketing....................................... 5,554 2,735 1,306
General and administrative................................ 14,147 10,889 8,210
Research and development.................................. 1,491 -- --
Amortization of acquisition-related intangible assets..... 3,170 2,145 4,400
Restructuring charges..................................... -- 501 541
Stock-based compensation.................................. 730 -- --
-------- ------- -------
Total operating expenses.............................. 25,092 16,270 14,457
-------- ------- -------
Loss from operations........................................ (9,070) (3,404) (6,909)
Interest expense:
Interest on outstanding debt.............................. (1,511) (648) (127)
Accretion of discount on subordinated notes payable....... (5,967) -- --
Other income (expense), net................................. (339) 49 (506)
-------- ------- -------
Loss before income taxes.................................... (16,887) (4,003) (7,542)
Provision for income taxes.................................. 699 259 112
-------- ------- -------
Net loss.................................................... (17,586) (4,262) (7,654)
Accrued dividends on preferred stock........................ (687) (1,062) (1,062)
-------- ------- -------
Net loss attributable to common stockholders................ $(18,273) $(5,324) $(8,716)
======== ======= =======
Basic and diluted net loss per share attributable to common
stockholders.............................................. $ (2.45) $ (2.99) $ (8.85)
Shares used in computing basic and diluted net loss per
share attributable to common stockholders................. 7,450 1,782 985
</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' EQUITY (DEFICIT)
(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- ----------------------- PAID-IN ACCUMULATED DEFERRED
SHARES AMOUNT SHARES PAR VALUE CAPITAL DEFICIT COMPENSATION
----------- -------- ---------- ---------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996...... 13,673,098 $13,696 984,608 $ 10 $ 5 $ (182)
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............. 3,803 $(3,803)
Amortization of deferred
compensation.................... 730
Reversal of deferred compensation
due to option forfeitures....... (236) 236
Stock options exercised........... 626,456 6 111
Accrual of dividends on preferred
stock........................... 687 (687)
Accretion of common stock to
redemption value................ 120
Warrants exercised................ 1,533,050 16 5
Issuance of common stock in
connection with initial public
offering........................ 3,500,000 35 31,725
Redemption and conversion of
preferred stock................. (13,271,454) (16,105) 8,847,649 88 (88)
Comprehensive loss:
Net loss...................... (17,586)
Other comprehensive income:
Translation adjustment......
Comprehensive loss............
----------- ------- ---------- ---- ------- -------- -------
Balance at December 31, 1999...... -- $ -- 16,561,705 $166 $42,085 $(32,495) $(2,837)
=========== ======= ========== ==== ======= ======== =======
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE
INCOME EQUITY (DEFICIT) LOSS
--------------- ---------------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1996...... $ (167)
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............. --
Amortization of deferred
compensation.................... 730
Reversal of deferred compensation
due to option forfeitures....... --
Stock options exercised........... 117
Accrual of dividends on preferred
stock........................... (687)
Accretion of common stock to
redemption value................ 120
Warrants exercised................ 21
Issuance of common stock in
connection with initial public
offering........................ 31,760
Redemption and conversion of
preferred stock................. --
Comprehensive loss:
Net loss...................... (17,586) $(17,586)
Other comprehensive income:
Translation adjustment...... 103 103 103
--------
Comprehensive loss............ $(17,483)
---- ------- ========
Balance at December 31, 1999...... $484 $ 7,403
==== =======
</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>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(17,586) $(4,262) $(7,654)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of acquisition-related intangible assets... 3,170 2,145 4,400
Compensation expense for stock options granted.......... 730 -- --
Accretion of discount on subordinated notes payable..... 5,967 -- --
Depreciation and amortization of property and
equipment.............................................. 1,581 1,187 1,164
Provision for doubtful accounts......................... 218 182 380
Deferred income taxes................................... 519 206 112
Foreign currency (gain) loss on intercompany
transactions........................................... 759 (67) 353
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable................................... (2,309) 214 187
Work in process....................................... (74) (828) (592)
Other current assets.................................. 157 (295) 690
Other assets.......................................... 52 (193) (78)
Accounts payable...................................... 1,000 (401) (426)
Accrued compensation and benefits..................... 629 341 781
Other accrued expenses................................ (492) 478 184
Deferred revenue...................................... 2,169 (440) (943)
-------- ------- -------
Net cash used in operating activities............... (3,510) (1,733) (1,442)
-------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment....................... (1,904) (1,363) (923)
Payments for businesses acquired, net of cash acquired.... (3,740) (3,141) (18)
Payments for Asian asset purchase, net of cash acquired... -- -- (85)
Transfer of funds from escrow............................. -- -- 600
-------- ------- -------
Net cash used in investing activities............... (5,644) (4,504) (426)
-------- ------- -------
Cash flows from financing activities:
Net increase (decrease) in amounts owed to banks.......... (348) 328 (522)
Net increase (decrease) in short-term debt................ (1,148) 5,551 1,197
Proceeds from issuance of long-term debt.................. 12,000 -- --
Repayment of long-term debt............................... (6,000) -- --
Proceeds from issuance of preferred stock................. -- -- 570
Redemption of preferred stock............................. (16,105) -- --
Proceeds from exercise of stock options................... 117 42 56
Net proceeds from initial public offering of common
stock................................................... 31,760 -- --
-------- ------- -------
Net cash provided by financing activities........... 20,276 5,921 1,301
-------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 11,122 (316) (567)
Effects of exchange rate changes on cash and cash
equivalents............................................... (317) (50) (130)
Cash and cash equivalents at beginning of year.............. 732 1,098 1,795
-------- ------- -------
Cash and cash equivalents at end of year.................... $ 11,537 $ 732 $ 1,098
======== ======= =======
</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" or the "Company") is a provider of globalization services,
primarily 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.
On August 25, 1999, Lionbridge consummated an initial public offering of its
common stock. In connection with this offering, Lionbridge sold 3,500,000 shares
of its common stock and received net proceeds of approximately $31,760,000.
2. SIGNIFICANT ACCOUNTING POLICIES:
The accompanying consolidated financial statements of Lionbridge reflect the
application of certain significant accounting policies as described below:
F-7
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
REVENUE RECOGNITION
Lionbridge recognizes revenue from the provision of services to its
customers on the percentage-of-completion method of accounting, based on all
costs incurred to date 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.
ADVERTISING COSTS
Advertising costs are included in sales and marketing expenses and are
expensed as incurred. Advertising costs were approximately $224,000, $120,000
and $0 for the years ended December 31, 1999, 1998 and 1997, 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 year. Assets and liabilities of foreign operations
are translated into U.S. dollars at year-end rates of exchange. Resulting
cumulative translation adjustments are reflected as a separate component of
accumulated other comprehensive income in stockholders' equity (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 $332,000, $49,000 and $(472,000) for the years
ended December 31, 1999, 1998 and 1997, 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.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The Company invests its
excess cash primarily in money market accounts.
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
F-8
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
GOODWILL AND OTHER 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. Other intangible assets consist of the value of acquired
workforce and the VeriTest trade name, both which are being amortized on a
straight-line basis over five years.
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
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.
F-9
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 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 and related guidance.
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 cash and cash equivalents and trade
accounts receivables. The Company places its cash and cash equivalents with
financial institutions with high credit standing. 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 12). 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 and cash equivalents, 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, 1999, 1998 and 1997. 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 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 was amended on July 7,
1999 by the issuance of
F-10
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Statement of Accounting Standards No. 13 ("SFAS 137"), "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133--an amendment of FASB Statement No. 133." SFAS 137 defers
the implementation of SFAS 133 by one year. SFAS 133, as amended, is effective
for fiscal quarters beginning after January 1, 2001 for the Company and its
adoption is not expected to have a material impact on the Company's financial
position or results of operations.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." This
bulletin summarizes certain views of the staff on applying generally accepted
accounting principals to revenue recognition in financial statements. The staff
believes that revenue is realized or realizable and earned when all of the
following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred or services have been rendered; the seller's price to the
buyer is fixed or determinable; and collectibility is reasonably assured. The
Company believes that its current revenue recognition policy complies with the
Commission's guidelines.
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Computer software and equipment............................. $ 4,360,000 $ 2,035,000
Furniture and office equipment.............................. 857,000 708,000
Leasehold improvements...................................... 431,000 327,000
----------- -----------
5,648,000 3,070,000
Less: Accumulated depreciation and amortization............. (3,477,000) (1,230,000)
----------- -----------
Total....................................................... $ 2,171,000 $ 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. Goodwill of $9,224,000 was
initially recognized in connection with this acquisition.
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 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 1999, 1998 and 1997, acquired net operating loss carryforwards of
approximately $1,540,000, $1,291,000 and $1,120,000, respectively, were utilized
to offset taxable income in Ireland,
F-11
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. BUSINESS COMBINATIONS: (CONTINUED)
France 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 $519,000, $207,000, and
$112,000 in 1999, 1998 and 1997, 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 required 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>
<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 $484,000 was subsequently
recorded through December 31, 1999 in connection with incremental payments and
stock issuances being made under the terms of the original agreement. Goodwill
was also increased by $120,000 during each of the years ended December 31, 1999
and 1998, respectively, related to the accretion to the redemption amount of the
redeemable common stock. Pro forma statements of operations for the year ended
December 31, 1997 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 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.
F-12
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. BUSINESS COMBINATIONS: (CONTINUED)
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. The 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>
<S> <C>
Current assets.............................................. $ 522,000
Current liabilities......................................... (616,000)
Property and equipment...................................... 175,000
Intangible assets........................................... 1,181,000
Goodwill.................................................... 3,157,000
----------
$4,419,000
==========
</TABLE>
Intangible assets consist of the value of the acquired workforce of $676,000
and the VertiTest trade name of $505,000, both of which are being amortized on a
straight-line basis over a five-year period.
The initial calculation of goodwill did 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 these
financial statements from the date of acquisition.
The following unaudited pro forma consolidated results of operations for the
years ended December 31, 1999 and 1998 assume that the acquisition of VeriTest,
Inc. occurred as of January 1, 1998:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Revenue..................................................... $ 49,508,000 $ 42,147,000
Net loss.................................................... (17,803,000) (6,615,000)
Basic and diluted net loss per share attributable to common
stockholders.............................................. (2.48) (4.08)
</TABLE>
For each period presented, the pro forma results include estimates of the
interest expense on debt used to finance the purchase and the amortization of
intangible 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 related to all acquisitions was
$2,934,000, $2,145,000, and $1,841,000 in 1999, 1998 and 1997, respectively.
Additionally, amortization of $236,000 was recorded in 1999 in connection with
intangible assets acquired as part of the VeriTest transaction and $2,559,000
was recorded in 1997 in connection with a noncompete agreement between
Lionbridge and Stream.
F-13
<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 as of December 31, 1998.
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 December 20, 1999, and expires on March 20, 2000. 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%, 8.8%, and 9.5% at December 31, 1999, 1998 and 1997, 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 amounts outstanding on the line of credit at
December 31, 1999 and 1998 were $6,593,000 and $7,693,000, respectively.
The agreement requires Lionbridge to maintain certain financial ratios and
restricts the payment of dividends. As of December 31, 1999, 1998 and 1997,
Lionbridge was in compliance with the financial covenants as amended by the
bank.
ADDITIONAL FINANCING
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%.
F-14
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. DEBT: (CONTINUED)
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 and the $4,000,000 senior subordinated note. Under the terms of
the new agreement, Lionbridge issued $10,000,000, 12% senior subordinated notes.
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. The terms of the subordinated debt agreement prohibits Lionbridge
from paying dividends to its stockholders. 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. These
warrants were exercised in full in August 1999.
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 notes. 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. The terms of the subordinated debt agreement
prohibits Lionbridge from paying dividends to its stockholders. 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. These warrants were exercised in full in November 1999.
The aggregate value of the warrants issued in connection with these
financings was recorded as a discount on subordinated notes payable and was
amortized as additional interest expense using the straight-line method over the
period from issuance until August 1999, based on the initially expected
repayment of the debt upon the initial public offering of securities by
Lionbridge.
On August 19, 1999, Lionbridge entered into amendments to the subordinated
debt agreements pursuant to which the 12% senior subordinated notes were issued.
As a result, Lionbridge was required to repay one-half of the aggregate
principal amount of each of the notes, together with all accrued and unpaid
interest thereon, upon the closing of its initial public offering. The remaining
aggregate principal amount of such notes, together with all accrued and unpaid
interest thereon, is required to be repaid upon the earlier of August 25, 2001
or an underwritten public offering by Lionbridge subsequent to the initial
public offering of securities with aggregate proceeds of at least $10,000,000.
These notes had previously required that all of the principal amount be paid
upon a closing of an initial public offering of securities with aggregate
proceeds of at least $25,000,000. As of December 31, 1999, $5,981,000 was
outstanding under these subordinated notes.
F-15
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS:
LEASE COMMITMENTS
The Company leases certain equipment and office space under noncancelable
agreements and leases which expire at various dates through 2026. Future minimum
lease payments under noncancelable operating leases at December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
2000........................................................ $1,671,000
2001........................................................ 1,121,000
2002........................................................ 847,000
2002........................................................ 596,000
2004........................................................ 541,000
Thereafter.................................................. 4,112,000
----------
$8,888,000
==========
</TABLE>
Total rental expenses charged to operations were $1,443,000, $952,000 and
$697,000 in 1999, 1998 and 1997, respectively.
8. CAPITAL STOCK:
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock in
one or more series, each with such terms and rights as adopted by the Company in
creating such series. No preferred stock was issued or outstanding as of
December 31, 1999.
CONVERSION AND REDEMPTION OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
Upon the closing of the Company's initial public offering of common stock on
August 25, 1999, all 13,271,314 shares and 140 shares of its Series A
convertible preferred stock and Series D nonvoting convertible preferred stock,
respectively, were converted into 132.7145 shares of Series B redeemable
preferred stock and 8,847,649 shares of Series C convertible preferred stock.
The Series B redeemable preferred stock was redeemed for $100,000 per share plus
an 8% annual premium for a total payment of approximately $16,105,000. At the
same time, the Series C convertible preferred stock was converted into 8,847,649
shares of common stock.
STOCK OPTION PLANS
Lionbridge maintains a stock option plan (the "Plan") for the issuance of
incentive and nonqualified stock options. The initial number of shares of common
stock available for issuance under the Plan was 2,855,365 shares, an amount that
was increased to 5,522,032 shares in June 1999. 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.
F-16
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL STOCK: (CONTINUED)
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. Prior to the Company's initial public offering of securities,
the Board of Directors, in assessing the fair market value of Lionbridge's
common stock, considered 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, 1999 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
Granted..................................................... 925,901 6.069
Exercised................................................... (626,456) 0.188
Canceled.................................................... (161,211) 2.691
---------
Outstanding at December 31, 1999............................ 2,330,456 2.385
=========
</TABLE>
Options for 529,960, 421,380 and 0 shares were exercisable at December 31,
1999, 1998 and 1997, respectively. There were 1,872,274, 636,843 and 263,644
shares available for future grant under the Plan at December 31, 1999, 1998 and
1997, respectively.
F-17
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL STOCK: (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1999:
<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 1,217,494 7.1 years $ 0.160 476,669 $0.160
0.300 168,004 8.1 years 0.300 39,960 0.300
0.450 7,095 8.3 years 0.450 1,059 0.450
0.900 47,423 8.6 years 0.900 10,068 0.900
1.500 - 1.800 482,775 9.2 years 1.520 2,204 1.500
6.000 36,667 9.4 years 6.000 --
9.750 286,298 9.4 years 9.750 --
18.000 - 18.310 84,700 9.8 years 18.010 --
--------- -------
2,330,456 529,960
========= =======
</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, 1999, consistent with the
provisions of SFAS No. 123, Lionbridge's net loss for 1999, 1998 and 1997 would
have been increased to $18,002,000, $4,283,000 and $7,668,000, respectively, and
the net loss per common share attributable to common stockholders for 1999, 1998
and 1997 would have been increased to $2.51, $3.00 and $8.87, respectively. The
weighted average fair value of options granted during 1999, 1998 and 1997 was
$3.04, $0.06, and $0.02 per share, respectively. Stock options granted with an
exercise price in the range from $1.50 through $9.75 per share have an exercise
price which exceeded the fair value of the underlying common stock on the date
of grant. The weighted average fair value of these options, which were all
granted in 1999, was $2.18 per share.
For these pro forma calculations, the fair value of each option granted
prior to the Company's initial public offering of securities on August 20, 1999
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 5.30%, 5.40% and 6.11% for 1999, 1998 and 1997,
respectively, (2) weighted-average expected option life of 4.0 years, and
(3) expected dividend yield of $0. The fair value of options granted after the
initial public offering of securities has been calculated using the
Black-Scholes option pricing model with the same weighted average assumptions as
above for 1999, but with an additional expected volatility factor of 85%.
EMPLOYEE STOCK PURCHASE PLAN
On June 15, 1999, the Board of Directors adopted the 1999 Employee Stock
Purchase Plan (the "Purchase Plan"), effective upon the consummation of the
Company's initial public offering. The Purchase Plan allows for the issuance of
1,000,000 shares of Lionbridge's common stock to eligible employees. Under the
Purchase Plan, Lionbridge is authorized to make a series of offerings during
which employees may purchase shares of common stock through payroll deductions
made over the term of the offering. The per-share purchase price at the end of
each offering is equal to 85% of the fair
F-18
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL STOCK: (CONTINUED)
market value of the common stock at the beginning or end of the offering period
(as defined by the Purchase Plan), whichever is lower. The first offering period
of the Purchase Plan commenced on November 1, 1999 and will end on April 30,
2000.
DEFERRED COMPENSATION
During the year ended December 31, 1999, Lionbridge recorded deferred
compensation in connection with options granted at exercise prices below the
then fair market value of Lionbridge's common stock totaling $3,803,000,
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 $730,000 in the year
ended December 31, 1999.
TREASURY STOCK
In connection with the December 23, 1996 financing of Lionbridge, Stream was
granted a put option to sell its 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.
REVERSE STOCK SPLIT
Effective August 13, 1999, the Company's Board of Directors declared a
2-for-3 reverse common stock split. All references in these consolidated
financial statements to shares of common stock have been retroactively adjusted
to reflect this reverse stock split.
9. INCOME TAXES:
The provision for income taxes for the years ended December 31, 1999, 1998
and 1997 is due to taxable income generated in foreign jurisdictions for which
U.S. tax credit utilization is currently uncertain.
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current:
State..................................................... $ 20,000 $ -- $ --
Foreign................................................... 160,000 52,000 --
-------- -------- --------
Total current provision..................................... $180,000 $ 52,000 $ --
======== ======== ========
Deferred:
Foreign................................................... $519,000 $207,000 $112,000
-------- -------- --------
Total deferred provision.................................... $519,000 $207,000 $112,000
======== ======== ========
</TABLE>
F-19
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES: (CONTINUED)
The benefit from the utilization of net operating loss carryforwards in
Europe during the years ended December 31, 1999, 1998 and 1997 was recorded as a
reduction of goodwill of $519,000, $207,000 and $112,000, 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>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
United States......................................... $(12,723,000) $(4,636,000) $(6,115,000)
Foreign............................................... (4,164,000) 633,000 (1,427,000)
------------ ----------- -----------
Loss before income taxes.............................. $(16,887,000) $(4,003,000) $(7,542,000)
============ =========== ===========
</TABLE>
The consolidated deferred tax assets of the Company were as follows at
December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
U.S. net operating loss carryforwards....................... $ 4,473,000 $ 1,309,000
Foreign net operating loss carryforwards.................... 3,745,000 1,696,000
Difference in accounting for amortization and
depreciation.............................................. 1,243,000 1,113,000
Research and development tax credits........................ 50,000 --
Other....................................................... 254,000 32,000
Valuation allowance......................................... (9,765,000) (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 not certain that Lionbridge will 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, 1999, Lionbridge had net operating loss carryforwards for
U.S. federal and state income tax purposes of approximately $11,100,000 which
may be used to offset future taxable income, which begin to expire in 2011. The
Company has federal research and development tax credits which may be used to
offset future income tax of approximately $43,000 which expire in 2019.
Additionally, Lionbridge has net operating loss carryforwards in France of
approximately $3,100,000 which begin to expire in 2002; net operating loss
carryforwards in Japan of approximately $1,100,000 which begin to expire in
2003; and net operating loss carryforwards in The Netherlands of approximately
$6,200,000 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.
F-20
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES: (CONTINUED)
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.
10. RESTRUCTURING CHARGES:
During the fourth quarter of 1998, the first quarter of 1998 and the fourth
quarter of 1997, Lionbridge recorded restructuring charges of $50,000, $451,000
and $541,000, 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 $0, $0 and $541,000 remaining at
December 31, 1999, 1998 and 1997, respectively, in other accrued expenses in
relation to these charges. As of December 31, 1999, none of these employees
remained with Lionbridge and management does not anticipate any future
expenditures related to these actions.
11. EMPLOYEE BENEFIT PLANS:
Lionbridge maintains an employee benefit plan qualified under Section 401(k)
of the Internal Revenue Code. All U.S. employees may participate in the 401(k)
plan subject to certain eligibility requirements. 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--$10,000 in 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, Lionbridge may make
discretionary profit-sharing contributions into the 401(k) plan for all eligible
employees. To date, Lionbridge has made no profit-sharing contributions to the
401(k) plan. In addition, as of December 31, 1999, 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 $294,000, $350,000
and $154,000 in 1999, 1998 and 1997, respectively.
12. SIGNIFICANT CUSTOMERS:
Lionbridge's two largest customers accounted for the following percentages
of total Localization and Testing revenues for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Customer A................................................. 15% 14% 19%
Customer B................................................. 9% 6% 10%
</TABLE>
F-21
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. OPERATING SEGMENT AND GEOGRAPHICAL INFORMATION:
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," requires that public business enterprises report certain
information about operating segments in 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 has determined that its operating segments are those that are
based on its method of internal reporting, which separately presents its
business by the geographic site in which services are performed. Lionbridge has
combined those segments which meet the aggregation criteria of SFAS No. 131 in
determining its reportable segments.
The Company's reportable segments are Localization and Testing. The
Localization segment provides globalization services, including translation,
software localization, internationalization engineering and multilingual
technical publishing, that enable simultaneous worldwide release and ongoing
maintenance of products and related technical support, training materials, and
sales and marketing information in multiple languages. The Testing segment
provides localization and internationalization testing of software, hardware and
telecommunications equipment, as well as logo certification programs. All other
unallocated enterprise costs are reflected in the "Corporate and Other"
category.
The table below presents information about the reported net loss of the
Company for the years ended December 31, 1999, 1998 and 1997. For the year ended
December 31, 1997, Lionbridge's only
F-22
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. OPERATING SEGMENT AND GEOGRAPHICAL INFORMATION: (CONTINUED)
reportable segment was Localization. Asset information by reportable segment is
not reported, since the Company does not produce such information internally.
<TABLE>
<CAPTION>
CORPORATE AND
LOCALIZATION TESTING OTHER ELIMINATIONS TOTAL
------------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1999
External revenue.............. $42,326,000 $7,182,000 $ -- $ 49,508,000
=========== ========== ============ ============
Inter-segment revenue......... $ -- $ 315,000 $ -- $(315,000) $ --
=========== ========== ============ ========= ============
Depreciation and
amortization................ $ 982,000 $ 402,000 $ 3,367,000 $ 4,751,000
=========== ========== ============ ============
Site contribution............. $ 7,804,000 $1,384,000 $ -- $ 9,188,000
Interest income (expense),
income tax expense and other
items of income (expense)... (4,104,000) (1,120,000) (21,550,000) (26,774,000)
----------- ---------- ------------ ------------
Net income (loss)............. $ 3,700,000 $ 264,000 $(21,550,000) $(17,586,000)
=========== ========== ============ ============
1998
External revenue.............. $36,226,000 $2,186,000 $ -- $ 38,412,000
=========== ========== ============ ============
Inter-segment revenue......... $ -- $ 144,000 $ -- $(144,000) $ --
=========== ========== ============ ========= ============
Depreciation and
amortization................ $ 1,038,000 $ 90,000 $ 2,204,000 $ 3,332,000
=========== ========== ============ ============
Site contribution............. $ 6,566,000 $ 675,000 $ -- $ 7,241,000
Interest income (expense),
income tax expense and other
items of income (expense)... (6,889,000) (346,000) (4,268,000) (11,503,000)
----------- ---------- ------------ ------------
Net income (loss)............. $ (323,000) $ 329,000 $ (4,268,000) $ (4,262,000)
=========== ========== ============ ============
1997
External revenue.............. $26,462,000 $ -- $ -- $ 26,462,000
=========== ========== ============ ============
Inter-segment revenue......... $ -- $ -- $ -- $ --
=========== ========== ============ ============
Depreciation and
amortization................ $ 1,148,000 $ -- $ 4,416,000 $ 5,564,000
=========== ========== ============ ============
Site contribution............. $ 2,888,000 $ -- $ -- $ 2,888,000
Interest income (expense),
income tax expense and other
items of income (expense)... (2,496,000) -- (8,046,000) (10,542,000)
----------- ---------- ------------ ------------
Net income (loss)............. $ 392,000 $ -- $ (8,046,000) $ (7,654,000)
=========== ========== ============ ============
</TABLE>
F-23
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. 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 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues:
United States....................................... $12,951,000 $ 4,683,000 $ --
Asia................................................ 7,567,000 4,801,000 1,510,000
France.............................................. 11,571,000 9,094,000 11,070,000
Ireland............................................. 14,398,000 14,296,000 11,157,000
The Netherlands..................................... 6,006,000 6,799,000 3,724,000
Eliminations........................................ (2,985,000) (1,261,000) (999,000)
----------- ----------- -----------
$49,508,000 $38,412,000 $26,462,000
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Long-lived assets:
United States........................................... $ 9,013,000 $7,990,000 $6,776,000
Asia.................................................... 366,000 320,000 146,000
France.................................................. 837,000 207,000 121,000
Ireland................................................. 552,000 989,000 595,000
The Netherlands......................................... 50,000 109,000 108,000
----------- ---------- ----------
$10,818,000 $9,615,000 $7,746,000
=========== ========== ==========
</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, 1999, 1998
and 1997 include goodwill and other intangible assets from acquisitions of
$8,288,000, $7,370,000 and $6,710,000, 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)
14. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Interest paid........................................... $ 1,511,000 $ 648,000 $ 127,000
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
Cash paid for capital stock........................... (2,237,000)
Common stock issued................................... (86,000)
-----------
Liabilities assumed................................... $ 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>
F-25
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. 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 YEAR OPERATIONS DEDUCTIONS YEAR
---------- ---------- ---------- ----------
<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
December 31, 1999................................. 573,000 280,000 (155,000) 698,000
</TABLE>
16. NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS:
Diluted net loss per share attributable to common stockholders does not
differ from basic net 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 years presented and are
therefore excluded from the calculation. Preferred stock convertible into 0,
8,847,649 and 8,847,649 shares of common stock, options to purchase 2,330,456,
2,192,222 and 2,216,336 shares of common stock, and warrants to purchase 83,334,
83,334 and 0 shares of common stock, were outstanding as of December 31, 1999,
1998 and 1997, 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.
17. SUBSEQUENT EVENTS:
In January 2000, Lionbridge acquired certain assets and operations of the
Language Services Operation of Nortel Networks Corporation in Montreal and
Ottawa, Canada; Beijing, China; Sao Paulo, Brazil; and Bogota, Columbia for
total initial consideration of approximately $2,476,000. In connection with the
acquisition, Nortel Networks awarded a preferred vendor designation to
Lionbridge as part of a three-year services agreement. The purchase agreement
provides for certain contingent payments to be made by Lionbridge during the
first three years of the agreement, dependent on the level of revenues generated
under the services agreement during those periods. The transaction will be
accounted for using the purchase method of accounting.
In January 2000, the Company entered into an agreement to acquire INT'L.com,
Inc., a company based in Framingham, Massachusetts, with operations in the
United States, France, The Netherlands, Germany and China. The transaction is
intended to be a tax-free, stock-for-stock transaction, accounted for as a
pooling of interests. The Company will issue approximately 9,000,000 shares of
its common stock in exchange for all of the capital stock of INT'L.com. The
acquisition is expected to be consummated in the second quarter of 2000.
F-26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
INT'L.com, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
INT'L.com, Inc. and Subsidiaries (a Delaware corporation formerly known as IC
Global Services, Inc.) as of December 31, 1999 and 1998, and the related
consolidated statements of operations, redeemable preferred stock, stockholders'
equity (deficit) and comprehensive loss and cash flows for each of the three
years in the period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
INT'L.com, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ Arthur Andersen
Boston, Massachusetts
March 3, 2000
F-27
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 740,775 $ 310,497
Marketable securities..................................... -- 2,194,000
Accounts receivable, net of allowance for doubtful
accounts of $424,000 and $149,000 at December 31, 1999
and 1998, respectively.................................. 5,368,030 3,265,833
Unbilled revenues......................................... 1,371,555 470,565
Refundable and prepaid income taxes....................... 264,707 149,114
Prepaid expenses and other current assets................. 467,235 422,685
------------ -----------
Total current assets.................................... 8,212,302 6,812,694
Property and Equipment, net................................. 3,874,128 1,612,924
Goodwill, net............................................... 11,950,871 2,571,239
Other Intangible Assets, net................................ 2,880,000 --
Other Long-Term Assets...................................... 58,500 116,273
------------ -----------
$ 26,975,801 $11,113,130
============ ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Line of credit............................................ $ 2,992,951 $ 1,261,436
Current portion of capital lease obligation............... 696,837 72,582
Accounts payable.......................................... 4,736,538 1,666,353
Accrued expenses.......................................... 3,947,260 1,382,500
Deferred revenue.......................................... 1,084,675 --
Deferred income taxes..................................... 223,816 --
------------ -----------
Total current liabilities............................... 13,682,077 4,382,871
Notes Payable to Stockholders............................... 6,750,000 3,500,000
Convertible Promissory Notes to Stockholders................ 1,788,333 --
Capital Lease Obligations, net of current portion........... 182,993 77,057
Other Long-Term Liabilities................................. 269,270 187,637
Commitments and Contingencies (Note 10)
Redeemable Preferred Stock (aggregate redemption value upon
maturity of approximately $20,985,000 at December 31,
1999)(Note 7(c)).......................................... 17,975,585 6,535,586
Stockholders' Deficit:
Convertible preferred stock (liquidation preference of
$1,073,000) (Note 7(b))................................. 1,810,600 1,810,600
Series A common stock, $.01 par
value--Authorized--11,077,953 shares; Issued and
outstanding--5,796,185 and 3,129,034 shares at December
31, 1999 and December 31, 1998, respectively............ 57,962 31,291
Series B common stock, $.01 par
value--Authorized--3,450,000 shares; Issued and
outstanding--137,530 shares at December 31, 1999........ 1,375 --
Additional paid-in capital................................ 8,312,155 1,309,082
Accumulated deficit....................................... (23,489,207) (6,272,554)
Subscriptions receivable.................................. (152,344) (445,715)
Treasury stock, at cost................................... (166,687) --
Accumulated other comprehensive loss...................... (46,311) (2,725)
------------ -----------
Total stockholders' deficit............................. (13,672,457) (3,570,021)
------------ -----------
$ 26,975,801 $11,113,130
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
------------ ----------- ----------
<S> <C> <C> <C>
Revenues............................................... $ 34,901,615 $17,316,764 $9,407,210
Cost of Revenues....................................... 31,738,417 13,979,521 6,964,539
------------ ----------- ----------
Gross profit......................................... 3,163,198 3,337,243 2,442,671
------------ ----------- ----------
Operating Expenses:
General and administrative........................... 7,513,735 2,144,517 1,796,809
Selling and marketing................................ 4,962,494 2,130,246 1,052,780
Research and development............................. 900,316 321,322 242,269
Amortization of goodwill and other intangibles....... 2,943,235 300,219 --
Reorganization....................................... 1,196,585 -- --
Acquired in-process research and development......... 300,000 -- --
------------ ----------- ----------
Total operating expenses........................... 17,816,365 4,896,304 3,091,858
------------ ----------- ----------
Loss from operations............................... (14,653,167) (1,559,061) (649,187)
------------ ----------- ----------
Interest and Other Income (Expense), net:
Interest expense, net................................ (840,606) (160,754) (13,427)
Other income (expense), net.......................... (14,238) 20,017 30,873
------------ ----------- ----------
Total interest and other income (expense), net..... (854,844) (140,737) 17,446
------------ ----------- ----------
Loss before benefit from income taxes.............. (15,508,011) (1,699,798) (631,741)
Benefit from Income Taxes.............................. -- (565,000) (151,000)
------------ ----------- ----------
Net loss........................................... (15,508,011) (1,134,798) (480,741)
Accretion of Dividends on Preferred Stock.............. (1,708,642) (185,586) --
------------ ----------- ----------
Net loss applicable to common stockholders......... $(17,216,653) $(1,320,384) $ (480,741)
============ =========== ==========
Weighted Average Shares Outstanding:
Basic and diluted.................................... 5,071,941 2,489,235 2,000,000
============ =========== ==========
Net Loss per Share:
Basic and diluted.................................... $ (3.39) $ (0.53) $ (0.24)
============ =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK, STOCKHOLDERS' EQUITY
(DEFICIT) AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
REDEEMABLE PREFERRED SERIES A CONVERTIBLE SERIES A COMMON SERIES B COMMON
STOCK PREFERRED STOCK STOCK STOCK
---------------------- --------------------- ------------------- --------------------
NUMBER OF NUMBER OF NUMBER OF $.01 PAR NUMBER OF $.01 PAR
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
--------- ----------- --------- ---------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996................... -- $ -- -- $ -- 2,000,000 $20,000 -- $ --
Realized loss on
available-for-sale
marketable
securities............. -- -- -- -- -- -- -- --
Net loss................. -- -- -- -- -- -- -- --
--------- ----------- ------- ---------- --------- ------- ---------- --------
Comprehensive
loss--1997.............
Balance, December 31,
1997................... -- -- -- -- 2,000,000 20,000 -- --
Issuance of Series A
common stock in
exchange for
subscription
receivable............. -- -- -- -- 152,768 1,528 -- --
Issuance of Series A
common stock to acquire
Sprache und
Dokumentation GmbH..... -- -- -- -- 95,910 959 -- --
Dividend distribution.... 5,000 500,000 -- -- -- -- -- --
Issuance of Series B
redeemable preferred
stock.................. 1,344,258 5,000,000 -- -- -- -- -- --
Issuance of Series A and
B preferred stock and
Series A common stock
to acquire Direct
Language
Communications, Inc.... 228,467 850,000 867,047 1,810,600 880,356 8,804 -- --
Repayment of
subscriptions
receivable............. -- -- -- -- -- -- -- --
Accretion of preferred
stock.................. -- 185,586 -- -- -- -- -- --
Effect of foreign
currency translation... -- -- -- -- -- -- -- --
Net loss................. -- -- -- -- -- -- -- --
--------- ----------- ------- ---------- --------- ------- ---------- --------
Comprehensive
loss--1998.............
Balance, December 31,
1998................... 1,577,725 6,535,586 867,047 1,810,600 3,129,034 31,291 -- --
Issuance of Series D
redeemable preferred
stock and Series B
common stock to acquire
International Language
Engineering Corp....... 936,991 5,830,000 -- -- -- -- 2,620,612 26,206
Conversion of Series B
common stock to Series
A common stock......... -- -- -- -- 2,620,612 26,206 (2,620,612) (26,206)
Issuance of Series B
redeemable preferred
stock.................. 1,048,752 3,901,357 -- -- -- -- -- --
Exercise of Series A and
Series B common stock
options................ -- -- -- -- 46,539 465 137,530 1,375
Issuance of warrants in
conjunction with
convertible promissory
notes.................. -- -- -- -- -- -- -- --
Accretion of preferred
stock.................. -- 1,708,642 -- -- -- -- -- --
Effect of foreign
currency translation... -- -- -- -- -- -- -- --
Repayment of
subscriptions
receivable............. -- -- -- -- -- -- -- --
Purchase of treasury
stock.................. -- -- -- -- -- -- -- --
Issuance of options to
acquire Motus.......... -- -- -- -- -- -- -- --
Increase in fair value of
warrants............... -- -- -- -- -- -- -- --
Net loss................. -- -- -- -- -- -- -- --
--------- ----------- ------- ---------- --------- ------- ---------- --------
Comprehensive
loss--1999.............
Balance, December 31,
1999................... 3,563,468 $17,975,585 867,047 $1,810,600 5,796,185 $57,962 137,530 $ 1,375
========= =========== ======= ========== ========= ======= ========== ========
<CAPTION>
ACCUMULATED
TREASURY STOCK OTHER TOTAL
ADDITIONAL -------------------- COMPRE- STOCKHOLDERS'
PAID-IN ACCUMULATED SUBSCRIPTIONS NUMBER OF HENSIVE EQUITY COMPREHENSIVE
CAPITAL DEFICIT RECEIVABLE SHARES COST LOSS (DEFICIT) LOSS
---------- ------------ ------------- --------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996................... $ -- $ 1,516,955 $ -- -- $ -- $ -- $ 1,536,955 $ --
Realized loss on
available-for-sale
marketable
securities............. -- 11,616 -- -- -- -- 11,616 --
Net loss................. -- (480,741) -- -- -- -- (480,741) (480,741)
---------- ------------ --------- ------ --------- -------- ------------ ------------
Comprehensive
loss--1997............. -- -- $ (480,741)
============
Balance, December 31,
1997................... -- 1,047,830 -- -- -- -- 1,067,830 $ --
Issuance of Series A
common stock in
exchange for
subscription
receivable............. 494,968 -- (496,496) -- -- -- -- --
Issuance of Series A
common stock to acquire
Sprache und
Dokumentation GmbH..... 310,749 -- -- -- -- -- 311,708 --
Dividend distribution.... -- (6,000,000) -- -- -- -- (6,000,000) --
Issuance of Series B
redeemable preferred
stock.................. -- -- -- -- -- -- -- --
Issuance of Series A and
B preferred stock and
Series A common stock
to acquire Direct
Language
Communications, Inc.... 503,365 -- -- -- -- -- 2,322,769 --
Repayment of
subscriptions
receivable............. -- -- 50,781 -- -- -- 50,781 --
Accretion of preferred
stock.................. -- (185,586) -- -- -- -- (185,586) --
Effect of foreign
currency translation... -- -- -- -- -- (2,725) (2,725) (2,725)
Net loss................. -- (1,134,798) -- -- -- -- (1,134,798) (1,134,798)
---------- ------------ --------- ------ --------- -------- ------------ ------------
Comprehensive
loss--1998............. $ (1,137,523)
============
Balance, December 31,
1998................... 1,309,082 (6,272,554) (445,715) -- -- (2,725) (3,570,021) $ --
Issuance of Series D
redeemable preferred
stock and Series B
common stock to acquire
International Language
Engineering Corp....... 3,380,597 -- -- -- -- -- 3,406,803 --
Conversion of Series B
common stock to Series
A common stock......... -- -- -- -- -- -- -- --
Issuance of Series B
redeemable preferred
stock.................. -- -- -- -- -- -- -- --
Exercise of Series A and
Series B common stock
options................ 177,470 -- -- -- -- -- 179,310 --
Issuance of warrants in
conjunction with
convertible promissory
notes.................. 254,000 -- -- -- -- -- 254,000 --
Accretion of preferred
stock.................. -- (1,708,642) -- -- -- -- (1,708,642) --
Effect of foreign
currency translation... -- -- -- -- -- (43,586) (43,586) (43,586)
Repayment of
subscriptions
receivable............. -- -- 146,698 -- -- -- 146,698 --
Purchase of treasury
stock.................. -- -- 146,673 54,444 (166,687) -- (20,014) --
Issuance of options to
acquire Motus.......... 20,216 -- -- -- -- -- 20,216 --
Increase in fair value of
warrants............... 3,170,790 -- -- -- -- -- 3,170,790 --
Net loss................. -- (15,508,011) -- -- -- -- (15,508,011) (15,508,011)
---------- ------------ --------- ------ --------- -------- ------------ ------------
Comprehensive
loss--1999............. $(15,551,597)
============
Balance, December 31,
1999................... $8,312,155 $(23,489,207) $(152,344) 54,444 $(166,687) $(46,311) $(13,672,457)
========== ============ ========= ====== ========= ======== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
------------ ----------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $(15,508,011) $(1,134,798) $(480,741)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities--
Noncash interest expense................................ 42,333 -- --
Depreciation and amortization........................... 4,510,829 806,952 416,668
Acquired in-process research and development............ 300,000 -- --
Deferred executive compensation expense................. -- -- (232,253)
Deferred rent........................................... (36,374) (22,326) 23,257
Deferred income taxes................................... -- (518,595) (140,500)
Equity investment (gain) loss........................... 21,010 (56,713) --
Changes in current assets and liabilities--
Accounts receivable................................... (479,346) (924,250) 655,245
Refundable and prepaid income taxes................... 149,114 84,387 (233,501)
Prepaid expenses and other current assets............. 136,118 (279,267) (61,304)
Accounts payable...................................... 1,153,649 1,155,331 153,194
Accrued expenses...................................... 2,109,246 339,412 3,892
Deferred revenue...................................... 757,844 (97,498) 97,498
------------ ----------- ---------
Net cash (used in) provided by operating
activities........................................ (6,843,588) (647,365) 201,455
------------ ----------- ---------
Cash Flows from Investing Activities:
Purchases of property and equipment....................... (1,344,826) (658,033) (607,209)
Cash paid for acquisitions, net of cash acquired.......... (410,339) (199,322) --
Increase in other assets.................................. -- -- (57,056)
Maturities (purchases) of investments, net................ 2,194,000 (2,194,000) 48,815
------------ ----------- ---------
Net cash provided by (used in) investing
activities........................................ 438,835 (3,051,355) (615,450)
------------ ----------- ---------
Cash Flows from Financing Activities:
Dividends paid............................................ (400,000) (1,600,000) --
Proceeds from issuance of Series B preferred stock........ 3,901,357 5,000,000 --
Proceeds from issuance of convertible promissory notes and
warrants................................................ 2,000,000 -- --
Proceeds from option exercises............................ 179,311 -- --
Payments on long-term debt................................ -- -- (216,836)
Purchase of treasury stock................................ (20,014) -- --
Payments on capital lease obligations..................... (178,256) 322 --
Proceeds from payment of subscription receivable.......... 146,698 50,781 --
Net borrowings under line of credit....................... 1,131,514 502,911 638,492
Increase in other long-term liabilities................... 118,007 25,659 --
------------ ----------- ---------
Net cash provided by financing activities........... 6,878,617 3,979,673 421,656
------------ ----------- ---------
Net Effect of Foreign Currency Translation.................. (43,586) (2,725) --
------------ ----------- ---------
Net Increase in Cash and Cash Equivalents................... 430,278 278,228 7,661
Cash and Cash Equivalents, beginning of year................ 310,497 32,269 24,608
------------ ----------- ---------
Cash and Cash Equivalents, end of year...................... $ 740,775 $ 310,497 $ 32,269
============ =========== =========
Supplemental Disclosure of Cash Flow Information:
Interest paid............................................. $ 555,250 $ 141,357 $ 20,198
============ =========== =========
Income taxes paid......................................... $ -- $ -- $ 213,801
============ =========== =========
Supplemental Disclosure of Noncash Investing and Financing
Activities:
Accretion of preferred stock.............................. $ 1,708,642 $ 185,586 $ --
============ =========== =========
Increase in fair value of warrants........................ $ 3,170,790 $ -- $ --
============ =========== =========
Noncash dividend distribution (Note 8(c))................. $ -- $ 4,400,000 $ --
============ =========== =========
Issuance of stock in exchange for note receivable......... $ -- $ 496,496 $ --
============ =========== =========
Cash Paid for Acquisitions, net of cash acquired:
Fair value of assets acquired, excluding cash............. $ 17,748,502 $ 4,612,757 $ --
Liabilities assumed....................................... (8,081,144) (928,959) --
Common and preferred stock issued......................... (9,257,019) (3,484,476) --
------------ ----------- ---------
Cash paid, net of cash acquired......................... $ (410,339) $ (199,322) $ --
============ =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
INT'L.com, Inc. and Subsidiaries (the Company, formerly IC Global
Services, Inc.) provides its clients with globalization and multilingual
communication services by deploying a global presence, advanced technologies and
systems, and a comprehensive and customizable array of services. The Company
services clients primarily in four market sectors: information technology and
telecommunications; medical and life sciences; enterprise solutions; and
consumer direct media. The Company assists its clients in selling products and
services globally, and also will act as a systems integrator in developing
multilingual Web architectures and technical solutions when language is a key
barrier to deploying a global information system. The Company was incorporated
on January 1, 1988 as a Massachusetts corporation, and reincorporated in the
state of Delaware on August 14, 1998.
On January 19, 2000, the Company entered into a definitive agreement of
merger (the Merger Agreement) with Lionbridge Technologies, Inc. (Lionbridge).
The transaction is intended to be a tax-free, stock-for-stock transaction to be
accounted for as a pooling-of-interests in accordance with Accounting Principles
Board (APB) Opinion No. 16, BUSINESS COMBINATIONS. Lionbridge will issue
approximately 9 million shares of its common stock in exchange for all of the
outstanding capital stock of the Company. In addition, under the terms of the
Merger Agreement, the Series A, B, C and D preferred stock of the Company and
$2,000,000 of convertible promissory notes issued in August 1999 to stockholders
will be converted to or exchanged for common stock of Lionbridge based upon the
conversion ratio defined in the Merger Agreement. The closing of this
transaction is subject to shareholder approval of Lionbridge and is expected to
occur in June 2000.
The Company is subject to a number of risks associated with emerging,
growth-oriented companies. Principal among these is the need to obtain adequate
financing to fund future operations and development. During 1999, the Company
incurred a significant net loss, and had a working capital deficit and a
stockholders' deficit at December 31, 1999. Given these factors, in the event
that the merger discussed above is not consummated, the Company intends to
explore financing alternatives. The Company has obtained a commitment from
certain of its investors to provide financing sufficient to fund the operations
for 2000.
(A) PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation.
(B) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(C) FOREIGN CURRENCY TRANSACTION
The accounts of the Company's subsidiaries are translated in accordance with
Statement of Financial Accounting Standards (SFAS) No. 52, FOREIGN CURRENCY
TRANSLATION. Accordingly, assets and
F-32
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liabilities of the Company's foreign subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date. Income and expense
accounts are translated using an average rate of exchange during the period.
Cumulative translation gains or losses are reflected as a separate component of
consolidated stockholders' equity (deficit).
(D) CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company considers all highly liquid investments with maturities of
90 days or less at the time of acquisition to be cash equivalents. Included in
cash equivalents at December 31, 1999 and 1998 are funds held in money market
accounts.
In accordance with SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT
AND EQUITY SECURITIES, the Company has classified all investments at
December 31, 1998 as held-to-maturity. Held-to-maturity securities are reported
at amortized cost, which approximates fair market value. The Company's
held-to-maturity securities consisted of certificates of deposit with an average
maturity date of 30 days.
(E) REVENUE RECOGNITION
The Company derives the majority of its revenues from fixed fee consulting
and service arrangements with its customers. Revenue is recognized using the
percentage-of-completion method, measured by the percentage of costs incurred to
date as compared to the estimated total costs of a contract, and by the
achievement of certain contract milestones. The costs incurred primarily include
internal labor, outsourced labor and an allocation of overhead. When a loss is
anticipated on a contract, the full amount thereof is provided currently.
Unbilled revenues represent revenues recognized on a percentage-of-completion
basis on fixed fee arrangements in advance of billing. Deferred revenue
represents advance payments received from customers.
(F) PROPERTY AND EQUIPMENT
The Company provides for depreciation and amortization using the
straight-line method by charges to operations in amounts that allocate the cost
of depreciable assets over their estimated useful lives as noted below.
Depreciation and amortization expense charged to operations was $3,553,374,
$653,233 and $416,668 for the years ended December 31, 1999, 1998 and 1997,
respectively.
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
- -------------------- -------------
<S> <C>
Computers and software...................................... 1-5 years
Furniture and fixtures...................................... 7 years
Office equipment............................................ 7 years
Leasehold improvements...................................... Life of lease
</TABLE>
(G) OTHER LONG-TERM ASSETS
Other long-term assets at December 31, 1999 and 1998 consist of minority
investments accounted for under the equity method. At December 31, 1999 and
1998, the Company had a 25% minority equity investment in the capital stock of
Language Partners, Inc., headquartered in Chicago, Illinois. At
F-33
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
December 31, 1998, the Company also had a 32.8% minority equity investment in
the capital stock of Motus!, headquartered in Paris, France. The Company
purchased the remaining equity interest in Motus! on September 30, 1999,
subsequent to which the operations of Motus! have been fully consolidated in the
accompanying consolidated statement of operations. The Company accounted for its
acquisition of the remaining equity interest in Motus! as a purchase transaction
(see Note 3(d)). The Company's proportionate share of the income (loss) of its
equity investments is included in other income (expense) in the accompanying
consolidated statements of operations.
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial instruments of the Company, including cash and cash
equivalents, accounts receivable, accounts payable, line-of-credit obligations,
notes payable to stockholders and convertible promissory notes to stockholders
are carried at cost, which approximates their fair value due to the short-term
nature of these instruments.
(I) CONCENTRATIONS OF CREDIT RISK
SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT
RISK, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. Financial instruments that subject the Company to credit risk
consist of accounts receivable. At December 31, 1999 and 1998, the Company did
not have any customers that individually comprised greater than 10% of total
accounts receivable.
During 1999, the Company conducted a major portion of its business with two
customers, who accounted for approximately $8,243,000, or 24% of total revenues.
During 1998, the Company conducted a major portion of its business with one
customer, who accounted for approximately $2,800,000, or 16% of total revenues.
(J) LONG-LIVED ASSETS
The Company reviews its long-lived assets, including goodwill and other
intangible assets, for impairment as events and circumstances indicate the
carrying amount of an asset may not be recoverable. The Company evaluates the
realizability of its long-lived assets based on profitability and cash flow
expectations for the related asset or group of assets. Management believes that,
as of December 31, 1999, none of the Company's long-lived assets was impaired.
(K) STOCK-BASED COMPENSATION
The Company accounts for employee stock compensation arrangements in
accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and complies with the
disclosure provisions of SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
Under APB Opinion No. 25, compensation expense is based on the difference, if
any, on the date of grant between the fair value of the stock and the exercise
price.
F-34
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(L) NET LOSS PER SHARE
In accordance with SFAS No. 128, EARNINGS PER SHARE, basic and diluted net
loss per share is computed by dividing the net loss applicable to common
stockholders for the period by the weighted average number of shares of
Series A and B common stock outstanding during the period. For periods in which
a net loss has been incurred, the calculation of diluted net loss per share
excludes potential common stock as their effect is antidilutive. Potential
common stock is composed of (i) incremental shares of Series A and B common
stock issuable upon the exercise of outstanding stock options and warrants and
(ii) incremental shares of Series A and B common stock issuable upon the
exchange or conversion of preferred stock.
The Company's calculation of diluted net loss per share excludes the
following potential common stock as their effect would be antidilutive:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Stock options.................................... 1,078,340 496,265 --
Warrants......................................... 348,553 273,553 --
Series A convertible, redeemable preferred
stock.......................................... 867,047 867,047 --
Series B convertible, redeemable preferred
stock.......................................... 2,621,477 1,572,725 --
--------- --------- --------
4,915,417 3,209,590 --
========= ========= ========
</TABLE>
(M) COMPREHENSIVE LOSS
Comprehensive loss is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. The only difference between comprehensive loss and net
loss relates to foreign currency translation adjustments. Comprehensive loss is
disclosed in the accompanying statement of stockholders' equity (deficit).
(N) DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
Operating segments are defined as components of an enterprise about which
separate discrete financial information is available for evaluation by the chief
operating decision maker, or decision making group, in making decisions how to
allocate resources and assess performance. The Company's chief decision maker is
the chief executive officer. Based on the criteria established by SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, the Company
has one reportable operating segment, the results of which are disclosed in the
accompanying consolidated financial statements.
F-35
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenues by country as a percentage of total revenues are approximately as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1999 1998 1997
------------------------ ------------------------ -----------------------
PERCENT OF PERCENT OF PERCENT OF
COUNTRY REVENUE REVENUE REVENUE REVENUE REVENUE REVENUE
- ------- ----------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States........ $29,875,000 86% $13,246,000 77% $8,701,000 92%
Germany.............. 2,459,000 7 2,160,000 12 -- --
Other................ 2,568,000 7 1,911,000 11 706,000 8
----------- --- ----------- --- ---------- ---
$34,902,000 100% $17,317,000 100% $9,407,000 100%
=========== === =========== === ========== ===
</TABLE>
(O) RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses are charged to operations as incurred.
(P) COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE
The Company accounts for internal-use software in accordance with Statement
of Position (SOP) No. 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE. In accordance with this statement, costs
incurred during the preliminary project stage and costs incurred for data
conversion, training and maintenance are expensed as incurred. Once the
preliminary project stage is completed, direct costs incurred during the
application development stage are capitalized and amortized over the period of
economic benefit.
(Q) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES. SFAS No. 133, as
amended by SFAS No. 137, is effective for all fiscal quarters beginning with the
quarter ending September 30, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
will adopt SFAS No. 133 in its quarter ending September 30, 2000 and does not
expect such adoption to have an impact on the Company's consolidated results of
operations, financial position or cash flows.
F-36
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(2) DETAILS OF FINANCIAL STATEMENT COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Property and Equipment--
Computers and software........................... $ 5,219,863 $ 2,631,483
Furniture and fixtures........................... 1,099,245 331,668
Office equipment................................. 360,136 114,857
Leasehold improvements........................... 460,048 139,398
----------- -----------
7,139,292 3,217,406
Less--Accumulated depreciation................... (3,265,164) (1,604,482)
----------- -----------
$ 3,874,128 $ 1,612,924
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Accrued Expenses--
Accrued payroll and benefits..................... $ 1,713,521 $ 827,467
Accrued subcontractors........................... 708,446 181,715
Accrued interest................................. 407,645 86,593
Accrued reorganization costs..................... 356,644 --
Accrued professional fees........................ 189,258 28,775
Accrued other.................................... 571,746 257,950
----------- -----------
$ 3,947,260 $ 1,382,500
=========== ===========
</TABLE>
(3) MERGERS AND ACQUISITIONS
(A) SPRACHE UND DOKUMENTATION GMBH
On May 19, 1998, the Company acquired all of the assets and assumed certain
liabilities of Sprache und Dokumentation GmbH (S&D), a German-based company that
provides localization, translation, workflow and project management services.
Upon its acquisition, S&D was merged into IC Europe GmbH, a wholly-owned
subsidiary of the Company. The purchase price included $200,000 of cash and
95,910 shares of Series A common stock valued at $3.25 per share for total
consideration of approximately $512,000. The transaction has been accounted for
as a purchase business combination in accordance with APB No. 16; and as such
the operations of S&D have been included in the accompanying consolidated
statements of operations as of the date of acquisition. The resulting goodwill
is being amortized on a straight-line basis over its estimated useful life of
5 years. The
F-37
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(3) MERGERS AND ACQUISITIONS (CONTINUED)
Company has allocated the purchase price, including transaction costs of
approximately $87,000, to the fair value of the assets acquired and liabilities
assumed approximately as follows:
<TABLE>
<S> <C>
Property and equipment...................................... $ 99,000
Goodwill.................................................... 589,000
Current liabilities......................................... (89,000)
--------
Total purchase price.................................. $599,000
========
</TABLE>
(B) DIRECT LANGUAGE COMMUNICATIONS
On August 14, 1998, several transactions were consummated to effectuate a
recapitalization of the Company and a merger between the Company and Direct
Language Communications, Inc. (DLC), a San Francisco-based provider of
localization, translation, workflow and project management services. The
transactions included the following: (1) International Communications, Inc., a
Massachusetts corporation, was merged with and into IC Global Services, Inc.
(the Company), a newly created Delaware corporation, and all outstanding common
stock and stock options of International Communications, Inc. were exchanged for
Series A common stock and stock options of the Company on a one-for-one basis;
(2) prior to the merger with DLC, the Company issued to the shareholders of IC
Global Services, Inc. a dividend in the aggregate amount of $6,000,000
consisting of cash, promissory notes and Series C preferred stock, as described
in Note 8(c) to the consolidated financial statements; (3) the Company issued
1,344,258 shares of Series B redeemable convertible preferred stock to new
investors for gross proceeds of approximately $5,000,000; and (4) DLC was merged
with and into the Company and 100% of the outstanding capital stock of DLC was
exchanged for (i) 880,356 shares of the Company's Series A common stock valued
at $0.58 per share (ii) 867,047 shares of Series A convertible preferred stock
valued at $2.09 per share and (iii) 228,467 shares of Series B redeemable
convertible preferred stock valued at $3.72 per share for total consideration of
approximately $3,173,000. All outstanding options to purchase common stock of
DLC were exchanged for options to purchase Series A common stock of the Company
under similar terms. In addition, warrants to purchase a total of 157,750 shares
of DLC common stock were exchanged for warrants to purchase 273,553 shares of
the Company's Series A common stock under similar terms. (See Note 8(d)).
The transaction has been accounted for as a purchase business combination in
accordance with APB No. 16; as such the operations of DLC have been included in
the accompanying consolidated statements of operations as of the date of
acquisition. In order to allocate the purchase price to the fair value of the
assets acquired and liabilities assumed, the Company had an independent
appraisal performed. Based on such appraisal, the Company has allocated the
purchase price, including transaction costs of approximately $544,000, to the
fair value of the assets acquired and liabilities
F-38
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(3) MERGERS AND ACQUISITIONS (CONTINUED)
assumed. The resulting goodwill and other intangible assets are being amortized
on a straight-line basis over their estimated useful lives of 2 to 5 years. The
purchase price was allocated as follows:
<TABLE>
<S> <C>
Current assets.............................................. $1,843,000
Property and equipment...................................... 484,000
Goodwill and other intangible assets........................ 2,230,000
Current liabilities......................................... (691,000)
Noncurrent liabilities...................................... (149,000)
----------
Total purchase price.................................. $3,717,000
==========
</TABLE>
(C) INTERNATIONAL LANGUAGE ENGINEERING
On April 9, 1999, the Company acquired International Language
Engineering, Inc. (ILE), a Colorado-based provider of localization and
translation services. Upon the acquisition, 100% of the outstanding capital
stock of ILE was exchanged for the following capital stock of the Company:
(i) 2,620,612 shares of Series B common stock valued at $1.30 per share and
(ii) 936,991 shares of Series D non-convertible, redeemable preferred stock
valued at $6.22 per share. The value of the Series B common stock was determined
by an independent appraisal. The value of the Series D preferred stock was also
determined by an independent appraisal and was based upon discounting the
redemption price of $10.00 per share at its redemption date in 2004. In
addition, the Company assumed long-term debt from ILE in the amount of
$3,250,000. Upon the acquisition, all outstanding options to purchase common
stock of ILE were exchanged for options to purchase Series B common stock of the
Company under similar terms. The transaction has been accounted for as a
purchase business combination in accordance with APB No. 16; as such the
operations of ILE have been included in the accompanying consolidated statements
of operations as of the date of acquisition.
The Company has allocated the purchase price, including transaction costs of
approximately $336,000, to the fair value of the assets acquired and liabilities
assumed approximately as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 3,020,000
Property and equipment...................................... 1,922,000
Goodwill and other intangible assets........................ 11,992,000
Current liabilities......................................... (4,111,000)
-----------
Total purchase price.................................. $12,823,000
===========
</TABLE>
The Company had an independent appraisal performed in order to value the
intangible assets resulting from the ILE acquisition. Based on such independent
appraisal, goodwill and other intangible
F-39
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(3) MERGERS AND ACQUISITIONS (CONTINUED)
assets acquired from ILE include the following assets, which are being amortized
on a straight-line basis over the following estimated useful lives:
<TABLE>
<CAPTION>
ESTIMATED
AMOUNT USEFUL LIFE
----------- -----------
<S> <C> <C>
Goodwill............................................. $ 7,892,000 5 years
Other intangible assets:
Installed customer base............................ 1,800,000 5 years
Assembled workforce................................ 1,200,000 2 years
Developed technology............................... 800,000 3 years
Acquired in-process research and development....... 300,000 N/A
-----------
$11,992,000
===========
</TABLE>
(D) MOTUS!
At December 31, 1998, the Company had a 32.8% equity investment in Motus!, a
French-based provider of localization and translation services. The Company
accounted for this investment using the equity method, under which the Company
recorded their proportionate share of the income (loss) of Motus! as other
income (expense) in the accompanying consolidated statements of operations (see
Note l(g)). On September 30, 1999, the Company acquired the remaining equity
interest in Motus! for $124,000 in cash and 6,000 options to purchase Series A
common stock of the Company. The transaction has been accounted for as a
purchase business combination in accordance with APB No. 16; as such the
operations of Motus! have been included in the accompanying consolidated
statements of operations as of the date of acquisition.
The Company has allocated the purchase price, including transaction costs of
approximately $6,000, to the fair value of the assets acquired and liabilities
assumed approximately as follows:
<TABLE>
<S> <C>
Property, equipment and long-term receivables............... $ 15,000
Goodwill.................................................... 217,000
Current liabilities......................................... (87,000)
--------
Total purchase price.................................. $145,000
========
</TABLE>
(E) PRO FORMA DISCLOSURES (UNAUDITED)
The following unaudited pro forma summary information presents the combined
results of operations of the Company, S&D, DLC, ILE and Motus! as if the
acquisitions had occurred on January 1, 1998. This unaudited pro forma financial
information is presented for informational purposes only and may not be
indicative of the results of operations as they would have been if the Company,
S&D, DLC, ILE and Motus! had been a single entity, nor is it necessarily
indicative of the
F-40
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(3) MERGERS AND ACQUISITIONS (CONTINUED)
results of operations that may be expected in the future. Anticipated
efficiencies from the consolidation of the Company, S&D, DLC, ILE and Motus!
have been excluded from the amounts presented below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Pro forma revenues................................ $ 39,147,206 $44,411,454
Pro forma net loss................................ (18,045,860) (2,133,472)
Pro forma net loss per share...................... (3.50) (1.23)
</TABLE>
(4) REORGANIZATION EXPENSE
During 1999, the Company recorded approximately $1,197,000 of reorganization
expense related to two separate workforce reductions, of which approximately
$357,000 is included in accrued expenses at December 31, 1999. Reorganization
expense includes severance and outplacement costs.
(5) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. Deferred taxes are computed based on the tax
liability or benefit in future years of the reversal of temporary differences in
the recognition of income or deduction of expenses between financial and tax
reporting purposes. The principal items resulting in the differences are the use
of the accrual method for reporting income for financial purposes, and the cash
basis method for income tax purposes through the year ended December 31, 1998. A
valuation allowance is recorded if it is more likely than not that all or a
portion of any deferred tax assets will not be realized. At December 31, 1999,
the Company had approximately $12,300,000 of net operating loss (NOL)
carryforwards that are available to offset future taxable income through 2019.
In the event of a change of ownership of the Company, as defined, the Company's
ability to utilize these NOL's may be limited under certain circumstances. Due
to current and anticipated future operating losses, the Company has placed a
full valuation allowance against its otherwise recognizable deferred tax assets.
F-41
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(5) INCOME TAXES (CONTINUED)
The benefit from income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
Current--
Federal.................................... $ -- $ (70,000) $ (10,000)
State...................................... -- -- --
-------- --------- ---------
-- (70,000) (10,000)
Deferred--
Federal.................................... -- (372,000) (102,000)
State...................................... -- (123,000) (39,000)
-------- --------- ---------
-- (495,000) (141,000)
-------- --------- ---------
$ -- $(565,000) $(151,000)
======== ========= =========
</TABLE>
The components of the net deferred income tax asset (liability) in the
accompanying consolidated financial statements are approximately as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
---------- ---------
<S> <C> <C>
Federal and state net operating loss carryforwards.... $4,900,000 $ 330,000
Cash to accrual adjustment............................ (180,000) (385,000)
Nondeductible reserves and accruals................... 453,000 61,000
Nondeductible goodwill and other intangible assets.... (720,000) --
Other................................................. 102,000 68,000
Valuation allowance................................... (4,331,000) (74,000)
---------- ---------
Net deferred tax asset (liability).............. $ (224,000) $ --
========== =========
</TABLE>
(6) DEBT
(A) LINE OF CREDIT
On September 18, 1997, the Company entered into a demand line of credit and
equipment loan with a bank (the Line of Credit and Equipment Loan,
respectively). At December 31, 1998, the Company had $1,261,436 outstanding
under the Line of Credit and no amounts outstanding under the Equipment Loan.
On April 23, 1999, the Company terminated its existing Line of Credit and
entered into a new revolving line-of-credit agreement with a bank, as amended on
August 20, 1999, (the Revolving Line). Borrowings under the Revolving Line were
limited to the lesser of (i) $4,000,000 or (ii) 75% of eligible accounts
receivable, as defined, and bore interest at the bank's prime rate (8.5% at
December 31, 1999) plus 2.0% through February 28, 2000 and at the bank's prime
rate plus 1.25% thereafter. During the term of the agreement, the Company must
maintain certain financial covenants, including minimum
F-42
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(6) DEBT (CONTINUED)
levels of current assets, tangible net worth and quarterly revenue, as defined.
At December 31, 1999, the Company was either in compliance with its financial
covenants or was in receipt of a waiver from the bank. Borrowings under the
Revolving Line are secured by substantially all assets of the Company. At
December 31, 1999, the Company had $2,992,951 outstanding under the Revolving
Line.
On January 19, 2000, the Company amended the Revolving Line. Borrowings
under the amended line are on a formula basis and are limited to the lesser of
(i) $5,000,000 or (ii) 85% of eligible accounts receivable, as defined, and bear
interest at the bank's prime rate plus 2.5%. The Revolving Line, as amended,
expires in January 2001 and for its term requires the Company to maintain a
minimum level of tangible net worth. At January 31, 2000, the Company was not in
compliance with the tangible net worth covenant and was in receipt of a waiver
from the bank.
(B) NOTES PAYABLE TO STOCKHOLDERS
On August 13, 1998, as part of a cash and stock dividend to the shareholders
of record as of that date, the Company issued promissory notes to shareholders
in the aggregate amount of $3,500,000 (see Note 8(c)). The notes bear interest
at 6% per annum for the first year of the term of the notes, and the interest
rate increases by 1% for each successive year of the term of the notes. One half
of the interest accruing in each semi-annual period is payable semi-annually on
January 1 and June 30 during the term of the notes and the remaining interest is
payable upon the maturity of the notes. The principal amount of the notes,
together with any accrued but unpaid interest, is payable in April 2005. At
December 31, 1999 and 1998, $3,500,000 was outstanding under these notes.
As part of the acquisition of ILE, the Company assumed ILE's obligation
under a promissory note to an ILE stockholder in the amount of $3,250,000. The
promissory note accrues interest at 8.5% per annum and matures June 27, 2002.
The promissory note is subordinate to all indebtedness owed by the Company to
any bank, pension fund, insurance company or other financial institution.
In January 2000 and March 2000, the Company received $2,000,000 and
$1,000,000, respectively, from the issuance of subordinated promissory notes to
existing investors. The notes accrues interest at 8.5% per annum and mature one
year from the date of issuance. The notes are subordinate to the Revolving Line
described in Note 6(a).
(C) CONVERTIBLE PROMISSORY NOTES TO STOCKHOLDERS
In August 1999, the Company received $2,000,000 through the issuance of
convertible promissory notes to existing investors. The convertible notes accrue
interest at 10% per annum and mature in August 2001. The convertible promissory
notes are subordinate to the Revolving Line described in Note 6(a). The
outstanding principal and accrued interest on the notes shall convert, at the
option of the lenders, into shares of the Company's equity securities sold in
the next equity financing, provided such financing occurs prior to August 2001.
Due to the issuance of warrants in conjunction with the convertible notes, the
notes are shown on the consolidated balance sheet at a discount, which is being
amortized over the term of the notes as additional interest expense.
As additional consideration to the lenders, the Company issued warrants to
purchase 75,000 shares of Series A common stock at an exercise price of $1.10
per share. The warrants are immediately
F-43
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(6) DEBT (CONTINUED)
exercisable and expire 10 years from the date of grant. The Company calculated
the value of the warrants, using the Black-Scholes option pricing model, as
$254,000.
(7) PREFERRED STOCK
(A) AUTHORIZED PREFERRED STOCK
As of December 31, 1999, the Company has authorized the following classes of
preferred stock: (i) 867,047 shares of Series A convertible preferred stock
(Series A Preferred), (ii) 3,500,000 shares of Series B redeemable convertible
preferred stock (Series B Preferred), (iii) 5,000 shares of Series C redeemable
preferred stock (Series C Preferred) and (iv) 1,100,000 shares of Series D
redeemable preferred stock (Series D Preferred). The Series A Preferred is
convertible into Series A common stock and has therefore been included as a
component of stockholder's deficit in the accompanying consolidated balance
sheets. The Series B Preferred, Series C Preferred and Series D Preferred are
redeemable and have therefore been classified as redeemable preferred stock and
excluded from stockholders' deficit in the accompanying consolidated balance
sheets.
(B) CONVERTIBLE PREFERRED STOCK
The Company had the following series of convertible preferred stock issued
and outstanding:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Series A convertible preferred stock--
Issued and outstanding--867,047 shares at December
31, 1999 and 1998................................ $1,810,600 $1,810,600
---------- ----------
Total convertible preferred stock.............. $1,810,600 $1,810,600
========== ==========
</TABLE>
(C) REDEEMABLE PREFERRED STOCK
The Company had the following series of redeemable preferred stock issued
and outstanding:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
----------- ----------
<S> <C> <C>
Series B redeemable convertible preferred stock--
Issued and outstanding--2,621,477 and 1,572,725
shares at December 31, 1999 and 1998,
respectively.................................... $10,585,915 $6,025,500
Series C redeemable preferred stock--
Issued and outstanding--5,000 shares at
December 31, 1999 and 1998...................... 536,763 510,086
Series D redeemable preferred stock--
Issued and outstanding--936,991 shares at December
31, 1999 (aggregate redemption value in April
2004 of approximately $9,862,000)............... 6,852,907 --
----------- ----------
Total redeemable preferred stock.............. $17,975,585 $6,535,586
=========== ==========
</TABLE>
F-44
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(7) PREFERRED STOCK (CONTINUED)
(D) RIGHTS AND PREFERENCES
The Company's convertible and redeemable preferred stock is subject to the
following rights and preferences:
VOTING
Holders of Series A Preferred and Series B Preferred will be entitled to the
number of votes equal to the number of shares of Series A common stock into
which the preferred stock is then convertible. Each share of Series D Preferred
is entitled to one vote on all corporate matters. The Series C Preferred is
non-voting.
DIVIDENDS
In the event that dividends are declared with respect to the Series A or B
common stock, the holders of Series A Preferred Stock and Series B Preferred
Stock will be entitled to such dividend based on the number of shares of
Series A common stock into which the preferred stock is then convertible. In no
event are dividends payable to the holders of Series C Preferred. The Series D
Preferred is entitled to cumulative dividends of $0.70 per share per annum. The
Company shall not make any distributions to the holders of common stock that
would leave the Company with net assets of less than 150% of the Series A
Liquidation Preference, the Series B Liquidation Preference or the Series C
Liquidation Preference, as defined.
LIQUIDATION
In the event of the liquidation, dissolution or winding up of the Company,
as defined, the holders of preferred stock will be entitled to the following
liquidation amounts, in order of preference: (i) the Series B Preferred is
entitled to its original purchase price per share ($3.72) plus 8% per annum,
compounded annually, (ii) the Series C Preferred is entitled to $100 per share
plus all accrued but unpaid interest thereon, (iii) the Series A Preferred is
entitled to $0.92 per share plus 5% per annum, compounded annually from
November 24, 1993 and (iv) the Series D Preferred is entitled to $10.00 per
share plus cumulative dividends.
CONVERSION
The Series A and Series B preferred stock is convertible at any time at the
option of the holder into one share of Series A voting common stock. Such
conversion ratio is adjustable in the event of a stock split, subdivision or
recapitalization. The Series C Preferred and Series D Preferred are not
convertible.
In the event of a qualified public offering having a pre-offering valuation
of at least $25.0 million and resulting in net proceeds to the Company in excess
of $5.0 million, the Series A Preferred will be automatically converted into
Series A common stock. In the event of a qualified public offering having a
pre-offering valuation of at least $125.0 million and resulting in net proceeds
to the Company in excess of $20.0 million, the Series B Preferred will be
automatically converted into Series A common stock.
F-45
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(7) PREFERRED STOCK (CONTINUED)
REDEMPTION
On August 10, 2006, the Company shall mandatorily redeem all outstanding
shares of Series B preferred stock in an amount equal to the original purchase
price ($3.72 per share) plus interest thereon at 8% per annum, compounded
annually from the date of issuance. During the year ended December 31, 1999, the
Company recorded accretion of $659,000 on the Series B preferred stock.
On April 9, 2005, the Company shall mandatorily redeem all outstanding
shares of Series C preferred stock in an amount equal to (i) $100 per share plus
(ii) interest thereon at 6% per annum, compounded annually, for the first
12 month period and increasing by 1% for each 12 month period thereafter, less
(iii) any interest periodically paid prior to April 9, 2005. One half of the
interest accruing in each semi-annual period shall be payable in arrears
semi-annually on June 30 and January 1 and the balance of the interest shall be
payable upon redemption. The Series C Preferred shall be automatically redeemed
in the event of a qualified public offering in which net proceeds are greater
than $20.0 million. In the event of a qualified public offering in which net
proceeds are less than $20.0 million but greater than $2.0 million and given
certain other circumstances, as defined, the Company shall redeem 17.5% of the
then outstanding shares of Series C Preferred. During the year ended
December 31, 1999, the Company recorded accretion of $26,642 on the Series C
Preferred.
The Series D Preferred is redeemable upon the earliest of (i) April 9, 2004,
(ii) within 30 days of a qualified initial public offering, as defined, or
(iii) upon a greater than 50% change in control of the Company, as defined. The
Series D redemption amount is $10.00 per share plus cumulative unpaid dividends.
During the year ended December 31, 1999, the Company recorded accretion of
$1,023,000 on the Series D preferred stock.
The Series A Preferred is not redeemable.
(8) COMMON STOCK
(A) AUTHORIZED COMMON STOCK
As of December 31, 1999, the Company has authorized the following classes of
common stock: (i) 11,077,953 shares of Series A common stock, $.01 par value and
(ii) 3,450,000 shares of Series B common stock, $.01 par value. On August 19,
1999, 2,620,612 shares of Series B common stock then outstanding were converted
to Series A common stock on a one-for-one basis.
Each share of Series A common stock is entitled to one vote on all corporate
matters. Each share of Series B common stock is entitled to 0.6774 votes on all
corporate matters. All outstanding shares of Series B common stock shall
automatically be converted into an equal number of shares of Series A common
stock in the event the Company fully redeems all outstanding shares of Series D
redeemable preferred stock. At December 31, 1999, the Company has the following
shares of Series A common stock reserved for future issuance under the Company's
stock option plans, warrants to purchase
F-46
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(8) COMMON STOCK (CONTINUED)
common stock and upon conversion of authorized convertible preferred stock and
Series B common stock:
<TABLE>
<S> <C>
Exercise of stock options................................... 2,042,545
Exercise of warrants........................................ 348,553
Conversion of preferred stock............................... 3,488,524
Conversion of Series B common stock......................... 829,388
---------
6,709,010
=========
</TABLE>
(B) RESTRICTED STOCK SALE
In May 1998, the Company issued a total of 90,268 shares of restricted
Series A common stock and 62,500 shares of unrestricted Series A common stock to
two employees for $3.25 per share. The aggregate purchase price of $496,496 was
evidenced by full recourse notes payable to the Company which are classified as
subscriptions receivable in the accompanying consolidated balance sheets. The
notes bear interest at 6% per annum and are payable in four annual installments
commencing September 30, 1998. The restricted common stock vests over a period
of 27 months. The Company has the right to repurchase all unvested shares in the
event of the employee's termination at a purchase price of $3.25 per share. The
unrestricted common stock vests immediately.
On April 9, 1999, the holder of the 90,268 shares of restricted Series A
common stock terminated his employment. At that date, 45,138 shares of
restricted Series A common stock were vested and retained by the employee. The
remaining 45,130 shares were repurchased by the Company for $3.25 per share. The
related notes were paid in full.
(C) DIVIDEND
On August 13, 1998, prior to the business combination with DLC, the Company
declared a dividend to all Series A common stockholders of record as of that
date in the form of cash, promissory notes and Series C Preferred Stock. The
dividend consisted of (i) $2,000,000 in cash, of which $1,600,000 was paid in
1998 and $400,000 was paid in 1999, (ii) promissory notes in the amount of
$3,500,000 (See Note 5(b)) and (iii) 5,000 shares of Series C Preferred stock
valued at $100 per share, for a total dividend amount of $6,000,000.
(D) WARRANTS
In conjunction with the issuance of convertible promissory notes (see
Note 5(c)), the Company issued warrants to purchase 75,000 shares of Series A
common stock at an exercise price of $1.10 per share. The warrants are
immediately exercisable and expire 10 years from the date of grant. The Company
calculated the value of the warrants, using the Black-Scholes option pricing
model, as $254,000, which has been recorded as an original issuance discount on
the convertible promissory notes and will be amortized as additional interest
expense over the term of the notes.
In connection with the 1998 acquisition of DLC (see Note 3(b)), warrants to
purchase a total of 157,750 shares of DLC common stock were exchanged for
warrants to purchase 273,553 shares of the
F-47
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(8) COMMON STOCK (CONTINUED)
Company's Series A common stock. A total of 13,439 warrants to purchase
Series A common stock were issued at an exercise price of $3.72 per share. Such
warrants are exercisable through August 1, 2007. A total of 260,114 warrants to
purchase Series A common stock were issued with an exercise price of $1.08 per
share. Unless certain conditions are met, the exercise price of $1.08 per share
increases at a rate of 20% per annum, compounded annually. These warrants may be
exercised at any time prior to November 24, 2003. Due to the fact that the
exercise price of these warrants is not fixed, the Company uses variable
accounting to measure the fair value of the warrants. During the year ended
December 31, 1999, the Company recorded the increase in the fair value of the
warrants of $3,170,790 as additional goodwill related to the DLC acquisition.
The Company will amortize this additional goodwill over its remaining economic
life.
(9) STOCK OPTION PLAN
On January 1, 1998, the Board of Directors approved the 1998 Stock Plan (the
1998 Plan). The Board of Directors has reserved 1,899,729 shares of Series A
common stock for issuance under the 1998 Plan. Options issued under the 1998
Plan may be either incentive stock options or nonqualified stock options at the
discretion of the Board. Options may be granted to key employees, officers,
consultants and advisers of the Company at fair market value on the date of
grant. Options expire 10 years from date of grant and generally vest over
5 years, except for certain options that have acceleration clauses effective
upon certain circumstances, such as change of ownership or control or upon
completion of milestone.
As part of the acquisition of International Language Engineering, Inc. (ILE)
(see Note 3(c)), the Company assumed ILE's stock option plan (the Assumed Plan)
and converted all outstanding options to purchase ILE common stock into options
to purchase the Company's Series B common stock. The Board of Directors reserved
317,571 shares of Series B common stock for issuance under the Assumed Plan. The
Company intends to grant no additional options under the Assumed Plan. Options
expire 10 years from date of grant and generally vest over four years, except
for certain options that have acceleration clauses effective upon certain
circumstances, such as change of ownership or control or upon completion of
milestones.
F-48
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(9) STOCK OPTION PLAN (CONTINUED)
The following table summarizes stock option activity under the 1998 Plan and
the Assumed Plan:
<TABLE>
<CAPTION>
SERIES B COMMON STOCK
SERIES A COMMON STOCK OPTIONS OPTIONS
---------------------------------- -------------------------------
WEIGHTED WEIGHTED
RANGE OF AVERAGE RANGE OF AVERAGE
NUMBER OF EXERCISE EXERCISE NUMBER OF EXERCISE EXERCISE
SHARES PRICES PRICE SHARES PRICES PRICE
--------- ----------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, December 31, 1997.......... -- $ -- $ -- -- $ -- $ --
Granted............................... 501,899 1.30 1.30 -- -- --
Exercised............................. -- -- -- -- -- --
Terminated............................ (5,634) 1.30 1.30 -- -- --
------- ----------- ----- -------- -------- ----
Outstanding, December 31, 1998.......... 496,265 1.30 1.39 -- -- --
Granted............................... 552,150 1.30-13.30 4.41 319,389 .82-.99 .88
Exercised............................. (46,539) 1.30-3.72 1.30 (128,216) .82-.99 .86
Terminated............................ (60,234) 1.30-3.72 1.75 (54,475) .82-.99 .93
------- ----------- ----- -------- -------- ----
Outstanding, December 31, 1999.......... 941,642 $1.30-13.30 $2.95 136,698 $.82-.92 $.89
======= =========== ===== ======== ======== ====
Exercisable, December 31, 1998.......... 171,860 $ 1.30 $1.30 -- $ -- $ --
======= =========== ===== ======== ======== ====
Exercisable, December 31, 1999.......... 338,657 $ 1.30-3.72 $2.37 70,292 $.82-.92 $.86
======= =========== ===== ======== ======== ====
</TABLE>
The following table summarizes certain information regarding outstanding and
exercisable stock options to purchase both Series A common stock and Series B
common stock at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OPTIONS WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING EXERCISABLE REMAINING
- -------------- ----------- ----------- CONTRACTUAL LIFE
<S> <C> <C> <C>
$ 0.82.................................. 81,573 52,321 7.54 years
$ 0.99.................................. 55,125 17,971 8.66 years
$ 1.30.................................. 478,142 188,657 8.10 years
$ 3.72.................................. 400,000 150,000 9.27 years
$13.30.................................. 63,500 -- 9.75 years
--------- ------- ----------
1,078,340 408,949 8.43 years
========= ======= ==========
</TABLE>
SFAS No. 123 requires the measurement of the fair value of stock options to
be included in the consolidated statement of operations or disclosed in the
notes to financial statements. Had
F-49
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(9) STOCK OPTION PLAN (CONTINUED)
compensation cost for the Company's option plans been determined based on the
fair value at the grant dates, as prescribed in SFAS No. 123, the Company's net
loss would have been as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
Net loss--
As reported..................................... $(15,508,011) (1,134,798)
Pro forma....................................... (15,684,066) (1,301,624)
Basic and diluted net loss per share--
As reported..................................... $ (3.39) $ (0.53)
Pro forma....................................... (3.43) (0.60)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants during the applicable period:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Dividend yield........................................ 0% 0%
Volatility............................................ 0% 0%
Risk-free interest rate............................... 5.4% 5.1%
Weighted average expected option term................. 7 years 7 years
Weighted average fair value per share of options
granted............................................. $0.63 $0.41
Weighted average remaining contractual life........... 8.43 years 8.87 years
</TABLE>
(10) COMMITMENTS AND CONTINGENCIES
From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of business activities. The Company accrues for
contingent liabilities when it is probable that future expenditures will be made
and such expenditures can be reasonably estimated. In the opinion of management,
there are no pending claims of which the outcome is expected to result in a
material adverse effect in the financial position or results of operations of
the Company.
The Company leases its facilities and certain equipment under operating
lease agreements that expire through fiscal 2005. Total rent expense under these
agreements included in the accompanying consolidated statements of operations,
was approximately $1,452,000, $927,000 and $556,000 for the years ended
December 31, 1999, 1998 and 1997, respectively. The Company also leases certain
equipment under capital lease agreements which expire through fiscal 2002.
F-50
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
(10) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum rental payments required under these agreements are
approximately as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- ----------
<S> <C> <C>
Year Ending December 31,
2000............................................... $1,656,000 $ 786,553
2001............................................... 1,662,000 204,806
2002............................................... 640,000 25,324
2003............................................... 223,000 6,032
2004............................................... 57,000 --
Thereafter......................................... 33,000 --
---------- ----------
$4,271,000 1,022,715
==========
Less--Amounts representing interest................ (142,885)
----------
$ 879,830
==========
</TABLE>
The Company accounts for escalating rents in accordance with SFAS No. 13,
ACCOUNTING FOR LEASES. Deferred rent is included in other long-term liabilities
in the accompanying balance sheets as of December 31, 1999 and 1998 and
represents the difference between rent expense on a straight-line basis and rent
expense on a cash basis.
(11) RETIREMENT PLAN
The Company maintains a 401(k) retirement plan for the benefit of all
employees who have attained certain age and service requirements. The plan
provides for voluntary employee contributions as a deduction from wages with a
specified matching contribution by the Company determined annually by the Board.
For the years ended December 31, 1999, 1998 and 1997, the Company's matching
contributions totaled approximately $72,000, $32,000 and $29,000, respectively.
F-51
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
International Language Engineering Corporation:
We have audited the accompanying consolidated balance sheets of
International Language Engineering Corporation and subsidiaries as of
December 27, 1998 and December 28, 1997 and the related consolidated statements
of operations, stockholders' deficit and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements, based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
International Language Engineering Corporation and subsidiaries as of
December 27, 1998 and December 28, 1997 and the results of their operations and
their cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Boulder, Colorado
March 4, 1999
F-52
<PAGE>
INTERNATIONAL LANGUAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 27, 1998 AND DECEMBER 28, 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 704,739 $ 1,943,530
Trade accounts receivable, net (note 2)................... 2,258,162 2,813,156
Costs and estimated earnings in excess of billings on
uncompleted contracts (Note 3).......................... 643,608 331,620
Deferred income taxes (Note 7)............................ 317,031 --
Income taxes receivable................................... 106,872 465,501
Prepaid expenses and other assets......................... 130,886 48,078
----------- -----------
Total current assets.................................... 4,161,298 5,601,885
Equipment and leasehold improvements:
Computer hardware and software............................ 3,362,686 2,299,100
Office furniture and fixtures............................. 362,805 374,404
Leasehold improvements.................................... 365,621 176,848
----------- -----------
Total equipment and leasehold improvements.............. 4,091,112 2,850,352
Less--accumulated depreciation and amortization........... (1,920,835) (1,783,640)
----------- -----------
Net equipment and leasehold improvements................ 2,170,277 1,066,712
Deposits and other assets................................... 60,786 49,071
Deferred income taxes (Note 7).............................. 14,112 --
----------- -----------
Total assets............................................ $ 6,406,473 $ 6,717,668
=========== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS'
DEFICIT
Current Liabilities:
Trade accounts payable.................................... $ 1,439,192 $ 700,998
Billings in excess of costs and estimated earnings on
uncompleted contracts (Note 3).......................... 89,207 466,618
Accrued compensation payable.............................. 684,279 525,847
Other accrued expenses and liabilities (Note 6)........... 337,134 336,064
Current portion of capital lease obligation (Note 10)..... 191,535 --
Deferred income taxes (Note 7)............................ -- 43,621
----------- -----------
Total current liabilities............................... 2,741,347 2,073,148
Long-term Liabilities:
Capital lease obligation, less current portion (Note
10)..................................................... 119,238 --
Deferred income taxes (Note 7)............................ -- 152,464
Subordinated note payable to stockholder (Note 6)......... 3,250,000 3,250,000
----------- -----------
Total long-term liabilities............................. 3,369,238 3,402,464
Redeemable preferred stock; $1,000 par value--
Authorized and outstanding--9,920 shares (liquidation
preference of $11,008,247)................................ 10,804,422 10,066,413
Stockholders' Deficit (Note 5):
Common stock; no par value--
Authorized--25,000,000 shares; issued and
outstanding--4,200,777 and 4,197,712 shares in 1998 and
1997, respectively...................................... (9,560,480) (8,892,861)
Accumulated other comprehensive loss...................... (595) --
Retained earnings (deficit)............................... (947,459) 68,504
----------- -----------
Total stockholders' deficit............................. (10,508,534) (8,824,357)
----------- -----------
Commitments and Contingencies (Note 10)
Total liabilities, redeemable preferred stock and
stockholders' deficit.................................. $ 6,406,473 $ 6,717,668
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-53
<PAGE>
INTERNATIONAL LANGUAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 27, 1998 AND DECEMBER 28, 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenue (Note 8):
Localization and production............................... $22,685,454 $17,967,301
Consulting and other services............................. 205,129 212,069
----------- -----------
Total revenue......................................... 22,890,583 18,179,370
Cost of revenue............................................. 9,277,445 7,146,647
----------- -----------
Gross profit.......................................... 13,613,138 11,032,723
Operating Expenses:
Selling, general and administrative....................... 14,133,168 9,891,273
Depreciation and amortization............................. 667,627 605,903
----------- -----------
Total operating expenses.............................. 14,800,795 10,497,176
----------- -----------
Earnings (loss) from operations....................... (1,187,657) 535,547
Other income (expense):
Interest and other income................................. 20,392 60,853
Interest expense (Note 6)................................. (295,066) (223,664)
Loss on disposal of property and equipment................ (10,056) (19,566)
----------- -----------
Other expense, net.................................... (284,730) (182,377)
----------- -----------
Earnings (loss) before income taxes................... (1,472,387) 353,170
Income tax (expense) benefit (Note 7)....................... 524,928 (186,177)
----------- -----------
Net earnings (loss)................................... (947,459) 166,993
Redeemable preferred stock dividend requirement............. (738,009) (350,238)
----------- -----------
Net loss available to common shareholders............. $(1,685,468) $ (183,245)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-54
<PAGE>
INTERNATIONAL LANGUAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 27, 1998 AND DECEMBER 28, 1997
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED TOTAL
------------------------- OTHER STOCKHOLDERS'
NUMBER RETAINED COMPREHENSIVE EQUITY
OF SHARES PAR VALUE EARNINGS LOSS (DEFICIT)
----------- ----------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 29, 1996.......................... 19,250,000 $ 77 $ 251,749 $ -- $ 251,826
Conversion of common stock to redeemable preferred
stock (Note 5).................................... (2,708,201) (1,600,000) -- -- (1,600,000)
Conversion of common stock to subordinated note
payable (Note 5).................................. (5,501,034) (3,250,000) -- -- (3,250,000)
Repurchase of common stock (Note 5)................. (10,363,715) (6,122,938) -- -- (6,122,938)
Redeemable preferred stock dividend requirement..... -- -- (350,238) -- (350,238)
Issuance of common stock............................ 3,520,662 2,080,000 -- -- 2,080,000
Net earnings........................................ -- -- 166,993 -- 166,993
----------- ----------- --------- ----- ------------
Balance at December 28, 1997.......................... 4,197,712 (8,892,861) 68,504 -- (8,824,357)
Exercise of stock options........................... 3,065 1,886 -- -- 1,886
Redeemable preferred stock dividend requirement..... -- (669,505) (68,504) -- (738,009)
Change in foreign currency translation adjustment... -- -- -- (595) (595)
Net loss............................................ -- -- (947,459) -- (947,459)
----------- ----------- --------- ----- ------------
Balance at December 27, 1998.......................... 4,200,777 $(9,560,480) $(947,459) $(595) $(10,508,534)
=========== =========== ========= ===== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-55
<PAGE>
INTERNATIONAL LANGUAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 27, 1998 AND DECEMBER 28, 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from Operating Activities:
Net earnings (loss)....................................... $ (947,459) $ 166,993
Adjustments to reconcile net earnings (loss) to net cash
provided (used) by operating activities--
Depreciation and amortization........................... 667,627 605,903
Loss on disposal of property and equipment.............. 10,056 19,566
Provision for bad debts................................. 32,019 13,000
Deferred income tax benefit............................. (527,228) (98,449)
Changes in operating assets and liabilities--
Trade accounts receivable............................. 522,975 (89,330)
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... (311,988) (166,146)
Prepaid expenses and other assets..................... (82,808) (2,897)
Deposits and other assets............................. (11,715) (17,498)
Trade accounts payable................................ 738,194 335,014
Income taxes receivable or payable.................... 358,629 (738,544)
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... (377,411) (453,203)
Accrued compensation payable.......................... 158,432 215,773
Other accrued expenses and liabilities................ 1,070 148,093
----------- -----------
Net cash provided by (used) operating activities.... 230,393 (61,725)
Cash Flows from Investing Activities:
Purchase of equipment and leasehold improvements.......... (1,393,950) (407,168)
----------- -----------
Cash Flows from Financing Activities:
Proceeds from the issuance of redeemable preferred stock,
net of issuance costs................................... -- 8,116,175
Proceeds from the issuance of common stock................ 1,886 2,080,000
Repurchase of common stock from related parties........... -- (6,122,938)
Payments on capital lease obligation...................... (76,525) --
Repayments of line of credit.............................. -- (330,000)
Repayments of advances from related parties............... -- (1,401,903)
----------- -----------
Net cash provided by financing activities........... (74,639) 2,341,334
Effect of exchange rate changes on cash..................... (595) --
----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... (1,238,791) 1,872,441
Cash and cash equivalents, beginning of year................ 1,943,530 71,089
----------- -----------
Cash and cash equivalents, end of year...................... $ 704,739 $ 1,943,530
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest.................................... $ 289,067 $ 163,240
=========== ===========
Computer software acquired under capital lease............ $ 387,298 $ --
=========== ===========
Conversion of common stock to redeemable preferred
stock................................................... $ -- $ 1,600,000
=========== ===========
Conversion of common stock to a subordinated note
payable................................................. $ -- $ 3,250,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-56
<PAGE>
INTERNATIONAL LANGUAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 1998 AND DECEMBER 28, 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION AND BASIS OF PRESENTATION
International Language Engineering Corporation (ILE or the Company) provides
localization services including technical translations and technical
communications services primarily to computer hardware and software
manufacturers and to the medical products and telecommunications industries from
its offices in Colorado, Idaho, California and the Netherlands. Localization is
the process by which a product is adapted for use in a target location taking
into consideration cultural, linguistic and conventional features. ILE's
services include localizing hardware and software applications, on-line help,
technical documentation, user manuals and marketing materials.
The Company's fiscal year ends on the last Sunday of the year.
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 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.
(B) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include investments in highly liquid debt
securities with maturities of three months or less at the time of purchase.
(C) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets which range from three to seven years. Amortization of leasehold
improvements is provided using a straight-line method over the lesser of the
terms of the leases or the lives of the assets.
(D) CAPITALIZED SOFTWARE COSTS
Certain costs of internally developed internal use software are capitalized
and amortized over the economic useful life of the software, which is generally
five years. Total capitalized software costs were $650,917 and $692,434 at
December 27, 1998 and December 28, 1997, respectively. Such amounts are included
in computer hardware and software in the accompanying consolidated financial
statements. Accumulated amortization of capitalized software costs totaled
$157,969 and $365,154 at December 27, 1998 and December 28, 1997, respectively.
(E) REVENUE RECOGNITION
Revenue from service contracts, which are short-term in nature, is
recognized on the percentage-of-completion method of accounting measured by the
ratio of costs incurred to date to total estimated costs at completion.
Provision for estimated losses on uncompleted contracts is made in the period in
which such losses are determined. Contract costs include direct labor and
subcontractor costs related to contract performance. Selling, general and
administrative expenses are charged to operations as incurred and are not
allocated to service contracts. Costs and estimated earnings in excess of
billings
F-57
<PAGE>
INTERNATIONAL LANGUAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 27, 1998 AND DECEMBER 28, 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
on uncompleted contracts are recognized as current assets, and billings in
excess of costs and estimated earnings on uncompleted contracts are recorded as
current liabilities as of the balance sheet date.
(F) LONG-LIVED ASSETS
The Company accounts for long-lived assets under the provisions of Statement
of Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, (SFAS 121) which
requires that long-lived assets and certain identifiable intangibles held and
used by an entity, be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. An impairment loss is generally recognized when estimated
undiscounted future cash flows expected to be generated by the asset is less
than its carrying value. Measurement of impairment loss is based on the fair
value of the asset, which is generally determined using valuation techniques
such as the discounted present value of expected future cash flows.
(G) INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES(SFAS 109).
Under the asset and liability method of SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109 the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in operations in the period
that includes the enactment date. A valuation allowance is required to the
extent any deferred tax assets may not be realizable.
(H) STOCK-BASED COMPENSATION
The Company accounts for its stock-based employee compensation plan using
the intrinsic value based method prescribed by Accounting Principles Board
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25), and related
interpretations. As such, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeds the exercise
price of the option. The Company has provided pro forma disclosures of net
earnings (loss) as if the fair value based method of accounting for this plan,
as prescribed by Statement of Financial Accounting Standards No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION (SFAS 123), had been applied. Pro forma disclosures
include the effects of employee stock options granted during the years ended
December 27, 1998 and December 28, 1997.
(I) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
F-58
<PAGE>
INTERNATIONAL LANGUAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 27, 1998 AND DECEMBER 28, 1997
(2) CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject ILE to concentrations of
credit risk consist principally of trade accounts receivable. Trade accounts
receivable are primarily short-term receivables which arise in the normal course
of business and are generally not collateralized. As of December 27, 1998 and
December 28, 1997, approximately 77% and 96%, respectively, of the outstanding
receivable balance relates to sales made to computer hardware and software
manufacturers.
(3) ACCOUNTS RECEIVABLE, REVENUE IN EXCESS OF BILLINGS AND BILLINGS IN EXCESS OF
REVENUE
At December 27, 1998, the estimated period to complete contracts in process
ranges from one to eight months, and the Company expects to collect
substantially all related accounts receivable and revenue in excess of billings
within one year.
The following summarizes contracts in process at December 27, 1998 and
December 28, 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Revenue recognized................................... $4,623,471 $7,734,464
Less--billings to date............................... 4,069,070 7,869,462
---------- ----------
$ 554,401 $ (134,998)
========== ==========
Included in the accompanying consolidated balance
sheets as follows:
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... $ 643,608 $ 331,620
========== ==========
Billings in excess of costs and estimated earnings
on uncompleted contracts......................... $ (89,207) $ (466,618)
========== ==========
</TABLE>
(4) LINE OF CREDIT
On June 27, 1997, the Company entered into a line of credit arrangement with
a bank. Under the terms of this agreement, the Company may borrow up to
$2,000,000 at the prime lending rate plus .5% (8.25% at December 27, 1998). The
Company had no borrowings outstanding under the line of credit at either
December 27, 1998 or December 28, 1997.
The Company's credit arrangement contains certain restrictive covenants,
including the maintenance of various financial ratios.
(5) STOCKHOLDERS' EQUITY
(A) RECAPITALIZATION
On June 27, 1997, the Company completed a leveraged recapitalization
transaction (the Recapitalization) with a financial investor in which the sole
shareholder sold or exchanged 18,572,950 shares of outstanding common stock for
1,600 shares of redeemable preferred stock with a liquidation
F-59
<PAGE>
INTERNATIONAL LANGUAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 27, 1998 AND DECEMBER 28, 1997
(5) STOCKHOLDERS' EQUITY (CONTINUED)
value of $1,600,000, a subordinated note of $3,250,000 (Note 6) and cash
proceeds of approximately $6,100,000.
Concurrent with the share repurchase, the Company issued an additional 8,320
shares of redeemable preferred stock with a liquidation value of $8,320,000, for
net proceeds of $8,116,175 and 3,520,662 shares of common stock for proceeds of
$2,080,000 to the financial investor and to certain members of the Company's
management.
As a result of the Recapitalization, the Company has outstanding 9,920
shares of redeemable preferred stock that bear a cumulative dividend at a rate
of 7% per annum on the liquidation value, plus all accumulated but unpaid
dividends. Accrued but unpaid dividends at December 27, 1998 were $1,088,247.
The redeemable preferred stock is subject to redemption upon the Company
completing an initial public offering or upon a change of ownership.
Immediately after the Recapitalization, the former sole majority shareholder
owned approximately 16% of the outstanding common stock and 16% of the
outstanding redeemable preferred stock of the Company.
(B) STOCK OPTION PLAN
In March 1997, the Company established the ILE 1997 Stock Option Plan (the
Plan) which allows for the issuance of incentive and non-qualified stock
options. The Plan authorizes grants of options to purchase up to 840,678 shares
of authorized but unissued common stock. Options issued under the Plan shall not
be priced at less than fair market value and expire 10 years from the date of
grant. Options vest over periods ranging from 4 to 5 years. Such vesting may be
accelerated upon achieving performance milestones. The following table
summarizes stock option activity since the inception of the Plan.
<TABLE>
<CAPTION>
WEIGHTED
SHARES UNDER EXERCISE
OPTION PRICE
------------ --------
<S> <C> <C>
Outstanding at December 28, 1996....................... -- $ --
Granted.............................................. 424,175 0.59
Canceled............................................. (12,650) 0.59
-------- -----
Outstanding at December 27, 1998....................... 411,525 0.59
Granted.............................................. 195,950 0.72
Canceled............................................. (119,863) 0.62
Exercised............................................ (3,065) 0.59
-------- -----
Outstanding at December 27, 1998....................... 484,547 $0.64
======== =====
Options available for grant at December 27,1998........ 353,066
========
</TABLE>
F-60
<PAGE>
INTERNATIONAL LANGUAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 27, 1998 AND DECEMBER 28, 1997
(5) STOCKHOLDERS' EQUITY (CONTINUED)
The following summarizes information about options outstanding at
December 27, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING NUMBER
EXERCISE NUMBER CONTRACTUAL VESTED AND
PRICE OUTSTANDING LIFE EXERCISABLE
- --------------------- ----------- ----------- -----------
<C> <C> <S> <C>
0.59....$..... 320,397 8.5 years 127,997
0.79......... 164,150 9.5 years 6,875
</TABLE>
As discussed in note I, the Company applies the intrinsic value method
prescribed by APB Opinion No 25 in accounting for its Plan. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's pro forma net earnings (loss)
would have been as follows:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Net earnings (loss):
As reported.......................................... $(947,459) $166,993
Pro forma............................................ (965,288) 149,318
</TABLE>
The fair value of stock options granted in 1998 and 1997 was $.16 and $.14
using the Black-Scholes option pricing method. The fair value, estimated as of
the grant date, does not take into account the expected volatility of the
underlying stock as is permitted by SFAS No. 123 for privately held companies.
Variables used in the calculation of fair value included an interest free rate
of 5.75% and 6.25% for 1998 and 1997, respectively, no expected dividend yields,
and an estimated option life of 4.5 years for both years. The pro forma impact
on earnings or loss assumes no options will be forfeited.
(6) RELATED PARTY TRANSACTIONS
In connection with the Recapitalization in June 1997, the Company issued a
subordinated note (the Note) with a principal amount of $3,250,000 to the former
sole shareholder of ILE. The Note bears interest at 8.5%, which is payable in
four installments annually, with the entire principle balance due on June 27,
2002.
Amounts due to the former shareholder as of December 27, 1998 and
December 28, 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Subordinated note payable............................ $3,250,000 $3,250,000
Accrued interest..................................... 92,083 88,306
---------- ----------
Total................................................ $3,342,083 $3,338,306
========== ==========
</TABLE>
During 1997, prior to the Recapitalization, the Company's co-CEOs (the CEOs)
were retained by the former sole shareholder as outside consultants to
participate in the management of the Company and to assist in the
Recapitalization transaction. For these services, the CEOs received management
F-61
<PAGE>
INTERNATIONAL LANGUAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 27, 1998 AND DECEMBER 28, 1997
(6) RELATED PARTY TRANSACTIONS (CONTINUED)
fees totaling $73,810. Upon the consummation of the Recapitalization
transaction, the CEOs became employees of the Company and all consulting
arrangements were terminated.
Interest expense related to the amounts due to the former shareholder was
$295,066 and $194,369 in 1998 and 1997, respectively.
(7) INCOME TAXES
Income tax expense (benefit) consists of the following components for the
years ended December 27, 1998 and December 28, 1997:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Current................................................ $ 2,300 $243,280
Deferred............................................... (527,228) (57,103)
--------- --------
Income tax expense (benefit)........................... $(524,928) $186,177
========= ========
</TABLE>
On January 1, 1996, ILE changed its tax status from an S Corporation to a
C Corporation. Subsequent to conversion to C Corporation status, ILE was
required to change from the cash basis to the accrual basis of accounting for
income tax purposes.
The tax effects of temporary differences which give rise to the deferred tax
assets and liabilities as of December 27, 1998 and December 28, 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward..................... $ 550,316 $ --
Accrued vacation.................................... 105,472 81,168
Covenant not to compete............................. 35,807 37,881
Other............................................... 7,689 --
--------- ---------
Total deferred income tax assets.............. 699,284 119,049
Deferred tax liabilities:
Costs and estimated earnings in excess of billings
on uncompleted contracts.......................... (248,719) (124,789)
Cash to accrual conversion.......................... (97,727) (190,345)
Equipment due to differences in depreciation........ (21,724) --
--------- ---------
Total deferred tax liabilities................ (368,170) (315,134)
--------- ---------
Net deferred tax assets (liabilities)......... $ 331,143 $(196,085)
========= =========
</TABLE>
No valuation allowance is necessary for deferred taxes at December 27, 1998
due to the Company's ability to carryback losses to recover previously paid
income taxes.
F-62
<PAGE>
INTERNATIONAL LANGUAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 27, 1998 AND DECEMBER 28, 1997
(7) INCOME TAXES (CONTINUED)
A reconciliation of the provision for income taxes to the amount computed
using the statutory Federal tax rate of 34% on earnings before income taxes is
as follows:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Expected income tax expense (benefit).................. $(501,026) $120,077
State income taxes, net of federal tax benefit......... (45,128) 12,820
Cash to accrual conversion............................. -- 45,364
Other.................................................. 21,226 7,916
--------- --------
Actual income tax expense (benefit).................... $(524,928) $186,177
========= ========
</TABLE>
(8) MAJOR CUSTOMERS
In both 1998 and 1997, five customers accounted for approximately 58% and
56% of total revenue, respectively.
(9) EMPLOYEE BENEFIT PLANS
(A) 401(K) PLAN
ILE has a 401(k) plan which is available to all employees who are at least
18 years of age. Participants may contribute up to 19% of total compensation to
the plan, subject to limitations set forth in the Internal Revenue Code. ILE may
contribute to the plan annually as it chooses. Participant contributions vest
immediately, while ILE contributions vest ratably over a five-year period. ILE
contributed $71,118 and $38,858 to the plan in 1998 and 1997, respectively.
Under the terms of the plan, distributions upon termination are permitted to be
made in lump sum cash payments only, and loans and hardship withdrawals are
permitted up to 50% of participants' vested contributions.
(B) PROFIT SHARING PLAN
ILE also has a profit sharing plan which covers substantially all full-time
employees who have enrolled in the plan. ILE makes a discretionary contribution
that is based on its profitability. ILE contributed $41,971 to the plan in 1997.
Due to the Company's net loss, no contribution was made in 1998.
F-63
<PAGE>
INTERNATIONAL LANGUAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 27, 1998 AND DECEMBER 28, 1997
(10) COMMITMENTS
(A) LEASES
The Company leases certain computer software under a capital lease and
leases office space and certain equipment under operating leases. Future minimum
lease payments under these lease agreements for each of the next five years are
summarized as follows:
<TABLE>
<CAPTION>
OPERATING
CAPITAL LEASE LEASES
------------- ----------
<S> <C> <C>
Year Ending:
1999.............................................. $ 211,747 $1,528,969
2000.............................................. 133,979 1,254,219
2001.............................................. -- 823,895
2002.............................................. -- 325,538
Thereafter........................................ -- 65,123
--------- ----------
Total minimum lease payments................ 345,726 $3,997,744
==========
Less--Amount representing interest.................. (34,953)
=========
Present value of net minimum lease.......... 310,773
Less--Current portion............................... (191,535)
=========
$ 119,238
=========
</TABLE>
As operating leases expire, it is expected that they will be replaced with
similar leases. Rent expense under operating leases totaled $883,581 and
$562,834 for the years ended December 27, 1998 and December 28, 1997,
respectively.
(B) YEAR 2000 ISSUES
The Company has initiated a plan ("Plan") to identify, assess and remediate
"Year 2000"'issues within each of its significant computer systems and
applications. The Plan is addressing the issue of computer systems being unable
to distinguish between the year 1900 and the year 2000, if a program uses only
two digits rather than four to define the applicable year. Systems which have
been determined not to be Year 2000 compliant are being either replaced or
reprogrammed, and thereafter tested for Year 2000 compliance. The Plan
anticipates compliance by December 1999.
The Company is in the process of identifying and contacting critical
suppliers whose computerized systems are used by the Company, regarding their
plans and progress in addressing their Year 2000 issues. The Company has
received varying information from such third parties on the state of compliance
or expected compliance.
The failure to correct a material Year 2000 problem could result in an
interruption in. or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third-party suppliers, the Company is unable to determine
at this time whether the consequences of Year 2000 failures will have a materiel
impact on the Company's operations, liquidity or financial condition.
F-64
<PAGE>
INTERNATIONAL LANGUAGE ENGINEERING CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31,
ASSETS 1999
- ------ ------------
<S> <C>
Current Assets:
Cash and cash equivalents................................. $ 50,394
Trade accounts receivable, net of allowance for doubtful
accounts of $18,000..................................... 2,353,757
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 333,651
Refundable and prepaid income taxes....................... 211,957
Prepaid expenses and other assets......................... 180,668
------------
Total current assets................................ 3,130,427
Property and Equipment, net................................. 2,422,242
------------
Total assets...................................... $ 5,552,669
============
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Line of credit............................................ $ 600,000
Trade accounts payable.................................... 1,866,102
Billings in excess of costs and estimated earnings on
uncompleted contracts................................... 326,881
Accrued expenses.......................................... 819,431
Current portion of capital lease obligation............... 238,613
------------
Total current liabilities........................... 3,851,027
Subordinated note payable to stockholder.................... 3,250,000
Redeemable Preferred Stock; $1,000 par value--
Authorized and outstanding--9,920 shares (liquidation
preference of $11,008,247)................................ 10,997,066
Stockholders' Deficit:
Common stock; no par value--
Authorized--25,000,000 shares--issued and outstanding--
4,252,771 shares........................................ (9,719,725)
Accumulated other comprehensive loss...................... (595)
Accumulated deficit....................................... (2,825,104)
------------
Total stockholders' deficit......................... (12,545,424)
------------
Total liabilities, redeemable preferred stock and
stockholders' deficit........................... $ 5,552,669
============
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
F-65
<PAGE>
INTERNATIONAL LANGUAGE ENGINEERING CORPORATION AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
------------------
<S> <C>
Revenues.................................................... $ 4,245,591
Cost of revenues............................................ 2,139,968
-----------
Gross profit.............................................. 2,105,623
-----------
Operating Expenses:
Selling, general and administrative....................... 3,501,239
Research and development.................................. 210,505
-----------
Total operating expenses.................................. 3,711,744
-----------
Loss from operations.................................... (1,606,121)
-----------
Other Income (Expense):
Interest expense, net..................................... (83,412)
Other expense, net........................................ (188,112)
-----------
Total other expense, net.................................. (271,524)
-----------
Net loss................................................ (1,877,645)
Redeemable preferred stock dividend requirement............. (192,644)
-----------
Net loss attributable to common shareholders............ $(2,070,289)
===========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
F-66
<PAGE>
INTERNATIONAL LANGUAGE ENGINEERING CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31, 1999
---------------
<S> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $(1,877,645)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization............................. 223,769
Provision for bad debts................................... 18,000
Changes in current assets and liabilities--
Trade accounts receivable................................. (113,595)
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 309,957
Prepaid expenses and other current assets................. 210,517
Trade accounts payable.................................... 426,910
Accrued expenses.......................................... (201,982)
Billings in excess of costs and estimated earnings on
uncompleted contracts................................... 237,674
-----------
Net cash used in operating activities................... (766,395)
Cash Flows from Investing Activities:
Purchases of property and equipment....................... (475,734)
-----------
Net cash used in investing activities................... (475,734)
-----------
Cash Flows from Financing Activities:
Proceeds from option exercises............................ 33,399
Net payments on capital lease obligations................. (72,160)
Net borrowings under line of credit....................... 600,000
-----------
Net cash provided by financing activities............... 561,239
-----------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents............................................... 26,545
-----------
Net Decrease in Cash and Cash Equivalents................... (654,345)
Cash and Cash Equivalents, beginning of period.............. 704,739
-----------
Cash and Cash Equivalents, end of period.................... $ 50,394
===========
Supplemental Disclosure of Cash Flow Information:
Noncash Financing Activities:
Accretion of preferred stock........................ $ 192,644
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
F-67
<PAGE>
INTERNATIONAL LANGUAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) INTERIM FINANCIAL STATEMENTS
The accompanying balance sheet as of March 31, 1999 and the statements of
operations and cash flows for the period from December 28, 1998 to March 31,
1999 are unaudited, but in the opinion of management, have been prepared on the
same basis as the Company's audited consolidated financial statements for the
year ended December 31, 1998, and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of results for
this interim period. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted, although the Company believes that the
disclosures included are adequate to make the information presented not
misleading. The results of operations for the period from December 28, 1998 to
March 31, 1999 are not necessarily indicative of the results to be expected for
the entire fiscal year or any other interim period.
The Company's 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
(2) LINE OF CREDIT
On June 27, 1997, the Company entered into a line of credit arrangement with
a bank. Under the terms of this agreement, the Company may borrow up to
$2,000,000 at the prime lending rate plus 0.5%. At March 31, 1999, the Company
had $600,000 outstanding under the line of credit.
(3) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities." SFAS 133 was amended on
July 7, 1999 by the issuance of Statement of Financial Accounting Standards
No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB No. 133--an amendment of FASB
Statement No. 133." SFAS 137 defers the implementation of SFAS 133 by one year.
SFAS 133, as amended, is effective for fiscal quarters beginning after
January 1, 2001 for the Company, and its adoption is not expected to have a
material impact on the Company's financial position or results of operations.
In August 1998, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"). The Statement requires
comprehensive income to be reported with the same prominence as other financial
statements. Comprehensive income would include any foreign currency translation
adjustments. The effect of SFAS 130 is immaterial to the Company's financial
results.
(4) SUBSEQUENT EVENT
On April 9, 1999, the Company entered into a definitive merger agreement
with INT'L.com. Upon the merger, 100% of the outstanding capital stock of the
Company was exchanged for the following authorized capital stock of INT'L.com:
(i) 2,620,618 shares of Series B common stock and (ii) 986,996 shares of
Series D non-convertible, redeemable preferred stock. In addition, all
outstanding options to purchase common stock of the Company were exchanged for
options to purchase Series B common stock of INT'L.com under similar terms.
F-68
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
OVERVIEW
INT'L.com, Inc. and Subsidiaries (the Company, formerly IC Global
Services, Inc.) provides its clients with globalization and multilingual
services by deploying a global presence, advanced technologies and systems, and
a comprehensive and customizable array of services. On April 9, 1999, the
Company acquired International Language Engineering Corporation (ILE), a
Colorado-based provider of localization and translation services. Upon the
acquisition, 100% of the outstanding capital stock of ILE was exchanged for the
following capital stock of the Company: (i) 2,620,612 shares of Series B common
stock valued at $1.30 per share and (ii) 936,991 shares of Series D
non-convertible, redeemable preferred stock valued at $6.22 per share. In
addition, the Company assumed long-term debt from ILE in the amount of
$3,250,000. The transaction has been accounted for as a purchase business
combination and as such the operations of ILE have been included in the
Company's audited consolidated financial statements as of the date of
acquisition.
The Company has allocated the purchase price, including transaction costs of
approximately $336,000, to the fair value of the assets acquired and liabilities
assumed approximately as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 3,020,000
Property and equipment...................................... 1,922,000
Goodwill and other intangible assets........................ 11,992,000
Current liabilities......................................... (4,111,000)
-----------
$12,823,000
===========
</TABLE>
The Company had an independent appraisal performed in order to value its
intangible assets resulting from the ILE acquisition. Based on such independent
appraisal, goodwill and other intangible assets acquired from ILE include the
following assets, which are being amortized on a straight-line basis over the
following estimated useful lives:
<TABLE>
<CAPTION>
ESTIMATED
AMOUNT USEFUL LIFE
----------- -----------
<S> <C> <C>
Goodwill............................................. $ 7,892,000 5 years
Other intangible assets:
Installed customer base............................ 1,800,000 5 years
Assembled workforce................................ 1,200,000 2 years
Developed technology............................... 800,000 3 years
Acquired in-process research and development....... 300,000 N/A
-----------
$11,992,000
===========
</TABLE>
The following unaudited pro forma combined condensed financial statements
have been prepared in accordance with generally accepted accounting principles
and give effect to the acquisition of ILE. The unaudited pro forma combined
condensed statement of operations combines the historical statement of
operations of the Company for the year ended December 31, 1999 and the unaudited
historical statement of operations of ILE for the period from December 28, 1998
through April 9, 1999, its date of acquisition. The results of operations of ILE
for the period subsequent to April 9, 1999 have
F-69
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
been included in the results of operations of the Company for the year ended
December 31, 1999. The unaudited pro forma combined condensed statement of
operations assumes that the acquisition of ILE occurred on January 1, 1999 and
includes pro forma adjustments to reflect annual amounts of amortization and
accretion of preferred stock dividends, as described in the notes to pro forma
combined condensed financial statements. The unaudited pro forma combined
condensed statement of operations does not purport to be indicative of the
results which would have been reported had the acquisition been consummated at
that date, nor do they purport to be indicative of the results of operations
which may be expected in the future. These unaudited pro forma combined
condensed financial statements should be read in conjunction with the audited
financial statements and notes thereto of the Company as of and for the year
ended December 31, 1999.
F-70
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL ILE
INT'L.COM, FOR THE PRO FORMA
INC. FOR THE PERIOD FROM COMBINED
YEAR ENDED DECEMBER 28, YEAR ENDED
DECEMBER 31, 1998 PRO FORMA DECEMBER 31,
1999 TO APRIL 9, 1999 ADJUSTMENTS 1999
------------ ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues............................... $ 34,901,615 $ 4,245,591 $ -- $ 39,147,206
Cost of Revenues....................... 31,738,417 3,787,501 -- 35,525,918
------------ ----------- ----------- ------------
Gross profit....................... 3,163,198 458,090 -- 3,621,288
Operating Expenses:
General and administrative........... 7,513,735 1,556,154 -- 9,069,889
Selling and marketing................ 4,962,494 423,381 -- 5,385,875
Research and development............. 900,316 84,676 -- 984,992
Amortization of goodwill and other
intangibles........................ 2,943,235 -- 700,895 (1) 3,644,130
Reorganization expense............... 1,196,585 -- -- 1,196,585
Acquired in-process research and
development........................ 300,000 -- -- 300,000
------------ ----------- ----------- ------------
Total operating expenses........... 17,816,365 2,064,211 700,895 20,581,471
------------ ----------- ----------- ------------
Loss from operations............... (14,653,167) (1,606,121) (700,895) (16,960,183)
Interest and Other Income (Expense),
net:
Interest expense, net................ (840,606) (83,412) -- (924,018)
Other income (expense), net.......... (14,238) (188,112) -- (202,350)
------------ ----------- ----------- ------------
Total interest and other income
(expense), net................... (854,844) (271,524) -- (1,126,368)
------------ ----------- ----------- ------------
Net loss............................... (15,508,011) (1,877,645) (700,895) (18,086,551)
Accretion of Dividends on Preferred
Stock................................ (1,708,642) -- (340,969)(2) (2,049,611)
------------ ----------- ----------- ------------
Net loss applicable to common
stockholders......................... $(17,216,653) $(1,877,645) $(1,041,864) $(20,136,162)
============ =========== =========== ============
Basic and Diluted Weighted Average
Shares Outstanding................... 5,071,941 674,897 (3) 5,746,838
============ =========== ============
Basic and Diluted Net Loss per Share... $ (3.39) $ (3.50)
============ ============
</TABLE>
The accompanying notes are an integral part of these pro forma
combined condensed financial statements.
F-71
<PAGE>
INT'L.COM, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
The accompanying pro forma combined condensed statement of operations has
been prepared by combining the historical results of operations of the Company
and ILE for the year ended December 31, 1999 and reflects the following pro
forma adjustments:
1. To record annual amortization of goodwill and other intangible assets
related to the ILE acquisition, assuming amortization periods from two to
five years. The estimated useful lives are based on periods of economic
benefit.
2. To record annual accretion of dividends on Series D preferred stock
issued to ILE as part of the purchase consideration. The Series D preferred
stock is entitled to cumulative dividends of $0.70 per share per annum.
3. Pro forma weighted average common shares outstanding for the year
ended December 31, 1999 reflects the incremental effect of the 2,620,612
shares of Series B common stock issued in connection with the acquisition of
ILE as if these shares had been issued on January 1, 1999, as follows:
<TABLE>
<S> <C>
Historical weighted average shares outstanding.............. 5,071,941
Incremental effect of common stock issued to acquire ILE.... 674,897
---------
Pro forma weighted average shares outstanding............... 5,746,838
=========
</TABLE>
Basic and diluted pro forma net loss per share is computed by dividing the
pro forma net loss applicable to common stockholders for the period by the pro
forma weighted average number of shares of Series A and B common stock
outstanding during the period. For periods in which a pro forma net loss has
been incurred, the calculation of diluted pro forma net loss per share excludes
potential common stock as their effect is antidilutive. The calculation of
diluted pro forma net loss per share excludes the following potential common
stock:
<TABLE>
<S> <C>
Stock options............................................... 1,078,340
Warrants.................................................... 348,553
Series A convertible preferred stock........................ 867,047
Series B redeemable preferred stock......................... 2,621,477
---------
4,915,417
=========
</TABLE>
F-72
<PAGE>
ANNEX A
LIONBRIDGE TECHNOLOGIES, INC.,
LTI ACQUISITION CORP.
AND
INT'L.COM, INC.
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
Dated as of March 30, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I. THE MERGER............................................... 1
1.1 The Merger.................................................. 1
1.2 Effects of the Merger....................................... 1
1.3 Closing..................................................... 1
1.4 Approval by the Stockholders of INT'L.com................... 1
1.5 Approval by the Stockholders of Parent...................... 2
ARTICLE II. CONVERSION AND EXCHANGE OF SHARES; DISSENTING SHARES.... 2
2.1 Conversion of Shares of INT'L.com Stock..................... 2
2.2 Escrow Shares............................................... 4
2.3 Dissenting Shares........................................... 5
2.4 Delivery of Evidence of Ownership........................... 5
2.5 No Further Ownership Rights in INT'L.com Stock.............. 6
2.6 No Fractional Shares........................................ 6
2.7 Assumption of Stock Options................................. 6
2.8 Notes....................................................... 6
2.9 Bridge Notes................................................ 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF INT'L.COM............ 7
3.1 Organization, Standing and Power; Subsidiaries.............. 7
3.2 Capital Structure........................................... 8
3.3 Authority................................................... 9
Compliance with Laws and Other Instruments;
3.4 Non-Contravention........................................... 9
3.5 Technology and Intellectual Property Rights................. 10
3.6 Financial Statements; Business Information.................. 12
3.7 Taxes....................................................... 13
3.8 Absence of Certain Changes and Events....................... 14
3.9 Leases in Effect............................................ 15
3.10 Personal Property; Real Estate.............................. 16
3.11 Certain Transactions........................................ 16
3.12 Litigation and Other Proceedings............................ 17
3.13 No Defaults................................................. 17
3.14 Major Contracts............................................. 17
3.15 Material Reductions......................................... 18
3.16 Insurance and Banking Facilities............................ 18
3.17 Employees................................................... 18
3.18 Employee Benefit Plans...................................... 19
3.19 Certain Agreements.......................................... 20
3.20 Guarantees and Suretyships.................................. 20
3.21 Brokers and Finders......................................... 20
3.22 Certain Payments............................................ 20
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
3.23 Environmental Matters....................................... 20
3.24 Enforceability of Contracts, etc............................ 21
3.25 Accounting Matters.......................................... 21
3.26 Year 2000................................................... 21
3.27 Disclosure.................................................. 21
3.28 Reliance.................................................... 22
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB................................................................. 22
4.1 Organization and Qualification.............................. 22
4.2 Capitalization.............................................. 22
4.3 Authority Relative to this Agreement........................ 23
4.4 Non-Contravention........................................... 23
4.5 Reports and Financial Statements............................ 23
4.6 Validity of Parent Merger Shares............................ 24
4.7 Consents and Approvals of Governmental Authorities.......... 24
4.8 Absence of Certain Changes or Events........................ 24
4.9 Litigation and Other Proceedings............................ 24
4.10 Disclosure.................................................. 24
4.11 Reliance.................................................... 24
4.12 Brokers and Finders......................................... 24
4.13 Accounting Matters.......................................... 24
ARTICLE V. COVENANTS OF INT'L.COM................................... 25
5.1 Conduct of Business in Ordinary Course...................... 25
5.2 Dividends, Issuance of, or Changes in Securities............ 25
5.3 Governing Documents......................................... 26
5.4 No Acquisitions............................................. 26
5.5 No Dispositions............................................. 26
5.6 Indebtedness................................................ 26
5.7 Compensation................................................ 26
5.8 Claims...................................................... 26
5.9 Access to Properties and Records............................ 26
5.10 Breach of Representations and Warranties.................... 26
5.11 Consents.................................................... 27
5.12 Tax Returns................................................. 27
5.13 Exclusivity; Acquisition Proposals.......................... 27
5.14 Notice of Events............................................ 27
5.15 Reasonable Best Efforts..................................... 27
5.16 Insurance................................................... 28
5.17 Financial Statements........................................ 28
5.18 Confidentiality and Assignment of Inventions Agreements..... 28
ARTICLE VI. COVENANTS OF PARENT..................................... 28
6.1 Breach of Representations and Warranties.................... 28
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
6.2 Additional Information; Access.............................. 28
6.3 Consents.................................................... 28
6.4 Reasonable Best Efforts..................................... 28
6.5 Officers and Directors...................................... 29
6.6 Nasdaq National Market Listing.............................. 29
6.7 Notice of Events............................................ 29
6.8 Third Party Beneficiaries................................... 29
6.9 Directors of Parent......................................... 29
ARTICLE VII. ADDITIONAL AGREEMENTS.................................. 29
Preparation of the Form S-4 and the Proxy Statement;
7.1 Stockholders Meeting........................................ 29
7.2 Legal Conditions to the Merger.............................. 31
7.3 Employee Benefits........................................... 31
7.4 Expenses.................................................... 32
7.5 Additional Agreements....................................... 32
7.6 Public Announcements........................................ 32
7.7 Confidentiality............................................. 32
7.8 Pooling..................................................... 32
7.9 INT'L.com Voting Agreement.................................. 33
7.10 Parent Voting Agreement..................................... 33
7.11 Hart-Scott-Rodino Filing.................................... 33
7.12 Board of Directors Meetings................................. 33
7.13 Employment and Noncompetition Agreements.................... 34
7.14 INT'L.com Conversion........................................ 34
7.15 Debt Adjustments............................................ 34
ARTICLE VIII. CONDITIONS PRECEDENT.................................. 34
Conditions to Each Party's Obligation to Effect the
8.1 Merger...................................................... 34
8.2 Conditions of Obligations of Parent and Merger Sub.......... 35
8.3 Conditions of Obligation of INT'L.com....................... 37
ARTICLE IX. INDEMNIFICATION......................................... 38
9.1 Indemnification Relating to Agreement....................... 38
9.2 Third Party Claims.......................................... 38
9.3 Limitations................................................. 39
9.4 Binding Effect.............................................. 39
9.5 Time Limit.................................................. 39
9.6 Sole Remedy................................................. 39
ARTICLE X. TERMINATION.............................................. 40
10.1 Mutual Agreement............................................ 40
10.2 Termination by Parent....................................... 40
10.3 Termination by INT'L.com.................................... 40
10.4 Outside Date................................................ 40
10.5 Effect of Termination....................................... 40
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE XI. MISCELLANEOUS........................................... 40
11.1 Entire Agreement............................................ 40
11.2 Governing Law; Consent to Jurisdiction...................... 41
11.3 Notices..................................................... 41
11.4 Severability................................................ 42
11.5 Survival of Representations and Warranties.................. 42
11.6 Assignment.................................................. 42
11.7 Counterparts................................................ 42
11.8 Amendment................................................... 42
11.9 Extension, Waiver........................................... 42
11.10 Interpretation.............................................. 43
11.11 Knowledge................................................... 43
Transfer, Sales, Documentary, Stamp and Other Similar
11.12 Taxes....................................................... 43
11.13 Acknowledgement............................................. 43
</TABLE>
<TABLE>
<S> <C> <C> <C>
EXHIBITS
EXHIBIT 1.1 -- Merger Documents
EXHIBIT 2.2 -- Escrow Agreement
EXHIBIT 2.4 -- Letter of Transmittal
EXHIBIT 7.1 -- Registration Rights Agreement
EXHIBIT 7.8(b) -- INT'L.com Affiliate Agreement
EXHIBIT 7.8(c) -- Parent Affiliate Agreement
EXHIBIT 7.9 -- INT'L.com Voting Agreement
EXHIBIT 7.10 -- Parent Voting Agreement
EXHIBIT 7.14 -- Conversion Notice
EXHIBIT 8.2 -- Opinion of Neal, Gerber & Eisenberg
EXHIBIT 8.3 -- Opinion of Testa, Hurwitz & Thibeault, LLP
</TABLE>
iv
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION, dated as of
March 30, 2000 (this "AGREEMENT"), by and among Lionbridge Technologies, Inc., a
Delaware corporation ("PARENT"); LTI Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of Parent ("MERGER SUB"); and INT'L.com, Inc., a
Delaware corporation ("INT'L.COM"). This Agreement amends and restates in its
entirety the Agreement and Plan of Reorganization dated as of January 19, 2000
(the "PRIOR AGREEMENT") by and among Parent, Merger Sub and INT'L.com. All
Exhibits and Schedules delivered with or attached to the Prior Agreement shall
be deemed to be delivered herewith or attached hereto, as the case may be.
Intending to be legally bound, and in consideration of the mutual
representations, warranties, covenants and agreements contained herein, Parent,
Merger Sub and INT'L.com agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions hereof, and in
accordance with the Delaware General Corporation Law (the "DGCL"), Merger Sub
will be merged with and into INT'L.com (the "MERGER"). A Certificate of Merger
and any other required documents (collectively, the "MERGER DOCUMENTS"),
substantially in the form attached as EXHIBIT 1.1, will be duly prepared,
executed and acknowledged by INT'L.com and Merger Sub and thereafter delivered
to the Secretary of State of Delaware for filing in accordance with the DGCL
contemporaneously with the Closing (as defined in Section 1.3). The Merger will
become effective at such time as the Merger Documents have been filed with the
Secretary of State of Delaware (the "EFFECTIVE TIME"). Following the Merger,
INT'L.com will continue as the surviving corporation of the Merger (the
"SURVIVING CORPORATION") under the laws of the State of Delaware, and the
separate corporate existence of Merger Sub will cease.
1.2 EFFECTS OF THE MERGER. At and after the Effective Time, (i) the Merger
will have all of the effects provided by the Certificate of Merger and
applicable law, (ii) the Certificate of Incorporation of INT'L.com will be
amended in the form attached as APPENDIX A to EXHIBIT 1.1 until duly further
amended, (iii) the bylaws of Merger Sub will be the bylaws of the Surviving
Corporation until duly amended, (iv) the directors of Merger Sub will be the
directors of the Surviving Corporation, to hold office in accordance with the
bylaws of the Surviving Corporation, (v) the officers of INT'L.com will be the
officers of the Surviving Corporation, to hold office in accordance with the
bylaws of the Surviving Corporation and (vi) the issued and outstanding
certificates for the capital stock of Merger Sub will be the issued and
outstanding certificates initially representing all of the issued capital stock
of the Surviving Corporation. The Merger is intended to be a reorganization
within the meaning of Section 368(a)(2)(E) of the Internal Revenue Code of 1986,
as amended (the "CODE"), and this Agreement is intended to constitute a "plan of
reorganization" within the meaning of the regulations promulgated under
Section 368 of the Code.
1.3 CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") will take place as soon as practicable (but no more
than three (3) business days) after satisfaction or waiver of the last to be
fulfilled of the conditions set forth in Article VIII that by their terms are
not to occur at the Closing (the "CLOSING DATE"), but in no event later than
June 30, 2000, at the offices of Testa, Hurwitz & Thibeault, LLP in Boston,
Massachusetts, unless another date or place is agreed to in writing by Parent
and INT'L.com. If all of the conditions set forth in Article VIII hereof are
determined to be satisfied (or duly waived) at the Closing, concurrently with
the Closing the parties hereto will cause the Merger to be consummated by the
filing of the Merger Documents with the Secretary of State of Delaware. The
Closing will be deemed to have concluded at the Effective Time.
1.4 APPROVAL BY THE STOCKHOLDERS OF INT'L.COM. INT'L.com will take all
action necessary in accordance with the DGCL, its Charter Documents (as defined
below) and any agreements to which it is a party to solicit the approval of this
Agreement, the Merger and all of the transactions contemplated hereby by all
stockholders of INT'L.com by means of a duly convened meeting of
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stockholders. INT'L.com will use its reasonable best efforts to obtain such
stockholder approval. INT'L.com represents and warrants that its Board of
Directors has duly (i) approved the Merger in accordance with the DGCL and
(ii) resolved to recommend to the stockholders of INT'L.com that they approve
this Agreement, the Merger and all of the transactions contemplated hereby.
1.5 APPROVAL BY THE STOCKHOLDERS OF PARENT. Parent will take all action
necessary to obtain the approval of the issuance of its shares in connection
with the Merger by the stockholders of Parent by means of a duly convened
meeting of the stockholders of Parent, as required by the rules of the Nasdaq
Stock Market, in accordance with the applicable requirements of the DGCL, its
Charter Documents and any agreements to which it is a party. Parent will use its
reasonable best efforts to obtain such stockholder approval. Parent represents
and warrants that its Board of Directors has duly (i) approved the Merger in
accordance with the DGCL and (ii) resolved to recommend to the stockholders of
Parent that they approve the issuance of its shares in connection with the
Merger.
ARTICLE II
CONVERSION AND EXCHANGE OF SHARES; DISSENTING SHARES
2.1 CONVERSION OF SHARES OF INT'L.COM STOCK. (a) Subject, without
limitation, to the provisions of Section 2.3 hereof, at the Effective Time, all
of (i) the shares of Series A common stock, $0.01 par value per share, of
INT'L.com ("INT'L.COM SERIES A COMMON STOCK"), Series B common stock, $0.01 par
value per share, of INT'L.com ("INT'L.COM SERIES B COMMON STOCK" and along with
the Int'l Series A Common Stock, the "INT'L.COM COMMON STOCK"), Series A
preferred stock, $0.01 par value per share, of INT'L.com ("INT'L.COM SERIES A
PREFERRED STOCK"), and Series B preferred stock, $0.01 par value per share, of
INT'L.com ("INT'L.COM SERIES B PREFERRED STOCK" and along with the INT'L.com
Series A Common Stock, the INT'L.com Series B Common Stock and the INT'L.com
Series A Preferred Stock, "INT'L.COM CAPITAL STOCK") issued and outstanding
immediately prior to the Effective Time excluding any INT'L.com Capital Stock
held by Parent or Merger Sub or any other subsidiary of Parent, or by INT'L.com
or any subsidiary of INT'L.com, which shares ("EXCLUDED SHARES") will be
automatically canceled in the Merger without payment of any consideration
therefor, and excluding Dissenting Shares (as defined in Section 2.3 hereof))
will automatically, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into shares of common stock, $0.01 par value
per share, of Parent ("PARENT COMMON STOCK") in accordance with Section 2.1(e),
and cash (rounded down to the nearest whole cent) in lieu of fractional shares,
if any, pursuant to Section 2.6 below. Shares of INT'L.com Capital Stock that
are actually issued and outstanding immediately prior to the Effective Time
(excluding the Excluded Shares) are sometimes referred to herein as the
"OUTSTANDING INT'L.COM CAPITAL STOCK SHARES." All rights, warrants or options to
acquire INT'L.com Common Stock and securities convertible into INT'L.com Common
Stock (except for the INT'L.com Series A Preferred Stock, the INT'L.com
Series B Preferred Stock, the Series C preferred stock, $0.01 par value per
share, of INT'L.com ("INT'L.COM SERIES C PREFERRED STOCK") and the Series D
preferred stock, $0.01 par value per share, of INT'L.com ("INT'L.COM SERIES D
PREFERRED STOCK") and the INT'L.com Notes (as defined in Section 2.8 below))
that are outstanding immediately prior to the Effective Time and do not expire
pursuant to their terms on or before the Closing (each of which is specifically
identified in Section 3.2 of the INT'L.com Disclosure Schedule (as defined
below)) are sometimes referred to herein as the "OUTSTANDING INT'L.COM OPTIONS."
(b) The aggregate number of shares of Parent Common Stock to be issued
in exchange for the acquisition of all Outstanding INT'L.com Capital Stock
Shares and the assumption of all Outstanding INT'L.com Options will be equal
to the Modified Share Amount (as defined in (d) below). Such shares are
herein referred to as the "PARENT STOCK MERGER SHARES".
(c) Subject, without limitation, to the provisions of Section 2.3
hereof, at the Effective Time, all of the shares of INT'L.com Series C
Preferred Stock issued and outstanding immediately prior to the Effective
Time (excluding any INT'L.com Series C Preferred Stock held by Parent or
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Merger Sub or any other subsidiary of Parent, or by INT'L.com or any
subsidiary of INT'L.com, which shares ("EXCLUDED SERIES C SHARES") will be
automatically canceled in the Merger without payment of any consideration
therefor, and excluding Dissenting Shares (as defined in Section 2.3
hereof)), will automatically, by virtue of the Merger and without any action
on the part of the holder thereof, be converted into shares of Parent Common
Stock in accordance with Section 2.1(f), and cash (rounded down to the
nearest whole cent) in lieu of fractional shares, if any, pursuant to
Section 2.6 below. Shares of INT'L.com Series C Preferred Stock that are
actually issued and outstanding immediately prior to the Effective Time,
excluding the Excluded Series C Shares, are sometimes referred to herein as
the "OUTSTANDING INT'L.COM SERIES C SHARES." Subject, without limitation, to
the provisions of Section 2.3 hereof, at the Effective Time, all of the
shares of INT'L.com Series D Preferred Stock issued and outstanding
immediately prior to the Effective Time (excluding any INT'L.com Series D
Preferred Stock held by Parent or Merger Sub or any other subsidiary of
Parent, or by INT'L.com or any subsidiary of INT'L.com, which shares
("EXCLUDED SERIES D SHARES") will be automatically canceled in the Merger
without payment of any consideration therefor, and excluding Dissenting
Shares (as defined in Section 2.3 hereof)), will automatically, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into shares of Parent Common Stock in accordance with
Section 2.1(g), and cash (rounded down to the nearest whole cent) in lieu of
fractional shares, if any, pursuant to Section 2.6 below. Shares of
INT'L.com Series D Preferred Stock that are actually issued and outstanding
immediately prior to the Effective Time, excluding the Excluded Series D
Shares, are sometimes referred to herein as the "OUTSTANDING INT'L.COM
SERIES D SHARES" and along with the Outstanding INT'L.com Capital Stock
Shares and the Outstanding INT'L.com Series C Shares, collectively the
"OUTSTANDING INT'L.COM SHARES."
(d) The aggregate number of shares of Parent Common Stock to be issued
in exchange for the acquisition of all Outstanding INT'L.com Series C Shares
will be equal to the INT'L.com Series C Base Amount divided by the Parent
Average Closing Price. Such shares are herein referred to as the "PARENT
SERIES C MERGER SHARES". The aggregate number of shares of Parent Common
Stock to be issued in exchange for the acquisition of all Outstanding
INT'L.com Series D Shares will be equal to the INT'L.com Series D Base
Amount divided by the Parent Average Closing Price. Such shares are herein
referred to as the "PARENT SERIES D MERGER SHARES" and along with the Parent
Stock Merger Shares, the Note Payment Shares (as defined in Section 2.9
below) and the Parent Series C Merger Shares, collectively the "PARENT
MERGER SHARES".
The following definitions will be used in making the foregoing
calculations and for all other purposes of this Agreement:
"INT'L.COM SERIES C BASE AMOUNT" will mean the aggregate accrued
liquidation preference of INT'L.com Series C Preferred Stock calculated as
of the Closing Date in accordance with the terms of the Charter Documents of
INT'L.com.
"INT'L.COM SERIES D BASE AMOUNT" will mean the aggregate accrued
liquidation preference of INT'L.com Series D Preferred Stock calculated as
of the Closing Date in accordance with the terms of the Charter Documents of
INT'L.com.
"PARENT AVERAGE CLOSING PRICE" will be equal to the weighted average
closing price of the Parent Common Stock as publicly reported by the Wall
Street Journal over the twenty Trading Days ending two Trading Days prior to
the Prior Agreement Date (as defined below).
"MODIFIED SHARE AMOUNT" will mean the Share Amount LESS (i) the number
of Convertible Note Payment Shares (as defined in Section 2.8 below) (ii)
the number of Debt Payment Shares (as defined in Section 7.15 below) and
(iii) such number of shares of Parent Common Stock having a value (as
determined using the Parent Average Closing Price) equal to any expenses to
be borne by the stockholders of INT'L.com pursuant to Section 7.4.
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"SHARE AMOUNT" will mean 8,150,000 shares of Parent Common Stock
(appropriately adjusted for any stock split, stock dividend,
recapitalization or similar event).
"TRADING DAY" will mean days on which closing prices for purchases and
sales of Parent Common Stock are reported by the Nasdaq National Market.
(e) The ratio at which one Outstanding INT'L.com Capital Stock Share
will be converted into shares of Parent Common Stock at the Effective Time
is herein called the "CONVERSION RATIO" and will be calculated as set forth
in this Section 2.1(e). Subject to Section 2.3, at the Effective Time, each
Outstanding INT'L.com Capital Stock Share will be converted into the right
to receive that number (which may be a fraction) of shares of Parent Common
Stock that equals the quotient obtained by DIVIDING the number of Parent
Stock Merger Shares by the sum of the number of Outstanding INT'L.com
Capital Stock Shares PLUS the number of shares of INT'L.com Common Stock
issuable upon the exercise or conversion of all Outstanding INT'L.com
Options. Each holder of Outstanding INT'L.com Capital Stock Shares will be
entitled to receive that aggregate number of shares of Parent Common Stock
equal to the Conversion Ratio multiplied by the number of Outstanding
INT'L.com Capital Stock Shares held by such holder immediately prior to the
Effective Time, subject to Section 2.3 herein.
(f) The ratio at which one Outstanding INT'L.com Series C Share will be
converted into shares of Parent Common Stock at the Effective Time is herein
called the "SERIES C CONVERSION RATIO" and will be calculated as set forth
in this Section 2.1(f). Subject to Section 2.3, at the Effective Time, each
Outstanding INT'L.com Series C Share will be converted into the right to
receive that number (which may be a fraction) of shares of Parent Common
Stock that equals the quotient obtained by DIVIDING the number of Parent
Series C Merger Shares by the number of Outstanding INT'L.com Series C
Shares. Each holder of Outstanding INT'L.com Series C Shares will be
entitled to receive that aggregate number of shares of Parent Common Stock
equal to the Series C Conversion Ratio multiplied by the number of
Outstanding INT'L.com Series C Shares held by such holder immediately prior
to the Effective Time, subject to Section 2.3 herein.
(g) The ratio at which one Outstanding INT'L.com Series D Share will be
converted into shares of Parent Common Stock at the Effective Time is herein
called the "SERIES D CONVERSION RATIO" and will be calculated as set forth
in this Section 2.1(g). Subject to Section 2.3, at the Effective Time, each
Outstanding INT'L.com Series D Share will be converted into the right to
receive that number (which may be a fraction) of shares of Parent Common
Stock that equals the quotient obtained by DIVIDING the number of Parent
Series D Merger Shares by the number of Outstanding INT'L.com Series D
Shares. Each holder of Outstanding INT'L.com Series D Shares will be
entitled to receive that aggregate number of shares of Parent Common Stock
equal to the Series D Conversion Ratio multiplied by the number of
Outstanding INT'L.com Series D Shares held by such holder immediately prior
to the Effective Time, subject to Section 2.3 herein.
(h) At the Effective Time, each share of common stock, $0.01 par value,
of Merger Sub issued and outstanding immediately prior to the Effective Time
will, by virtue of the Merger and without any action on the part of the
holder hereof, be converted into one share of common stock, $0.01 par value
per share, of the Surviving Corporation.
2.2 ESCROW SHARES. Ten percent (10%) of the Parent Merger Shares issuable
at Closing (excluding any Parent Merger Shares issuable after the Closing with
respect to Outstanding INT'L.com Options, the Excluded Shares, the Series C
Excluded Shares and the Series D Excluded Shares), rounded up to the nearest
whole share (the "ESCROW SHARES") will be deposited and held in escrow in
accordance with the Escrow Agreement attached as EXHIBIT 2.2 (the "ESCROW
AGREEMENT") as the sole source of indemnification payments that may become due
to Parent pursuant to Article IX or otherwise prior to the release of the Escrow
Shares pursuant to Section 3.1 of the Escrow Agreement; provided that the
aggregate liability of any single stockholder for indemnification obligations
pursuant to
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Article IX of this Agreement shall be equal to a dollar amount equal to the
Parent Average Closing Price multiplied by the aggregate number of Escrow Shares
deposited in escrow by or on behalf of such stockholder; and provided, further,
that each INT'L.com stockholder shall be severally (and not jointly) liable
beyond such holder's allocable portion of the Escrow Shares solely in respect of
any breach by such stockholder of any representation or warranty contained in a
Letter of Transmittal (as defined in Section 2.4 below) delivered by such
stockholder. The Escrow Shares will be withheld on a pro rata basis among the
holders of the Outstanding INT'L.com Shares based on the number of Parent Merger
Shares issuable at the closing to such holders. The exact number of Escrow
Shares held for the account of each INT'L.com stockholder will be determined at
the Closing by the agreement in writing of Parent and INT'L.com. The delivery of
the Escrow Shares will be made on behalf of the holders of the Outstanding
INT'L.com Shares in accordance with the provisions hereof, with the same force
and effect as if such shares had been delivered by Parent directly to such
holders and subsequently delivered by such holders to the Escrow Agent. The
adoption of this Agreement by stockholders of INT'L.com will also constitute
their approval of the terms and provisions of the Escrow Agreement, including,
without limitation, the appointment of Steven Fingerhood as the Indemnification
Representative (as defined in the Escrow Agreement), which is an integral term
of the Merger.
2.3 DISSENTING SHARES. Any holder of shares of INT'L.com Capital Stock,
INT'L.com Series C Preferred Stock and INT'L.com Series D Preferred Stock
(collectively, the "INT'L.COM STOCK") that are outstanding on the record date
for the determination of which holders will be entitled to vote for or against
the Merger who objects to the Merger and complies with all of the provisions of
the DGCL concerning the rights of holders to dissent from the Merger and require
appraisal (such shares are referred to as "DISSENTING SHARES") will be entitled
to exercise appraisal rights pursuant to Section 262 of the DGCL with respect to
such Dissenting Shares PROVIDED THAT such holder meets all of the requirements
of the DGCL with respect to such Dissenting Shares, and will not be entitled to
receive Parent Merger Shares, unless otherwise provided by the DGCL or agreed in
writing by Parent. INT'L.com will, after consultation with Parent, give such
notices with respect to appraisal rights as may be required by the DGCL as soon
as practicable.
2.4 DELIVERY OF EVIDENCE OF OWNERSHIP. Prior to the Closing, Parent shall
send a notice and transmittal form in substantially the form of EXHIBIT 2.4
hereto (individually, a "LETTER OF TRANSMITTAL" and collectively, the "LETTERS
OF TRANSMITTAL") to each holder of a certificate or other documentation
representing Outstanding INT'L.com Shares, other than Dissenting Shares, each
holder of a certificate or other documentation representing Outstanding
INT'L.com Shares, other than Dissenting Shares, will surrender such certificates
or other documentation to Parent or its designee, and, if not previously
delivered, (i) a duly executed counterpart of the Escrow Agreement, (ii) a duly
executed Letter of Transmittal and (iii) such other duly executed documentation
as may be reasonably required by Parent to effect a transfer of such shares, and
upon such surrender and after the Effective Time each such holder will be
entitled to receive promptly from Parent or its transfer agent certificates
registered in the name of such holder representing the applicable number of
Parent Merger Shares, and the cash (calculated pursuant to Section 2.6, which
will be paid by check), to which such holder is entitled pursuant to the
provisions of this Agreement, with a portion of such shares to be deposited in
escrow pursuant to the Escrow Agreement, as provided in Section 2.2. The
adoption of this Agreement by stockholders of INT'L.com will also constitute
their approval of the terms and provisions of the Letter of Transmittal. In the
event any certificates or instruments representing Outstanding INT'L.com Shares
or Outstanding INT'L.com Options shall have been lost, stolen or destroyed, upon
the making and delivery of an affidavit of that fact by the person claiming same
to have been lost, stolen or destroyed and the posting by such person of a
bonding such reasonable amount as Parent may direct as indemnity against any
claim that would be made against Parent with respect to such certificate or
instrument, Parent will issue in exchange for such lost, stolen or destroyed
certificate or instrument the Parent Merger Shares and cash deliverable in
respect thereof pursuant to this Agreement.
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2.5 NO FURTHER OWNERSHIP RIGHTS IN INT'L.COM STOCK. The Merger and its
approval by the stockholders of INT'L.com and the execution of this Agreement
will be deemed, at the Effective Time, to constitute full satisfaction and
termination of all rights and agreements pertaining to INT'L.com Stock pursuant
to the DGCL, by contract or otherwise, except for any rights pertaining to this
Agreement. After the Effective Time, there will be no transfers on the stock
transfer books of INT'L.com of INT'L.com Stock or exercises of any options,
warrants or other rights to acquire INT'L.com Stock. Prior to or upon Closing,
INT'L.com will cause rights to purchase or acquire INT'L.com Stock other than
the Outstanding INT'L.com Options assumed pursuant to Section 2.7 below to
either be exercised or canceled. Until surrendered to Parent, each certificate
for INT'L.com Stock will, after the Effective Time, represent only the right to
receive the right to receive cash and Parent Merger Shares into which the shares
of INT'L.com Stock formerly represented thereby will have been converted
pursuant to this Agreement. Any dividends or other distribution declared after
the Effective Time with respect to Parent Common Stock will be paid to the
holder of any certificate for shares of INT'L.com Stock when the holder thereof
is entitled to receive a certificate for such holder's Parent Merger Shares in
accordance with this Agreement.
2.6 NO FRACTIONAL SHARES. No certificates or scrip for fractional shares
of Parent Common Stock will be issued, no Parent stock split or dividend will be
paid in respect of any fractional share interest, and no such fractional share
interest will entitle the owner thereof to vote or to any rights of or as a
stockholder of Parent. In lieu of such fractional shares, any holder of
Outstanding INT'L.com Shares who would otherwise be entitled to a fraction of a
share of Parent Common Stock (after aggregating all fractional shares of Parent
Common Stock to be received by such holder) will be paid the cash value of such
fraction (rounded down to the nearest whole cent), which will be equal to such
fraction MULTIPLIED BY the Parent Average Closing Price.
2.7 ASSUMPTION OF STOCK OPTIONS. At the Effective Time, Parent shall
assume each Outstanding INT'L.com Option and each holder thereof (each an
"OPTION HOLDER") shall thereby be entitled to acquire, by virtue of the Merger
and without any action on the part of the Option Holder, on substantially the
same terms (including the dates and extent of exercisability) and subject to the
same conditions, including vesting, as such Outstanding INT'L.com Option, the
number of shares of Parent Common Stock determined by MULTIPLYING the number of
shares of INT'L.com Common Stock for which such Outstanding INT'L.com Option is
then exercisable in accordance with its terms immediately prior to the Effective
Time by the Conversion Ratio (rounded down to the nearest whole share), at an
exercise or conversion price per share of Parent Common Stock (rounded up to the
nearest whole cent) determined by dividing the exercise price per share of
INT'L.com Common Stock of such Outstanding INT'L.com Option immediately prior to
the Effective Time by the Conversion Ratio.
2.8 NOTES. The $2,000,000 in convertible promissory notes dated
August 20, 1999 of INT'L.com and any interest accrued thereon (the "INT'L.COM
NOTES") shall be paid in full and cancelled by delivery of the Convertible Note
Payment Shares to the holders thereof in proportion to their respective
interests in the INT'L.com Notes. "CONVERTIBLE NOTE PAYMENT SHARES" shall mean a
number of shares of Parent Common Stock determined by dividing the aggregate
principal amount payable under the INT'L.com Notes plus any interest accrued on
the INT'L.com Notes as of the Closing by the Parent Average Closing Price. In
lieu of any fractional shares, any holder of an INT'L.com Note who would
otherwise be entitled to a fraction of a share of Parent Common Stock (after
aggregating all fractional shares of Parent Common Stock to be received by such
holder) will be paid the cash value of such fraction (rounded down to the
nearest whole cent), which will be equal to such fraction MULTIPLIED BY the
Parent Average Closing Price.
2.9 BRIDGE NOTES. The (i) $2,000,000 in subordinated promissory notes of
INT'L.com dated January 14, 2000, (ii) $1,000,000 in subordinated promissory
notes of INT'L.com dated March 8, 2000 and (iii) up to an additional $2,000,000
in subordinated promissory notes of INT'L.com issued to existing investors of
INT'L.com on terms identical to the promissory notes described in clause (ii)
and
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any interest accrued thereon (collectively, the "INT'L.COM BRIDGE NOTES") shall
be paid in full and cancelled by delivery of the Bridge Note Payment Shares to
the holders thereof in proportion to their respective interests in the INT'L.com
Bridge Notes. "BRIDGE NOTE PAYMENT SHARES" shall mean a number of shares of
Parent Common Stock determined by dividing the aggregate principal amount
payable under the INT'L.com Bridge Notes plus any interest accrued on the
INT'L.com Bridge Notes as of the Closing by the Parent Average Closing Price.
The Bridge Note Payment Shares along with the Convertible Note Payment Shares
herein referred to as the "NOTE PAYMENT SHARES." In lieu of any fractional
shares, any holder of an INT'L.com Bridge Note who would otherwise be entitled
to a fraction of a share of Parent Common Stock (after aggregating all
fractional shares of Parent Common Stock to be received by such holder) will be
paid the cash value of such fraction (rounded down to the nearest whole cent),
which will be equal to such fraction MULTIPLIED BY the Parent Average Closing
Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INT'L.COM
Except as set forth in the disclosure schedule of INT'L.com dated as of
January 19, 2000 (the "PRIOR AGREEMENT DATE") and delivered herewith to Parent
(the "INT'L.COM DISCLOSURE SCHEDULE") which identifies the section and
subsection to which each disclosure therein relates (PROVIDED, HOWEVER, that
INT'L.com will be deemed to have adequately disclosed with respect to any
section or subsection any matters that are clearly described elsewhere in such
document if the applicability of such disclosure to such non-referenced sections
or subsections is apparent), and whether or not the INT'L.com Disclosure
Schedule is referred to in a specific section or subsection, INT'L.com
represents and warrants to Parent and Merger Sub as follows:
3.1 ORGANIZATION, STANDING AND POWER; SUBSIDIARIES.
(a) INT'L.com is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, has all requisite
corporate power and authority to own, lease and operate its properties and
to carry on its businesses as now being conducted, and is duly qualified and
in good standing to do business in each jurisdiction in which a failure to
so qualify would have a material adverse effect on the Business Condition
(as hereinafter defined) of INT'L.com.
As used in this Agreement, "BUSINESS CONDITION" with respect to any
Person (as defined below) means the business, financial condition, results
of operations, assets or prospects (as defined below) (without giving effect
to the consequences of the transactions contemplated by this Agreement and
the announcement thereof, and other than any changes arising out of
conditions affecting the economy or industry of the Person in general which
does not affect the Person in a materially disproportionate manner relative
to other participants in the economy or such industry, respectively) of such
Person or Persons including its Subsidiaries taken as a whole. In this
Agreement, a "SUBSIDIARY" of any Person means a corporation, partnership,
limited liability company, joint venture or other entity of which such
Person directly or indirectly owns or controls a majority of the equity
interests or voting securities or other interests that are sufficient to
elect a majority of the Board of Directors or other managers of such
corporation, partnership, limited liability company, joint venture or other
entity. In this Agreement, the "MATERIAL INT'L.COM SUBSIDIARIES" shall mean
the following Subsidiaries of INT'L.com: International Communications Europe
GmbH; International Language Engineering Corporation; International
Communications Asia; and ILE Netherlands BV. In this Agreement, "PROSPECTS"
means events, conditions, facts or developments that are known to INT'L.com
or any Subsidiary and that in the reasonable course of events are expected
to have an effect on future operations of the business as presently
conducted by INT'L.com and its Subsidiaries, but will exclude the results of
any changes that are made at the specific written direction of Parent, that
are specifically contemplated herein, or that directly result from this
transaction or the announcement hereof. In this Agreement, "PERSON" means
any natural person, corporation, partnership, limited liability company,
joint venture or other entity. In this
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Agreement, "ordinary course of business" means in the ordinary course of
business and consistent with past practices.
All Subsidiaries of INT'L.com and their jurisdiction of incorporation
are completely and correctly listed in Section 3.1 of the INT'L.com
Disclosure Schedule. Each Subsidiary is a corporation duly organized and
validly existing under the laws of the jurisdiction of its incorporation.
INT'L.com has delivered to Parent complete and correct copies of the
articles or certificate of incorporation, bylaws and/or other primary
charter and organizational documents ("CHARTER DOCUMENTS") of INT'L.com and
the Material INT'L.com Subsidiaries, in each case, as amended to the Prior
Agreement Date. The minute books and stock records of INT'L.com and its
Subsidiaries are complete. Section 3.1 of the INT'L.com Disclosure Schedule
contains a complete and correct list of the officers and directors of
INT'L.com and any stockholders who beneficially own (as defined in Rule 13d
of the Securities Act) 5% or more of the outstanding capital stock of
INT'L.com.
(b) INT'L.com does not currently own, and has not owned since
January 1, 1998, directly or indirectly, any capital stock or other equity
securities of any corporation or have direct or indirect equity or ownership
interest in any partnership, limited liability company, joint venture or
other entity. All of the outstanding shares of capital stock of each
Subsidiary of INT'L.com are owned beneficially and of record by INT'L.com,
one of its other Subsidiaries, or any combination thereof, in each case free
and clear of any security interests, liens, charges, restrictions, claims,
encumbrances or assessments of any nature whatsoever ("LIENS"); and there
are no outstanding subscriptions, warrants, options, convertible securities,
or other rights (contingent or other) pursuant to which any of the
Subsidiaries is or may become obligated to issue any shares of its capital
stock to any Person other than INT'L.com or one of the other Subsidiaries.
3.2 CAPITAL STRUCTURE.
(a) As of January 17, 2000, the authorized capital stock of INT'L.com
consisted of (i) 5,472,047 shares of preferred stock, $0.01 par value per
share ("INT'L.COM PREFERRED STOCK"), of which 867,047 shares had been
designated INT'L.com Series A Preferred Stock, 867,047 of which were issued
and outstanding, of which 3,500,000 shares had been designated INT'L.com
Series B Preferred Stock, 2,621,477 of which were issued and outstanding, of
which 5,000 had been designated INT'L.com Series C Preferred Stock, 5,000 of
which were issued and outstanding, and of which 1,100,000 shares had been
designated INT'L.com Series D Preferred Stock, 936,991 of which were issued
and outstanding; and (ii) 14,527,953 shares of INT'L.com Common Stock, $0.01
par value per share, of which 11,077,953 shares had been designated
INT'L.com Series A Common Stock, and 3,450,000 shares had been designated
INT'L.com Series B Common Stock, and 5,879,271 shares of Common Stock were
issued and outstanding and no shares of INT'L.com Common Stock were issued
and held as treasury shares by INT'L.com. The INT'L.com Disclosure Schedule
sets forth all holders of INT'L.com Common Stock and INT'L.com Preferred
Stock and the number of shares owned. The INT'L.com Disclosure Schedule also
sets forth any options, warrants, calls, conversion rights, commitments,
agreements, contracts, understandings, restrictions, arrangements or rights
of any character (each, an "INT'L.COM OPTION") to which INT'L.com is a party
or by which INT'L.com may be bound obligating INT'L.com to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of
INT'L.com Common Stock, or obligating INT'L.com to grant, extend, or enter
into any such option, warrant, call, conversion right, conversion payment,
commitment, agreement, contract, understanding, restriction, arrangement or
right. INT'L.com does not have any outstanding options, warrants, calls,
conversion rights, commitments, agreements, contracts, understandings,
restrictions, arrangements or rights of any character to which INT'L.com is
a party or by which INT'L.com may be bound obligating INT'L.com to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares
of INT'L.com Preferred Stock.
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(b) All outstanding shares of INT'L.com Common Stock and INT'L.com
Preferred Stock are, and any shares of INT'L.com Common Stock issued upon
exercise of any Outstanding INT'L.com Options will be, validly issued, fully
paid, nonassessable and not subject to any preemptive rights (other than
those which have been duly waived), or to any agreement to which INT'L.com
is a party or by which INT'L.com may be bound. Except for the INT'L.com
Notes, INT'L.com does not have outstanding any bonds, debentures, notes or
other indebtedness the holders of which (i) have the right to vote (or
convertible or exercisable into securities having the right to vote) with
holders of shares of INT'L.com Common Stock on any matter ("INT'L.COM VOTING
DEBT") or (ii) are or will become entitled to receive any payment as a
result of the execution of this Agreement or the completion of the
transactions contemplated hereby.
3.3 AUTHORITY. The execution, delivery and performance of this Agreement,
the Prior Agreement and all other agreements contemplated hereby by INT'L.com
have been duly authorized by all necessary action of the Board of Directors of
INT'L.com, and if the Closing shall occur, shall have been duly authorized by
all necessary action of the stockholders of INT'L.com (the "INT'L.COM REQUISITE
STOCKHOLDER APPROVAL"). Certified copies of the resolutions adopted by the Board
of Directors of INT'L.com and its stockholders approving this Agreement, the
Prior Agreement, all other agreements contemplated hereby and the Merger have
been or will be provided to Parent prior to the Closing. INT'L.com has duly and
validly executed and delivered this Agreement and has, or prior to Closing, will
have duly and validly executed and delivered all other agreements contemplated
hereby to be executed by INT'L.com, and each of this Agreement and such other
agreements constitutes or upon execution and delivery at or prior to the Closing
will constitute a valid, binding and enforceable obligation of INT'L.com in
accordance with its terms.
3.4 COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS;
NON-CONTRAVENTION. INT'L.com and its Subsidiaries hold, and at all times have
held or subsequently obtained, all licenses, permits and authorizations from all
Governmental Entities (as defined below) necessary for the lawful conduct of
their respective businesses pursuant to all applicable statutes, laws,
ordinances, rules and regulations of all such Governmental Entities having
jurisdiction over them or any part of their operations. There are no material
violations or claimed violations known by INT'L.com or any Subsidiary of any
such license, permit or authorization or any such statute, law, ordinance, rule
or regulation. Assuming the receipt of all Consents (as defined below), neither
the execution, delivery or performance of this Agreement and all other
agreements contemplated hereby by INT'L.com, nor the consummation of the Merger
or any other transaction described herein, does or will, after the giving of
notice, or the lapse of time, or otherwise, conflict with, result in a breach
of, or constitute a default under, the Charter Documents of INT'L.com or any
Material INT'L.com Subsidiary or any federal, foreign, state or local court or
administrative order or process, statute, law, ordinance, rule or regulation, or
any contract, agreement or commitment to which INT'L.com or any Material
INT'L.com Subsidiary is a party, or under which INT'L.com or any Material
INT'L.com Subsidiary is obligated, or by which INT'L.com or any Material
INT'L.com Subsidiary or any of the rights, properties or assets of INT'L.com are
subject or bound; result in the creation of any Lien upon, or otherwise
adversely affect, any of the rights, properties or assets of INT'L.com or any
Material INT'L.com Subsidiary; terminate, amend or modify, or give any party the
right to terminate, amend, modify, abandon or refuse to perform or comply with,
any contract, agreement or commitment to which INT'L.com or any Material
INT'L.com Subsidiary is a party, or under which INT'L.com or any Material
INT'L.com Subsidiary is obligated, or by which INT'L.com or any of the rights,
properties or assets of INT'L.com or any Material INT'L.com Subsidiary are
subject or bound; or accelerate, postpone or modify, or give any party the right
to accelerate, postpone or modify, the time within which, or the terms and
conditions under which, any liabilities, duties or obligations are to be
satisfied or performed, or any rights or benefits are to be received, under any
contract, agreement or commitment to which INT'L.com or any Material INT'L.com
Subsidiary is a party, or under which INT'L.com or any Material INT'L.com
Subsidiary may be obligated, or by which INT'L.com or any Material INT'L.com
Subsidiary or any of the rights,
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properties or assets of INT'L.com or any Material INT'L.com Subsidiary are
subject or bound. Section 3.4 of the INT'L.com Disclosure Schedule sets forth
each agreement, contract or other instrument binding upon INT'L.com requiring a
notice or consent (by its terms or as a result of any conflict or other
contravention required to be disclosed in the INT'L.com Disclosure Schedule
pursuant to the preceding provisions of this Section 3.4) as a result of the
execution, delivery or performance of this Agreement and all other agreements
contemplated hereby by INT'L.com or the consummation of the Merger or any other
transaction described herein (each such notice or consent, a "CONSENT"). No
consent, approval, order, or authorization of or registration, declaration, or
filing with or exemption (also a "CONSENT") by, any court, administrative agency
or commission or other governmental authority or instrumentality, whether
domestic or foreign (each a "GOVERNMENTAL ENTITY") is required by or on behalf
of INT'L.com or any Material INT'L.com Subsidiary in connection with the
execution, delivery or performance of this Agreement and all other agreements
contemplated hereby by INT'L.com or the consummation of the Merger or any other
transaction described herein, except for the filing by INT'L.com and Merger Sub
of the appropriate Merger Documents with the Secretary of State of Delaware.
3.5 TECHNOLOGY AND INTELLECTUAL PROPERTY RIGHTS.
(a) For the purposes of this Agreement, "INT'L.COM INTELLECTUAL
PROPERTY" consists of the following intellectual property:
(i) all patents, trademarks, trade names, service marks, trade dress,
copyrights and any renewal rights therefor, mask works, schematics,
software, firmware, technology, manufacturing processes, supplier lists,
customer lists, trade secrets, know-how, moral rights and applications and
registrations for any of the foregoing;
(ii) all documents, records and files relating to design, end user
documentation, manufacturing, quality control, sales, marketing or customer
support for all intellectual property described herein;
(iii) all other tangible or intangible proprietary information and
materials; and
(iv) all license and other rights in any third party product or any
third party intellectual property described in (i) through (iii) above;
that are owned or held by or on behalf of INT'L.com or any Material INT'L.com
Subsidiary or that are being used, and/or have been used since January 1, 1999,
or are currently under development by or for INT'L.com or any Material INT'L.com
Subsidiary for use, in the business of INT'L.com or any Material INT'L.com
subsidiary as it has been, is currently or is currently planned to be conducted
in 2000; PROVIDED, HOWEVER, that the term INT'L.com Intellectual Property does
not include any commercially available third party software or related
intellectual property.
(b) Section 3.5 of the INT'L.com Disclosure Schedule lists: (i) all
patents, copyright registrations, mask works, registered trademarks,
registered service marks, trade dress, any renewal rights for any of the
foregoing, and any applications and registrations for any of the foregoing,
that are included in INT'L.com Intellectual Property and owned by or on
behalf of INT'L.com or any Material INT'L.com Subsidiary; (ii) all hardware
products and tools, software products and tools and services that are
currently published, offered, or under development by INT'L.com or any
Material INT'L.com Subsidiary; and (iii) all licenses, sublicenses and other
agreements to which INT'L.com is a party and pursuant to which INT'L.com or
any Material INT'L.com Subsidiary or any other person is authorized to use
any INT'L.com Intellectual Property or exercise any other right with regard
thereto.
(c) INT'L.com Intellectual Property consists solely of items and rights
that are either: (i) owned solely by INT'L.com; (ii) in the public domain;
or (iii) rightfully used and authorized for
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use by INT'L.com pursuant to a valid license. All INT'L.com Intellectual
Property that consists of license or other rights to third party property is
separately set forth in Section 3.5 of the INT'L.com Disclosure Schedule.
INT'L.com has all rights in INT'L.com Intellectual Property necessary to
carry out INT'L.com's, and each of its Subsidiaries', current activities,
their activities conducted by them since January 1, 1999 and their future
activities planned for 2000, including without limitation rights to make,
use, exclude others from using, reproduce, modify, adapt, create derivative
works based on, translate, distribute (directly and indirectly), transmit,
display and perform publicly, license, rent, lease, assign and sell
INT'L.com Intellectual Property in all geographic locations and fields of
use, and to sublicense any or all such rights to third parties, including
the right to grant further sublicenses.
(d) Assuming the receipt of all Consents, INT'L.com is not, nor as a
result of the execution or delivery of this Agreement and all other
agreements contemplated hereby, or performance of INT'L.com's obligations
hereunder or the consummation of the Merger, will INT'L.com be, in violation
of any license, sublicense or other agreement relating to any INT'L.com
Intellectual Property to which INT'L.com is a party or otherwise bound.
INT'L.com is not obligated to provide any consideration (whether financial
or otherwise) to any third party, nor is any third party otherwise entitled
to any consideration, with respect to any exercise of rights by INT'L.com or
the Surviving Corporation, as successor to INT'L.com, in INT'L.com
Intellectual Property.
(e) To the knowledge of INT'L.com or any of the Material INT'L.com
Subsidiaries, the use, reproduction, modification, distribution, licensing,
sublicensing, sale, or any other exercise of rights in any product, work,
technology, service or process as used, provided, or offered at any time, or
as proposed for use, reproduction, modification, distribution, licensing,
sublicensing, sale, or any other exercise of rights, by INT'L.com or any
Material INT'L.com Subsidiary does not infringe any copyright, patent, trade
secret, trademark, service mark, trade name, firm name, logo, trade dress,
mask work, moral right, other intellectual property right, right of privacy,
or right in personal data of any Person. No claims (i) challenging the
validity, effectiveness, or ownership by INT'L.com or any Material INT'L.com
Subsidiary of any INT'L.com Intellectual Property, or (ii) to the effect
that the use, reproduction, modification, manufacturing, distribution,
licensing, sublicensing, sale, or any other exercise of rights in any
product, work, technology, service, or process as used, provided or offered
at any time, or as proposed for use, reproduction, modification,
distribution, licensing, sublicensing, sale, or any other exercise of
rights, by INT'L.com or any Material INT'L.com Subsidiary infringes or will
infringe on any intellectual property or other proprietary or personal right
of any Person have been asserted to INT'L.com or any Material INT'L.com
Subsidiary in writing by any Person. Neither INT'L.com nor any Subsidiary
has received notice of any legal or governmental proceedings, including
interference, re-examination, reissue, opposition, nullity, or cancellation
proceedings pending that relate to any INT'L.com Intellectual Property,
other than any review of pending applications for patent. Neither INT'L.com
nor any Subsidiary is aware of any information indicating that any such
proceedings are threatened or contemplated by any Governmental Entity or any
other Person. All granted or issued patents and mask works and all
registered trademarks and copyright registrations owned by INT'L.com are
valid, enforceable and subsisting. To the knowledge of INT'L.com, there is
no unauthorized use, infringement, or misappropriation of any INT'L.com
Intellectual Property by any third party, employee or former employee.
(f) INT'L.com and its Subsidiaries has secured from all parties who have
created any portion of, or otherwise have any rights in or to, INT'L.com
Intellectual Property, valid and enforceable written assignments of any such
work or other rights to INT'L.com.
(g) Each consultant and subcontractor of INT'L.com and its Subsidiaries
has entered into a confidentiality and assignment of inventions agreement
substantially in the form attached to Section 3.5 of the INT'L.com
Disclosure Schedule.
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3.6 FINANCIAL STATEMENTS; BUSINESS INFORMATION.
(a) INT'L.com has delivered to Parent audited consolidated balance
sheets (the "BALANCE SHEETS") as of December 31, 1999 (the "BALANCE SHEET
DATE") and December 31, 1998, and audited consolidated statements of income
and cash flows for the years ended December 31, 1999, December 31, 1998 and
December 31, 1997 (all of such balance sheets and statements of income and
cash flows are collectively referred to as the "FINANCIAL STATEMENTS"). The
Financial Statements: (i) are in accordance with the books and records of
INT'L.com; (ii) present fairly, in all material respects, the financial
position of INT'L.com as of the date indicated and the results of its
operations and cash flows for such periods; and (iii) have been prepared in
accordance with generally accepted accounting principles consistently
applied (subject, in the case of unaudited statements, to the absence of
footnote disclosure and in the case of unaudited interim statements to
year-end adjustments, which will not be material either individually or in
the aggregate and except as described in the Section 3.6 of the INT'L.com
Disclosure Schedule). As of the Balance Sheet Date, there were no material
liabilities, claims or obligations of any nature, whether accrued, absolute,
contingent, anticipated or otherwise, whether due or to become due, that are
not shown or provided for either in the Balance Sheets or Section 3.6 of the
INT'L.com Disclosure Schedule, and since the Balance Sheet Date, INT'L.com
has incurred no liabilities, claims or obligations of any nature, whether
accrued, absolute, contingent, anticipated or otherwise other than in the
ordinary course of business and except for liabilities incurred by INT'L.com
in connection with the preparation and execution of this Agreement and the
consummation of the transactions contemplated herein.
(b) All of the accounts, notes and other receivables which are reflected
in the Balance Sheets were acquired in the ordinary course of business; and,
except to the extent reserved against in the Balance Sheets, all of the
accounts, notes and other receivables which are reflected therein have been
collected in full, or, to the knowledge of INT'L.com or any Subsidiary, are
valid, binding and enforceable in accordance with their terms in the
ordinary course of business, and arise from bona fide transactions, and
neither INT'L.com nor any Subsidiary has received notice that the same are
subject to counterclaims, refusals to pay or other rights of setoff. All of
the accounts, notes and other receivables which have been acquired by
INT'L.com or any Subsidiary since the Balance Sheet Date were acquired in
the ordinary course of business and have been collected in full, or to the
knowledge of INT'L.com or any Subsidiary, are valid, binding and enforceable
in accordance with their terms in the ordinary course of business, and arise
from bona fide transactions, and neither INT'L.com nor any Subsidiary has
received notice that the same are subject to counterclaims, refusals to pay
or other rights of setoff, subject to an appropriate reserve. No accounts,
notes or other receivables are contingent upon the performance by INT'L.com
or any Subsidiary of any obligation or contract. No Person has any Lien on
any of such receivables and no agreement for deduction or discount has been
made with respect thereto.
(c) The business information previously prepared by INT'L.com and
delivered to Parent was prepared in good faith, based on assumptions
INT'L.com deemed, as of the date such information was delivered to Parent,
to be reasonable, and was prepared for planning purposes, although no
assurances are given that INT'L.com can or will engage in the activities
described therein or achieve the results projected therein.
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3.7 TAXES.
(a) The term "TAXEs" as used herein means all federal, state, local and
foreign income tax, 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.
(b) INT'L.com and each of its Subsidiaries 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 INT'L.com or such Subsidiary is obligated to withhold for amounts
owing to employees, creditors and third parties. All Tax Returns filed by
INT'L.com and each of its Subsidiaries were complete and correct in all
respects, and such Tax Returns correctly reflected the facts regarding the
income, business, assets, operations, activities, status and other matters
of INT'L.com and each of its Subsidiaries and any other information required
to be shown thereon. None of the Tax Returns filed by INT'L.com or any of
its Subsidiaries or Taxes payable by INT'L.com or any of its Subsidiaries
have been the subject of an audit, action, suit, proceeding, claim,
examination, deficiency or assessment by any Governmental Entity, and no
such audit, action, suit, proceeding, claim, examination, deficiency or
assessment is currently pending or, to the knowledge of INT'L.com or any of
its Subsidiaries, threatened. Neither INT'L.com nor any Subsidiary is
currently the beneficiary of any extension of time within which to file any
Tax Return, and neither INT'L.com nor any Subsidiary has 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. All material elections with
respect to Taxes affecting INT'L.com or any Subsidiary, as of the Prior
Agreement Date, are set forth in the Financial Statements or in Section 3.7
of the INT'L.com Disclosure Schedule. None of the Tax Returns filed by
INT'L.com or any Subsidiary 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). Neither INT'L.com nor any
Subsidiary is a party to any Tax sharing agreement or similar arrangement.
Neither INT'L.com nor any Subsidiary has ever been a member of a group
filing a consolidated federal income Tax Return (other than a group the
common parent of which was INT'L.com), and neither INT'L.com nor any
Subsidiary has any liability for the Taxes of any Person (other than
INT'L.com) 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) Neither INT'L.com nor any Subsidiary is 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. Neither INT'L.com nor any Subsidiary
has 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, and INT'L.com will not be required
to make any such adjustment as a result of the transactions set forth in
this Agreement. Neither INT'L.com nor any Subsidiary has or has 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 Parent Merger Shares is subject to the Tax withholding
provisions of
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Section 3406 of the Code, or of Subchapter A of Chapter 3 of the Code or of
any other provision of law. None of the assets of INT'L.com or any
Subsidiary is property which is required to be treated as being owned by any
other Person pursuant to the so-called "safe harbor lease" provisions of
former Section 168(f)(8) of the Code. None of the assets of INT'L.com or any
Subsidiary directly or indirectly secures any debt, the interest on which is
tax exempt under Section 103(a) of the Code. None of the assets of INT'L.com
or any Subsidiary is "tax-exempt use property" within the meaning of
Section 168(h) of the Code. No claim has ever been made by any Governmental
Entity in a jurisdiction where INT'L.com or any Subsidiary does not file Tax
Returns that it is or may be subject to Tax in that jurisdiction. Neither
INT'L.com nor any Subsidiary has participated in an international boycott as
defined in Section 999 of the Code. None of the shares of outstanding
capital stock of INT'L.com or any Subsidiary are subject to a "substantial
risk of forfeiture" within the meaning of Section 83 of the Code.
(d) There are no liens for Taxes (other than for ad valorem Taxes not
yet due and payable) upon the assets of INT'L.com or any Subsidiary. The
unpaid Taxes of INT'L.com and its Subsidiaries 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 Sheets, 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 INT'L.com and its
Subsidiaries in filing their Tax Returns (taking into account any Taxes
incurred as a result of the transactions contemplated by this Agreement).
Section 3.7 of the INT'L.com Disclosure Schedule sets forth INT'L.com's and
each Subsidiary's Tax basis in each of their respective assets. Neither
INT'L.com nor any Subsidiary is a party to any joint venture, partnership,
limited liability company or other arrangement or contract which could be
treated as a partnership for federal income tax purposes.
3.8 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except for liabilities incurred
in connection with this Agreement and the transactions contemplated hereby, from
the Balance Sheet Date, there has not been:
(a) Any transaction involving more than $50,000 entered into by
INT'L.com or any Subsidiary other than in the ordinary course of business;
any change (or any development or combination of developments of which
INT'L.com or any Subsidiary has knowledge which is reasonably likely to
result in such a change) in INT'L.com's Business Condition, other than
changes in the ordinary course of business which in the aggregate have not
been and are not expected to be materially adverse to INT'L.com's Business
Condition; or, without limiting the foregoing, any loss of or damage to any
of the properties of INT'L.com or any Subsidiary due to fire or other
casualty or other loss, whether or not insured, amounting to more than
$50,000 in the aggregate;
(b) Any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of INT'L.com or any
Subsidiary, or any repurchase, redemption, retirement or other acquisition
by INT'L.com or any Subsidiary of any outstanding shares of capital stock,
any INT'L.com Option, or other securities of, or other equity or ownership
interests in, INT'L.com or any Subsidiary;
(c) Any discharge or satisfaction of any Lien or payment or satisfaction
of any obligation or liability (whether absolute, accrued, contingent or
otherwise and whether due or to become due) other than current liabilities
shown on the Balance Sheets and current liabilities incurred since the
Balance Sheet Date in the ordinary course of business;
(d) Any amendment of any term of any outstanding security of INT'L.com;
(e) Any incurrence, assumption or guarantee by INT'L.com or any
Subsidiary of any indebtedness for borrowed money other than in the ordinary
course of business and in an aggregate amount exceeding $50,000;
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(f) Any creation or assumption by INT'L.com or any Subsidiary of any
Lien on any asset in an aggregate amount exceeding $20,000;
(g) Any making of any loan, advance or capital contributions to, or
investment in, any Person by INT'L.com or any Subsidiary;
(h) Any sale, lease, pledge, transfer or other disposition of any
material capital asset;
(i) Any material transaction or commitment made, or any material
contract or agreement entered into, by INT'L.com or any Subsidiary relating
to its assets or business (including the acquisition or disposition of any
assets) with a value of $100,000 or more or any relinquishment by INT'L.com
or any Subsidiary of any contract or other right with a value of $100,000 or
more;
(j) Any (A) grant of any severance or termination pay to any director,
officer or employee of INT'L.com or any Subsidiary, (B) entering into of any
employment, severance, management, consulting, deferred compensation or
other similar agreement (or any amendment to any such existing agreement)
with any director, officer or employee of INT'L.com or any Subsidiary,
(C) change in benefits payable under existing severance or termination pay
policies or employment, severance, management, consulting or other similar
agreements, (D) change in compensation, bonus or other benefits payable to
directors, officers or employees of INT'L.com or any Subsidiary in excess of
7% or (E) change in the payment or accrual policy with respect to any of the
foregoing;
(k) Any labor dispute or any activity or proceeding by a labor union or
representative thereof to organize any employees of INT'L.com or any
Material INT'L.com Subsidiary, or any lockouts, strikes, slowdowns, work
stoppages or threats thereof by or with respect to any employees of
INT'L.com or any Material INT'L.com Subsidiary;
(l) Any issuance or sale of any stock, bonds, phantom stock interest or
other securities of which INT'L.com or any Subsidiary is the issuer, or the
grant, issuance or change of any stock options, warrants, or other rights to
purchase securities of INT'L.com or any Subsidiary or phantom stock interest
in INT'L.com or any Subsidiary other than issuances of common stock in
connection with exercises of employee stock options;
(m) Any cancellation of any debts or claims or waiver of any rights in
an aggregate amount exceeding reserves in the Financial Statements by
$50,000 or more;
(n) Any sale, assignment or transfer of any INT'L.com Intellectual
Property, including licenses therefor;
(o) Any capital expenditures, or commitment to make any capital
expenditures, for additions to property, plant or equipment in an aggregate
amount exceeding $50,000; or
(p) Any agreement undertaking or commitment to do any of the foregoing.
3.9 LEASES IN EFFECT. All real property leases and subleases as to which
INT'L.com or any Subsidiary is a party and any amendments or modifications
thereof are listed in Section 3.9 of the INT'L.com Disclosure Schedule (each a
"LEASE" and collectively, the "LEASES") and are valid, in full force and effect
and enforceable, and there are no existing defaults on the part of INT'L.com or
any Subsidiary, and neither INT'L.com nor any Subsidiary has received or given
notice of default or claimed default with respect to any Lease, nor is there any
event that with notice or lapse of time, or both, would constitute a default on
the part of INT'L.com or any Subsidiary, or, to the knowledge of INT'L.com and
its Subsidiaries, any other party thereunder.
3.10 PERSONAL PROPERTY; REAL ESTATE. (a) INT'L.com has good and marketable
title, free and clear of all title defects and Liens (including, without
limitation, leases, chattel mortgages, conditional sale contracts, purchase
money security interests, collateral security arrangements and other title or
interest-retaining agreements) to all inventory, receivables, furniture,
machinery, equipment and other personal
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property, tangible or otherwise, reflected on the Balance Sheets or used in
INT'L.com's business, except for acquisitions and dispositions since the Balance
Sheet Date in the ordinary course of business. The INT'L.com Disclosure Schedule
lists (i) all computer equipment and (ii) all other personal property, in each
case having a depreciated book value of $10,000 or more, which are used by
INT'L.com or any Subsidiary in the conduct of its business, and all such
equipment and property, in the aggregate, is in good operating condition and
repair, reasonable wear and tear excepted. There is no asset used or required by
INT'L.com in the conduct of its business as presently operated which is not
either owned by it or licensed or leased to it.
(b) Section 3.10 of the INT'L.com Disclosure Schedule contains a
schedule setting forth all real property which is owned or leased by
INT'L.com or any Subsidiary, or in which INT'L.com or any Subsidiary has any
other right, title or interest. Neither INT'L.com nor any Subsidiary owns
any real property. True and complete copies of each lease have been provided
to Parent, and such leases constitute the entire understanding relating to
INT'L.com's or any Subsidiary's use and occupancy of the leased premises.
(c) INT'L.com and each Subsidiary has obtained consents for all
alterations made as of the Prior Agreement Date to each leased premise
described in Section 3.10 of the INT'L Disclosure Schedule and, upon the
expiration or earlier termination of the lease or sublease with respect
thereto, shall not be obligated to remove any such alterations or restore
the premises to the condition they were in prior to the time such
alterations were undertaken, except for removal or restoration obligations
which individually or in the aggregate do not exceed $25,000. To the
knowledge of INT'L.com and its Subsidiaries, the improvements located on the
real property described in Section 3.10 of the INT'L.com Disclosure Schedule
are not the subject of and neither INT'L.com nor any Subsidiary has received
written notice of any official complaint or of a violation of any applicable
zoning ordinance or building code. There is no condemnation proceeding
pending or, to the knowledge of INT'L.com and its Subsidiaries, threatened
against INT'L.com or any Subsidiary and to the knowledge of INT'L.com and
its Subsidiaries there are no use or occupancy restrictions on the real
property described in Section 3.10 of the INT'L.com Disclosure Schedule.
3.11 CERTAIN TRANSACTIONS. Except for (a) relationships with INT'L.com or
any Subsidiary as an officer, director, or employee thereof (and compensation by
INT'L.com or any Subsidiary in consideration of such services) and
(b) relationships with INT'L.com as security holders therein, none of the
directors, officers, or stockholders of INT'L.com, or any member of any of their
families, is presently a party to, or was a party to during the year preceding
the Prior Agreement Date, any transaction, or series of similar transactions,
with INT'L.com or any Subsidiary, in which the amount involved exceeds $60,000,
including, without limitation, any contract, agreement, or other arrangement
(i) providing for the furnishing of services to or by, (ii) providing for rental
of real or personal property to or from, or (iii) otherwise requiring payments
to or from, any such Person or any other Person in which any such Person has or
had a 5%-or-more interest (as a stockholder, partner, beneficiary, or otherwise)
or is or was a director, officer, employee, or trustee, but excluding any
transaction pursuant to existing employee benefit plans. None of INT'L.com's
officers or directors has any interest in any property, real or personal,
tangible or intangible, including inventions, copyrights, trademarks, or trade
names, used in or pertaining to the business of INT'L.com or the Material
INT'L.com Subsidiaries, or, to the knowledge of INT'L.com, any material
supplier, distributor, or customer of INT'L.com or the Material INT'L.com
Subsidiaries, except for the normal rights of a securityholder, and except for
rights under existing employee benefit plans.
3.12 LITIGATION AND OTHER PROCEEDINGS. There is no action, suit, claim,
proceeding, or to the knowledge of INT'L.com or any Subsidiary, investigation
pending against or, to the knowledge of INT'L.com or any Subsidiary, threatened
against INT'L.com or any Subsidiary or any of their
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respective properties and assets before any court or arbitrator or any
Governmental Entity. Neither INT'L.com nor any Subsidiary is subject to any
order, writ, judgment, decree, or injunction.
3.13 NO DEFAULTS. INT'L.com and the Material INT'L.com Subsidiaries are
not, nor has INT'L.com or any Material INT'L.com Subsidiary received notice that
it would be with the passage of time, in default or violation of any term,
condition, or provision of (i) its Charter Documents; (ii) any judgment, decree,
or order applicable to INT'L.com or any Material INT'L.com Subsidiary; or
(iii) any loan or credit agreement, note, bond, mortgage, indenture, contract,
agreement, lease, license, or other instrument to which INT'L.com or any
Material INT'L.com Subsidiary is now a party or by which it or any of its
properties or assets may be bound, except for defaults and violations which have
been validly waived, or which, individually or in the aggregate, would not have
a material adverse effect on the Business Condition of INT'L.com.
3.14 MAJOR CONTRACTS. Neither INT'L.com nor any Material INT'L.com
Subsidiary is a party to or subject to:
(a) Any union contract, or any employment contract or arrangement in
effect (other than "at-will" employment arrangements) providing for future
compensation, written or oral, with any officer, consultant, director, or
employee;
(b) Any plan or contract or arrangement, written or oral, providing for
non-standard bonuses, pensions, deferred compensation, retirement payments,
profit-sharing or the like;
(c) Any joint venture contract or arrangement or any other agreement
which has involved or is expected to involve a sharing of profits;
(d) Any OEM agreement, reseller or distribution agreement, volume
purchase agreement, corporate end user sales or service agreement,
reproduction or replication agreement or manufacturing agreement in which
the amount involved exceeds annually, or is expected to exceed in the
aggregate over the life of the contract, $50,000 or pursuant to which
INT'L.com has granted or received manufacturing rights, most favored nation
pricing provisions, or exclusive marketing, production, publishing or
distribution rights related to any product, group of products or territory;
(e) Any agreement, license, franchise, permit, indenture, or
authorization which has not been terminated or performed in its entirety and
not renewed which may be, by its terms, terminated, impaired, or adversely
affected by reason of the execution of this Agreement and all other
agreements contemplated hereby, the consummation of the Merger, or the
consummation of the transactions contemplated hereby or thereby;
(f) Except for trade indebtedness incurred in the ordinary course of
business, any instrument evidencing or related in any way to indebtedness
incurred in the acquisition of companies or other entities or indebtedness
for borrowed money by way of direct loan, sale of debt securities, purchase
money obligation, conditional sale, guarantee, or otherwise which
individually is in the amount of $50,000 or more;
(g) Any license agreement in effect, either as licensor or licensee
(excluding nonexclusive hardware and software licenses granted to
distributors or end-users and commercially available in-licensed software
applications);
(h) Any contract or agreement containing covenants purporting to limit
INT'L.com's or the Material INT'L.com Subsidiaries' freedom to compete in
any line of business in any geographic area; or
(i) Any contract or agreement not elsewhere specifically disclosed
pursuant to this Agreement, involving the payment or receipt by INT'L.com of
more than $250,000 in the aggregate.
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For purposes of this Section 3.14, a contract, agreement or arrangement
shall be considered "in effect" if INT'L.com or any Material Subsidiary shall
have any obligations or liabilities pursuant to such contract, agreement or
arrangement.
All contracts, arrangements, plans, agreements, leases, licenses,
franchises, permits, indentures, authorizations, instruments and other
commitments which are listed in the INT'L.com Disclosure Schedule pursuant to
this Section 3.14 are valid and in full force and effect and neither INT'L.com
nor any Material INT'L.com Subsidiary has, nor, to the knowledge of INT'L.com
and the Material INT'L.com Subsidiaries, has any other party thereto, breached
any material provisions of, or entered into default in any material respect
under the terms thereof. INT'L.com has delivered to Parent copies of the
contracts or agreements, and descriptions of any verbal agreements or
arrangements, referred to in this Section 3.14 as in effect on the Prior
Agreement Date.
3.15 MATERIAL REDUCTIONS. None of the parties to any of the contracts
identified in the INT'L.com Disclosure Schedule pursuant to Section 3.14 have
terminated, or in any way expressed in writing to INT'L.com or any Subsidiary an
intent to reduce or terminate the amount of its business with INT'L.com or any
Subsidiary in the future.
3.16 INSURANCE AND BANKING FACILITIES. Section 3.16 of the INT'L.com
Disclosure Schedule contains a complete and correct list of (i) all contracts of
insurance or indemnity of INT'L.com in force at the Prior Agreement Date
(including name of insurer or indemnitor, agent, annual premium, coverage,
deductible amounts and expiration date) and (ii) the names and locations of all
banks in which INT'L.com has accounts or safe deposit boxes, the designation of
each such account and safe deposit box, and the names of all persons authorized
to draw on or have access to each such account and safe deposit box. All
premiums and other payments due from INT'L.com with respect to any such
contracts of insurance or indemnity have been paid, and neither INT'L.com nor
any Material INT'L.com Subsidiary knows of any fact, act, or failure to act
which has or could reasonably be expected to cause any such contract to be
canceled or terminated. All known claims for insurance or indemnity have been
presented or are described in Section 3.16 of the INT'L.com Disclosure Schedule.
3.17 EMPLOYEES. The INT'L.com Disclosure Schedule sets forth a list as of
January 12, 2000 of (a) the names, titles, annual salaries and all bonuses of
all salaried employees of INT'L.com and its Subsidiaries (such term meaning
permanent and temporary, full-time and part-time employees) and (b) the wage
rates for non-salaried employees of INT'L.com and its Subsidiaries. Any persons
engaged by INT'L.com as independent contractors, rather than employees, have
been properly classified as such and have been so engaged in accordance with all
applicable federal, foreign, state or local laws. No employee that INT'L.com or
any Material INT'L.com Subsidiary wishes to retain has stated to INT'L.com or
any Material INT'L.com Subsidiary that such employee intends to resign or retire
as a result of the transactions contemplated by this Agreement or otherwise
within six months after the Closing Date. Hours worked by and payments made to
employees of INT'L.com and its Subsidiaries have not been in violation of the
Fair Labor Standards Act or any other applicable federal, foreign, state or
local laws dealing with such matters. Neither INT'L.com nor any Subsidiary is
engaged in any dispute or litigation with an employee or former employee
regarding matters pertaining to intellectual property or assignment of
inventions. Neither INT'L.com nor any Subsidiary, to the knowledge of INT'L.com
and its Subsidiaries, is subject to a union organizing effort. Neither INT'L.com
nor any Subsidiary has any written contract of employment or other employment,
severance or similar agreement with any of its employees or any established
policy or practice relating thereto, and all of its employees are
employees-at-will. Neither INT'L.com nor any Subsidiary is a party to any
pending, or to the knowledge of INT'L.com and its Subsidiaries, threatened,
labor dispute. INT'L.com and its Subsidiaries have complied in all material
respects with all applicable foreign, federal, state and local laws, ordinances,
rules and regulations and requirements relating to the employment of labor,
including but not limited to the provisions thereof relating to wages, hours,
collective bargaining and ensuring equality of opportunity for employment. There
are no claims pending, or, to the knowledge of
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INT'L.com and its Subsidiaries, threatened to be brought, in any court or
administrative agency by any former or current employees of INT'L.com and its
Subsidiaries for compensation, pending severance benefits, vacation time,
vacation pay or pension benefits, or any other claim pending, or, to the
knowledge of INT'L.com and its Subsidiaries, threatened in any court or
administrative agency from any current or former employee or any other Person
arising out of INT'L.com's or its Subsidiary's status as employer, whether in
the form of claims for employment discrimination, harassment, unfair labor
practices, grievances, wrongful discharge, or otherwise.
3.18 EMPLOYEE BENEFIT PLANS. Each Plan (as defined below) covering active,
former, or retired employees of INT'L.com or any Subsidiary is listed in
Section 3.18 of the INT'L.com Disclosure Schedule. "PLAN" means any employee
benefit plan as defined in ERISA (as defined below), maintained or contributed
to by INT'L.com or any of its Subsidiaries within the past six years, and also
includes any employment, severance or similar contract, arrangement or policy
and each plan or arrangement providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, pension or retirement
benefits or for deferred compensation, profit-sharing, bonuses, phantom stock,
stock options, stock appreciation rights or other forms of incentive
compensation or post-retirement insurance, compensation or benefits in existence
within the past three years or for which there is an unsatisfied liability.
INT'L.com has made available to Parent a copy (or description if no document
exists) of each Plan, and where applicable, any related trust agreement,
annuity, or insurance contract. All annual reports (Form 5500) required to be
filed with the Internal Revenue Service have been properly filed on a timely
basis, and INT'L.com has provided copies of the three most recently filed Forms
5500 for each applicable Plan. Any Plan intended to be qualified under
Section 401(a) of the Code has been determined by the Internal Revenue Service
to be so qualified or, if no such determination letter has been received, the
form of such Plan complies with the Code's requirements for qualification,
except those requirements for which the remedial amendment period has not
expired, and no event has occurred which is reasonably likely to threaten the
tax-exempt status of such Plan or any trust for such Plan. No Plan is covered by
Title IV of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 412 of the Code. No "prohibited transaction," as defined
in ERISA Section 406 or Code Section 4975 has occurred with respect to any Plan,
unless such a transaction was exempt from such rules or would not give rise to a
material tax or penalty. Each Plan has been maintained and administered in
material compliance with its terms and with the requirements prescribed by any
and all statutes, including but not limited to ERISA and the Code, which are
applicable to such Plans. There are no pending or, to the knowledge of INT'L.com
and its Subsidiaries, anticipated claims against or otherwise involving any of
the Plans and no suit, action, or other litigation (excluding claims for
benefits incurred in the ordinary course of Plan activities) is currently
pending against or with respect to any Plan for which there is an unsatisfied
liability. All contributions, reserves, or premium payments to the Plan accrued
to the Prior Agreement Date have been made or provided for in accordance with
prior funding and accrual practices. Within the six year period preceding the
Closing Date, neither INT'L.com nor any Subsidiary, nor any entity which is
considered one employer with INT'L.com or any Subsidiary under Section 414 of
the Code or Section 4001 of ERISA has ever maintained or contributed to or
incurred liability with respect to any Plan subject to Title IV of ERISA or any
"multi-employer plan" within the meaning of Section 4001(a)(3) of ERISA, and
neither INT'L.com nor any Subsidiary expects to incur any such liability. There
are no restrictions on the rights of INT'L.com or any Subsidiary to amend or
terminate any Plan, subject to any applicable notice requirements without
incurring any liability thereunder other than for benefits accrued prior to the
date of termination or amendment. Neither INT'L.com nor any Subsidiary has
engaged in and, to the knowledge of INT'L.com and its Subsidiaries, it is not a
successor or parent corporation to an entity that has engaged in a transaction
described in ERISA Section 4069. There have been no written interpretations of,
or announcements (whether or not written) by INT'L.com or any Subsidiary
relating to, or change in employee participation or coverage under, any Plan
that would increase the expense of maintaining such Plan above the level of the
expense incurred in respect thereof for the fiscal year
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ended prior to the Prior Agreement Date. Neither INT'L.com nor any of its ERISA
affiliates has any liability in respect of post-employment or post-retirement
welfare benefits for retired employees of INT'L.com or any Subsidiary. Neither
INT'L.com nor any Material INT'L.com Subsidiary nor any of their ERISA
Affiliates has any liability with respect to welfare benefits for former
employees other than health care continuation benefits required to be provided
under applicable law or which do not exceed three months in duration. No tax
under Section 4980B or 4980D of the Code has been incurred in respect of any
Plan that is a group health plan, as defined in Section 5000(b)(1) of the Code.
3.19 CERTAIN AGREEMENTS. Except as contemplated by this Agreement, neither
the execution and delivery of this Agreement and all other agreements
contemplated hereby, nor the consummation of the transactions contemplated
hereby will: (i) result in any payment by INT'L.com or any Subsidiary
(including, without limitation, severance, unemployment compensation, parachute
payment, bonus or otherwise) becoming due to any director, employee, or
independent contractor of INT'L.com or any Subsidiary under any Plan, agreement,
or otherwise, (ii) increase any benefits otherwise payable under any Plan or
agreement or (iii) result in the acceleration of the time of payment or vesting
of any such benefits.
3.20 GUARANTEES AND SURETYSHIPS. INT'L.com and its Subsidiaries have no
powers of attorney outstanding (other than those issued in the ordinary course
of business with respect to Tax matters), and INT'L.com and its Subsidiaries
have no material obligations or liabilities (absolute or contingent) as
guarantor, surety, cosigner, endorser, co-maker, indemnitor, or otherwise
respecting the obligations or liabilities of any Person.
3.21 BROKERS AND FINDERS. INT'L.com has not retained any broker, finder,
or investment banker in connection with this Agreement or any of the
transactions contemplated by this Agreement, nor does or will INT'L.com or any
Subsidiary owe any fee or other amount to any broker, finder, or investment
banker in connection with this Agreement or the transactions contemplated by
this Agreement.
3.22 CERTAIN PAYMENTS. Neither INT'L.com nor any Subsidiary, nor to the
knowledge of INT'L.com and its Subsidiaries, any Person acting on behalf of
INT'L.com or any Subsidiary has, directly or indirectly, on behalf of or with
respect to INT'L.com or any Subsidiary: (i) made an unreported political
contribution, (ii) made or received any payment which was not legal to make or
receive, (iii) engaged in any material transaction or made or received any
material payment which was not properly recorded on the books of INT'L.com and
its Subsidiaries, (iv) created or used any "off-book" bank or cash account or
"slush fund," or (v) engaged in any conduct constituting a violation of the
Foreign Corrupt Practices Act of 1977.
3.23 ENVIRONMENTAL MATTERS. INT'L.com and its Subsidiaries have complied
in all material respects with all applicable federal, state and local laws
(including, without limitation, case law, rules, regulations, orders, judgments,
decrees, permits, licenses and governmental approvals) which are intended to
protect the environment and/or human health or safety (collectively,
"ENVIRONMENTAL LAWS"); neither INT'L.com nor any Subsidiary has handled,
generated, used, stored, transported or disposed of any material, substance or
waste which is regulated by Environmental Laws ("HAZARDOUS MATERIALS"), except
for ordinary office and/or office-cleaning supplies, products, equipment, fluids
and wastes customarily found, and in quantities customarily found, in a
commercial office setting, which have been used in compliance with Environmental
Laws; (iii) to the knowledge of INT'L.com and its Subsidiaries there is not now,
nor has there ever been, any underground storage tank or asbestos on any real
property owned, operated or leased by INT'L.com; (iv) INT'L.com has not
conducted, nor is it aware of, any environmental investigations, studies,
audits, tests, reviews or analyses, the purpose of which was to discover,
identify, or otherwise characterize the condition of the soil, groundwater, air
or the presence of Hazardous Materials at any real property owned, operated or
leased by INT'L.com; and (v) to the knowledge of INT'L.com and its Subsidiaries
there are no "Environmental Liabilities". For purposes of this Agreement,
"ENVIRONMENTAL LIABILITIES" are any claims, demands, or liabilities
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under Environmental Laws which (i) arise out of or in any way relate to
INT'L.com's or its Subsidiary's operations or activities, or any real property
at any time owned, operated or leased by INT'L.com or a Subsidiary, or any
stockholder's use or ownership thereof, whether vested or unvested, contingent
or fixed, actual or potential, and (ii) arise from or relate to actions
occurring (including any failure to act) or conditions existing on or before the
Closing Date.
3.24 ENFORCEABILITY OF CONTRACTS, ETC.
(a) No Person that is a party to any contract, agreement, commitment or plan
to which INT'L.com or a Subsidiary is a party has a valid defense, on account of
non-performance or malfeasance by INT'L.com or a Subsidiary, which would make
any such contracts, agreement, commitment or plan not valid and binding upon or
enforceable against such parties in accordance with their terms, except to the
extent such enforceability may be subject to or limited by bankruptcy,
insolvency, reorganization, arrangement or similar laws affecting the rights of
creditors generally and usual equity principles.
(b) Neither INT'L.com, nor any Subsidiary, nor to the knowledge of INT'L.com
and its Subsidiaries, any other Person, is in breach or violation of, or default
under, any material contract, agreement, arrangement, commitment or plan to
which INT'L.com or a Subsidiary is a party, and no event or action has occurred,
is pending, or, to the knowledge of INT'L.com and its Subsidiaries, is
threatened, which, after the giving of notice, or the lapse of time, or
otherwise, would constitute a breach or a default by INT'L.com or a Subsidiary
or, to the knowledge of INT'L.com and its Subsidiaries, any other Person, under
any material contract, agreement, arrangement, commitment or plan to which
INT'L.com or a Subsidiary is a party.
3.25 ACCOUNTING MATTERS. To the knowledge of INT'L.com and its
Subsidiaries, neither INT'L.com nor any of its Subsidiaries or affiliates has
taken or agreed to, or plans to, take any action that would prevent Parent from
accounting for the Merger as a "pooling of interests" in accordance with
generally accepted accounting principles, Accounting Principles Board Opinion
No. 16 and all published rules, regulations and policies of the Securities and
Exchange Commission (the "Commission").
3.26 YEAR 2000. All computer and other systems, software (whether embedded
or otherwise), hardware and other products owned or licensed by INT'L.com or its
Subsidiaries and used in connection with the services provided by INT'L.com or
its Subsidiaries and, to the knowledge of INT'L.com and its Subsidiaries, all
computer and other systems, software (whether embedded or otherwise), hardware
and other products produced by any third party that are licensed by INT'L.com,
in each case, have been written, manufactured and tested to be Year 2000 Ready.
For purposes of this Agreement, "Year 2000 Ready" shall mean, with respect to
any systems, software (whether embedded or otherwise), product, equipment or
facility, that such system, product, equipment or facility is capable of
correctly processing, providing, receiving and manufacturing the date data
within and between the twentieth and twenty-first centuries, and its operations
and functionality has not been adversely affected and will not be adversely
affected in any material respect as a result of the advent of the Year 2000.
3.27 DISCLOSURE. Neither the representations or warranties made by
INT'L.com in this Agreement, nor the INT'L.com Disclosure Schedule or any other
certificate executed and delivered by INT'L.com pursuant to this Agreement, when
taken together, contains any untrue statement of a material fact, or omits to
state a material fact necessary to make the statements or facts contained herein
or therein not misleading in light of the circumstances under which they were
furnished.
3.28 RELIANCE. The foregoing representations and warranties are made by
INT'L.com with the knowledge and expectation that Parent and Merger Sub are
placing reliance thereon.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as set forth in either the documents delivered pursuant to
Section 4.5 or in the disclosure schedule of Parent dated as of the Prior
Agreement Date and delivered herewith to INT'L.com (the "PARENT DISCLOSURE
SCHEDULE") which identifies the section and subsection to which each disclosure
therein relates (PROVIDED, HOWEVER, that Parent will be deemed to have
adequately disclosed with respect to any section or subsection any matters that
are clearly described elsewhere in such document if the applicability of such
disclosure to such non-referenced sections or subsections is apparent, and
whether or not the Parent Disclosure Schedule is) referred to in a specific
section or subsection, Parent and Merger Sub jointly and severally represent and
warrant to INT'L.com as follows:
4.1 ORGANIZATION AND QUALIFICATION. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its businesses as now being conducted,
and is duly qualified and in good standing to do business in each jurisdiction
in which a failure to so qualify would have a material adverse effect on the
Business Condition of Parent. Each Subsidiary of Parent is a corporation duly
organized and validly existing under the laws of the jurisdiction of its
incorporation, and Merger Sub is recently organized, is in good standing, and
has conducted no business activities, other than as contemplated by this
Agreement. In this Agreement, "Material Parent Subsidiaries" shall mean the
following: Lionbridge Technologies California, Inc., Lionbridge Technologies
(Ireland), Inc., Lionbridge Technologies, B.V. and Lionbridge Technologies
(France).
4.2 CAPITALIZATION. (a) The authorized capital stock of Parent consists of
5,000,000 shares of preferred stock, $0.01 par value per share, of which no
shares are issued or outstanding or held in Parent's treasury, and 100,000,000
shares of Parent Common Stock, of which, as of November 10, 1999:
(a) 16,287,827 shares were validly issued and outstanding, fully paid and
nonassessable and (b) 5,221,201 shares were reserved for issuance pursuant to
Parent's stock option and stock purchase plans for its employees and directors.
Except for options and rights relating to shares described in clause (b) of the
preceding sentence and except as set forth in Section 4.2 of the Parent
Disclosure Schedule or the Reports (as defined in Section 4.5), there are no
options, warrants or other rights, agreements or commitments or understandings
or rights of any character (contingent or otherwise) obligating Parent to issue,
deliver or sell or cause to be issued, delivered or sold shares of its capital
stock or any other securities convertible into or evidencing the right to
subscribe to shares of its capital stock. All of the outstanding shares of
capital stock of each Subsidiary of Parent are owned beneficially and of record
by Parent, one of its other Subsidiaries, or any combination thereof, in each
case, free and clear of any Liens; and there are no outstanding subscriptions,
warrants, options, convertible securities or other rights (contingent or other)
pursuant to which any of the Subsidiaries is or may become obligated to issue
any shares of its capital stock to any Person other than Parent or one of the
other Subsidiaries.
(b) The authorized capital stock of Merger Sub consists of 1,000 shares
of common stock, par value $0.01 per share, of which 1,000 shares are issued
and outstanding, all of which shares are owned beneficially and of record by
Parent.
4.3 AUTHORITY RELATIVE TO THIS AGREEMENT. The execution, delivery and
performance of this Agreement and all other agreements contemplated hereby by
Parent and Merger Sub have been duly authorized by all necessary action of the
Boards of Directors and stockholders of Parent and Merger Sub. Certified copies
of the resolutions adopted by the Boards of Directors of Parent and Merger Sub
and Parent as sole stockholder of Merger Sub approving this Agreement, all other
agreements contemplated hereby and the Merger have been or will be provided to
INT'L.com. Each of Parent and Merger Sub has duly and validly executed and
delivered this Agreement and has, or prior to Closing, will have duly and
validly executed and delivered all other agreements contemplated hereby to be
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executed by it, and each of this Agreement and such other agreements constitutes
a valid, binding and enforceable obligation of each of Parent and Merger Sub in
accordance with its terms.
4.4 NON-CONTRAVENTION. Neither the execution, delivery or performance of
this Agreement and all other agreements contemplated hereby by Parent and Merger
Sub, nor the consummation of the Merger or any other transaction described
herein, does or will, after the giving of notice, or the lapse of time, or
otherwise, conflict with, result in a breach of, or constitute a default under,
the Charter Documents of Parent or Merger Sub or any federal, foreign, state or
local court or administrative order or process, statute, law, ordinance, rule or
regulation, or any contract, agreement or commitment to which Parent is a party,
or under which Parent or any Material Parent Subsidiary is obligated, or by
which Parent or any Material Parent Subsidiary or any of the rights, properties
or assets of Parent or any Material Parent Subsidiary are subject or bound;
result in the creation of any Lien upon, or otherwise adversely affect, any of
the rights, properties or assets of Parent or any Material Parent Subsidiary;
terminate, amend or modify, or give any party the right to terminate, amend,
modify, abandon or refuse to perform or comply with, any contract, agreement or
commitment to which Parent or any Material Parent Subsidiary is a party, or
under which Parent or any Material Parent Subsidiary is obligated, or by which
Parent or any Material Parent Subsidiary or any of the rights, properties or
assets of Parent or any Material Parent Subsidiary are subject or bound; or
accelerate, postpone or modify, or give any party the right to accelerate,
postpone or modify, the time within which, or the terms and conditions under
which, any liabilities, duties or obligations are to be satisfied or performed,
or any rights or benefits are to be received, under any contract, agreement or
commitment to which Parent or any Material Parent Subsidiary is a party, or
under which Parent or any Material Parent Subsidiary may be obligated, or by
which Parent or any of the rights, properties or assets of Parent or any
Material Parent Subsidiary are, subject or bound.
4.5 REPORTS AND FINANCIAL STATEMENTS. (a) Parent has previously furnished
to INT'L.com true and correct copies of its (i) Prospectus dated as of
August 20, 1999 contained in Parent's Registration Statement on Form S-1,
(ii) Quarterly Report on Form 10-Q for the period ended September 30, 1999 (the
"RECENT 10-Q") and (iii) all other reports filed by it with the Commission under
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") since
August 20, 1999.
(b) Parent hereby agrees to furnish to INT'L.com true and correct copies
of all reports filed by it with the Commission after the Prior Agreement
Date prior to the Closing all in the form (including exhibits) so filed
(collectively, the "REPORTS"). As of their respective dates, the Reports
complied or will comply in all material respects with the then applicable
published rules and regulations of the Commission with respect thereto at
the date of their issuance and did not or will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of the Prior
Agreement Date, no additional filings or amendments to previously filed
Reports are required pursuant to such rules and regulations. Each of the
audited consolidated financial statements and unaudited interim financial
statements included in Parent's Reports has been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
(except as may be indicated therein or in the notes thereto) and fairly
presents the financial position of the entity or entities to which it
relates as at its date or the results of operations, stockholders' equity or
cash flows of such entity or entities (subject, in the case of unaudited
statements, to the absence of footnote disclosure and in the case of
unaudited interim statements to year-end adjustments, which will not be
material either individually or in the aggregate, and except as described in
Section 4.5 of the Parent Disclosure Schedule). As of the date of the Recent
10-Q, there were no material liabilities, claims or obligations of any
nature, whether accrued, absolute, contingent, anticipated or otherwise,
whether due or to become due, that are not shown or provided for either in
the Recent 10-Q or Section 4.5 of the Parent Disclosure Schedule, and since
the date of the Recent 10-Q, Parent has incurred no
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liabilities, claims or obligations of any nature, whether accrued, absolute,
contingent, anticipated or otherwise other than in the ordinary course of
business and except for liabilities incurred by Parent in connection with
the preparation and execution of this Agreement and the consummation of the
transactions contemplated herein.
4.6 VALIDITY OF PARENT MERGER SHARES. The Parent Merger Shares to be
issued in the Merger will, when issued, be, validly issued, fully paid and
nonassessable.
4.7 CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. Except for
(a) the requirements of state securities (or "Blue Sky") laws, (b) the filing
and recording of the Merger Documents as provided by the DGCL, (c) the filing of
appropriate documents with the Nasdaq Stock Market, (d) the filing of the Proxy
Statement, the Form S-4 and a Form 8-K with the Commission, if applicable, and
(e) such other consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made,
individually or in the aggregate, could not reasonably be expected to impair in
any material respect the ability of Parent or Merger Sub to perform its
obligations under this Agreement or prevent or materially delay the consummation
of any of the transactions contemplated by this Agreement, no consent, approval
or authorization of, or declaration, filing or registration with, any
Governmental Entity is required to be made or obtained by Parent or Merger Sub
in connection with the execution, delivery and performance of this Agreement or
the consummation of the transactions contemplated hereby.
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except for liabilities incurred
in connection with this Agreement or the transactions contemplated hereby, since
September 30, 1999, there has not been any material adverse change in the
Business Condition of Parent.
4.9 LITIGATION AND OTHER PROCEEDINGS. There is no action, suit, claim,
proceeding, or to the knowledge of Parent or any Subsidiary investigation
pending against or, to the knowledge of Parent or any Subsidiary, threatened
against Parent or any Subsidiary or any of their respective properties and
assets before any court or arbitrator or any Governmental Entity.
4.10 DISCLOSURE. Neither the representations or warranties made by Parent
in this Agreement, nor the Parent Disclosure Schedule or any other certificate
executed and delivered by Parent pursuant to this Agreement, when taken together
and with knowledge of the contents of the Reports, contains any untrue statement
of a material fact, or omits to state a material fact necessary to make the
statements or facts contained herein or therein not misleading in light of the
circumstances under which they were furnished. Prior to the Prior Agreement
Date, Parent has disclosed to INT'L.com all material strategic and financing
transactions which Parent has taken action in furtherance of and involving
Parent or any Parent Subsidiary.
4.11 RELIANCE. The foregoing representations and warranties are made by
Parent with the knowledge and expectation that INT'L.com are placing reliance
thereon.
4.12 BROKERS AND FINDERS. Except for Prudential Securities, Inc., Parent
has not retained any broker, finder, or investment banker in connection with
this Agreement or any of the transactions contemplated by this Agreement.
4.13 ACCOUNTING MATTERS. To the knowledge of Parent, neither Parent nor
any of its affiliates has taken or agreed to, or plans to, take any action that
would prevent Parent from accounting for the Merger as a "pooling of interest"
in accordance with generally accepted accounting principles, Accounting
Principles board Opinion No. 16 and all published rules, regulations and
policies of the Commission.
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ARTICLE V
COVENANTS OF INT'L.COM
References in this Article V to INT'L.com shall be deemed to include all
Subsidiaries of INT'L.com. During the period from the Prior Agreement Date
(except as otherwise indicated) and continuing until the earlier of the
termination of this Agreement or the Effective Time, INT'L.com agrees (except as
expressly set forth in Section 5 of the Parent Disclosure Schedule contemplated
by this Agreement or otherwise permitted with Parent's prior written consent):
5.1 CONDUCT OF BUSINESS IN ORDINARY COURSE. INT'L.com will carry on its
business in the ordinary course in substantially the same manner as heretofore
conducted and, to the extent consistent with such business, use all reasonable
best efforts consistent with past practice and policies to preserve intact its
present business organization, keep available the services of its present
officers, consultants and employees and preserve its relationships with
customers, suppliers and distributors and others having business dealings with
it. INT'L.com will confer on a regular and frequent basis with representatives
of Parent to report operational matters of a material nature and to report the
general status of the ongoing operations of the business of INT'L.com. The
foregoing notwithstanding, INT'L.com will not:
(a) other than in the ordinary course of business consistent with prior
practice, enter into any material commitment or transaction, including but
not limited to any purchase of assets (other than raw materials, supplies or
cash equivalents) for a purchase price in excess of $50,000;
(b) grant any bonus, severance or termination pay to any officer,
director, independent contractor or employee of INT'L.com;
(c) enter into or amend any agreements pursuant to which any other party
is granted support, service, marketing or publishing rights, other than in
the ordinary course of business consistent with prior practice, or is
granted distribution rights of any type or scope with respect to any
products of INT'L.com;
(d) other than in the ordinary course of business consistent with prior
practice, enter into or terminate any contracts, arrangements, plans,
agreements, leases, licenses, franchises, permits, indentures,
authorizations, instruments, or commitments, or amend or otherwise change in
any material respect the terms thereof in a manner adverse to INT'L.com;
(e) commence a lawsuit other than: (i) for the routine collection of
bills, (ii) in such cases where INT'L.com in good faith determines that
failure to commence suit would result in a material impairment of a valuable
aspect of INT'L.com's business PROVIDED THAT INT'L.com consults with Parent
prior to filing such suit, or (iii) for a breach of this Agreement or any
agreement related hereto;
(f) modify in any material respect existing discounts or other terms and
conditions with dealers, distributors and other resellers of INT'L.com's
products or services in a manner adverse to INT'L.com;
(g) accelerate the vesting or otherwise modify any INT'L.com Option,
restricted stock or other outstanding rights or other securities other than
any acceleration or modification that results from the execution and
performance of this Agreement or any of the transactions contemplated
hereby;
(h) take any action which would make any representation or warranty in
this Agreement untrue or incorrect, as if made as of such time; or
(i) agree in writing or otherwise to take any of the foregoing actions.
5.2 DIVIDENDS, ISSUANCE OF, OR CHANGES IN SECURITIES. INT'L.com will not:
(i) declare or pay any dividends on or make other distributions to its
stockholders (whether in cash, shares or property),
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(ii) issue, deliver, sell, or authorize, propose, or agree to, or commit to the
issuance, delivery, or sale of any shares of its capital stock of any class, any
INT'L.com Voting Debt or any securities convertible into its capital stock, any
options, warrants, calls, conversion rights, commitments, agreements, contracts,
understandings, restrictions, arrangements or rights of any character obligating
INT'L.com to issue any such shares, INT'L.com Voting Debt or other convertible
securities except as any of the foregoing is required by Outstanding INT'L.com
Options; (iii) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of capital stock of INT'L.com, (iv) repurchase or
otherwise acquire, directly or indirectly, any shares of its capital stock or
options or warrants related thereto, or (v) take any action in furtherance of
any of the foregoing.
5.3 GOVERNING DOCUMENTS. INT'L.com will not amend its Charter Documents.
5.4 NO ACQUISITIONS. INT'L.com will not authorize, recommend, propose or
announce an intention to authorize, recommend or propose, or enter into a letter
of intent (whether or not binding), an agreement in principle or an agreement
with respect to any merger, consolidation or business combination (other than
the Merger), or achieve a comparable effect through any acquisition of assets or
securities.
5.5 NO DISPOSITIONS. INT'L.com will not sell, lease, license, transfer,
mortgage, encumber or otherwise dispose of any of its material assets or cancel,
release, or assign any material indebtedness or claim, except in the ordinary
course of business.
5.6 INDEBTEDNESS. Except as contemplated in Section 2.9(iii), INT'L.com
will not incur any indebtedness for borrowed money by way of direct loan, sale
of debt securities, purchase money obligation, conditional sale, guarantee or
otherwise.
5.7 COMPENSATION. Except for the actions, adoptions, amendments,
modifications, and payments described in Section 5.1(b) of the Parent Disclosure
Schedule, INT'L.com will not adopt or amend, or modify in any material respect,
any Plan or pay any pension or retirement allowance not required by any existing
Plan. INT'L.com will not enter into or modify any employment or severance
contracts, increase the salaries, wage rates or fringe benefits of its officers,
directors or employees or pay bonuses or other remuneration except for current
salaries, severance and other remuneration for which INT'L.com is obligated
under arrangements existing prior to the Balance Sheet Date to which INT'L.com
is a party and which have been disclosed in the INT'L.com Disclosure Schedule.
5.8 CLAIMS. INT'L.com will not settle any claim, action or proceeding,
except in the ordinary course of business consistent with prior practice.
5.9 ACCESS TO PROPERTIES AND RECORDS. Subject to contractual and other
obligations, INT'L.com will give Parent and its representatives full access, at
a place reasonably acceptable to INT'L.com, during reasonable business hours and
following reasonable notice but in such a manner as not unduly to disrupt the
business of INT'L.com, to its senior management, senior technical personnel,
premises, properties, contracts, commitments, books, records and affairs, and
will provide Parent with such financial, technical and operating data and other
information pertaining to its business as Parent may request. With INT'L.com's
prior consent, which will not be unreasonably withheld, Parent will be entitled
in conjunction with INT'L.com personnel to make appropriate inquiries of third
parties in the course of its investigation.
5.10 BREACH OF REPRESENTATIONS AND WARRANTIES. INT'L.com will not take any
action that would cause or constitute a breach of any of the representations and
warranties set forth in Article III or that would cause any of such
representations and warranties to be inaccurate in any material respect or that
would constitute a breach of any of its other obligations under this Agreement.
In the event of, and promptly after becoming aware of, the occurrence of or the
pending or threatened occurrence of any event that would cause or constitute
such a breach or inaccuracy, INT'L.com will give detailed notice
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thereof to Parent and will use its reasonable best efforts to prevent or remedy
promptly such breach or inaccuracy.
5.11 CONSENTS. INT'L.com will promptly apply for or otherwise seek and use
reasonable best efforts to obtain, all Consents, and make all filings with
Governmental Entities, required with respect to the consummation of the Merger.
5.12 TAX RETURNS. INT'L.com will promptly provide or make available to
Parent copies of all tax returns, reports and information statements that have
been filed or are filed prior to the Closing Date.
5.13 EXCLUSIVITY; ACQUISITION PROPOSALS. Unless and until this Agreement
will have been terminated by either party pursuant to Article X hereof and
thereafter subject to Section 10.5, INT'L.com will not (and will use its
reasonable best efforts to ensure that none of its officers, directors,
stockholders, agents, representatives or affiliates) take or cause or permit any
Person to take, directly or indirectly, any of the following actions with any
party other than Parent and its designees: (i) solicit, encourage, initiate or
participate in any negotiations, inquiries, or discussions with respect to any
offer or proposal to acquire all or any significant part of INT'L.com's
business, assets or capital stock, whether by merger, consolidation, other
business combination, purchase of assets, tender or exchange offer or otherwise
(each of the foregoing, an "ACQUISITION TRANSACTION"), (ii) disclose, in
connection with an Acquisition Transaction, any information not customarily
disclosed to any Person other than Parent or its representatives concerning
INT'L.com's business or properties or afford to any Person other than Parent or
its representatives access to its properties, books, or records, except in the
ordinary course of business and as required by law or pursuant to a governmental
request for information, (iii) enter into or execute any agreement relating to
an Acquisition Transaction, or (iv) make or authorize any public statement,
recommendation or solicitation in support of any Acquisition Transaction or any
offer or proposal relating to an Acquisition Transaction other than with respect
to the Merger PROVIDED, HOWEVER, that (a) INT'L.com may furnish or cause to be
furnished information concerning INT'L.com and its businesses, properties or
assets to a Person, (b) the Company may engage in discussions or negotiations
with such Person, (c) following receipt of a proposal or offer for an
Acquisition Transaction, may make disclosure to its stockholders and may
recommend such proposal or offer to its stockholders and (d) following receipt
of a proposal or offer for an Acquisition Transaction the Board of Directors of
INT'L.com may enter into an agreement in principle or a definitive agreement
with respect to such Acquisition Transaction, but in each case referred to in
the foregoing clauses (a) through (d) only to the extent that the Board of
Directors of INT'L.com shall conclude in good faith after consultation with
outside legal counsel that such action is necessary or appropriate because
failure to take such action would be inconsistent with the fiduciary duties owed
by the Board of Directors to the stockholders of INT'L.com under applicable law;
and PROVIDED, FURTHER, that the Board of Directors of INT'L.com shall not take
any of the foregoing actions referred to in clauses (a) through (d) without
prior written notice to Parent with respect to such action. In the event that
INT'L.com is contacted by any third party expressing an interest in discussing
an Acquisition Transaction, INT'L.com will promptly notify Parent of such
contact and the identity of the party so contacting INT'L.com.
5.14 NOTICE OF EVENTS. Throughout the period between the Prior Agreement
Date and the Closing, INT'L.com will promptly advise and consult with Parent
regarding any and all material events and developments concerning its financial
position, results of operations, assets, liabilities or business or any of the
items or matters concerning INT'L.com covered by the representations, warranties
and covenants of INT'L.com contained in this Agreement.
5.15 REASONABLE BEST EFFORTS. INT'L.com will use its reasonable best
efforts to effectuate the transactions contemplated hereby and to fulfill and
cause to be fulfilled the conditions to Closing under this Agreement.
5.16 INSURANCE. INT'L.com will use its reasonable best efforts to maintain
in force at the Effective Time policies of insurance of the same character and
coverage as those described in the
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INT'L.com Disclosure Schedule, and INT'L.com will promptly notify Parent in
writing of any changes in such insurance coverage occurring prior to the
Effective Time.
5.17 FINANCIAL STATEMENTS. INT'L.com will use its reasonable best efforts
to deliver to Parent audited consolidated balance sheets as of December 31,
1997, December 31, 1998 and December 31, 1999 and audited consolidated
statements of income and consolidated cash flows for the twelve months ended
December 31, 1997, December 31, 1998 and December 31, 1999 no later than
February 28, 2000.
5.18 CONFIDENTIALITY AND ASSIGNMENT OF INVENTIONS AGREEMENTS. INT'L.com
shall use its reasonable best efforts to cause each officer and employee of
INT'L.com and its Subsidiaries to enter into a confidentiality and assignment of
inventions agreement substantially in the form of such agreement used by Parent
and its Subsidiaries in the country in which such officer or employee performs
services for INT'L.com. Any officer or employee of INT'L.com or any Subsidiary
who has not entered into such agreement shall have been terminated by INT'L.com
or such Subsidiary prior to the Closing.
ARTICLE VI
COVENANTS OF PARENT
During the period from the Prior Agreement Date and continuing until the
earlier of the termination of this Agreement or the Effective Time (or later
where so indicated), Parent and Merger Sub agree (except as expressly
contemplated by this Agreement or with INT'L.com's prior written consent):
6.1 BREACH OF REPRESENTATIONS AND WARRANTIES. Neither Parent nor Merger
Sub will take any action which would cause or constitute a breach of any of the
representations and warranties set forth in Article IV or which would cause any
of such representations and warranties to be inaccurate in any material respect.
In the event of, and promptly after becoming aware of, the occurrence of or the
pending or threatened occurrence of any event which would cause or constitute
such a breach or inaccuracy, Parent will give detailed notice thereof to
INT'L.com and will use its reasonable best efforts to prevent or remedy promptly
such breach or inaccuracy.
6.2 ADDITIONAL INFORMATION; ACCESS. Parent will provide INT'L.com and its
stockholders with the information relating to Parent referred to in Section 4.5
and the information relating to Parent to be included in the Form S-4. In
addition, Parent will afford to INT'L.com and to its counsel and to the persons
expected to become stockholders of Parent pursuant to the Merger access
throughout the period prior to the Effective Time to its senior management and
all other information concerning Parent as INT'L.com or such stockholder may
reasonably request. Such stockholders will also be afforded the opportunity to
ask questions and to receive accurate and complete answers from Parent
concerning the terms and conditions of the Merger and the issuance of the Parent
Merger Shares pursuant thereto.
6.3 CONSENTS. Parent will promptly apply for or otherwise seek, and use
its reasonable best efforts to obtain, all consents and approvals, and make all
filings, required with respect to the consummation of the Merger.
6.4 REASONABLE BEST EFFORTS. Each of Parent and Merger Sub will use its
reasonable best efforts to effectuate the transactions contemplated hereby and
to fulfill and cause to be fulfilled the conditions to Closing under this
Agreement.
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6.5 OFFICERS AND DIRECTORS. Parent agrees that all rights to
indemnification and all limitations on liability existing on the Prior Agreement
Date in favor of, or for the benefit of, the present or former officers and
directors of INT'L.com and its Subsidiaries with respect to actions taken in
their capacities as directors or officers of INT'L.com or such INT'L.com
Subsidiary prior to the Effective Time as provided in the Charter Documents of
INT'L.com will survive the Merger and continue in full force and effect
following the Effective Time and will not be modified by Parent. Notwithstanding
the foregoing, the provisions of such Charter Documents will have no effect on
the obligations of any stockholders of INT'L.com pursuant to Article IX of this
Agreement or the Escrow Agreement.
6.6 NASDAQ NATIONAL MARKET LISTING. Parent will promptly prepare and
submit a NASDAQ listing application and will use its reasonable best efforts to
cause the Parent Merger Shares to be authorized for trading on the Nasdaq
National Market as soon as practicable.
6.7 NOTICE OF EVENTS. Throughout the period between the Prior Agreement
Date and the Closing, Parent will promptly advise and consult with INT'L.com
regarding any and all material adverse change to the representations, warranties
and covenants of Parent and Merger Sub contained in this Agreement and will
disclose to INT'L.com all material strategic and financing transactions which
Parent takes action in furtherance of which involve Parent or any Parent
Subsidiary.
6.8 THIRD PARTY BENEFICIARIES. Section 6.5 will survive the consummation
of the Merger, is intended to benefit the stockholders of INT'L.com that receive
Parent Merger Shares (the "NEW PARENT STOCKHOLDERS") and the present and former
officers and directors of INT'L.com and its Subsidiaries, will be binding on
Parent and its successors and assigns, and will be enforceable by the officers
and directors of INT'L.com and the New Parent Stockholders.
6.9 DIRECTORS OF PARENT. Prior to the date of the mailing of the Proxy
Statement, Parent shall nominate Roger Jeanty to serve as a director of Parent
in accordance with the policies for directors of Parent, and Parent shall take
such action as is necessary to cause such person to become a director of Parent
effective as of the Effective Time.
ARTICLE VII
ADDITIONAL AGREEMENTS
In addition to the foregoing, Parent, Merger Sub, and INT'L.com each agree
to take the following actions after the execution of this Agreement.
7.1 PREPARATION OF THE FORM S-4 AND THE PROXY STATEMENT; STOCKHOLDERS
MEETING. (a) INT'L.com shall use its reasonable best efforts to hold one or
more special meetings of stockholders in accordance with the applicable
requirements of the DGCL and to obtain the INT'L.com Requisite Stockholder
Approval to enable the Merger to be effective on the Closing Date (determined
without regard to the condition to closing in Section 8.2(h)). Parent shall use
its reasonable best efforts to hold one or more special meetings of stockholders
to obtain the approval of the issuance of its shares in connection with the
Merger by the stockholders of Parent as required by the rules of the Nasdaq
Stock Market and in accordance with the applicable requirements of the DCGL. In
connection with obtaining the approval of its stockholders, Parent shall
prepare, with the assistance and cooperation of INT'L.com, a Registration
Statement on Form S-4 (the "FORM S-4"). The Form S-4 shall constitute a joint
proxy and a prospectus and shall be used for purposes of offering the Parent
Merger Shares to the stockholders of INT'L.com, soliciting proxies from such
stockholders for the purpose of obtaining the INT'L.com Requisite Stockholder
Approval and soliciting proxies from stockholders of Parent for the purposes of
obtaining approval of the issuance of its shares in connection with the Merger
by the stockholders of Parent (such proxy/ prospectus statement, together with
the accompanying letter to stockholders, notice of meeting and form of proxy
shall be referred to herein as the "Proxy Statement"). INT'L.com agrees to fully
cooperate with Parent in the preparation of the Form S-4, and shall, upon
request, furnish
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Parent with all information concerning it and its affiliates, directors,
officers and stockholders as Parent may reasonably request in connection with
the preparation of the Form S-4. INT'L.com shall prepare the portions of the
Form S-4, relating to INT'L.com and its subsidiaries including but not limited
to financial information, management of INT'L.com, description of INT'L.com's
business, executive compensation of the INT'L.com, the recommendation of
INT'L.com's Board of Directors, appraisal rights, risk factors relating to
INT'L.com, and INT'L.com portions of background of the Merger, reasons for the
Merger, interests of certain persons in the Merger and security ownership of
certain beneficial owners and management. INT'L.com shall also prepare the
disclosure concerning all payments which in the absence of stockholder approval
would be "Parachute Payments" as defined in Code Section 280G(b)(2), which shall
be in form and substance satisfactory to Parent and its counsel, to satisfy all
requirements applicable to INT'L.com of applicable state and federal securities
laws, the DGCL and Code Section 280G(b)(5)(B) and the regulations thereunder. No
filing of, or amendment or supplement to, the Form S-4 will be made by Parent
and no amendment or supplement to the Proxy Statement will be made by Parent or
INT'L.com without providing the other party the opportunity to review and
comment thereon. Parent will advise INT'L.com, promptly after it receives notice
thereof, of the time when the Form S-4 has become effective or any supplement or
amendment has been filed, the issuance of any stop order, the suspension of the
qualification of the Parent Merger Shares for offering or sale in any
jurisdiction, or any request by the Commission for amendment of the Proxy
Statement or the Form S-4 or comments thereon and responses thereto or requests
by the Commission for additional information. If at any time prior to the
Effective Time any information relating to Parent or INT'L.com or any of their
respective affiliates, officers or directors, should be discovered by the Parent
or INT'L.com which should be set forth in an amendment or supplement to any of
the Form S-4 or the Proxy Statement, so that any of such documents would not
include any misstatement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, the party which discovers such information
shall promptly notify the other party hereto and an appropriate amendment or
supplement describing such information shall be promptly filed with the
Commission, and to the extent required by law, disseminated to the stockholders
of Parent and INT'L.com. If the Commission requires a Tax opinion in connection
with the filing of the Form S-4, INT'L.com shall cause Neal, Gerber & Eisenberg,
counsel to INT'L.com, to provide such opinion in the form required by the
Commission. The issuance of such opinion shall be conditioned upon the receipt
by Neal, Gerber & Eisenberg of customary representation letters from each of
INT'L.com and Parent in a form reasonably agreed to by the parties.
(b) Parent shall file the Form S-4 with the Commission and shall, with
the assistance of INT'L.com, promptly respond to any comments from the
Commission on the Form S-4 and shall otherwise use its best efforts to have
the Form S-4 declared effective under the Securities Act as promptly
practicable. Promptly following such time as the Form S-4 is declared
effective, INT'L.com shall distribute the Proxy Statement to its
stockholders and Parent shall distribute the Proxy Statement to its
stockholders. Parent shall comply with all applicable provisions of and
rules under the Securities Act and the Exchange Act and state securities
laws in the preparation and filing of the S-4 Registration Statement, the
offering and issuance of the Parent Merger Shares, the filing and
distribution of the Proxy Statement, the solicitation of proxies thereunder,
and the calling and holding of the special meeting of stockholders of
Parent. Parent shall also ensure that any Form S-4 filed by Parent does not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading (provided that Parent shall not be responsible for
the accuracy and completeness of information relating to INT'L.com or any of
its subsidiaries or any other information furnished by INT'L.com
specifically for inclusion in the S-4 Registration Statement).
(c) INT'L.com shall ensure that the Proxy Statement does not contain an
untrue statement of material fact or omit to state a material fact required
to be stated therein or necessary in order to
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make the statement made, under the circumstances under which it is made, not
misleading (provided that INT'L.com shall not be responsible for the
accuracy or completeness of any information relating to Parent or any of its
Subsidiaries or furnished by Parent specifically for inclusion in the Proxy
Statement).
(d) INT'L.com, acting through its Board of Directors, shall include in
the Proxy Statement the unanimous recommendation of its Board of Directors
eligible to vote on such matters that its stockholders vote in favor of the
adoption of this Agreement and the approval of the Merger. Notwithstanding
the foregoing, the obligation set forth in the foregoing sentence shall not
apply (and the Board of Directors shall be permitted to modify or withdraw
any such recommendation previously made) if the Board of Directors of
INT'L.com concludes in good faith, after consultation with its outside legal
counsel, that fulfilling the obligations in the foregoing sentence would
violate the fiduciary duties of the Board of Directors under applicable law;
PROVIDED, HOWEVER, that nothing shall limit the obligation of INT'L.com to
otherwise use its reasonable best efforts to fulfill all of its obligations
under this Agreement, including without limitation, INT'L.com's obligations
under Section 7.1(a) and (c).
(e) Parent, acting through its Board of Directors, shall include in the
Proxy Statement the unanimous recommendation of its Board of Directors
eligible to vote on such matters that the stockholders of Parent vote in
favor of the issuance of its shares in connection with the Merger.
Notwithstanding the foregoing, the obligation set forth in the foregoing
sentence shall not apply (and the Board of Directors shall be permitted to
modify or withdraw any such recommendation previously made) if the Board of
Directors of Parent concludes in good faith, after consultation with its
outside legal counsel, that fulfilling the obligations in the foregoing
sentence would violate the fiduciary duties of the Board of Directors under
applicable law; PROVIDED, HOWEVER, that nothing shall limit the obligation
of the Parent to otherwise use its reasonable best efforts to fulfill all of
its obligations under this Agreement, including without limitation, Parent's
obligations under Section 7.1 (a) and (b).
(f) All resales of shares of Parent Common Stock by each INT'L.com
Affiliate (as defined in Section 7.8(b)) will be subject to the restrictions
imposed by the third restated registration rights agreement of Parent (the
"REGISTRATION RIGHTS AGREEMENT") in the form attached as Exhibit 7.1, which
will be entered into by the INT'L.com Affiliates. Parent will be entitled to
place the legends as referred to in the Registration Rights Agreement on
each certificate evidencing any shares of Parent Common Stock to be received
by the INT'L Affiliates pursuant to the terms of this Agreement and to issue
appropriate stop transfer instructions to the transfer agent for shares of
Parent Common Stock consistent with the terms of the Registration Rights
Agreement.
7.2 LEGAL CONDITIONS TO THE MERGER. Each of Parent, Merger Sub, and
INT'L.com will use all reasonable best efforts to take actions necessary to
comply promptly with all legal requirements which may be imposed on it with
respect to the Merger. Each of Parent, Merger Sub and INT'L.com will use all
reasonable best efforts to take all actions to obtain (and to cooperate with the
other parties in obtaining) any consent required to be obtained or made by
INT'L.com, Merger Sub, or Parent in connection with the Merger, or the taking of
any action contemplated thereby or by this Agreement.
7.3 EMPLOYEE BENEFITS. Nothing contained herein will, subject to
Section 6.5, be considered as requiring INT'L.com or Parent to continue any
specific plan or benefit, or to confer upon any employee, beneficiary,
dependent, legal representative or collective bargaining agent of such employee
any right or remedy of any nature or kind whatsoever under or by reason of this
Agreement, including without limitation any right to employment or to continued
employment for any specified period, at any specified location or under any
specified job category, except as specifically provided for in an offer letter
or other agreement of employment. It is specifically understood that continued
employment with INT'L.com or employment with Parent is not offered or implied
for any other employees of INT'L.com
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and any continuation of employment with INT'L.com after the Closing will be at
will except as specifically provided otherwise in an offer letter or other
agreement of employment. Parent agrees that it will cause Merger Sub to comply
with the WARN Act, to the extent applicable to INT'l.com and its Subsidiaries in
connection with actions taken at and after the Effective Time.
7.4 EXPENSES. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby and thereby, including investment banking, legal and
accounting expenses, will be paid by the party incurring such expense; PROVIDED,
HOWEVER, that any such expenses incurred by INT'L.com in excess of $400,000
shall be borne by the stockholders of INT'L.com (without regard to Section 9.4)
through the determination of the Modified Share Amount as set forth in
Section 2.1(d); PROVIDED, FURTHER, that INT'L.com will itemize any such
investment banking, legal and accounting expenses of INT'L.com prior to Closing
and provide Parent with an invoice and certification from all organizations
providing such services at the Closing in a form reasonably acceptable to
Parent; and PROVIDED, FURTHER, that the provisions of this Section 7.4 shall not
be construed to relieve a party from liability resulting from such party's
breach of this Agreement.
7.5 ADDITIONAL AGREEMENTS. In case at any time after the Effective Time
any further action is reasonably necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full title
to all properties, assets, rights, approvals, immunities and franchises of
INT'L.com, the proper officers and directors of each corporation which is a
party to this Agreement will take all such necessary action. Without limiting
the foregoing, on or prior to the Closing Date, INT'L.com will deliver to Parent
a properly executed statement satisfying the requirements of Treasury Regulation
Sections 1.897-2(h) and 1.1445-2(c)(3) in a form reasonably acceptable to
Parent.
7.6 PUBLIC ANNOUNCEMENTS. Neither Parent nor INT'L.com will directly or
indirectly disseminate any press release or other announcement concerning this
Agreement or the transactions contemplated herein to any third party (except to
the directors, officers and employees of the parties to this Agreement whose
direct involvement is necessary for the consummation of the transactions
contemplated under this Agreement, to the attorneys, advisors and accountants of
the parties hereto, or except as Parent determines in good faith to be required
by applicable law after consultation with INT'L.com) without the prior written
agreement of the other parties.
7.7 CONFIDENTIALITY. INT'L.com and Parent have entered into a Mutual
Nondisclosure Agreement dated October 7, 1999 concerning each party's
obligations to protect the confidential information of the other party.
INT'L.com and Parent each hereby affirm each of their obligations under such
agreement. If this Agreement is terminated in accordance with Article X hereof,
Parent will, and will cause its accountants, counsel and other representatives
to deliver to INT'L.com all documents and other material, and all copies
thereof, obtained by Parent or on its behalf from INT'L.com in connection with
this Agreement, whether so obtained before or after the execution hereof, and
will not disclose any such information or documents to any third parties or make
any use of such. If this Agreement is terminated in accordance with Article X
hereof, INT'L.com will, and will cause its accountants, counsel and other
representatives to, deliver to Parent all documents and other material, and all
copies thereof, obtained by INT'L.com or by an officer, director or
representative of INT'L.com from Parent in connection with this Agreement,
whether so obtained before or after the execution hereof, and will not disclose
any such information or documents to any third parties or make any use of such.
7.8 POOLING.
(a) Parent, the Merger Sub and INT'L.com will use all reasonable best
efforts, will cooperate fully and will take all actions as are reasonably
necessary to allow the Merger and other transactions contemplated by this
Agreement to be accounted for as a "pooling of interests" in accordance with
United States generally accepted accounting principles and applicable rules
and regulations of the Commission.
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(b) INT'L.com has delivered to Parent prior to the Prior Agreement Date
a letter from INT'L.com, prepared after consultation with its counsel, that
identifies all persons it believes may be "affiliates" of INT'L.com, as such
term is used in Rule 145 under the Securities Act and applicable accounting
pronouncements of the Commission (each such Person, an "INT'L.COM
AFFILIATE"). Each such INT'L.com Affiliate has executed and delivered to
Parent a written agreement (an "INT'L.COM AFFILIATE AGREEMENT") in the form
of EXHIBIT 7.8(B) hereto to the effect that such INT'L.com Affiliate
(i) has not made and will not make any disposition of any shares of
INT'L.com Common Stock or INT'L.com Preferred Stock or other securities of
INT'L.com in the 30-day period prior to the Effective Time, and (ii) will
not make any disposition of any of the Parent Merger Shares to be received
by such Person after the Effective Time until Parent shall have publicly
released a report including the combined financial results of Parent and
INT'L.com for a period of at least 30 days of combined operations of Parent
and INT'L.com.
(c) Section 7.8(c) of the Parent Disclosure Schedule identifies each
executive officer and director of Parent (each such Person, a "PARENT
AFFILIATE"). Each such Parent Affiliate has executed and delivered to
INT'L.com a written agreement (a "PARENT AFFILIATE AGREEMENT") in the form
of EXHIBIT 7.8(C) hereto to the effect that such Parent Affiliate (i) has
not made and will not make any disposition of any shares of Parent Common
Stock in the 30-day period prior to the Effective Time, and (ii) will not
make any disposition of any shares of Parent Common Stock owned by such
person until Parent shall have publicly released a report including the
combined financial results of Parent and INT'L.com for a period of at least
30 days of combined operations of Parent and INT'L.com.
7.9 INT'L.COM VOTING AGREEMENT. Simultaneous with the execution of the
Prior Agreement, INT'L.com caused the voting agreement in the form attached as
EXHIBIT 7.9 (the "INT'L.COM VOTING AGREEMENT") to be executed by all directors,
officers, affiliates and holders of 5% of the capital stock of INT'L.com and
their affiliates holding in the aggregate at least 60% of the Outstanding
INT'L.com Shares and at least 80% of each of the Outstanding INT'L.com Series C
Shares and the Outstanding INT'L.com Series D Shares, and to be delivered to
Parent.
7.10 PARENT VOTING AGREEMENT. Simultaneous with the execution of the Prior
Agreement, Parent caused the voting agreement in the form attached as
EXHIBIT 7.10 (the "PARENT VOTING AGREEMENT") to be executed by all directors and
officers of Parent and their affiliates holding in the aggregate at least 60% of
the Parent shares of Parent Common Stock outstanding on the Prior Agreement
Date, and to be delivered to INT'L.com.
7.11 HART-SCOTT-RODINO FILING. If and to the extent applicable, Parent and
INT'L.com agree to file, and to cause any other Person obligated to do so as a
result of such person's stock holdings in Parent or INT'L.com, a Notification
and Report Form in accordance with the notification requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and
regulations thereunder (collectively, the "HSR ACT") with the Antitrust Division
of the United States Department of Justice and the Federal Trade Commission and
to use its and their reasonable best efforts to achieve the prompt termination
or expiration of the waiting period or any extension thereof provided for under
the HSR Act as a prerequisite to the consummation of the transactions provided
for herein.
7.12 BOARD OF DIRECTORS MEETINGS. After the Closing of the Merger, for as
long as Cornerstone Equity Investors IV, L.P. holds at least one-half of the
Parent Merger Shares issued to them in connection with the Merger, Parent shall
permit one (1) representative of Cornerstone Equity Investors IV, L.P. (the
"CORNERSTONE OBSERVER") to attend, in a non-voting observer capacity, each
meeting of the Board of Directors of Parent and each meeting of any committee
thereof and to participate in all discussions during each such meeting. Parent
shall send to the Cornerstone Observer notice of the time and place of any such
meeting, in the same manner and at the same time as notice is sent to its
directors. Parent shall also provide to the Cornerstone Observer copies of all
notices, reports, minutes,
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contracts and other documents, at the time and in the same manner as such
documents are provided to the Board of Directors of Parent, unless the Board of
Directors or management of Parent shall determine that delivery of such notice
and/or materials to the Cornerstone Observer may be detrimental to Parent. Upon
the request of the Board of Directors of the Company, the Cornerstone Observer
will excuse himself from any portion of Board or committee meetings if the Board
of Directors shall determine that the Cornerstone Observer's presence may
violate the attorney-client privilege or may create a conflict of interest or
may be otherwise detrimental to Parent. Any materials furnished to the
Cornerstone Observer and the discussions and presentations in connection with or
at any meeting shall be considered confidential information and the Cornerstone
Observer will keep such materials and discussions confidential and will not
disclose or divulge such materials and discussions to any third party.
7.13 EMPLOYMENT, CONSULTING AND NONCOMPETITION AGREEMENTS. Simultaneous
with the execution of the Prior Agreement, INT'L.com will cause each of Roger
Jeanty, [Steven Fingerhood] and Jonathan Clark to execute employment or
consulting and/or non-competition agreements with Parent to become effective at
the Effective Time in the form provided by Parent to INT'L.com.
7.14 INT'L.COM CONVERSION. Simultaneous with the execution of the Prior
Agreement, INT'L.com caused the conversion notice in the form attached as
EXHIBIT 7.14 to be executed by the holders of INT'L.com Series A Preferred Stock
who, together with the parties executing an INT'L.com Voting Agreement, hold at
least 51% of the outstanding shares of INT'L.com Series A Preferred Stock and by
the holders of INT'L.com Series B Preferred Stock who, together with the parties
executing an INT'L.com Voting Agreement, hold at least 51% of the outstanding
shares of INT'L.com Series B Preferred Stock, INT'L.com shall cause such notices
to be delivered to Parent. INT'L.com hereby elects that all outstanding shares
of INT'L.com Series A Preferred Stock and all of the outstanding shares of
INT'L.com Series B Preferred Stock be converted to shares of INT'L.com Series A
Common Stock immediately prior to the Effective Time.
7.15 DEBT ADJUSTMENTS. In the event INT'L.com or its Subsidiaries shall
breach the covenants in Section 5.6 hereof, the aggregate amount of all breaches
of such Section 5.6 shall be deemed to be the "Debt Adjustment Amount" for
purposes of this Agreement. "Debt Payment Shares" shall mean a number of shares
of Parent Common Stock determined by dividing the Debt Adjustment Amount plus
any accrued interest on such amount as of the Closing by the Parent Average
Closing Price.
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger will be subject to the
satisfaction prior to the Closing Date of the following conditions unless
waived:
(a) GOVERNMENTAL APPROVALS. Other than the filing of the Merger
Documents with the Secretary of State of Delaware, all statutory
requirements and all Consents of Governmental Entities legally required for
the consummation of the Merger and the transactions contemplated by this
Agreement will have been filed, occurred, or been obtained, other than such
Consents for which the failure to obtain would not have a material adverse
effect on the consummation of the Merger or the other transactions
contemplated hereby or on the Business Condition of Parent or INT'L.com. If
and to the extent applicable, the filing and waiting period requirements
under the HSR Act will have been complied with and will have expired or
terminated.
(b) NO RESTRAINTS. No statute, rule or regulation, and no final and
nonappealable order, decree or injunction will have been enacted, entered,
promulgated or enforced by any court or
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Governmental Entity of competent jurisdiction which enjoins or prohibits the
consummation of the Merger.
(c) PARENT STOCKHOLDER APPROVAL. The issuances of the shares of Parent
Common Stock in connection with the Merger will have been approved by the
requisite vote of the stockholders of Parent.
(d) QUOTATION. The shares of Parent Common Stock issuable to
INT'L.com's stockholders as contemplated by this Agreement shall have been
approved for quotation on the Nasdaq National Market, subject to official
notice of issuance.
(e) FORM S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order.
(f) PARENT POOLING LETTER. Parent will have received a letter dated
immediately prior to the Closing Date from PricewaterhouseCoopers LLP,
Parent's independent accountants, to the effect that such firm concurs with
Parent's management that no conditions exist that would preclude Parent from
accounting for the Merger as a "pooling of interests" in accordance with
United States generally accepted accounting principles and applicable rules
and regulations of the Commission and Parent shall have delivered a copy of
such letter to INT'L.com.
(g) INT'L.COM POOLING LETTER. Arthur Andersen LLP shall have delivered
to INT'L.com a letter dated immediately prior to the Closing Date to the
effect that INT'L.com is "poolable" for accounting purposes under Accounting
Principles Board Opinion No. 16, United States generally accepted accounting
principles and applicable rules and regulations of the Commission and
INT'L.com shall have delivered a copy of such letter to Parent.
8.2 CONDITIONS OF OBLIGATIONS OF PARENT AND MERGER SUB. The obligations of
Parent and Merger Sub to effect the Merger are subject to the satisfaction of
the following conditions unless waived by Parent and Merger Sub:
(a) REPRESENTATIONS AND WARRANTIES OF INT'L.COM. The representations
and warranties of INT'L.com set forth in this Agreement will be true and
correct in all material respects as of the Prior Agreement Date and as of
the Closing Date as though made on and as of the Closing Date, except
(i) as otherwise contemplated by this Agreement, (ii) as a result of actions
taken or not taken pursuant to this Agreement or at the direction of or
after consultation with and written concurrence of Parent, (iii) for
representations and warranties specifically limited to an earlier date(s)
and (iv) for breaches which, individually or in the aggregate, would not
have a material adverse effect on the Business Condition of INT'L.com.
Parent will have received a certificate signed by the chief executive
officer and the chief financial officer of INT'L.com to such effect on the
Closing Date.
(b) PERFORMANCE OF OBLIGATIONS OF INT'L.COM. INT'L.com will have
performed all agreements and covenants required to be performed by it under
this Agreement prior to the Closing Date except (i) as otherwise
contemplated or permitted by this Agreement, (ii) as a result of actions
taken or not taken at the direction of or after consultation with and
written concurrence of Parent and (iii) for such failures to perform which,
individually or in the aggregate, would not have a material adverse effect
on the Business Condition of INT'L.com; provided, that INT'L.com hereby
acknowledges and agrees that any breaches of the covenants set forth in
Section 5.6 hereof which individually or in the aggregate exceed $1,000,000
will be deemed for purposes of this Section 8.2(b) to have a material
adverse effect on the Business Condition of INT'L.com. Parent will have
received a certificate signed by the chief executive officer and the chief
financial officer of INT'L.com to such effect on the Closing Date.
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(c) ESCROW AGREEMENTS. Parent will have received from INT'L.com and
the Indemnification Representative a duly executed Escrow Agreement.
(d) LEGAL ACTION. There will not be pending or threatened in writing
any action, proceeding or other application before any court or Governmental
Entity brought by any Person or Governmental Entity: (i) challenging or
seeking to prohibit the consummation of the transactions contemplated by
this Agreement; or (ii) seeking to prohibit or impose any limitations on
Parent's ownership or operation of all or any portion of INT'L.com's
business or assets, or to compel Parent to dispose of or hold separate all
or any portion of its or INT'L.com's business or assets as a result of the
transactions contemplated by the Agreement which, in any such case described
in this clause (ii), if successful would have a material adverse effect on
the Business Condition of INT'L.com.
(e) OPINION OF COUNSEL. Parent will have received an opinion dated as
of the Closing Date of Neal, Gerber & Eisenberg, counsel to INT'L.com,
covering the matters set forth in EXHIBIT 8.2.
(f) CONSENTS. Parent will have received duly executed copies of all
Consents specified in Section 3.4 of the INT'L.com Disclosure Schedule
except where the failure to receive any such Consent either individually or
together with all other failures to receive a Consent would not have a
material adverse effect on the Business Condition of INT'L.com, and there
will not be any Consents which are required to be disclosed in INT'L.com
Disclosure Schedule which have not been so disclosed, and have not been
received, if the failure to receive such Consents would have a material
adverse effect on the Business Condition of INT'L.com, in each case except
for such thereof as Parent and INT'L.com will have agreed in writing will
not be obtained.
(g) TERMINATION OF RIGHTS AND CERTAIN SECURITIES. Any registration
rights, rights of refusal, voting rights, rights to any liquidation
preference or redemption rights relating to any security of INT'L.com will
have been terminated or waived or satisfied as of the Closing.
(h) STOCKHOLDER APPROVALS. This Agreement and the Merger will have
been approved by stockholders of INT'L.com holding at least ninety percent
(90%) of the voting power of the Outstanding INT'L.com Shares.
(i) TERMINATION OF 401K PLAN. The INT'L.com Board of Directors will
have passed and not rescinded resolutions satisfactory to Parent's counsel
effectively terminating INT'L.com's 401(k) Plan immediately prior to the
Closing.
(j) CORPORATE PROCEEDINGS SATISFACTORY. All corporate and other
proceedings to be taken by INT'L.com in connection with the transactions
contemplated hereby and all documents incident thereto will be satisfactory
in form and substance to Parent and its counsel, and Parent and its counsel
will have received all such counterpart originals or certified or other
copies of such documents as they reasonably may request.
(k) LETTER FROM ARTHUR ANDERSEN. The Parent shall have received a
letter dated as of a date not more than two days prior to the date that the
Form S-4 is declared effective and shall have received a subsequent similar
letter dated as of a date not more than two days prior to the Effective
Time, from Arthur Andersen LLP, auditors for INT'L.com, addressed to Parent
in a customary form reasonably satisfactory to Parent, containing statements
and information of the type ordinarily included in an accountants' "comfort
letters" with respect to the financial statements and financial information
of INT'L.com included in the Form S-4.
(l) INT'L.COM NOTES AND INT'L.COM BRIDGE NOTES. The INT'L.com Notes
and INT'L.com Bridge Notes will have been cancelled and be of no further
force and effect.
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(m) REGISTRATION RIGHTS AGREEMENT. Parent will have received an
executed Registration Rights Agreement from the INT'L.com Affiliates.
(n) TERMINATION OF CERTAIN AGREEMENT AND ARRANGEMENTS. The agreements
and arrangements described in Section 8.2(n) of the INT'L.com Disclosure
Schedule will have been terminated with no liability to INT'L.com and
evidence of such termination will have been delivered to Parent.
8.3 CONDITIONS OF OBLIGATION OF INT'L.COM. The obligation of INT'L.com to
effect the Merger is subject to the satisfaction of the following conditions
unless waived by INT'L.com:
(a) REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB. The
representations and warranties of Parent and Merger Sub set forth in this
Agreement will be true and correct in all material respects as of the Prior
Agreement Date and as of the Closing Date as though made on and as of the
Closing Date, except (i) as otherwise contemplated by this Agreement,
(ii) as a result of actions taken or not taken pursuant to this Agreement,
(iii) for representations and warranties specifically limited to an earlier
date(s) and (iv) for breaches which, individually or in the aggregate, would
not have a material adverse effect on the Business Condition of Parent.
INT'L.com will have received a certificate signed on behalf of Parent by a
duly authorized officer of Parent to such effect on the Closing Date.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND MERGER SUB. Parent and
Merger Sub will have performed all agreements and covenants required to be
performed by them under this Agreement prior to the Closing Date except
(i) as otherwise contemplated or permitted by this Agreement, and (ii) for
such failures to perform which, individually or in the aggregate, would not
have a material adverse effect on the Business Condition of Parent.
INT'L.com will have received a certificate signed on behalf of Parent by
officers of Parent to such effect on the Closing Date.
(c) OPINION OF PARENT'S COUNSEL. INT'L.com have received an opinion
dated the Closing Date of Testa, Hurwitz & Thibeault, LLP, substantially in
the form attached as EXHIBIT 8.3.
(d) STOCKHOLDER APPROVAL. This Agreement and the Merger will have been
approved and adopted by the requisite vote of the stockholders of Merger
Sub, as required by the DGCL and Merger Sub's Certificate of Incorporation
(the "REQUISITE STOCKHOLDER APPROVAL").
(e) ESCROW AGREEMENT. Parent shall have duly executed and delivered
the Escrow Agreement.
(f) TAX-FREE REORGANIZATION. INT'L.com shall have received a written
opinion from Neal, Gerber & Eisenberg to the effect that the Merger should
constitute a reorganization within the meaning of Section 368 of the Code.
In preparing such tax opinion, counsel may rely on reasonable assumptions
and reasonable written representations from Parent and INT'L.com and their
respective officers relating thereto.
(g) LEGAL ACTION. There will not be pending or threatened in writing
any action, proceeding or other application before any court or Governmental
Entity brought by any Person or Governmental Entity: (i) challenging or
seeking to prohibit the consummation of the transactions contemplated by
this Agreement or (ii) restricting in any way the receipt, ownership, or
ability to dispose of the consideration to be received by any stockholder of
INT'L.com in the transactions contemplated by this Agreement; PROVIDED,
HOWEVER, that INT'L.com will automatically be deemed to waive this condition
if Parent agrees to indemnify, defend and hold any such named party harmless
against any such action.
(h) BOARD OF DIRECTORS. Roger Jeanty shall have been elected as a
member of the Board of Directors of Parent.
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(i) REGISTRATION RIGHTS AGREEMENT. Parent and any other party required
to execute the Registration Rights Agreement shall have duly executed and
delivered the Registration Rights Agreement to Cornerstone and Dakota.
ARTICLE IX
INDEMNIFICATION
9.1 INDEMNIFICATION RELATING TO AGREEMENT. Subject to Sections 9.3
and 9.5, as an integral term of the Merger, all stockholders of INT'L.com who
accept the Parent Merger Shares and execute the Escrow Agreement (which is a
condition to receiving such consideration), severally and not jointly, hereby
agree to defend, indemnify and hold Parent harmless from and against, and to
reimburse Parent with respect to, any and all losses, damages, liabilities,
claims, judgments, settlements, fines, costs and expenses (including reasonable
attorneys' fees), determined as provided in Section 9.3 ("INDEMNIFIABLE
AMOUNTS"), of every nature whatsoever incurred by Parent (which will be deemed
to include any of the foregoing incurred by the Surviving Corporation) by reason
of or arising out of or in connection with (i) any breach, or any claim
(including claims by parties other than Parent) that constitutes a breach, by
INT'L.com of any representation or warranty of INT'L.com contained in this
Agreement or in any certificate or other document delivered to Parent pursuant
to this Agreement, other than any breach or related claim in respect of actions
taken or not taken pursuant to this Agreement or at the written direction of or
after consultation with and written concurrence of Parent and (ii) the failure,
partial or total, of INT'L.com or any Subsidiary to perform any agreement or
covenant required by this Agreement to be performed by it or them other than any
breach or related claim in respect of actions taken or not taken pursuant to
this Agreement or at the written direction of or after consultation with and
written concurrence of Parent. The foregoing obligations to indemnify Parent
will be determined without regard to any right to indemnification to which any
Person may have in his or her capacity as an officer, director, employee, agent
or any other capacity of INT'L.com or any Subsidiary, and no stockholder of
INT'L.com will be entitled to any indemnification from INT'L.com or the
Surviving Corporation for amounts paid hereunder. There will be no right of
contribution or subrogation from Parent or the Surviving Corporation for
indemnification payments made by or for the account of the stockholders of
INT'L.com. Notwithstanding any provision in this Agreement to the contrary,
Indemnifiable Amounts shall not include (i) any lost profits, lost revenues or
lost business opportunities, or (ii) any amounts which shall have been recovered
by Parent under any insurance policies.
9.2 THIRD PARTY CLAIMS. With respect to any claims or demands by third
parties as to which Parent may seek indemnification hereunder whenever Parent
will have received a written notice that such a claim or demand has been
asserted or threatened, Parent will promptly notify the "Indemnification
Representative" (as designated in the Escrow Agreement) of such claim or demand
and of the facts within Parent's knowledge that relate thereto. The
Indemnification Representative will then have the right to defend, contest,
negotiate or settle any such claim or demand through counsel of his own
selection, reasonably satisfactory to Parent, and solely at the Indemnification
Representative's own cost and expense, which costs and expenses will be
reimbursed pursuant to the Escrow Agreement. Notwithstanding the preceding
sentence, the Indemnification Representative will not settle, compromise, or
offer to settle or compromise any such claim or demand without the prior written
consent of Parent, which consent will not be unreasonably withheld. Without
limiting Parent's rights to object for other reasons, Parent may object to a
settlement or compromise which includes any provision which in its reasonable
judgment may have an adverse impact on or establish an adverse precedent for the
Business Condition of Parent or any of its Subsidiaries. If the Indemnification
Representative gives notice to Parent within thirty (30) calendar days after
Parent has notified the Indemnification Representative that any such claim or
demand has been made in writing, that the Indemnification Representative elects
to have Parent defend, contest, negotiate, or settle any such claim or demand,
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then Parent will have the right to contest and/or settle any such claim or
demand and seek indemnification pursuant to this Article IX as to any
Indemnifiable Amounts; PROVIDED, HOWEVER, that Parent will not settle,
compromise, or offer to settle or compromise any such claim or demand without
the prior written consent (which may include a general or limited consent) of
the Indemnification Representative, which consent will not be unreasonably
withheld. If the Indemnification Representative fails to give written notice to
Parent of his intention to contest or settle any such claim or demand within
thirty (30) calendar days after Parent has notified the Indemnification
Representative that any such claim or demand has been made in writing, or if any
such notice is given but any such claim or demand is not contested by the
Indemnification Representative within a reasonable time thereafter, Parent will
have the right to contest and/or settle any such claim or demand in its sole
discretion and seek indemnification pursuant to this Article IX as to any
Indemnifiable Amounts. The adoption of this Agreement by the stockholders of
INT'L.com will also constitute their approval of the Indemnification
Representative.
9.3 LIMITATIONS. Notwithstanding any other provision in this Article IX,
Parent will be entitled to indemnification pursuant to this Article IX only to
the extent that the aggregate Indemnifiable Amounts (which shall be determined
for all purposes of this Article IX disregarding any qualification in any
representation or warranty as to "materially" or "material" or "material adverse
effect") exceed Five Hundred Thousand Dollars ($500,000) (the "THRESHOLD
AMOUNT") PROVIDED THAT at such time as the amount to which Parent is entitled to
be indemnified exceeds the Threshold Amount, Parent shall be entitled to be
indemnified up to the full Indemnifiable Amounts including the Threshold Amount.
For purposes of indemnification under this Agreement, each Parent Merger Share
shall at all times be valued at the Parent Average Closing Price. The aggregate
amount to which Parent will be entitled to be indemnified pursuant to this
Article IX will not exceed a dollar amount equal to the value of the aggregate
number of Escrow Shares held in escrow pursuant to the terms of the Escrow
Agreement valued at the Parent Average Closing Price per share, and the
liability of any single stockholder for indemnification obligations pursuant to
this Article IX shall be limited to such stockholder's PRO RATA share of any
Indemnifiable Amounts based on the number of Escrow Shares deposited in escrow
by such stockholder relative to the aggregate number of Escrow Shares and the
aggregate liability of any single stockholder for indemnification obligations
pursuant to this Article IX shall be equal to a dollar amount equal to the
Parent Average Closing Price multiplied by the aggregate number of Escrow Shares
deposited in escrow by such stockholder; PROVIDED, HOWEVER, that there will be
no limitation on the obligations of any person for Indemnifiable Amounts arising
out of criminal activity or fraud by such person, including, without limitation,
any actions in such person's capacity as an employee, officer or director of
INT'L.com or its Subsidiaries, or for any stockholder of INT'L.com for breaches
of any representation or warranty contained in the Letter of Transmittal
delivered by such stockholder.
9.4 BINDING EFFECT. The indemnification obligations contained in this
Article IX are an integral part of this Agreement and the Merger in the absence
of which Parent would not have entered into this Agreement.
9.5 TIME LIMIT. The representations, warranties, covenants and agreements
of INT'L.com set forth in this Agreement and the certificates and schedules
executed or delivered pursuant to this Agreement will survive the Closing for
one year; PROVIDED, HOWEVER, that claims relating to the representations and
warranties in Sections 3.6(a) and (b) may be made only on or before the date
that Parent publishes audited financial results for the year ended December 31,
2000 covering combined operations of Parent and INT'L.com.
9.6 SOLE REMEDY. Notwithstanding any other provision in this Agreement to
the contrary, the provisions of this Article IX and the provisions of the Escrow
Agreement will be the sole and exclusive remedy of (and corresponding liability
of any stockholder of INT'L.com, in such stockholder's capacity as such, to)
Parent, Merger Sub and the Surviving Corporation for any damage, claim, cause of
action or right of any nature arising out of or relating to any breach of
representations, warranties, covenants
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and agreements of INT'L.com set forth in this Agreement and the certificates and
schedules executed or delivered by it pursuant to this Agreement.
ARTICLE X
TERMINATION
10.1 MUTUAL AGREEMENT. THIS AGREEMENT MAY BE TERMINATED AT ANY TIME PRIOR
TO THE EFFECTIVE TIME BY THE WRITTEN CONSENT OF PARENT AND INT'L.COM.
10.2 TERMINATION BY PARENT. This Agreement may be terminated by Parent
(PROVIDED THAT it is not then in material breach of any representation,
warranty, covenant or agreement contained in this Agreement) alone, by means of
written notice to INT'L.com, if there has been a material breach by INT'L.com or
any Subsidiary of any representation, warranty, covenant or agreement set forth
in this Agreement or other ancillary agreements, which breach would in Parent's
reasonable opinion render it impossible for INT'L.com to satisfy the closing
conditions contained in Section 8.2 and has not been cured within twenty
(20) business days following receipt by INT'L.com of notice of such breach.
10.3 TERMINATION BY INT'L.COM. (a) This Agreement may be terminated by
INT'L.com by means of written notice to Parent and payment of the Termination
Fee (as defined below) if it has fulfilled its obligations under Section 7.1(a)
and (c) hereof but has failed to obtain the INT'L.com Requisite Stockholder
Approval. The Termination Fee shall be paid by wire transfer of immediately
available funds to an account designated by Parent and any termination pursuant
to this Section 10.3(a) shall only be effective upon receipt of the Termination
Fee in such account. The "Termination Fee" shall be a dollar amount equal to 5%
of the result of multiplying (i) the Parent Average Closing Price by (ii) the
number of Parent Merger Shares that would have been issuable by Parent if the
Closing had occurred on the date of such termination, assuming that there were
no Excluded Shares, no Series C Excluded Shares and no Series D Excluded Shares
and that all Outstanding INT'L.com Options were exercised immediately prior to
such date.
(b) This Agreement may also be terminated by INT'L.com (PROVIDED THAT it is
not then in material breach of any representation, warranty, covenant or
agreement contained in this Agreement) alone, by means of written notice to
Parent, if there has been a material breach by Parent or any Subsidiary of any
representation, warranty, covenant or agreement set forth in the Agreement or
other ancillary agreements, which breach would in INT'L.com's reasonable opinion
render it impossible for INT'L.com to satisfy the closing conditions contained
in Section 8.3 and has not been cured within twenty (20) business days following
receipt by Parent of notice of such breach,
10.4 OUTSIDE DATE. This Agreement may be terminated by Parent alone or by
INT'L.com alone by means of written notice if the Effective Time does not occur
on or prior to June 30, 2000; PROVIDED, HOWEVER, that the right to terminate
this Agreement pursuant to the preceding clause will not be available to any
party whose failure to fulfill any obligation under this Agreement has been a
significant cause of, or resulted in, the failure of the Effective Time to occur
on or before such date.
10.5 EFFECT OF TERMINATION. In the event of termination of this Agreement
by either INT'L.com or Parent as provided in this Article, this Agreement will
forthwith become void and have no effect, and there will be no liability or
obligation on the part of Parent, INT'L.com, Merger Sub or their respective
officers or directors, except that (i) the provisions of Sections 7.4, 7.6, 7.7
and 11.2 will survive any such termination and abandonment, and (ii) no party
will be released or relieved from any liability arising from the willful breach
by such party prior to termination of any of its representations, warranties,
covenants or agreements as set forth in this Agreement.
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ARTICLE XI
MISCELLANEOUS
11.1 ENTIRE AGREEMENT. This Agreement, including the exhibits, schedules
and other agreements delivered pursuant to this Agreement contain all of the
terms and conditions agreed upon by the parties relating to the subject matter
of this Agreement and supersede all prior agreements, negotiations,
correspondence, undertakings and communications of the parties, whether oral or
written, respecting that subject matter.
11.2 GOVERNING LAW; CONSENT TO JURISDICTION. The Merger and this Agreement
will be governed by the internal laws of the State of Delaware. Legal
proceedings relating to this Agreement, the agreements executed in connection
with this Agreement or the transactions contemplated hereby or thereby may be
commenced only in the state or federal courts in the State of Delaware. Each of
the parties hereby consents to the exclusive jurisdiction of such courts (and of
the appropriate appellate courts) in any such action or proceeding and waives
any objection to venue laid therein. The foregoing provisions will not be
construed to preclude any party from bringing a counter-claim in any action or
proceeding properly commenced in accordance with the foregoing provisions.
Process in any such action or proceeding may be served on any party anywhere in
the world. Notwithstanding the foregoing, any dispute relating to a claim under
the Escrow Agreement will be resolved in accordance with the arbitration
provisions of the Escrow Agreement.
11.3 NOTICES. All notices, requests, demands or other communications which
are required or may be given pursuant to the terms of this Agreement will be in
writing and will be deemed to have been duly given: (i) on the date of delivery
if personally delivered by hand, (ii) upon the third day after such notice is
deposited in the United States mail, if mailed by registered or certified mail,
postage prepaid, return receipt requested, (iii) upon the date scheduled for
delivery after such notice is sent by a nationally recognized overnight express
courier or (iv) by fax upon written confirmation (including the automatic
confirmation that is received from the recipient's fax machine) of receipt by
the recipient of such notice:
<TABLE>
<S> <C>
IF TO PARENT OR MERGER SUB: Lionbridge Technologies, Inc.
950 Winter Street
Waltham, Massachusetts 02451
Attention: Rory J. Cowan
Telephone No.: (781) 434-6000
Fax No.: (781) 434-6034
WITH COPIES TO:
Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, Massachusetts 02110
Attention: George W. Lloyd, Esq. &
Kathy A. Fields, Esq.
Telephone No.: (617) 248-7000
Fax No.: (617) 248-7100
IF TO INT'L.COM: INT'L.com, Inc.
492 Old Connecticut Path
Framingham, Massachusetts 01701
Attention: Chief Executive Officer
Telephone No.: (508) 620-3900
Fax No.: (508) 620-3999
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
WITH COPIES TO:
INT'L.com, Inc.
301 Mission Street, Suite 350
San Francisco, CA 94105
Attention: Steven L. Fingerhood
Telephone No.: (415) 546-6895
Fax No.: (415) 495-4926
</TABLE>
A-42
<PAGE>
<TABLE>
<S> <C>
Cornerstone Equity IV, L.P.
717 Fifth Avenue, Suite 1100
New York, NY 10022
Attention: Michael Najjar
Telephone: (212) 207-2372
Fax No.: (212) 826-6798
Dakota/EGI, LLC
c/o Equity Group Investments
Two N. Riverside Plaza
Suite 700
Chicago, IL 60606
Attn: Alisa Singer, Esq.
Telephone: (312) 466-3196
Fax No: (312) 454-0335
Neal, Gerber & Eisenberg
Two North LaSalle Street, Suite 2200
Chicago, IL 60602
Attn: Jon Wasserman
Telephone No.: (312) 269-8000
Fax No.: (312) 269-1747
</TABLE>
Such addresses may be changed, from time to time, by means of a notice given
in the manner provided in this Section 11.3.
11.4 SEVERABILITY. If any provision of this Agreement is held to be
unenforceable for any reason, it will be modified rather than voided, if
possible, in order to achieve the intent of the parties to this Agreement to the
extent possible. In any event, all other provisions of this Agreement will be
deemed valid and enforceable to the full extent.
11.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Parent contained in this Agreement and schedules and certificates
executed or delivered pursuant to this Agreement, will survive the Effective
Time, but any claims for breach thereof may only be made on or before the first
yearly anniversary of the Closing.
11.6 ASSIGNMENT. No party to this Agreement may assign, by operation of
law or otherwise, all or any portion of its rights, obligations, or liabilities
under this Agreement without the prior written consent of INT'L.com, Merger Sub
and Parent, which consent may be withheld in the absolute discretion of the
party asked to grant such consent. Any attempted assignment by Merger Sub or
Parent, on the one hand, or by INT'L.com, on the other hand, in violation of
this Section 11.6 will be voidable and will entitle INT'L.com or Parent,
respectively, to terminate this Agreement at its option.
11.7 COUNTERPARTS. This Agreement may be executed in two or more partially
or fully executed counterparts each of which will be deemed an original and will
bind the signatory, but all of which together will constitute but one and the
same instrument. The execution and delivery of a Signature Page to this
Agreement and Plan of Reorganization in the form annexed to this Agreement,
including a facsimile copy of the actual signature, by any party hereto who will
have been furnished the final form of this Agreement will constitute the
execution and delivery of this Agreement by such party.
11.8 AMENDMENT. This Agreement may not be amended except by an instrument
in writing executed by INT'L.com, Merger Sub and Parent.
11.9 EXTENSION, WAIVER. At any time prior to the Effective Time, any party
hereto may, to the extent legally allowed and without prejudice to the rights of
any other party: (i) extend the time for the
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performance of any of the obligations or other acts of any other party hereto to
the party extending such time, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements, covenants or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver will be valid only if set forth in an instrument in writing signed on
behalf of such party.
11.10 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference will be to a Section, Exhibit or
Schedule to this Agreement unless otherwise indicated. The words "include,"
"includes," and "including" when used therein will be deemed in each case to be
followed by the words "without limitation." The table of contents, index to
defined terms, and headings contained in this Agreement are for reference
purposes only and will not affect in any way the meaning or interpretation of
this Agreement.
11.11 KNOWLEDGE. For purposes of this Agreement, the term "KNOWLEDGE"
(including any derivation thereof such as "know" or "knowing", and similar such
as "aware" and regardless of whether such word starts with an initial capital)
in reference to INT'L.com or any Subsidiary will mean the knowledge of the
directors and executive officers of INT'L.com or such Subsidiary as the case may
be, and in reference to Parent or any Subsidiary will mean the knowledge of the
directors and executive officers of Parent or such Subsidiary as the case may
be.
11.12 TRANSFER, SALES, DOCUMENTARY, STAMP AND OTHER SIMILAR TAXES. Any and
all transfer, sales, documentary, stamp and other similar Taxes imposed in
connection with the transactions contemplated by this Agreement will be paid by
the stockholder of INT'L.com with respect to which such Tax relates. At Parent's
discretion, the amount paid to any Person pursuant to this Agreement will be
reduced by the amount of Taxes payable by such Person pursuant to this
Section 11.12. Any amounts so withheld will be promptly remitted to the
appropriate taxing authority.
11.13 ACKNOWLEDGEMENT. Parent and INT'L.com hereby acknowledge and agree
that: (i) the promissory notes described in Section 2.9(ii) were issued pursuant
to Section 5.6 of the Parent Disclosure Schedule and Section 3.8(a) of the
INT'L.com Disclosure Schedule, (ii) Parent has received the INT'L.com financial
projections dated as of March 25, 2000 and (iii) the promissory notes described
in Section 2.9(iii) will count as $2 million of the $3 million of additional
indebtedness permitted to be incurred by INT'L.com pursuant to Section 5.6 of
the Parent Disclosure Schedule without resulting in a material adverse effect on
the Business Condition of INT'L.com. Parent hereby acknowledges that pursuant to
Section 8.2(b) INT'L.com may incur additional indebtedness of up to $1 million
and, in accordance with Section 5.6 of the Parent Disclosure Schedule, such
$1 million of additional indebtedness shall not result in a material adverse
effect on the Business Condition of INT'L.com if such additional indebtedness is
treated as a Debt Adjustment Amount.
(THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
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<PAGE>
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF REORGANIZATION
IN WITNESS WHEREOF, Parent, Merger Sub and, INT'L.com have executed this
Agreement as of the date first written above.
<TABLE>
<S> <C> <C> <C>
LIONBRIDGE TECHNOLOGIES, INC. INT'L.COM, INC.
By: /s/ RORY J. COWAN By: /s/ ROGER O. JEANTY
---------------------------------------- ----------------------------------------
Rory J. Cowan Roger O. Jeanty
CHIEF EXECUTIVE OFFICER & PRESIDENT CHIEF EXECUTIVE OFFICER
LTI ACQUISITION CORP.
By: /s/ RORY J. COWAN
----------------------------------------
Rory J. Cowan
CHIEF EXECUTIVE OFFICER & PRESIDENT
</TABLE>
A-44
<PAGE>
ANNEX B
STRICTLY CONFIDENTIAL
January 19, 2000
The Board of Directors
Lionbridge Technologies, Inc.
950 Winter Street
Waltham, MA 02451
Members of the Board of Directors:
We understand that INT'L.com, Inc. ("INT'L.com"), Lionbridge
Technologies, Inc. (the "Company") and LTI Acquisition Corp., a wholly owned
subsidiary of the Company ("Merger Sub") propose to enter into an Agreement and
Plan of Merger (the "Agreement"). Pursuant to the Agreement, Merger Sub shall
merge with and into INT'L.com and INT'L.com shall be the surviving corporation
(the "Merger"). In the Merger, each outstanding share of INT'L.com's Series A
common stock, par value $0.01 per share ("Series A common stock"), Series B
common stock, par value $0.01 per share ("Series B common stock", and together
with the Series A common stock, "INT'L.com common stock"), Series A preferred
stock ("Series A Preferred Stock"), Series B preferred stock ("Series B
Preferred Stock", and together with the Series A common stock, Series B common
stock and Series A Preferred Stock, the "INT'L.com Capital Stock") outstanding
immediately prior to the effective time of the Merger will be converted into the
right to receive that number of shares of the Company's common stock, par value
$0.01 per share ("Company common stock") that equals the quotient obtained by
dividing (i) the Modified Share Amount by (ii) the sum of (a) the number of
outstanding shares of INT'L.com Capital Stock outstanding immediately prior to
the effective time of the Merger plus (b) the number of shares of INT'L.com
common stock issuable upon the exercise or conversion of all the rights,
warrants or options to acquire INT'L.com Capital Stock other than the
convertible notes described below (the "Conversion Ratio"). The "Modified Share
Amount" means 8,500,000 less (i) the number of Note Payment Shares, (ii) the
number of Debt Payment Shares and (iii) such number of shares of Company common
stock having a value equal to any expenses in connection with the Merger borne
by the stockholders of INT'L.com pursuant to Section 7.4 of the Agreement using
the Company Average Closing Price (as defined below). "Note Payment Shares"
means the quotient determined by dividing (i) $2,000,000 plus any interest
accrued on INT'L.com's outstanding convertible notes dated August 20, 1999 as of
the closing of the Merger by (ii) the average closing price of the Company
common stock over the twenty trading days ending two days prior to the date of
the Agreement (the "Company's Average Closing Price"). "Debt Payment Shares"
means the quotient determined by dividing (i) the aggregate amount of any
indebtedness incurred by INT'L.com in contravention of Section 5.6 of the
Agreement plus any accrued interest thereon as of the Closing of the Merger by
(ii) the Company's Average Closing Price. As of January 19, 2000, the Conversion
Ratio was calculated to be 0.7672.
In addition, each share of INT'L.com's Series C preferred stock, par value
$0.01 per share ("Series C Preferred Stock"), outstanding immediately prior to
the effective time of the Merger will be converted into the right to receive
that number of shares of Company common stock that equals the quotient obtained
by dividing (i) the quotient determined by dividing the Series C Base Amount by
the Company's Average Closing Price by (ii) the number of shares of Series C
Preferred Stock outstanding immediately prior to the effective time of the
Merger. The "Series C Base Amount" means the aggregate accrued liquidation
preference of the Series C Preferred Stock as of the closing of the Merger. Each
share of INT'L.com's Series D preferred stock, par value $0.01 per share
("Series D Preferred Stock"), outstanding immediately prior to the effective
time of the Merger will be converted into the right to receive that number of
shares of Company common stock that equals the quotient obtained by dividing
(i) the quotient determined by dividing the Series D Base Amount by the
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<PAGE>
Company's Average Closing Price by (ii) the number of shares of Series D
Preferred Stock outstanding immediately prior to the effective time of the
Merger. The "Series D Base Amount" means the aggregate accrued liquidation
preference of the Series D Preferred Stock as of the closing of the Merger.
You have requested our opinion as to the fairness from a financial point of
view of the Conversion Ratio to the Company.
In conducting our analysis and arriving at the opinion expressed herein, we
have reviewed such materials and considered such financial and other factors we
deemed relevant under the circumstances, including:
(i) a draft, dated January 18, 2000, of the Agreement;
(ii) certain publicly available historical financial and operating data for the
Company including, but not limited to (i) the Registration Statement, as
amended, filed on August 20, 1999 and (ii) the Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1999;
(iii) certain information relating to the Company, including projected balance
sheets, income statements and statements of cash flow for the fiscal
years ending December 31, 1998 through December 31, 2002, prepared by the
management of the Company;
(iv) historical stock market prices and trading volumes for Company common
stock;
(v) certain information relating to INT'L.com, including a projected income
statement for the fiscal year ending December 31, 2000, prepared by the
management of INT'L.com and adjusted by the management of the Company;
(vi) certain information relating to INT'L.com, including projected balance
sheets, income statements and statements of cash flow for the fiscal years
ending December 31, 2001 and December 31, 2002, prepared by the management
of INT'L.com;
(vii) certain historical pro forma financial statements relating to INT'L.com
and its subsidiaries for the calendar years ended December 31, 1997
through December 31, 1999 and for the nine month periods ended
September 30, 1998 and September 30, 1999, prepared by the management of
INT'L.com;
(viii) audited consolidated balance sheets, income statements and statements of
cash flow for IC Global Services, Inc. and its subsidiaries as of
December 31, 1997 and February 28, 1999;
(ix) audited consolidated balance sheets, income statements and statements of
cash flow for International Language Engineering Corporation and its
subsidiaries as of December 28, 1997 and December 27, 1998;
(x) audited and compiled balance sheets, income statements and statements of
cash flow for Direct Language Communications, Inc. for the years ended
February 28, 1997 and February 28, 1998, respectively;
(xi) publicly available financial, operating, and stock market data concerning
certain companies engaged in business we deemed reasonably similar to
INT'L.com and the Company;
(xii) the financial terms of certain recent transactions we deemed relevant to
our inquiry; and
(xiii) the pro forma financial impact of the Merger on the Company's earnings
for the calendar year ending December 31, 2000.
We have assumed, with your consent, that the draft of the Agreement which we
reviewed (and referred to above) will conform in all material respects to that
document when in final form.
B-2
<PAGE>
We have met with senior management of the Company and INT'L.com to discuss
(i) the prospects for their respective businesses, (ii) their estimates of such
businesses' future financial performance, (iii) the financial impact of the
Merger on the respective companies and (iv) such other matters that we deemed
relevant.
In connection with our review and analysis and in arriving at our opinion,
we have relied upon the accuracy and completeness of the financial and other
information that is publicly available or was provided to us by the Company and
we have not undertaken any independent verification of such information or any
independent valuation or appraisal of any of the assets or liabilities of the
Company or INT'L.com. With respect to certain financial forecasts provided to us
by the Company, we have assumed that such information represents the Company's
management's best currently available estimate as to the future financial
performance of the Company and INT'L.com. Our opinion is predicated on the
Merger qualifying as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended. Our opinion does not address nor
should it be construed to address the conversion of the Series C Preferred
Stock, Series D Preferred Stock and the Convertible Promissory Notes. Further,
our opinion is necessarily based on economic, financial and market conditions as
they exist and can be evaluated as of the date hereof and we assume no
responsibility to update or revise our opinion based upon events or
circumstances occurring after the date hereof.
Our opinion does not address nor should it be construed to address the
relative merits of the Merger or alternative business strategies that may be
available to the Company. In addition, this opinion does not in any manner
address the prices at which the Company's common stock will trade following
consummation of the Merger.
As you know, we have been retained by the Company to render this opinion and
provide other financial advisory services in connection with the Merger and will
receive an advisory fee for such services, which part of the fee is contingent
upon the consummation of the Merger. In the past, we have provided financing
services to the Company and have received fees for such services. In the
ordinary course of business we may actively trade the shares of the Company's
common stock for our own account and for the accounts of customers accordingly,
may at any time hold a long or short position in such securities. We also
provide equity research coverage regarding the Company.
This letter and the opinion expressed herein are for the use of the Board of
Directors of the Company. This opinion does not constitute a recommendation to
the stockholders of the Company as to how such stockholders should vote or as to
any other action such stockholders should take regarding the Merger. This
opinion may not be reproduced, summarized, excerpted from or otherwise publicly
referred to or disclosed in any manner, without our prior written consent;
except that the Company may include this opinion in its entirety in any proxy
statement or information statement relating to the Merger sent to the Company's
stockholders.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Conversion Ratio is fair to the Company from a financial
point of view.
Very truly yours,
Prudential Securities Incorporated
B-3
<PAGE>
ANNEX C
DELAWARE GENERAL CORPORATION LAW
SEC. 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of the stockholder's shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the work
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section251 (other than a merger effected pursuant to
Section251(g) of this title), Section252, Section254, Section257, Section258,
Section263 or Section264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
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d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections
(d) and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of such stockholder's shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of such stockholder's shares. Such demand will
be sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to demand the
appraisal of such stockholder's shares. A proxy or vote against the merger
or consolidation shall not constitute such a demand. A stockholder electing
to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section228
or Section253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval
of the merger or consolidation and that appraisal rights are available for
any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of the
merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of
a constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent
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corporation that are entitled to appraisal rights of the effective date of
the merger or consolidation or (ii) the surviving or resulting corporation
shall send such a second notice to all such holders on or within 10 days
after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such
second notice need only be sent to each stockholder who is entitled to
appraisal rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or assistant
secretary or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be not
more than 10 days prior to the date the notice is given, provided, that if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
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(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 3.1 and
3.2 hereto, respectively.
In addition, Lionbridge has an existing directors and officers liability
insurance policy.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<C> <S>
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 (filed as Exhibit 2.1 to the
Registration Statement on Form S-1 (File No. 333-81233) and
incorporated herein by reference).
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 (filed as Exhibit 2.2
to the Registration Statement on Form S-1 (File No.
333-81233) and incorporated herein by reference).
3.1, 4.1 Second Amended and Restated Certificate of Incorporation of
Lionbridge (filed as Exhibit 3.2 to the Registration
Statement on Form S-1 (File No. 333-81233) and incorporated
herein by reference).
3.2, 4.2 Form of Amended and Restated By-laws of Lionbridge (filed as
Exhibit 3.4 to the Registration Statement on Form S-1 (File
No. 333-81233) and incorporated herein by reference).
4.3 Specimen Certificate for shares of Lionbridge's Common Stock
(filed as Exhibit 4.3 to the Registration Statement on Form
S-1 (File No. 333-81233) and incorporated herein by
reference).
5.1* Form of Opinion of Testa, Hurwitz & Thibeault, LLP regarding
the legality of the securities being issued.
8.1* Form of Opinion of Neal, Gerber & Eisenberg regarding
certain tax matters.
10.1** 1998 Stock Plan (filed as Exhibit 10.1 to the Registration
Statement on Form S-1 (File No. 333-81233) and incorporated
herein by reference).
10.2** 1999 Employee Stock Purchase Plan (filed as Exhibit 10.2 to
the Registration Statement on Form S-1 (File No. 333-81233)
and incorporated herein by reference).
10.3 Lease dated as of February 13, 1997 between Shorenstein
Management, Inc., as Trustee of SRI Two Realty Trust, and
Lionbridge Technologies, Inc. (filed as Exhibit 10.3 to the
Registration Statement on Form S-1 (File No. 333-81233) and
incorporated herein by reference).
10.4** Employment Agreement dated as of December 23, 1996 between
Lionbridge Technologies, Inc. and Rory J. Cowan (filed as
Exhibit 10.4 to the Registration Statement on Form S-1 (File
No. 333-81233) and incorporated herein by reference).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<C> <S>
10.5** Employment Agreement dated as of February 24, 1997 between
Lionbridge Technologies, Inc. and Myriam Martin-Kail (filed
as Exhibit 10.5 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
10.6** Employment Agreement dated as of February 11, 1997 between
Lionbridge Technologies, Inc. and Stephen J. Lifshatz (filed
as Exhibit 10.6 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
10.7** Employment Agreement dated as of February 28, 1997 between
Lionbridge Technologies, Inc. and Peter Wright (filed as
Exhibit 10.7 to the Registration Statement on Form S-1 (File
No. 333-81233) and incorporated herein by reference).
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 (filed as Exhibit 10.8 to the Registration Statement
on Form S-1 (File No. 333-81233) and incorporated herein by
reference).
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. (filed as Exhibit 10.9
to the Registration Statement on Form S-1 (File No.
333-81233) and incorporated herein by reference).
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
(filed as Exhibit 10.10 to the Registration Statement on
Form S-1 (File No. 333-81233) and incorporated herein by
reference).
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
(filed as Exhibit 10.11 to the Registration Statement on
Form S-1 (File No. 333-81233) and incorporated herein by
reference).
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 (filed as
Exhibit 10.12 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
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 (filed as Exhibit 10.13 to the Registration
Statement on Form S-1 (File No. 333-81233) and incorporated
herein by reference).
10.14 Letter of Deposit dated as of September 26, 1997 of
Lionbridge Technologies Holdings B.V. and Rory Cowan to
Silicon Valley Bank (filed as Exhibit 10.14 to the
Registration Statement on Form S-1 (File No. 333-81233) and
incorporated herein by reference).
10.15 Security Agreement dated as of September 26, 1997 between
Lionbridge Technologies, Inc. and Silicon Valley Bank (filed
as Exhibit 10.15 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
10.16 Guarantee dated as of September 26, 1997 made by Lionbridge
Technologies Ireland in favor of Silicon Valley Bank (filed
as Exhibit 10.16 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
10.17 Debenture dated as of September 26, 1997 between Lionbridge
Technologies Ireland and Silicon Valley Bank (filed as
Exhibit 10.17 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
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
(filed as Exhibit 10.18 to the Registration Statement on
Form S-1 (File No. 333-81233) and incorporated herein by
reference).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<C> <S>
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) (filed as
Exhibit 10.19 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
10.20 Warrant to Purchase Common Stock of Lionbridge dated as of
May 21, 1998 issued to Silicon Valley Bancshares (filed as
Exhibit 10.20 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
10.21 Pledge Agreement dated as of May 21, 1998 between Lionbridge
and Silicon Valley Bank regarding capital stock of
Lionbridge Technologies California, Inc. (filed as Exhibit
10.21 to the Registration Statement on Form S-1 (File No.
333-81233) and incorporated herein by reference).
10.22 Pledge Agreement dated as of May 21, 1998 between Lionbridge
and Silicon Valley Bank regarding capital stock of Japanese
Language Services, Inc. (filed as Exhibit 10.22 to the
Registration Statement on Form S-1 (File No. 333-81233) and
incorporated herein by reference).
10.23 Amended and Restated Guarantee dated as of May 21, 1998 made
by Lionbridge Technologies, Inc. in favor of Silicon Valley
Bank (filed as Exhibit 10.23 to the Registration Statement
on Form S-1 (File No. 333-81233) and incorporated herein by
reference).
10.24 Guarantee dated as of May 21, 1998 made by Japanese Language
Services, Inc. in favor of Silicon Valley Bank (filed as
Exhibit 10.24 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
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. (filed as Exhibit
10.25 to the Registration Statement on Form S-1 (File No.
333-81233) and incorporated herein by reference).
10.26 Security Agreement dated as of May 21, 1998 between Japanese
Language Services, Inc. and Silicon Valley Bank (filed as
Exhibit 10.26 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
10.27 Guarantee dated as of May 21, 1998 made by Lionbridge Japan
K.K. in favor of Silicon Valley Bank (filed as Exhibit 10.27
to the Registration Statement on Form S-1 (File No.
333-81233) and incorporated herein by reference).
10.28 Guarantee dated as of May 21, 1998 made by Lionbridge
Technologies California, Inc. in favor of Silicon Valley
Bank (filed as Exhibit 10.28 to the Registration Statement
on Form S-1 (File No. 333-81233) and incorporated herein by
reference).
10.29 Security Agreement dated as of May 21, 1998 between
Lionbridge Technologies California, Inc. and Silicon Valley
Bank (filed as Exhibit 10.29 to the Registration Statement
on Form S-1 (File No. 333-81233) and incorporated herein by
reference).
10.30 First Demand Guarantee dated as of May 21, 1998 made by
Lionbridge Technologies (France) in favor of Silicon Valley
Bank (filed as Exhibit 10.30 to the Registration Statement
on Form S-1 (File No. 333-81233) and incorporated herein by
reference).
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 (filed as Exhibit
10.31 to the Registration Statement on Form S-1 (File No.
333-81233) and incorporated herein by reference).
10.32 Lease dated as of January 1, 1998 between Corke Abbey
Investments Limited and Lionbridge Technologies Ireland
(filed as Exhibit 10.36 to the Registration Statement on
Form S-1 (File No. 333-81233) and incorporated herein by
reference).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<C> <S>
10.33 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 (filed as Exhibit 10.37 to the Registration
Statement on Form S-1 (File No. 333-81233) and incorporated
herein by reference).
10.34 Lease dated as of September 14, 1990 between Corke Abbey
Investments Limited and European Language Translations
Limited (filed as Exhibit 10.38 to the Registration
Statement on Form S-1 (File No. 333-81233) and incorporated
herein by reference).
10.35 Agreement dated as of December 4, 1998 between the
Industrial Development Agency (Ireland) and Lionbridge
(filed as Exhibit 10.39 to the Registration Statement on
Form S-1 (File No. 333-81233) and incorporated herein by
reference).
10.36 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
(filed as Exhibit 10.40 to the Registration Statement on
Form S-1 (File No. 333-81233) and incorporated herein by
reference).
10.37** Form of Non-Competition Agreement as entered into between
Lionbridge and each of Rory J. Cowan, Stephen J. Lifshatz,
and Peter Wright (filed as Exhibit 10.41 to the Registration
Statement on Form S-1 (File No. 333-81233) and incorporated
herein by reference).
10.38 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 (filed as Exhibit 10.43 to the
Registration Statement on Form S-1 (File No. 333-81233) and
incorporated herein by reference).
10.39 Senior Subordinated Note Purchase Agreement by and among
Lionbridge, Morgan Stanley Venture Capital Fund II Annex,
L.P. and Morgan Stanley Venture Investors Annex, L.P. dated
as of March 9, 1999 (filed as Exhibit 10.44 to the
Registration Statement on Form S-1 (File No. 333-81233) and
incorporated herein by reference).
10.40 Senior Subordinated Note Purchase Agreement by and among
Lionbridge Technologies Holdings B.V., Morgan Stanley
Venture Capital Fund II Annex, L.P. and Morgan Stanley
Venture Investors Annex, L.P. dated as of March 9, 1999
(filed as Exhibit 10.45 to the Registration Statement on
Form S-1 (File No. 333-81233) and incorporated herein by
reference).
10.41 First Amended and Restated Senior Subordinated Note Purchase
Agreement by and between Lionbridge and Capital Resource
Lenders III, L.P. dated as of February 26, 1999 (filed as
Exhibit 10.46 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
10.42 Senior Subordinated Note Purchase Agreement by and between
Lionbridge Technologies Holdings B.V. and Capital Resource
Lenders III, L.P. dated as of February 26, 1999 (filed as
Exhibit 10.47 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
10.43 Form of Senior Subordinated Promissory Notes issued pursuant
to Senior Subordinated Note Purchase Agreements (filed as
Exhibit 10.48 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
10.44 Letter Agreements amending each of the Senior Subordinated
Note Purchase Agreements (filed as Exhibit 10.49 to the
Registration Statement on Form S-1 (File No. 333-81233) and
incorporated herein by reference).
10.45 Loan Document Modification Agreement Number 5 dated as of
September 20, 1999 by and among Lionbridge Technologies
Holdings B.V., Lionbridge Technologies B.V., Lionbridge and
Silicon Valley Bank (filed as Exhibit 10.1 to the Quarterly
Report on Form 10-Q (File No. 000-26933) for the quarter
ended September 30, 1999 and incorporated herein by
reference).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<C> <S>
10.46 Loan Document Modification Agreement Number 6 dated as of
December 20, 1999 by and among Lionbridge Technologies
Holdings B.V., Lionbridge Technologies B.V., Lionbridge and
Silicon Valley Bank (filed as Exhibit 10.46 to the Annual
Report on Form 10-K (File No. 000-26933) for the year ended
December 31, 1999 and incorporated herein by reference).
10.47 First Amendment to lease dated as of June 29, 1999 between
Bay Colony Corporate Center LLC and Lionbridge (filed as
Exhibit 10.48 to the Annual Report on Form 10-K (File No.
000-26933) for the year ended December 31, 1999 and
incorporated herein by reference).
10.48 Second Amendment to lease dated as of December 10, 1999
between Bay Colony Corporate Center LLC and Lionbridge
(filed as Exhibit 10.49 to the Annual Report on Form 10-K
(File No. 000-26933) for the year ended December 31, 1999
and incorporated herein by reference).
10.49* Loan Document Modification Agreement Number 7 dated as of
March 20, 2000 by and among Lionbridge Technologies Holdings
B.V., Lionbridge Technologies B.V., Lionbridge and Silicon
Valley Bank.
10.50* Amended and Restated Promissory Note dated as of March 20,
2000 payable to Silicon Valley Bank.
10.51*,** Employment Agreement dated March 29, 2000 between Lionbridge
and Roger O. Jeanty.
10.52*,** Non-Competition Agreement dated March 28, 2000 between
Lionbridge and Roger O. Jeanty.
10.53* Amended and Restated Agreement and Plan of Reorganization
dated March 30, 2000 by and among Lionbridge, LTI
Acquisition Corp. and INT'L.com, Inc.
10.54* Agreement and Plan of Reorganization dated March 30, 2000 by
and among Lionbridge, HT Acquisition Corp. and Harvard
Translations, Inc.
21.1 Subsidiaries of Lionbridge (filed as Exhibit 21.1 to the
Annual Report on Form 10-K (File No. 000-26933) for the year
ended December 31, 1999 and incorporated herein by
reference).
23.1* Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Arthur Andersen LLP.
23.3+ Consent of Testa, Hurwitz & Thibeault, LLP (included in
Exhibit 5.1).
23.4+ Consent of Neal, Gerber & Eisenberg (included in Exhibit
8.1).
23.5* Consent of KPMG LLP.
24.1* Power of Attorney (included in signature page).
99.1* Form of Lionbridge Proxy.
99.2* Form of INT'L.com Proxy.
</TABLE>
- ------------------------
* Filed herewith.
** Indicates a management contract or compensatory plan, contract or
arrangement required to be filed as an Exhibit pursuant to Item 14(c).
+ To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES.
None.
(c) ITEM 4(B) INFORMATION.
The opinion of Prudential Securities Incorporated is included as Annex to
the joint proxy statement/prospectus included in this Registration Statement.
II-5
<PAGE>
ITEM 22. UNDERTAKINGS.
(1) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment 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.
(c) To remove from the registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(2) The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the undersigned registrant undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(3) The registrant undertakes that every prospectus (i) that is filed pursuant
to paragraph (2) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment 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.
(4) 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 foregoing provisions, 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.
II-6
<PAGE>
(4) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Waltham, Massachusetts,
on the 30th day of March 2000.
<TABLE>
<S> <C> <C>
LIONBRIDGE TECHNOLOGIES, INC.
(Registrant)
Date: March 30, 2000
By: /s/ STEPHEN J. LIFSHATZ
-----------------------------------------
Stephen J. Lifshatz
SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
(DULY AUTHORIZED OFFICER AND
PRINCIPAL FINANCIAL OFFICER)
</TABLE>
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Lionbridge
Technologies, Inc., hereby severally constitute and appoint Stephen J. Lifshatz,
our true and lawful attorney, with full power to him singly, to sign for us and
in our names in the capacities indicated below, any amendments to this
Registration Statement, and generally to do all things in our names and on our
behalf in such capacities to enable Lionbridge Technologies, Inc. to comply with
the provisions of the Securities Act of 1933, as amended, and all the
requirements of the Securities Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
President, Chief Executive
/s/ RORY J. COWAN Officer and Chairman of the
------------------------------------------- Board (Principal Executive March 30, 2000
Rory J. Cowan Officer)
Senior Vice President, Chief
/s/ STEPHEN J. LIFSHATZ Financial Officer, Treasurer
------------------------------------------- and Secretary (Principal March 30, 2000
Stephen J. Lifshatz Financial and Accounting
Officer)
/s/ MARCIA J. HOOPER Director
------------------------------------------- March 30, 2000
Marcia J. Hooper
/s/ GUY L. DE CHAZAL Director
------------------------------------------- March 30, 2000
Guy L. De Chazal
/s/ CLAUDE P. SHEER Director
------------------------------------------- March 30, 2000
Claude P. Sheer
/s/ PAUL KAVANAGH Director
------------------------------------------- March 30, 2000
Paul Kavanagh
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<C> <S>
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 (filed as Exhibit 2.1 to the
Registration Statement on Form S-1 (File No. 333-81233) and
incorporated herein by reference).
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 (filed as Exhibit 2.2
to the Registration Statement on Form S-1 (File No.
333-81233) and incorporated herein by reference).
3.1, 4.1 Second Amended and Restated Certificate of Incorporation of
Lionbridge (filed as Exhibit 3.2 to the Registration
Statement on Form S-1 (File No. 333-81233) and incorporated
herein by reference).
3.2, 4.2 Form of Amended and Restated By-laws of Lionbridge (filed as
Exhibit 3.4 to the Registration Statement on Form S-1 (File
No. 333-81233) and incorporated herein by reference).
4.3 Specimen Certificate for shares of Lionbridge's Common Stock
(filed as Exhibit 4.3 to the Registration Statement on Form
S-1 (File No. 333-81233) and incorporated herein by
reference).
5.1* Form of Opinion of Testa, Hurwitz & Thibeault, LLP regarding
the legality of the securities being issued.
8.1* Form of Opinion of Neal, Gerber & Eisenberg regarding
certain tax matters.
10.1** 1998 Stock Plan (filed as Exhibit 10.1 to the Registration
Statement on Form S-1 (File No. 333-81233) and incorporated
herein by reference).
10.2** 1999 Employee Stock Purchase Plan (filed as Exhibit 10.2 to
the Registration Statement on Form S-1 (File No. 333-81233)
and incorporated herein by reference).
10.3 Lease dated as of February 13, 1997 between Shorenstein
Management, Inc., as Trustee of SRI Two Realty Trust, and
Lionbridge Technologies, Inc. (filed as Exhibit 10.3 to the
Registration Statement on Form S-1 (File No. 333-81233) and
incorporated herein by reference).
10.4** Employment Agreement dated as of December 23, 1996 between
Lionbridge Technologies, Inc. and Rory J. Cowan (filed as
Exhibit 10.4 to the Registration Statement on Form S-1 (File
No. 333-81233) and incorporated herein by reference).
10.5** Employment Agreement dated as of February 24, 1997 between
Lionbridge Technologies, Inc. and Myriam Martin-Kail (filed
as Exhibit 10.5 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
10.6** Employment Agreement dated as of February 11, 1997 between
Lionbridge Technologies, Inc. and Stephen J. Lifshatz (filed
as Exhibit 10.6 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
10.7** Employment Agreement dated as of February 28, 1997 between
Lionbridge Technologies, Inc. and Peter Wright (filed as
Exhibit 10.7 to the Registration Statement on Form S-1 (File
No. 333-81233) and incorporated herein by reference).
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 (filed as Exhibit 10.8 to the Registration Statement
on Form S-1 (File No. 333-81233) and incorporated herein by
reference).
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. (filed as Exhibit 10.9
to the Registration Statement on Form S-1 (File No.
333-81233) and incorporated herein by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<C> <S>
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
(filed as Exhibit 10.10 to the Registration Statement on
Form S-1 (File No. 333-81233) and incorporated herein by
reference).
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
(filed as Exhibit 10.11 to the Registration Statement on
Form S-1 (File No. 333-81233) and incorporated herein by
reference).
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 (filed as
Exhibit 10.12 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
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 (filed as Exhibit 10.13 to the Registration
Statement on Form S-1 (File No. 333-81233) and incorporated
herein by reference).
10.14 Letter of Deposit dated as of September 26, 1997 of
Lionbridge Technologies Holdings B.V. and Rory Cowan to
Silicon Valley Bank (filed as Exhibit 10.14 to the
Registration Statement on Form S-1 (File No. 333-81233) and
incorporated herein by reference).
10.15 Security Agreement dated as of September 26, 1997 between
Lionbridge Technologies, Inc. and Silicon Valley Bank (filed
as Exhibit 10.15 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
10.16 Guarantee dated as of September 26, 1997 made by Lionbridge
Technologies Ireland in favor of Silicon Valley Bank (filed
as Exhibit 10.16 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
10.17 Debenture dated as of September 26, 1997 between Lionbridge
Technologies Ireland and Silicon Valley Bank (filed as
Exhibit 10.17 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
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
(filed as Exhibit 10.18 to the Registration Statement on
Form S-1 (File No. 333-81233) and incorporated herein by
reference).
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) (filed as
Exhibit 10.19 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
10.20 Warrant to Purchase Common Stock of Lionbridge dated as of
May 21, 1998 issued to Silicon Valley Bancshares (filed as
Exhibit 10.20 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
10.21 Pledge Agreement dated as of May 21, 1998 between Lionbridge
and Silicon Valley Bank regarding capital stock of
Lionbridge Technologies California, Inc. (filed as Exhibit
10.21 to the Registration Statement on Form S-1 (File No.
333-81233) and incorporated herein by reference).
10.22 Pledge Agreement dated as of May 21, 1998 between Lionbridge
and Silicon Valley Bank regarding capital stock of Japanese
Language Services, Inc. (filed as Exhibit 10.22 to the
Registration Statement on Form S-1 (File No. 333-81233) and
incorporated herein by reference).
10.23 Amended and Restated Guarantee dated as of May 21, 1998 made
by Lionbridge Technologies, Inc. in favor of Silicon Valley
Bank (filed as Exhibit 10.23 to the Registration Statement
on Form S-1 (File No. 333-81233) and incorporated herein by
reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<C> <S>
10.24 Guarantee dated as of May 21, 1998 made by Japanese Language
Services, Inc. in favor of Silicon Valley Bank (filed as
Exhibit 10.24 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
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. (filed as Exhibit
10.25 to the Registration Statement on Form S-1 (File No.
333-81233) and incorporated herein by reference).
10.26 Security Agreement dated as of May 21, 1998 between Japanese
Language Services, Inc. and Silicon Valley Bank (filed as
Exhibit 10.26 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
10.27 Guarantee dated as of May 21, 1998 made by Lionbridge Japan
K.K. in favor of Silicon Valley Bank (filed as Exhibit 10.27
to the Registration Statement on Form S-1 (File No.
333-81233) and incorporated herein by reference).
10.28 Guarantee dated as of May 21, 1998 made by Lionbridge
Technologies California, Inc. in favor of Silicon Valley
Bank (filed as Exhibit 10.28 to the Registration Statement
on Form S-1 (File No. 333-81233) and incorporated herein by
reference).
10.29 Security Agreement dated as of May 21, 1998 between
Lionbridge Technologies California, Inc. and Silicon Valley
Bank (filed as Exhibit 10.29 to the Registration Statement
on Form S-1 (File No. 333-81233) and incorporated herein by
reference).
10.30 First Demand Guarantee dated as of May 21, 1998 made by
Lionbridge Technologies (France) in favor of Silicon Valley
Bank (filed as Exhibit 10.30 to the Registration Statement
on Form S-1 (File No. 333-81233) and incorporated herein by
reference).
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 (filed as Exhibit
10.31 to the Registration Statement on Form S-1 (File No.
333-81233) and incorporated herein by reference).
10.32 Lease dated as of January 1, 1998 between Corke Abbey
Investments Limited and Lionbridge Technologies Ireland
(filed as Exhibit 10.36 to the Registration Statement on
Form S-1 (File No. 333-81233) and incorporated herein by
reference).
10.33 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 (filed as Exhibit 10.37 to the Registration
Statement on Form S-1 (File No. 333-81233) and incorporated
herein by reference).
10.34 Lease dated as of September 14, 1990 between Corke Abbey
Investments Limited and European Language Translations
Limited (filed as Exhibit 10.38 to the Registration
Statement on Form S-1 (File No. 333-81233) and incorporated
herein by reference).
10.35 Agreement dated as of December 4, 1998 between the
Industrial Development Agency (Ireland) and Lionbridge
(filed as Exhibit 10.39 to the Registration Statement on
Form S-1 (File No. 333-81233) and incorporated herein by
reference).
10.36 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
(filed as Exhibit 10.40 to the Registration Statement on
Form S-1 (File No. 333-81233) and incorporated herein by
reference).
10.37** Form of Non-Competition Agreement as entered into between
Lionbridge and each of Rory J. Cowan, Stephen J. Lifshatz,
and Peter Wright (filed as Exhibit 10.41 to the Registration
Statement on Form S-1 (File No. 333-81233) and incorporated
herein by reference).
10.38 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 (filed as Exhibit 10.43 to the
Registration Statement on Form S-1 (File No. 333-81233) and
incorporated herein by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<C> <S>
10.39 Senior Subordinated Note Purchase Agreement by and among
Lionbridge, Morgan Stanley Venture Capital Fund II Annex,
L.P. and Morgan Stanley Venture Investors Annex, L.P. dated
as of March 9, 1999 (filed as Exhibit 10.44 to the
Registration Statement on Form S-1 (File No. 333-81233) and
incorporated herein by reference).
10.40 Senior Subordinated Note Purchase Agreement by and among
Lionbridge Technologies Holdings B.V., Morgan Stanley
Venture Capital Fund II Annex, L.P. and Morgan Stanley
Venture Investors Annex, L.P. dated as of March 9, 1999
(filed as Exhibit 10.45 to the Registration Statement on
Form S-1 (File No. 333-81233) and incorporated herein by
reference).
10.41 First Amended and Restated Senior Subordinated Note Purchase
Agreement by and between Lionbridge and Capital Resource
Lenders III, L.P. dated as of February 26, 1999 (filed as
Exhibit 10.46 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
10.42 Senior Subordinated Note Purchase Agreement by and between
Lionbridge Technologies Holdings B.V. and Capital Resource
Lenders III, L.P. dated as of February 26, 1999 (filed as
Exhibit 10.47 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
10.43 Form of Senior Subordinated Promissory Notes issued pursuant
to Senior Subordinated Note Purchase Agreements (filed as
Exhibit 10.48 to the Registration Statement on Form S-1
(File No. 333-81233) and incorporated herein by reference).
10.44 Letter Agreements amending each of the Senior Subordinated
Note Purchase Agreements (filed as Exhibit 10.49 to the
Registration Statement on Form S-1 (File No. 333-81233) and
incorporated herein by reference).
10.45 Loan Document Modification Agreement Number 5 dated as of
September 20, 1999 by and among Lionbridge Technologies
Holdings B.V., Lionbridge Technologies B.V., Lionbridge and
Silicon Valley Bank (filed as Exhibit 10.1 to the Quarterly
Report on Form 10-Q (File No. 000-26933) for the quarter
ended September 30, 1999 and incorporated herein by
reference).
10.46 Loan Document Modification Agreement Number 6 dated as of
December 20, 1999 by and among Lionbridge Technologies
Holdings B.V., Lionbridge Technologies B.V., Lionbridge and
Silicon Valley Bank (filed as Exhibit 10.46 to the Annual
Report on Form 10-K (File No. 000-26933) for the year ended
December 31, 1999 and incorporated herein by reference).
10.47 First Amendment to lease dated as of June 29, 1999 between
Bay Colony Corporate Center LLC and Lionbridge (filed as
Exhibit 10.48 to the Annual Report on Form 10-K (File No.
000-26933) for the year ended December 31, 1999 and
incorporated herein by reference).
10.48 Second Amendment to lease dated as of December 10, 1999
between Bay Colony Corporate Center LLC and Lionbridge
(filed as Exhibit 10.49 to the Annual Report on Form 10-K
(File No. 000-26933) for the year ended December 31, 1999
and incorporated herein by reference).
10.49* Loan Document Modification Agreement Number 7 dated as of
March 20, 2000 by and among Lionbridge Technologies Holdings
B.V., Lionbridge Technologies B.V., Lionbridge and Silicon
Valley Bank.
10.50* Amended and Restated Promissory Note dated as of March 20,
2000 payable to Silicon Valley Bank.
10.51*,** Employment Agreement dated March 29, 2000 between Lionbridge
and Roger O. Jeanty.
10.52*,** Non-Competition Agreement dated March 28, 2000 between
Lionbridge and Roger O. Jeanty.
10.53* Amended and Restated Agreement and Plan of Reorganization
dated March 30, 2000 by and among Lionbridge, LTI
Acquisition Corp. and INT'L.com, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<C> <S>
10.54* Agreement and Plan of Reorganization dated March 30, 2000 by
and among Lionbridge, HT Acquisition Corp. and Harvard
Translations, Inc.
21.1 Subsidiaries of Lionbridge (filed as Exhibit 21.1 to the
Annual Report on Form 10-K (File No. 000-26933) for the year
ended December 31, 1999 and incorporated herein by
reference).
23.1* Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Arthur Andersen LLP.
23.3+ Consent of Testa, Hurwitz & Thibeault, LLP (included in
Exhibit 5.1).
23.4+ Consent of Neal, Gerber & Eisenberg (included in Exhibit
8.1).
23.5* Consent of KPMG LLP.
24.1* Power of Attorney (included in signature page).
99.1* Form of Lionbridge Proxy.
99.2* Form of INT'L.com Proxy.
</TABLE>
- ------------------------
* Filed herewith.
** Indicates a management contract or compensatory plan, contract or
arrangement required to be filed as an Exhibit pursuant to Item 14(c).
+ To be filed by amendment.
<PAGE>
Exhibit 5.1
Draft 3/30/00
April __, 2000
Lionbridge Technologies, Inc.
950 Winter Street
Waltham, MA 02451
RE: Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
This opinion relates to an aggregate of up to 8,201,082 shares (the
"Shares") of common stock, par value $.01 per share ("common stock"), of
Lionbridge Technologies, Inc. (the "Company"), which are issuable pursuant to
the Agreement and Plan of Reorganization, dated as of January 19, 2000, by and
among the Company, LTI Acquisition Corporation and INT'L.com, Inc. (the
"Merger Agreement") and which are to be registered pursuant to a Registration
Statement on Form S-4 as filed with the Securities and Exchange Commission
(the "Commission") on April__, 2000, as amended (the "Registration
Statement").
Based upon such investigation as we have deemed necessary, we are of the
opinion that when the Shares to be issued by the Company pursuant to the
Merger Agreement have been issued in accordance with the terms described of
the Merger Agreement, such shares of common stock will have been validly
issued and will be 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 related
prospectus under the caption "Legal Matters."
Very truly yours,
Testa, Hurwitz & Thibeault, LLP
<PAGE>
[LETTERHEAD OF NEAL, GERBER & EISENBERG]
Exhibit 8.1
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: LIONBRIDGE TECHNOLOGIES, INC.
REGISTRATION STATEMENT ON FORM S-4
Gentlemen:
We are special mergers and acquisition counsel to INT'L.com, Inc.
(the "Company"), in connection with the proposed merger ("Merger") of the
Company with and into a wholly-owned subsidiary ("Sub") of Lionbridge
Technologies, Inc. ("Lionbridge") pursuant to the terms of the Amended and
Restated Agreement and Plan of Reorganization dated as of March 30, 2000, by
and among the Company, Lionbridge and Sub, and in such capacity, we have
assisted in certain aspects of the preparation for filing with the Securities
and Exchange Commission (the "SEC"), under the Securities Act of 1933, as
amended (the "Act"), of Lionbridge's Registration Statement on Form S-4 (the
"Registration Statement") and the Prospectus contained therein relating to
the Merger.
As such counsel, we have made such examinations as we have deemed
relevant and necessary as a basis for the opinions hereinafter expressed. In
such examinations, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity
to original documents of all documents submitted to us as conformed or
photostatic copies. As to certain facts relevant to the opinions set forth
below, we have relied on factual representations by the Company, Lionbridge
and others and we assume, without further investigation, the accuracy thereof.
Based on the foregoing, we are of the opinion that the discussion
set forth under the heading "Material United States Federal Income Tax
Considerations" in the Registration Statement is accurate and describes the
material United States Federal income tax consequences to United States
holders of Company stock who, pursuant to the Merger, exchange their Company
stock solely for common stock of Lionbridge. Such discussion is based upon
provisions of the Internal Revenue Code of 1986, as amended, applicable
Treasury Regulations, published administrative positions and judicial
decisions existing as of the date hereof. There can be no assurance that
contrary positions may not be taken by the Internal Revenue Service.
<PAGE>
Securities and Exchange Commission
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to our firm in the Prospectus
under the caption "Material United States Federal Income Tax Considerations."
This does not constitute a consent under Section 7 of the Act, and in
consenting to such references to our firm we have not certified any part of
such Registration Statement and do not otherwise come within the categories
of persons whose consent is required under Section 7 or under the rules and
regulations of the SEC thereunder.
Very truly yours,
NEAL, GERBER & EISENBERG
<PAGE>
Exhibit 10.49
LOAN DOCUMENT MODIFICATION AGREEMENT
NUMBER 7; DATED AS OF MARCH 20, 2000
LOAN DOCUMENT MODIFICATION AGREEMENT dated as of March 20, 2000 (this
"Agreement") by and among SILICON VALLEY BANK (the "Bank"), a
California-chartered bank with its principal place of business located at 3003
Tasman Drive, Santa Clara, California 95054, and with a loan production office
located at 40 William Street, Wellesley, Massachusetts 02481, doing business
under the name "Silicon Valley East," LIONBRIDGE TECHNOLOGIES HOLDINGS B.V., a
company with limited liability, incorporated in the Netherlands and having a
principal place of business located at The Sinus Building, Overschiestraat 55,
1062 HN, Amsterdam, The Netherlands, LIONBRIDGE TECHNOLOGIES B.V., a company
with limited liability, incorporated in Netherlands and having a principal place
of business located at the same address (each a "Borrower" and collectively, the
"Borrowers") and LIONBRIDGE TECHNOLOGIES, INC., a Delaware company with its
principal place of business located at 950 Winter Street, Suite 2410, Waltham,
Massachusetts 02451 (the "Parent Guarantor").
1. REFERENCE TO EXISTING LOAN DOCUMENTS.
Reference is hereby made to that Loan Agreement dated as of September
26, 1997 among the Bank and the Borrowers, as amended by Loan Documentation
Modification Agreement No. 1 dated as of May 21, 1998, as further amended by
Loan Document Modification Agreement No. 2 dated as of February 25, 1999, Loan
Document Modification Agreement No. 3 dated as of May 20, 1999, Loan Document
Modification Agreement No. 4 dated as of July 16, 1999, Loan Document
Modification Agreement No. 5 dated as of September 20, 1999 and Loan Document
Modification Agreement No. 6 dated as of December 20, 1999 (with the attached
schedules and exhibits, and as the same may hereafter be further amended,
modified, supplemented, extended or restated from time to time, the "Loan
Agreement") and the Loan Documents referred to therein, including without
limitation that certain Amended and Restated Promissory Note of the Borrowers
dated as of December 20, 1999 in the principal amount of $8,000,000 (the
"Existing Note") and the Security Documents referred to therein, and also
including that certain Amended and Restated Guarantee of the Parent Guarantor
dated as of May 21, 1998 in favor of the Bank (the "Parent Guarantee"). Unless
otherwise defined herein, capitalized terms used in this Agreement shall have
the same respective meanings as set forth in the Loan Agreement.
2. EFFECTIVE DATE.
This Agreement shall become effective as of March 20, 2000 (the
"Effective Date"), provided that the Bank shall have received the following on
or before March 31, 2000 and provided further, however, in no event shall this
Agreement become effective until signed by an officer of the Bank in California:
a. two copies of this Agreement, duly executed by each
Borrower and the Parent Guarantor;
b. an amended and restated promissory note in the form
enclosed herewith (the "Amended Note"), duly executed by the Borrowers;
<PAGE>
-2-
c. the attached consents of affiliated entities who have
previously furnished guaranties in favor of the Bank of the obligations of the
Borrowers, duly executed by officers thereof;
d. payment of the Bank's facility fee specified below; and
e. such other documents, and completion of such other matters,
as the Bank may reasonably request in connection with the amendment of the Loan
Agreement, as contemplated hereunder.
By the signature of its authorized officer below, the Borrowers are
hereby representing that, except as modified in SCHEDULE A attached hereto, the
representations of the Borrowers set forth in the Loan Documents (including
those contained in the Loan Agreement, as amended by this Agreement) are true
and correct as of the Effective Date as if made on and as of such date. In
addition, the Borrowers confirm their authorization as to the debiting of their
account with the Bank in the amount of $6,667 in order to pay the Bank's
facility fee for the period up to and including the extended Revolving Maturity
Date. Finally, the Borrowers (and each guarantor signing below) agree that, as
of the Effective Date, they have no defenses against their obligations to pay
any amounts under the Loan Agreement and the other Loan Documents.
3. DESCRIPTION OF CHANGE IN TERMS.
As of the Effective Date, the Loan Agreement is modified in the
following respects:
a. Section 1.1 of the Loan Agreement is hereby amended by
restating the definition of "Revolving Maturity Date" in its entirety as
follows:
"`Revolving Maturity Date' means May 20, 2000."
b. The Loan Agreement and the other Loan Documents are hereby
amended wherever necessary or appropriate to reflect the foregoing change.
4. CONTINUING VALIDITY.
Upon the effectiveness hereof, each reference in each Security
Instrument or other Loan Document to (i) "the Loan Agreement," "thereunder,"
"thereof," "therein" or words of like import referring to the Loan Agreement,
shall mean and be a reference to the Loan Agreement, as amended hereby and (ii)
"the Parent Guarantee," "thereunder," "thereof," "therein" or words of like
import referring to the Parent Guarantee, shall mean and be a reference to the
Parent Guarantee, as amended hereby. Except as specifically set forth above, the
Loan Agreement shall remain in full force and effect and is hereby ratified and
confirmed.
Each of the other Loan Documents is in full force and effect and is
hereby ratified and confirmed. The amendments and limited waiver set forth above
(i) do not constitute a waiver or modification of any term, condition or
covenant of the Loan Agreement or any other Loan Document, other than as
expressly set forth herein, and (ii) shall not prejudice any rights which the
Bank may now or hereafter have under or in connection with the Loan Agreement,
as
<PAGE>
-3-
modified hereby, or the other Loan Documents, and shall not obligate the Bank to
assent to any further modifications.
5. MISCELLANEOUS.
a. This Agreement may be signed in one or more counterparts
each of which taken together shall constitute one and the same document.
b. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
c. THE BORROWERS ACCEPT FOR THEMSELVES AND IN CONNECTION WITH
THEIR PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE
OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS
IN ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND AGAINST THEM WHICH ARISES OUT OF
OR BY REASON OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON THE
BANK CANNOT AVAIL ITSELF OF THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS,
THEN VENUE SHALL LIE IN SANTA CLARA COUNTY, CALIFORNIA.
d. The Borrowers agree to promptly pay on demand all costs and
expenses of the Bank in connection with the preparation, reproduction, execution
and delivery of this Agreement and the other instruments and documents to be
delivered hereunder, including the reasonable fees and out-of-pocket expenses of
Sullivan & Worcester LLP, special counsel for the Bank with respect thereto.
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the Bank and the Borrowers have caused this
Agreement to be signed under seal by their respective duly authorized officers
as of the date set forth above.
Sincerely,
SILICON VALLEY EAST, a Division
of Silicon Valley Bank
By:_____________________________
Andrew H. Tsao
Senior Vice President
SILICON VALLEY BANK
By:______________________________
Name:
Title:
(signed in Santa Clara, CA)
BORROWERS:
LIONBRIDGE TECHNOLOGIES HOLDINGS B.V.
By:______________________________
Rory J. Cowan
Managing Director
LIONBRIDGE TECHNOLOGIES B.V.
By:______________________________
Rory J. Cowan
Managing Director
PARENT GUARANTOR:
LIONBRIDGE TECHNOLOGIES, INC.
By:______________________________
Rory J. Cowan
Title:
<PAGE>
Exhibit 10.50
AMENDED AND RESTATED PROMISSORY NOTE
$8,000,000 Boston, Massachusetts
As of March 20, 2000
FOR VALUE RECEIVED, the undersigned (the "Borrowers"), jointly and
severally, absolutely and unconditionally promise to pay to the order of Silicon
Valley Bank ("Payee") at the head office of Payee at 3003 Tasman Drive, Santa
Clara, California 95054:
(a) on May 20, 2000, the principal amount of EIGHT MILLION
DOLLARS ($8,000,000) or, if less, the aggregate unpaid principal amount of
Advances made by the Payee to the Borrowers pursuant to the Loan Agreement dated
as of September 26, 1997, as amended May 21, 1998, February 25, 1999, May 20,
1999, September 20, 1999, December 20, 1999 and March 20, 2000 and as may be
further amended or supplemented from time to time (the "Loan Agreement"), by and
among the Borrowers and the Payee; and
(b) interest on the principal balance hereof from time to time
outstanding from the date hereof through and including the date on which such
principal amount is paid in full, at the times and at the rates provided in the
Loan Agreement.
This Note constitutes an amendment and restatement in its entirety of
the Amended and Restated Promissory Note payable to the Payee in the original
principal amount of $8,000,000 dated December 20, 1999, (the "Preceding Note")
and is in substitution therefor and a replacement thereof. Nothing herein or in
any other document shall be construed to constitute payment of the Preceding
Note or to release or terminate the security interest created by any Security
Documents in favor of the Payee in respect of the obligations of the Borrowers,
thereunder.
This Note evidences borrowings under, is subject to the terms and
conditions of and has been issued by the Borrowers in accordance with the terms
of, the Loan Agreement. The Payee and any holder hereof is entitled to the
benefits and subject to the conditions of the Loan Agreement and may enforce the
agreements of the Borrowers contained therein, and any holder hereof may
exercise the respective remedies provided for thereby or otherwise available in
respect thereof, all in accordance with the respective terms thereof. This Note
is secured by the Security Documents described in the Loan Agreement.
All capitalized terms used in this Note and not otherwise defined
herein shall have the same meanings herein as in the Loan Agreement.
This Note may be prepaid at any time, without premium or penalty, in
whole or in part. Any prepayment of principal shall be accompanied by a payment
of accrued interest in respect of the principal being prepaid.
If any Event of Default shall occur and be continuing, the Payee may
declare any or all obligations or liabilities of the Borrowers to the Payee
(including the unpaid principal hereunder
<PAGE>
-2-
and any interest due thereon) immediately due and payable without presentment,
demand, protest or notice.
The Borrowers and every endorser and guarantor of this Note or the
obligation represented hereby waive presentment, demand, notice, protest and all
other demands and notice in connection with the delivery, acceptance,
performance, default or enforcement of this Note, assent to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party or person primarily or secondarily liable.
This Note shall be governed by, and construed in accordance with, the
internal laws of The Commonwealth of Massachusetts, without regard to principles
of conflicts of law. Each of the Borrowers hereby submits to the exclusive
jurisdiction of the state and Federal courts located in The Commonwealth of
Massachusetts and in the County of Santa Clara, State of California in
connection with any suit under or in connection with this Note. The Borrowers
irrevocably waive any objection which they may now or hereafter have to the
laying of venue of any such action brought in the courts referred to in the
preceding sentence and irrevocably waive and agree not to plead or claim in any
such action that such action has been brought in an inconvenient forum. THE
BORROWERS HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF
THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH
BORROWER RECOGNIZES AND AGREES THAT THE FOREGOING WAIVE CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH BORROWER REPRESENTS AND
WARRANTS THAT IS HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
This Note shall be deemed to take effect as a sealed instrument under
the laws of The Commonwealth of Massachusetts and for all purposes shall be
construed in accordance with such laws (without regard to conflicts of laws
rules).
[Remainder of page intentionally left blank.]
<PAGE>
-3-
IN WITNESS WHEREOF, the Borrowers have caused this Note to be signed
under seal by their duly authorized officers as of the day and year first above
written.
BORROWERS:
LIONBRIDGE TECHNOLOGIES
HOLDINGS B.V.
By:___________________________
Rory J. Cowan
Managing Director
LIONBRIDGE TECHNOLOGIES B.V.
By:___________________________
Rory J. Cowan
Managing Director
<PAGE>
EXHIBIT 10.51
EMPLOYMENT AGREEMENT
This Employment Agreement is made as of March 29, 2000 by and among
Lionbridge Technologies, Inc., a Delaware corporation (the "Company"), and Roger
O. Jeanty (the "Executive").
RECITALS
1. The Company and INT'L.com, Inc., a Delaware corporation
("INT'L.com"), are parties to a certain Agreement and Plan of Reorganization
dated as of January 13, 2000 (the "Merger Agreement") pursuant to which the
Company will acquire INT'L.com through a merger of one of the Company's
subsidiaries with and into INT'L.com (the "Merger") as set forth in the Merger
Agreement.
2. The operations of the Company following the Merger will be a complex
matter requiring direction and leadership in a variety of areas.
3. The Executive has certain experience and expertise that qualify him
to provide the direction and leadership required by the Company and its
subsidiaries.
4. Subject to the terms and conditions hereinafter set forth, the
Company therefore wishes to employ the Executive as its President and the
Executive wishes to accept such employment.
AGREEMENT
Now, therefore, the parties hereto hereby agree as follows:
1. EMPLOYMENT. Subject to the terms and conditions set forth in this
Agreement, the Company offers and the Executive hereby accepts employment,
effective upon the consummation of the Merger (such date being referred to
herein as the "Effective Date").
2. TERM. Subject to earlier termination as hereafter provided, the
Executive shall be employed hereunder for an original term commencing on the
Effective Date and ending on a date one (1) year from the date first set forth
above, which term shall be automatically extended thereafter for successive
terms of one year each, unless either party provides notice to the other at
least three months prior to the expiration of the original or any extension term
that this Agreement is not to be extended. The term of this Agreement, as from
time to time modified and in effect is hereafter referred to as "the term of
this Agreement" or "the term hereof." If the Merger Agreement is terminated
prior to the Effective Date, this Agreement shall automatically terminate and be
without further force or effect.
<PAGE>
3. CAPACITY AND PERFORMANCE.
3.1. OFFICES. During the term hereof, the Executive shall
serve the Company as President of the Company. In such capacity, the Executive
will be responsible for day to day operations of the Company. In addition, for
so long as the Executive is employed by the Company and without further
compensation, if so elected or appointed from time to time, the Executive shall
serve as a member of the Company's Board of Directors (the "Board") and as a
director of one or more of the Company's subsidiaries.
3.2. PERFORMANCE. During the term hereof, the Executive shall
be employed by the Company and shall perform and discharge (faithfully,
diligently and to the best of his ability) such duties and responsibilities on
behalf of the Company and its subsidiaries as may be designated from time to
time by the Board which are consistent with the Executive's position as
President. The Executive shall devote substantially all of his time, attention
and energies to the business of the Company and shall not engage in any other
business activity or activities, whether or not such business activity is
pursued for gain, profit or other pecuniary advantage, that, in the judgment of
the Board may conflict with the proper performance of the Executive's duties
under this Agreement.
4. COMPENSATION AND BENEFITS. As compensation for all services
performed by the Executive under this Agreement and subject to Section 5 hereof
and performance of the Executive's duties and of the obligations of the
Executive to the Company and its subsidiaries, pursuant to this Agreement or
otherwise:
4.1. BASE SALARY. During the term hereof the Company shall pay
the Executive a base salary at the rate of $200,000 per year, payable in
accordance with the payroll practices of the Company for its executives and
subject to increase from time to time (based on an annual review) by the Board
in its sole discretion. Such base salary, as from time to time increased, is
hereafter referred to as the "Base Salary." The Base Salary payable to the
Executive in 2000 shall be prorated for the period from the Effective Date
through December 31, 2000 and for any subsequent period of service less than one
full year.
4.2. BONUS COMPENSATION. The Executive may also be eligible to
receive a bonus. Such bonus shall be based on the Company's and Executive's
achievement of goals and objectives to be determined and memorialized by the
Board of Directors in their sole discretion.
4.3. OPTIONS. At the first Board of Directors meeting
following the Effective Date, the Company shall grant to Employee an option
to purchase shares of Common Stock of the Company (subject to appropriate
adjustment in the event of a stock split, stock dividend or similar event),
which will vest and carry other terms similar to those options granted to
other employees of the Company. The amount of such option grant shall be
commensurate with Employee's position in consideration of future services
expected to be rendered. Subject to the approval of the Board of Directors,
the Company, may from time to time grant further options to the Employee,
subject to terms similar to those options granted to other employees of the
Company.
<PAGE>
4.4. VACATIONS. During the term hereof, the Executive shall be
entitled to five (5) weeks of vacation per annum, to be taken at such times and
intervals as shall be determined by the Executive in his reasonable discretion.
The Executive may not accumulate or carry over from one calendar year to another
any unused, accrued vacation time. The Executive shall not be entitled to
compensation for vacation time not taken.
4.5. OTHER BENEFITS. During the term hereof and subject to any
contribution therefor generally required of executives of the Company, the
Executive shall be entitled to participate in all employee benefits plans (other
than any profit sharing or bonus compensation programs) from time to time
adopted by the Board and in effect for executives of the Company generally,
except to the extent such plans are in a category of benefit otherwise provided
to the Executive. Such participation shall be subject (i) the terms of the
applicable plan documents, (ii) generally applicable Company policies and (iii)
the discretion of the Board or any administrative or other committee provided
for in or contemplated by such plan. The Company may alter, modify, add to or
delete its employee benefits plans at any time as the Board, in its sole
judgment, determines to be appropriate.
4.6. BUSINESS EXPENSES. The Company shall pay or reimburse the
Executive for all reasonable business expenses incurred or paid by the Executive
in the performance of his duties and responsibilities hereunder, subject to (i)
any expense policy of the Company set by the Board from time to time, and (ii)
such reasonable substantiation and documentation requirements as may be
specified by the Board from time to time.
4.7. MINIMUM GUARANTEED SEVERANCE. In the event Executive's
employment: with the Company terminates other than by the Company for Cause,
Executive will be entitled to twelve (12) monthly severance payments, each in an
amount equal to the Executive's monthly base compensation at the time of such
termination (i.e. 1/12th of the Base Salary).
5. TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS. Notwithstanding
the provisions of Section 2 hereof, the Executive's employment hereunder shall
terminate prior to the expiration of the term of this Agreement under the
following circumstances:
5.1. RETIREMENT OR DEATH. In the event of the Executive's
retirement or death during the term hereof, the Executive's employment hereunder
shall immediately and automatically terminate. In the event of the Executive's
retirement after the age of sixty-five with the prior consent of the Board or
death during the term hereof, the Company shall pay to the Executive (or in the
case of death, the Executive's designated beneficiary or, if no beneficiary has
been designated by the Executive, to his estate) any Base Salary earned but
unpaid through the date of such retirement or death, any Bonus for the fiscal
year preceding the year in which such retirement or death occurs that was earned
but has not yet been paid and, at the times the Company pays it executives
<PAGE>
bonuses in accordance with its general payroll policies, an amount equal to that
portion of any Bonus earned but unpaid during the fiscal year of such retirement
or death (pro-rated based on a formula, the denominator of which shall be 365
and the numerator of which shall be the number of days during the fiscal year of
such retirement or death in which the Executive was employed by the Company).
5.2. DISABILITY.
5.2.1. The Company may terminate the Executive's
employment hereunder, upon notice to the Executive, in the event that
the Executive becomes disabled during his employment hereunder through
illness, injury, accident or condition of either as physical or
psychological nature and, as a result, is unable to perform
substantially all of his duties and responsibilities hereunder for an
aggregate of ninety (90) days, whether or not consecutive, during any
period of three hundred and sixty-five (365) consecutive calendar days.
5.2.2. The Board may designate another employee to
act in the Executive's place during any period of the Executive's
disability. Notwithstanding any such designation, the Executive shall
continue to receive the Base Salary in accordance with Section 4.1 and
to receive benefits in accordance with Section 4.5, to the extent
permitted by the then-current terms of the applicable benefit plans,
until the Executive becomes eligible for disability income benefits
under any disability income plan maintained by the Executive.
5.3. BY THE COMPANY FOR CAUSE. The Company may terminate the
Executive's employment hereunder for Cause at any time upon notice to the
Executive setting forth in reasonable detail the nature of such Cause. Upon the
giving of notice of termination of the Executive's employment hereunder for
Cause, the Company shall have no further obligation or liability to the
Executive relating to the Executive's employment hereunder, or the termination
thereof, other than for Base Salary earned but unpaid through the date of
termination. Without limiting the generality of the foregoing, the Company shall
have no further obligation to pay any Bonus amounts for any year(s) in the event
of termination of employment pursuant to this Section 5.3, whether or not earned
but unpaid in respect of a fiscal year preceding the year in which such
termination occurs.
5.4. BY THE COMPANY OTHER THAN FOR CAUSE. The Company may
terminate the Executive's employment hereunder other than for Cause at any time
upon notice to the Executive. In the event of such termination, then the Company
shall pay the Executive (i) Base Salary earned but unpaid through the date of
termination plus (ii) the amounts specified in Section 4.6 plus (iii) any unpaid
portion of any Bonus for the fiscal year preceding the year in which such
termination occurs that was earned but has not been paid.
<PAGE>
5.5. POST-AGREEMENT EMPLOYMENT. In the event the Executive
remains in the employ of the Company or any of its Affiliates following
termination of this Agreement, by the expiration of the term hereof or
otherwise, then such employment shall be at will, unless otherwise agreed in
writing.
6. EFFECT OF TERMINATION. The provisions of this Section 6 shall apply
in the event of termination due to the expiration of the term, pursuant to
Section 5 or otherwise.
6.1. PAYMENT IN FULL. Payment by the Company of any Base
Salary, Bonus and other amounts and contributions to the cost of the Executive's
continued participation in the Company's benefits plans that may be due the
Executive under the applicable termination provision of Section 5 shall
constitute the entire obligation of the Company to the Executive, except that
nothing in this Section 6.1 is intended or shall be construed to affect the
rights and obligations of the Company and its Affiliates, on the one hand, and
the Executive, on the other, with respect to any loans, stock pledge
arrangements, option plans or other agreements to the extent said rights or
obligations survive termination of employment under the provision of documents
relating thereto. Acceptance by the Executive of performance by the Company
shall constitute full settlement of any claim that the Executive might otherwise
assert against the Company, its Affiliates or any of their respective
shareholders, partners, directors, officers, employees or agents relating to
such termination.
6.2. TERMINATION OF BENEFITS. Except for medical and dental
insurance coverage continued pursuant to Section 5.2 hereof and any right of
continuation of health coverage to the extent provided by Sections 601 through
608 of ERISA, benefits shall terminate pursuant to the terms of the applicable
benefit plans based on the date of termination of the Executive's employment
without regard to any continuation of Base Salary or other payments to the
Executive following such date of termination pursuant to Section 5.
6.3. SURVIVAL OF CERTAIN PROVISIONS. Provisions of this
Agreement shall survive any termination if so provided herein or if necessary or
desirable fully to accomplish the purposes of such provision, including, without
limitation, the obligations of the Executive under the terms of the
Non-Competition Agreement (the "Non-Competition Agreement") and the Employee
Non-Disclosure and Developments Agreement (the "Non-Disclosure Agreement"), of
even date herewith, by and between the Executive and the Company. The obligation
of the Company to make payments to or on behalf of the Executive under Sections
4.7 or 5.4 hereof is expressly conditioned upon the Executive's continued full
performance of obligations under the terms of the Non-Competition Agreement and
the Non-Disclosure Agreement. The Executive recognizes that, except as expressly
provided in Section 4.6 or 5.4, no compensation is earned after termination of
employment.
7. CONFLICTING AGREEMENTS. The Executive hereby represents and warrants
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which or
by which the
<PAGE>
Executive is a party or is bound and that the Executive is not now subject to
any covenants against competition or similar covenants that would affect the
performance of his obligations hereunder. The Executive will not disclose to or
use on behalf of the Company or any of its Affiliates any proprietary
information of a third party without such party's consent.
8. DEFINITIONS. Capitalized terms not defined herein shall have the
meanings assigned to them in the Purchase Agreement; and the following terms
shall have the following meanings:
8.1. AFFILIATES. "Affiliates" means all persons and
entities directly or indirectly controlling, controlled by or under common
control with the Company.
8.2. CAUSE. The following events or conditions shall
constitute "Cause" for termination: (i) fraud, embezzlement or other act of
dishonesty by the Executive that causes material injury to the Company or any of
its Affiliates, (ii) conviction of, or plea of nolo contendere to, any felony
involving dishonesty or moral turpitude, or (iii) a failure by the Executive to
take or refrain from taking any corporate action consistent with his duties as
the President as specified in written directions of the Board following receipt
by the Executive of such written directions which such failure is not cured
within 30 days after written notice that failure to take or refrain from taking
such action shall constitute "Cause" for purposes hereof.
8.3. ERISA. "ERISA" means the federal Employee Retirement
Income Security Act of 1974 or any successor statute, and the rules and
regulations thereunder, and in the case of any referenced section thereof any
successor section thereto, collectively and as from time to time amended and in
effect.
8.4. PERSON. "Person" means an individual, a corporation, an
association, a partnership, a limited liability company, an estate, a trust and
any other entity or organization.
9. WITHHOLDING. All payments made by the Company under this Agreement
shall be reduced by any tax or other amounts required to be withheld by the
Company under applicable law. In addition, the Company shall be entitled to
reduce any payments by the Company of Base Salary or Bonus under this Agreement
by the amount of any tax or other amounts required to be withheld by the Company
under applicable law with respect to deemed compensation arising out of or
related to imputed interest on any loans by the Company to the Executive.
10. MISCELLANEOUS.
10.1. ASSIGNMENT. Neither the Company nor the Executive may
make any assignment of this Agreement or any interest herein (provided, however,
that nothing contained herein shall be construed to place any limitation or
restriction on the transfer of
<PAGE>
the Company's Common Stock in addition to any stockholder agreement applicable
to the holders of such shares), by operation of law or otherwise, without the
prior written consent of the other; provided, however, that the Company may
assign its rights and obligations under this Agreement without the consent of
the Executive in the event that the Company shall hereafter affect a
reorganization, consolidate with, or merge into, any other Person or transfer
all or substantially all of its properties or assets to any other Person, in
which event such other person shall be deemed the "Company" hereunder for all
purposes. This agreement shall inure to the benefit of and be binding upon the
Company and the Executive, and their respective successors, executors,
administrators, heirs and permitted assigns.
10.2. SEVERABILITY. If any portion or provision of this
Agreement shall to any extent be declared illegal or unenforceable by a court of
competent jurisdiction, then the application of such provision in such
circumstances shall be deemed modified to permit its enforcement to the maximum
extent permitted by law, and both the application of such portion or provision
in circumstances other than those as to which it is so declared illegal or
unenforceable and the remainder of this Agreement shall not be affected thereby,
and each portion and provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.
10.3. WAIVER; AMENDMENT. No waiver or any provision hereof
shall be effective unless made in writing and signed by the waiving party. The
failure of either party to require the performance of any term or obligation of
this Agreement, or the waiver by either party of any breach of this Agreement,
shall not prevent any subsequent enforcement of such term or obligation or be
deemed a waiver of any subsequent breach. This Agreement may be amended or
modified only by a written instrument signed by the Executive and the Company.
10.4. NOTICES. Any and all notices, requests, demands and
other communications provided for by this Agreement shall be in writing and
shall be effective when delivered in person or two business days after being
deposited in the United States mail, postage prepaid, registered or certified,
and addressed (a) in the case of the Executive, to:
Mr. Roger O. Jeanty
President
Lionbridge Technologies, Inc.
86 Hunting Lane
Sherborn, MA 01770
or, (b) in the case of the Company, at its principal place of business and to
the attention of Board of Directors; or to such other address as either party
may specify by notice to the other.
<PAGE>
10.5. ENTIRE AGREEMENT. This Agreement, and the agreements
referenced in Section 6.3, constitutes the entire agreement between the parties
with respect to the terms and conditions of the Executive's employment and,
except as otherwise provided herein, supersedes all prior communications,
agreements and understandings, written or oral, with the Company or any of its
Affiliates or predecessors with respect to the terms and conditions of the
Executive's employment. Effective as of the Effective Date, any employment
agreement between the Executive and INT'L.com or any of its subsidiaries (the
"Prior Employment Agreements"), including, but not limited to, the Employment
Agreement between INT'L.com and the Executive dated as of August 13, 1998, shall
terminate and shall have no further force and effect. The Executive releases
INT'L.com and its subsidiaries and their successors and affiliates from all
liabilities, obligations and responsibilities under the Prior Employment
Agreements and releases any rights or benefits he has or to which he may have
been entitled under the Prior Employment Agreements and expressly releases and
waives any claims he may have against the other parties to the Prior Employment
Agreements relating to the Employee's employment with INT'L.com or any of its
subsidiaries.
10.6. HEADINGS. The headings and captions in this Agreement
are for convenience only and in no way define or describe the scope or content
of any provision of this Agreement.
10.7. COUNTERPARTS. This Agreement may be executed in two
counterparts, each of which shall be original and both of which together shall
constitute one and the same instrument.
10.8. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic substantive laws of The Commonwealth
of Massachusetts without giving effect to any choice or conflict of laws
provision or rule that would cause the application of the domestic substantive
laws of any other jurisdiction.
10.9. CONSENT TO JURISDICTION. Each of the Company and the
Executive, by its or his execution hereof, (i) hereby irrevocably submits to the
exclusive jurisdiction of the state courts of The Commonwealth of Massachusetts
for the purpose of any claim or action arising out of or based upon this
Agreement or relating to the subject matter hereof, (ii) hereby waives, to the
extent not prohibited by applicable law, and agrees not to assert by way of
motion, as a defense or otherwise, in any such claim or action, any claim that
it is not subject personally to the jurisdiction of the above-named courts, that
its property is exempt or immune from attachment or execution, that any such
proceeding brought in the above-named courts is improper, or that this Agreement
or the subject matter hereof may not be enforced in or by such court, and (iii)
hereby agrees not to commence any claim or action arising out of or based upon
this Agreement or relating to the subject matter hereof other than before the
above-named courts nor to make any motion or take any other action seeking or
intending to cause the transfer or removal of any such claim or action to any
court other than the above-named courts whether on the grounds of inconvenient
forum or otherwise. Each of the Company and the Executive
<PAGE>
hereby consents to service of process in any such proceeding in any manner
permitted by Massachusetts law, and agrees that service of process by registered
or certified mail, return receipt requested, at its address specified pursuant
to Section 10.4 hereof is reasonably calculated to give actual notice.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the Company, by
its duly authorized representative, and by the Executive, as of the date first
above written.
THE COMPANY
LIONBRIDGE TECHNOLOGIES, INC.
By: _____________________________
Name: ___________________________
Title: Chief Executive Officer
THE EXECUTIVE
---------------------------------
Roger O. Jeanty
<PAGE>
Exhibit 10.52
NON-COMPETITION AGREEMENT
March 28, 2000
Mr. Roger O. Jeanty
86 Hunting Lane
Sherborn, MA 01770
Dear Roger:
You are to be employed as President by Lionbridge Technologies, Inc., a
Delaware corporation (the "Company"). In consideration of your employment by the
Company, you hereby covenant and agree with the Company as follows:
1. The term of this Agreement shall be for a period commencing on the date
the merger of LTI Acquisition Corp with and into INT'L.com, Inc. shall be
consummated pursuant to a certain Agreement and Plan of Reorganization of even
date herewith (the "Merger Agreement") and ending 12 months from the date of
termination of your employment by the Company.
2. During the term hereof, you will not, without the Company's prior
written consent, directly or indirectly, alone or as a partner, joint venturer,
officer, director, employee, consultant, agent, independent contractor or
stockholder of any company or business, engage or otherwise have a financial
interest in any business activity which is directly or indirectly in competition
in the United States, Belgium, People's Republic China, France, Ireland, Japan,
Korea, The Netherlands, Taiwan, or any other geographic area where the business
is being conducted or as proposed to be conducted with any of the products or
services being developed, marketed, distributed, planned, sold or otherwise
provided by the Company at such time. The ownership by you of not more than one
percent of the shares of stock of any corporation having a class of equity
securities actively traded on a national securities exchange or on the Nasdaq
Stock Market shall not be deemed, in and of itself, to violate the prohibitions
of this paragraph.
3. During the term hereof, you will not, directly or indirectly, employ,
or knowingly permit any other company or business organization which employs you
or is directly or indirectly controlled by you to employ, any person who is
employed by the Company at any time during the term hereof, or in any manner
seek to induce any such person to leave his or her employment with the Company.
4. During the term of this Agreement, you will not solicit or do business
with, directly or indirectly, any present or past customer of the Company, or
any prospective customer of the Company with whom you have had contact, in
connection with any business activity which would violate any other provision of
this Agreement.
5. You hereby represent that, except as you have disclosed in writing to
the Company, you are not a party to, or bound by the terms of, any agreement
with any previous employer or other party to refrain from using or disclosing
any trade secret or confidential or proprietary
<PAGE>
-2-
information in the course of your employment with the Company or to refrain from
competing, directly or indirectly, with the business of such previous employer
or any other party. You further represent that your performance of all the terms
of this Agreement and as an employee of the Company does not and will not breach
any agreement to keep in confidence proprietary information, knowledge or data
acquired by you in confidence or in trust prior to your employment with the
Company, and you will not disclose to the Company or induce the Company to use
any confidential or proprietary information or material belonging to any
previous employer or others.
6. You agree that the breach of this Agreement by you will cause
irreparable damage to the Company and that in the event of such breach the
Company shall have, in addition to any and all remedies of law, the right to an
injunction, specific performance or other equitable relief to prevent the
violation of your obligations hereunder.
7. You understand that this Agreement does not create an obligation on the
Company or any other person or entity to continue your employment.
8. Any amendment to or modification of this Agreement, and any waiver of
any provision hereof, shall be in writing. Any waiver by the Company of a breach
of any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach hereof. This Agreement may be executed in two
counterparts, each of which shall be original and both of which together shall
constitute one and the same instrument.
9. You hereby agree that each provision herein shall be treated as a
separate and independent clause, and the unenforceability of any one clause
shall in no way impair the enforceability of any of the other clauses herein.
Moreover, if one or more of the provisions contained in this Agreement shall for
any reason be held to be excessively broad as to scope, activity or subject so
as to be unenforceable at law, such provision or provisions shall be construed
by the appropriate judicial body by limiting and reducing it or them, so as to
be enforceable to the maximum extent compatible with the applicable law as it
shall then appear.
10. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
11. The term "Company" shall include Lionbridge Technologies, Inc., and
any subsidiaries, subdivisions or affiliates. The Company shall have the right
to assign this Agreement to its successors and assigns, and all covenants and
agreements hereunder shall inure to the benefit of and be enforceable by said
successors or assigns. Please indicate your acceptance of the foregoing by
signing and returning one copy to the undersigned.
12. If the Merger Agreement is terminated prior to the closing thereunder,
this Agreement shall automatically terminated and be without further force or
effect.
[Signature to follow immediately]
<PAGE>
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Very truly yours,
LIONBRIDGE TECHNOLOGIES, INC.
By:
--------------------------------
Name: Rory J. Cowan
Title: Chief Executive Officer
AGREED TO AND ACCEPTED as of
the date first above written:
- -----------------------------
Roger O. Jeanty
<PAGE>
ANNEX A
LIONBRIDGE TECHNOLOGIES, INC.,
LTI ACQUISITION CORP.
AND
INT'L.COM, INC.
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
Dated as of March 30, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
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ARTICLE I. THE MERGER............................................... 1
1.1 The Merger.................................................. 1
1.2 Effects of the Merger....................................... 1
1.3 Closing..................................................... 1
1.4 Approval by the Stockholders of INT'L.com................... 1
1.5 Approval by the Stockholders of Parent...................... 2
ARTICLE II. CONVERSION AND EXCHANGE OF SHARES; DISSENTING SHARES.... 2
2.1 Conversion of Shares of INT'L.com Stock..................... 2
2.2 Escrow Shares............................................... 4
2.3 Dissenting Shares........................................... 5
2.4 Delivery of Evidence of Ownership........................... 5
2.5 No Further Ownership Rights in INT'L.com Stock.............. 6
2.6 No Fractional Shares........................................ 6
2.7 Assumption of Stock Options................................. 6
2.8 Notes....................................................... 6
2.9 Bridge Notes................................................ 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF INT'L.COM............ 7
3.1 Organization, Standing and Power; Subsidiaries.............. 7
3.2 Capital Structure........................................... 8
3.3 Authority................................................... 9
Compliance with Laws and Other Instruments;
3.4 Non-Contravention........................................... 9
3.5 Technology and Intellectual Property Rights................. 10
3.6 Financial Statements; Business Information.................. 12
3.7 Taxes....................................................... 13
3.8 Absence of Certain Changes and Events....................... 14
3.9 Leases in Effect............................................ 15
3.10 Personal Property; Real Estate.............................. 16
3.11 Certain Transactions........................................ 16
3.12 Litigation and Other Proceedings............................ 17
3.13 No Defaults................................................. 17
3.14 Major Contracts............................................. 17
3.15 Material Reductions......................................... 18
3.16 Insurance and Banking Facilities............................ 18
3.17 Employees................................................... 18
3.18 Employee Benefit Plans...................................... 19
3.19 Certain Agreements.......................................... 20
3.20 Guarantees and Suretyships.................................. 20
3.21 Brokers and Finders......................................... 20
3.22 Certain Payments............................................ 20
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3.23 Environmental Matters....................................... 20
3.24 Enforceability of Contracts, etc............................ 21
3.25 Accounting Matters.......................................... 21
3.26 Year 2000................................................... 21
3.27 Disclosure.................................................. 21
3.28 Reliance.................................................... 22
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB................................................................. 22
4.1 Organization and Qualification.............................. 22
4.2 Capitalization.............................................. 22
4.3 Authority Relative to this Agreement........................ 23
4.4 Non-Contravention........................................... 23
4.5 Reports and Financial Statements............................ 23
4.6 Validity of Parent Merger Shares............................ 24
4.7 Consents and Approvals of Governmental Authorities.......... 24
4.8 Absence of Certain Changes or Events........................ 24
4.9 Litigation and Other Proceedings............................ 24
4.10 Disclosure.................................................. 24
4.11 Reliance.................................................... 24
4.12 Brokers and Finders......................................... 24
4.13 Accounting Matters.......................................... 24
ARTICLE V. COVENANTS OF INT'L.COM................................... 25
5.1 Conduct of Business in Ordinary Course...................... 25
5.2 Dividends, Issuance of, or Changes in Securities............ 25
5.3 Governing Documents......................................... 26
5.4 No Acquisitions............................................. 26
5.5 No Dispositions............................................. 26
5.6 Indebtedness................................................ 26
5.7 Compensation................................................ 26
5.8 Claims...................................................... 26
5.9 Access to Properties and Records............................ 26
5.10 Breach of Representations and Warranties.................... 26
5.11 Consents.................................................... 27
5.12 Tax Returns................................................. 27
5.13 Exclusivity; Acquisition Proposals.......................... 27
5.14 Notice of Events............................................ 27
5.15 Reasonable Best Efforts..................................... 27
5.16 Insurance................................................... 28
5.17 Financial Statements........................................ 28
5.18 Confidentiality and Assignment of Inventions Agreements..... 28
ARTICLE VI. COVENANTS OF PARENT..................................... 28
6.1 Breach of Representations and Warranties.................... 28
</TABLE>
ii
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6.2 Additional Information; Access.............................. 28
6.3 Consents.................................................... 28
6.4 Reasonable Best Efforts..................................... 28
6.5 Officers and Directors...................................... 29
6.6 Nasdaq National Market Listing.............................. 29
6.7 Notice of Events............................................ 29
6.8 Third Party Beneficiaries................................... 29
6.9 Directors of Parent......................................... 29
ARTICLE VII. ADDITIONAL AGREEMENTS.................................. 29
Preparation of the Form S-4 and the Proxy Statement;
7.1 Stockholders Meeting........................................ 29
7.2 Legal Conditions to the Merger.............................. 31
7.3 Employee Benefits........................................... 31
7.4 Expenses.................................................... 32
7.5 Additional Agreements....................................... 32
7.6 Public Announcements........................................ 32
7.7 Confidentiality............................................. 32
7.8 Pooling..................................................... 32
7.9 INT'L.com Voting Agreement.................................. 33
7.10 Parent Voting Agreement..................................... 33
7.11 Hart-Scott-Rodino Filing.................................... 33
7.12 Board of Directors Meetings................................. 33
7.13 Employment and Noncompetition Agreements.................... 34
7.14 INT'L.com Conversion........................................ 34
7.15 Debt Adjustments............................................ 34
ARTICLE VIII. CONDITIONS PRECEDENT.................................. 34
Conditions to Each Party's Obligation to Effect the
8.1 Merger...................................................... 34
8.2 Conditions of Obligations of Parent and Merger Sub.......... 35
8.3 Conditions of Obligation of INT'L.com....................... 37
ARTICLE IX. INDEMNIFICATION......................................... 38
9.1 Indemnification Relating to Agreement....................... 38
9.2 Third Party Claims.......................................... 38
9.3 Limitations................................................. 39
9.4 Binding Effect.............................................. 39
9.5 Time Limit.................................................. 39
9.6 Sole Remedy................................................. 39
ARTICLE X. TERMINATION.............................................. 40
10.1 Mutual Agreement............................................ 40
10.2 Termination by Parent....................................... 40
10.3 Termination by INT'L.com.................................... 40
10.4 Outside Date................................................ 40
10.5 Effect of Termination....................................... 40
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ARTICLE XI. MISCELLANEOUS........................................... 40
11.1 Entire Agreement............................................ 40
11.2 Governing Law; Consent to Jurisdiction...................... 41
11.3 Notices..................................................... 41
11.4 Severability................................................ 42
11.5 Survival of Representations and Warranties.................. 42
11.6 Assignment.................................................. 42
11.7 Counterparts................................................ 42
11.8 Amendment................................................... 42
11.9 Extension, Waiver........................................... 42
11.10 Interpretation.............................................. 43
11.11 Knowledge................................................... 43
Transfer, Sales, Documentary, Stamp and Other Similar
11.12 Taxes....................................................... 43
11.13 Acknowledgement............................................. 43
</TABLE>
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EXHIBITS
EXHIBIT 1.1 -- Merger Documents
EXHIBIT 2.2 -- Escrow Agreement
EXHIBIT 2.4 -- Letter of Transmittal
EXHIBIT 7.1 -- Registration Rights Agreement
EXHIBIT 7.8(b) -- INT'L.com Affiliate Agreement
EXHIBIT 7.8(c) -- Parent Affiliate Agreement
EXHIBIT 7.9 -- INT'L.com Voting Agreement
EXHIBIT 7.10 -- Parent Voting Agreement
EXHIBIT 7.14 -- Conversion Notice
EXHIBIT 8.2 -- Opinion of Neal, Gerber & Eisenberg
EXHIBIT 8.3 -- Opinion of Testa, Hurwitz & Thibeault, LLP
</TABLE>
iv
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION, dated as of
March 30, 2000 (this "AGREEMENT"), by and among Lionbridge Technologies, Inc., a
Delaware corporation ("PARENT"); LTI Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of Parent ("MERGER SUB"); and INT'L.com, Inc., a
Delaware corporation ("INT'L.COM"). This Agreement amends and restates in its
entirety the Agreement and Plan of Reorganization dated as of January 19, 2000
(the "PRIOR AGREEMENT") by and among Parent, Merger Sub and INT'L.com. All
Exhibits and Schedules delivered with or attached to the Prior Agreement shall
be deemed to be delivered herewith or attached hereto, as the case may be.
Intending to be legally bound, and in consideration of the mutual
representations, warranties, covenants and agreements contained herein, Parent,
Merger Sub and INT'L.com agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions hereof, and in
accordance with the Delaware General Corporation Law (the "DGCL"), Merger Sub
will be merged with and into INT'L.com (the "MERGER"). A Certificate of Merger
and any other required documents (collectively, the "MERGER DOCUMENTS"),
substantially in the form attached as EXHIBIT 1.1, will be duly prepared,
executed and acknowledged by INT'L.com and Merger Sub and thereafter delivered
to the Secretary of State of Delaware for filing in accordance with the DGCL
contemporaneously with the Closing (as defined in Section 1.3). The Merger will
become effective at such time as the Merger Documents have been filed with the
Secretary of State of Delaware (the "EFFECTIVE TIME"). Following the Merger,
INT'L.com will continue as the surviving corporation of the Merger (the
"SURVIVING CORPORATION") under the laws of the State of Delaware, and the
separate corporate existence of Merger Sub will cease.
1.2 EFFECTS OF THE MERGER. At and after the Effective Time, (i) the Merger
will have all of the effects provided by the Certificate of Merger and
applicable law, (ii) the Certificate of Incorporation of INT'L.com will be
amended in the form attached as APPENDIX A to EXHIBIT 1.1 until duly further
amended, (iii) the bylaws of Merger Sub will be the bylaws of the Surviving
Corporation until duly amended, (iv) the directors of Merger Sub will be the
directors of the Surviving Corporation, to hold office in accordance with the
bylaws of the Surviving Corporation, (v) the officers of INT'L.com will be the
officers of the Surviving Corporation, to hold office in accordance with the
bylaws of the Surviving Corporation and (vi) the issued and outstanding
certificates for the capital stock of Merger Sub will be the issued and
outstanding certificates initially representing all of the issued capital stock
of the Surviving Corporation. The Merger is intended to be a reorganization
within the meaning of Section 368(a)(2)(E) of the Internal Revenue Code of 1986,
as amended (the "CODE"), and this Agreement is intended to constitute a "plan of
reorganization" within the meaning of the regulations promulgated under
Section 368 of the Code.
1.3 CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") will take place as soon as practicable (but no more
than three (3) business days) after satisfaction or waiver of the last to be
fulfilled of the conditions set forth in Article VIII that by their terms are
not to occur at the Closing (the "CLOSING DATE"), but in no event later than
June 30, 2000, at the offices of Testa, Hurwitz & Thibeault, LLP in Boston,
Massachusetts, unless another date or place is agreed to in writing by Parent
and INT'L.com. If all of the conditions set forth in Article VIII hereof are
determined to be satisfied (or duly waived) at the Closing, concurrently with
the Closing the parties hereto will cause the Merger to be consummated by the
filing of the Merger Documents with the Secretary of State of Delaware. The
Closing will be deemed to have concluded at the Effective Time.
1.4 APPROVAL BY THE STOCKHOLDERS OF INT'L.COM. INT'L.com will take all
action necessary in accordance with the DGCL, its Charter Documents (as defined
below) and any agreements to which it is a party to solicit the approval of this
Agreement, the Merger and all of the transactions contemplated hereby by all
stockholders of INT'L.com by means of a duly convened meeting of
<PAGE>
stockholders. INT'L.com will use its reasonable best efforts to obtain such
stockholder approval. INT'L.com represents and warrants that its Board of
Directors has duly (i) approved the Merger in accordance with the DGCL and
(ii) resolved to recommend to the stockholders of INT'L.com that they approve
this Agreement, the Merger and all of the transactions contemplated hereby.
1.5 APPROVAL BY THE STOCKHOLDERS OF PARENT. Parent will take all action
necessary to obtain the approval of the issuance of its shares in connection
with the Merger by the stockholders of Parent by means of a duly convened
meeting of the stockholders of Parent, as required by the rules of the Nasdaq
Stock Market, in accordance with the applicable requirements of the DGCL, its
Charter Documents and any agreements to which it is a party. Parent will use its
reasonable best efforts to obtain such stockholder approval. Parent represents
and warrants that its Board of Directors has duly (i) approved the Merger in
accordance with the DGCL and (ii) resolved to recommend to the stockholders of
Parent that they approve the issuance of its shares in connection with the
Merger.
ARTICLE II
CONVERSION AND EXCHANGE OF SHARES; DISSENTING SHARES
2.1 CONVERSION OF SHARES OF INT'L.COM STOCK. (a) Subject, without
limitation, to the provisions of Section 2.3 hereof, at the Effective Time, all
of (i) the shares of Series A common stock, $0.01 par value per share, of
INT'L.com ("INT'L.COM SERIES A COMMON STOCK"), Series B common stock, $0.01 par
value per share, of INT'L.com ("INT'L.COM SERIES B COMMON STOCK" and along with
the Int'l Series A Common Stock, the "INT'L.COM COMMON STOCK"), Series A
preferred stock, $0.01 par value per share, of INT'L.com ("INT'L.COM SERIES A
PREFERRED STOCK"), and Series B preferred stock, $0.01 par value per share, of
INT'L.com ("INT'L.COM SERIES B PREFERRED STOCK" and along with the INT'L.com
Series A Common Stock, the INT'L.com Series B Common Stock and the INT'L.com
Series A Preferred Stock, "INT'L.COM CAPITAL STOCK") issued and outstanding
immediately prior to the Effective Time excluding any INT'L.com Capital Stock
held by Parent or Merger Sub or any other subsidiary of Parent, or by INT'L.com
or any subsidiary of INT'L.com, which shares ("EXCLUDED SHARES") will be
automatically canceled in the Merger without payment of any consideration
therefor, and excluding Dissenting Shares (as defined in Section 2.3 hereof))
will automatically, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into shares of common stock, $0.01 par value
per share, of Parent ("PARENT COMMON STOCK") in accordance with Section 2.1(e),
and cash (rounded down to the nearest whole cent) in lieu of fractional shares,
if any, pursuant to Section 2.6 below. Shares of INT'L.com Capital Stock that
are actually issued and outstanding immediately prior to the Effective Time
(excluding the Excluded Shares) are sometimes referred to herein as the
"OUTSTANDING INT'L.COM CAPITAL STOCK SHARES." All rights, warrants or options to
acquire INT'L.com Common Stock and securities convertible into INT'L.com Common
Stock (except for the INT'L.com Series A Preferred Stock, the INT'L.com
Series B Preferred Stock, the Series C preferred stock, $0.01 par value per
share, of INT'L.com ("INT'L.COM SERIES C PREFERRED STOCK") and the Series D
preferred stock, $0.01 par value per share, of INT'L.com ("INT'L.COM SERIES D
PREFERRED STOCK") and the INT'L.com Notes (as defined in Section 2.8 below))
that are outstanding immediately prior to the Effective Time and do not expire
pursuant to their terms on or before the Closing (each of which is specifically
identified in Section 3.2 of the INT'L.com Disclosure Schedule (as defined
below)) are sometimes referred to herein as the "OUTSTANDING INT'L.COM OPTIONS."
(b) The aggregate number of shares of Parent Common Stock to be issued
in exchange for the acquisition of all Outstanding INT'L.com Capital Stock
Shares and the assumption of all Outstanding INT'L.com Options will be equal
to the Modified Share Amount (as defined in (d) below). Such shares are
herein referred to as the "PARENT STOCK MERGER SHARES".
(c) Subject, without limitation, to the provisions of Section 2.3
hereof, at the Effective Time, all of the shares of INT'L.com Series C
Preferred Stock issued and outstanding immediately prior to the Effective
Time (excluding any INT'L.com Series C Preferred Stock held by Parent or
A-2
<PAGE>
Merger Sub or any other subsidiary of Parent, or by INT'L.com or any
subsidiary of INT'L.com, which shares ("EXCLUDED SERIES C SHARES") will be
automatically canceled in the Merger without payment of any consideration
therefor, and excluding Dissenting Shares (as defined in Section 2.3
hereof)), will automatically, by virtue of the Merger and without any action
on the part of the holder thereof, be converted into shares of Parent Common
Stock in accordance with Section 2.1(f), and cash (rounded down to the
nearest whole cent) in lieu of fractional shares, if any, pursuant to
Section 2.6 below. Shares of INT'L.com Series C Preferred Stock that are
actually issued and outstanding immediately prior to the Effective Time,
excluding the Excluded Series C Shares, are sometimes referred to herein as
the "OUTSTANDING INT'L.COM SERIES C SHARES." Subject, without limitation, to
the provisions of Section 2.3 hereof, at the Effective Time, all of the
shares of INT'L.com Series D Preferred Stock issued and outstanding
immediately prior to the Effective Time (excluding any INT'L.com Series D
Preferred Stock held by Parent or Merger Sub or any other subsidiary of
Parent, or by INT'L.com or any subsidiary of INT'L.com, which shares
("EXCLUDED SERIES D SHARES") will be automatically canceled in the Merger
without payment of any consideration therefor, and excluding Dissenting
Shares (as defined in Section 2.3 hereof)), will automatically, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into shares of Parent Common Stock in accordance with
Section 2.1(g), and cash (rounded down to the nearest whole cent) in lieu of
fractional shares, if any, pursuant to Section 2.6 below. Shares of
INT'L.com Series D Preferred Stock that are actually issued and outstanding
immediately prior to the Effective Time, excluding the Excluded Series D
Shares, are sometimes referred to herein as the "OUTSTANDING INT'L.COM
SERIES D SHARES" and along with the Outstanding INT'L.com Capital Stock
Shares and the Outstanding INT'L.com Series C Shares, collectively the
"OUTSTANDING INT'L.COM SHARES."
(d) The aggregate number of shares of Parent Common Stock to be issued
in exchange for the acquisition of all Outstanding INT'L.com Series C Shares
will be equal to the INT'L.com Series C Base Amount divided by the Parent
Average Closing Price. Such shares are herein referred to as the "PARENT
SERIES C MERGER SHARES". The aggregate number of shares of Parent Common
Stock to be issued in exchange for the acquisition of all Outstanding
INT'L.com Series D Shares will be equal to the INT'L.com Series D Base
Amount divided by the Parent Average Closing Price. Such shares are herein
referred to as the "PARENT SERIES D MERGER SHARES" and along with the Parent
Stock Merger Shares, the Note Payment Shares (as defined in Section 2.9
below) and the Parent Series C Merger Shares, collectively the "PARENT
MERGER SHARES".
The following definitions will be used in making the foregoing
calculations and for all other purposes of this Agreement:
"INT'L.COM SERIES C BASE AMOUNT" will mean the aggregate accrued
liquidation preference of INT'L.com Series C Preferred Stock calculated as
of the Closing Date in accordance with the terms of the Charter Documents of
INT'L.com.
"INT'L.COM SERIES D BASE AMOUNT" will mean the aggregate accrued
liquidation preference of INT'L.com Series D Preferred Stock calculated as
of the Closing Date in accordance with the terms of the Charter Documents of
INT'L.com.
"PARENT AVERAGE CLOSING PRICE" will be equal to the weighted average
closing price of the Parent Common Stock as publicly reported by the Wall
Street Journal over the twenty Trading Days ending two Trading Days prior to
the Prior Agreement Date (as defined below).
"MODIFIED SHARE AMOUNT" will mean the Share Amount LESS (i) the number
of Convertible Note Payment Shares (as defined in Section 2.8 below) (ii)
the number of Debt Payment Shares (as defined in Section 7.15 below) and
(iii) such number of shares of Parent Common Stock having a value (as
determined using the Parent Average Closing Price) equal to any expenses to
be borne by the stockholders of INT'L.com pursuant to Section 7.4.
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"SHARE AMOUNT" will mean 8,150,000 shares of Parent Common Stock
(appropriately adjusted for any stock split, stock dividend,
recapitalization or similar event).
"TRADING DAY" will mean days on which closing prices for purchases and
sales of Parent Common Stock are reported by the Nasdaq National Market.
(e) The ratio at which one Outstanding INT'L.com Capital Stock Share
will be converted into shares of Parent Common Stock at the Effective Time
is herein called the "CONVERSION RATIO" and will be calculated as set forth
in this Section 2.1(e). Subject to Section 2.3, at the Effective Time, each
Outstanding INT'L.com Capital Stock Share will be converted into the right
to receive that number (which may be a fraction) of shares of Parent Common
Stock that equals the quotient obtained by DIVIDING the number of Parent
Stock Merger Shares by the sum of the number of Outstanding INT'L.com
Capital Stock Shares PLUS the number of shares of INT'L.com Common Stock
issuable upon the exercise or conversion of all Outstanding INT'L.com
Options. Each holder of Outstanding INT'L.com Capital Stock Shares will be
entitled to receive that aggregate number of shares of Parent Common Stock
equal to the Conversion Ratio multiplied by the number of Outstanding
INT'L.com Capital Stock Shares held by such holder immediately prior to the
Effective Time, subject to Section 2.3 herein.
(f) The ratio at which one Outstanding INT'L.com Series C Share will be
converted into shares of Parent Common Stock at the Effective Time is herein
called the "SERIES C CONVERSION RATIO" and will be calculated as set forth
in this Section 2.1(f). Subject to Section 2.3, at the Effective Time, each
Outstanding INT'L.com Series C Share will be converted into the right to
receive that number (which may be a fraction) of shares of Parent Common
Stock that equals the quotient obtained by DIVIDING the number of Parent
Series C Merger Shares by the number of Outstanding INT'L.com Series C
Shares. Each holder of Outstanding INT'L.com Series C Shares will be
entitled to receive that aggregate number of shares of Parent Common Stock
equal to the Series C Conversion Ratio multiplied by the number of
Outstanding INT'L.com Series C Shares held by such holder immediately prior
to the Effective Time, subject to Section 2.3 herein.
(g) The ratio at which one Outstanding INT'L.com Series D Share will be
converted into shares of Parent Common Stock at the Effective Time is herein
called the "SERIES D CONVERSION RATIO" and will be calculated as set forth
in this Section 2.1(g). Subject to Section 2.3, at the Effective Time, each
Outstanding INT'L.com Series D Share will be converted into the right to
receive that number (which may be a fraction) of shares of Parent Common
Stock that equals the quotient obtained by DIVIDING the number of Parent
Series D Merger Shares by the number of Outstanding INT'L.com Series D
Shares. Each holder of Outstanding INT'L.com Series D Shares will be
entitled to receive that aggregate number of shares of Parent Common Stock
equal to the Series D Conversion Ratio multiplied by the number of
Outstanding INT'L.com Series D Shares held by such holder immediately prior
to the Effective Time, subject to Section 2.3 herein.
(h) At the Effective Time, each share of common stock, $0.01 par value,
of Merger Sub issued and outstanding immediately prior to the Effective Time
will, by virtue of the Merger and without any action on the part of the
holder hereof, be converted into one share of common stock, $0.01 par value
per share, of the Surviving Corporation.
2.2 ESCROW SHARES. Ten percent (10%) of the Parent Merger Shares issuable
at Closing (excluding any Parent Merger Shares issuable after the Closing with
respect to Outstanding INT'L.com Options, the Excluded Shares, the Series C
Excluded Shares and the Series D Excluded Shares), rounded up to the nearest
whole share (the "ESCROW SHARES") will be deposited and held in escrow in
accordance with the Escrow Agreement attached as EXHIBIT 2.2 (the "ESCROW
AGREEMENT") as the sole source of indemnification payments that may become due
to Parent pursuant to Article IX or otherwise prior to the release of the Escrow
Shares pursuant to Section 3.1 of the Escrow Agreement; provided that the
aggregate liability of any single stockholder for indemnification obligations
pursuant to
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Article IX of this Agreement shall be equal to a dollar amount equal to the
Parent Average Closing Price multiplied by the aggregate number of Escrow Shares
deposited in escrow by or on behalf of such stockholder; and provided, further,
that each INT'L.com stockholder shall be severally (and not jointly) liable
beyond such holder's allocable portion of the Escrow Shares solely in respect of
any breach by such stockholder of any representation or warranty contained in a
Letter of Transmittal (as defined in Section 2.4 below) delivered by such
stockholder. The Escrow Shares will be withheld on a pro rata basis among the
holders of the Outstanding INT'L.com Shares based on the number of Parent Merger
Shares issuable at the closing to such holders. The exact number of Escrow
Shares held for the account of each INT'L.com stockholder will be determined at
the Closing by the agreement in writing of Parent and INT'L.com. The delivery of
the Escrow Shares will be made on behalf of the holders of the Outstanding
INT'L.com Shares in accordance with the provisions hereof, with the same force
and effect as if such shares had been delivered by Parent directly to such
holders and subsequently delivered by such holders to the Escrow Agent. The
adoption of this Agreement by stockholders of INT'L.com will also constitute
their approval of the terms and provisions of the Escrow Agreement, including,
without limitation, the appointment of Steven Fingerhood as the Indemnification
Representative (as defined in the Escrow Agreement), which is an integral term
of the Merger.
2.3 DISSENTING SHARES. Any holder of shares of INT'L.com Capital Stock,
INT'L.com Series C Preferred Stock and INT'L.com Series D Preferred Stock
(collectively, the "INT'L.COM STOCK") that are outstanding on the record date
for the determination of which holders will be entitled to vote for or against
the Merger who objects to the Merger and complies with all of the provisions of
the DGCL concerning the rights of holders to dissent from the Merger and require
appraisal (such shares are referred to as "DISSENTING SHARES") will be entitled
to exercise appraisal rights pursuant to Section 262 of the DGCL with respect to
such Dissenting Shares PROVIDED THAT such holder meets all of the requirements
of the DGCL with respect to such Dissenting Shares, and will not be entitled to
receive Parent Merger Shares, unless otherwise provided by the DGCL or agreed in
writing by Parent. INT'L.com will, after consultation with Parent, give such
notices with respect to appraisal rights as may be required by the DGCL as soon
as practicable.
2.4 DELIVERY OF EVIDENCE OF OWNERSHIP. Prior to the Closing, Parent shall
send a notice and transmittal form in substantially the form of EXHIBIT 2.4
hereto (individually, a "LETTER OF TRANSMITTAL" and collectively, the "LETTERS
OF TRANSMITTAL") to each holder of a certificate or other documentation
representing Outstanding INT'L.com Shares, other than Dissenting Shares, each
holder of a certificate or other documentation representing Outstanding
INT'L.com Shares, other than Dissenting Shares, will surrender such certificates
or other documentation to Parent or its designee, and, if not previously
delivered, (i) a duly executed counterpart of the Escrow Agreement, (ii) a duly
executed Letter of Transmittal and (iii) such other duly executed documentation
as may be reasonably required by Parent to effect a transfer of such shares, and
upon such surrender and after the Effective Time each such holder will be
entitled to receive promptly from Parent or its transfer agent certificates
registered in the name of such holder representing the applicable number of
Parent Merger Shares, and the cash (calculated pursuant to Section 2.6, which
will be paid by check), to which such holder is entitled pursuant to the
provisions of this Agreement, with a portion of such shares to be deposited in
escrow pursuant to the Escrow Agreement, as provided in Section 2.2. The
adoption of this Agreement by stockholders of INT'L.com will also constitute
their approval of the terms and provisions of the Letter of Transmittal. In the
event any certificates or instruments representing Outstanding INT'L.com Shares
or Outstanding INT'L.com Options shall have been lost, stolen or destroyed, upon
the making and delivery of an affidavit of that fact by the person claiming same
to have been lost, stolen or destroyed and the posting by such person of a
bonding such reasonable amount as Parent may direct as indemnity against any
claim that would be made against Parent with respect to such certificate or
instrument, Parent will issue in exchange for such lost, stolen or destroyed
certificate or instrument the Parent Merger Shares and cash deliverable in
respect thereof pursuant to this Agreement.
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2.5 NO FURTHER OWNERSHIP RIGHTS IN INT'L.COM STOCK. The Merger and its
approval by the stockholders of INT'L.com and the execution of this Agreement
will be deemed, at the Effective Time, to constitute full satisfaction and
termination of all rights and agreements pertaining to INT'L.com Stock pursuant
to the DGCL, by contract or otherwise, except for any rights pertaining to this
Agreement. After the Effective Time, there will be no transfers on the stock
transfer books of INT'L.com of INT'L.com Stock or exercises of any options,
warrants or other rights to acquire INT'L.com Stock. Prior to or upon Closing,
INT'L.com will cause rights to purchase or acquire INT'L.com Stock other than
the Outstanding INT'L.com Options assumed pursuant to Section 2.7 below to
either be exercised or canceled. Until surrendered to Parent, each certificate
for INT'L.com Stock will, after the Effective Time, represent only the right to
receive the right to receive cash and Parent Merger Shares into which the shares
of INT'L.com Stock formerly represented thereby will have been converted
pursuant to this Agreement. Any dividends or other distribution declared after
the Effective Time with respect to Parent Common Stock will be paid to the
holder of any certificate for shares of INT'L.com Stock when the holder thereof
is entitled to receive a certificate for such holder's Parent Merger Shares in
accordance with this Agreement.
2.6 NO FRACTIONAL SHARES. No certificates or scrip for fractional shares
of Parent Common Stock will be issued, no Parent stock split or dividend will be
paid in respect of any fractional share interest, and no such fractional share
interest will entitle the owner thereof to vote or to any rights of or as a
stockholder of Parent. In lieu of such fractional shares, any holder of
Outstanding INT'L.com Shares who would otherwise be entitled to a fraction of a
share of Parent Common Stock (after aggregating all fractional shares of Parent
Common Stock to be received by such holder) will be paid the cash value of such
fraction (rounded down to the nearest whole cent), which will be equal to such
fraction MULTIPLIED BY the Parent Average Closing Price.
2.7 ASSUMPTION OF STOCK OPTIONS. At the Effective Time, Parent shall
assume each Outstanding INT'L.com Option and each holder thereof (each an
"OPTION HOLDER") shall thereby be entitled to acquire, by virtue of the Merger
and without any action on the part of the Option Holder, on substantially the
same terms (including the dates and extent of exercisability) and subject to the
same conditions, including vesting, as such Outstanding INT'L.com Option, the
number of shares of Parent Common Stock determined by MULTIPLYING the number of
shares of INT'L.com Common Stock for which such Outstanding INT'L.com Option is
then exercisable in accordance with its terms immediately prior to the Effective
Time by the Conversion Ratio (rounded down to the nearest whole share), at an
exercise or conversion price per share of Parent Common Stock (rounded up to the
nearest whole cent) determined by dividing the exercise price per share of
INT'L.com Common Stock of such Outstanding INT'L.com Option immediately prior to
the Effective Time by the Conversion Ratio.
2.8 NOTES. The $2,000,000 in convertible promissory notes dated
August 20, 1999 of INT'L.com and any interest accrued thereon (the "INT'L.COM
NOTES") shall be paid in full and cancelled by delivery of the Convertible Note
Payment Shares to the holders thereof in proportion to their respective
interests in the INT'L.com Notes. "CONVERTIBLE NOTE PAYMENT SHARES" shall mean a
number of shares of Parent Common Stock determined by dividing the aggregate
principal amount payable under the INT'L.com Notes plus any interest accrued on
the INT'L.com Notes as of the Closing by the Parent Average Closing Price. In
lieu of any fractional shares, any holder of an INT'L.com Note who would
otherwise be entitled to a fraction of a share of Parent Common Stock (after
aggregating all fractional shares of Parent Common Stock to be received by such
holder) will be paid the cash value of such fraction (rounded down to the
nearest whole cent), which will be equal to such fraction MULTIPLIED BY the
Parent Average Closing Price.
2.9 BRIDGE NOTES. The (i) $2,000,000 in subordinated promissory notes of
INT'L.com dated January 14, 2000, (ii) $1,000,000 in subordinated promissory
notes of INT'L.com dated March 8, 2000 and (iii) up to an additional $2,000,000
in subordinated promissory notes of INT'L.com issued to existing investors of
INT'L.com on terms identical to the promissory notes described in clause (ii)
and
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any interest accrued thereon (collectively, the "INT'L.COM BRIDGE NOTES") shall
be paid in full and cancelled by delivery of the Bridge Note Payment Shares to
the holders thereof in proportion to their respective interests in the INT'L.com
Bridge Notes. "BRIDGE NOTE PAYMENT SHARES" shall mean a number of shares of
Parent Common Stock determined by dividing the aggregate principal amount
payable under the INT'L.com Bridge Notes plus any interest accrued on the
INT'L.com Bridge Notes as of the Closing by the Parent Average Closing Price.
The Bridge Note Payment Shares along with the Convertible Note Payment Shares
herein referred to as the "NOTE PAYMENT SHARES." In lieu of any fractional
shares, any holder of an INT'L.com Bridge Note who would otherwise be entitled
to a fraction of a share of Parent Common Stock (after aggregating all
fractional shares of Parent Common Stock to be received by such holder) will be
paid the cash value of such fraction (rounded down to the nearest whole cent),
which will be equal to such fraction MULTIPLIED BY the Parent Average Closing
Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INT'L.COM
Except as set forth in the disclosure schedule of INT'L.com dated as of
January 19, 2000 (the "PRIOR AGREEMENT DATE") and delivered herewith to Parent
(the "INT'L.COM DISCLOSURE SCHEDULE") which identifies the section and
subsection to which each disclosure therein relates (PROVIDED, HOWEVER, that
INT'L.com will be deemed to have adequately disclosed with respect to any
section or subsection any matters that are clearly described elsewhere in such
document if the applicability of such disclosure to such non-referenced sections
or subsections is apparent), and whether or not the INT'L.com Disclosure
Schedule is referred to in a specific section or subsection, INT'L.com
represents and warrants to Parent and Merger Sub as follows:
3.1 ORGANIZATION, STANDING AND POWER; SUBSIDIARIES.
(a) INT'L.com is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, has all requisite
corporate power and authority to own, lease and operate its properties and
to carry on its businesses as now being conducted, and is duly qualified and
in good standing to do business in each jurisdiction in which a failure to
so qualify would have a material adverse effect on the Business Condition
(as hereinafter defined) of INT'L.com.
As used in this Agreement, "BUSINESS CONDITION" with respect to any
Person (as defined below) means the business, financial condition, results
of operations, assets or prospects (as defined below) (without giving effect
to the consequences of the transactions contemplated by this Agreement and
the announcement thereof, and other than any changes arising out of
conditions affecting the economy or industry of the Person in general which
does not affect the Person in a materially disproportionate manner relative
to other participants in the economy or such industry, respectively) of such
Person or Persons including its Subsidiaries taken as a whole. In this
Agreement, a "SUBSIDIARY" of any Person means a corporation, partnership,
limited liability company, joint venture or other entity of which such
Person directly or indirectly owns or controls a majority of the equity
interests or voting securities or other interests that are sufficient to
elect a majority of the Board of Directors or other managers of such
corporation, partnership, limited liability company, joint venture or other
entity. In this Agreement, the "MATERIAL INT'L.COM SUBSIDIARIES" shall mean
the following Subsidiaries of INT'L.com: International Communications Europe
GmbH; International Language Engineering Corporation; International
Communications Asia; and ILE Netherlands BV. In this Agreement, "PROSPECTS"
means events, conditions, facts or developments that are known to INT'L.com
or any Subsidiary and that in the reasonable course of events are expected
to have an effect on future operations of the business as presently
conducted by INT'L.com and its Subsidiaries, but will exclude the results of
any changes that are made at the specific written direction of Parent, that
are specifically contemplated herein, or that directly result from this
transaction or the announcement hereof. In this Agreement, "PERSON" means
any natural person, corporation, partnership, limited liability company,
joint venture or other entity. In this
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Agreement, "ordinary course of business" means in the ordinary course of
business and consistent with past practices.
All Subsidiaries of INT'L.com and their jurisdiction of incorporation
are completely and correctly listed in Section 3.1 of the INT'L.com
Disclosure Schedule. Each Subsidiary is a corporation duly organized and
validly existing under the laws of the jurisdiction of its incorporation.
INT'L.com has delivered to Parent complete and correct copies of the
articles or certificate of incorporation, bylaws and/or other primary
charter and organizational documents ("CHARTER DOCUMENTS") of INT'L.com and
the Material INT'L.com Subsidiaries, in each case, as amended to the Prior
Agreement Date. The minute books and stock records of INT'L.com and its
Subsidiaries are complete. Section 3.1 of the INT'L.com Disclosure Schedule
contains a complete and correct list of the officers and directors of
INT'L.com and any stockholders who beneficially own (as defined in Rule 13d
of the Securities Act) 5% or more of the outstanding capital stock of
INT'L.com.
(b) INT'L.com does not currently own, and has not owned since
January 1, 1998, directly or indirectly, any capital stock or other equity
securities of any corporation or have direct or indirect equity or ownership
interest in any partnership, limited liability company, joint venture or
other entity. All of the outstanding shares of capital stock of each
Subsidiary of INT'L.com are owned beneficially and of record by INT'L.com,
one of its other Subsidiaries, or any combination thereof, in each case free
and clear of any security interests, liens, charges, restrictions, claims,
encumbrances or assessments of any nature whatsoever ("LIENS"); and there
are no outstanding subscriptions, warrants, options, convertible securities,
or other rights (contingent or other) pursuant to which any of the
Subsidiaries is or may become obligated to issue any shares of its capital
stock to any Person other than INT'L.com or one of the other Subsidiaries.
3.2 CAPITAL STRUCTURE.
(a) As of January 17, 2000, the authorized capital stock of INT'L.com
consisted of (i) 5,472,047 shares of preferred stock, $0.01 par value per
share ("INT'L.COM PREFERRED STOCK"), of which 867,047 shares had been
designated INT'L.com Series A Preferred Stock, 867,047 of which were issued
and outstanding, of which 3,500,000 shares had been designated INT'L.com
Series B Preferred Stock, 2,621,477 of which were issued and outstanding, of
which 5,000 had been designated INT'L.com Series C Preferred Stock, 5,000 of
which were issued and outstanding, and of which 1,100,000 shares had been
designated INT'L.com Series D Preferred Stock, 936,991 of which were issued
and outstanding; and (ii) 14,527,953 shares of INT'L.com Common Stock, $0.01
par value per share, of which 11,077,953 shares had been designated
INT'L.com Series A Common Stock, and 3,450,000 shares had been designated
INT'L.com Series B Common Stock, and 5,879,271 shares of Common Stock were
issued and outstanding and no shares of INT'L.com Common Stock were issued
and held as treasury shares by INT'L.com. The INT'L.com Disclosure Schedule
sets forth all holders of INT'L.com Common Stock and INT'L.com Preferred
Stock and the number of shares owned. The INT'L.com Disclosure Schedule also
sets forth any options, warrants, calls, conversion rights, commitments,
agreements, contracts, understandings, restrictions, arrangements or rights
of any character (each, an "INT'L.COM OPTION") to which INT'L.com is a party
or by which INT'L.com may be bound obligating INT'L.com to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of
INT'L.com Common Stock, or obligating INT'L.com to grant, extend, or enter
into any such option, warrant, call, conversion right, conversion payment,
commitment, agreement, contract, understanding, restriction, arrangement or
right. INT'L.com does not have any outstanding options, warrants, calls,
conversion rights, commitments, agreements, contracts, understandings,
restrictions, arrangements or rights of any character to which INT'L.com is
a party or by which INT'L.com may be bound obligating INT'L.com to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares
of INT'L.com Preferred Stock.
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(b) All outstanding shares of INT'L.com Common Stock and INT'L.com
Preferred Stock are, and any shares of INT'L.com Common Stock issued upon
exercise of any Outstanding INT'L.com Options will be, validly issued, fully
paid, nonassessable and not subject to any preemptive rights (other than
those which have been duly waived), or to any agreement to which INT'L.com
is a party or by which INT'L.com may be bound. Except for the INT'L.com
Notes, INT'L.com does not have outstanding any bonds, debentures, notes or
other indebtedness the holders of which (i) have the right to vote (or
convertible or exercisable into securities having the right to vote) with
holders of shares of INT'L.com Common Stock on any matter ("INT'L.COM VOTING
DEBT") or (ii) are or will become entitled to receive any payment as a
result of the execution of this Agreement or the completion of the
transactions contemplated hereby.
3.3 AUTHORITY. The execution, delivery and performance of this Agreement,
the Prior Agreement and all other agreements contemplated hereby by INT'L.com
have been duly authorized by all necessary action of the Board of Directors of
INT'L.com, and if the Closing shall occur, shall have been duly authorized by
all necessary action of the stockholders of INT'L.com (the "INT'L.COM REQUISITE
STOCKHOLDER APPROVAL"). Certified copies of the resolutions adopted by the Board
of Directors of INT'L.com and its stockholders approving this Agreement, the
Prior Agreement, all other agreements contemplated hereby and the Merger have
been or will be provided to Parent prior to the Closing. INT'L.com has duly and
validly executed and delivered this Agreement and has, or prior to Closing, will
have duly and validly executed and delivered all other agreements contemplated
hereby to be executed by INT'L.com, and each of this Agreement and such other
agreements constitutes or upon execution and delivery at or prior to the Closing
will constitute a valid, binding and enforceable obligation of INT'L.com in
accordance with its terms.
3.4 COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS;
NON-CONTRAVENTION. INT'L.com and its Subsidiaries hold, and at all times have
held or subsequently obtained, all licenses, permits and authorizations from all
Governmental Entities (as defined below) necessary for the lawful conduct of
their respective businesses pursuant to all applicable statutes, laws,
ordinances, rules and regulations of all such Governmental Entities having
jurisdiction over them or any part of their operations. There are no material
violations or claimed violations known by INT'L.com or any Subsidiary of any
such license, permit or authorization or any such statute, law, ordinance, rule
or regulation. Assuming the receipt of all Consents (as defined below), neither
the execution, delivery or performance of this Agreement and all other
agreements contemplated hereby by INT'L.com, nor the consummation of the Merger
or any other transaction described herein, does or will, after the giving of
notice, or the lapse of time, or otherwise, conflict with, result in a breach
of, or constitute a default under, the Charter Documents of INT'L.com or any
Material INT'L.com Subsidiary or any federal, foreign, state or local court or
administrative order or process, statute, law, ordinance, rule or regulation, or
any contract, agreement or commitment to which INT'L.com or any Material
INT'L.com Subsidiary is a party, or under which INT'L.com or any Material
INT'L.com Subsidiary is obligated, or by which INT'L.com or any Material
INT'L.com Subsidiary or any of the rights, properties or assets of INT'L.com are
subject or bound; result in the creation of any Lien upon, or otherwise
adversely affect, any of the rights, properties or assets of INT'L.com or any
Material INT'L.com Subsidiary; terminate, amend or modify, or give any party the
right to terminate, amend, modify, abandon or refuse to perform or comply with,
any contract, agreement or commitment to which INT'L.com or any Material
INT'L.com Subsidiary is a party, or under which INT'L.com or any Material
INT'L.com Subsidiary is obligated, or by which INT'L.com or any of the rights,
properties or assets of INT'L.com or any Material INT'L.com Subsidiary are
subject or bound; or accelerate, postpone or modify, or give any party the right
to accelerate, postpone or modify, the time within which, or the terms and
conditions under which, any liabilities, duties or obligations are to be
satisfied or performed, or any rights or benefits are to be received, under any
contract, agreement or commitment to which INT'L.com or any Material INT'L.com
Subsidiary is a party, or under which INT'L.com or any Material INT'L.com
Subsidiary may be obligated, or by which INT'L.com or any Material INT'L.com
Subsidiary or any of the rights,
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properties or assets of INT'L.com or any Material INT'L.com Subsidiary are
subject or bound. Section 3.4 of the INT'L.com Disclosure Schedule sets forth
each agreement, contract or other instrument binding upon INT'L.com requiring a
notice or consent (by its terms or as a result of any conflict or other
contravention required to be disclosed in the INT'L.com Disclosure Schedule
pursuant to the preceding provisions of this Section 3.4) as a result of the
execution, delivery or performance of this Agreement and all other agreements
contemplated hereby by INT'L.com or the consummation of the Merger or any other
transaction described herein (each such notice or consent, a "CONSENT"). No
consent, approval, order, or authorization of or registration, declaration, or
filing with or exemption (also a "CONSENT") by, any court, administrative agency
or commission or other governmental authority or instrumentality, whether
domestic or foreign (each a "GOVERNMENTAL ENTITY") is required by or on behalf
of INT'L.com or any Material INT'L.com Subsidiary in connection with the
execution, delivery or performance of this Agreement and all other agreements
contemplated hereby by INT'L.com or the consummation of the Merger or any other
transaction described herein, except for the filing by INT'L.com and Merger Sub
of the appropriate Merger Documents with the Secretary of State of Delaware.
3.5 TECHNOLOGY AND INTELLECTUAL PROPERTY RIGHTS.
(a) For the purposes of this Agreement, "INT'L.COM INTELLECTUAL
PROPERTY" consists of the following intellectual property:
(i) all patents, trademarks, trade names, service marks, trade dress,
copyrights and any renewal rights therefor, mask works, schematics,
software, firmware, technology, manufacturing processes, supplier lists,
customer lists, trade secrets, know-how, moral rights and applications and
registrations for any of the foregoing;
(ii) all documents, records and files relating to design, end user
documentation, manufacturing, quality control, sales, marketing or customer
support for all intellectual property described herein;
(iii) all other tangible or intangible proprietary information and
materials; and
(iv) all license and other rights in any third party product or any
third party intellectual property described in (i) through (iii) above;
that are owned or held by or on behalf of INT'L.com or any Material INT'L.com
Subsidiary or that are being used, and/or have been used since January 1, 1999,
or are currently under development by or for INT'L.com or any Material INT'L.com
Subsidiary for use, in the business of INT'L.com or any Material INT'L.com
subsidiary as it has been, is currently or is currently planned to be conducted
in 2000; PROVIDED, HOWEVER, that the term INT'L.com Intellectual Property does
not include any commercially available third party software or related
intellectual property.
(b) Section 3.5 of the INT'L.com Disclosure Schedule lists: (i) all
patents, copyright registrations, mask works, registered trademarks,
registered service marks, trade dress, any renewal rights for any of the
foregoing, and any applications and registrations for any of the foregoing,
that are included in INT'L.com Intellectual Property and owned by or on
behalf of INT'L.com or any Material INT'L.com Subsidiary; (ii) all hardware
products and tools, software products and tools and services that are
currently published, offered, or under development by INT'L.com or any
Material INT'L.com Subsidiary; and (iii) all licenses, sublicenses and other
agreements to which INT'L.com is a party and pursuant to which INT'L.com or
any Material INT'L.com Subsidiary or any other person is authorized to use
any INT'L.com Intellectual Property or exercise any other right with regard
thereto.
(c) INT'L.com Intellectual Property consists solely of items and rights
that are either: (i) owned solely by INT'L.com; (ii) in the public domain;
or (iii) rightfully used and authorized for
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use by INT'L.com pursuant to a valid license. All INT'L.com Intellectual
Property that consists of license or other rights to third party property is
separately set forth in Section 3.5 of the INT'L.com Disclosure Schedule.
INT'L.com has all rights in INT'L.com Intellectual Property necessary to
carry out INT'L.com's, and each of its Subsidiaries', current activities,
their activities conducted by them since January 1, 1999 and their future
activities planned for 2000, including without limitation rights to make,
use, exclude others from using, reproduce, modify, adapt, create derivative
works based on, translate, distribute (directly and indirectly), transmit,
display and perform publicly, license, rent, lease, assign and sell
INT'L.com Intellectual Property in all geographic locations and fields of
use, and to sublicense any or all such rights to third parties, including
the right to grant further sublicenses.
(d) Assuming the receipt of all Consents, INT'L.com is not, nor as a
result of the execution or delivery of this Agreement and all other
agreements contemplated hereby, or performance of INT'L.com's obligations
hereunder or the consummation of the Merger, will INT'L.com be, in violation
of any license, sublicense or other agreement relating to any INT'L.com
Intellectual Property to which INT'L.com is a party or otherwise bound.
INT'L.com is not obligated to provide any consideration (whether financial
or otherwise) to any third party, nor is any third party otherwise entitled
to any consideration, with respect to any exercise of rights by INT'L.com or
the Surviving Corporation, as successor to INT'L.com, in INT'L.com
Intellectual Property.
(e) To the knowledge of INT'L.com or any of the Material INT'L.com
Subsidiaries, the use, reproduction, modification, distribution, licensing,
sublicensing, sale, or any other exercise of rights in any product, work,
technology, service or process as used, provided, or offered at any time, or
as proposed for use, reproduction, modification, distribution, licensing,
sublicensing, sale, or any other exercise of rights, by INT'L.com or any
Material INT'L.com Subsidiary does not infringe any copyright, patent, trade
secret, trademark, service mark, trade name, firm name, logo, trade dress,
mask work, moral right, other intellectual property right, right of privacy,
or right in personal data of any Person. No claims (i) challenging the
validity, effectiveness, or ownership by INT'L.com or any Material INT'L.com
Subsidiary of any INT'L.com Intellectual Property, or (ii) to the effect
that the use, reproduction, modification, manufacturing, distribution,
licensing, sublicensing, sale, or any other exercise of rights in any
product, work, technology, service, or process as used, provided or offered
at any time, or as proposed for use, reproduction, modification,
distribution, licensing, sublicensing, sale, or any other exercise of
rights, by INT'L.com or any Material INT'L.com Subsidiary infringes or will
infringe on any intellectual property or other proprietary or personal right
of any Person have been asserted to INT'L.com or any Material INT'L.com
Subsidiary in writing by any Person. Neither INT'L.com nor any Subsidiary
has received notice of any legal or governmental proceedings, including
interference, re-examination, reissue, opposition, nullity, or cancellation
proceedings pending that relate to any INT'L.com Intellectual Property,
other than any review of pending applications for patent. Neither INT'L.com
nor any Subsidiary is aware of any information indicating that any such
proceedings are threatened or contemplated by any Governmental Entity or any
other Person. All granted or issued patents and mask works and all
registered trademarks and copyright registrations owned by INT'L.com are
valid, enforceable and subsisting. To the knowledge of INT'L.com, there is
no unauthorized use, infringement, or misappropriation of any INT'L.com
Intellectual Property by any third party, employee or former employee.
(f) INT'L.com and its Subsidiaries has secured from all parties who have
created any portion of, or otherwise have any rights in or to, INT'L.com
Intellectual Property, valid and enforceable written assignments of any such
work or other rights to INT'L.com.
(g) Each consultant and subcontractor of INT'L.com and its Subsidiaries
has entered into a confidentiality and assignment of inventions agreement
substantially in the form attached to Section 3.5 of the INT'L.com
Disclosure Schedule.
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3.6 FINANCIAL STATEMENTS; BUSINESS INFORMATION.
(a) INT'L.com has delivered to Parent audited consolidated balance
sheets (the "BALANCE SHEETS") as of December 31, 1999 (the "BALANCE SHEET
DATE") and December 31, 1998, and audited consolidated statements of income
and cash flows for the years ended December 31, 1999, December 31, 1998 and
December 31, 1997 (all of such balance sheets and statements of income and
cash flows are collectively referred to as the "FINANCIAL STATEMENTS"). The
Financial Statements: (i) are in accordance with the books and records of
INT'L.com; (ii) present fairly, in all material respects, the financial
position of INT'L.com as of the date indicated and the results of its
operations and cash flows for such periods; and (iii) have been prepared in
accordance with generally accepted accounting principles consistently
applied (subject, in the case of unaudited statements, to the absence of
footnote disclosure and in the case of unaudited interim statements to
year-end adjustments, which will not be material either individually or in
the aggregate and except as described in the Section 3.6 of the INT'L.com
Disclosure Schedule). As of the Balance Sheet Date, there were no material
liabilities, claims or obligations of any nature, whether accrued, absolute,
contingent, anticipated or otherwise, whether due or to become due, that are
not shown or provided for either in the Balance Sheets or Section 3.6 of the
INT'L.com Disclosure Schedule, and since the Balance Sheet Date, INT'L.com
has incurred no liabilities, claims or obligations of any nature, whether
accrued, absolute, contingent, anticipated or otherwise other than in the
ordinary course of business and except for liabilities incurred by INT'L.com
in connection with the preparation and execution of this Agreement and the
consummation of the transactions contemplated herein.
(b) All of the accounts, notes and other receivables which are reflected
in the Balance Sheets were acquired in the ordinary course of business; and,
except to the extent reserved against in the Balance Sheets, all of the
accounts, notes and other receivables which are reflected therein have been
collected in full, or, to the knowledge of INT'L.com or any Subsidiary, are
valid, binding and enforceable in accordance with their terms in the
ordinary course of business, and arise from bona fide transactions, and
neither INT'L.com nor any Subsidiary has received notice that the same are
subject to counterclaims, refusals to pay or other rights of setoff. All of
the accounts, notes and other receivables which have been acquired by
INT'L.com or any Subsidiary since the Balance Sheet Date were acquired in
the ordinary course of business and have been collected in full, or to the
knowledge of INT'L.com or any Subsidiary, are valid, binding and enforceable
in accordance with their terms in the ordinary course of business, and arise
from bona fide transactions, and neither INT'L.com nor any Subsidiary has
received notice that the same are subject to counterclaims, refusals to pay
or other rights of setoff, subject to an appropriate reserve. No accounts,
notes or other receivables are contingent upon the performance by INT'L.com
or any Subsidiary of any obligation or contract. No Person has any Lien on
any of such receivables and no agreement for deduction or discount has been
made with respect thereto.
(c) The business information previously prepared by INT'L.com and
delivered to Parent was prepared in good faith, based on assumptions
INT'L.com deemed, as of the date such information was delivered to Parent,
to be reasonable, and was prepared for planning purposes, although no
assurances are given that INT'L.com can or will engage in the activities
described therein or achieve the results projected therein.
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3.7 TAXES.
(a) The term "TAXEs" as used herein means all federal, state, local and
foreign income tax, 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.
(b) INT'L.com and each of its Subsidiaries 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 INT'L.com or such Subsidiary is obligated to withhold for amounts
owing to employees, creditors and third parties. All Tax Returns filed by
INT'L.com and each of its Subsidiaries were complete and correct in all
respects, and such Tax Returns correctly reflected the facts regarding the
income, business, assets, operations, activities, status and other matters
of INT'L.com and each of its Subsidiaries and any other information required
to be shown thereon. None of the Tax Returns filed by INT'L.com or any of
its Subsidiaries or Taxes payable by INT'L.com or any of its Subsidiaries
have been the subject of an audit, action, suit, proceeding, claim,
examination, deficiency or assessment by any Governmental Entity, and no
such audit, action, suit, proceeding, claim, examination, deficiency or
assessment is currently pending or, to the knowledge of INT'L.com or any of
its Subsidiaries, threatened. Neither INT'L.com nor any Subsidiary is
currently the beneficiary of any extension of time within which to file any
Tax Return, and neither INT'L.com nor any Subsidiary has 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. All material elections with
respect to Taxes affecting INT'L.com or any Subsidiary, as of the Prior
Agreement Date, are set forth in the Financial Statements or in Section 3.7
of the INT'L.com Disclosure Schedule. None of the Tax Returns filed by
INT'L.com or any Subsidiary 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). Neither INT'L.com nor any
Subsidiary is a party to any Tax sharing agreement or similar arrangement.
Neither INT'L.com nor any Subsidiary has ever been a member of a group
filing a consolidated federal income Tax Return (other than a group the
common parent of which was INT'L.com), and neither INT'L.com nor any
Subsidiary has any liability for the Taxes of any Person (other than
INT'L.com) 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) Neither INT'L.com nor any Subsidiary is 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. Neither INT'L.com nor any Subsidiary
has 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, and INT'L.com will not be required
to make any such adjustment as a result of the transactions set forth in
this Agreement. Neither INT'L.com nor any Subsidiary has or has 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 Parent Merger Shares is subject to the Tax withholding
provisions of
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Section 3406 of the Code, or of Subchapter A of Chapter 3 of the Code or of
any other provision of law. None of the assets of INT'L.com or any
Subsidiary is property which is required to be treated as being owned by any
other Person pursuant to the so-called "safe harbor lease" provisions of
former Section 168(f)(8) of the Code. None of the assets of INT'L.com or any
Subsidiary directly or indirectly secures any debt, the interest on which is
tax exempt under Section 103(a) of the Code. None of the assets of INT'L.com
or any Subsidiary is "tax-exempt use property" within the meaning of
Section 168(h) of the Code. No claim has ever been made by any Governmental
Entity in a jurisdiction where INT'L.com or any Subsidiary does not file Tax
Returns that it is or may be subject to Tax in that jurisdiction. Neither
INT'L.com nor any Subsidiary has participated in an international boycott as
defined in Section 999 of the Code. None of the shares of outstanding
capital stock of INT'L.com or any Subsidiary are subject to a "substantial
risk of forfeiture" within the meaning of Section 83 of the Code.
(d) There are no liens for Taxes (other than for ad valorem Taxes not
yet due and payable) upon the assets of INT'L.com or any Subsidiary. The
unpaid Taxes of INT'L.com and its Subsidiaries 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 Sheets, 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 INT'L.com and its
Subsidiaries in filing their Tax Returns (taking into account any Taxes
incurred as a result of the transactions contemplated by this Agreement).
Section 3.7 of the INT'L.com Disclosure Schedule sets forth INT'L.com's and
each Subsidiary's Tax basis in each of their respective assets. Neither
INT'L.com nor any Subsidiary is a party to any joint venture, partnership,
limited liability company or other arrangement or contract which could be
treated as a partnership for federal income tax purposes.
3.8 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except for liabilities incurred
in connection with this Agreement and the transactions contemplated hereby, from
the Balance Sheet Date, there has not been:
(a) Any transaction involving more than $50,000 entered into by
INT'L.com or any Subsidiary other than in the ordinary course of business;
any change (or any development or combination of developments of which
INT'L.com or any Subsidiary has knowledge which is reasonably likely to
result in such a change) in INT'L.com's Business Condition, other than
changes in the ordinary course of business which in the aggregate have not
been and are not expected to be materially adverse to INT'L.com's Business
Condition; or, without limiting the foregoing, any loss of or damage to any
of the properties of INT'L.com or any Subsidiary due to fire or other
casualty or other loss, whether or not insured, amounting to more than
$50,000 in the aggregate;
(b) Any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of INT'L.com or any
Subsidiary, or any repurchase, redemption, retirement or other acquisition
by INT'L.com or any Subsidiary of any outstanding shares of capital stock,
any INT'L.com Option, or other securities of, or other equity or ownership
interests in, INT'L.com or any Subsidiary;
(c) Any discharge or satisfaction of any Lien or payment or satisfaction
of any obligation or liability (whether absolute, accrued, contingent or
otherwise and whether due or to become due) other than current liabilities
shown on the Balance Sheets and current liabilities incurred since the
Balance Sheet Date in the ordinary course of business;
(d) Any amendment of any term of any outstanding security of INT'L.com;
(e) Any incurrence, assumption or guarantee by INT'L.com or any
Subsidiary of any indebtedness for borrowed money other than in the ordinary
course of business and in an aggregate amount exceeding $50,000;
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(f) Any creation or assumption by INT'L.com or any Subsidiary of any
Lien on any asset in an aggregate amount exceeding $20,000;
(g) Any making of any loan, advance or capital contributions to, or
investment in, any Person by INT'L.com or any Subsidiary;
(h) Any sale, lease, pledge, transfer or other disposition of any
material capital asset;
(i) Any material transaction or commitment made, or any material
contract or agreement entered into, by INT'L.com or any Subsidiary relating
to its assets or business (including the acquisition or disposition of any
assets) with a value of $100,000 or more or any relinquishment by INT'L.com
or any Subsidiary of any contract or other right with a value of $100,000 or
more;
(j) Any (A) grant of any severance or termination pay to any director,
officer or employee of INT'L.com or any Subsidiary, (B) entering into of any
employment, severance, management, consulting, deferred compensation or
other similar agreement (or any amendment to any such existing agreement)
with any director, officer or employee of INT'L.com or any Subsidiary,
(C) change in benefits payable under existing severance or termination pay
policies or employment, severance, management, consulting or other similar
agreements, (D) change in compensation, bonus or other benefits payable to
directors, officers or employees of INT'L.com or any Subsidiary in excess of
7% or (E) change in the payment or accrual policy with respect to any of the
foregoing;
(k) Any labor dispute or any activity or proceeding by a labor union or
representative thereof to organize any employees of INT'L.com or any
Material INT'L.com Subsidiary, or any lockouts, strikes, slowdowns, work
stoppages or threats thereof by or with respect to any employees of
INT'L.com or any Material INT'L.com Subsidiary;
(l) Any issuance or sale of any stock, bonds, phantom stock interest or
other securities of which INT'L.com or any Subsidiary is the issuer, or the
grant, issuance or change of any stock options, warrants, or other rights to
purchase securities of INT'L.com or any Subsidiary or phantom stock interest
in INT'L.com or any Subsidiary other than issuances of common stock in
connection with exercises of employee stock options;
(m) Any cancellation of any debts or claims or waiver of any rights in
an aggregate amount exceeding reserves in the Financial Statements by
$50,000 or more;
(n) Any sale, assignment or transfer of any INT'L.com Intellectual
Property, including licenses therefor;
(o) Any capital expenditures, or commitment to make any capital
expenditures, for additions to property, plant or equipment in an aggregate
amount exceeding $50,000; or
(p) Any agreement undertaking or commitment to do any of the foregoing.
3.9 LEASES IN EFFECT. All real property leases and subleases as to which
INT'L.com or any Subsidiary is a party and any amendments or modifications
thereof are listed in Section 3.9 of the INT'L.com Disclosure Schedule (each a
"LEASE" and collectively, the "LEASES") and are valid, in full force and effect
and enforceable, and there are no existing defaults on the part of INT'L.com or
any Subsidiary, and neither INT'L.com nor any Subsidiary has received or given
notice of default or claimed default with respect to any Lease, nor is there any
event that with notice or lapse of time, or both, would constitute a default on
the part of INT'L.com or any Subsidiary, or, to the knowledge of INT'L.com and
its Subsidiaries, any other party thereunder.
3.10 PERSONAL PROPERTY; REAL ESTATE. (a) INT'L.com has good and marketable
title, free and clear of all title defects and Liens (including, without
limitation, leases, chattel mortgages, conditional sale contracts, purchase
money security interests, collateral security arrangements and other title or
interest-retaining agreements) to all inventory, receivables, furniture,
machinery, equipment and other personal
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property, tangible or otherwise, reflected on the Balance Sheets or used in
INT'L.com's business, except for acquisitions and dispositions since the Balance
Sheet Date in the ordinary course of business. The INT'L.com Disclosure Schedule
lists (i) all computer equipment and (ii) all other personal property, in each
case having a depreciated book value of $10,000 or more, which are used by
INT'L.com or any Subsidiary in the conduct of its business, and all such
equipment and property, in the aggregate, is in good operating condition and
repair, reasonable wear and tear excepted. There is no asset used or required by
INT'L.com in the conduct of its business as presently operated which is not
either owned by it or licensed or leased to it.
(b) Section 3.10 of the INT'L.com Disclosure Schedule contains a
schedule setting forth all real property which is owned or leased by
INT'L.com or any Subsidiary, or in which INT'L.com or any Subsidiary has any
other right, title or interest. Neither INT'L.com nor any Subsidiary owns
any real property. True and complete copies of each lease have been provided
to Parent, and such leases constitute the entire understanding relating to
INT'L.com's or any Subsidiary's use and occupancy of the leased premises.
(c) INT'L.com and each Subsidiary has obtained consents for all
alterations made as of the Prior Agreement Date to each leased premise
described in Section 3.10 of the INT'L Disclosure Schedule and, upon the
expiration or earlier termination of the lease or sublease with respect
thereto, shall not be obligated to remove any such alterations or restore
the premises to the condition they were in prior to the time such
alterations were undertaken, except for removal or restoration obligations
which individually or in the aggregate do not exceed $25,000. To the
knowledge of INT'L.com and its Subsidiaries, the improvements located on the
real property described in Section 3.10 of the INT'L.com Disclosure Schedule
are not the subject of and neither INT'L.com nor any Subsidiary has received
written notice of any official complaint or of a violation of any applicable
zoning ordinance or building code. There is no condemnation proceeding
pending or, to the knowledge of INT'L.com and its Subsidiaries, threatened
against INT'L.com or any Subsidiary and to the knowledge of INT'L.com and
its Subsidiaries there are no use or occupancy restrictions on the real
property described in Section 3.10 of the INT'L.com Disclosure Schedule.
3.11 CERTAIN TRANSACTIONS. Except for (a) relationships with INT'L.com or
any Subsidiary as an officer, director, or employee thereof (and compensation by
INT'L.com or any Subsidiary in consideration of such services) and
(b) relationships with INT'L.com as security holders therein, none of the
directors, officers, or stockholders of INT'L.com, or any member of any of their
families, is presently a party to, or was a party to during the year preceding
the Prior Agreement Date, any transaction, or series of similar transactions,
with INT'L.com or any Subsidiary, in which the amount involved exceeds $60,000,
including, without limitation, any contract, agreement, or other arrangement
(i) providing for the furnishing of services to or by, (ii) providing for rental
of real or personal property to or from, or (iii) otherwise requiring payments
to or from, any such Person or any other Person in which any such Person has or
had a 5%-or-more interest (as a stockholder, partner, beneficiary, or otherwise)
or is or was a director, officer, employee, or trustee, but excluding any
transaction pursuant to existing employee benefit plans. None of INT'L.com's
officers or directors has any interest in any property, real or personal,
tangible or intangible, including inventions, copyrights, trademarks, or trade
names, used in or pertaining to the business of INT'L.com or the Material
INT'L.com Subsidiaries, or, to the knowledge of INT'L.com, any material
supplier, distributor, or customer of INT'L.com or the Material INT'L.com
Subsidiaries, except for the normal rights of a securityholder, and except for
rights under existing employee benefit plans.
3.12 LITIGATION AND OTHER PROCEEDINGS. There is no action, suit, claim,
proceeding, or to the knowledge of INT'L.com or any Subsidiary, investigation
pending against or, to the knowledge of INT'L.com or any Subsidiary, threatened
against INT'L.com or any Subsidiary or any of their
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respective properties and assets before any court or arbitrator or any
Governmental Entity. Neither INT'L.com nor any Subsidiary is subject to any
order, writ, judgment, decree, or injunction.
3.13 NO DEFAULTS. INT'L.com and the Material INT'L.com Subsidiaries are
not, nor has INT'L.com or any Material INT'L.com Subsidiary received notice that
it would be with the passage of time, in default or violation of any term,
condition, or provision of (i) its Charter Documents; (ii) any judgment, decree,
or order applicable to INT'L.com or any Material INT'L.com Subsidiary; or
(iii) any loan or credit agreement, note, bond, mortgage, indenture, contract,
agreement, lease, license, or other instrument to which INT'L.com or any
Material INT'L.com Subsidiary is now a party or by which it or any of its
properties or assets may be bound, except for defaults and violations which have
been validly waived, or which, individually or in the aggregate, would not have
a material adverse effect on the Business Condition of INT'L.com.
3.14 MAJOR CONTRACTS. Neither INT'L.com nor any Material INT'L.com
Subsidiary is a party to or subject to:
(a) Any union contract, or any employment contract or arrangement in
effect (other than "at-will" employment arrangements) providing for future
compensation, written or oral, with any officer, consultant, director, or
employee;
(b) Any plan or contract or arrangement, written or oral, providing for
non-standard bonuses, pensions, deferred compensation, retirement payments,
profit-sharing or the like;
(c) Any joint venture contract or arrangement or any other agreement
which has involved or is expected to involve a sharing of profits;
(d) Any OEM agreement, reseller or distribution agreement, volume
purchase agreement, corporate end user sales or service agreement,
reproduction or replication agreement or manufacturing agreement in which
the amount involved exceeds annually, or is expected to exceed in the
aggregate over the life of the contract, $50,000 or pursuant to which
INT'L.com has granted or received manufacturing rights, most favored nation
pricing provisions, or exclusive marketing, production, publishing or
distribution rights related to any product, group of products or territory;
(e) Any agreement, license, franchise, permit, indenture, or
authorization which has not been terminated or performed in its entirety and
not renewed which may be, by its terms, terminated, impaired, or adversely
affected by reason of the execution of this Agreement and all other
agreements contemplated hereby, the consummation of the Merger, or the
consummation of the transactions contemplated hereby or thereby;
(f) Except for trade indebtedness incurred in the ordinary course of
business, any instrument evidencing or related in any way to indebtedness
incurred in the acquisition of companies or other entities or indebtedness
for borrowed money by way of direct loan, sale of debt securities, purchase
money obligation, conditional sale, guarantee, or otherwise which
individually is in the amount of $50,000 or more;
(g) Any license agreement in effect, either as licensor or licensee
(excluding nonexclusive hardware and software licenses granted to
distributors or end-users and commercially available in-licensed software
applications);
(h) Any contract or agreement containing covenants purporting to limit
INT'L.com's or the Material INT'L.com Subsidiaries' freedom to compete in
any line of business in any geographic area; or
(i) Any contract or agreement not elsewhere specifically disclosed
pursuant to this Agreement, involving the payment or receipt by INT'L.com of
more than $250,000 in the aggregate.
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For purposes of this Section 3.14, a contract, agreement or arrangement
shall be considered "in effect" if INT'L.com or any Material Subsidiary shall
have any obligations or liabilities pursuant to such contract, agreement or
arrangement.
All contracts, arrangements, plans, agreements, leases, licenses,
franchises, permits, indentures, authorizations, instruments and other
commitments which are listed in the INT'L.com Disclosure Schedule pursuant to
this Section 3.14 are valid and in full force and effect and neither INT'L.com
nor any Material INT'L.com Subsidiary has, nor, to the knowledge of INT'L.com
and the Material INT'L.com Subsidiaries, has any other party thereto, breached
any material provisions of, or entered into default in any material respect
under the terms thereof. INT'L.com has delivered to Parent copies of the
contracts or agreements, and descriptions of any verbal agreements or
arrangements, referred to in this Section 3.14 as in effect on the Prior
Agreement Date.
3.15 MATERIAL REDUCTIONS. None of the parties to any of the contracts
identified in the INT'L.com Disclosure Schedule pursuant to Section 3.14 have
terminated, or in any way expressed in writing to INT'L.com or any Subsidiary an
intent to reduce or terminate the amount of its business with INT'L.com or any
Subsidiary in the future.
3.16 INSURANCE AND BANKING FACILITIES. Section 3.16 of the INT'L.com
Disclosure Schedule contains a complete and correct list of (i) all contracts of
insurance or indemnity of INT'L.com in force at the Prior Agreement Date
(including name of insurer or indemnitor, agent, annual premium, coverage,
deductible amounts and expiration date) and (ii) the names and locations of all
banks in which INT'L.com has accounts or safe deposit boxes, the designation of
each such account and safe deposit box, and the names of all persons authorized
to draw on or have access to each such account and safe deposit box. All
premiums and other payments due from INT'L.com with respect to any such
contracts of insurance or indemnity have been paid, and neither INT'L.com nor
any Material INT'L.com Subsidiary knows of any fact, act, or failure to act
which has or could reasonably be expected to cause any such contract to be
canceled or terminated. All known claims for insurance or indemnity have been
presented or are described in Section 3.16 of the INT'L.com Disclosure Schedule.
3.17 EMPLOYEES. The INT'L.com Disclosure Schedule sets forth a list as of
January 12, 2000 of (a) the names, titles, annual salaries and all bonuses of
all salaried employees of INT'L.com and its Subsidiaries (such term meaning
permanent and temporary, full-time and part-time employees) and (b) the wage
rates for non-salaried employees of INT'L.com and its Subsidiaries. Any persons
engaged by INT'L.com as independent contractors, rather than employees, have
been properly classified as such and have been so engaged in accordance with all
applicable federal, foreign, state or local laws. No employee that INT'L.com or
any Material INT'L.com Subsidiary wishes to retain has stated to INT'L.com or
any Material INT'L.com Subsidiary that such employee intends to resign or retire
as a result of the transactions contemplated by this Agreement or otherwise
within six months after the Closing Date. Hours worked by and payments made to
employees of INT'L.com and its Subsidiaries have not been in violation of the
Fair Labor Standards Act or any other applicable federal, foreign, state or
local laws dealing with such matters. Neither INT'L.com nor any Subsidiary is
engaged in any dispute or litigation with an employee or former employee
regarding matters pertaining to intellectual property or assignment of
inventions. Neither INT'L.com nor any Subsidiary, to the knowledge of INT'L.com
and its Subsidiaries, is subject to a union organizing effort. Neither INT'L.com
nor any Subsidiary has any written contract of employment or other employment,
severance or similar agreement with any of its employees or any established
policy or practice relating thereto, and all of its employees are
employees-at-will. Neither INT'L.com nor any Subsidiary is a party to any
pending, or to the knowledge of INT'L.com and its Subsidiaries, threatened,
labor dispute. INT'L.com and its Subsidiaries have complied in all material
respects with all applicable foreign, federal, state and local laws, ordinances,
rules and regulations and requirements relating to the employment of labor,
including but not limited to the provisions thereof relating to wages, hours,
collective bargaining and ensuring equality of opportunity for employment. There
are no claims pending, or, to the knowledge of
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INT'L.com and its Subsidiaries, threatened to be brought, in any court or
administrative agency by any former or current employees of INT'L.com and its
Subsidiaries for compensation, pending severance benefits, vacation time,
vacation pay or pension benefits, or any other claim pending, or, to the
knowledge of INT'L.com and its Subsidiaries, threatened in any court or
administrative agency from any current or former employee or any other Person
arising out of INT'L.com's or its Subsidiary's status as employer, whether in
the form of claims for employment discrimination, harassment, unfair labor
practices, grievances, wrongful discharge, or otherwise.
3.18 EMPLOYEE BENEFIT PLANS. Each Plan (as defined below) covering active,
former, or retired employees of INT'L.com or any Subsidiary is listed in
Section 3.18 of the INT'L.com Disclosure Schedule. "PLAN" means any employee
benefit plan as defined in ERISA (as defined below), maintained or contributed
to by INT'L.com or any of its Subsidiaries within the past six years, and also
includes any employment, severance or similar contract, arrangement or policy
and each plan or arrangement providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, pension or retirement
benefits or for deferred compensation, profit-sharing, bonuses, phantom stock,
stock options, stock appreciation rights or other forms of incentive
compensation or post-retirement insurance, compensation or benefits in existence
within the past three years or for which there is an unsatisfied liability.
INT'L.com has made available to Parent a copy (or description if no document
exists) of each Plan, and where applicable, any related trust agreement,
annuity, or insurance contract. All annual reports (Form 5500) required to be
filed with the Internal Revenue Service have been properly filed on a timely
basis, and INT'L.com has provided copies of the three most recently filed Forms
5500 for each applicable Plan. Any Plan intended to be qualified under
Section 401(a) of the Code has been determined by the Internal Revenue Service
to be so qualified or, if no such determination letter has been received, the
form of such Plan complies with the Code's requirements for qualification,
except those requirements for which the remedial amendment period has not
expired, and no event has occurred which is reasonably likely to threaten the
tax-exempt status of such Plan or any trust for such Plan. No Plan is covered by
Title IV of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 412 of the Code. No "prohibited transaction," as defined
in ERISA Section 406 or Code Section 4975 has occurred with respect to any Plan,
unless such a transaction was exempt from such rules or would not give rise to a
material tax or penalty. Each Plan has been maintained and administered in
material compliance with its terms and with the requirements prescribed by any
and all statutes, including but not limited to ERISA and the Code, which are
applicable to such Plans. There are no pending or, to the knowledge of INT'L.com
and its Subsidiaries, anticipated claims against or otherwise involving any of
the Plans and no suit, action, or other litigation (excluding claims for
benefits incurred in the ordinary course of Plan activities) is currently
pending against or with respect to any Plan for which there is an unsatisfied
liability. All contributions, reserves, or premium payments to the Plan accrued
to the Prior Agreement Date have been made or provided for in accordance with
prior funding and accrual practices. Within the six year period preceding the
Closing Date, neither INT'L.com nor any Subsidiary, nor any entity which is
considered one employer with INT'L.com or any Subsidiary under Section 414 of
the Code or Section 4001 of ERISA has ever maintained or contributed to or
incurred liability with respect to any Plan subject to Title IV of ERISA or any
"multi-employer plan" within the meaning of Section 4001(a)(3) of ERISA, and
neither INT'L.com nor any Subsidiary expects to incur any such liability. There
are no restrictions on the rights of INT'L.com or any Subsidiary to amend or
terminate any Plan, subject to any applicable notice requirements without
incurring any liability thereunder other than for benefits accrued prior to the
date of termination or amendment. Neither INT'L.com nor any Subsidiary has
engaged in and, to the knowledge of INT'L.com and its Subsidiaries, it is not a
successor or parent corporation to an entity that has engaged in a transaction
described in ERISA Section 4069. There have been no written interpretations of,
or announcements (whether or not written) by INT'L.com or any Subsidiary
relating to, or change in employee participation or coverage under, any Plan
that would increase the expense of maintaining such Plan above the level of the
expense incurred in respect thereof for the fiscal year
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ended prior to the Prior Agreement Date. Neither INT'L.com nor any of its ERISA
affiliates has any liability in respect of post-employment or post-retirement
welfare benefits for retired employees of INT'L.com or any Subsidiary. Neither
INT'L.com nor any Material INT'L.com Subsidiary nor any of their ERISA
Affiliates has any liability with respect to welfare benefits for former
employees other than health care continuation benefits required to be provided
under applicable law or which do not exceed three months in duration. No tax
under Section 4980B or 4980D of the Code has been incurred in respect of any
Plan that is a group health plan, as defined in Section 5000(b)(1) of the Code.
3.19 CERTAIN AGREEMENTS. Except as contemplated by this Agreement, neither
the execution and delivery of this Agreement and all other agreements
contemplated hereby, nor the consummation of the transactions contemplated
hereby will: (i) result in any payment by INT'L.com or any Subsidiary
(including, without limitation, severance, unemployment compensation, parachute
payment, bonus or otherwise) becoming due to any director, employee, or
independent contractor of INT'L.com or any Subsidiary under any Plan, agreement,
or otherwise, (ii) increase any benefits otherwise payable under any Plan or
agreement or (iii) result in the acceleration of the time of payment or vesting
of any such benefits.
3.20 GUARANTEES AND SURETYSHIPS. INT'L.com and its Subsidiaries have no
powers of attorney outstanding (other than those issued in the ordinary course
of business with respect to Tax matters), and INT'L.com and its Subsidiaries
have no material obligations or liabilities (absolute or contingent) as
guarantor, surety, cosigner, endorser, co-maker, indemnitor, or otherwise
respecting the obligations or liabilities of any Person.
3.21 BROKERS AND FINDERS. INT'L.com has not retained any broker, finder,
or investment banker in connection with this Agreement or any of the
transactions contemplated by this Agreement, nor does or will INT'L.com or any
Subsidiary owe any fee or other amount to any broker, finder, or investment
banker in connection with this Agreement or the transactions contemplated by
this Agreement.
3.22 CERTAIN PAYMENTS. Neither INT'L.com nor any Subsidiary, nor to the
knowledge of INT'L.com and its Subsidiaries, any Person acting on behalf of
INT'L.com or any Subsidiary has, directly or indirectly, on behalf of or with
respect to INT'L.com or any Subsidiary: (i) made an unreported political
contribution, (ii) made or received any payment which was not legal to make or
receive, (iii) engaged in any material transaction or made or received any
material payment which was not properly recorded on the books of INT'L.com and
its Subsidiaries, (iv) created or used any "off-book" bank or cash account or
"slush fund," or (v) engaged in any conduct constituting a violation of the
Foreign Corrupt Practices Act of 1977.
3.23 ENVIRONMENTAL MATTERS. INT'L.com and its Subsidiaries have complied
in all material respects with all applicable federal, state and local laws
(including, without limitation, case law, rules, regulations, orders, judgments,
decrees, permits, licenses and governmental approvals) which are intended to
protect the environment and/or human health or safety (collectively,
"ENVIRONMENTAL LAWS"); neither INT'L.com nor any Subsidiary has handled,
generated, used, stored, transported or disposed of any material, substance or
waste which is regulated by Environmental Laws ("HAZARDOUS MATERIALS"), except
for ordinary office and/or office-cleaning supplies, products, equipment, fluids
and wastes customarily found, and in quantities customarily found, in a
commercial office setting, which have been used in compliance with Environmental
Laws; (iii) to the knowledge of INT'L.com and its Subsidiaries there is not now,
nor has there ever been, any underground storage tank or asbestos on any real
property owned, operated or leased by INT'L.com; (iv) INT'L.com has not
conducted, nor is it aware of, any environmental investigations, studies,
audits, tests, reviews or analyses, the purpose of which was to discover,
identify, or otherwise characterize the condition of the soil, groundwater, air
or the presence of Hazardous Materials at any real property owned, operated or
leased by INT'L.com; and (v) to the knowledge of INT'L.com and its Subsidiaries
there are no "Environmental Liabilities". For purposes of this Agreement,
"ENVIRONMENTAL LIABILITIES" are any claims, demands, or liabilities
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under Environmental Laws which (i) arise out of or in any way relate to
INT'L.com's or its Subsidiary's operations or activities, or any real property
at any time owned, operated or leased by INT'L.com or a Subsidiary, or any
stockholder's use or ownership thereof, whether vested or unvested, contingent
or fixed, actual or potential, and (ii) arise from or relate to actions
occurring (including any failure to act) or conditions existing on or before the
Closing Date.
3.24 ENFORCEABILITY OF CONTRACTS, ETC.
(a) No Person that is a party to any contract, agreement, commitment or plan
to which INT'L.com or a Subsidiary is a party has a valid defense, on account of
non-performance or malfeasance by INT'L.com or a Subsidiary, which would make
any such contracts, agreement, commitment or plan not valid and binding upon or
enforceable against such parties in accordance with their terms, except to the
extent such enforceability may be subject to or limited by bankruptcy,
insolvency, reorganization, arrangement or similar laws affecting the rights of
creditors generally and usual equity principles.
(b) Neither INT'L.com, nor any Subsidiary, nor to the knowledge of INT'L.com
and its Subsidiaries, any other Person, is in breach or violation of, or default
under, any material contract, agreement, arrangement, commitment or plan to
which INT'L.com or a Subsidiary is a party, and no event or action has occurred,
is pending, or, to the knowledge of INT'L.com and its Subsidiaries, is
threatened, which, after the giving of notice, or the lapse of time, or
otherwise, would constitute a breach or a default by INT'L.com or a Subsidiary
or, to the knowledge of INT'L.com and its Subsidiaries, any other Person, under
any material contract, agreement, arrangement, commitment or plan to which
INT'L.com or a Subsidiary is a party.
3.25 ACCOUNTING MATTERS. To the knowledge of INT'L.com and its
Subsidiaries, neither INT'L.com nor any of its Subsidiaries or affiliates has
taken or agreed to, or plans to, take any action that would prevent Parent from
accounting for the Merger as a "pooling of interests" in accordance with
generally accepted accounting principles, Accounting Principles Board Opinion
No. 16 and all published rules, regulations and policies of the Securities and
Exchange Commission (the "Commission").
3.26 YEAR 2000. All computer and other systems, software (whether embedded
or otherwise), hardware and other products owned or licensed by INT'L.com or its
Subsidiaries and used in connection with the services provided by INT'L.com or
its Subsidiaries and, to the knowledge of INT'L.com and its Subsidiaries, all
computer and other systems, software (whether embedded or otherwise), hardware
and other products produced by any third party that are licensed by INT'L.com,
in each case, have been written, manufactured and tested to be Year 2000 Ready.
For purposes of this Agreement, "Year 2000 Ready" shall mean, with respect to
any systems, software (whether embedded or otherwise), product, equipment or
facility, that such system, product, equipment or facility is capable of
correctly processing, providing, receiving and manufacturing the date data
within and between the twentieth and twenty-first centuries, and its operations
and functionality has not been adversely affected and will not be adversely
affected in any material respect as a result of the advent of the Year 2000.
3.27 DISCLOSURE. Neither the representations or warranties made by
INT'L.com in this Agreement, nor the INT'L.com Disclosure Schedule or any other
certificate executed and delivered by INT'L.com pursuant to this Agreement, when
taken together, contains any untrue statement of a material fact, or omits to
state a material fact necessary to make the statements or facts contained herein
or therein not misleading in light of the circumstances under which they were
furnished.
3.28 RELIANCE. The foregoing representations and warranties are made by
INT'L.com with the knowledge and expectation that Parent and Merger Sub are
placing reliance thereon.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as set forth in either the documents delivered pursuant to
Section 4.5 or in the disclosure schedule of Parent dated as of the Prior
Agreement Date and delivered herewith to INT'L.com (the "PARENT DISCLOSURE
SCHEDULE") which identifies the section and subsection to which each disclosure
therein relates (PROVIDED, HOWEVER, that Parent will be deemed to have
adequately disclosed with respect to any section or subsection any matters that
are clearly described elsewhere in such document if the applicability of such
disclosure to such non-referenced sections or subsections is apparent, and
whether or not the Parent Disclosure Schedule is) referred to in a specific
section or subsection, Parent and Merger Sub jointly and severally represent and
warrant to INT'L.com as follows:
4.1 ORGANIZATION AND QUALIFICATION. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its businesses as now being conducted,
and is duly qualified and in good standing to do business in each jurisdiction
in which a failure to so qualify would have a material adverse effect on the
Business Condition of Parent. Each Subsidiary of Parent is a corporation duly
organized and validly existing under the laws of the jurisdiction of its
incorporation, and Merger Sub is recently organized, is in good standing, and
has conducted no business activities, other than as contemplated by this
Agreement. In this Agreement, "Material Parent Subsidiaries" shall mean the
following: Lionbridge Technologies California, Inc., Lionbridge Technologies
(Ireland), Inc., Lionbridge Technologies, B.V. and Lionbridge Technologies
(France).
4.2 CAPITALIZATION. (a) The authorized capital stock of Parent consists of
5,000,000 shares of preferred stock, $0.01 par value per share, of which no
shares are issued or outstanding or held in Parent's treasury, and 100,000,000
shares of Parent Common Stock, of which, as of November 10, 1999:
(a) 16,287,827 shares were validly issued and outstanding, fully paid and
nonassessable and (b) 5,221,201 shares were reserved for issuance pursuant to
Parent's stock option and stock purchase plans for its employees and directors.
Except for options and rights relating to shares described in clause (b) of the
preceding sentence and except as set forth in Section 4.2 of the Parent
Disclosure Schedule or the Reports (as defined in Section 4.5), there are no
options, warrants or other rights, agreements or commitments or understandings
or rights of any character (contingent or otherwise) obligating Parent to issue,
deliver or sell or cause to be issued, delivered or sold shares of its capital
stock or any other securities convertible into or evidencing the right to
subscribe to shares of its capital stock. All of the outstanding shares of
capital stock of each Subsidiary of Parent are owned beneficially and of record
by Parent, one of its other Subsidiaries, or any combination thereof, in each
case, free and clear of any Liens; and there are no outstanding subscriptions,
warrants, options, convertible securities or other rights (contingent or other)
pursuant to which any of the Subsidiaries is or may become obligated to issue
any shares of its capital stock to any Person other than Parent or one of the
other Subsidiaries.
(b) The authorized capital stock of Merger Sub consists of 1,000 shares
of common stock, par value $0.01 per share, of which 1,000 shares are issued
and outstanding, all of which shares are owned beneficially and of record by
Parent.
4.3 AUTHORITY RELATIVE TO THIS AGREEMENT. The execution, delivery and
performance of this Agreement and all other agreements contemplated hereby by
Parent and Merger Sub have been duly authorized by all necessary action of the
Boards of Directors and stockholders of Parent and Merger Sub. Certified copies
of the resolutions adopted by the Boards of Directors of Parent and Merger Sub
and Parent as sole stockholder of Merger Sub approving this Agreement, all other
agreements contemplated hereby and the Merger have been or will be provided to
INT'L.com. Each of Parent and Merger Sub has duly and validly executed and
delivered this Agreement and has, or prior to Closing, will have duly and
validly executed and delivered all other agreements contemplated hereby to be
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executed by it, and each of this Agreement and such other agreements constitutes
a valid, binding and enforceable obligation of each of Parent and Merger Sub in
accordance with its terms.
4.4 NON-CONTRAVENTION. Neither the execution, delivery or performance of
this Agreement and all other agreements contemplated hereby by Parent and Merger
Sub, nor the consummation of the Merger or any other transaction described
herein, does or will, after the giving of notice, or the lapse of time, or
otherwise, conflict with, result in a breach of, or constitute a default under,
the Charter Documents of Parent or Merger Sub or any federal, foreign, state or
local court or administrative order or process, statute, law, ordinance, rule or
regulation, or any contract, agreement or commitment to which Parent is a party,
or under which Parent or any Material Parent Subsidiary is obligated, or by
which Parent or any Material Parent Subsidiary or any of the rights, properties
or assets of Parent or any Material Parent Subsidiary are subject or bound;
result in the creation of any Lien upon, or otherwise adversely affect, any of
the rights, properties or assets of Parent or any Material Parent Subsidiary;
terminate, amend or modify, or give any party the right to terminate, amend,
modify, abandon or refuse to perform or comply with, any contract, agreement or
commitment to which Parent or any Material Parent Subsidiary is a party, or
under which Parent or any Material Parent Subsidiary is obligated, or by which
Parent or any Material Parent Subsidiary or any of the rights, properties or
assets of Parent or any Material Parent Subsidiary are subject or bound; or
accelerate, postpone or modify, or give any party the right to accelerate,
postpone or modify, the time within which, or the terms and conditions under
which, any liabilities, duties or obligations are to be satisfied or performed,
or any rights or benefits are to be received, under any contract, agreement or
commitment to which Parent or any Material Parent Subsidiary is a party, or
under which Parent or any Material Parent Subsidiary may be obligated, or by
which Parent or any of the rights, properties or assets of Parent or any
Material Parent Subsidiary are, subject or bound.
4.5 REPORTS AND FINANCIAL STATEMENTS. (a) Parent has previously furnished
to INT'L.com true and correct copies of its (i) Prospectus dated as of
August 20, 1999 contained in Parent's Registration Statement on Form S-1,
(ii) Quarterly Report on Form 10-Q for the period ended September 30, 1999 (the
"RECENT 10-Q") and (iii) all other reports filed by it with the Commission under
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") since
August 20, 1999.
(b) Parent hereby agrees to furnish to INT'L.com true and correct copies
of all reports filed by it with the Commission after the Prior Agreement
Date prior to the Closing all in the form (including exhibits) so filed
(collectively, the "REPORTS"). As of their respective dates, the Reports
complied or will comply in all material respects with the then applicable
published rules and regulations of the Commission with respect thereto at
the date of their issuance and did not or will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of the Prior
Agreement Date, no additional filings or amendments to previously filed
Reports are required pursuant to such rules and regulations. Each of the
audited consolidated financial statements and unaudited interim financial
statements included in Parent's Reports has been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
(except as may be indicated therein or in the notes thereto) and fairly
presents the financial position of the entity or entities to which it
relates as at its date or the results of operations, stockholders' equity or
cash flows of such entity or entities (subject, in the case of unaudited
statements, to the absence of footnote disclosure and in the case of
unaudited interim statements to year-end adjustments, which will not be
material either individually or in the aggregate, and except as described in
Section 4.5 of the Parent Disclosure Schedule). As of the date of the Recent
10-Q, there were no material liabilities, claims or obligations of any
nature, whether accrued, absolute, contingent, anticipated or otherwise,
whether due or to become due, that are not shown or provided for either in
the Recent 10-Q or Section 4.5 of the Parent Disclosure Schedule, and since
the date of the Recent 10-Q, Parent has incurred no
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liabilities, claims or obligations of any nature, whether accrued, absolute,
contingent, anticipated or otherwise other than in the ordinary course of
business and except for liabilities incurred by Parent in connection with
the preparation and execution of this Agreement and the consummation of the
transactions contemplated herein.
4.6 VALIDITY OF PARENT MERGER SHARES. The Parent Merger Shares to be
issued in the Merger will, when issued, be, validly issued, fully paid and
nonassessable.
4.7 CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. Except for
(a) the requirements of state securities (or "Blue Sky") laws, (b) the filing
and recording of the Merger Documents as provided by the DGCL, (c) the filing of
appropriate documents with the Nasdaq Stock Market, (d) the filing of the Proxy
Statement, the Form S-4 and a Form 8-K with the Commission, if applicable, and
(e) such other consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made,
individually or in the aggregate, could not reasonably be expected to impair in
any material respect the ability of Parent or Merger Sub to perform its
obligations under this Agreement or prevent or materially delay the consummation
of any of the transactions contemplated by this Agreement, no consent, approval
or authorization of, or declaration, filing or registration with, any
Governmental Entity is required to be made or obtained by Parent or Merger Sub
in connection with the execution, delivery and performance of this Agreement or
the consummation of the transactions contemplated hereby.
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except for liabilities incurred
in connection with this Agreement or the transactions contemplated hereby, since
September 30, 1999, there has not been any material adverse change in the
Business Condition of Parent.
4.9 LITIGATION AND OTHER PROCEEDINGS. There is no action, suit, claim,
proceeding, or to the knowledge of Parent or any Subsidiary investigation
pending against or, to the knowledge of Parent or any Subsidiary, threatened
against Parent or any Subsidiary or any of their respective properties and
assets before any court or arbitrator or any Governmental Entity.
4.10 DISCLOSURE. Neither the representations or warranties made by Parent
in this Agreement, nor the Parent Disclosure Schedule or any other certificate
executed and delivered by Parent pursuant to this Agreement, when taken together
and with knowledge of the contents of the Reports, contains any untrue statement
of a material fact, or omits to state a material fact necessary to make the
statements or facts contained herein or therein not misleading in light of the
circumstances under which they were furnished. Prior to the Prior Agreement
Date, Parent has disclosed to INT'L.com all material strategic and financing
transactions which Parent has taken action in furtherance of and involving
Parent or any Parent Subsidiary.
4.11 RELIANCE. The foregoing representations and warranties are made by
Parent with the knowledge and expectation that INT'L.com are placing reliance
thereon.
4.12 BROKERS AND FINDERS. Except for Prudential Securities, Inc., Parent
has not retained any broker, finder, or investment banker in connection with
this Agreement or any of the transactions contemplated by this Agreement.
4.13 ACCOUNTING MATTERS. To the knowledge of Parent, neither Parent nor
any of its affiliates has taken or agreed to, or plans to, take any action that
would prevent Parent from accounting for the Merger as a "pooling of interest"
in accordance with generally accepted accounting principles, Accounting
Principles board Opinion No. 16 and all published rules, regulations and
policies of the Commission.
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ARTICLE V
COVENANTS OF INT'L.COM
References in this Article V to INT'L.com shall be deemed to include all
Subsidiaries of INT'L.com. During the period from the Prior Agreement Date
(except as otherwise indicated) and continuing until the earlier of the
termination of this Agreement or the Effective Time, INT'L.com agrees (except as
expressly set forth in Section 5 of the Parent Disclosure Schedule contemplated
by this Agreement or otherwise permitted with Parent's prior written consent):
5.1 CONDUCT OF BUSINESS IN ORDINARY COURSE. INT'L.com will carry on its
business in the ordinary course in substantially the same manner as heretofore
conducted and, to the extent consistent with such business, use all reasonable
best efforts consistent with past practice and policies to preserve intact its
present business organization, keep available the services of its present
officers, consultants and employees and preserve its relationships with
customers, suppliers and distributors and others having business dealings with
it. INT'L.com will confer on a regular and frequent basis with representatives
of Parent to report operational matters of a material nature and to report the
general status of the ongoing operations of the business of INT'L.com. The
foregoing notwithstanding, INT'L.com will not:
(a) other than in the ordinary course of business consistent with prior
practice, enter into any material commitment or transaction, including but
not limited to any purchase of assets (other than raw materials, supplies or
cash equivalents) for a purchase price in excess of $50,000;
(b) grant any bonus, severance or termination pay to any officer,
director, independent contractor or employee of INT'L.com;
(c) enter into or amend any agreements pursuant to which any other party
is granted support, service, marketing or publishing rights, other than in
the ordinary course of business consistent with prior practice, or is
granted distribution rights of any type or scope with respect to any
products of INT'L.com;
(d) other than in the ordinary course of business consistent with prior
practice, enter into or terminate any contracts, arrangements, plans,
agreements, leases, licenses, franchises, permits, indentures,
authorizations, instruments, or commitments, or amend or otherwise change in
any material respect the terms thereof in a manner adverse to INT'L.com;
(e) commence a lawsuit other than: (i) for the routine collection of
bills, (ii) in such cases where INT'L.com in good faith determines that
failure to commence suit would result in a material impairment of a valuable
aspect of INT'L.com's business PROVIDED THAT INT'L.com consults with Parent
prior to filing such suit, or (iii) for a breach of this Agreement or any
agreement related hereto;
(f) modify in any material respect existing discounts or other terms and
conditions with dealers, distributors and other resellers of INT'L.com's
products or services in a manner adverse to INT'L.com;
(g) accelerate the vesting or otherwise modify any INT'L.com Option,
restricted stock or other outstanding rights or other securities other than
any acceleration or modification that results from the execution and
performance of this Agreement or any of the transactions contemplated
hereby;
(h) take any action which would make any representation or warranty in
this Agreement untrue or incorrect, as if made as of such time; or
(i) agree in writing or otherwise to take any of the foregoing actions.
5.2 DIVIDENDS, ISSUANCE OF, OR CHANGES IN SECURITIES. INT'L.com will not:
(i) declare or pay any dividends on or make other distributions to its
stockholders (whether in cash, shares or property),
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(ii) issue, deliver, sell, or authorize, propose, or agree to, or commit to the
issuance, delivery, or sale of any shares of its capital stock of any class, any
INT'L.com Voting Debt or any securities convertible into its capital stock, any
options, warrants, calls, conversion rights, commitments, agreements, contracts,
understandings, restrictions, arrangements or rights of any character obligating
INT'L.com to issue any such shares, INT'L.com Voting Debt or other convertible
securities except as any of the foregoing is required by Outstanding INT'L.com
Options; (iii) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of capital stock of INT'L.com, (iv) repurchase or
otherwise acquire, directly or indirectly, any shares of its capital stock or
options or warrants related thereto, or (v) take any action in furtherance of
any of the foregoing.
5.3 GOVERNING DOCUMENTS. INT'L.com will not amend its Charter Documents.
5.4 NO ACQUISITIONS. INT'L.com will not authorize, recommend, propose or
announce an intention to authorize, recommend or propose, or enter into a letter
of intent (whether or not binding), an agreement in principle or an agreement
with respect to any merger, consolidation or business combination (other than
the Merger), or achieve a comparable effect through any acquisition of assets or
securities.
5.5 NO DISPOSITIONS. INT'L.com will not sell, lease, license, transfer,
mortgage, encumber or otherwise dispose of any of its material assets or cancel,
release, or assign any material indebtedness or claim, except in the ordinary
course of business.
5.6 INDEBTEDNESS. Except as contemplated in Section 2.9(iii), INT'L.com
will not incur any indebtedness for borrowed money by way of direct loan, sale
of debt securities, purchase money obligation, conditional sale, guarantee or
otherwise.
5.7 COMPENSATION. Except for the actions, adoptions, amendments,
modifications, and payments described in Section 5.1(b) of the Parent Disclosure
Schedule, INT'L.com will not adopt or amend, or modify in any material respect,
any Plan or pay any pension or retirement allowance not required by any existing
Plan. INT'L.com will not enter into or modify any employment or severance
contracts, increase the salaries, wage rates or fringe benefits of its officers,
directors or employees or pay bonuses or other remuneration except for current
salaries, severance and other remuneration for which INT'L.com is obligated
under arrangements existing prior to the Balance Sheet Date to which INT'L.com
is a party and which have been disclosed in the INT'L.com Disclosure Schedule.
5.8 CLAIMS. INT'L.com will not settle any claim, action or proceeding,
except in the ordinary course of business consistent with prior practice.
5.9 ACCESS TO PROPERTIES AND RECORDS. Subject to contractual and other
obligations, INT'L.com will give Parent and its representatives full access, at
a place reasonably acceptable to INT'L.com, during reasonable business hours and
following reasonable notice but in such a manner as not unduly to disrupt the
business of INT'L.com, to its senior management, senior technical personnel,
premises, properties, contracts, commitments, books, records and affairs, and
will provide Parent with such financial, technical and operating data and other
information pertaining to its business as Parent may request. With INT'L.com's
prior consent, which will not be unreasonably withheld, Parent will be entitled
in conjunction with INT'L.com personnel to make appropriate inquiries of third
parties in the course of its investigation.
5.10 BREACH OF REPRESENTATIONS AND WARRANTIES. INT'L.com will not take any
action that would cause or constitute a breach of any of the representations and
warranties set forth in Article III or that would cause any of such
representations and warranties to be inaccurate in any material respect or that
would constitute a breach of any of its other obligations under this Agreement.
In the event of, and promptly after becoming aware of, the occurrence of or the
pending or threatened occurrence of any event that would cause or constitute
such a breach or inaccuracy, INT'L.com will give detailed notice
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thereof to Parent and will use its reasonable best efforts to prevent or remedy
promptly such breach or inaccuracy.
5.11 CONSENTS. INT'L.com will promptly apply for or otherwise seek and use
reasonable best efforts to obtain, all Consents, and make all filings with
Governmental Entities, required with respect to the consummation of the Merger.
5.12 TAX RETURNS. INT'L.com will promptly provide or make available to
Parent copies of all tax returns, reports and information statements that have
been filed or are filed prior to the Closing Date.
5.13 EXCLUSIVITY; ACQUISITION PROPOSALS. Unless and until this Agreement
will have been terminated by either party pursuant to Article X hereof and
thereafter subject to Section 10.5, INT'L.com will not (and will use its
reasonable best efforts to ensure that none of its officers, directors,
stockholders, agents, representatives or affiliates) take or cause or permit any
Person to take, directly or indirectly, any of the following actions with any
party other than Parent and its designees: (i) solicit, encourage, initiate or
participate in any negotiations, inquiries, or discussions with respect to any
offer or proposal to acquire all or any significant part of INT'L.com's
business, assets or capital stock, whether by merger, consolidation, other
business combination, purchase of assets, tender or exchange offer or otherwise
(each of the foregoing, an "ACQUISITION TRANSACTION"), (ii) disclose, in
connection with an Acquisition Transaction, any information not customarily
disclosed to any Person other than Parent or its representatives concerning
INT'L.com's business or properties or afford to any Person other than Parent or
its representatives access to its properties, books, or records, except in the
ordinary course of business and as required by law or pursuant to a governmental
request for information, (iii) enter into or execute any agreement relating to
an Acquisition Transaction, or (iv) make or authorize any public statement,
recommendation or solicitation in support of any Acquisition Transaction or any
offer or proposal relating to an Acquisition Transaction other than with respect
to the Merger PROVIDED, HOWEVER, that (a) INT'L.com may furnish or cause to be
furnished information concerning INT'L.com and its businesses, properties or
assets to a Person, (b) the Company may engage in discussions or negotiations
with such Person, (c) following receipt of a proposal or offer for an
Acquisition Transaction, may make disclosure to its stockholders and may
recommend such proposal or offer to its stockholders and (d) following receipt
of a proposal or offer for an Acquisition Transaction the Board of Directors of
INT'L.com may enter into an agreement in principle or a definitive agreement
with respect to such Acquisition Transaction, but in each case referred to in
the foregoing clauses (a) through (d) only to the extent that the Board of
Directors of INT'L.com shall conclude in good faith after consultation with
outside legal counsel that such action is necessary or appropriate because
failure to take such action would be inconsistent with the fiduciary duties owed
by the Board of Directors to the stockholders of INT'L.com under applicable law;
and PROVIDED, FURTHER, that the Board of Directors of INT'L.com shall not take
any of the foregoing actions referred to in clauses (a) through (d) without
prior written notice to Parent with respect to such action. In the event that
INT'L.com is contacted by any third party expressing an interest in discussing
an Acquisition Transaction, INT'L.com will promptly notify Parent of such
contact and the identity of the party so contacting INT'L.com.
5.14 NOTICE OF EVENTS. Throughout the period between the Prior Agreement
Date and the Closing, INT'L.com will promptly advise and consult with Parent
regarding any and all material events and developments concerning its financial
position, results of operations, assets, liabilities or business or any of the
items or matters concerning INT'L.com covered by the representations, warranties
and covenants of INT'L.com contained in this Agreement.
5.15 REASONABLE BEST EFFORTS. INT'L.com will use its reasonable best
efforts to effectuate the transactions contemplated hereby and to fulfill and
cause to be fulfilled the conditions to Closing under this Agreement.
5.16 INSURANCE. INT'L.com will use its reasonable best efforts to maintain
in force at the Effective Time policies of insurance of the same character and
coverage as those described in the
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INT'L.com Disclosure Schedule, and INT'L.com will promptly notify Parent in
writing of any changes in such insurance coverage occurring prior to the
Effective Time.
5.17 FINANCIAL STATEMENTS. INT'L.com will use its reasonable best efforts
to deliver to Parent audited consolidated balance sheets as of December 31,
1997, December 31, 1998 and December 31, 1999 and audited consolidated
statements of income and consolidated cash flows for the twelve months ended
December 31, 1997, December 31, 1998 and December 31, 1999 no later than
February 28, 2000.
5.18 CONFIDENTIALITY AND ASSIGNMENT OF INVENTIONS AGREEMENTS. INT'L.com
shall use its reasonable best efforts to cause each officer and employee of
INT'L.com and its Subsidiaries to enter into a confidentiality and assignment of
inventions agreement substantially in the form of such agreement used by Parent
and its Subsidiaries in the country in which such officer or employee performs
services for INT'L.com. Any officer or employee of INT'L.com or any Subsidiary
who has not entered into such agreement shall have been terminated by INT'L.com
or such Subsidiary prior to the Closing.
ARTICLE VI
COVENANTS OF PARENT
During the period from the Prior Agreement Date and continuing until the
earlier of the termination of this Agreement or the Effective Time (or later
where so indicated), Parent and Merger Sub agree (except as expressly
contemplated by this Agreement or with INT'L.com's prior written consent):
6.1 BREACH OF REPRESENTATIONS AND WARRANTIES. Neither Parent nor Merger
Sub will take any action which would cause or constitute a breach of any of the
representations and warranties set forth in Article IV or which would cause any
of such representations and warranties to be inaccurate in any material respect.
In the event of, and promptly after becoming aware of, the occurrence of or the
pending or threatened occurrence of any event which would cause or constitute
such a breach or inaccuracy, Parent will give detailed notice thereof to
INT'L.com and will use its reasonable best efforts to prevent or remedy promptly
such breach or inaccuracy.
6.2 ADDITIONAL INFORMATION; ACCESS. Parent will provide INT'L.com and its
stockholders with the information relating to Parent referred to in Section 4.5
and the information relating to Parent to be included in the Form S-4. In
addition, Parent will afford to INT'L.com and to its counsel and to the persons
expected to become stockholders of Parent pursuant to the Merger access
throughout the period prior to the Effective Time to its senior management and
all other information concerning Parent as INT'L.com or such stockholder may
reasonably request. Such stockholders will also be afforded the opportunity to
ask questions and to receive accurate and complete answers from Parent
concerning the terms and conditions of the Merger and the issuance of the Parent
Merger Shares pursuant thereto.
6.3 CONSENTS. Parent will promptly apply for or otherwise seek, and use
its reasonable best efforts to obtain, all consents and approvals, and make all
filings, required with respect to the consummation of the Merger.
6.4 REASONABLE BEST EFFORTS. Each of Parent and Merger Sub will use its
reasonable best efforts to effectuate the transactions contemplated hereby and
to fulfill and cause to be fulfilled the conditions to Closing under this
Agreement.
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6.5 OFFICERS AND DIRECTORS. Parent agrees that all rights to
indemnification and all limitations on liability existing on the Prior Agreement
Date in favor of, or for the benefit of, the present or former officers and
directors of INT'L.com and its Subsidiaries with respect to actions taken in
their capacities as directors or officers of INT'L.com or such INT'L.com
Subsidiary prior to the Effective Time as provided in the Charter Documents of
INT'L.com will survive the Merger and continue in full force and effect
following the Effective Time and will not be modified by Parent. Notwithstanding
the foregoing, the provisions of such Charter Documents will have no effect on
the obligations of any stockholders of INT'L.com pursuant to Article IX of this
Agreement or the Escrow Agreement.
6.6 NASDAQ NATIONAL MARKET LISTING. Parent will promptly prepare and
submit a NASDAQ listing application and will use its reasonable best efforts to
cause the Parent Merger Shares to be authorized for trading on the Nasdaq
National Market as soon as practicable.
6.7 NOTICE OF EVENTS. Throughout the period between the Prior Agreement
Date and the Closing, Parent will promptly advise and consult with INT'L.com
regarding any and all material adverse change to the representations, warranties
and covenants of Parent and Merger Sub contained in this Agreement and will
disclose to INT'L.com all material strategic and financing transactions which
Parent takes action in furtherance of which involve Parent or any Parent
Subsidiary.
6.8 THIRD PARTY BENEFICIARIES. Section 6.5 will survive the consummation
of the Merger, is intended to benefit the stockholders of INT'L.com that receive
Parent Merger Shares (the "NEW PARENT STOCKHOLDERS") and the present and former
officers and directors of INT'L.com and its Subsidiaries, will be binding on
Parent and its successors and assigns, and will be enforceable by the officers
and directors of INT'L.com and the New Parent Stockholders.
6.9 DIRECTORS OF PARENT. Prior to the date of the mailing of the Proxy
Statement, Parent shall nominate Roger Jeanty to serve as a director of Parent
in accordance with the policies for directors of Parent, and Parent shall take
such action as is necessary to cause such person to become a director of Parent
effective as of the Effective Time.
ARTICLE VII
ADDITIONAL AGREEMENTS
In addition to the foregoing, Parent, Merger Sub, and INT'L.com each agree
to take the following actions after the execution of this Agreement.
7.1 PREPARATION OF THE FORM S-4 AND THE PROXY STATEMENT; STOCKHOLDERS
MEETING. (a) INT'L.com shall use its reasonable best efforts to hold one or
more special meetings of stockholders in accordance with the applicable
requirements of the DGCL and to obtain the INT'L.com Requisite Stockholder
Approval to enable the Merger to be effective on the Closing Date (determined
without regard to the condition to closing in Section 8.2(h)). Parent shall use
its reasonable best efforts to hold one or more special meetings of stockholders
to obtain the approval of the issuance of its shares in connection with the
Merger by the stockholders of Parent as required by the rules of the Nasdaq
Stock Market and in accordance with the applicable requirements of the DCGL. In
connection with obtaining the approval of its stockholders, Parent shall
prepare, with the assistance and cooperation of INT'L.com, a Registration
Statement on Form S-4 (the "FORM S-4"). The Form S-4 shall constitute a joint
proxy and a prospectus and shall be used for purposes of offering the Parent
Merger Shares to the stockholders of INT'L.com, soliciting proxies from such
stockholders for the purpose of obtaining the INT'L.com Requisite Stockholder
Approval and soliciting proxies from stockholders of Parent for the purposes of
obtaining approval of the issuance of its shares in connection with the Merger
by the stockholders of Parent (such proxy/ prospectus statement, together with
the accompanying letter to stockholders, notice of meeting and form of proxy
shall be referred to herein as the "Proxy Statement"). INT'L.com agrees to fully
cooperate with Parent in the preparation of the Form S-4, and shall, upon
request, furnish
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Parent with all information concerning it and its affiliates, directors,
officers and stockholders as Parent may reasonably request in connection with
the preparation of the Form S-4. INT'L.com shall prepare the portions of the
Form S-4, relating to INT'L.com and its subsidiaries including but not limited
to financial information, management of INT'L.com, description of INT'L.com's
business, executive compensation of the INT'L.com, the recommendation of
INT'L.com's Board of Directors, appraisal rights, risk factors relating to
INT'L.com, and INT'L.com portions of background of the Merger, reasons for the
Merger, interests of certain persons in the Merger and security ownership of
certain beneficial owners and management. INT'L.com shall also prepare the
disclosure concerning all payments which in the absence of stockholder approval
would be "Parachute Payments" as defined in Code Section 280G(b)(2), which shall
be in form and substance satisfactory to Parent and its counsel, to satisfy all
requirements applicable to INT'L.com of applicable state and federal securities
laws, the DGCL and Code Section 280G(b)(5)(B) and the regulations thereunder. No
filing of, or amendment or supplement to, the Form S-4 will be made by Parent
and no amendment or supplement to the Proxy Statement will be made by Parent or
INT'L.com without providing the other party the opportunity to review and
comment thereon. Parent will advise INT'L.com, promptly after it receives notice
thereof, of the time when the Form S-4 has become effective or any supplement or
amendment has been filed, the issuance of any stop order, the suspension of the
qualification of the Parent Merger Shares for offering or sale in any
jurisdiction, or any request by the Commission for amendment of the Proxy
Statement or the Form S-4 or comments thereon and responses thereto or requests
by the Commission for additional information. If at any time prior to the
Effective Time any information relating to Parent or INT'L.com or any of their
respective affiliates, officers or directors, should be discovered by the Parent
or INT'L.com which should be set forth in an amendment or supplement to any of
the Form S-4 or the Proxy Statement, so that any of such documents would not
include any misstatement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, the party which discovers such information
shall promptly notify the other party hereto and an appropriate amendment or
supplement describing such information shall be promptly filed with the
Commission, and to the extent required by law, disseminated to the stockholders
of Parent and INT'L.com. If the Commission requires a Tax opinion in connection
with the filing of the Form S-4, INT'L.com shall cause Neal, Gerber & Eisenberg,
counsel to INT'L.com, to provide such opinion in the form required by the
Commission. The issuance of such opinion shall be conditioned upon the receipt
by Neal, Gerber & Eisenberg of customary representation letters from each of
INT'L.com and Parent in a form reasonably agreed to by the parties.
(b) Parent shall file the Form S-4 with the Commission and shall, with
the assistance of INT'L.com, promptly respond to any comments from the
Commission on the Form S-4 and shall otherwise use its best efforts to have
the Form S-4 declared effective under the Securities Act as promptly
practicable. Promptly following such time as the Form S-4 is declared
effective, INT'L.com shall distribute the Proxy Statement to its
stockholders and Parent shall distribute the Proxy Statement to its
stockholders. Parent shall comply with all applicable provisions of and
rules under the Securities Act and the Exchange Act and state securities
laws in the preparation and filing of the S-4 Registration Statement, the
offering and issuance of the Parent Merger Shares, the filing and
distribution of the Proxy Statement, the solicitation of proxies thereunder,
and the calling and holding of the special meeting of stockholders of
Parent. Parent shall also ensure that any Form S-4 filed by Parent does not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading (provided that Parent shall not be responsible for
the accuracy and completeness of information relating to INT'L.com or any of
its subsidiaries or any other information furnished by INT'L.com
specifically for inclusion in the S-4 Registration Statement).
(c) INT'L.com shall ensure that the Proxy Statement does not contain an
untrue statement of material fact or omit to state a material fact required
to be stated therein or necessary in order to
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make the statement made, under the circumstances under which it is made, not
misleading (provided that INT'L.com shall not be responsible for the
accuracy or completeness of any information relating to Parent or any of its
Subsidiaries or furnished by Parent specifically for inclusion in the Proxy
Statement).
(d) INT'L.com, acting through its Board of Directors, shall include in
the Proxy Statement the unanimous recommendation of its Board of Directors
eligible to vote on such matters that its stockholders vote in favor of the
adoption of this Agreement and the approval of the Merger. Notwithstanding
the foregoing, the obligation set forth in the foregoing sentence shall not
apply (and the Board of Directors shall be permitted to modify or withdraw
any such recommendation previously made) if the Board of Directors of
INT'L.com concludes in good faith, after consultation with its outside legal
counsel, that fulfilling the obligations in the foregoing sentence would
violate the fiduciary duties of the Board of Directors under applicable law;
PROVIDED, HOWEVER, that nothing shall limit the obligation of INT'L.com to
otherwise use its reasonable best efforts to fulfill all of its obligations
under this Agreement, including without limitation, INT'L.com's obligations
under Section 7.1(a) and (c).
(e) Parent, acting through its Board of Directors, shall include in the
Proxy Statement the unanimous recommendation of its Board of Directors
eligible to vote on such matters that the stockholders of Parent vote in
favor of the issuance of its shares in connection with the Merger.
Notwithstanding the foregoing, the obligation set forth in the foregoing
sentence shall not apply (and the Board of Directors shall be permitted to
modify or withdraw any such recommendation previously made) if the Board of
Directors of Parent concludes in good faith, after consultation with its
outside legal counsel, that fulfilling the obligations in the foregoing
sentence would violate the fiduciary duties of the Board of Directors under
applicable law; PROVIDED, HOWEVER, that nothing shall limit the obligation
of the Parent to otherwise use its reasonable best efforts to fulfill all of
its obligations under this Agreement, including without limitation, Parent's
obligations under Section 7.1 (a) and (b).
(f) All resales of shares of Parent Common Stock by each INT'L.com
Affiliate (as defined in Section 7.8(b)) will be subject to the restrictions
imposed by the third restated registration rights agreement of Parent (the
"REGISTRATION RIGHTS AGREEMENT") in the form attached as Exhibit 7.1, which
will be entered into by the INT'L.com Affiliates. Parent will be entitled to
place the legends as referred to in the Registration Rights Agreement on
each certificate evidencing any shares of Parent Common Stock to be received
by the INT'L Affiliates pursuant to the terms of this Agreement and to issue
appropriate stop transfer instructions to the transfer agent for shares of
Parent Common Stock consistent with the terms of the Registration Rights
Agreement.
7.2 LEGAL CONDITIONS TO THE MERGER. Each of Parent, Merger Sub, and
INT'L.com will use all reasonable best efforts to take actions necessary to
comply promptly with all legal requirements which may be imposed on it with
respect to the Merger. Each of Parent, Merger Sub and INT'L.com will use all
reasonable best efforts to take all actions to obtain (and to cooperate with the
other parties in obtaining) any consent required to be obtained or made by
INT'L.com, Merger Sub, or Parent in connection with the Merger, or the taking of
any action contemplated thereby or by this Agreement.
7.3 EMPLOYEE BENEFITS. Nothing contained herein will, subject to
Section 6.5, be considered as requiring INT'L.com or Parent to continue any
specific plan or benefit, or to confer upon any employee, beneficiary,
dependent, legal representative or collective bargaining agent of such employee
any right or remedy of any nature or kind whatsoever under or by reason of this
Agreement, including without limitation any right to employment or to continued
employment for any specified period, at any specified location or under any
specified job category, except as specifically provided for in an offer letter
or other agreement of employment. It is specifically understood that continued
employment with INT'L.com or employment with Parent is not offered or implied
for any other employees of INT'L.com
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and any continuation of employment with INT'L.com after the Closing will be at
will except as specifically provided otherwise in an offer letter or other
agreement of employment. Parent agrees that it will cause Merger Sub to comply
with the WARN Act, to the extent applicable to INT'l.com and its Subsidiaries in
connection with actions taken at and after the Effective Time.
7.4 EXPENSES. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby and thereby, including investment banking, legal and
accounting expenses, will be paid by the party incurring such expense; PROVIDED,
HOWEVER, that any such expenses incurred by INT'L.com in excess of $400,000
shall be borne by the stockholders of INT'L.com (without regard to Section 9.4)
through the determination of the Modified Share Amount as set forth in
Section 2.1(d); PROVIDED, FURTHER, that INT'L.com will itemize any such
investment banking, legal and accounting expenses of INT'L.com prior to Closing
and provide Parent with an invoice and certification from all organizations
providing such services at the Closing in a form reasonably acceptable to
Parent; and PROVIDED, FURTHER, that the provisions of this Section 7.4 shall not
be construed to relieve a party from liability resulting from such party's
breach of this Agreement.
7.5 ADDITIONAL AGREEMENTS. In case at any time after the Effective Time
any further action is reasonably necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full title
to all properties, assets, rights, approvals, immunities and franchises of
INT'L.com, the proper officers and directors of each corporation which is a
party to this Agreement will take all such necessary action. Without limiting
the foregoing, on or prior to the Closing Date, INT'L.com will deliver to Parent
a properly executed statement satisfying the requirements of Treasury Regulation
Sections 1.897-2(h) and 1.1445-2(c)(3) in a form reasonably acceptable to
Parent.
7.6 PUBLIC ANNOUNCEMENTS. Neither Parent nor INT'L.com will directly or
indirectly disseminate any press release or other announcement concerning this
Agreement or the transactions contemplated herein to any third party (except to
the directors, officers and employees of the parties to this Agreement whose
direct involvement is necessary for the consummation of the transactions
contemplated under this Agreement, to the attorneys, advisors and accountants of
the parties hereto, or except as Parent determines in good faith to be required
by applicable law after consultation with INT'L.com) without the prior written
agreement of the other parties.
7.7 CONFIDENTIALITY. INT'L.com and Parent have entered into a Mutual
Nondisclosure Agreement dated October 7, 1999 concerning each party's
obligations to protect the confidential information of the other party.
INT'L.com and Parent each hereby affirm each of their obligations under such
agreement. If this Agreement is terminated in accordance with Article X hereof,
Parent will, and will cause its accountants, counsel and other representatives
to deliver to INT'L.com all documents and other material, and all copies
thereof, obtained by Parent or on its behalf from INT'L.com in connection with
this Agreement, whether so obtained before or after the execution hereof, and
will not disclose any such information or documents to any third parties or make
any use of such. If this Agreement is terminated in accordance with Article X
hereof, INT'L.com will, and will cause its accountants, counsel and other
representatives to, deliver to Parent all documents and other material, and all
copies thereof, obtained by INT'L.com or by an officer, director or
representative of INT'L.com from Parent in connection with this Agreement,
whether so obtained before or after the execution hereof, and will not disclose
any such information or documents to any third parties or make any use of such.
7.8 POOLING.
(a) Parent, the Merger Sub and INT'L.com will use all reasonable best
efforts, will cooperate fully and will take all actions as are reasonably
necessary to allow the Merger and other transactions contemplated by this
Agreement to be accounted for as a "pooling of interests" in accordance with
United States generally accepted accounting principles and applicable rules
and regulations of the Commission.
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(b) INT'L.com has delivered to Parent prior to the Prior Agreement Date
a letter from INT'L.com, prepared after consultation with its counsel, that
identifies all persons it believes may be "affiliates" of INT'L.com, as such
term is used in Rule 145 under the Securities Act and applicable accounting
pronouncements of the Commission (each such Person, an "INT'L.COM
AFFILIATE"). Each such INT'L.com Affiliate has executed and delivered to
Parent a written agreement (an "INT'L.COM AFFILIATE AGREEMENT") in the form
of EXHIBIT 7.8(B) hereto to the effect that such INT'L.com Affiliate
(i) has not made and will not make any disposition of any shares of
INT'L.com Common Stock or INT'L.com Preferred Stock or other securities of
INT'L.com in the 30-day period prior to the Effective Time, and (ii) will
not make any disposition of any of the Parent Merger Shares to be received
by such Person after the Effective Time until Parent shall have publicly
released a report including the combined financial results of Parent and
INT'L.com for a period of at least 30 days of combined operations of Parent
and INT'L.com.
(c) Section 7.8(c) of the Parent Disclosure Schedule identifies each
executive officer and director of Parent (each such Person, a "PARENT
AFFILIATE"). Each such Parent Affiliate has executed and delivered to
INT'L.com a written agreement (a "PARENT AFFILIATE AGREEMENT") in the form
of EXHIBIT 7.8(C) hereto to the effect that such Parent Affiliate (i) has
not made and will not make any disposition of any shares of Parent Common
Stock in the 30-day period prior to the Effective Time, and (ii) will not
make any disposition of any shares of Parent Common Stock owned by such
person until Parent shall have publicly released a report including the
combined financial results of Parent and INT'L.com for a period of at least
30 days of combined operations of Parent and INT'L.com.
7.9 INT'L.COM VOTING AGREEMENT. Simultaneous with the execution of the
Prior Agreement, INT'L.com caused the voting agreement in the form attached as
EXHIBIT 7.9 (the "INT'L.COM VOTING AGREEMENT") to be executed by all directors,
officers, affiliates and holders of 5% of the capital stock of INT'L.com and
their affiliates holding in the aggregate at least 60% of the Outstanding
INT'L.com Shares and at least 80% of each of the Outstanding INT'L.com Series C
Shares and the Outstanding INT'L.com Series D Shares, and to be delivered to
Parent.
7.10 PARENT VOTING AGREEMENT. Simultaneous with the execution of the Prior
Agreement, Parent caused the voting agreement in the form attached as
EXHIBIT 7.10 (the "PARENT VOTING AGREEMENT") to be executed by all directors and
officers of Parent and their affiliates holding in the aggregate at least 60% of
the Parent shares of Parent Common Stock outstanding on the Prior Agreement
Date, and to be delivered to INT'L.com.
7.11 HART-SCOTT-RODINO FILING. If and to the extent applicable, Parent and
INT'L.com agree to file, and to cause any other Person obligated to do so as a
result of such person's stock holdings in Parent or INT'L.com, a Notification
and Report Form in accordance with the notification requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and
regulations thereunder (collectively, the "HSR ACT") with the Antitrust Division
of the United States Department of Justice and the Federal Trade Commission and
to use its and their reasonable best efforts to achieve the prompt termination
or expiration of the waiting period or any extension thereof provided for under
the HSR Act as a prerequisite to the consummation of the transactions provided
for herein.
7.12 BOARD OF DIRECTORS MEETINGS. After the Closing of the Merger, for as
long as Cornerstone Equity Investors IV, L.P. holds at least one-half of the
Parent Merger Shares issued to them in connection with the Merger, Parent shall
permit one (1) representative of Cornerstone Equity Investors IV, L.P. (the
"CORNERSTONE OBSERVER") to attend, in a non-voting observer capacity, each
meeting of the Board of Directors of Parent and each meeting of any committee
thereof and to participate in all discussions during each such meeting. Parent
shall send to the Cornerstone Observer notice of the time and place of any such
meeting, in the same manner and at the same time as notice is sent to its
directors. Parent shall also provide to the Cornerstone Observer copies of all
notices, reports, minutes,
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contracts and other documents, at the time and in the same manner as such
documents are provided to the Board of Directors of Parent, unless the Board of
Directors or management of Parent shall determine that delivery of such notice
and/or materials to the Cornerstone Observer may be detrimental to Parent. Upon
the request of the Board of Directors of the Company, the Cornerstone Observer
will excuse himself from any portion of Board or committee meetings if the Board
of Directors shall determine that the Cornerstone Observer's presence may
violate the attorney-client privilege or may create a conflict of interest or
may be otherwise detrimental to Parent. Any materials furnished to the
Cornerstone Observer and the discussions and presentations in connection with or
at any meeting shall be considered confidential information and the Cornerstone
Observer will keep such materials and discussions confidential and will not
disclose or divulge such materials and discussions to any third party.
7.13 EMPLOYMENT, CONSULTING AND NONCOMPETITION AGREEMENTS. Simultaneous
with the execution of the Prior Agreement, INT'L.com will cause each of Roger
Jeanty, [Steven Fingerhood] and Jonathan Clark to execute employment or
consulting and/or non-competition agreements with Parent to become effective at
the Effective Time in the form provided by Parent to INT'L.com.
7.14 INT'L.COM CONVERSION. Simultaneous with the execution of the Prior
Agreement, INT'L.com caused the conversion notice in the form attached as
EXHIBIT 7.14 to be executed by the holders of INT'L.com Series A Preferred Stock
who, together with the parties executing an INT'L.com Voting Agreement, hold at
least 51% of the outstanding shares of INT'L.com Series A Preferred Stock and by
the holders of INT'L.com Series B Preferred Stock who, together with the parties
executing an INT'L.com Voting Agreement, hold at least 51% of the outstanding
shares of INT'L.com Series B Preferred Stock, INT'L.com shall cause such notices
to be delivered to Parent. INT'L.com hereby elects that all outstanding shares
of INT'L.com Series A Preferred Stock and all of the outstanding shares of
INT'L.com Series B Preferred Stock be converted to shares of INT'L.com Series A
Common Stock immediately prior to the Effective Time.
7.15 DEBT ADJUSTMENTS. In the event INT'L.com or its Subsidiaries shall
breach the covenants in Section 5.6 hereof, the aggregate amount of all breaches
of such Section 5.6 shall be deemed to be the "Debt Adjustment Amount" for
purposes of this Agreement. "Debt Payment Shares" shall mean a number of shares
of Parent Common Stock determined by dividing the Debt Adjustment Amount plus
any accrued interest on such amount as of the Closing by the Parent Average
Closing Price.
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger will be subject to the
satisfaction prior to the Closing Date of the following conditions unless
waived:
(a) GOVERNMENTAL APPROVALS. Other than the filing of the Merger
Documents with the Secretary of State of Delaware, all statutory
requirements and all Consents of Governmental Entities legally required for
the consummation of the Merger and the transactions contemplated by this
Agreement will have been filed, occurred, or been obtained, other than such
Consents for which the failure to obtain would not have a material adverse
effect on the consummation of the Merger or the other transactions
contemplated hereby or on the Business Condition of Parent or INT'L.com. If
and to the extent applicable, the filing and waiting period requirements
under the HSR Act will have been complied with and will have expired or
terminated.
(b) NO RESTRAINTS. No statute, rule or regulation, and no final and
nonappealable order, decree or injunction will have been enacted, entered,
promulgated or enforced by any court or
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Governmental Entity of competent jurisdiction which enjoins or prohibits the
consummation of the Merger.
(c) PARENT STOCKHOLDER APPROVAL. The issuances of the shares of Parent
Common Stock in connection with the Merger will have been approved by the
requisite vote of the stockholders of Parent.
(d) QUOTATION. The shares of Parent Common Stock issuable to
INT'L.com's stockholders as contemplated by this Agreement shall have been
approved for quotation on the Nasdaq National Market, subject to official
notice of issuance.
(e) FORM S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order.
(f) PARENT POOLING LETTER. Parent will have received a letter dated
immediately prior to the Closing Date from PricewaterhouseCoopers LLP,
Parent's independent accountants, to the effect that such firm concurs with
Parent's management that no conditions exist that would preclude Parent from
accounting for the Merger as a "pooling of interests" in accordance with
United States generally accepted accounting principles and applicable rules
and regulations of the Commission and Parent shall have delivered a copy of
such letter to INT'L.com.
(g) INT'L.COM POOLING LETTER. Arthur Andersen LLP shall have delivered
to INT'L.com a letter dated immediately prior to the Closing Date to the
effect that INT'L.com is "poolable" for accounting purposes under Accounting
Principles Board Opinion No. 16, United States generally accepted accounting
principles and applicable rules and regulations of the Commission and
INT'L.com shall have delivered a copy of such letter to Parent.
8.2 CONDITIONS OF OBLIGATIONS OF PARENT AND MERGER SUB. The obligations of
Parent and Merger Sub to effect the Merger are subject to the satisfaction of
the following conditions unless waived by Parent and Merger Sub:
(a) REPRESENTATIONS AND WARRANTIES OF INT'L.COM. The representations
and warranties of INT'L.com set forth in this Agreement will be true and
correct in all material respects as of the Prior Agreement Date and as of
the Closing Date as though made on and as of the Closing Date, except
(i) as otherwise contemplated by this Agreement, (ii) as a result of actions
taken or not taken pursuant to this Agreement or at the direction of or
after consultation with and written concurrence of Parent, (iii) for
representations and warranties specifically limited to an earlier date(s)
and (iv) for breaches which, individually or in the aggregate, would not
have a material adverse effect on the Business Condition of INT'L.com.
Parent will have received a certificate signed by the chief executive
officer and the chief financial officer of INT'L.com to such effect on the
Closing Date.
(b) PERFORMANCE OF OBLIGATIONS OF INT'L.COM. INT'L.com will have
performed all agreements and covenants required to be performed by it under
this Agreement prior to the Closing Date except (i) as otherwise
contemplated or permitted by this Agreement, (ii) as a result of actions
taken or not taken at the direction of or after consultation with and
written concurrence of Parent and (iii) for such failures to perform which,
individually or in the aggregate, would not have a material adverse effect
on the Business Condition of INT'L.com; provided, that INT'L.com hereby
acknowledges and agrees that any breaches of the covenants set forth in
Section 5.6 hereof which individually or in the aggregate exceed $1,000,000
will be deemed for purposes of this Section 8.2(b) to have a material
adverse effect on the Business Condition of INT'L.com. Parent will have
received a certificate signed by the chief executive officer and the chief
financial officer of INT'L.com to such effect on the Closing Date.
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(c) ESCROW AGREEMENTS. Parent will have received from INT'L.com and
the Indemnification Representative a duly executed Escrow Agreement.
(d) LEGAL ACTION. There will not be pending or threatened in writing
any action, proceeding or other application before any court or Governmental
Entity brought by any Person or Governmental Entity: (i) challenging or
seeking to prohibit the consummation of the transactions contemplated by
this Agreement; or (ii) seeking to prohibit or impose any limitations on
Parent's ownership or operation of all or any portion of INT'L.com's
business or assets, or to compel Parent to dispose of or hold separate all
or any portion of its or INT'L.com's business or assets as a result of the
transactions contemplated by the Agreement which, in any such case described
in this clause (ii), if successful would have a material adverse effect on
the Business Condition of INT'L.com.
(e) OPINION OF COUNSEL. Parent will have received an opinion dated as
of the Closing Date of Neal, Gerber & Eisenberg, counsel to INT'L.com,
covering the matters set forth in EXHIBIT 8.2.
(f) CONSENTS. Parent will have received duly executed copies of all
Consents specified in Section 3.4 of the INT'L.com Disclosure Schedule
except where the failure to receive any such Consent either individually or
together with all other failures to receive a Consent would not have a
material adverse effect on the Business Condition of INT'L.com, and there
will not be any Consents which are required to be disclosed in INT'L.com
Disclosure Schedule which have not been so disclosed, and have not been
received, if the failure to receive such Consents would have a material
adverse effect on the Business Condition of INT'L.com, in each case except
for such thereof as Parent and INT'L.com will have agreed in writing will
not be obtained.
(g) TERMINATION OF RIGHTS AND CERTAIN SECURITIES. Any registration
rights, rights of refusal, voting rights, rights to any liquidation
preference or redemption rights relating to any security of INT'L.com will
have been terminated or waived or satisfied as of the Closing.
(h) STOCKHOLDER APPROVALS. This Agreement and the Merger will have
been approved by stockholders of INT'L.com holding at least ninety percent
(90%) of the voting power of the Outstanding INT'L.com Shares.
(i) TERMINATION OF 401K PLAN. The INT'L.com Board of Directors will
have passed and not rescinded resolutions satisfactory to Parent's counsel
effectively terminating INT'L.com's 401(k) Plan immediately prior to the
Closing.
(j) CORPORATE PROCEEDINGS SATISFACTORY. All corporate and other
proceedings to be taken by INT'L.com in connection with the transactions
contemplated hereby and all documents incident thereto will be satisfactory
in form and substance to Parent and its counsel, and Parent and its counsel
will have received all such counterpart originals or certified or other
copies of such documents as they reasonably may request.
(k) LETTER FROM ARTHUR ANDERSEN. The Parent shall have received a
letter dated as of a date not more than two days prior to the date that the
Form S-4 is declared effective and shall have received a subsequent similar
letter dated as of a date not more than two days prior to the Effective
Time, from Arthur Andersen LLP, auditors for INT'L.com, addressed to Parent
in a customary form reasonably satisfactory to Parent, containing statements
and information of the type ordinarily included in an accountants' "comfort
letters" with respect to the financial statements and financial information
of INT'L.com included in the Form S-4.
(l) INT'L.COM NOTES AND INT'L.COM BRIDGE NOTES. The INT'L.com Notes
and INT'L.com Bridge Notes will have been cancelled and be of no further
force and effect.
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(m) REGISTRATION RIGHTS AGREEMENT. Parent will have received an
executed Registration Rights Agreement from the INT'L.com Affiliates.
(n) TERMINATION OF CERTAIN AGREEMENT AND ARRANGEMENTS. The agreements
and arrangements described in Section 8.2(n) of the INT'L.com Disclosure
Schedule will have been terminated with no liability to INT'L.com and
evidence of such termination will have been delivered to Parent.
8.3 CONDITIONS OF OBLIGATION OF INT'L.COM. The obligation of INT'L.com to
effect the Merger is subject to the satisfaction of the following conditions
unless waived by INT'L.com:
(a) REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB. The
representations and warranties of Parent and Merger Sub set forth in this
Agreement will be true and correct in all material respects as of the Prior
Agreement Date and as of the Closing Date as though made on and as of the
Closing Date, except (i) as otherwise contemplated by this Agreement,
(ii) as a result of actions taken or not taken pursuant to this Agreement,
(iii) for representations and warranties specifically limited to an earlier
date(s) and (iv) for breaches which, individually or in the aggregate, would
not have a material adverse effect on the Business Condition of Parent.
INT'L.com will have received a certificate signed on behalf of Parent by a
duly authorized officer of Parent to such effect on the Closing Date.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND MERGER SUB. Parent and
Merger Sub will have performed all agreements and covenants required to be
performed by them under this Agreement prior to the Closing Date except
(i) as otherwise contemplated or permitted by this Agreement, and (ii) for
such failures to perform which, individually or in the aggregate, would not
have a material adverse effect on the Business Condition of Parent.
INT'L.com will have received a certificate signed on behalf of Parent by
officers of Parent to such effect on the Closing Date.
(c) OPINION OF PARENT'S COUNSEL. INT'L.com have received an opinion
dated the Closing Date of Testa, Hurwitz & Thibeault, LLP, substantially in
the form attached as EXHIBIT 8.3.
(d) STOCKHOLDER APPROVAL. This Agreement and the Merger will have been
approved and adopted by the requisite vote of the stockholders of Merger
Sub, as required by the DGCL and Merger Sub's Certificate of Incorporation
(the "REQUISITE STOCKHOLDER APPROVAL").
(e) ESCROW AGREEMENT. Parent shall have duly executed and delivered
the Escrow Agreement.
(f) TAX-FREE REORGANIZATION. INT'L.com shall have received a written
opinion from Neal, Gerber & Eisenberg to the effect that the Merger should
constitute a reorganization within the meaning of Section 368 of the Code.
In preparing such tax opinion, counsel may rely on reasonable assumptions
and reasonable written representations from Parent and INT'L.com and their
respective officers relating thereto.
(g) LEGAL ACTION. There will not be pending or threatened in writing
any action, proceeding or other application before any court or Governmental
Entity brought by any Person or Governmental Entity: (i) challenging or
seeking to prohibit the consummation of the transactions contemplated by
this Agreement or (ii) restricting in any way the receipt, ownership, or
ability to dispose of the consideration to be received by any stockholder of
INT'L.com in the transactions contemplated by this Agreement; PROVIDED,
HOWEVER, that INT'L.com will automatically be deemed to waive this condition
if Parent agrees to indemnify, defend and hold any such named party harmless
against any such action.
(h) BOARD OF DIRECTORS. Roger Jeanty shall have been elected as a
member of the Board of Directors of Parent.
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(i) REGISTRATION RIGHTS AGREEMENT. Parent and any other party required
to execute the Registration Rights Agreement shall have duly executed and
delivered the Registration Rights Agreement to Cornerstone and Dakota.
ARTICLE IX
INDEMNIFICATION
9.1 INDEMNIFICATION RELATING TO AGREEMENT. Subject to Sections 9.3
and 9.5, as an integral term of the Merger, all stockholders of INT'L.com who
accept the Parent Merger Shares and execute the Escrow Agreement (which is a
condition to receiving such consideration), severally and not jointly, hereby
agree to defend, indemnify and hold Parent harmless from and against, and to
reimburse Parent with respect to, any and all losses, damages, liabilities,
claims, judgments, settlements, fines, costs and expenses (including reasonable
attorneys' fees), determined as provided in Section 9.3 ("INDEMNIFIABLE
AMOUNTS"), of every nature whatsoever incurred by Parent (which will be deemed
to include any of the foregoing incurred by the Surviving Corporation) by reason
of or arising out of or in connection with (i) any breach, or any claim
(including claims by parties other than Parent) that constitutes a breach, by
INT'L.com of any representation or warranty of INT'L.com contained in this
Agreement or in any certificate or other document delivered to Parent pursuant
to this Agreement, other than any breach or related claim in respect of actions
taken or not taken pursuant to this Agreement or at the written direction of or
after consultation with and written concurrence of Parent and (ii) the failure,
partial or total, of INT'L.com or any Subsidiary to perform any agreement or
covenant required by this Agreement to be performed by it or them other than any
breach or related claim in respect of actions taken or not taken pursuant to
this Agreement or at the written direction of or after consultation with and
written concurrence of Parent. The foregoing obligations to indemnify Parent
will be determined without regard to any right to indemnification to which any
Person may have in his or her capacity as an officer, director, employee, agent
or any other capacity of INT'L.com or any Subsidiary, and no stockholder of
INT'L.com will be entitled to any indemnification from INT'L.com or the
Surviving Corporation for amounts paid hereunder. There will be no right of
contribution or subrogation from Parent or the Surviving Corporation for
indemnification payments made by or for the account of the stockholders of
INT'L.com. Notwithstanding any provision in this Agreement to the contrary,
Indemnifiable Amounts shall not include (i) any lost profits, lost revenues or
lost business opportunities, or (ii) any amounts which shall have been recovered
by Parent under any insurance policies.
9.2 THIRD PARTY CLAIMS. With respect to any claims or demands by third
parties as to which Parent may seek indemnification hereunder whenever Parent
will have received a written notice that such a claim or demand has been
asserted or threatened, Parent will promptly notify the "Indemnification
Representative" (as designated in the Escrow Agreement) of such claim or demand
and of the facts within Parent's knowledge that relate thereto. The
Indemnification Representative will then have the right to defend, contest,
negotiate or settle any such claim or demand through counsel of his own
selection, reasonably satisfactory to Parent, and solely at the Indemnification
Representative's own cost and expense, which costs and expenses will be
reimbursed pursuant to the Escrow Agreement. Notwithstanding the preceding
sentence, the Indemnification Representative will not settle, compromise, or
offer to settle or compromise any such claim or demand without the prior written
consent of Parent, which consent will not be unreasonably withheld. Without
limiting Parent's rights to object for other reasons, Parent may object to a
settlement or compromise which includes any provision which in its reasonable
judgment may have an adverse impact on or establish an adverse precedent for the
Business Condition of Parent or any of its Subsidiaries. If the Indemnification
Representative gives notice to Parent within thirty (30) calendar days after
Parent has notified the Indemnification Representative that any such claim or
demand has been made in writing, that the Indemnification Representative elects
to have Parent defend, contest, negotiate, or settle any such claim or demand,
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then Parent will have the right to contest and/or settle any such claim or
demand and seek indemnification pursuant to this Article IX as to any
Indemnifiable Amounts; PROVIDED, HOWEVER, that Parent will not settle,
compromise, or offer to settle or compromise any such claim or demand without
the prior written consent (which may include a general or limited consent) of
the Indemnification Representative, which consent will not be unreasonably
withheld. If the Indemnification Representative fails to give written notice to
Parent of his intention to contest or settle any such claim or demand within
thirty (30) calendar days after Parent has notified the Indemnification
Representative that any such claim or demand has been made in writing, or if any
such notice is given but any such claim or demand is not contested by the
Indemnification Representative within a reasonable time thereafter, Parent will
have the right to contest and/or settle any such claim or demand in its sole
discretion and seek indemnification pursuant to this Article IX as to any
Indemnifiable Amounts. The adoption of this Agreement by the stockholders of
INT'L.com will also constitute their approval of the Indemnification
Representative.
9.3 LIMITATIONS. Notwithstanding any other provision in this Article IX,
Parent will be entitled to indemnification pursuant to this Article IX only to
the extent that the aggregate Indemnifiable Amounts (which shall be determined
for all purposes of this Article IX disregarding any qualification in any
representation or warranty as to "materially" or "material" or "material adverse
effect") exceed Five Hundred Thousand Dollars ($500,000) (the "THRESHOLD
AMOUNT") PROVIDED THAT at such time as the amount to which Parent is entitled to
be indemnified exceeds the Threshold Amount, Parent shall be entitled to be
indemnified up to the full Indemnifiable Amounts including the Threshold Amount.
For purposes of indemnification under this Agreement, each Parent Merger Share
shall at all times be valued at the Parent Average Closing Price. The aggregate
amount to which Parent will be entitled to be indemnified pursuant to this
Article IX will not exceed a dollar amount equal to the value of the aggregate
number of Escrow Shares held in escrow pursuant to the terms of the Escrow
Agreement valued at the Parent Average Closing Price per share, and the
liability of any single stockholder for indemnification obligations pursuant to
this Article IX shall be limited to such stockholder's PRO RATA share of any
Indemnifiable Amounts based on the number of Escrow Shares deposited in escrow
by such stockholder relative to the aggregate number of Escrow Shares and the
aggregate liability of any single stockholder for indemnification obligations
pursuant to this Article IX shall be equal to a dollar amount equal to the
Parent Average Closing Price multiplied by the aggregate number of Escrow Shares
deposited in escrow by such stockholder; PROVIDED, HOWEVER, that there will be
no limitation on the obligations of any person for Indemnifiable Amounts arising
out of criminal activity or fraud by such person, including, without limitation,
any actions in such person's capacity as an employee, officer or director of
INT'L.com or its Subsidiaries, or for any stockholder of INT'L.com for breaches
of any representation or warranty contained in the Letter of Transmittal
delivered by such stockholder.
9.4 BINDING EFFECT. The indemnification obligations contained in this
Article IX are an integral part of this Agreement and the Merger in the absence
of which Parent would not have entered into this Agreement.
9.5 TIME LIMIT. The representations, warranties, covenants and agreements
of INT'L.com set forth in this Agreement and the certificates and schedules
executed or delivered pursuant to this Agreement will survive the Closing for
one year; PROVIDED, HOWEVER, that claims relating to the representations and
warranties in Sections 3.6(a) and (b) may be made only on or before the date
that Parent publishes audited financial results for the year ended December 31,
2000 covering combined operations of Parent and INT'L.com.
9.6 SOLE REMEDY. Notwithstanding any other provision in this Agreement to
the contrary, the provisions of this Article IX and the provisions of the Escrow
Agreement will be the sole and exclusive remedy of (and corresponding liability
of any stockholder of INT'L.com, in such stockholder's capacity as such, to)
Parent, Merger Sub and the Surviving Corporation for any damage, claim, cause of
action or right of any nature arising out of or relating to any breach of
representations, warranties, covenants
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and agreements of INT'L.com set forth in this Agreement and the certificates and
schedules executed or delivered by it pursuant to this Agreement.
ARTICLE X
TERMINATION
10.1 MUTUAL AGREEMENT. THIS AGREEMENT MAY BE TERMINATED AT ANY TIME PRIOR
TO THE EFFECTIVE TIME BY THE WRITTEN CONSENT OF PARENT AND INT'L.COM.
10.2 TERMINATION BY PARENT. This Agreement may be terminated by Parent
(PROVIDED THAT it is not then in material breach of any representation,
warranty, covenant or agreement contained in this Agreement) alone, by means of
written notice to INT'L.com, if there has been a material breach by INT'L.com or
any Subsidiary of any representation, warranty, covenant or agreement set forth
in this Agreement or other ancillary agreements, which breach would in Parent's
reasonable opinion render it impossible for INT'L.com to satisfy the closing
conditions contained in Section 8.2 and has not been cured within twenty
(20) business days following receipt by INT'L.com of notice of such breach.
10.3 TERMINATION BY INT'L.COM. (a) This Agreement may be terminated by
INT'L.com by means of written notice to Parent and payment of the Termination
Fee (as defined below) if it has fulfilled its obligations under Section 7.1(a)
and (c) hereof but has failed to obtain the INT'L.com Requisite Stockholder
Approval. The Termination Fee shall be paid by wire transfer of immediately
available funds to an account designated by Parent and any termination pursuant
to this Section 10.3(a) shall only be effective upon receipt of the Termination
Fee in such account. The "Termination Fee" shall be a dollar amount equal to 5%
of the result of multiplying (i) the Parent Average Closing Price by (ii) the
number of Parent Merger Shares that would have been issuable by Parent if the
Closing had occurred on the date of such termination, assuming that there were
no Excluded Shares, no Series C Excluded Shares and no Series D Excluded Shares
and that all Outstanding INT'L.com Options were exercised immediately prior to
such date.
(b) This Agreement may also be terminated by INT'L.com (PROVIDED THAT it is
not then in material breach of any representation, warranty, covenant or
agreement contained in this Agreement) alone, by means of written notice to
Parent, if there has been a material breach by Parent or any Subsidiary of any
representation, warranty, covenant or agreement set forth in the Agreement or
other ancillary agreements, which breach would in INT'L.com's reasonable opinion
render it impossible for INT'L.com to satisfy the closing conditions contained
in Section 8.3 and has not been cured within twenty (20) business days following
receipt by Parent of notice of such breach,
10.4 OUTSIDE DATE. This Agreement may be terminated by Parent alone or by
INT'L.com alone by means of written notice if the Effective Time does not occur
on or prior to June 30, 2000; PROVIDED, HOWEVER, that the right to terminate
this Agreement pursuant to the preceding clause will not be available to any
party whose failure to fulfill any obligation under this Agreement has been a
significant cause of, or resulted in, the failure of the Effective Time to occur
on or before such date.
10.5 EFFECT OF TERMINATION. In the event of termination of this Agreement
by either INT'L.com or Parent as provided in this Article, this Agreement will
forthwith become void and have no effect, and there will be no liability or
obligation on the part of Parent, INT'L.com, Merger Sub or their respective
officers or directors, except that (i) the provisions of Sections 7.4, 7.6, 7.7
and 11.2 will survive any such termination and abandonment, and (ii) no party
will be released or relieved from any liability arising from the willful breach
by such party prior to termination of any of its representations, warranties,
covenants or agreements as set forth in this Agreement.
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ARTICLE XI
MISCELLANEOUS
11.1 ENTIRE AGREEMENT. This Agreement, including the exhibits, schedules
and other agreements delivered pursuant to this Agreement contain all of the
terms and conditions agreed upon by the parties relating to the subject matter
of this Agreement and supersede all prior agreements, negotiations,
correspondence, undertakings and communications of the parties, whether oral or
written, respecting that subject matter.
11.2 GOVERNING LAW; CONSENT TO JURISDICTION. The Merger and this Agreement
will be governed by the internal laws of the State of Delaware. Legal
proceedings relating to this Agreement, the agreements executed in connection
with this Agreement or the transactions contemplated hereby or thereby may be
commenced only in the state or federal courts in the State of Delaware. Each of
the parties hereby consents to the exclusive jurisdiction of such courts (and of
the appropriate appellate courts) in any such action or proceeding and waives
any objection to venue laid therein. The foregoing provisions will not be
construed to preclude any party from bringing a counter-claim in any action or
proceeding properly commenced in accordance with the foregoing provisions.
Process in any such action or proceeding may be served on any party anywhere in
the world. Notwithstanding the foregoing, any dispute relating to a claim under
the Escrow Agreement will be resolved in accordance with the arbitration
provisions of the Escrow Agreement.
11.3 NOTICES. All notices, requests, demands or other communications which
are required or may be given pursuant to the terms of this Agreement will be in
writing and will be deemed to have been duly given: (i) on the date of delivery
if personally delivered by hand, (ii) upon the third day after such notice is
deposited in the United States mail, if mailed by registered or certified mail,
postage prepaid, return receipt requested, (iii) upon the date scheduled for
delivery after such notice is sent by a nationally recognized overnight express
courier or (iv) by fax upon written confirmation (including the automatic
confirmation that is received from the recipient's fax machine) of receipt by
the recipient of such notice:
<TABLE>
<S> <C>
IF TO PARENT OR MERGER SUB: Lionbridge Technologies, Inc.
950 Winter Street
Waltham, Massachusetts 02451
Attention: Rory J. Cowan
Telephone No.: (781) 434-6000
Fax No.: (781) 434-6034
WITH COPIES TO:
Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, Massachusetts 02110
Attention: George W. Lloyd, Esq. &
Kathy A. Fields, Esq.
Telephone No.: (617) 248-7000
Fax No.: (617) 248-7100
IF TO INT'L.COM: INT'L.com, Inc.
492 Old Connecticut Path
Framingham, Massachusetts 01701
Attention: Chief Executive Officer
Telephone No.: (508) 620-3900
Fax No.: (508) 620-3999
</TABLE>
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<TABLE>
<S> <C>
WITH COPIES TO:
INT'L.com, Inc.
301 Mission Street, Suite 350
San Francisco, CA 94105
Attention: Steven L. Fingerhood
Telephone No.: (415) 546-6895
Fax No.: (415) 495-4926
</TABLE>
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<TABLE>
<S> <C>
Cornerstone Equity IV, L.P.
717 Fifth Avenue, Suite 1100
New York, NY 10022
Attention: Michael Najjar
Telephone: (212) 207-2372
Fax No.: (212) 826-6798
Dakota/EGI, LLC
c/o Equity Group Investments
Two N. Riverside Plaza
Suite 700
Chicago, IL 60606
Attn: Alisa Singer, Esq.
Telephone: (312) 466-3196
Fax No: (312) 454-0335
Neal, Gerber & Eisenberg
Two North LaSalle Street, Suite 2200
Chicago, IL 60602
Attn: Jon Wasserman
Telephone No.: (312) 269-8000
Fax No.: (312) 269-1747
</TABLE>
Such addresses may be changed, from time to time, by means of a notice given
in the manner provided in this Section 11.3.
11.4 SEVERABILITY. If any provision of this Agreement is held to be
unenforceable for any reason, it will be modified rather than voided, if
possible, in order to achieve the intent of the parties to this Agreement to the
extent possible. In any event, all other provisions of this Agreement will be
deemed valid and enforceable to the full extent.
11.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Parent contained in this Agreement and schedules and certificates
executed or delivered pursuant to this Agreement, will survive the Effective
Time, but any claims for breach thereof may only be made on or before the first
yearly anniversary of the Closing.
11.6 ASSIGNMENT. No party to this Agreement may assign, by operation of
law or otherwise, all or any portion of its rights, obligations, or liabilities
under this Agreement without the prior written consent of INT'L.com, Merger Sub
and Parent, which consent may be withheld in the absolute discretion of the
party asked to grant such consent. Any attempted assignment by Merger Sub or
Parent, on the one hand, or by INT'L.com, on the other hand, in violation of
this Section 11.6 will be voidable and will entitle INT'L.com or Parent,
respectively, to terminate this Agreement at its option.
11.7 COUNTERPARTS. This Agreement may be executed in two or more partially
or fully executed counterparts each of which will be deemed an original and will
bind the signatory, but all of which together will constitute but one and the
same instrument. The execution and delivery of a Signature Page to this
Agreement and Plan of Reorganization in the form annexed to this Agreement,
including a facsimile copy of the actual signature, by any party hereto who will
have been furnished the final form of this Agreement will constitute the
execution and delivery of this Agreement by such party.
11.8 AMENDMENT. This Agreement may not be amended except by an instrument
in writing executed by INT'L.com, Merger Sub and Parent.
11.9 EXTENSION, WAIVER. At any time prior to the Effective Time, any party
hereto may, to the extent legally allowed and without prejudice to the rights of
any other party: (i) extend the time for the
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performance of any of the obligations or other acts of any other party hereto to
the party extending such time, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements, covenants or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver will be valid only if set forth in an instrument in writing signed on
behalf of such party.
11.10 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference will be to a Section, Exhibit or
Schedule to this Agreement unless otherwise indicated. The words "include,"
"includes," and "including" when used therein will be deemed in each case to be
followed by the words "without limitation." The table of contents, index to
defined terms, and headings contained in this Agreement are for reference
purposes only and will not affect in any way the meaning or interpretation of
this Agreement.
11.11 KNOWLEDGE. For purposes of this Agreement, the term "KNOWLEDGE"
(including any derivation thereof such as "know" or "knowing", and similar such
as "aware" and regardless of whether such word starts with an initial capital)
in reference to INT'L.com or any Subsidiary will mean the knowledge of the
directors and executive officers of INT'L.com or such Subsidiary as the case may
be, and in reference to Parent or any Subsidiary will mean the knowledge of the
directors and executive officers of Parent or such Subsidiary as the case may
be.
11.12 TRANSFER, SALES, DOCUMENTARY, STAMP AND OTHER SIMILAR TAXES. Any and
all transfer, sales, documentary, stamp and other similar Taxes imposed in
connection with the transactions contemplated by this Agreement will be paid by
the stockholder of INT'L.com with respect to which such Tax relates. At Parent's
discretion, the amount paid to any Person pursuant to this Agreement will be
reduced by the amount of Taxes payable by such Person pursuant to this
Section 11.12. Any amounts so withheld will be promptly remitted to the
appropriate taxing authority.
11.13 ACKNOWLEDGEMENT. Parent and INT'L.com hereby acknowledge and agree
that: (i) the promissory notes described in Section 2.9(ii) were issued pursuant
to Section 5.6 of the Parent Disclosure Schedule and Section 3.8(a) of the
INT'L.com Disclosure Schedule, (ii) Parent has received the INT'L.com financial
projections dated as of March 25, 2000 and (iii) the promissory notes described
in Section 2.9(iii) will count as $2 million of the $3 million of additional
indebtedness permitted to be incurred by INT'L.com pursuant to Section 5.6 of
the Parent Disclosure Schedule without resulting in a material adverse effect on
the Business Condition of INT'L.com. Parent hereby acknowledges that pursuant to
Section 8.2(b) INT'L.com may incur additional indebtedness of up to $1 million
and, in accordance with Section 5.6 of the Parent Disclosure Schedule, such
$1 million of additional indebtedness shall not result in a material adverse
effect on the Business Condition of INT'L.com if such additional indebtedness is
treated as a Debt Adjustment Amount.
(THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
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<PAGE>
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF REORGANIZATION
IN WITNESS WHEREOF, Parent, Merger Sub and, INT'L.com have executed this
Agreement as of the date first written above.
<TABLE>
<S> <C> <C> <C>
LIONBRIDGE TECHNOLOGIES, INC. INT'L.COM, INC.
By: /s/ RORY J. COWAN By: /s/ ROGER O. JEANTY
---------------------------------------- ----------------------------------------
Rory J. Cowan Roger O. Jeanty
CHIEF EXECUTIVE OFFICER & PRESIDENT CHIEF EXECUTIVE OFFICER
LTI ACQUISITION CORP.
By: /s/ RORY J. COWAN
----------------------------------------
Rory J. Cowan
CHIEF EXECUTIVE OFFICER & PRESIDENT
</TABLE>
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<PAGE>
Exhibit 10.54
LIONBRIDGE TECHNOLOGIES, INC.
HT ACQUISITION CORP.
HARVARD TRANSLATIONS, INC.
AGREEMENT AND PLAN OF REORGANIZATION
Dated as of March 30, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. THE MERGER...............................................................................................1
1.1 The Merger....................................................................................................1
1.2 Effects of the Merger.........................................................................................1
1.3 Closing.......................................................................................................2
1.4 Approval by the Stockholder of HT.............................................................................2
ARTICLE II. CONVERSION AND EXCHANGE OF SHARES; DISSENTING SHARES....................................................2
2.1 Conversion of Shares of HT Common Stock.......................................................................2
2.2 Escrow Shares.................................................................................................3
2.3 Dissenting Shares.............................................................................................4
2.4 Delivery of Evidence of Ownership.............................................................................4
2.5 No Further Ownership Rights in HT Common Stock................................................................5
2.6 No Fractional Shares..........................................................................................5
2.7 Assumption of Stock Options...................................................................................5
2.8 Notes.........................................................................................................6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF HT AND THE STOCKHOLDER...............................................6
3.1 Organization, Standing and Power; Subsidiaries................................................................6
3.2 Capital Structure.............................................................................................7
3.3 Authority.....................................................................................................8
3.4 Compliance with Laws and Other Instruments; Non-Contravention.................................................8
3.5 Technology and Intellectual Property Rights...................................................................9
3.6 Financial Statements; Business Information...................................................................11
3.7 Taxes........................................................................................................12
3.8 Absence of Certain Changes and Events........................................................................13
3.9 Leases in Effect.............................................................................................15
3.10 Personal Property; Real Estate...............................................................................15
3.11 Certain Transactions.........................................................................................16
3.12 Litigation and Other Proceedings.............................................................................16
3.13 No Defaults..................................................................................................16
3.14 Major Contracts..............................................................................................16
3.15 Material Reductions..........................................................................................18
3.16 Insurance and Banking Facilities.............................................................................18
3.17 Employees....................................................................................................18
3.18 Employee Benefit Plans.......................................................................................19
3.19 Certain Agreements...........................................................................................19
3.20 Guarantees and Suretyships...................................................................................20
3.21 Brokers and Finders..........................................................................................20
3.22 Certain Payments.............................................................................................20
3.23 Environmental Matters........................................................................................20
3.24 Enforceability of Contracts, etc.............................................................................20
3.25 Accounting Matters...........................................................................................21
3.26 Year 2000....................................................................................................21
3.27 Disclosure...................................................................................................21
3.28 Reliance.....................................................................................................21
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER......................................................21
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.................................................22
5.1 Organization and Qualification...............................................................................22
</TABLE>
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<TABLE>
<S> <C>
5.2 Capitalization...............................................................................................23
5.3 Authority Relative to this Agreement.........................................................................23
5.4 Non-Contravention............................................................................................23
5.5 (a) SEC Documents; Financial Statements.....................................................................24
5.6 Validity of Parent Merger Shares.............................................................................24
5.7 Consents and Approvals of Governmental Authorities...........................................................24
5.8 Absence of Certain Changes or Events.........................................................................24
5.9 Disclosure...................................................................................................24
5.10 Reliance.....................................................................................................25
ARTICLE VI. COVENANTS OF HT AND STOCKHOLDER........................................................................25
6.1 Conduct of Business in Ordinary Course.......................................................................25
6.2 Dividends, Issuance of, or Changes in Securities.............................................................27
6.3 Governing Documents..........................................................................................27
6.4 No Acquisitions..............................................................................................27
6.5 No Dispositions..............................................................................................27
6.6 Indebtedness.................................................................................................27
6.7 Compensation.................................................................................................27
6.8 Claims.......................................................................................................27
6.9 Access to Properties and Records.............................................................................27
6.10 Breach of Representations and Warranties.....................................................................28
6.11 Consents.....................................................................................................28
6.12 Tax Returns..................................................................................................28
6.13 Stockholder Approval.........................................................................................28
6.14 Exclusivity; Acquisition Proposals...........................................................................28
6.15 Notice of Events.............................................................................................29
6.17 Reasonable Best Efforts......................................................................................29
6.18 Insurance....................................................................................................29
ARTICLE VII. COVENANTS OF PARENT...................................................................................29
7.1 Breach of Representations and Warranties.....................................................................29
7.2 Additional Information; Access...............................................................................29
7.3 Consents.....................................................................................................29
7.4 Reasonable Best Efforts: Reorganization.....................................................................30
7.5 Officers and Directors.......................................................................................30
7.6 Nasdaq National Market Listing...............................................................................30
7.7 Notice of Events.............................................................................................30
7.8 Third Party Beneficiaries....................................................................................30
ARTICLE VIII. ADDITIONAL AGREEMENTS................................................................................30
8.1 Investment Agreements........................................................................................30
8.2 Legal Conditions to the Merger...............................................................................31
8.3 Employee Benefits............................................................................................31
8.4 Expenses.....................................................................................................31
8.5 Additional Agreements........................................................................................31
8.6 Public Announcements.........................................................................................32
8.7 Confidentiality..............................................................................................32
8.8 Pooling......................................................................................................32
8.9 Hart-Scott-Rodino Filing.....................................................................................33
8.10 Tax Matters..................................................................................................33
8.11 Employment, Consulting and Noncompetition Agreements........................................................34
ARTICLE IX. CONDITIONS PRECEDENT...................................................................................34
9.1 Conditions to Each Party's Obligation to Effect the Merger...................................................34
9.2 Conditions of Obligations of Parent and Merger Sub...........................................................35
</TABLE>
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<TABLE>
<S> <C>
9.3 Conditions of Obligation of HT...............................................................................36
ARTICLE X. INDEMNIFICATION.........................................................................................37
10.1 Indemnification Relating to Agreement........................................................................37
10.2 Third Party Claims...........................................................................................38
10.4 Limitations..................................................................................................39
10.5 Binding Effect...............................................................................................39
10.6 Time Limit...................................................................................................39
10.8 Sole Remedy..................................................................................................39
ARTICLE XI. TERMINATION............................................................................................40
11.1 Mutual Agreement..............................................................................................40
11.2 Termination by Parent.........................................................................................40
11.3 Termination by HT.............................................................................................40
11.4 Outside Date..................................................................................................40
11.5 Effect of Termination.........................................................................................40
ARTICLE XII. MISCELLANEOUS.........................................................................................41
12.1 Entire Agreement..............................................................................................41
12.2 Governing Law; Consent to Jurisdiction........................................................................41
12.3 Notices.......................................................................................................41
12.4 Severability..................................................................................................42
12.5 Survival of Representations and Warranties....................................................................42
12.6 Assignment....................................................................................................42
12.7 Counterparts..................................................................................................43
12.8 Amendment.....................................................................................................43
12.9 Extension, Waiver.............................................................................................43
12.10 Interpretation................................................................................................43
12.11 Knowledge.....................................................................................................43
12.12 Transfer, Sales, Documentary, Stamp and Other Similar Taxes...................................................43
</TABLE>
EXHIBITS
EXHIBIT 1.1 -- Merger Documents
EXHIBIT 2.2 -- Escrow Agreement, Letter of Transmittal
EXHIBIT 8.1 -- Investment Agreement
EXHIBIT 8.2 -- Registration Rights Agreement
EXHIBIT 8.8 -- HT Affiliate Agreement
EXHIBIT 8.12 -- Lease Agreement
EXHIBIT 9.2 -- Opinion of Foley, Hoag & Eliot, LLP
EXHIBIT 9.3 -- Opinion of Testa, Hurwitz & Thibeault, LLP
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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of March 30, 2000 (this
"AGREEMENT"), by and among LIONBRIDGE TECHNOLOGIES, INC., a Delaware corporation
("PARENT"); HT ACQUISITION CORP., a Massachusetts corporation and a wholly owned
subsidiary of Parent ("MERGER SUB"); HARVARD TRANSLATIONS, INC., a Massachusetts
corporation ("HT"); and Robert C. Sprung, the sole stockholder of HT (the
"STOCKHOLDER").
Intending to be legally bound, and in consideration of the mutual
representations, warranties, covenants and agreements contained herein, Parent,
Merger Sub, HT and the Stockholder agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions hereof, and in
accordance with the Massachusetts Business Corporation Act (the "MBCL"), Merger
Sub will be merged with and into HT (the "MERGER"). Articles of Merger and any
other required documents (collectively, the "MERGER DOCUMENTS"), substantially
in the form attached as EXHIBIT 1.1, will be duly prepared, executed and
acknowledged by HT and Merger Sub and thereafter delivered to the Secretary of
the Commonwealth of Massachusetts for filing in accordance with the MBCL
contemporaneously with the Closing (as defined in Section 1.3). The Merger will
become effective at such time as the Merger Documents have been filed with the
Secretary of the Commonwealth of Massachusetts (the "EFFECTIVE Time"). Following
the Merger, HT will continue as the surviving corporation of the Merger (the
"SURVIVING CORPORATION") under the laws of the Commonwealth of Massachusetts,
and the separate corporate existence of Merger Sub will cease.
1.2 EFFECTS OF THE MERGER. At and after the Effective Time, (i) the
Merger will have all of the effects provided by the Articles of Merger and
applicable law, (ii) the Articles of Incorporation of HT will be amended in the
form attached as ARTICLE 3 OF EXHIBIT 1.1 until duly further amended, (iii) the
bylaws of Merger Sub will be the bylaws of the Surviving Corporation until duly
amended, (iv) the directors of Merger Sub will be the directors of the Surviving
Corporation, to hold office in accordance with the bylaws of the Surviving
Corporation, (v) the officers of Merger Sub will be the officers of the
Surviving Corporation, to hold office in accordance with the bylaws of the
Surviving Corporation and (vi) the issued and outstanding certificates for the
capital stock of Merger Sub will be the issued and outstanding certificates
initially representing all of the issued capital stock of the Surviving
Corporation. The Merger is intended to be a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "CODE"),
and this Agreement is intended to constitute a "plan of reorganization" within
the meaning of the regulations promulgated under Section 368 of the Code.
<PAGE>
1.3 CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") will take place seven (7) days following the Parent's
Annual Meeting of Stockholders (or any special meeting held in lieu of such
annual meeting) held in 2000, (the "CLOSING DATE") at the offices of Testa
Hurwitz & Thibeault, LLP, 125 High Street, Boston, Massachusetts, 02110, unless
another date or place is agreed to in writing by Parent and HT. If all of the
conditions set forth in Article IX hereof are determined to be satisfied (or
duly waived) at the Closing, concurrently with the Closing the parties hereto
will cause the Merger to be consummated by the filing of the Merger Documents
with the Secretary of the Commonwealth of Massachusetts. The Closing will be
deemed to have concluded at the Effective Time.
1.4 APPROVAL BY THE STOCKHOLDERS OF HT. HT will take all action
necessary in accordance with applicable law, its Charter Documents (as defined
below) and any agreements to which it is a party necessary to solicit the
approval of this Agreement, the Merger and all of the transactions contemplated
hereby by means of a unanimous written consent of stockholder(s) in accordance
with the MBCL. HT represents and warrants that its Board of Directors has duly
(i) approved the Merger in accordance with the MBCL and (ii) resolved to
recommend to the stockholder(s) of HT that they approve this Agreement, the
Merger and all of the transactions contemplated hereby.
ARTICLE II
CONVERSION AND EXCHANGE OF SHARES; DISSENTING SHARES
2.1 CONVERSION OF SHARES OF HT COMMON STOCK.
(a) Subject, without limitation, to the provisions of Section
2.3 hereof, at the Effective Time, all of the shares of common stock, $.01 par
value, of HT ("HT COMMON STOCK") issued and outstanding immediately prior to the
Effective Time (excluding any HT Common Stock held by Parent or Merger Sub or
any other subsidiary of Parent, or by HT or any subsidiary of HT, which shares
("EXCLUDED SHARES") will be automatically canceled in the Merger without payment
of any consideration therefor, and excluding Dissenting Shares (as defined in
Section 2.3 hereof)), will automatically, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into shares of common
stock, $.01 par value per share, of Parent ("PARENT COMMON STOCK") in accordance
with Section 2.1(c), and cash (rounded down to the nearest whole cent) in lieu
of fractional shares, if any, pursuant to Section 2.6 below. Shares of HT Common
Stock that are actually issued and outstanding immediately prior to the
Effective Time (including shares issued upon the exercise of stock options prior
to the Effective Time), excluding the Excluded Shares, are sometimes referred to
herein as the "OUTSTANDING HT SHARES." All options to acquire HT Common Stock
that are outstanding immediately prior to the Effective Time and do not expire
pursuant to their terms on or before the Closing (each of which is specifically
identified in Section 3.2 of the HT Disclosure Schedule (as defined below) are
sometimes referred to herein as the "OUTSTANDING HT OPTIONS."
(b) The aggregate number of shares of Parent Common Stock to
be issued in exchange for the acquisition of all Outstanding HT Shares will be
equal to the Modified Base Amount. Such shares are herein referred to as the
"PARENT STOCK MERGER SHARES".
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The following definitions will be used in making the foregoing
calculation:
"BASE AMOUNT" will equal the sum of (i) $4,700,000 and (ii) the Option
Proceeds (as defined below) DIVIDED BY the Parent Average Closing Price.
"OPTION PROCEEDS" will mean any cash received by HT with respect to any
exercise of stock options after the date hereof and prior to the Closing.
"PARENT AVERAGE CLOSING PRICE" will be equal to the average closing
price of the Parent Common Stock as publicly reported by the Wall Street Journal
over the ten Trading Days prior to the date of this Agreement, but excluding
within such period, the two highest and two lowest closing prices.
"MODIFIED BASE AMOUNT" will mean the Base Amount LESS (i) the number of
Note Payment Shares (as defined in Section 2.8 below) and (ii) such number of
shares of Parent Common Stock having a value (as determined using the Parent
Average Closing Price) equal to any expenses to be borne by the Stockholder
pursuant to Section 8.4. The Parent Stock Merger Shares and the Note Payment
Shares are referred to collectively herein as the "PARENT MERGER SHARES".
"TRADING DAY" will mean days on which closing prices for purchases and
sales of Parent Common Stock are reported by the Nasdaq National Market.
(c) The ratio at which one Outstanding HT Share will be
converted into shares of Parent Common Stock at the Effective Time is herein
called the "CONVERSION RATIO" and will be calculated as set forth in this
Section 2.1(c). Subject to Section 2.3, at the Effective Time, each Outstanding
HT Share will be converted into the right to receive that number (which may be a
fraction) of shares of Parent Common Stock that equals the quotient obtained by
DIVIDING the number of Parent Stock Merger Shares by the number of Outstanding
HT Shares. The holder of Outstanding HT Shares will be entitled to receive that
aggregate number of shares of Parent Common Stock equal to the Conversion Ratio
multiplied by the number of Outstanding HT Shares held by such holder
immediately prior to the Effective Time, subject to Section 2.3 herein.
(d) At the Effective Time, each share of common stock, $.01
par value, of Merger Sub issued and outstanding immediately prior to the
Effective Time will, by virtue of the Merger and without any action on the part
of the holder hereof, be converted into one share of common stock, $.01 par
value, of the Surviving Corporation.
2.2 ESCROW SHARES. Ten percent (10%) of the Parent Merger Shares,
rounded up to the nearest whole share (the "ESCROW SHARES") will be deposited
and held in escrow (the "Escrow") in accordance with the Escrow Agreement
attached as EXHIBIT 2.2 (the "ESCROW AGREEMENT") as the sole source of
indemnification payments that may become due to Parent pursuant to Article X
(except with respect to breaches of Section 3.2 and Article IV(a) and (b); and
as otherwise limited by Section 8.10) provided that the aggregate liability of
any single stockholder for indemnification obligations pursuant to Article X of
this Agreement shall be equal to a dollar amount equal to the Parent Average
Closing Price multiplied by the aggregate number of Escrow Shares deposited in
escrow by or on behalf of such stockholder; and provided, further, that each HT
stockholder shall be jointly and severally liable beyond such holder's allocable
portion of the Escrow Shares solely in respect of any breach by such
- 3 -
<PAGE>
stockholder of any representation or warranty contained in a Letter of
Transmittal (as defined in Section 2.4 below) delivered by such stockholder. The
Escrow Shares will be withheld on a pro rata basis among the holders of the
Outstanding HT Shares based on the number of Parent Merger Shares issuable at
the closing to such holders. The exact number of Escrow Shares held for the
account of each HT stockholder will be determined at the Closing by the
agreement in writing of Parent and HT. The delivery of the Escrow Shares will be
made on behalf of the holders of the Outstanding HT Shares in accordance with
the provisions hereof, with the same force and effect as if such shares had been
delivered by Parent directly to such holders and subsequently delivered by such
holders to the Escrow Agent. The adoption of this Agreement by the stockholders
of HT will also constitute their approval of the terms and provisions of the
Escrow Agreement, including, without limitation, the appointment of the
Stockholder as the Indemnification Representative (as defined in the Escrow
Agreement), which is an integral term of the Merger.
2.3 DISSENTING SHARES. Any holder of shares of HT Common Stock that are
outstanding on the record date for the determination of which holders will be
entitled to vote for or against the Merger who did not vote such shares in favor
of the Merger or sign and deliver a written consent thereto with respect to such
shares (the shares of HT Common Stock then outstanding that are not thus voted
or as to which such consents are not signed and delivered are referred to as
"DISSENTING SHARES") will be entitled to exercise dissenters' rights pursuant to
Chapter 156B, Section 76 of the MBCL with respect to such Dissenting Shares
PROVIDED THAT such holder meets all of the requirements of the MBCL with respect
to such Dissenting Shares, and will not be entitled to receive Parent Merger
Shares, unless otherwise provided by the MBCL or agreed in writing by Parent. HT
will, after consultation with Parent, give such notices with respect to
dissenters' rights as may be required by the MBCL as soon as practicable.
2.4 DELIVERY OF EVIDENCE OF OWNERSHIP. Prior to the Closing, Parent
shall send a notice and transmittal form in substantially the form of EXHIBIT
2.4 hereto (individually, a "Letter of Transmittal" and collectively, the
"LETTERS OF TRANSMITTAL") to each holder of a certificate or other documentation
representing Outstanding HT Shares, other than Dissenting Shares, each holder of
a certificate or other documentation representing Outstanding HT Shares, other
than Dissenting Shares, will surrender such certificates or other documentation
to Parent or its designee, and, if not previously delivered, (i) a duly executed
counterpart of the Escrow Agreement, (ii) a duly executed Letter of Transmittal,
(iii) a duly executed Investment Agreement and (iv) such other duly executed
documentation as may be reasonably required by Parent to effect a transfer of
such shares, and upon such surrender and after the Effective Time each such
holder will be entitled to receive promptly from Parent or its transfer agent
certificates registered in the name of such holder representing the applicable
number of Parent Merger Shares, and the cash (calculated pursuant to Section
2.6, which will be paid by check), to which such holder is entitled pursuant to
the provisions of this Agreement, with a portion of such shares to be deposited
in escrow pursuant to the Escrow Agreement, as provided in Section 2.2. The
adoption of this Agreement by stockholders of HT will also constitute their
approval of the terms and provisions of the Letter of Transmittal. In the event
any certificates or instruments representing Outstanding HT Shares or
Outstanding HT Options shall have been lost, stolen or destroyed, upon the
making and delivery of an affidavit of that fact by the person claiming same to
have been lost, stolen or destroyed and the posting by such person of a bonding
such reasonable amount as Parent may direct as indemnity against any claim that
would be made against Parent with respect to such certificate or instrument,
Parent will issue in exchange for such lost, stolen or destroyed certificate or
instrument the Parent Merger Shares and cash deliverable in respect thereof
pursuant to this Agreement.
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2.5 NO FURTHER OWNERSHIP RIGHTS IN HT COMMON STOCK. The Merger and its
approval by the stockholders of HT and the execution of this Agreement will be
deemed, at the Effective Time, to constitute full satisfaction and termination
of all rights and agreements pertaining to HT Common Stock pursuant to the MBCL,
by contract or otherwise. After the Effective Time, there will be no transfers
on the stock transfer books of HT of HT Common Stock or exercises of any
options, warrants or other rights to acquire HT Common Stock. Prior to or upon
Closing, HT will cause all rights to purchase or acquire HT Common Stock, other
than the Outstanding HT Options assumed pursuant to Section 2.7 below, to be
exercised or canceled. Until surrendered to Parent, each certificate for HT
Common Stock will, after the Effective Time, represent only the right to receive
shares of Parent Common Stock and the right to receive cash into which the
shares of HT Common Stock formerly represented thereby will have been converted
pursuant to this Agreement. Any dividends or other distribution declared after
the Effective Time with respect to Parent Common Stock will be paid to the
holder of any certificate for shares of HT Common Stock when the holder thereof
is entitled to receive a certificate for such holder's Parent Merger Shares in
accordance with this Agreement.
2.6 NO FRACTIONAL SHARES. No certificates or scrip for fractional
shares of Parent Common Stock will be issued, no Parent stock split or dividend
will be paid in respect of any fractional share interest, and no such fractional
share interest will entitle the owner thereof to vote or to any rights of or as
a stockholder of Parent. In lieu of such fractional shares, any holder of
Outstanding HT Shares who would otherwise be entitled to a fraction of a share
of Parent Common Stock (after aggregating all fractional shares of Parent Common
Stock to be received by such holder) will be paid the cash value of such
fraction, which will be equal to such fraction MULTIPLIED BY the Parent Average
Closing Price.
2.7 ASSUMPTION OF STOCK OPTIONS. At the Effective Time, Parent shall
assume each Outstanding HT Option and each holder thereof (each an "OPTION
HOLDER") shall thereby be entitled to acquire, by virtue of the Merger and
without any action on the part of the Option Holder, on substantially the same
terms (including the dates and extent of exercisability) and subject to the same
conditions, including vesting, as such Outstanding HT Option, the number of
shares of Parent Common Stock determined by MULTIPLYING the number of shares of
HT Common Stock for which such Outstanding HT Option is then exercisable in
accordance with its terms immediately prior to the Effective Time by the
Conversion Ratio (rounded down to the nearest whole share), at an exercise or
conversion price per share of Parent Common Stock (rounded up to the nearest
whole cent) determined by DIVIDING the exercise price per share of HT Common
Stock of such Outstanding HT Option immediately prior to the Effective Time by
the Conversion Ratio.
2.8 NOTES. The $202,844.00 obligation of HT, and any interest accrued
thereon (the "HT NOTE") shall be paid in full and cancelled by delivery of the
Note Payment Shares to the Stockholder. "NOTE PAYMENT SHARES" shall mean a
number of shares of Parent Common Stock determined by dividing $202,844.00 plus
any interest accrued on the HT Note as of the Closing by the Parent Average
Closing Price. In lieu of any fractional shares, the holder of the HT Note who
would otherwise be entitled to a fraction of a share of Parent Common Stock
(after aggregating all fractional shares of Parent Common Stock to be received
by such holder) will be paid the cash value of such fraction (rounded down to
the nearest whole cent), which will be equal to such fraction MULTIPLIED BY the
Parent Average Closing Price.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HT
AND THE STOCKHOLDER
Except as set forth in the disclosure schedule of HT dated as of the
date hereof and delivered herewith to Parent (the "HT DISCLOSURE SCHEDULE")
which identifies the section and subsection to which each disclosure therein
relates (PROVIDED, HOWEVER, that HT will be deemed to have adequately disclosed
with respect to any section or subsection any matters that are clearly described
elsewhere in such document if the applicability of such disclosure to such
non-referenced sections or subsections is reasonably apparent and HT has not
intentionally omitted any required cross-references), and whether or not the HT
Disclosure Schedule is referred to in a specific section or subsection, HT and
the Stockholder jointly and severally represent and warrant to Parent and Merger
Sub as follows:
3.1 ORGANIZATION, STANDING AND POWER; SUBSIDIARIES.
(a) HT is a corporation duly organized, validly existing and
in good standing under the laws of the Commonwealth of Massachusetts, has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its businesses as now being conducted, and is duly qualified and
in good standing to do business in each jurisdiction in which a failure to so
qualify would have a material adverse effect on the Business Condition (as
hereinafter defined) of HT.
As used in this Agreement, "BUSINESS CONDITION" with respect
to any Person (as defined below) means the business, financial condition,
results of operations, assets or prospects (as defined below) (without giving
effect to the consequences of the transactions contemplated by this Agreement,
and other than changes in general economic conditions) of such Person or Persons
including its Subsidiaries taken as a whole. In this Agreement, a "SUBSIDIARY"
of any Person means a corporation, partnership, limited liability company, joint
venture or other entity of which such Person directly or indirectly owns or
controls a majority of the equity interests or voting securities or other
interests that are sufficient to elect a majority of the Board of Directors or
other managers of such corporation, partnership, limited liability company,
joint venture or other entity, and "PROSPECTS" means events, conditions, facts
or developments existing on the date of this Agreement that are known to HT and
that in the reasonable course of events are expected to have an effect on future
operations of the business as presently conducted by HT, but will exclude (i)
the results of any changes that are made at the specific written direction of
Parent, that are specifically contemplated herein, or that directly result from
this transaction and (ii) any changes arising out of conditions affecting the
economy or industry of HT in general which does not affect HT in a materially
disproportionate manner relative to other participants in the economy or such
industry, respectively. References to HT in this Agreement shall be deemed to
include all Subsidiaries of HT, if any, unless the context specifically requires
otherwise. In this Agreement, "PERSON" means any natural person, corporation,
partnership, limited liability company, joint venture or other entity.
HT has delivered to Parent complete and correct copies of the
articles or certificate of incorporation, bylaws and/or other primary charter
and organizational documents ("CHARTER DOCUMENTS") of HT, in each case, as
amended to the date hereof. The minute books and stock records of HT, complete
and correct copies of which have been delivered to Parent, contain correct and
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complete records of all material proceedings and actions taken at all meetings
of, or effected by written consent of, the stockholders of HT and its Board of
Directors, and all original issuances and subsequent transfers, repurchases and
cancellations of HT's capital stock. Section 3.1 of the HT Disclosure Schedule
contains a complete and correct list of the officers and directors of HT.
(b) HT has never owned, nor does it currently own, directly or
indirectly, any capital stock or other equity securities of any corporation or
have direct or indirect equity or ownership interest in any partnership, limited
liability company, joint venture or other entity. HT has no subsidiaries.
3.2 CAPITAL STRUCTURE.
(a) The authorized capital stock of HT consists of 70,000
shares of HT Common Stock, of which 70,000 shares are issued and outstanding as
of the date of this Agreement and no shares are issued and held as treasury
shares by HT. The HT Disclosure Schedule sets forth all holders of HT Common
Stock and the number of shares owned. The HT Disclosure Schedule also sets forth
any options, warrants, calls, conversion rights, commitments, agreements,
contracts, understandings, restrictions, arrangements or rights of any character
(each, an "HT OPTION") to which HT is a party or by which HT may be bound
obligating HT to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of HT, or obligating HT to grant,
extend, or enter into any such option, warrant, call, conversion right,
conversion payment, commitment, agreement, contract, understanding, restriction,
arrangement or right.
(b) All outstanding shares of HT Common Stock are, and any
shares of HT Common Stock issued upon exercise of any Outstanding HT Options
will be, validly issued, fully paid, nonassessable and not subject to any
preemptive rights (other than those which have been duly waived), or to any
agreement to which HT is a party or by which HT may be bound. HT does not have
outstanding any bonds, debentures, notes or other indebtedness the holders of
which (i) have the right to vote (or convertible or exercisable into securities
having the right to vote) with holders of shares of HT Common Stock on any
matter ("HT VOTING DEBT") or (ii) are or will become entitled to receive any
payment as a result of the execution of this Agreement or the completion of the
transactions contemplated hereby.
(c) Other than the HT Note, no other promissory notes have
been issued by HT.
3.3 AUTHORITY. The execution, delivery and performance of this
Agreement and all other agreements contemplated hereby by HT have been duly
authorized by all necessary action of the Board of Directors of HT, and if the
Closing shall occur, shall have been duly authorized by all necessary action of
the stockholder of HT. Certified copies of the resolutions adopted by the Board
of Directors of HT and its stockholder(s) approving this Agreement, all other
agreements contemplated hereby and the Merger have been or will be provided to
Parent prior to the Closing. HT has duly and validly executed and delivered this
Agreement and has, or prior to Closing, will have duly and validly executed and
delivered all other agreements contemplated hereby, and each of this Agreement
and such other agreements constitutes a valid, binding and enforceable
obligation of HT in accordance with its terms.
3.4 COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS; NON-CONTRAVENTION. HT
holds, and at all times has held, all licenses, permits and authorizations from
all Governmental Entities (as defined
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below) necessary for the lawful conduct of its business pursuant to all
applicable statutes, laws, ordinances, rules and regulations of all such
Governmental Entities having jurisdiction over it or any part of its operations,
excepting, however, when such failure to hold would not have a material adverse
effect on HT's Business Condition. There are no material violations or claimed
violations known by HT of any such license, permit or authorization or any such
statute, law, ordinance, rule or regulation. Assuming the receipt of all
Consents (as defined below), neither the execution, delivery or performance of
this Agreement and all other agreements contemplated hereby by HT and the
Stockholder, nor the consummation of the Merger or any other transaction
described herein, does or will, after the giving of notice, or the lapse of
time, or otherwise, conflict with, result in a breach of, or constitute a
default under, the Charter Documents of HT or any federal, foreign, state or
local court or administrative order or process, statute, law, ordinance, rule or
regulation, or any contract, agreement or commitment to which HT is a party, or
under which HT is obligated, or by which HT or any of the rights, properties or
assets of HT are subject or bound; result in the creation of any security
interests, liens, charges, restrictions, arrangements or rights of any character
("Liens") upon, or otherwise adversely affect, any of the rights, properties or
assets of HT; terminate, amend or modify, or give any party the right to
terminate, amend, modify, abandon or refuse to perform or comply with, any
contract, agreement or commitment to which HT is a party, or under which HT is
obligated, or by which HT or any of the rights, properties or assets of HT are
subject or bound; or accelerate, postpone or modify, or give any party the right
to accelerate, postpone or modify, the time within which, or the terms and
conditions under which, any liabilities, duties or obligations are to be
satisfied or performed, or any rights or benefits are to be received, under any
contract, agreement or commitment to which HT is a party, or under which HT may
be obligated, or by which HT or any of the rights, properties or assets of HT
are subject or bound. Section 3.4 of the HT Disclosure Schedule sets forth each
agreement, contract or other instrument binding upon HT requiring a notice or
consent (by its terms or as a result of any conflict or other contravention
required to be disclosed in the HT Disclosure Schedule pursuant to the preceding
provisions of this Section 3.4) as a result of the execution, delivery or
performance of this Agreement and all other agreements contemplated hereby by HT
and the Stockholder or the consummation of the Merger or any other transaction
described herein (each such notice or consent, a "CONSENT"). No consent,
approval, order, or authorization of or registration, declaration, or filing
with or exemption (also a "CONSENT") by, any court, administrative agency or
commission or other governmental authority or instrumentality, whether domestic
or foreign (each a "GOVERNMENTAL ENTITY") is required by or with respect to HT
in connection with the execution, delivery or performance of this Agreement and
all other agreements contemplated hereby by HT and the Stockholder or the
consummation of the Merger or any other transaction described herein, except for
the filing by HT and Merger Sub of the appropriate Merger Documents with the
Secretary of State of Massachusetts.
3.5 TECHNOLOGY AND INTELLECTUAL PROPERTY RIGHTS.
(a) For the purposes of this Agreement, "HT INTELLECTUAL
PROPERTY" consists of the following intellectual property:
(i) all patents, trademarks, trade names, service marks, trade
dress, copyrights and any renewal rights therefor, mask works,
schematics, software, firmware, technology, manufacturing processes,
supplier lists, customer lists, trade secrets, know-how, moral rights
and applications and registrations for any of the foregoing;
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(ii) all documents, records and files relating to design, end
user documentation, manufacturing, quality control, sales, marketing or
customer support for all intellectual property described herein;
(iii) all other tangible or intangible proprietary information
and materials; and
(iv) all license and other rights in any third party product
or any third party intellectual property described in (i) through (iii)
above;
that are owned or held by or on behalf of HT or that are being, and/or have
been, used, or are currently under development for use, in the business of HT as
it has been, is currently or is currently planned to be conducted; PROVIDED,
HOWEVER, that HT Intellectual Property will not include any commercially
available third party software or related intellectual property.
(b) Section 3.5 of the HT Disclosure Schedule lists: (i) all
patents, copyright registrations, issued mask works, registered trademarks,
registered service marks, registered trade dress, any renewal rights for any of
the foregoing, and any applications and registrations for any of the foregoing,
that are included in HT Intellectual Property and owned by or on behalf of HT;
(ii) all hardware products and tools, software products and tools and services
that are currently published, offered, or under development by HT; and (iii) all
licenses, sublicenses and other agreements to which HT is a party and pursuant
to which HT or any other person is authorized to use any HT Intellectual
Property or exercise any other right with regard thereto. The disclosures
described in (iii) hereof include the identities of the parties to the relevant
agreements, a description of the nature and subject matter thereof, the term
thereof and the applicable royalty or summary of any formula or procedure for
determining such royalty.
(c) HT Intellectual Property consists solely of items and
rights that are either: (i) owned solely by HT; (ii) in the public domain; or
(iii) rightfully used and authorized for use by HT and its successors pursuant
to a valid license. All HT Intellectual Property that consists of license or
other rights to third party property is separately set forth in Section 3.5 of
the HT Disclosure Schedule. HT has all rights in HT Intellectual Property
necessary to carry out HT's current, former and planned future activities,
including without limitation rights to make, use, exclude others from using,
reproduce, modify, adapt, create derivative works based on, translate,
distribute (directly and indirectly), transmit, display and perform publicly,
license, rent, lease, assign and sell HT Intellectual Property in all geographic
locations and fields of use, and to sublicense any or all such rights to third
parties, including the right to grant further sublicenses.
(d) HT is not, nor as a result of the execution or delivery of
this Agreement and all other agreements contemplated hereby, or performance of
HT's obligations hereunder or the consummation of the Merger, will HT be, in
violation of any license, sublicense or other agreement relating to any HT
Intellectual Property to which HT is a party or otherwise bound, other than any
violation that will not have a material adverse effect on the Business Condition
of HT. HT is not obligated to provide any consideration (whether financial or
otherwise) to any third party, nor is any third party otherwise entitled to any
consideration, with respect to any exercise of rights by HT or Parent, as
successor to HT, in HT Intellectual Property.
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(e) The use, reproduction, modification, distribution,
licensing, sublicensing, sale, or any other exercise of rights in any product,
work, technology, service or process as used, provided, or offered at any time,
or as proposed for use, reproduction, modification, distribution, licensing,
sublicensing, sale, or any other exercise of rights, by HT does not infringe any
copyright, patent, trade secret, trademark, service mark, trade name, firm name,
logo, trade dress, mask work, moral right, other intellectual property right,
right of privacy, or right in personal data of any Person to which HT does not
have a license or other permission sufficient in scope to cover its use thereof.
No claims (i) challenging the validity, effectiveness, or ownership by HT of any
HT Intellectual Property, or (ii) to the effect that the use, reproduction,
modification, manufacturing, distribution, licensing, sublicensing, sale, or any
other exercise of rights in any product, work, technology, service, or process
as used, provided or offered at any time, or as proposed for use, reproduction,
modification, distribution, licensing, sublicensing, sale, or any other exercise
of rights, by HT infringes or will infringe on any intellectual property or
other proprietary or personal right of any Person have been asserted to HT or,
to the knowledge of HT (as defined below), are threatened by any Person nor, to
the knowledge of HT, are there any valid grounds for any BONA FIDE claim of any
such kind. There are no legal or governmental proceedings, including
interference, re-examination, reissue, opposition, nullity, or cancellation
proceedings pending that relate to any HT Intellectual Property, other than
review of pending new applications for patent or other HT Intellectual Property,
and HT is not aware of any information indicating that such proceedings are
threatened or contemplated by any Governmental Entity or any other Person. All
granted or issued patents and mask works and all registered trademarks and
copyright registrations owned by HT are valid, enforceable and subsisting. To
the knowledge of HT, there is no unauthorized use, infringement, or
misappropriation of any HT Intellectual Property by any third party, employee or
former employee.
(f) Section 3.5 of the HT Disclosure Schedule separately lists
all parties (other than employees) who have created any portion of, or otherwise
have any rights in or to, HT Intellectual Property. HT has secured from all
parties who have created any portion of, or otherwise have any rights in or to,
HT Intellectual Property valid and enforceable written assignments of any such
work or other rights to HT and has provided true and complete copies of such
assignments to Parent.
(g) HT has obtained written agreements from all employees and
from third parties with whom HT, to its knowledge, has shared confidential
proprietary information (i) of HT or (ii) received from others that HT is
obligated to treat as confidential and to obtain the written agreement of
employees and others to keep confidential, that agreements require such
employees and third parties to keep such information confidential in accordance
with the terms thereof. HT has made available copies of such written agreements,
as executed, to Parent.
3.6 FINANCIAL STATEMENTS; BUSINESS INFORMATION.
(a) HT has delivered to Parent an unaudited balance sheet (the
"UNAUDITED BALANCE SHEET") as of January 31, 2000 (the "UNAUDITED BALANCE SHEET
DATE") and an audited balance sheet (the "AUDITED BALANCE Sheet") as of December
31, 1999 (the "AUDITED BALANCE SHEET DATE"), unaudited statements of income and
cash flows for the one-month period ended January 31, 2000 and audited
statements of income and cash flows for its last fiscal year (all of such
balance sheets and statements of income and cash flows are collectively referred
to as the "FINANCIAL STATEMENTS"). The Financial Statements: (i) are in
accordance with the books and records of HT; (ii) present fairly, in all
material respects, the financial position of HT as of the date indicated and the
results of its operations and cash
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flows for such periods; and (iii) have been prepared in accordance with
generally accepted accounting principles consistently applied (subject, in the
case of unaudited statements, to the absence of footnote disclosure and in the
case of unaudited interim statements to year-end adjustments, which will not be
material either individually or in the aggregate and except as described in the
Section 3.6 of the HT Disclosure Schedule). As of the Unaudited Balance Sheet
Date, there were no material liabilities, claims or obligations of any nature,
whether accrued, absolute, contingent, anticipated or otherwise, whether due or
to become due, that are not shown or provided for either in the Unaudited
Balance Sheet or Section 3.6 of the HT Disclosure Schedule, and since the
Unaudited Balance Sheet Date, HT has incurred no liabilities, claims or
obligations of any nature, whether accrued, absolute, contingent, anticipated or
otherwise other than in the ordinary course of business or as disclosed in
Section 3.6 of the HT Disclosure Schedule and except for liabilities incurred by
HT in connection with the preparation and execution of this Agreement and the
consummation of the transactions contemplated herein.
(b) All of the accounts, notes and other receivables which are
reflected in the Unaudited Balance Sheet were acquired in the ordinary course of
business; and, except to the extent reserved against in the Unaudited Balance
Sheet, all of the accounts, notes and other receivables which are reflected
therein have been collected in full, or are good and collectible, in the
ordinary course of business; and all of the accounts, notes and other
receivables which have been acquired by HT since the Unaudited Balance Sheet
Date were acquired in the ordinary course of business and have been collected in
full, or are good and collectible, subject to an appropriate reserve determined
in a manner consistent with past practices of HT, in the ordinary course of
business. No accounts, notes or other receivables are contingent upon the
performance by HT of any obligation or contract. No Person has any Lien on any
of such receivables and no agreement for deduction or discount has been made
with respect thereto. The HT Note and any accrued interest includes all amounts
owed by HT to the Stockholder.
(c) The business information previously prepared by HT and
delivered to Parent was prepared in good faith, based on assumptions HT deems
reasonable, was prepared for planning purposes, although no assurances are given
that HT will engage in the activities described therein or achieve the results
projected therein.
3.7 TAXES.
(a) The term "TAXES" as used herein means all federal, state,
local and foreign income tax, 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.
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(b) HT 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 HT is obligated to withhold for
amounts owing to employees, creditors and third parties. All Tax Returns filed
by HT were complete and correct in all material respects. None of the Tax
Returns filed by HT or Taxes payable by HT have been the subject of an audit,
action, suit, proceeding, claim, examination, deficiency or assessment by any
Governmental Entity, and no such audit, action, suit, proceeding, claim,
examination, deficiency or assessment is currently pending or, to the knowledge
of HT, threatened. HT is not currently the beneficiary of any extension of time
within which to file any Tax Return, and HT 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. All material elections with respect
to Taxes affecting HT, as of the date hereof, are set forth in the Financial
Statements or in Section 3.7 of the HT Disclosure Schedule. None of the Tax
Returns filed by HT 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). HT is not a party to any Tax sharing agreement or similar
arrangement. HT 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 HT), and HT
does not have any liability for the Taxes of any Person (other than HT) 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) HT 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. HT
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, and HT will not be required to make any such
adjustment as a result of the transactions set forth in this Agreement. HT 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 Parent Merger Shares 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 any Governmental Entity in a jurisdiction where HT 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 HT are subject to a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code.
(d) There are no liens for Taxes (other than for ad valorem
Taxes not yet due and payable) upon the assets of HT. The unpaid Taxes of HT 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 Unaudited 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 HT
in filing their Tax Returns (taking into account any Taxes incurred as a result
of the transactions contemplated by this Agreement).
(e) HT has never filed a consent pursuant to Section 341(f) of
the Code, relating to collapsible corporations. HT and its stockholders made (i)
a valid election for HT 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 Massachusetts or any other applicable
Governmental Entity, and all of such elections will be in effect at the
Effective Time. Section 3.7 of the HT
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Disclosure Schedule lists each such election and a true copy of each such
election is attached thereto; there are no grounds for the revocation of any
such election and no such election will be revoked retroactively or otherwise
except at the Effective Time by reason of the Merger. HT has been an S
corporation at all times since its inception through the date hereof. Neither HT
nor any of its stockholders has taken any action that would cause, or would
result in, the termination of the S corporation status of HT, other than
pursuant to this Agreement.
(f) To the knowledge of HT, there has not been any audit,
action, suit, proceeding, claim, examination, deficiency or assessment by any
Governmental Entity of any Tax Return filed by a stockholder of HT with respect
to, or which may relate to, items of income, gain, deduction, loss or credit of
HT; and no such audit, action, suit, proceeding, claim, examination, deficiency
or assessment is in progress and such stockholders have not been notified by any
Governmental Entity that any such audit is contemplated or pending.
3.8 ABSENCE OF CERTAIN CHANGES AND EVENTS. From the Audited Balance
Sheet Date to the date hereof, there has not been:
(a) Any transaction involving more than $10,000 entered into
by HT other than in the ordinary course of business; any change (or any
development or combination of developments of which HT has knowledge which is
reasonably likely to result in such a change) in HT's Business Condition, other
than changes in the ordinary course of business which in the aggregate have not
been and are not expected to be materially adverse to HT's Business Condition;
or, without limiting the foregoing, any loss of or damage to any of the
properties of HT due to fire or other casualty or other loss, whether or not
insured, amounting to more than $10,000 in the aggregate;
(b) Any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital stock of HT, or any
repurchase, redemption, retirement or other acquisition by HT of any outstanding
shares of capital stock, any Outstanding HT Option, or other securities of, or
other equity or ownership interests in, HT;
(c) Any discharge or satisfaction of any Lien or payment or
satisfaction of any obligation or liability (whether absolute, accrued,
contingent or otherwise and whether due or to become due) other than current
liabilities shown on the Unaudited Balance Sheet and current liabilities
incurred since the Unaudited Balance Sheet Date in the ordinary course of
business and consistent with past practice ("ORDINARY COURSE OF BUSINESS");
(d) Any change in the Charter Documents of HT or any amendment
of any term of any outstanding security of HT;
(e) Any incurrence, assumption or guarantee by HT of any
indebtedness for borrowed money, other than in the ordinary course of business,
in an aggregate amount exceeding $10,000;
(f) Any creation or assumption by HT of any Lien on any asset;
(g) Any making of any loan, advance or capital contributions
to, or investment in, any Person;
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(h) Any sale, lease, pledge, transfer or other disposition of
any material capital asset;
(i) Except as set forth on Section 3.8 of the HT Disclosure
Schedule, any material transaction or commitment made, or any material contract
or agreement entered into, by HT relating to its assets or business (including
the acquisition or disposition of any assets) or any relinquishment by HT of any
contract or other right;
(j) Any (A) grant of any severance or termination pay to any
director, officer or employee of HT, (B) entering into of any employment,
severance, management, consulting, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any director,
officer or employee of HT, (C) change in benefits payable under existing
severance or termination pay policies or employment, severance, management,
consulting or other similar agreements, (D) change in compensation, bonus or
other benefits payable to directors, officers or employees of HT or (E) change
in the payment or accrual policy with respect to any of the foregoing;
(k) Any labor dispute or any activity or proceeding by a labor
union or representative thereof to organize any employees of HT, or any
lockouts, strikes, slowdowns, work stoppages or threats thereof by or with
respect to any employees of HT;
(l) Any notes or accounts receivable or portions thereof
written off by HT as uncollectible in an aggregate amount exceeding $10,000;
(m) Any issuance or sale of any stock, bonds, phantom stock
interest or other securities of which HT is the issuer, or the grant, issuance
or change of any stock options, warrants, or other rights to purchase securities
of HT or phantom stock interest in HT;
(o) Any cancellation of any debts or claims or waiver of any
rights of substantial value in an aggregate amount exceeding $10,000;
(p) Any sale, assignment or transfer of any HT Intellectual
Property or other similar assets, including licenses therefor;
(q) Any capital expenditures, or commitment to make any
capital expenditures, for additions to property, plant or equipment in an
aggregate amount exceeding $10,000;
(r) Payment of any amounts to, or liability incurred to or in
respect of, or sale of any properties or assets (real, personal or mixed,
tangible or intangible) to, or any transaction or any agreement or arrangement
with, any corporation or business in which HT or any of its corporate officers
or directors, or any "affiliate" or "associate" (as such terms are defined in
the rules and regulations promulgated under the Securities Act of 1933, as
amended (the "SECURITIES ACT") of any such Person, has any direct or indirect
ownership interests;
(s) Any personal expenditures made by HT on behalf of the
Stockholder;
(t) Incurrence of any additional debt, financing or other term
instrument balances, above current long-term debt obligations; or
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(u) Any agreement undertaking or commitment to do any of the
foregoing.
3.9 LEASES IN EFFECT. All real property leases and subleases as to
which HT is a party and any amendments or modifications thereof are listed in
Section 3.9 of the HT Disclosure Schedule (each a "LEASE" and collectively, the
"LEASES") are valid, in full force and effect and enforceable, and there are no
existing defaults on the part of HT, and HT has not received or given notice of
default or claimed default with respect to any Lease, nor is there any event
that with notice or lapse of time, or both, would constitute a default on the
part of HT thereunder.
3.10 PERSONAL PROPERTY; REAL ESTATE.
(a) HT has good and marketable title, free and clear of all
title defects and Liens (including, without limitation, leases, chattel
mortgages, conditional sale contracts, purchase money security interests,
collateral security arrangements and other title or interest-retaining
agreements) to all inventory, receivables, furniture, machinery, equipment and
other personal property, tangible or otherwise, reflected on the Unaudited
Balance Sheet or used in HT's business, except for acquisitions and dispositions
since the Unaudited Balance Sheet Date in the ordinary course of business. The
HT Disclosure Schedule lists (i) all computer equipment and (ii) all other
personal property, in each case having a depreciated book value of $10,000 or
more, which are used by HT in the conduct of its business, and all such
equipment and property, in the aggregate, is in good operating condition and
repair, reasonable wear and tear excepted. There is no asset used or required by
HT in the conduct of its business as presently operated which is not either
owned by it or licensed or leased to it.
(b) Section 3.10 of the HT Disclosure Schedule contains a
schedule setting forth and describing all real property which is leased by HT,
or in which HT has any other right, title or interest. HT does not own any real
property. True and complete copies of each lease have been provided to Parent,
and such leases constitute the entire understanding relating to HT's use and
occupancy of the leased premises. The leases are presently in full force and
effect without further amendment or modification. HT is not in default in the
performance of obligations under any lease, and HT does not know of any state of
facts which with the giving of notice or the passage of time, or both, would
constitute a default by HT or any other party thereunder.
(c) To the knowledge of HT, the improvements located on the
real property described in Section 3.10 of the HT Disclosure Schedule are not
the subject of any official complaint or notice of violation of any applicable
zoning ordinance or building code and there is no use or occupancy restriction
or condemnation proceeding pending or threatened against HT.
3.11 CERTAIN TRANSACTIONS. Except for (a) relationships with HT as an
officer, director, or employee thereof (and compensation by HT in consideration
of such services) and (b) relationships with HT as stockholders or option
holders therein, none of the directors, officers, or the stockholders of HT, or
any member of any of their families, is presently a party to, or was a party to
during the year preceding the date of this Agreement, any transaction, or series
of similar transactions, with HT, in which the amount involved exceeds $60,000,
including, without limitation, any contract, agreement, or other arrangement (i)
providing for the furnishing of services to or by, (ii) providing for rental of
real or personal property to or from, or (iii) otherwise requiring payments to
or from, any such Person or any other Person in which any such Person has or had
a 5%-or-more interest (as a stockholder, partner, beneficiary, or otherwise) or
is or was a director, officer, employee, or trustee. None of HT's officers
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or directors has any interest in any property, real or personal, tangible or
intangible, including inventions, copyrights, trademarks, or trade names, used
in or pertaining to the business of HT, or any supplier, distributor, or
customer of HT, except for the normal rights of a stockholder, and except for
rights under existing employee benefit plans.
3.12 LITIGATION AND OTHER PROCEEDINGS. There is no action, suit, claim,
investigation or proceeding (or any basis therefor known to HT) pending against
or, to the knowledge of HT, threatened against HT or its properties and assets
before any court or arbitrator or any Governmental Entity. HT is not subject to
any order, writ, judgment, decree, or injunction that has a material adverse
effect on HT's Business Condition.
3.13 NO DEFAULTS. HT is not, nor has HT received notice that it would
be with the passage of time, in default or violation of any term, condition, or
provision of (i) the Charter Documents; (ii) any judgment, decree, or order
applicable to HT; or (iii) any loan or credit agreement, note, bond, mortgage,
indenture, contract, agreement, lease, license, or other instrument to which HT
is now a party or by which it or any of its properties or assets may be bound,
except for defaults and violations which, individually or in the aggregate,
would not have a material adverse effect on the Business Condition of HT.
3.14 MAJOR CONTRACTS. Except for matters disclosed on Section 3.14 of
the HT Disclosure Schedule, HT is not a party to or subject to:
(a) Any union contract, or any employment contract or
arrangement (other than "at-will" employment arrangements) providing for future
compensation, written or oral, with any officer, consultant, director, or
employee;
(b) Any plan or contract or arrangement, written or oral,
providing for bonuses, pensions, deferred compensation, retirement payments,
profit-sharing or the like;
(c) Any joint venture contract or arrangement or any other
agreement which has involved or is expected to involve a sharing of profits;
(d) Any OEM agreement, reseller or distribution agreement,
volume purchase agreement, corporate end user sales or service agreement,
reproduction or replication agreement or manufacturing agreement in which the
amount involved exceeds annually, or is expected to exceed in the aggregate over
the life of the contract, $10,000 or pursuant to which HT has granted or
received manufacturing rights, most favored nation pricing provisions, or
exclusive marketing, production, publishing or distribution rights related to
any product, group of products or territory;
(e) Any lease for real property, and any lease for personal
property in which the amount of payments which HT is required to make on an
annual basis exceeds $10,000;
(f) Any agreement, license, franchise, permit, indenture, or
authorization which has not been terminated or performed in its entirety and not
renewed which may be, by its terms, terminated, impaired, or adversely affected
by reason of the execution of this Agreement and all other agreements
contemplated hereby, the consummation of the Merger, or the consummation of the
transactions contemplated hereby or thereby;
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(g) Except for trade indebtedness incurred in the ordinary
course of business (including HT's existing line of credit with BankBoston), any
instrument evidencing or related in any way to indebtedness incurred in the
acquisition of companies or other entities or indebtedness for borrowed money by
way of direct loan, sale of debt securities, purchase money obligation,
conditional sale, guarantee, or otherwise which individually is in the amount of
$10,000 or more;
(h) Any license agreement, either as licensor or licensee
(excluding nonexclusive hardware and software licenses granted to distributors
or end-users and commercially available in-licensed software applications);
(i) Any contract or agreement containing covenants purporting
to limit HT's freedom to compete in any line of business in any geographic area;
or
(j) Any contract or agreement, not elsewhere specifically
disclosed pursuant to this Agreement, involving the payment or receipt by HT of
more than $10,000 in the aggregate.
All contracts, arrangements, plans, agreements, leases, licenses,
franchises, permits, indentures, authorizations, instruments and other
commitments which are listed in the HT Disclosure Schedule pursuant to this
Section 3.14 are valid and in full force and effect and HT has not, nor, to the
knowledge of HT, has any other party thereto, breached any material provisions
of, or entered into default in any material respect under the terms thereof.
Since the Audited Balance Sheet Date, HT has not amended, modified or terminated
the terms of the contracts or agreements referred to in this Section 3.14 unless
such amendment, modification or termination was in the ordinary course of
business and HT has provided Parent with written notification of such.
3.15 MATERIAL REDUCTIONS. Except as set forth on Section 3.15 of the HT
Disclosure Schedule, to HT's knowledge, none of the parties to any of the
contracts identified in the HT Disclosure Schedule pursuant to Section 3.14 have
terminated, or, to the knowledge of HT, in any way expressed to HT an intent to
reduce or terminate the amount of its business with HT in the future.
3.16 INSURANCE AND BANKING FACILITIES. Section 3.16 of the HT
Disclosure Schedule contains a complete and correct list of (i) all contracts of
insurance or indemnity of HT in force at the date of this Agreement (including
name of insurer or indemnitor, agent, annual premium, coverage, deductible
amounts and expiration date) and (ii) the names and locations of all banks in
which HT has accounts or safe deposit boxes, the designation of each such
account and safe deposit box, and the names of all persons authorized to draw on
or have access to each such account and safe deposit box. All premiums and other
payments due from HT with respect to any such contracts of insurance or
indemnity have been paid, and HT does not know of any fact, act, or failure to
act which has or might cause any such contract to be canceled or terminated. All
known claims for insurance or indemnity have been presented.
3.17 EMPLOYEES. The HT Disclosure Schedule sets forth a list of (a) the
names, titles, salaries and all other compensation of all salaried HT employees
(such term meaning permanent and temporary, full-time and part-time employees)
and (b) the wage rates for non-salaried HT employees (by classification). Any
persons engaged by HT as independent contractors, rather than employees, have
been properly classified as such and have been so engaged in accordance with all
applicable
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federal, foreign, state or local laws. No employee has stated to HT that such
employee intends to resign or retire as a result of the transactions
contemplated by this Agreement or otherwise within six months after the Closing
Date. Hours worked by and payments made to employees of HT have not been in
violation of the Fair Labor Standards Act or any other applicable federal,
foreign, state or local laws dealing with such matters. HT is not and never has
been engaged in any dispute or litigation with an employee or former employee
regarding matters pertaining to intellectual property or assignment of
inventions. HT has never been and, to the knowledge of HT, is not now subject to
a union organizing effort. HT does not have any written contract of employment
or other employment, severance or similar agreement with any of its employees or
any established policy or practice relating thereto, and all of its employees
are employees-at-will. HT is not a party to any pending, or to HT's knowledge,
threatened, labor dispute. HT has complied in all material respects with all
applicable federal, state and local laws, ordinances, rules and regulations and
requirements relating to the employment of labor, including but not limited to
the provisions thereof relating to wages, hours, collective bargaining and
ensuring equality of opportunity for employment and advancement of minorities
and women. There are no claims pending, or, to the knowledge of HT, threatened
to be brought, in any court or administrative agency by any former or current HT
employees for compensation, pending severance benefits, vacation time, vacation
pay or pension benefits, or any other claim threatened or pending in any court
or administrative agency from any current or former employee or any other Person
arising out of HT's status as employer, whether in the form of claims for
employment discrimination, harassment, unfair labor practices, grievances,
wrongful discharge, or otherwise.
3.18 EMPLOYEE BENEFIT PLANS. Each Plan (as defined below) covering
active, former, or retired employees of HT is listed in Section 3.18 of the HT
Disclosure Schedule. "PLAN" means any employee benefit plan as defined in ERISA
(as defined below) and will also include any employment, severance or similar
contract, arrangement or policy and each plan or arrangement providing for
insurance coverage (including any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits, vacation
benefits, pension or retirement benefits or for deferred compensation,
profit-sharing, bonuses, phantom stock, stock options, stock appreciation rights
or other forms of incentive compensation or post-retirement insurance,
compensation or benefits. HT has made available to Parent a copy of each Plan,
and where applicable, any related trust agreement, annuity, or insurance
contract. All annual reports (Form 5500) required to be filed with the Internal
Revenue Service have been properly filed on a timely basis, and HT has provided
copies of the three most recently filed Forms 5500 for each applicable Plan. Any
Plan intended to be qualified under Section 401(a) of the Code has been
determined by the Internal Revenue Service to be so qualified and has remained
tax-qualified to this date and its related trust is tax-exempt and has been so
since its creation. No Plan is covered by Title IV of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or Section 412 of the Code.
No "prohibited transaction," as defined in ERISA Section 406 or Code Section
4975 has occurred with respect to any Plan, unless such a transaction was exempt
from such rules. Each Plan has been maintained and administered 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 Plans. There are no pending or
anticipated claims against or otherwise involving any of the Plans and no suit,
action, or other litigation (excluding claims for benefits incurred in the
ordinary course of Plan activities) has been brought against or with respect to
any Plan. All contributions, reserves, or premium payments to the Plan, accrued
to the date hereof have been made or provided for. Neither HT nor any entity
which is considered one employer with HT under Section 414 of the Code or
Section 4001 of ERISA has ever maintained or contributed to or incurred or
expects to incur liability with respect to any Plan subject to
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Title IV of ERISA or any "multi-employer plan" within the meaning of Section
4001(a)(3) of ERISA. There are no restrictions on the rights of HT to amend or
terminate any Plan without incurring any liability thereunder. HT has not
engaged in or is a successor or parent corporation to an entity that has engaged
in a transaction described in ERISA Section 4069. There have been no amendments
to, written interpretation of, or announcement (whether or not written) by HT
relating to, or change in employee participation or coverage under, any Plan.
Neither HT nor any of its ERISA affiliates have any current or projected
liability in respect of post-employment or post-retirement welfare benefits for
retired or former employees of HT other than health care continuation benefits
required to be provided under applicable law. No tax under Section 4980B or
4980D of the Code has been incurred in respect of any Plan that is a group
health plan, as defined in Section 5000(b)(1) of the Code.
3.19 CERTAIN AGREEMENTS. Except as contemplated by this Agreement,
neither the execution and delivery of this Agreement and all other agreements
contemplated hereby, nor the consummation of the transactions contemplated
hereby will: (i) result in any payment by HT (including, without limitation,
severance, unemployment compensation, parachute payment, bonus or otherwise)
becoming due to any director, employee, or independent contractor of HT under
any Plan, agreement, or otherwise, (ii) increase any benefits otherwise payable
under any Plan or agreement or (iii) result in the acceleration of the time of
payment or vesting of any such benefits.
3.20 GUARANTEES AND SURETYSHIPS. HT has no powers of attorney
outstanding (other than those issued in the ordinary course of business with
respect to Tax matters), and HT has no material obligations or liabilities
(absolute or contingent) as guarantor, surety, cosigner, endorser, co-maker,
indemnitor, or otherwise respecting the obligations or liabilities of any
Person.
3.21 BROKERS AND FINDERS. Neither HT nor the Stockholder has retained
any broker, finder, or investment banker in connection with this Agreement or
any of the transactions contemplated by this Agreement, nor does or will HT owe
any fee or other amount to any broker, finder, or investment banker in
connection with this Agreement or the transactions contemplated by this
Agreement.
3.22 CERTAIN PAYMENTS. Neither HT, nor to the knowledge of HT, any
Person acting on behalf of HT has, directly or indirectly, on behalf of or with
respect to HT: (i) made an unreported political contribution, (ii) made or
received any payment which was not legal to make or receive, (iii) engaged in
any material transaction or made or received any material payment which was not
properly recorded on the books of HT, (iv) created or used any "off-book" bank
or cash account or "slush fund," or (v) engaged in any conduct constituting a
violation of the Foreign Corrupt Practices Act of 1977.
3.23 ENVIRONMENTAL MATTERS. HT has complied with all federal, state and
local laws (including, without limitation, case law, rules, regulations, orders,
judgments, decrees, permits, licenses and governmental approvals) which are
intended to protect the environment and/or human health or safety (collectively,
"ENVIRONMENTAL LAWS"); HT has not handled, generated, used, stored, transported
or disposed of any material, substance or waste which is regulated by
Environmental Laws ("HAZARDOUS MATERIALS"), except for reasonable amounts of
ordinary office and/or office-cleaning supplies which have been used in
compliance with Environmental Laws; (iii) there is not now, nor has there ever
been, any underground storage tank or asbestos on any real property owned,
operated or leased by HT; (iv) HT has not conducted, nor is it aware of, any
environmental investigations, studies, audits, tests, reviews or analyses, the
purpose of which was to discover, identify, or otherwise characterize the
condition of the soil, groundwater, air or the presence of Hazardous Materials
at any
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real property owned, operated or leased by HT; and (v) there are no
"Environmental Liabilities". For purposes of this Agreement, "ENVIRONMENTAL
LIABILITIES" are any claims, demands, or liabilities under Environmental Laws
which (i) arise out of or in any way relate to HT's operations or activities, or
any real property at any time owned, operated or leased by HT, or any
stockholder's use or ownership thereof, whether vested or unvested, contingent
or fixed, actual or potential, and (ii) arise from or relate to actions
occurring (including any failure to act) or conditions existing on or before the
Closing Date.
3.24 ENFORCEABILITY OF CONTRACTS, ETC.
(a) No Person that is a party to any contract, agreement,
commitment or plan to which HT is a party has a valid defense, on account of
non-performance or malfeasance by HT, which would make any such contracts,
agreement, commitment or plan not valid and binding upon or enforceable against
such parties in accordance with their terms, except to the extent such
enforceability may be subject to or limited by bankruptcy, insolvency,
reorganization, arrangement or similar laws affecting the rights of creditors
generally and usual equity principles.
(b) Neither HT, nor, to the knowledge of HT, any other Person,
is in material breach or violation of, or default under, any material contract,
agreement, arrangement, commitment or plan to which HT is a party, and no event
or action has occurred, is pending, or, to the knowledge of HT, is threatened,
which, after the giving of notice, or the lapse of time, or otherwise, would
constitute a material breach or a default by HT or, to the knowledge of HT, any
other Person, under any material contract, agreement, arrangement, commitment or
plan to which HT is a party.
3.25 ACCOUNTING MATTERS. To the knowledge of HT and the Stockholder, HT
has not taken nor agreed to, and does not plan to, take any action that would
prevent Parent from accounting for the Merger as a "pooling of interest" in
accordance with generally accepted accounting principles, Accounting Principles
Board Opinion No. 16 and all published rules, regulations and policies of the
Securities and Exchange Commission (the "Commission").
3.26 YEAR 2000. All computer and other systems, software (whether
embedded or otherwise), hardware and other products owned or licensed by HT and
used in connection with the services provided by HT and, to the knowledge of HT,
all computer and other systems, software (whether embedded or otherwise),
hardware and other products produced by any third party that are licensed by HT,
in each case, have been written, manufactured and tested to be Year 2000 Ready.
For purposes of this Agreement, "Year 2000 Ready" shall mean, with respect to
any systems, software (whether embedded or otherwise), product, equipment or
facility, that such system, product, equipment or facility is capable of
correctly processing, providing, receiving and manufacturing the date data
within and between the twentieth and twenty-first centuries, and its operations
and functionality has not been adversely affected and will not be adversely
affected in any material respect as a result of the advent of the Year 2000.
3.27 DISCLOSURE. Neither the representations or warranties made by HT
or the Stockholder in this Agreement, nor the HT Disclosure Schedule or any
other certificate executed and delivered by HT or the Stockholder pursuant to
this Agreement, when taken together, contains any untrue statement of a material
fact, or omits to state a material fact necessary to make the statements or
facts contained herein or therein not misleading in light of the circumstances
under which they were furnished.
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3.28 RELIANCE. The foregoing representations and warranties are made by
HT and the Stockholder with the knowledge and expectation that Parent and Merger
Sub are placing reliance thereon.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDER
The Stockholder represents and warrants to Parent and Merger Sub as
follows:
(a) Subject to applicable community property laws, the
Stockholder is the lawful owner of the shares of HT Common Stock to be exchanged
for the Parent Merger Shares pursuant to this Agreement and has, and on the
Closing Date will have, good and clear title to such shares of HT Common Stock,
free of all Liens.
(b) The Stockholder has, and on the Closing Date will have,
full legal right, power and authority to enter into this Agreement and to sell
and deliver the shares of HT Common Stock owned by him in the manner provided
herein. The Stockholder has duly and validly executed this Agreement and has, or
prior to the Closing, will have duly and validly executed and delivered all
other agreements contemplated hereby, and each of this Agreement and such other
agreements constitutes a valid, binding and enforceable obligation of such
Stockholder in accordance with its terms.
(c) The execution, delivery and performance of this Agreement
and the other agreements contemplated hereby by the Stockholder, and the
consummation of the transactions contemplated hereby or thereby, will not
require, on the part of the Stockholder, any consent, approval, authorization or
other order of, or any filing with, any Governmental Entity, or under any
contract, agreement or commitment to which the Stockholder is a party or by
which the Stockholder or property of the Stockholder is bound, and will not
constitute a violation on the part of the Stockholder of any law, administrative
regulation or ruling or court decree, or any contract, agreement or commitment,
applicable to the Stockholder or property of the Stockholder.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as set forth in the disclosure schedule of Parent dated as of
the date hereof and delivered herewith to HT (the "PARENT DISCLOSURE SCHEDULE")
which identifies the section and subsection to which each disclosure therein
relates (PROVIDED, HOWEVER, that Parent will be deemed to have adequately
disclosed with respect to any section or subsection any matters that are clearly
described elsewhere in such document if the applicability of such disclosure to
such non-referenced sections or subsections is reasonably apparent and Parent
has not intentionally omitted any required cross-references), and
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whether or not the Parent Disclosure Schedule is referred to in a specific
section or subsection, Parent and Merger Sub jointly and severally represent and
warrant to HT as follows:
5.1 ORGANIZATION AND QUALIFICATION. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its businesses as now being conducted,
and is duly qualified and in good standing to do business in each jurisdiction
in which a failure to so qualify would have a material adverse effect on the
Business Condition of Parent. Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, is recently organized and has conducted no business activities,
other than as contemplated by this Agreement.
5.2 CAPITALIZATION. The authorized capital stock of Parent consists of
5,000,000 shares of preferred stock, $.01 par value per share, of which no
shares are issued or outstanding or held in Parent's treasury, and 100,000,000
shares of Parent Common Stock, of which, as of January 31, 2000: (a) 16,586,684
shares were validly issued and outstanding, fully paid and nonassessable and (b)
[4,922,344] shares were reserved for issuance pursuant to Parent's stock option
and stock purchase plans for its employees and directors. Except for options and
rights relating to shares described in clause (b) of the preceding sentence, and
except as set forth in Section 5.2 of the Parent Disclosure Schedule or the
Reports (as defined in Section 5.5), there are no options, warrants or other
rights, agreements or commitments (contingent or otherwise) obligating Parent to
issue shares of its capital stock or any other securities convertible into or
evidencing the right to subscribe to shares of its capital stock.
5.3 AUTHORITY RELATIVE TO THIS AGREEMENT. The execution, delivery and
performance of this Agreement and all other agreements contemplated hereby by
Parent and Merger Sub have been duly authorized by all necessary action of the
Boards of Directors and stockholders of Parent and Merger Sub. Certified copies
of the resolutions adopted by the Boards of Directors of Parent and Merger Sub
and Parent as sole stockholder of Merger Sub approving this Agreement, all other
agreements contemplated hereby and the Merger have been or will be provided to
HT. Each of Parent and Merger Sub has duly and validly executed and delivered
this Agreement and has, or prior to Closing, will have duly and validly executed
and delivered all other agreements contemplated hereby to be executed by it, and
each of this Agreement and such other agreements constitutes a valid, binding
and enforceable obligation of each of Parent and Merger Sub in accordance with
its terms.
5.4 NON-CONTRAVENTION. Assuming the accuracy of the representations and
warranties of HT and the Stockholder contained in the Agreement and the other
agreements contemplated hereby, neither the execution, delivery or performance
of this Agreement and all other agreements contemplated hereby by Parent and
Merger Sub, nor the consummation of the Merger or any other transaction
described herein, does or will, after the giving of notice, or the lapse of
time, or otherwise, conflict with, result in a breach of, or constitute a
default under, the Charter Documents of Parent or Merger Sub or any federal,
foreign, state or local court or administrative order or process, statute, law,
ordinance, rule or regulation, or any contract, agreement or
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commitment to which Parent is a party, or under which Parent is obligated, or by
which Parent or any of the rights, properties or assets of Parent are subject or
bound; result in the creation of any Lien upon, or otherwise adversely affect,
any of the rights, properties or assets of Parent; terminate, amend or modify,
or give any party the right to terminate, amend, modify, abandon or refuse to
perform or comply with, any contract, agreement or commitment to which Parent is
a party, or under which Parent is obligated, or by which Parent or any of the
rights, properties or assets of Parent are subject or bound; or accelerate,
postpone or modify, or give any party the right to accelerate, postpone or
modify, the time within which, or the terms and conditions under which, any
liabilities, duties or obligations are to be satisfied or performed, or any
rights or benefits are to be received, under any contract, agreement or
commitment to which Parent is a party, or under which Parent may be obligated,
or by which Parent or any of the rights, properties or assets of Parent are
subject or bound, other than any of the foregoing which would not have,
individually or in the aggregate, a material adverse effect on Business
Condition of Parent.
5.5 (a) SEC DOCUMENTS; FINANCIAL STATEMENTS. Parent has made available
to HT and the Stockholder a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by Parent with the
Securities Exchange Commission (the "Commission") since its initial public
offering (as such documents have since the time of their filing been amended,
the "Parent SEC Documents"), which are all the documents (other than preliminary
material) that Parent was required to file with the Commission since such date.
As of their respective dates, the Parent SEC Documents complied in all material
respects with the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act of 1934, as amended (the "Exchange Act"),
as the case may be, and the rules and regulations of the Commission thereunder
applicable to such Parent SEC Documents.
(b) Reports under Exchange Act. In order to permit the eventual sale of
the Parent Merger Shares by the Stockholder, Parent agrees to use commercially
reasonable efforts to:
1. make and keep public information available, as those terms
are understood and defined in Rule 144 promulgated under the Securities Act; and
2. file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act.
5.6 VALIDITY OF PARENT MERGER SHARES. The Parent Merger Shares to be
issued in the Merger will, when issued, be, validly issued, fully paid and
nonassessable.
5.7 CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. Assuming the
accuracy of the representations and warranties of HT and the Stockholder
contained in the Agreement and the other agreements contemplated hereby, except
for (a) the requirements of state securities (or "Blue Sky") laws, (b) the
filing and recording of the Merger Documents as provided by the MBCL, (c) the
filing of appropriate documents with the Nasdaq Stock Market and (d) the filing
of a Form D and a Form 8-K with the Commission, if applicable, no consent,
approval or authorization of, or declaration, filing or registration with, any
Governmental Entity is required to be made or obtained by Parent or Merger Sub
in connection with the execution, delivery and performance of this Agreement or
the consummation of the transactions contemplated hereby.
5.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except for liabilities
incurred in connection with this Agreement or transactions contemplated hereby,
and except as set forth on Schedule 5.8, since December 31, 1999, there has not
been any material adverse change in the Business Condition of Parent.
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5.9 DISCLOSURE. Neither the representations or warranties made by
Parent in this Agreement, nor the Parent Disclosure Schedule or any other
certificate executed and delivered by Parent pursuant to this Agreement, when
taken together and with knowledge of the contents of the Reports, contains any
untrue statement of a material fact, or omits to state a material fact necessary
to make the statements or facts contained herein or therein not misleading in
light of the circumstances under which they were furnished.
5.10 RELIANCE. The foregoing representations and warranties are made by
Parent with the knowledge and expectation that HT and the Stockholder are
placing reliance thereon.
ARTICLE VI
COVENANTS OF HT AND STOCKHOLDER
During the period from the date of this Agreement (except as
otherwise indicated) and continuing until the earlier of the termination of this
Agreement or the Effective Time, each of HT and the Stockholder agree (except as
expressly contemplated by this Agreement or otherwise permitted with Parent's
prior written consent):
6.1 CONDUCT OF BUSINESS IN ORDINARY COURSE. HT will carry on its
business in the ordinary course in substantially the same manner as heretofore
conducted and, to the extent consistent with such business, use all reasonable
best efforts consistent with past practice and policies to preserve intact its
present business organization, keep available the services of its present
officers, consultants and employees and preserve its relationships with
customers, suppliers and distributors and others having business dealings with
it. HT will confer on a regular and frequent basis with representatives of
Parent to report operational matters of a material nature and to report the
general status of the ongoing operations of the business of HT. The foregoing
notwithstanding, HT will not:
(a) other than in the ordinary course of business consistent
with prior practice, enter into any material commitment or transaction,
including but not limited to any purchase of assets (other than raw materials,
supplies or cash equivalents) for a purchase price in excess of $15,000;
provided, however, that (i) this limitation shall not apply to up to $45,000 in
the aggregate relating to the scheduled buildout of HT's 1st floor office space
at 815 Somerville Ave., Cambridge, MA; and (ii) this limitation shall not apply
to up to $50,000 in the aggregate relating to scheduled computer equipment
replacements and upgrades, which amount shall not exceed an aggregate of $43,000
as of April 30, 2000, or an aggregate of $50,000 as of June 30, 2000.;
(b) grant any bonus, severance or termination pay to any
officer, director, independent contractor or employee of HT except as provided
for in the employment agreements described in Section 3.4 of the HT Disclosure
Schedule;
(c) enter into or amend any agreements pursuant to which any
other party is granted support, service, marketing or publishing rights, other
than in the ordinary course of business consistent with prior practice, or is
granted distribution rights of any type or scope with respect to any products of
HT;
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(d) other than in the ordinary course of business consistent
with prior practice, enter into or terminate any contracts, arrangements, plans,
agreements, leases, licenses, franchises, permits, indentures, authorizations,
instruments, or commitments, or amend or otherwise change in any material
respect the terms thereof in a manner adverse to HT;
(e) commence a lawsuit other than: (i) for the routine
collection of bills, (ii) in such cases where HT in good faith determines that
failure to commence suit would result in a material impairment of a valuable
aspect of HT's business PROVIDED THAT HT consults with Parent prior to filing
such suit, or (iii) for a breach of this Agreement or any agreement related
hereto;
(f) modify in any material respect existing discounts or other
terms and conditions with dealers, distributors and other resellers of HT's
products or services in a manner adverse to HT;
(g) accelerate the vesting or otherwise modify any HT Option,
restricted stock or other outstanding rights or other securities;
(h) take any action which would make any representation or
warranty in this Agreement untrue or incorrect, as if made as of such time;
(i) make any expenditures on behalf of the Stockholder;
(j) permit, allow or cause HT's balance sheet to negatively
change by more than $100,000 in the aggregate from the amounts on the audited
December 31, 1999 balance sheet as a result of the netting of (i) cash; (ii)
accounts receivables of less than 60 days; (iii) work-in-process less than 30
days; (iv) accounts payable and accrued expenses, notes, and (v) other
liabilities; provided, that this $100,000 negative change will not include the
effect of the permitted buildout and equipment replacement and upgrade expenses
identified in Section 6.1(a), or expenses related to the transactions
contemplated by this agreement of up to an aggregate of $40,000 as described in
Section 8.4. In the event that the above calculation results in a negative
change of more than $100,000, but less than $250,000 at any time prior to the
Closing Date, Stockholder may elect to pay to Parent such amount of variance in
cash or other immediately available funds or reduce the Base Amount by such
amount of variance, in which case Parent shall not have the right to terminate
this Agreement except as otherwise contemplated in Article XI below.
(k) fail to retain as an employee, Robert C. Sprung, Douglas
P. Langenberg or Jane Roach (the "Key Employees");
(l) lose any of the following key customer accounts: Ethicon,
Inc.; Aetna; Time Magazine; Codman & Shurtleff/Johnson & Johnson; EndoSurgery;
Thomson & Thomson; Zimmer (Bristol Myers/Squibb), unless in each case if such
account is lost, it is replaced with new customers or new divisions of existing
customers of substantially similar revenue potential matching the expected
amounts and periods of purchases by the lost account. For purposes of this
Section 6(l), loss of an account shall occur if HT receives written or oral
notice of such account's intent to discontinue or materially decrease level of
services being purchased, excluding any effects of seasonality; or
(m) agree in writing or otherwise to take any of the foregoing
actions.
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6.2 DIVIDENDS, ISSUANCE OF, OR CHANGES IN SECURITIES. HT will not: (i)
declare or pay any dividends on or make other distributions to its stockholders
(whether in cash, shares or property), (ii) issue, deliver, sell, or authorize,
propose, or agree to, or commit to the issuance, delivery, or sale of any shares
of its capital stock of any class, any Company Voting Debt or any securities
convertible into its capital stock, any options, warrants, calls, conversion
rights, commitments, agreements, contracts, understandings, restrictions,
arrangements or rights of any character obligating HT to issue any such shares,
Company Voting Debt or other convertible securities except as any of the
foregoing is required by Outstanding HT Options; (iii) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
capital stock of HT, (iv) repurchase or otherwise acquire, directly or
indirectly, any shares of its capital stock or options or warrants related
thereto, or (v) propose any of the foregoing.
6.3 GOVERNING DOCUMENTS. HT will not amend its Charter Documents.
6.4 NO ACQUISITIONS. HT will not authorize, recommend, propose or
announce an intention to authorize, recommend or propose, or enter into a letter
of intent (whether or not binding), an agreement in principle or an agreement
with respect to any merger, consolidation or business combination (other than
the Merger), or any acquisition of assets or securities.
6.5 NO DISPOSITIONS. HT will not sell, lease, license, transfer,
mortgage, encumber or otherwise dispose of any of its material assets or cancel,
release, or assign any material indebtedness or claim, except in the ordinary
course of business.
6.6 INDEBTEDNESS. HT will not incur any indebtedness for borrowed money
by way of direct loan, sale of debt securities, purchase money obligation,
conditional sale, guarantee or otherwise, other than up to $50,000 of loans,
subject to the limitations in 6.1(j) above.
6.7 COMPENSATION. HT will not adopt or amend, or modify in any material
respect, any Plan or pay any pension or retirement allowance not required by any
existing Plan. HT will not enter into or modify any employment or severance
contracts, increase the salaries, wage rates or fringe benefits of its officers,
directors or employees or pay bonuses or other remuneration except for current
salaries, severance and other remuneration for which HT is obligated under
arrangements existing prior to the Unaudited Balance Sheet Date to which HT is a
party and which have been disclosed in the HT Disclosure Schedule.
6.8 CLAIMS. HT will not settle any claim, action or proceeding, except
in the ordinary course of business consistent with prior practice.
6.9 ACCESS TO PROPERTIES AND RECORDS. Subject to contractual and other
obligations, HT will give Parent and its representatives full access, at a place
reasonably acceptable to HT, during reasonable business hours and following
reasonable notice but in such a manner as not unduly to disrupt the business of
HT, to its senior management, senior technical personnel, premises, properties,
contracts, commitments, books, records and affairs, and will provide Parent with
such financial, technical and operating data and other information pertaining to
its business as Parent may request. With HT's prior consent, which will not be
unreasonably withheld, Parent will be entitled in
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conjunction with HT personnel to make appropriate inquiries of third parties in
the course of its investigation.
6.10 BREACH OF REPRESENTATIONS AND WARRANTIES. HT will not take any
action that would cause or constitute a breach of any of the representations and
warranties set forth in Article III or that would cause any of such
representations and warranties to be inaccurate in any material respect or that
would constitute a breach of any of its other obligations under this Agreement.
In the event of, and promptly after becoming aware of, the occurrence of or the
pending or threatened occurrence of any event that would cause or constitute
such a breach or inaccuracy, HT will give detailed notice thereof to Parent and
will use its reasonable best efforts to prevent or remedy promptly such breach
or inaccuracy.
6.11 CONSENTS. HT will promptly apply for or otherwise seek and use
reasonable best efforts to obtain, all Consents, and make all filings with
Governmental Entities, required with respect to the consummation of the Merger.
6.12 TAX RETURNS. HT will promptly provide or make available to Parent
copies of all tax returns, reports and information statements that have been
filed or are filed prior to the Closing Date.
6.13 STOCKHOLDER APPROVAL. The Stockholder agrees to vote all of his
shares of HT Common Stock for the approval of this Agreement and the appropriate
Merger Documents as required by the MBCL.
6.14 EXCLUSIVITY; ACQUISITION PROPOSALS. Unless and until this
Agreement will have been terminated by either party pursuant to Article XI
hereof and thereafter subject to Section 11.5, neither HT nor the Stockholder
will (and each will use its reasonable best efforts to ensure that none of its
officers, directors, agents, representatives or affiliates) take or cause or
permit any Person to take, directly or indirectly, any of the following actions
with any party other than Parent and its designees: (i) solicit, encourage,
initiate or participate in any negotiations, inquiries, or discussions with
respect to any offer or proposal to acquire all or any significant part of HT's
business, assets or capital stock, whether by merger, consolidation, other
business combination, purchase of assets, tender or exchange offer or otherwise
(each of the foregoing, an "ACQUISITION TRANSACTION"), (ii) disclose, in
connection with an Acquisition Transaction, any information not customarily
disclosed to any Person other than Parent or its representatives concerning HT's
business or properties or afford to any Person other than Parent or its
representatives access to its properties, books, or records, except in the
ordinary course of business and as required by law or pursuant to a governmental
request for information, (iii) enter into or execute any agreement relating to
an Acquisition Transaction, or (iv) make or authorize any public statement,
recommendation or solicitation in support of any Acquisition Transaction or any
offer or proposal relating to an Acquisition Transaction other than with respect
to the Merger. In the event that HT is contacted by any third party expressing
an interest in discussing an Acquisition Transaction, HT will promptly notify
Parent of such contact and the identity of the party so contacting HT.
6.15 NOTICE OF EVENTS. Throughout the period between the date of this
Agreement and the Closing, HT will promptly advise and consult with Parent
regarding any and all material events and developments concerning its financial
position, results of operations, assets, liabilities or business or any of the
items or matters concerning HT covered by the representations, warranties and
covenants of HT and the Stockholder contained in this Agreement.
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6.16 REASONABLE BEST EFFORTS. HT and the Stockholder will use their
reasonable best efforts to effectuate the transactions contemplated hereby and
to fulfill and cause to be fulfilled the conditions to Closing under this
Agreement.
6.17 INSURANCE. HT will use its reasonable best efforts to maintain in
force at the Effective Time policies of insurance of the same character and
coverage as those described in the HT Disclosure Schedule, and HT will promptly
notify Parent in writing of any changes in such insurance coverage occurring
prior to the Effective Time.
ARTICLE VII
COVENANTS OF PARENT
During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time (or later
where so indicated), Parent and Merger Sub agree (except as expressly
contemplated by this Agreement or with HT's prior written consent):
7.1 BREACH OF REPRESENTATIONS AND WARRANTIES. Neither Parent nor Merger
Sub will take any action which would cause or constitute a breach of any of the
representations and warranties set forth in Article V or which would cause any
of such representations and warranties to be inaccurate in any material respect.
In the event of, and promptly after becoming aware of, the occurrence of or the
pending or threatened occurrence of any event which would cause or constitute
such a breach or inaccuracy, Parent will give detailed notice thereof to HT and
will use its reasonable best efforts to prevent or remedy promptly such breach
or inaccuracy.
7.2 ADDITIONAL INFORMATION; ACCESS. Parent will provide HT and its
stockholders with the information relating to Parent referred to in Section 5.5
and the information relating to Parent to be included in the Information
Statement. In addition, Parent will afford to HT and to its counsel and to the
persons expected to become stockholders of Parent pursuant to the Merger access
throughout the period prior to the Effective Time to its senior management and
all other information concerning Parent as HT or such stockholder may reasonably
request. Such stockholders will also be afforded the opportunity to ask
questions and to receive accurate and complete answers from Parent concerning
the terms and conditions of the Merger and the issuance of the Parent Merger
Shares pursuant thereto.
7.3 CONSENTS. Parent will promptly apply for or otherwise seek, and use
its reasonable best efforts to obtain, all consents and approvals, and make
filings, required with respect to the consummation of the Merger.
7.4 REASONABLE BEST EFFORTS; REORGANIZATION. Each of Parent and Merger
Sub will use its reasonable best efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
Closing under this Agreement. It is the intent of the Stockholders, HT, Parent
and the Surviving Corporation that this Merger qualify as a tax-free
reorganization under Section 368(a) of the Code. Neither Parent nor HT nor the
Stockholder shall take any action which
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reasonably would be expected to cause the Merger to fail to qualify as a
tax-free reorganization under Section 368(a) of the Code.
7.5 OFFICERS AND DIRECTORS. Parent agrees that all rights to
indemnification existing on the date hereof in favor of the present or former
officers and directors of HT with respect to actions taken in their capacities
as directors or officers of HT prior to the Effective Time as provided in the
Charter Documents of HT and any applicable indemnification agreements (copies of
which have been provided to Parent) will survive the Merger and continue in full
force and effect following the Effective Time and the obligations related
thereto will be assumed by Parent. Notwithstanding the foregoing the provisions
of such Charter Documents or agreements will have no effect on the obligations
of any stockholders of HT pursuant to Article X of this Agreement or the Escrow
Agreement.
7.6 NASDAQ NATIONAL MARKET LISTING. Parent will use its reasonable best
efforts to cause the Parent Merger Shares to be authorized for trading on the
Nasdaq National Market as soon as practicable.
7.7 NOTICE OF EVENTS. Throughout the period between the date of this
Agreement and the Closing, Parent will promptly advise and consult with HT
regarding any and all material adverse change to the representations, warranties
and covenants of Parent and Merger Sub contained in this Agreement.
7.8 THIRD PARTY BENEFICIARIES. Sections 7.5 and 7.6 will survive the
consummation of the Merger, are intended to benefit the stockholders of HT that
receive Parent Merger Shares (the "New Parent Stockholders"), will be binding on
Parent and its successors and assigns, and will be enforceable by the officers
and directors of HT and the New Parent Stockholder.
ARTICLE VIII
ADDITIONAL AGREEMENTS
In addition to the foregoing, Parent, Merger Sub, HT and the
Stockholder each agree to take the following actions after the execution of this
Agreement.
8.1 INVESTMENT AGREEMENTS.
(a) All resales of Parent Common Shares by the New Parent
Stockholders will be subject to the restrictions described in the investment
agreement (the "INVESTMENT AGREEMENT") in the form attached as EXHIBIT 8.1.
(b) All resales of Parent Common Shares by the Stockholder
will be subject to the third restated registration rights agreement of Parent
(the "REGISTRATION RIGHTS AGREEMENT") in the form attached as EXHIBIT 8.2.
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(c) Parent will be entitled to place the legends as referred
to in the Investment Agreement and Registration Rights Agreement on each
certificate evidencing any Parent Common Shares to be received by the
stockholders pursuant to the terms of this Agreement and to issue appropriate
stop transfer instructions to the transfer agent for Parent Common Shares
consistent with the terms of the Investment Agreement and Registration Rights
Agreement.
8.2 LEGAL CONDITIONS TO THE MERGER. Each of Parent, Merger Sub, HT and
the Stockholder will use all reasonable best efforts to take actions necessary
to comply promptly with all legal requirements which may be imposed on it with
respect to the Merger. Each of Parent, Merger Sub, HT and the Stockholder will
use all reasonable best efforts to take all actions to obtain (and to cooperate
with the other parties in obtaining) any consent required to be obtained or made
by HT, Merger Sub, or Parent in connection with the Merger, or the taking of any
action contemplated thereby or by this Agreement.
8.3 EMPLOYEE BENEFITS. Nothing contained herein will be considered as
requiring HT or Parent to continue any specific plan or benefit, or to confer
upon any employee, beneficiary, dependent, legal representative or collective
bargaining agent of such employee any right or remedy of any nature or kind
whatsoever under or by reason of this Agreement, including without limitation
any right to employment or to continued employment for any specified period, at
any specified location or under any specified job category, except as
specifically provided for in an offer letter or other agreement of employment.
It is specifically understood that continued employment with HT or employment
with Parent is not offered or implied for any other employees of HT and any
continuation of employment with HT after the Closing will be at will except as
specifically provided otherwise in an offer letter or other agreement of
employment.
8.4 EXPENSES. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby and thereby, including investment banking, legal and
accounting expenses, will be paid by the party incurring such expense; PROVIDED,
HOWEVER, that any expenses incurred by HT in excess of $40,000 shall be borne by
the stockholders of HT (without regard to Section 10.4); through the
determination of the Modified Share Amount as set forth in Section 2.1(d);
PROVIDED, FURTHER, that HT will itemize any such investment banking, legal and
accounting expenses of HT prior to Closing and provide Parent with a copy of
such estimate at the Closing; and PROVIDED, FURTHER, that the provisions of this
Section 8.4 shall not be construed to relieve a party from liability resulting
from such party's breach of this Agreement.
8.5 ADDITIONAL AGREEMENTS. In case at any time after the Effective Time
any further action is reasonably necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full title
to all properties, assets, rights, approvals, immunities and franchises of HT,
the proper officers and directors of each corporation which is a party to this
Agreement will take all such necessary action. Without limiting the foregoing,
on or prior to the Closing Date, HT will deliver to Parent a properly executed
statement satisfying the requirements of Treasury Regulation Sections 1.897-2(h)
and 1.1445-2(c)(3) in a form reasonably acceptable to Parent.
8.6 PUBLIC ANNOUNCEMENTS. Neither Parent, HT nor the Stockholder will
disseminate any press release or other announcement concerning this Agreement or
the transactions contemplated herein to any third party (except to the
directors, officers and employees of the parties to this Agreement whose direct
involvement is necessary for the consummation of the transactions
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contemplated under this Agreement, to the attorneys, advisors and accountants of
the parties hereto, or except as Parent determines in good faith to be required
by applicable law after consultation with HT) without the prior written
agreement of Parent and HT.
8.7 CONFIDENTIALITY. HT and Parent have entered into a Confidentiality
and Nondisclosure Agreement dated November 12, 1999, concerning each party's
obligations to protect the confidential information of the other party. HT and
Parent each hereby affirm each of their obligations under such agreement. If
this Agreement is terminated in accordance with Article XI hereof, Parent will,
and will cause its accountants, counsel and other representatives to deliver to
HT all documents and other material, and all copies thereof, obtained by Parent
or on its behalf from HT in connection with this Agreement, whether so obtained
before or after the execution hereof, and will not disclose any such information
or documents to any third parties or make any use of such. If this Agreement is
terminated in accordance with Article XI hereof, HT will, and will cause its
accountants, counsel and other representatives to, deliver to Parent all
documents and other material, and all copies thereof, obtained by HT or on its
behalf or by a stockholder of HT from Parent in connection with this Agreement,
whether so obtained before or after the execution hereof, and will not disclose
any such information or documents to any third parties or make any use of such.
8.8 POOLING.
(a) Parent, the Merger Sub, HT and the Stockholder will use
all reasonable best efforts, will cooperate fully and will take all actions as
are reasonably necessary to allow the Merger and other transactions contemplated
by this Agreement to be accounted for as a "pooling of interests" in accordance
with United States generally accepted accounting principles which will be
acceptable to the Commission.
(b) HT has delivered to Parent prior to the date of this
Agreement a letter from its counsel that identifies all persons who such counsel
believes may be "affiliates" of HT, as such term is used in Rule 145 under the
Securities Act and applicable accounting pronouncements of the Commission (each
such Person, an "HT AFFILIATE"). Each such HT Affiliate has executed and
delivered to Parent a written agreement (an "AFFILIATE AGREEMENT") in the form
of EXHIBIT 8.8 hereto to the effect that such HT Affiliate (i) has not made and
will not make any disposition of any shares of HT Common Stock or other
securities of HT in the 30-day period prior to the Effective Time, and (ii) will
not make any disposition of any of the Parent Merger Shares to be received by
such Person after the Effective Time until Parent shall have publicly released a
report including the combined financial results of Parent and HT for a period of
at least 30 days of combined operations of Parent and HT.
8.9 HART-SCOTT-RODINO FILING. If and to the extent applicable, Parent,
HT and each stockholder of HT agree to file, and to cause any other Person
obligated to do so as a result of such person's stock holdings in Parent or HT,
a Notification and Report Form in accordance with the notification requirements
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and
regulations thereunder (collectively, the "H-S-R ACT") with the Antitrust
Division of the United States Department of Justice and the Federal Trade
Commission and to use its and their reasonable best efforts to achieve the
prompt termination or expiration of the waiting period or any extension thereof
provided for under the HSR Act as a prerequisite to the consummation of the
transactions provided for herein.
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8.10 TAX MATTERS. (a) In the event that it is determined by a finding
or order in connection with any governmental or judicial audit or proceeding,
including any settlement of such a proceeding to which any of the parties hereto
are parties that HT's S Corporation election pursuant to Section 1362 of the
Code was not validly in effect for any period after such election was
purportedly made, then the stockholders of HT shall promptly remit to Parent in
cash any federal, state and/or local Tax liability (including any penalties,
additions to Tax or interest assessed with respect thereto) of HT in connection
with Taxes that are imposed on the Surviving Corporation or Parent as a result
of such invalid election. Such payment shall be made within 15 days after the
date such tax liability has been so determined. The obligations to remit such
cash to Parent as described in this Section 8.10 shall be treated as separate
from the stockholders' other indemnification obligations hereunder and in
addition to amounts that may be owed to Parent under the Escrow Agreement.
Notwithstanding anything to the contrary contained in this Agreement or in the
Escrow Agreement, the provisions of this Section 8.10 shall survive the
termination of the Escrow Agreement and shall remain in effect as personal
obligations of the stockholders of HT until the applicable statutes of
limitations shall have expired.
(b) The Stockholder shall prepare or cause to be prepared and file or
cause to be filed all Tax Returns for HT for all periods ending on or prior to
the Closing Date that are filed after the Closing Date, subject to review and
consent by Parent for each such Tax Return prior to filing, with such consent
not to be unreasonably withheld. To the extent permitted by applicable law, the
stockholders of HT shall include any income, gain, loss, deduction or other tax
items for such periods on their Tax Returns in a manner consistent with the
Schedule K-1's prepared by Stockholders for such periods.
(c) Parent, HT and Stockholder shall cooperate fully, as and to the
extent reasonably requested by the other party, in connection with the filing of
any Tax Returns of HT and any audit, litigation or other proceeding with respect
to Taxes. Such cooperation shall include the retention and (upon the other
party's request) the provision of records and information that are reasonably
relevant to any such audit, litigation, or other proceeding, and making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. HT and the
Stockholder agree (a) to retain all books and records with respect to Tax
matters pertinent to HT relating to any taxable period beginning before the
Closing Date, until the expiration of the statute of limitations (and, to the
extent notified by Parent or Stockholder, any extensions thereof) of the
respective taxable periods, and to abide by all record retention agreements
entered into with any taxing authority, and (b) to give the other party
reasonable written notice prior to transferring, destroying or discarding any
such books and records and, if the other party so requests, HT or the
Stockholder, as the case may be, shall allow the other party to take possession
of such books and records; provided, however, that such party may refuse to
allow the other party to take such possession if such books and records contain
material information confidential to such party and such party provides written
explanation to the other party of the basis for such confidentiality.
Notwithstanding the foregoing, Parent shall not cause or permit HT, and HT shall
not, amend any of its Income Tax Returns for any period beginning before the
Closing Date except upon the written request of the Stockholder or Parent, to
which written request Parent, HT and Stockholder, as the case may be, shall have
the right of consent, such consent by either party not to be unreasonably
withheld.
8.11 EMPLOYMENT, CONSULTING AND NONCOMPETITION AGREEMENTS. Simultaneous
with the execution of this Agreement, HT will cause each of Douglas Langenberg,
Robert Sprung and Jane Roach to execute employment or consulting and/or
non-competition agreements to become effective of
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as of the Effective Time in the form provided by Parent to HT. In addition, at
the Effective Time, HT shall cause each of the employment agreements with the
individuals set forth on Schedule 8.11 to be terminated in all respects without
liability to HT or any successor.
8.12 LEASE AGREEMENT. Simultaneously with the execution of this
Agreement, the Stockholder will enter into a Lease Agreement with Parent
effective upon closing for the space currently occupied by HT at 815 Somerville
Ave., Cambridge, MA 02140, in the form attached as exhibit 8.12.
ARTICLE IX
CONDITIONS PRECEDENT
9.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger will be subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) GOVERNMENTAL APPROVALS. Other than the filing of the
Merger Documents with the Secretary of State of Massachusetts, all statutory
requirements and all Consents of Governmental Entities legally required for the
consummation of the Merger and the transactions contemplated by this Agreement
will have been filed, occurred, or been obtained, other than such Consents for
which the failure to obtain would not have a material adverse effect on the
consummation of the Merger or the other transactions contemplated hereby or on
the Business Condition of Parent or HT. If and to the extent applicable, the
filing and waiting period requirements under the H-S-R Act will have been
complied with and will have expired or terminated.
(b) NO RESTRAINTS. No statute, rule or regulation, and no
final and nonappealable order, decree or injunction will have been enacted,
entered, promulgated or enforced by any court or Governmental Entity of
competent jurisdiction which enjoins or prohibits the consummation of the
Merger.
(c) PARENT POOLING LETTER. Parent will have received a letter
dated immediately prior to the Closing Date from PricewaterhouseCoopers LLP,
Parent's independent accountants, to the effect that such firm concurs with
Parent's management that no conditions exist that would preclude Parent from
accounting for the Merger as a "pooling of interests" in accordance with United
States generally accepted accounting principles and applicable rules and
regulation of the Commission and Parent shall have delivered a copy of such
letter to HT.
(d) HT POOLING LETTER. Grant Thornton LLP shall have delivered
to HT a letter dated immediately prior to the Closing date to the effect that HT
is "poolable" for accounting purposes under Accounting Principles Board Opinion
No. 16, United States generally accepted accounting principles and applicable
rules and regulations of the Commission and HT shall have delivered a copy of
such letter to Parent.
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9.2 CONDITIONS OF OBLIGATIONS OF PARENT AND MERGER SUB. The obligations
of Parent and Merger Sub to effect the Merger are subject to the satisfaction of
the following conditions unless waived by Parent and Merger Sub:
(a) REPRESENTATIONS AND WARRANTIES OF HT AND THE STOCKHOLDER.
The representations and warranties of HT and the Stockholder set forth in this
Agreement will be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date as though made on and as of the
Closing Date, except (i) for such breaches and inaccuracies that individually,
or in the aggregate, have not had, and cannot reasonably be expected to have, a
material adverse effect on HT's Business Condition, (ii) as otherwise
contemplated by this Agreement, (iii) as a result of actions taken or not taken
at the direction of or after consultation with and written concurrence of Parent
and (iv) for representations and warranties specifically limited to an earlier
date(s). Parent will have received a certificate signed by or on behalf of the
Stockholder and by the chief executive officer and the chief financial officer
of HT to such effect on the Closing Date.
(b) PERFORMANCE OF OBLIGATIONS OF HT AND THE STOCKHOLDER. HT
and the Stockholder will have performed all agreements and covenants required to
be performed by them under this Agreement prior to the Closing Date except (i)
for such failures to perform that individually, or in the aggregate, have not
had, and cannot reasonably be expected to have, a material adverse effect on
HT's Business Condition, (ii) as otherwise contemplated or permitted by this
Agreement and (iii) as a result of actions taken or not taken at the direction
of or after consultation with and written concurrence of Parent, and Parent will
have received a certificate signed by the Stockholder and by the chief executive
officer of HT to such effect on the Closing Date.
(c) INVESTMENT AND ESCROW AGREEMENTS. Parent will have
received from the New Parent Stockholders duly executed Investment Agreements
and the Escrow Agreement.
(d) EMPLOYMENT AND NONCOMPETITION AGREEMENTS. The following
individuals will have executed employment, consulting and/or non-competition
agreements in the form previously provided by Parent to HT: Robert C Sprung,
Douglas Langenberg and Jane Roach.
(e) LEGAL ACTION. There will not be threatened in writing or
pending any action, proceeding or other application before any court or
Governmental Entity brought by any Person or Governmental Entity: (i)
challenging or seeking to restrain or prohibit the consummation of the
transactions contemplated by this Agreement, or seeking to obtain any material
damages from Parent, Merger Sub or HT as a result of such transactions; or (ii)
seeking to prohibit or impose any limitations on Parent's ownership or operation
of all or any portion of HT's business or assets, or to compel Parent to dispose
of or hold separate all or any portion of its or HT's business or assets as a
result of the transactions contemplated by the Agreement which if successful
would have a material adverse effect on Parent's ability to receive the
anticipated benefits of the Merger and the employment of the individuals
referenced in Section 9.2(d) except for actions that would not have a material
adverse effect on the Business Condition of HT.
(f) OPINION OF COUNSEL. Parent will have received an opinion
dated as of the Closing Date of Foley, Hoag & Elliot, LLP, counsel to HT,
substantially in the form attached as EXHIBIT 9.2.
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<PAGE>
(g) CONSENTS. Parent will have received duly executed copies
of all Consents specified in the HT Disclosure Schedule, and there will not be
any material Consents which have not been received and are required to be
disclosed in HT Disclosure Schedule which have not been so disclosed, in each
case except for such thereof as Parent and HT will have agreed in writing will
not be obtained.
(h) TERMINATION OF RIGHTS AND CERTAIN SECURITIES. Any
registration rights, rights of refusal, voting rights, rights to any liquidation
preference or redemption rights relating to any security of HT will have been
terminated or waived or satisfied as of the Closing.
(i) STOCKHOLDER APPROVALS. This Agreement and the Merger will
have been approved by the stockholders of HT.
(j) TERMINATION OF 401(K) PLAN. The HT Board of Directors will
have passed and not rescinded resolutions satisfactory to Parent's counsel
effectively terminating HT's 401(k) Plan immediately prior to the Closing.
(k) SECURITIES LAW COMPLIANCE. All issuances of capital stock
of HT will have been conducted in compliance with Regulation D under the
Securities Act and applicable state securities laws;
(l) NOTE. The HT Note will have been cancelled and be of no
further force and effect.
(M) RELEASE OF GUARANTEE. The Stockholder shall cause HT to be released as
guarantor of the Mortgage on the property presently occupied by HT.
9.3 CONDITIONS OF OBLIGATION OF HT. The obligation of HT and the
Stockholder to effect the Merger is subject to the satisfaction of the following
conditions unless waived by HT and the Stockholder:
(a) REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.
The representations and warranties of Parent and Merger Sub set forth in this
Agreement will be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date as though made on and as of the
Closing Date, except for such breaches or inaccuracies, that, individually, or
in the aggregate, have not had, and cannot reasonably be expected to have, a
material adverse effect on the Business Condition of the Parent, or as otherwise
contemplated by this Agreement, and HT will have received a certificate signed
on behalf of Parent by a duly authorized officer of Parent to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND MERGER SUB.
Parent and Merger Sub will have performed all agreements and covenants required
to be performed by them under this Agreement prior to the Closing Date, except
where such failures to perform have not had, and cannot reasonably be expected
to have, a material adverse effect on the Business Condition of the Parent, and
HT will have received a certificate signed on behalf of Parent by officers of
Parent to such effect.
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<PAGE>
(c) OPINION OF PARENT'S COUNSEL. HT and the Stockholder have
received an opinion dated the Closing Date of Testa, Hurwitz & Thibeault, LLP,
substantially in the form attached as EXHIBIT 9.3.
(d) STOCKHOLDER APPROVAL. This Agreement and the Merger will
have been approved and adopted by the requisite vote of the stockholders of HT,
as required by the MBCL and HT's Charter Documents; PROVIDED, HOWEVER, that the
inclusion of this condition will not be construed in any way as excusing the
Stockholder from fulfilling his covenant in Section 6.13.
(e) ESCROW AGREEMENT. Parent shall have duly executed and
delivered the Escrow Agreement.
(f) TAX-FREE REORGANIZATION. HT shall have received a written
opinion from Foley, Hoag & Elliot, LLP to the effect that the Merger should
constitute a reorganization within the meaning of Section 368 of the Code. In
preparing such tax opinion, counsel may rely on reasonable assumptions and
reasonable representations relating thereto.
(g) LEGAL ACTION. There will not be threatened in writing or
pending any action, proceeding or other application before any court or
Governmental Entity brought by any Person or Governmental Entity: (i)
challenging or seeking to restrain or prohibit the consummation of the
transactions contemplated by this Agreement, or seeking to obtain any material
damages from HT or the Stockholder as a result of the transactions contemplated
by this Agreement or (ii) restricting in any way the receipt, ownership, or
ability to dispose of the consideration to be received by any stockholder of HT
in the transactions contemplated by this Agreement; PROVIDED, HOWEVER, that HT
and the Stockholder will automatically be deemed to waive this condition if
Parent agrees to indemnify, defend and hold any such named party harmless
against any such action.
ARTICLE X
INDEMNIFICATION
10.1 INDEMNIFICATION RELATING TO AGREEMENT. Subject to this Article X,
the Stockholder, and, as an integral term of the Merger, all other stockholders
of HT who accept the Parent Merger Share and execute the Escrow Agreement (which
is a condition to receiving such consideration) jointly and severally, hereby
agree to defend, indemnify and hold Parent harmless from and against, and to
reimburse Parent with respect to, any and all losses, damages, liabilities,
claims, judgments, settlements, fines, costs and expenses (including reasonable
attorneys' fees), determined as provided in Section 10.3 ("INDEMNIFIABLE
AMOUNTS"), of every nature whatsoever incurred by Parent (which will be deemed
to include any of the foregoing incurred by the Surviving Corporation) by reason
of or arising out of or in connection with (i) any breach, or any claim
(including claims by parties other than Parent) that constitutes a breach, by HT
or the Stockholder of any representation or warranty of HT or the Stockholder
contained in this Agreement or in any certificate or other document delivered to
Parent pursuant to this Agreement, other than any breach or related claim taken
or not taken at the written direction of or after consultation with and written
concurrence of Parent and (ii) the failure, partial or total, of HT or the
Stockholder to perform any agreement or covenant required by this Agreement to
be
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<PAGE>
performed by it or them other than any breach or related claim taken or not
taken at the written direction of or after consultation with and written
concurrence of Parent. The foregoing obligations to indemnify Parent will be
determined without regard to any right to indemnification to which any Person
may have in his or her capacity as an officer, director, employee, agent or any
other capacity of HT, and no stockholder of HT will be entitled to any
indemnification from HT or the Surviving Corporation for amounts paid hereunder.
There will be no right of contribution or subrogation from Parent or the
Surviving Corporation for indemnification payments made by or for the account of
the stockholders of HT.
10.2 THIRD PARTY CLAIMS. With respect to any claims or demands by third
parties as to which Parent may seek indemnification hereunder, whenever Parent
will have received a written notice that such a claim or demand has been
asserted or threatened, Parent will promptly notify the Stockholder (as
Indemnification Representative) of such claim or demand and of the facts within
Parent's knowledge that relate thereto within a reasonable time after receiving
such written notice. The Stockholder will then have the right to defend,
contest, negotiate or settle any such claim or demand through counsel of his own
selection, satisfactory to Parent, and solely at the Stockholder's own cost and
expense, which costs and expenses will be payable out of the property being held
pursuant to the Escrow Agreement. Notwithstanding the preceding sentence, the
Stockholder will not settle, compromise, or offer to settle or compromise any
such claim or demand without the prior written consent of Parent, which consent
will not be unreasonably withheld. Without limiting HT's rights to object for
other reasons, Parent may object to a settlement or compromise which includes
any provision which in its reasonable judgment may have an adverse impact on or
establish an adverse precedent for the Business Condition of Parent or any of
its Subsidiaries. If the Stockholder gives notice to Parent within twenty (20)
calendar days after Parent has notified the Stockholder that any such claim or
demand has been made in writing, that the Stockholder elects to have Parent
defend, contest, negotiate, or settle any such claim or demand, then Parent will
have the right to contest and/or settle any such claim or demand and seek
indemnification pursuant to this Article X as to any Indemnifiable Amounts;
PROVIDED, HOWEVER, that Parent will not settle, compromise, or offer to settle
or compromise any such claim or demand without the prior written consent (which
may include a general or limited consent) of the Stockholder, which consent will
not be unreasonably withheld. If the Stockholder fails to give written notice to
Parent of his intention to contest or settle any such claim or demand within
twenty (20) calendar days after Parent has notified the Stockholder that any
such claim or demand has been made in writing, or if any such notice is given
but any such claim or demand is not contested by the Stockholder within a
reasonable time thereafter, Parent will have the right to contest and/or settle
any such claim or demand in its sole discretion and seek indemnification
pursuant to this Article X as to any Indemnifiable Amounts. The adoption of this
Agreement or the execution of the Escrow Agreement by the stockholders of HT
will also constitute their approval of the Stockholder as Indemnification
Representative.
10.3 LIMITATIONS. Notwithstanding any other provision in this Article
X, Parent will be entitled to indemnification only to the extent that the
aggregate Indemnifiable Amounts (which shall be determined for all purposes of
this Article X disregarding any qualification in any representation or warranty
as to "materially" or "material") exceed Fifty Thousand Dollars ($50,000) (the
"THRESHOLD AMOUNT") PROVIDED THAT at such time as the amount to which Parent is
entitled to be indemnified exceeds the Threshold Amount, Parent shall be
entitled to be indemnified only in excess of the Threshold Amount. The aggregate
amount to which Parent will be entitled to be indemnified will not exceed a
dollar amount equal to the aggregate number of Escrow Shares valued at the
Parent Average
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<PAGE>
Closing Price, and the liability of any single stockholder of HT for
indemnification obligations after the termination of the Escrow Agreement shall
be further limited to such stockholder's PRO RATA share of any Indemnifiable
Amounts based on the number of Parent Merger Shares received by such stockholder
relative to the aggregate number of Parent Merger Shares; PROVIDED, HOWEVER,
that there will be no limitation on the obligations of any person for
Indemnifiable Amounts arising out of criminal activity or fraud or willful
misstatements or omissions by HT or such person and that the Threshold Amount
shall not apply to breaches of representation of any Letter of Transmittal or
Article IV (a) and (b). Parent may seek indemnification hereunder after the
termination of the Escrow during the period as described in Section 10.5.
10.4 BINDING EFFECT. The indemnification obligations contained in this
Article X are an integral part of this Agreement and the Merger in the absence
of which the parties hereto would not have entered into this Agreement.
10.5 TIME LIMIT. The representations, warranties, covenants and
agreements of HT and the Stockholder set forth in this Agreement and the
certificates and agreements executed or delivered pursuant to the Agreement will
survive the Closing for one year; PROVIDED, HOWEVER, that claims relating to
representations and warranties in Sections 3.6(a) and (b) may be made only on or
before the date that Parent publishes audited financial results for the year
ended December 31, 2000 covering combined operations of Parent and HT.
10.6 SOLE REMEDY. Except with respect to breaches of Section 3.2(a) and
(b) and Article IV (a) and (b), and as otherwise limited pursuant to Section
8.10 (the "Special Items"), the provisions of this Article X and the provisions
of the Escrow Agreement will be the sole and exclusive remedy of (and
corresponding liability of any stockholder of HT, in such stockholder's capacity
as such, to) Parent, Merger Sub and the Surviving Corporation for any damage,
claim, cause of action or right of any nature arising out of or relating to this
Agreement, the certificates or other documents executed or delivered herewith,
or the transactions contemplated hereby; PROVIDED, HOWEVER, that nothing in this
Agreement or the Escrow Agreement will be deemed to limit any right or remedy
for criminal activity or fraud, or willful misstatements or willfull omissionsin
any statement or certificate delivered by HT or Stockholder pursuant to this
Agreement, Investment Agreement, Affiliate Agreement, employment agreement or
non-competition agreement described in Section 8.11 or the Registration Rights
Agreement, provided further that the sole source of payment for the
indemnification, except for the Special Items, shall be the Escrow Shares.
ARTICLE XI
TERMINATION
11.1 MUTUAL AGREEMENT. This Agreement may be terminated at any time
prior to the Effective Time by the written consent of Parent and HT.
11.2 TERMINATION BY PARENT. This Agreement may be terminated by Parent
(PROVIDED THAT it is not then in material breach of any representation,
warranty, covenant or agreement contained in this Agreement) alone, by means of
written notice to HT, if there has been a material breach by HT or the
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<PAGE>
Stockholder of any representation, warranty, covenant or agreement set forth in
this Agreement or other ancillary agreements, which breach would result in a
failure to satisfy the closing conditions contained in Section 9.2 and has not
been cured within five (5) business days following receipt by HT of notice of
such breach.
11.3 TERMINATION BY HT. This Agreement may be terminated by HT
(PROVIDED THAT it is not then in material breach of any representation,
warranty, covenant or agreement contained in this Agreement) alone, by means of
written notice to Parent, if there has been a material breach by Parent of any
representation, warranty, covenant or agreement set forth in the Agreement or
other ancillary agreements, which breach would result in a failure to satisfy
the closing conditions contained in Section 9.3 and has not been cured within
five (5) business days following receipt by Parent of notice of such breach,
11.4 OUTSIDE DATE. This Agreement may be terminated by Parent alone or
by HT alone by means of written notice if the Effective Time does not occur on
or prior to July 1, 2000; PROVIDED, HOWEVER, that the right to terminate this
Agreement pursuant to the preceding clause will not be available to any party
whose failure to fulfill any obligation under this Agreement has been a
significant cause of, or resulted in, the failure of the Effective Time to occur
on or before such date.
11.5 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either HT or Parent as provided in this Article, this Agreement
will forthwith become void and have no effect, and there will be no liability or
obligation on the part of Parent, HT, Merger Sub, the Stockholder or their
respective officers or directors, except that (i) the provisions of Sections
8.4, 8.6, 8.7 and 12.2 will survive any such termination and abandonment, and
(ii) no party will be released or relieved from any liability arising from the
willful breach by such party prior to termination of any of its representations,
warranties, covenants or agreements as set forth in this Agreement.
ARTICLE XII
MISCELLANEOUS
12.1 ENTIRE AGREEMENT. This Agreement, including the exhibits,
schedules and other agreements delivered pursuant to this Agreement contain all
of the terms and conditions agreed upon by the parties relating to the subject
matter of this Agreement and supersede all prior agreements, negotiations,
correspondence, undertakings and communications of the parties, whether oral or
written, respecting that subject matter.
12.2 GOVERNING LAW; CONSENT TO JURISDICTION. The Merger will be
governed by the MBCL to the extent applicable, and all other aspects of this
Agreement will be governed by the internal laws of the Commonwealth of
Massachusetts. Legal proceedings relating to this Agreement, the agreements
executed in connection with this Agreement or the transactions contemplated
hereby or thereby that are commenced against Parent, Merger Sub or the Surviving
Corporation may be commenced only in the state or federal courts in Boston,
Massachusetts. Any such legal proceedings that are commenced against HT or
against any stockholder of HT may be commenced only in the state or federal
courts in Boston, Massachusetts. Each of the parties hereby consents to the
exclusive jurisdiction of such courts
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<PAGE>
(and of the appropriate appellate courts) in any such action or proceeding and
waives any objection to venue laid therein. The foregoing provisions will not be
construed to preclude any party from bringing a counter-claim in any action or
proceeding properly commenced in accordance with the foregoing provisions.
Process in any such action or proceeding may be served on any party anywhere in
the world. Notwithstanding the foregoing, any dispute relating to a claim under
the Escrow Agreement will be resolved in accordance with the arbitration
provisions of the Escrow Agreement.
12.3 NOTICES. All notices, requests, demands or other communications
which are required or may be given pursuant to the terms of this Agreement will
be in writing and will be deemed to have been duly given: (i) on the date of
delivery if personally delivered by hand, (ii) upon the third day after such
notice is deposited in the United States mail, if mailed by registered or
certified mail, postage prepaid, return receipt requested, (iii) upon the date
scheduled for delivery after such notice is sent by a nationally recognized
overnight express courier or (iv) by fax upon written confirmation (including
the automatic confirmation that is received from the recipient's fax machine) of
receipt by the recipient of such notice:
IF TO PARENT OR MERGER SUB Lionbridge Technologies, Inc.
950 Winter Street
Waltham, Massachusetts 02451
Attention: Rory J. Cowan
Telephone No.: (781) 434-6000
Fax No.: (781) 434-6034
WITH COPIES TO:
Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, Massachusetts 02110
Attention: George W. Lloyd, Esq.
Kathy A. Fields, Esq.
Telephone No.: (617) 248-7000
Fax No.: (617) 248-7100
IF TO HT: Harvard Translations, Inc.
815 Somerville Ave
Cambridge, MA 02140
Attention: Chief Executive Officer
Telephone No.: (781) 434-6000
Fax No.: (781) 434-6034
WITH A COPY TO:
Foley, Hoag & Eliot, LLP
One Post Office Square
Boston, Massachusetts 02109
Attention: Robert Birnbaum, Esq.
Telephone No.: (617) 832-1106
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<PAGE>
Fax No.: (617) 832-7000
Such addresses may be changed, from time to time, by means of a notice
given in the manner provided in this Section 12.3.
12.4 SEVERABILITY. If any provision of this Agreement is held to be
unenforceable for any reason, it will be modified rather than voided, if
possible, in order to achieve the intent of the parties to this Agreement to the
extent possible. In any event, all other provisions of this Agreement will be
deemed valid and enforceable to the full extent.
12.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties contained in this Agreement, including the exhibits and schedules
delivered pursuant to this Agreement, will survive the Effective Time, but any
claims for breach thereof may only be made within any applicable time limits
specified herein or in the Escrow Agreement.
12.6 ASSIGNMENT. No party to this Agreement may assign, by operation of
law or otherwise, all or any portion of its rights, obligations, or liabilities
under this Agreement without the prior written consent of HT, Merger Sub, Parent
and Stockholder, which consent may be withheld in the absolute discretion of the
party asked to grant such consent. Any attempted assignment by Merger Sub or
Parent, on the one hand, or by HT, on the other hand, in violation of this
Section 12.6 will be voidable and will entitle HT or Parent, respectively, to
terminate this Agreement at its option.
12.7 COUNTERPARTS. This Agreement may be executed in two or more
partially or fully executed counterparts each of which will be deemed an
original and will bind the signatory, but all of which together will constitute
but one and the same instrument. The execution and delivery of a Signature Page
to Agreement and Plan of Reorganization in the form annexed to this Agreement,
including a facsimile copy of the actual signature, by any party hereto who will
have been furnished the final form of this Agreement will constitute the
execution and delivery of this Agreement by such party.
12.8 AMENDMENT. This Agreement may not be amended except by an
instrument in writing executed by HT, Merger Sub, Parent and Stockholder.
12.9 EXTENSION, WAIVER. At any time prior to the Effective Time, any
party hereto may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of any other party hereto to
the party extending such time, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements, covenants or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver will be valid only if set forth in an instrument in writing signed on
behalf of such party.
12.10 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference will be to a Section, Exhibit or
Schedule to this Agreement unless otherwise indicated. The words "include,"
"includes," and "including" when used therein will be deemed in each case to be
followed by the words "without limitation." The table of contents, index to
defined terms,
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<PAGE>
and headings contained in this Agreement are for reference purposes only and
will not affect in any way the meaning or interpretation of this Agreement.
12.11 KNOWLEDGE. For purposes of this Agreement, the term "KNOWLEDGE"
(including any derivation thereof such as "know" or "knowing" and regardless of
whether such word starts with an initial capital) in reference to HT will mean
the knowledge of the directors and executive officers of HT and the Stockholder.
12.12 TRANSFER, SALES, DOCUMENTARY, STAMP AND OTHER SIMILAR TAXES. Any
and all transfer, sales, documentary, stamp and other similar Taxes imposed in
connection with the transactions contemplated by this Agreement will be paid by
the stockholders of HT with respect to which such Tax relates. At Parent's
discretion, the amount paid to any Person pursuant to this Agreement will be
reduced by the amount of Taxes payable by such Person pursuant to this Section
12.12. Any amounts so withheld will be promptly remitted to the appropriate
taxing authority.
(THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
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<PAGE>
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF REORGANIZATION
IN WITNESS WHEREOF, Parent, Merger Sub, HT and the Stockholder have
executed this Agreement as of the date first written above.
LIONBRIDGE TECHNOLOGIES, INC. HARVARD TRANSLATIONS, INC.
By: ______________________ By: _________________________
Name: Name:
Title: Title:
HT ACQUISITION CORP.
By: ______________________
Name:
Title:
STOCKHOLDER:
- --------------------------
Robert C. Sprung
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<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
Lionbridge Technologies, Inc. of our report dated January 24, 2000 relating to
the financial statements of Lionbridge Technologies, Inc., which appears in such
Registration Statement. We also consent to the references to us under the
headings "Experts" and "Selected Financial Data of Lionbridge and INT'L.com" in
such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 30, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated March 3, 2000 and to all references to our Firm included in or made
a part of this Registration Statement
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 29, 2000
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
International Language Engineering Corporation:
We consent to the inclusion of our report dated March 4, 1999, with respect to
the consolidated balance sheets of International Language Engineering
Corporation and subsidiaries as of December 27, 1998 and December 28, 1997 and
the related consolidated statements of operations, stockholders' deficit and
cash flows for the years then ended, which report appears in the Form S-4 of
Lionbridge Technologies, Inc., and to the reference to our firm under the
heading "Experts" in the Registration Statement.
/s/ KPMG LLP
KPMG LLP
Boulder, Colorado
March 28, 2000
<PAGE>
Exhibit 99.1
Lionbridge Technologies, Inc.
950 Winter Street
Waltham, Massachusetts 02451
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _____________, _______________, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Rory J. Cowan and Stephen J. Lifshatz
and each of them the proxies of the undersigned, with power of substitution
to each of them, to vote all shares of Lionbridge Technologies, Inc., a
Delaware corporation ("Lionbridge"), which the undersigned is entitled to
vote at a Special Meeting of Stockholders of Lionbridge to be held on
______________, ______________, 2000, at 10:00 a.m. (local time) at Testa,
Hurwitz & Thibeault, LLP, 125 High Street, Boston, Massachusetts 02110 (the
"Meeting").
In their discretion, the proxies are authorized to vote on such other
matters as may properly come before the Meeting or any adjournment thereof.
(Continued and to be dated and signed on reverse side)
SEE REVERSE SIDE SEE REVERSE SIDE
<PAGE>
/x/ Please mark votes as in this example.
The shares represented by this proxy will be voted as directed by the
undersigned. If no direction is given with respect to any proposal specified
below, this proxy will be voted FOR such proposal.
1. To approve the issuance of up to an estimated maximum of 8,201,082
shares of common stock of Lionbridge to stockholders and holders of
convertible and subordinated debt of INT'L.com, Inc., a Delaware
corporation ("INT'L.com"), as contemplated by the Amended and
Restated Agreement and Plan of Reorganization, dated as of March 30,
2000, by and among the Lionbridge, LTI Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Lionbridge, and
INT'L.com, pursuant to which LTI Acquisition Corp. will be merged
with and into INT'L.com, with INT'L.com being the surviving
corporation (the "Merger").
/ / FOR / / AGAINST / / ABSTAIN
2. To elect Claude P. Sheer to serve for a three-year term as a Class I
Director of Lionbridge.
/ / FOR / / WITHHELD
3. To ratify selection of the firm of PricewaterhouseCoopers LLP,
independent public accountants, as auditors for the fiscal year ending
December 31, 2000.
/ / FOR / / AGAINST / / ABSTAIN
4. To transact such other business as may properly come before the
Meeting or any adjournment or postponement of the Meeting, including
without limitation, potential adjournments or postponements of the
Meeting for the purpose of soliciting additional proxies in order
to approve the proposed issuance of Lionbridge's common stock in
connection with the Merger.
/ / FOR / / AGAINST / / ABSTAIN
MARK HERE FOR ADDRESS CHANGE
OR COMMENT AND NOTE AT LEFT / /
<PAGE>
The Lionbridge board of directors recommend that you vote FOR each of
the proposals.
PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE PREPAID
ENVELOPE.
The signature on this proxy should correspond exactly with stockholder's
name as printed to the left. In the case of joint tenancies, co-executors or
co-trustees, both should sign. Persons signing as Attorney, Executor,
Trustee, Administrator or Guardian should give their full title.
Signature: Date:
-------------------------------------------- ---------------
Signature: Date:
-------------------------------------------- ---------------
<PAGE>
Exhibit 99.2
INT'L.com, Inc.
492 Old Connecticut Path
Framingham, Massachusetts 01701
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _____________, _______________, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Roger O. Jeanty and Steven L. Fingerhood
and each of them the proxies of the undersigned, with power of substitution
to each of them, to vote all shares of INT'L.com, Inc., a Delaware
corporation ("INT'L.com"), which the undersigned is entitled to vote at a
Special Meeting of Stockholders of INT'L.com to be held on ______________,
______________, 2000, at 10:00 a.m. (local time) at 492 Old Connecticut Path,
Framingham, Massachusetts 01701 (the "Meeting").
In their discretion, the proxies are authorized to vote on such other
matters as may properly come before the Meeting or any adjournment thereof.
(Continued and to be dated and signed on reverse side)
SEE REVERSE SIDE SEE REVERSE SIDE
<PAGE>
/x/ Please mark votes as in this example.
The shares represented by this proxy will be voted as directed by the
undersigned. If no direction is given with respect to any proposal specified
below, this proxy will be voted FOR such proposal.
1. To approve and adopt the merger and the Agreement and Plan of
Reorganization, dated as of January 19, 2000, among Lionbridge
Technologies, Inc., a Delaware corporation, LTI Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of Lionbridge,
and INT'L.com, that will result in INT'L.com becoming a wholly owned
subsidiary of Lionbridge (the "Merger").
/ / FOR / / AGAINST / / ABSTAIN
2. To approve the appointment of Steven L. Fingerhood, currently the
Chief Strategic Officer and Chairman of the board of directors of
INT'L.com, as the indemnification representative to act on behalf of
the INT'L.com stockholders in connection with the Merger and the
Escrow Agreement referred to in the Agreement and Plan of
Reorganization.
/ / FOR / / WITHHELD
3. To transact such other business as may properly come before the
Meeting or any adjournment or postponement of the Meeting, including
without limitation, potential adjournments or postponements of the
Meeting for the purpose of soliciting additional proxies in order
to approve and adopt the merger and the Agreement and Plan of
Reorganization.
/ / FOR / / AGAINST / / ABSTAIN
MARK HERE FOR ADDRESS CHANGE
OR COMMENT AND NOTE AT LEFT / /
<PAGE>
The INT'L.com board of directors recommend that you vote FOR each of
the proposals.
PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE PREPAID
ENVELOPE.
The signature on this Proxy should correspond exactly with stockholder's
name as printed to the left. In the case of joint tenancies, co-executors or
co-trustees, both should sign. Persons signing as Attorney, Executor,
Trustee, Administrator or Guardian should give their full title.
Signature: Date:
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Signature: Date:
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