<PAGE>
As filed with the Securities and Exchange Commission on August 4, 1994
Registration No. 33-53773
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
___________________
LOTUS DEVELOPMENT CORPORATION
(Exact name of registrant as specified in charter)
Delaware 04-2757702
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
55 Cambridge Parkway
Cambridge, Massachusetts 02142
(617) 577-8500
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
___________________
Thomas M. Lemberg, Esq. Copy to:
Vice President, General Counsel
and Secretary Kenneth S. Siegel, Esq.
Lotus Development Corp. O'Sullivan Graev & Karabell
55 Cambridge Parkway 30 Rockefeller Plaza
Cambridge, Massachusetts 02142 New York, New York 10112
(617) 577-8500 (212) 408-2400
(Name, address, including zip code,
and telephone number, including area code, of
agent for service of process)
___________________
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: From time to time after this Registration Statement becomes
effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
___________________
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>
LOTUS DEVELOPMENT CORPORATION
Cross Reference Sheet Pursuant to Item 501(b)
of Regulation S-K Showing Location in Prospectus of
Information Required by Items of Form S-3
<TABLE>
<CAPTION>
FORM S-3 REGISTRATION
STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
- -------------------------- ----------------------
<S> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus.......................... Facing Page of Registration
Statement; Cross-Reference
Sheet; Outside Front Cover Page
of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus........... Inside Front Cover Page of
Prospectus; The Company
3. Summary Information, Risk
Factors and Ratio of Earnings to
Fixed Charges....................... Available Information; Investment
Considerations; Recent Developments
4. Use of Proceeds..................... Use of Proceeds
5. Determination of Offering Price..... *
6. Dilution............................ *
7. Selling Security-Holders............ Selling Shareholders/Acquisition
of Iris Associates, Inc.
8. Plan of Distribution................ Plan of Distribution
9. Description of Securities to be
Registered.......................... Description of Company's
Securities; Incorporation of
Certain Documents by Reference
10. Interests of Named Experts and
Counsel............................ Legal Opinion
11. Material Changes................... Recent Developments; Incorporation of
Certain Documents by Reference; Legal
Proceedings
12. Incorporation of Certain
Documents by Reference............. Incorporation of Certain
Documents by Reference
13. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities.................... *
</TABLE>
* Item is omitted because it is either not required or inapplicable.
<PAGE>
********************************************************************************
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
********************************************************************************
SUBJECT TO COMPLETION, DATED AUGUST 4, 1994
PROSPECTUS
1,423,734 SHARES
LOTUS DEVELOPMENT CORPORATION
COMMON STOCK
_____________________
This Prospectus relates to the public offering from time to time of up to an
aggregate of 1,423,734 shares (the "Shares") of common stock, par value $.01 per
share (the "Common Stock"), of Lotus Development Corporation, a Delaware
corporation (the "Company" or "Lotus"), by the Selling Shareholders named
herein. The Shares were issued by Lotus to the Selling Shareholders in
connection with the acquisition by Lotus of Iris Associates, Inc. ("Iris"), in
exchange for all the issued and outstanding shares of Iris. See "The Selling
Shareholders/Acquisition of Iris Associates, Inc."
The Selling Shareholders, or any of them, may sell the Shares from time to
time in transactions on the NASDAQ National Market System or in the over-the-
counter market, or through private sales. See "Plan of Distribution." All
sales made on the NASDAQ National Market System or in the over-the-counter
market shall be made at the then prevailing price of the Shares on such national
market system or in such over-the-counter market, as applicable; any private
sales will be made at negotiated prices.
Sales of the Shares may be made to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Shareholders effecting such sales. The Selling
Shareholders and any broker-dealers who act in connection with sales of Shares
may be deemed to be "underwriters" as that term is defined in the Securities Act
of 1933, as amended (the "Securities Act"), and any commissions received by them
and profit on any resale of the Shares may be deemed to be underwriting
discounts and commissions under the Securities Act.
The Company will not receive any proceeds from the sale of Shares hereunder.
The Selling Shareholders shall pay all discounts and selling commissions (if
any), fees and expenses of counsel and other advisors to the Selling
Shareholders, or any of them, and any other expenses incurred in connection with
the registration and sale of the Shares, other than the registration fee payable
to the Securities and Exchange Commission hereunder, the listing fee to be paid
to the National Association of Securities Dealers, Inc. ("NASD") for listing the
Shares on the NASDAQ National Market System, fees and expenses relating to the
registration or qualification of the Shares pursuant to any applicable state
securities or "blue sky" laws and the fees and expenses of the Company's counsel
and independent accountants, which will be paid by the Company. See "Plan of
Distribution." Expenses of issuance and distribution are estimated to be
$120,545, of which approximately $90,545 will be borne by the Company and
approximately $30,000 will be borne by the Selling Shareholders.
The Common Stock is traded on the NASDAQ National Market System under the
symbol "LOTS." On August 2, 1994 the reported closing price of the Company's
Common Stock on the NASDAQ National Market System was $34.00 per share.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
____________________
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON HAS HAVING BEEN AUTHORIZED BY THE
COMPANY OR BY ANY OTHER PERSON. ALL INFORMATION CONTAINED IN THIS PROSPECTUS IS
AS OF THE DATE OF THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR IN THE FACTS
HEREIN SET FORTH SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE
SECURITIES COVERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO OR
SOLICITATION OF ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION MAY NOT BE LAWFULLY MADE.
THE DATE OF THIS PROSPECTUS IS AUGUST 4, 1994.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder, and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Reports, proxy statements and other information filed by
the Company with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the following Regional
Offices of the Commission: Room 3190, Northwest Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661-2511; and 13th Floor, 7 World Trade Center, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Such reports, proxy statements and
other information concerning the Company are also available for inspection at
the offices of the NASDAQ Stock Market, Inc., Reports Section, 1735 K Street,
Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(i) the Annual Report of the Company on Form 10-K for the year ended
December 31, 1993, filed March 30, 1994, as amended by the Amendment to the
Annual Report of the Company on Form 10-K/A, filed August 3, 1994;
(ii) the Quarterly Report of the Company on Form 10-Q for the fiscal
quarter ended April 2, 1994, filed May 17, 1994;
(iii) the Company's definitive Proxy Statement, dated April 13, 1994, for
its Annual Meeting of Shareholders held on Wednesday, May 25, 1994;
(iv) the description of the Common Stock contained in the registration
statement on Form 8-A filed by the Company with the Commission on February
24, 1984; and
(v) the descriptions of the Series A Preferred Stock Purchase Rights and
of the Series A Preferred Stock contained in the registration statement on
Form 8-A filed by the Company with the Commission on November 10, 1988, as
amended.
The Commission file number for each of the above documents is 0-11626.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act after the date hereof and prior
to the termination of this offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the filing date of
such document.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the documents which have been incorporated by reference
herein, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference herein). Requests for such copies should
be directed to: Thomas M. Lemberg, Esq., Vice President, General Counsel and
Secretary of the Company, telephone number (617) 577-8500.
2
<PAGE>
INVESTMENT CONSIDERATIONS
COMPETITION.
COMPETITION GENERALLY. The applications software business is highly
competitive. The Company's products compete with software products offered by
major independent software companies, such as Microsoft Corporation, Novell,
Inc., Borland International, Inc. and Software Publishing, Inc. Certain
products offered by the Company are directed at operating environments or
business applications in which one or more of these companies were early
entrants and enjoy significant product acceptance and market share.
WINDOWS DESKTOP APPLICATIONS. Lotus believes that its share of the
Windows desktop applications market will be an important factor in its future
success. Although Lotus's share of this market fluctuates from quarter to
quarter, management believes that the Company is second in market share to
Microsoft, the developer of the MS-DOS and Microsoft Windows operating
environments, in the spreadsheet and desktop suite product categories and third,
behind Microsoft and WordPerfect, a unit of Novell, in the word processing
product category. The market for Windows applications is highly competitive and
attempts by major participants to maintain or increase market share may lead to
product price reductions and increased marketing efforts aimed at sales of
bundled desktop applications sold as suites.
DESKTOP SUITES. Competition in the Windows applications market has been
intensified by the emergence of desktop "suites", in which software publishers
combine and integrate stand-alone applications for sale as a unit. The desktop
suite magnifies the effects of competition in the desktop applications market,
since the popularity of one major product in a suite may drive the sale of the
entire suite and may enable the software publisher to occupy the buyer's entire
personal computer "desktop". Generally, the sales price of a suite is greater
than the price of any single application included in the suite, but is
significantly less than the aggregate price of all the applications included in
the suite, if purchased separately. The Company expects that sales of desktop
suites will continue to account for a growing percentage of all Windows desktop
applications sales and will eventually surpass aggregate sales of individual
desktop applications as a percentage of all Windows desktop sales.
Lotus, Microsoft and Novell each market applications suites for the
Windows operating environment. Sales of Lotus' product in this category,
SmartSuite, represented about one-third of the Company's total Windows desktop
applications revenue in 1993, and comprised approximately 45% of Windows
desktop applications revenue in the first half of 1994. The Company believes
that SmartSuite revenues have been driven by growing demand for desktop suites,
Lotus's highly-rated individual applications, particularly 1-2-3 for Windows,
and the high degree of integration among the products in its suite. However, no
assurance can be given that sales of SmartSuite will continue to grow, or that
the rate of growth will not decline or rise more slowly than the growth rates
achieved by Lotus' competitors. If Lotus's share of the desktop suite market
declines, Lotus' overall share of the Windows desktop applications market is
likely to decline as well.
COMMUNICATIONS PRODUCTS AND SERVICES. The Company's communications
strategy is currently based on workgroup computing and electronic messaging
products. The Company was an early entrant into the market for software designed
to facilitate workgroup computing and believes that the Company's offering,
Lotus Notes, is the leading product in this category. Workgroup computing is
an emerging technology and as such is subject to rapid changes. There can be no
assurance that the Company's Lotus Notes product will continue to gain market
acceptance as increased competition brings new products and new technology to
the marketplace for workgroup computing. While the Company does not believe that
competition is a currently significant factor in this area, both Microsoft and
Novell have announced their intentions to enter into the workgroup computing
3
<PAGE>
market. In addition, it should be expected that continued growth in this market
will attract new competitors.
Like the market for desktop applications generally, the market for
local area network-based e-mail products is highly competitive. The Company's
largest competitor in this market is Microsoft, which has announced its
intention to include certain e-mail functions in future versions of its
operating systems software. There can be no assurance that such development will
not have an adverse effect on the Company's market share for communications
products.
POSSIBILITY OF NEW PRODUCT DELAYS.
As is common in the computer software industry, the Company has from time
to time experienced delays in its product development and "debugging" efforts,
and may experience similar delays from time to time in the future. Significant
delays in developing, completing or shipping new or enhanced products could
adversely affect the Company.
HISTORICAL PATTERNS OF REVENUE FLOW.
The Company's sales revenue typically fluctuates from quarter to quarter,
with sales being relatively higher in the fourth quarter and in quarters in
which new versions of established products are introduced. In addition, a high
percentage of the Company's revenues are expected to be earned in the third
month of each fiscal quarter and will tend to be concentrated in the latter half
of that month. Lotus' backlog early in a quarter will not generally be large
enough to assure that it will meet its revenue targets for any particular
quarter. Accordingly, Lotus' quarterly results may be difficult to predict
until the end of the quarter, and a shortfall in shipments at the end of any
particular quarter may cause the results of that quarter to fall short of
anticipated levels.
CHANGES IN THE PERSONAL COMPUTER INDUSTRY.
The personal computer industry, in both the hardware and software
segments, has been subject to rapid technological advances and other changes,
which can be expected to continue. The Company believes that demand for the
Company's products is indirectly linked to the demand for new personal computers
generally, particularly in the case of desktop applications. Historically, the
industry has been characterized by sustained growth in unit sales of personal
computers, but no assurance can be given that this trend will continue.
Accordingly, the level of demand for personal computers reported by
manufacturers or resellers of personal computers may be viewed by certain
investors as potentially predictive of future demands for the Company's
products.
PROTECTION OF INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS.
The Company regards its applications as proprietary and attempts to
protect its intellectual property rights by relying on copyrights, trademarks,
patents, and common law safeguards, including trade secret protection, as well
as restrictions on disclosure and transferability in its agreements with other
4
<PAGE>
parties. Although Lotus intends to protect its intellectual property rights
vigorously, there can be no assurance that the laws of all jurisdictions in
which Lotus' products are or may be developed, manufactured or sold will afford
the same protection to Lotus' products and intellectual property, or will be
enforced or enforceable by Lotus, to the same extent as under the laws of the
United States.
The software industry is characterized by frequent litigation regarding
copyright, patent and other intellectual property rights. Lotus has from time
to time had infringement claims asserted by third parties against it and its
products. There can be no assurance that such third party claims will be
resolved in a satisfactory manner, that third parties will not assert other
claims against Lotus with respect to existing or future products or that
licenses will be available on reasonable terms, or at all, with respect to any
third party technology underlying any such claim. In the event of litigation to
determine the validity of any third party claims, such litigation could result
in significant expense to Lotus and divert the efforts of Lotus' technical and
management personnel, whether or not such litigation is determined in favor of
Lotus.
VOLATILITY OF LOTUS COMMON STOCK.
Market prices for securities of software companies have generally been
volatile in recent years. In particular, the market price of Lotus Common
Stock has been and may continue to be subject to significant fluctuations over
short periods of time. These fluctuations may be due to factors specific to
Lotus (including those described above), to changes in software industry
analysts' earnings estimates, or to factors affecting the computer industry or
the securities markets in general.
RECENT DEVELOPMENTS
EARNINGS ANNOUNCEMENT. On July 19, 1994, the Company announced earnings
of $9.7 million, or 20 cents per share, for its second quarter ended July 2,
1994, a 36 percent decrease from net income from operations of $15.2 million, or
35 cents per share, in the corresponding period of 1993. Revenue for the second
quarter totalled $224 million, a five percent decrease from revenue of $235.8
million in the prior year's second quarter. In the second quarter of 1993,
Lotus recorded a $19.9 million charge for purchased research and development
related to the acquisition of Approach Software Corp. After that charge, the
Company reported a net loss of $4.6 million, or 11 cents per share. The
reported results were below the revenue and earnings estimates for the same
periods that had previously been projected by independent Wall Street analysts.
The Company believes that its lower than expected results are
attributable to a number of factors which depressed sales of its desktop
applications during the second quarter. These factors include delays in
shipping certain desktop product upgrades that had been anticipated during the
quarter, cyclical competitive pressures from desktop applications offered by
Microsoft, sales disruption accompanying the introduction of the Lotus Passport
program, and the short term effect of a reorganization of its United States
sales organization.
The Company believes that the delays in product shipments reduced sales
5
<PAGE>
by its distributors more than it anticipated as end users deferred purchases in
anticipation of new product offerings or purchased competitive products. This,
in turn, reduced orders from such distributors at the end of the quarter, when
inventories are customarily replenished. The Company believes that these effects
were increased by the introduction during 1994 of several competitive product
upgrades by Microsoft accompanied by aggressive marketing and sales promotions
by Microsoft. These promotions may have further depressed end-of-quarter demand
as distributors reallocated resources to Microsoft products in order to take
advantage of volume-based incentives related to the product introductions. The
Company currently expects to ship upgrades of 1-2-3 for Windows, SmartSuite,
Lotus Approach, and 1-2-3 for DOS, and point releases of Ami Pro and Freelance
Graphics, during the third quarter of 1994. However, no assurance can be given
that one or more of such releases may not be delayed. 1-2-3 for Windows is
Lotus' best selling product and a significant factor in SmartSuite sales, which
represent more than one-third of all sales by Lotus in the Windows desktop
applications market. The Company last shipped major upgrades of 1-2-3 for
Windows in June 1993, of SmartSuite in September 1993, and of 1-2-3 for DOS in
December 1992.
The introduction in May of Lotus Passport, a program of options for
purchasing and upgrading the Company's software products that provides for
consistent worldwide pricing and other competitive features, may also have
temporarily depressed sales. The transitional effects of the program created an
administrative backlog of orders in process, and some major customers deferred
purchases until the program was fully implemented. The Company believes that
this new program will ultimately strengthen its competitive position in the
marketplace.
ACQUISITIONS. The Company acquired Iris Associates, Inc., an independent
developer of applications software, in May 1994. The acquisition of Iris is
discussed below under "Selling Shareholders/Acquisition of Iris Associates,
Inc."
In June 1994, the Company entered into a definitive agreement to acquire
Soft-Switch Inc. ("SoftSwitch"), a leading provider of electronic mail message
switches that link disparate electronic messaging systems, for approximately $62
million in cash. The Company expects that the acquisition of Soft-Switch will be
completed shortly after the receipt of federal regulatory approval. The Company
intends to account for the transaction as a purchase and to incur a one-time
pre-tax charge against earnings in the quarter in which the transaction is
completed for the associated write-off of purchased research and development.
THE COMPANY
Lotus Development Corporation was incorporated in Delaware in April 1982.
The Company and its subsidiaries are engaged in the development, manufacturing,
marketing and support of applications software and services that meet the
evolving technology and business application requirements of individuals, work
groups, and entire organizations.
The Company's products and services consist primarily of desktop
applications, which include spreadsheets, word processing, graphics, end-user
6
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database and personal information management software, and communications
products and services, which include Lotus Notes, cc:Mail and consulting
services. These products and services comprise the Company's "Working Together"
strategy, which is defined by products that have common user interfaces, that
are integrated with each other, that work across multiple platforms, and that
help people work together more productively. The centerpiece of this strategy is
communications products that facilitate workgroup computing and make the
Company's desktop applications more productive through group-enabling and
ease-of-use features. The Company markets its products in more than 80 countries
worldwide and provides support services through its consulting services group
and its worldwide support centers.
Lotus' initial product, Lotus 1-2-3, was shipped in January 1983. 1-2-3
is a software product that combines spreadsheet, database and graphing
capabilities into a single program for use with most personal computers.
According to industry reports, soon after its introduction, 1-2-3 became the
personal computer software industry's best selling business applications
software product. Since its release in 1983, 1-2-3 has been continually updated
to incorporate new technological advances, increased functionality, ease-of-use,
and compatibility with major operating system and hardware platforms. By the end
of 1993, the Company had shipped approximately 15 million units of 1-2-3.
The Company has added to its established spreadsheet products in an
effort to build a strong presence in each of the predominant desktop
applications categories. Lotus has developed or acquired presentation graphics
(Freelance Graphics), word processing (Ami Pro), end-user database (Lotus
Approach) and personal information management (Lotus Organizer) software
products. In 1992, the Company introduced SmartSuite, an integrated suite of the
Company's desktop applications.
The Company introduced Lotus Notes in 1990 and acquired cc:Mail, Inc. in
1991 to position itself to capitalize on the trend toward networked computing,
information sharing and organizational computing. Lotus Notes has been widely
acclaimed for its ability to enable workgroups to access, track, share, route
and organize information across diverse computing platforms and geographical
boundaries. Notes is the pre-eminent client-server product for developing and
deploying groupware applications, including those found in customer service,
sales and account management and product development. The combination of Notes
and cc:Mail, the leading LAN (Local Area Network)-based electronic mail product,
has established the Company as a leader in PC-based communications software. The
Company has also integrated Notes with its desktop products to enable them to
take advantage of workgroup computing environments.
The Company's aim is to develop and market the best desktop applications
in the industry and to play a leadership role in the rapidly growing
communications market. Improving organizational productivity for its customers
in today's networked computing environment is a primary objective.
The Company has developed and adopted cross-product standards for most
Lotus products that enhance user value in areas such as user interface design,
database access methods, international character sets, networking, mail
enabling, customization and extensibility. When appropriate, the Company has
worked with other major software and hardware companies to develop these
standards. Furthermore, as networked computing environments become more
prevalent, the Company has focused on providing customers with communications
products capable of being used across a broad range of hardware systems and
7
<PAGE>
operating environments. This provides customers with the ability to easily
share information among users, to more readily move users between computing
platforms, and to exercise greater flexibility in selecting computing
environments. The Company believes this approach is of significant value to
customers because it preserves their existing investment while allowing them to
take advantage of new technologies. The Company also believes this approach is
necessary to maintain its competitive position.
The Company's address is 55 Cambridge Parkway, Cambridge, Massachusetts
02142, and its telephone number is (617) 577-8500.
THE SELLING SHAREHOLDERS
ACQUISITION OF IRIS ASSOCIATES, INC.
Each of the Selling Shareholders was a stockholder of Iris Associates,
Inc. ("Iris"), an independent developer of applications software, including
Lotus Notes. On May 31, 1994, Lotus acquired Iris (the "Acquisition") through
the merger (the "Merger") of Iris and a wholly-owned subsidiary of Lotus
("Acquisition Sub"), with Iris surviving. The acquisition was accounted for as a
pooling of interests.
In the Merger, the shares of capital stock of Iris owned by the Selling
Shareholders were converted, on a pro rata basis, into shares of Lotus Common
Stock, and Iris became a wholly-owned subsidiary of Lotus. The Selling
Shareholders received, in the aggregate, 1,423,734 shares of Lotus Common Stock
in the Merger, all of which may be offered for sale from time to time by the
Selling Shareholders pursuant to the registration statement of which this
Prospectus is a part.
Iris developed Notes with development funding from Lotus, in exchange for
royalty payments on Notes sales. Lotus has owned the source code for Notes
since 1988.
The name and address of each of the Selling Shareholders, the positions,
offices and other material relationships, if any, of such Selling Shareholder
with Iris prior to the Merger, the number of Shares to be held by such Selling
Shareholder following the Merger and the percentage ownership of such Selling
Shareholder following the Merger of the issued and outstanding shares of Lotus
Common Stock is as set forth below:
<TABLE>
<CAPTION>
Name Address Positions, Offices and No. of Shares Percent of Lotus
Other Material Common Stock
Relationships with Iris
- ----------------- ------------------- ----------------------- ------------- ----------------
<S> <C> <C> <C> <C>
Raymond E. Ozzie One Technology Park President 791,963 1.74%
Westford, MA 01886
Timothy Halvorsen One Technology Park Vice President 199,323 *%
Westford, MA 01886
Alan E. Eldridge One Technology Park -- 43,673 *%
Westford, MA 01886
Steven R. One Technology Park Vice President, Chief 185,085 *%
Beckhardt Westford, MA 01886 Financial Officer
Jack E. Ozzie One Technology Park -- 4,367 *%
Westford, MA 01886
Leonard M. One Technology Park Vice President 199,323 *%
Kawell Westford, MA 01886
</TABLE>
- ------------------*
Less than 1%
8
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Except for the positions, offices and other material relationships with
Iris set forth above, none of the Selling Shareholders has held any position or
office, or had any other material relationship, with Lotus or any of its
predecessors or affiliates. If all the Shares being offered by the Selling
Shareholders are sold, none of the Selling Shareholders will own any Common
Stock.
PLAN OF DISTRIBUTION
The Shares are being registered to permit public secondary sales of the
Shares by the Selling Shareholders, or any of them, from time to time after the
date of this Prospectus. The Company anticipates that the Selling Shareholders
may sell all or a portion of the Shares from time to time through the NASDAQ
National Market System or in the over-the-counter market, and may sell Shares to
or through one or more broker-dealers at prices prevailing on such National
Market System or over-the-counter market, as appropriate, at the times of such
sales. The Selling Shareholders may also make private sales directly or through
one or more broker-dealers. Broker-dealers participating in such transactions
may receive compensation in the form of discounts, concessions or commissions
(including, without limitation, customary brokerage commissions) from the
Selling Shareholders effecting such sales. The Selling Shareholders and any
brokerdealers who act in connection with sales of Shares may be deemed to be
"underwriters" as that term is defined in the Securities Act, and any
commissions received by them and profit on any resale of the Shares might be
deemed to be underwriting discounts and commissions under the Securities Act. In
effecting sales, broker-dealers engaged by a Selling Shareholder may arrange for
other broker-dealers to participate.
The Selling Shareholders shall pay all discounts and selling commissions
(if any), fees and expenses of counsel and other advisors to the Selling
Shareholders, or any of them, and any other expenses incurred in connection with
the registration and sale of the Shares, other than the registration fee payable
to the Securities Exchange Commission hereunder, the listing fee to be paid to
the NASD for listing the Shares on the NASDAQ National Market System, fees and
expenses relating to the registration or qualification of the Shares pursuant to
any applicable state securities or "blue sky" laws and the fees and expenses of
the Company's counsel and independent accountants, which will be paid by the
Company.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Shares
hereunder.
DESCRIPTION OF THE COMPANY'S SECURITIES
COMMON STOCK
The Company is authorized to issue up to 200,000,000 shares of Common
Stock. The holders of the Company's Common Stock are entitled to one vote for
each share held on all matters submitted to a vote of stockholders.
Upon liquidation, dissolution or winding up of the Company, subject to
the rights of the holders of Preferred Stock, $1.00 par value (the "Preferred
Stock"), of the Company then outstanding, the holders of Common Stock are
entitled to receive the net assets of the Company in proportion to the
respective number of shares held by them. The holders of Common Stock have no
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<PAGE>
preemptive or cumulative voting rights, and there are no conversion rights or
sinking fund provisions applicable thereto. The outstanding shares of Common
Stock are duly authorized, fully paid and nonassessable.
Subject to the rights of any holders of Preferred Stock and the
limitations contained in certain loan agreements to which the Company is a
party, the holders of Common Stock are entitled to receive dividends when, as
and if declared by the Board of Directors of the Company out of funds legally
available therefor. Certain of the loan agreements to which the Company is a
party contain provisions restricting the ability of the Company to redeem, or to
pay dividends or make distributions with respect to, its capital stock. These
restrictions would not presently affect the Company's ability to pay dividends
from its current retained earnings.
The Company has never declared or paid cash dividends on the Common Stock
and does not currently intend to pay cash dividends on the Common Stock in the
foreseeable future. The Company intends to retain future earnings for
reinvestment in its business. Subject to the provisions of the loan agreements
referred to above, any future payment of cash dividends on the Common Stock will
be within the discretion of the Company's Board of Directors.
RIGHTS PLAN
On November 7, 1988, the Board of Directors of the Company declared a
dividend of one preferred share purchase right (a "Right") for each outstanding
share of Common Stock. The dividend was paid as of the close of business on
November 23, 1988 (the "Rights Record Date"), to the stockholders of record on
that date. On November 7, 1988, the Board of Directors of the Company also
directed the issuance of one Right with respect to each share of Common Stock
issued (a) subsequent to the Rights Record Date and prior to the earliest to
occur of the Distribution Date, the Redemption Date and the Final Expiration
Date (as such terms are hereinafter defined), or (b) upon the exercise, after
the Distribution Date and prior to the earlier to occur of the Redemption Date
and the Final Expiration Date, of an option granted prior to the Distribution
Date pursuant to any benefit plan of the Company. Each Right entitles the
registered holder to purchase from the Company one one-hundredth of a share (a
"Series A Preferred Share") of Series A Junior Participating Preferred Stock,
$1.00 per value (the "Series A Preferred Stock"), of the Company at a price of
$75 per one one-hundredth of a Series A Preferred Share (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth in
the Rights Agreement dated as of November 7, 1988, between the Company and The
First National Bank of Boston, as Rights Agent, as amended by the Amendment to
the Rights Agreement dated as of April 5, 1990, and the Amendment to the Rights
Agreement dated as of September 16, 1991, each between the Company and The
First National Bank of Boston, as Rights Agent (the "Rights Agreement").
The following is a general description only and is subject to detailed
terms and conditions of the Rights Agreement.
RIGHTS EVIDENCED BY COMMON STOCK CERTIFICATES. Until the earlier to
occur of (a) 10 days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired beneficial
ownership of 15% or more of the outstanding Common Stock or (b) 10 business days
(or such later date as may be determined by action of the Board of Directors
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<PAGE>
prior to the time that a person or group has become an Acquiring Person)
following the commencement of, or announcement of an intention to make, a tender
offer or exchange offer the consummation of which would result in a person or
group becoming an Acquiring Person (the earlier of such dates being called the
"Distribution Date"), the Rights will be evidenced, with respect to any of the
Common Stock certificates outstanding as of the Rights Record Date, by such
Common Stock certificate.
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Stock. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Stock certificates issued after the Rights Record Date upon a transfer or
an original issuance of Common Stock will contain a notation incorporating the
Rights Agreement by reference. Until the Distribution Date (or earlier
redemption or expiration of the Rights), the surrender for transfer of any
certificates for Common Stock outstanding as of the Rights Record Date, even
without such notation, will also constitute the surrender for transfer of the
Rights associated with the Common Stock represented by such certificates.
ISSUANCE OF RIGHTS CERTIFICATES; EXPIRATION OF RIGHTS. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights ("Rights Certificates") will be mailed to holders of record of Common
Stock as of the close of business on the Distribution Date and such separate
Rights Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date and are not
exercisable at any time at which they are redeemable by the Company. The Rights
will expire on November 23, 1998 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed by the
Company, in each case as described below.
ADJUSTMENTS TO PREVENT DILUTION. The Purchase Price payable, and the
number of Series A Preferred Shares or other securities or property issuable,
upon exercise of the Rights are subject to adjustment from time to time to
prevent dilution (a) in the event of a stock dividend on, or a subdivision,
combination or reclassification of, the Series A Preferred Shares, (b) upon the
grant to holders of Series A Preferred Shares of certain rights or warrants to
subscribe for or purchase Series A Preferred Shares at a price, or securities
convertible into Series A Preferred Shares with a conversion price, less than
the then current market price of the Series A Preferred Shares or (c) upon the
distribution to holders of Series A Preferred Shares of evidences of
indebtedness or assets (excluding regular periodic cash dividends paid out of
earnings or retained earnings or dividends payable in Series A Preferred Shares)
or of subscription rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one-hundredths of a
Series A Preferred Share issuable upon exercise of each Right are also subject
to adjustment in the event of a stock split of the Common Stock or a stock
dividend on the Common Stock payable in Common Stock or subdivisions,
consolidations or combinations of the Common Stock occurring, in any such case,
prior to the Distribution Date.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Series A Preferred Shares will be issued
(other than fractions that are integral multiples of one one-hundredth of a
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Series A Preferred Share, which may, at the election of the Company, be
evidenced by depositary receipts) and, in lieu thereof, an adjustment in cash
will be made based on the market price of the Series A Preferred Shares on the
last trading day prior to the date of exercise.
SERIES A PREFERRED STOCK. Series A Preferred Shares purchasable upon
exercise of the Rights will not be redeemable. Each Series A Preferred Share
will be entitled to a minimum preferential quarterly dividend payment of $1 per
share but will be entitled to an aggregate dividend of 100 times the dividend
declared per share of Common Stock. In the event of liquidation, the holders of
Series A Preferred Shares will be entitled to a minimum preferential liquidation
payment of $100 per share but will be entitled to an aggregate payment of 100
times the payment made per share of Common Stock. Each Series A Preferred Share
will have 100 votes, voting together with the Common Stock. Finally, in the
event of any merger, consolidation or other transaction in which Common Stock is
exchanged, each Series A Preferred Share will be entitled to receive 100 times
the amount received per share of Common Stock. These rights are protected by
customary antidilution provisions.
Because of the nature of the dividend, liquidation and voting rights of
the Series A Preferred Stock, the value of the one-hundredth interest in a
Series A Preferred Share purchasable upon exercise of each Right should
approximate the value of one share of Common Stock.
PROTECTION AGAINST CERTAIN UNFAIR TWO-STEP OR COERCIVE TRANSACTIONS;
RIGHT TO BUY ACQUIRING CORPORATION STOCK AT HALF PRICE. Unless the Rights are
earlier redeemed, in the event that the Company is acquired in a merger or other
business combination transaction or rights, assets, properties or interests in
properties accounting for 50% or more of the fair market value of the assets or
more than 50% of the revenues of the Company are sold, proper provision will be
made so that each holder of a Right will thereafter have the right to receive,
upon the exercise thereof at the then current exercise price of the Right, that
number of shares of common stock of the acquiring company which at the time of
such transaction will have a market value of two times the exercise price of the
Right. If any person becomes an Acquiring Person, then proper provision will be
made so that each holder of a Right, other than Rights beneficially owned by the
Acquiring Person and certain affiliated or associated persons (which will
thereafter be void), will thereafter have the right to receive upon exercise, in
lieu of one one-hundredth of a Series A Preferred Share, that number of shares
of Common Stock (or, in certain circumstances, other securities or cash) having
a market value of two times the Purchase Price of the Right.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
Common Stock and prior to the acquisition by such person or group of 50% or more
of the outstanding Common Stock, the Board of Directors of the Company (with the
concurrence of a majority of the directors (the "Unaffiliated Directors") who
are neither employees or officers of the Company nor affiliated or associated
with an Acquiring Person) may exchange the Rights (other than Rights owned by
such person or group which have become void), in whole or in part, at an
exchange ratio of one share of Common Stock, or one one-hundredth of a Series A
Preferred Share (or of a share of a class or series of the Company's preferred
stock having equivalent rights, preferences and privileges), per Right (subject
to adjustment).
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REDEMPTION. At any time prior to the earlier of (a) the tenth day
following a public announcement that a person has become an Acquiring Person (or
such later date determined by the Board of Directors of the Company with the
concurrence of a majority of the Unaffiliated Directors) and (b) the Final
Expiration Date, the Board of Directors of the Company may redeem the Rights in
whole, but not in part, at a price of $.01 per Right (the "Redemption Price");
provided, however, that the Rights will not be redeemable at any time at which
Unaffiliated Directors do not constitute a majority of the Board of Directors.
The redemption of the Rights may be made effective at such time, on such basis
and with such conditions as the Board of Directors in its sole discretion may
establish. Rights will not be exercisable at any time at which the Company's
right to redeem is in effect.
In addition, if a bidder who does not beneficially own more than 1% of
the Common Stock (and who has not within the past year owned in excess of 1% of
the Common Stock and, at a time he or she held such greater-than 1% stake,
disclosed, or caused the disclosure of, an intention that relates to or would
result in the acquisition or influence of control of the Company) proposes to
acquire all the Common Stock (and all other shares of capital stock of the
Company entitled to vote with the Common Stock in the election of directors or
on mergers, consolidations, sales of all or substantially all the Company's
assets, liquidations, dissolutions or windings up) for cash at a price that a
nationally-recognized investment banker selected by such bidder states in
writing is fair, and such bidder has obtained written financing commitments (or
otherwise has financing) and complies with certain procedural requirements, then
the Company, upon the request of the bidder, will hold a special stockholders
meeting to vote on a resolution requesting the Board of Directors to accept the
bidder's proposal. If a majority of the outstanding shares entitled to vote on
the proposal vote in favor of such resolution, then for a period of 60 days
after such meeting the Rights will be automatically redeemed at the Redemption
Price immediately prior to the consummation of any tender offer for all of such
shares at a price per share in cash equal to or greater than the price offered
by such bidder; provided, however, that no redemption will be permitted or
required after the acquisition by any person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
Common Stock. Immediately upon any redemption of the Rights, the right to
exercise the Rights will terminate and the only right of the holders of Rights
will be to receive the Redemption Price.
AMENDMENT OF RIGHTS PLAN. The terms of the Rights may be amended by the
Board of Directors of the Company without the consent of the holders of the
Rights, including an amendment to lower the threshold for exercisability of the
Rights from 15% to not less than the smallest whole percentage greater than the
largest percentage of the outstanding Common Stock then known to the Company to
be beneficially owned by any person or group of affiliated or associated
persons, except that from and after such time as any person or group of
affiliated or associated persons becomes an Acquiring Person no such amendment
may adversely affect the interests of the holders of the Rights and except that
the exercise price of the Rights, the redemption price of the Rights and the
final expiration date of the Rights Agreement cannot be amended without the
consent of each holder.
NO STOCKHOLDER RIGHTS PRIOR TO EXERCISE. Until a Right is exercised, the
holder thereof, as such, will not have any rights, including, without
limitation, the right to vote or to receive dividends, as a stockholder of the
Company.
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CERTAIN ANTI-TAKEOVER EFFECTS. The Rights have certain anti-takeover
effects. The Rights will cause substantial dilution to a person or group that
attempts to acquire the Company on terms not approved by the Board of Directors
of the Company, except pursuant to an offer conditioned on a substantial number
of Rights being acquired. The Rights should not interfere with any merger or
other business combination approved by the Board of Directors since the Rights
may be redeemed by the Company at the Redemption Price prior to the time that a
person or group has acquired beneficial ownership of 15% or more of the Common
Stock.
INCORPORATION BY REFERENCE. The Rights Agreement, specifying the terms
of the Rights and including the form of the Certificate of Designations setting
forth the terms of the Series A Preferred Shares as an exhibit thereto, has
previously been filed with the Commission and is incorporated herein by
reference. The foregoing description of the Rights is qualified in its entirety
by reference to such exhibit.
PREFERRED STOCK
The Board of Directors of the Company is empowered by the Company's
Second Restated Certificate of Incorporation to issue up to 5,000,000 shares of
Preferred Stock, from time to time, in series and, with respect to each series,
to determine its relative rights, privileges, qualifications, limitations and
restrictions. The Board of Directors of the Company has designated 550,000
shares of Preferred Stock as Series A Preferred Stock. There are currently no
shares of Preferred Stock outstanding.
The Board of Directors of the Company, without the prior consent of the
holders of Common Stock, could issue shares of Preferred Stock with voting and
conversion rights that could adversely affect the voting rights of the holders
of Common Stock. In the event of a proposed merger, tender offer, proxy contest
or other attempt to gain control of the Company, it would be possible, subject
to any limitations imposed by applicable law and the Second Restated Certificate
of Incorporation, for the Board of Directors of the Company, without the prior
consent of the holders of Common Stock, to authorize the issuance of one or more
series of Preferred Stock with voting rights or other rights and preferences
that would impede the success of such proposed merger, tender offer, proxy
contest or other attempt to gain control of the Company.
The Company has no present plans (i) to issue any shares of Preferred
Stock other than the shares of Series A Preferred Stock described above or (ii)
to designate any additional Series of Preferred Stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law prevents an
"interested stockholder" (defined in Section 203, generally, as a person owning
15% or more of a corporation's outstanding voting stock) from engaging in a
"business combination" (as defined in Section 203) with a publicly-held Delaware
corporation for three years following the date such person became an interested
stockholder unless (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
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interested stockholder's becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation outstanding
at the time the transaction commenced (excluding stock held by directors who are
also officers of the corporation and by employee stock plans that do not provide
employees with the rights to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer); or (iii)
following the transaction in which such person became an interested stockholder,
the business combination is approved by the board of directors of the
corporation and authorized at a meeting of stockholders by the affirmative vote
of the holders of two-thirds of the outstanding voting stock of the corporation
not owned by the interested stockholder.
LEGAL PROCEEDINGS
Commencing on June 23, 1994, six complaints were filed in the U.S.
District Court, District of Massachusetts, against the Company and various of
its officers and directors, captioned "Jefferson Heritage Partners v. Lotus
Development Corp., Jim Manzi and Edwin Gillis" (Civ. Action No. 94-11279 (PBS));
"Fecht v. Jim P. Manzi, Edwin J. Gillis, John B. Landry and Lotus Development
Corp." (Civ. Action No. 94-11280 (PBS)); "Cohen v. Lotus Development Corp.,
Thomas Lemberg, James Manzi, Edwin J. Gillis, John Landry, Robert Weiler and
Robert P. Schechter" (Civ. Action No. 94-11281 (PBS)); "Dollinger v. Lotus
Development Corp., Thomas Lemberg, James P. Manzi, Edwin J. Gillis, John B.
Landry, Robert K. Weiler and Robert P. Schechter" (Civ. Action No. 94-11291
(PBS)); "Rosenbaum v. Lotus Development Corp., James M. Manzi and Edwin J.
Gillis" (Civ. Action No. 94-11303 (PBS)); and "Weisman v. Lotus Development
Corp., James M. Manzi and Edwin J. Gillis" (Civ. Action No. 94-11308 (PBS)).
Each complaint purports to state a claim for violation of (S) 10(b) of the
Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder,
arising out of the alleged non-disclosure by the Company of adverse information
concerning its anticipated revenues and earnings for the second quarter of 1994,
which ended on July 2, 1994. Each complaint also purports to be brought on
behalf of a class of persons who purchased Lotus stock during periods commencing
on various dates in April and May 1994 and terminating on June 20, 1994, when
the Company made certain public disclosures concerning its anticipated revenues
and earnings. The defendants' time within which to respond to each complaint
has been extended by stipulation to September 9, 1994, in contemplation of
plaintiffs' filing a consolidated amended complaint. The Company believes that
the allegations of each complaint are without merit and intends to defend these
actions vigorously.
LEGAL OPINION
The validity of the issuance of shares of Common Stock offered hereby has
been passed upon by O'Sullivan Graev & Karabell, New York, New York. Lawrence
G. Graev, a member of the firm of O'Sullivan Graev & Karabell, recently retired
as a director of the Company. Mr. Graev beneficially owns 39,000 shares of
Common Stock of the Company.
EXPERTS
The consolidated balance sheets as of December 31, 1993 and 1992 and the
consolidated statements of operations, cash flows and stockholders' equity for
each of the three years in the period ended December 31, 1993, incorporated by
reference in this prospectus, have been incorporated herein in reliance on the
report of Coopers & Lybrand, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses that are expected to be
incurred in connection with the offering of the Shares. All such expenses shall
be borne by the Company, other than the printing and engraving expenses, the
fees and expenses of legal counsel to the Selling Shareholders, and certain
miscellaneous expenses, which will be paid by the Selling Shareholders. All
amounts set forth below are estimates, other than the SEC registration fee and
NASDAQ listing fee.
<TABLE>
<S> <C>
SEC registration fee................................... $ 28,045
NASDAQ listing fee..................................... 17,500
Printing and engraving expenses........................ 15,000
Legal fees and expenses (counsel to the Company)....... 30,000
Legal fees and expenses (counsel to the Selling
Shareholders)......................................... 10,000
Accounting fees and expenses........................... 10,000
Blue Sky fees and expenses (including counsel fees).... 5,000
Miscellaneous expenses................................. 5,000
--------
Total............................................ $120,545
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides for
indemnification of directors, officers, employees and agents, subject to certain
limitations (Del. Code, Title 8 Section 145). Article Ninth of the Company's
Second Restated Certificate of Incorporation provides that:
(a) The Corporation shall, to the fullest extent permitted by the
General Corporation Law of the State of Delaware, indemnify any and
all persons whom it shall have power to indemnify under said law from
and against any and all of the expenses, liabilities or other matters
permitted to be indemnified from and against under said law and the
indemnification provided for herein shall not be deemed exclusive of
any other rights to which those indemnified may be entitled under any
By-law, agreement, vote of stockholders or disinterested directors or
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otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office, and shall continue as
to a person who has ceased to be director, officer, employee or agent
and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(b) To the fullest extent permitted by the General Corporation Law of
the State of Delaware, a director of this Corporation shall not be
liable to the Corporation or any of its stockholders for monetary
damages for breach of fiduciary duty as a director.
Article VII of the Company's By-Laws provides, in part, as follows:
Section 1. INDEMNIFICATION. (a) The Corporation shall indemnify,
defend and hold harmless, each director and officer of the
Corporation, and (ii) each other person designated in writing by the
President or the Chief Financial Officer from time to time, against
all expenses, losses, claims, damages and liabilities, including,
without limitation, attorneys' fees, judgments, fines and amounts paid
in settlement (all such expenses, collectively, "Costs") actually and
reasonably incurred by him/her in connection with the investigation,
defense or appeal of any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or
investigative, to which the director, officer or other person
(collectively "persons"), is a party or threatened to be made a party
(all such actions, collectively, "Proceedings") (A) by reason of the
fact that he/she is or was a director, officer, employee or agent of
the Corporation or of any other corporation, partnership, joint
venture, trust or other enterprise (collectively "Affiliates") of
which he/she has been or is serving at the request of, for the
convenience of, or to represent the interest of the Corporation or (B)
by reason of anything done or not done by him/her in any such capacity
referred to in the immediately foregoing clause (A). Pursuant to this
Article VII, the Board of Directors may authorize the execution and
delivery by the Corporation of any agreement or undertaking with or on
behalf of any person not inconsistent with this Article VII or
applicable law with respect to the matters set forth herein
Section 2. CULPABLE ACTION. (a) Notwithstanding the provisions of
Section 1, a person shall not be entitled to indemnification if (i)
the Corporation is prohibited from paying such indemnification under
applicable law, (ii) the person breached his/her duty of loyalty to
the Corporation or its stockholders or any Affiliate or its
stockholders, (iii) the person's actions or omissions were not in good
faith or involved intentional misconduct or knowing violation of law
or (iv) the person derived an improper personal benefit from any
transaction which is a subject of the applicable Proceeding (any
existence or occurrence described in the foregoing clauses (i)-(iv),
individually, a "Culpable Action").
* * *
Section 3. PAYMENT OF COSTS. The Costs incurred by a person in
connection with any Proceeding, including any Proceeding brought
pursuant to Section 2(b), shall be paid by the Corporation on an "as
incurred" basis; provided, however, that if it shall ultimately be
II-2
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determined that there exists or has occurred a Culpable Action with
respect to such Proceeding, the person shall repay the Corporation the
amount (or the appropriate portion thereof as contemplated by Section
2(d)) so advanced, including the costs of obtaining a determination
pursuant to Section 2(b).
The officers and directors of the Company are covered by one or more
policies of officers' and directors' liability insurance paid for by the
Company.
ITEM 16. EXHIBITS.
NUMBER DESCRIPTION
2* Agreement and Plan of Reorganization dated as of May 23, 1994, among
the Company, LDC VIII Acquisition Corporation, a Delaware corporation
and wholly-owned subsidiary of the Company ("Acquisition Sub"), and
Iris Associates, Inc. ("Iris"), relating to the acquisition of Iris by
the Company through the merger of Acquisition Sub with and into Iris.
4(a) Rights Agreement dated as of November 7, 1988 (the "Rights Agreement"),
between the Company and The First National Bank of Boston, which includes
the Certificate of Designations setting forth the terms of the Series A
Junior Participating Preferred Stock, par value $1.00 per share, as
Exhibit A, the form of Right Certificate as Exhibit B and the Summary of
Rights to Purchase Preferred Shares as Exhibit C (filed as Exhibit 1 to
the Company's Registration Statement on Form 8-A on November 10, 1988,
and incorporated herein by reference).
4(b) Amendment to the Rights Agreement dated as of April 5, 1990, between the
Company and The First National Bank of Boston, as Rights Agent (filed as
Exhibit 28(d) to the Company's Current Report on Form 8-K dated April 5,
1990, and incorporated herein by reference).
4(c) Amendment to the Rights Agreement dated as of September 16, 1991,
between the Company and The First National Bank of Boston, as Rights
Agent (filed as Exhibit 28(a) to the Company's Current Report on Form
8-K dated September 16, 1991, and incorporated herein by reference).
5 Opinion of O'Sullivan Graev & Karabell as to the validity of the
issuance of the shares of Common Stock being registered (filed as Exhibit
5 to the Company's Registration Statement on Form S-3 filed May 24, 1994
(the "S-3"), and incorporated herein by reference).
23(a)* Consent of Coopers & Lybrand (included on page II-6).
23(b) Consent of O'Sullivan Graev & Karabell (included in Exhibit 5).
24 Powers of Attorney (filed as Exhibit 24 to the S-3 and incorporated
herein by reference).
________________
* Filed herewith.
ITEM 17. UNDERTAKINGS.
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1. The undersigned registrant hereby undertakes:
(1) 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;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs
is contained in periodic reports filed by the Registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) 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.
(3) To remove from 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 that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement 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.
3. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
undersigned registrant pursuant to the provisions described under Item 15 above,
or otherwise, the registrant has been advised that in the opinion of the
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 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cambridge and the Commonwealth of Massachusetts
on the 4th day of August, 1994.
LOTUS DEVELOPMENT CORPORATION
By: /s/ Edwin J. Gillis
------------------------------------
Name: Edwin J. Gillis
Title: Senior Vice President
Finance and Operations
(Principal Financial
Officer)
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Chairman, President, CEO
and Director (Principal
/s/ Jim P. Manzi Executive Officer) August 4, 1994
- -----------------
Jim P. Manzi*
/s/ Richard S. Braddock Director August 4, 1994
- ---------------------------
Richard S. Braddock*
/s/ William H. Gray III Director August 4, 1994
- ---------------------------
William H. Gray III*
/s/ Michael E. Porter Director August 4, 1994
- ---------------------------
Michael E. Porter*
/s/ Henri A. Termeer Director August 4, 1994
- ---------------------------
Henri A. Termeer*
Senior Vice President Finance
and Operations (Principal
/s/ Edwin J. Gillis Financial Officer) August 4, 1994
- ---------------------------
Edwin J. Gillis
Vice President Finance and
Corporate Services and
Corporate Controller
(Principal Accounting
/s/ Lyn L. Benton Officer) August 4, 1994
- ---------------------------
Lyn L. Benton*
________________________
*By Thomas M. Lemberg,
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
EXHIBIT 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Amendment No.1 to the
registration statement of Lotus Development Corporation on Form S-3 of our
reports dated January 26, 1994, on our audits of the consolidated financial
statements and financial statement schedules of Lotus Development Corporation as
of December 31, 1993 and 1992 and for each of the three years in the period
ended December 31, 1993, which reports are included or incorporated by reference
in the Annual Report on Form 10-K of Lotus Development Corporation for the year
ended December 31, 1993, as amended by the Amendment to the Annual Report on
Form 10-K/A . We also consent to the reference to our firm under the caption
"Experts."
COOPERS & LYBRAND
Boston, Massachusetts
August 2, 1994
II-6
<PAGE>
EXHIBIT INDEX
- -------------
Number Description
------ -----------
2* Agreement and Plan of Reorganization
dated as of May 23, 1994, among the
Company, LDC VIII Acquisition Corporation,
a Delawarevcorporation and wholly-owned
subsidiary of the Company ("Acquisition
Sub"), and Iris Associates, Inc. ("Iris"),
relating to the acquisition of Iris by
the Company through the merger of Acquisi-
tion Sub with and into Iris.
4(a) Rights Agreement dated as of November 7,
1988 (the "Rights Agreement"), between
the Company and The First National Bank
of Boston, which includes the Certifi-
cate of Designations setting forth the
terms of the Series A Junior Participat-
ing Preferred Stock, par value $1.00 per
share, as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary
of Rights to Purchase Preferred Shares
as Exhibit C (filed as Exhibit 1 to the
Company's Registration Statement on Form
8-A on November 10, 1988, and incorpo-
rated herein by reference).
4(b) Amendment to the Rights Agreement dated
as of April 5, 1990, between the Company
and The First National Bank of Boston,
as Rights Agent (filed as Exhibit 28(d)
to the Company's Current Report on Form
8-K dated April 5, 1990, and incorpo-
rated herein by reference).
4(c) Amendment to the Rights Agreement dated
as of September 16, 1991, between the
Company and The First National Bank of
Boston, as Rights Agent (filed as Ex-
hibit 28(a) to the Company's Current
Report on Form 8-K dated September 16,
1991, and incorporated herein by
reference.)
5 Opinion of O'Sullivan Graev & Karabell
as to the validity of the issuance of
the shares of Common Stock being
registered (filed as Exhibit 5 to the
Company's Registration Statement on
Form S-3 filed May 24, 1994 (the "S-3"),
and incorporated herein by reference).
<PAGE>
23(a)* Consent of Coopers & Lybrand (included
on page II-6).
23(b) Consent of O'Sullivan Graev & Karabell
(included in Exhibit 5).
24 Powers of Attorney (filed as Exhibit 24 to
the S-3 and incorporated herein by reference).
- ------------------
*Filed herewith
<PAGE>
EXHIBIT 2
AGREEMENT AND PLAN OF REORGANIZATION
dated as of May 23, 1994, among LOTUS DEVELOPMENT
CORPORATION, a Delaware corporation ("Lotus"),
LDC VIII ACQUISITION CORPORATION, a Delaware
corporation and wholly-owned subsidiary of Lotus
("Sub"), IRIS ASSOCIATES, INC., a Delaware
corporation ("Iris"), and certain stockholders of
Iris (collectively, the "Stockholders").
The respective Boards of Directors of Iris, Lotus and Sub have duly
adopted and approved this Agreement and Plan of Reorganization (the
"Agreement"), the Agreement of Merger (the "Merger Agreement") between Sub and
Iris in substantially the form of Exhibit A attached to this Agreement and the
business combination between Lotus and Iris to be effected by the merger (the
"Merger") of Iris with and into Sub, pursuant to the terms and subject to the
conditions of this Agreement, the Merger Agreement and the General Corporation
Law of the State of Delaware (the "Delaware Statute"), whereby each issued and
outstanding share of Common Stock, $.01 par value (the "Iris Common Stock"), of
Iris will be converted into the right to receive Common Stock, $.01 par value
(the "Lotus Common Stock"), of Lotus in accordance with Article II of this
Agreement and the Merger Agreement.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
from this Agreement and the Merger Agreement and of the representations,
warranties, agreements and conditions contained in this Agreement and in the
Merger Agreement, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. In accordance with and subject to the provisions of this
Agreement, the Merger Agreement and the Delaware Statute, Iris shall be merged
with and into Sub, which, at and after the Effective Time, shall be and is
herein sometimes referred to as the "Surviving Corporation". Sub and Iris are
herein sometimes collectively referred to as the "Constituent Corporations".
<PAGE>
1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become effective upon
the filing by the Constituent Corporations with the Secretary of State of the
State of Delaware of a Certificate of Merger, which shall be executed and
delivered in the manner provided under Section 251 of the Delaware Statute. The
date and time when the Merger shall become effective as aforesaid is herein
called the "Effective Time".
1.3 EFFECT OF MERGER.
(a) At the Effective Time, the separate existence of Iris shall cease
and Iris shall be merged with and into the Surviving Corporation, and the
Surviving Corporation shall possess all of the rights, privileges, powers and
franchises as well of a public as of a private nature, and being subject to all
the restrictions, disabilities and duties of each of the Constituent
Corporations.
(b) At the Effective Time, all and singular, the rights, privileges,
powers and franchises of each of the Constituent Corporations, and all property,
real, personal and mixed, and all debts due to any of the Constituent
Corporations on whatever account, as well for stock subscriptions as all other
things in action or belonging to each of the Constituent Corporations shall be
vested in the Surviving Corporation; and all property, rights, privileges,
powers and franchises, and all and every other interest shall be thereafter as
effectually the property of the Surviving Corporation as they were of the
several and respective Constituent Corporations, and the title to any real
estate vested by deed or otherwise, under the laws of the State of Delaware in
either of the Constituent Corporations, shall not revert or be in any way
impaired by reason of the Delaware Statute; but all rights of creditors and all
liens upon any property of either of the Constituent Corporations shall be
preserved unimpaired, and all debts, liabilities and duties of the respective
Constituent Corporations shall thenceforth attach to the Surviving Corporation,
and may be enforced against it to the same extent as if said debts, liabilities
and duties had been incurred or contracted by it.
1.4 CERTIFICATE OF INCORPORATION AND BY-LAWS OF SURVIVING CORPORATION. At
the Effective Time, (i) the certificate of incorporation of Sub shall become the
certificate of incorporation of the Surviving Corporation until altered, amended
or repealed as provided in the Delaware Statute, (ii) the by-laws of Sub shall
become the by-laws of the Surviving Corporation until altered, amended or
repealed as provided in the Delaware Statute or in the certificate of
incorporation or by-laws of the Surviving Corporation, (iii) the directors of
Sub shall become the directors of the Surviving Corporation and (iv) the
officers of Sub shall become the officers of the Surviving Corporation.
2
<PAGE>
1.5 TAKING OF NECESSARY ACTION. Prior to the Effective Time, the parties
shall take, or cause to be taken (as the case may be), all such reasonable
actions as may be necessary or appropriate in order to effectuate the Merger, as
expeditiously as reasonably practicable.
1.6 TAX-FREE REORGANIZATION; POOLING OF INTERESTS.
(a) The Merger is intended to be a reorganization within the meaning of
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"), by reason of Section 368(a)(2)(D) of the Code and to be accounted for
as a pooling of interests pursuant to Opinion No. 16 of the Accounting
Principles Board. The Lotus Common Stock issued pursuant to the Merger will be
issued solely in exchange for Iris Common Stock, and no agreement herein or
contemplated hereby represents, provides for or is intended to be consideration
for the Iris Common Stock except for cash paid in lieu of fractional shares of
Lotus Common Stock. Except for cash paid in lieu of fractional shares of Lotus
Common Stock, no consideration that could constitute "other property" within the
meaning of Section 356(b) of the Code is being transferred by Lotus for the Iris
Common Stock pursuant to the Merger. The parties shall not take a position on
any tax return inconsistent with this Section 1.6. Except with respect to an
indemnification obligation under Article VII hereof arising as a result of the
inaccuracy of the representations and warranties, or failure to perform the
covenants, set forth in Sections 1.6(b) or (c), no party hereto shall be liable
to any other party for the failure of the business combination to be effected by
the Merger to be treated as a tax free reorganization under Section 368(a)(1)(A)
of the Code or as a pooling-of-interests pursuant to Opinion No. 16 of the
Accounting Principles Board.
(b) Neither Iris nor any of the Stockholders shall take any action
inconsistent with the Continuity of Interest Agreements attached hereto as
Exhibit F-2 or breach their respective obligations under Section 4.7 hereof. The
Stockholders hereby represent and warrant that the representations and
warranties set forth in such Continuity of Interest Agreement, when executed and
delivered at the Closing, will be true and correct.
(c) Lotus shall not take any action inconsistent with the
representations and warranties set forth in Section 3.3(m) hereof.
3
<PAGE>
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 EFFECT ON CAPITAL STOCK. At the Effective Time, pursuant to the terms
and subject to the conditions of this Agreement and the Merger Agreement, by
virtue of the Merger and without any action on the part of the Constituent
Corporations or the holders of the capital stock of the Constituent
Corporations:
(a) CAPITAL STOCK OF SUB. Each issued and outstanding share of the
common stock, $.01 par value, of Sub shall continue to be outstanding and held
of record by Lotus.
(b) CANCELLATION OF CERTAIN SHARES OF IRIS COMMON STOCK. Each share of
Iris Common Stock that is owned by Iris as treasury stock and each share of Iris
Common Stock that is owned by Lotus, Sub or any other Subsidiary of Lotus or
Iris shall be cancelled and no capital stock of Lotus or other consideration
shall be delivered in exchange therefor. As used in this Agreement, a
"Subsidiary" of any corporation means another corporation an amount of whose
voting securities sufficient to elect at least a majority of its Board of
Directors is owned directly or indirectly by such corporation.
(c) EXCHANGE RATIO FOR IRIS COMMON STOCK. Subject to Section 2.2, each
share of Iris Common Stock issued and outstanding at the Effective Time shall be
converted into the right to receive 5.4591 shares of Lotus Common Stock (which
is the quotient (rounded to the fourth decimal place) obtained by dividing (x)
$322.0859 (being the quotient obtained by dividing $84,000,000 by 260,800
outstanding shares of Iris Common Stock) by (y) $59. In addition, each whole
share of Lotus Common Stock issued in the Merger shall entitle the holder to a
right (the "Lotus Right") to purchase Series A Junior Participating Preferred
Stock, par value $1.00 (the "Lotus Series A Preferred"), of Lotus pursuant to,
and in accordance with the terms of, the Rights Agreement dated as of November
7, 1988, between Lotus and the First National Bank of Boston, as Rights Agent,
as amended by the Amendment dated as of April 5, 1990 thereto (such agreement,
as so amended, the "Lotus Rights Agreement"). Prior to the Distribution Date
(as defined in the Lotus Rights Agreement), all references in this Agreement to
the Lotus Common Stock to be received in the Merger shall be deemed to include
the Lotus Rights.
2.2 EXCHANGE OF CERTIFICATES; ESCROW DEPOSIT.
(a) At the Effective Time, Lotus or its agent shall deliver to each
Stockholder duly executed certificates,
4
<PAGE>
registered in the name of such Stockholder, representing in the aggregate that
number of shares of Lotus Common Stock as shall be required to be delivered to
such Stockholder pursuant to Section 2.1(c) against receipt of a certificate or
certificates representing all shares of Iris Common Stock held by such
Stockholder at the Effective Time (together with duly executed stock powers or
other instruments of assignment reasonably requested by Lotus).
(b) Simultaneously with their receipt of such certificates, the
Stockholders shall deposit (on a pro rata basis) with the Escrow Agent under the
Escrow Agreement certificates representing an aggregate of 127,119 shares (the
"Escrow Shares") of Lotus Common Stock (which is equal to the quotient (rounded
to the nearest whole share) obtained by dividing (x) $7,500,000 by (y) $59),
such shares to be held in escrow in accordance with the terms of the Escrow
Agreement.
2.3 NO ISSUANCE OF FRACTIONAL SHARES. No certificates or scrip representing
fractional shares of Lotus Common Stock shall be issued upon the surrender of
Iris Common Stock, but in lieu thereof Lotus will pay to each Stockholder in
cash at the Effective Time (or as soon as practicable thereafter) an amount
equal to the Fair Market Value Per Share of Lotus Common Stock multiplied by the
fraction of a share of Lotus Common Stock which such Stockholder otherwise would
have been entitled to receive.
2.4 AUTHORIZATION OF THE MERGER, THIS AGREEMENT AND THE MERGER AGREEMENT.
By execution and delivery of this Agreement, Lotus, as the sole stockholder of
Sub, and each of the Stockholders hereby authorize, approve and adopt (a) the
Merger, (b) this Agreement and (c) the Merger Agreement, and Lotus and the
Stockholders shall execute written consents to that effect simultaneously with
the execution and delivery of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each Stockholder
individually represents and warrants to Lotus and Sub as follows:
(a) TITLE TO IRIS COMMON STOCK. Such Stockholder is the beneficial and
record owner of, and has good and marketable title to, the shares of Iris Common
Stock indicated as being owned by him in the letter dated the date hereof
delivered by Iris and the Stockholders to Lotus and Sub in connection with the
execution and delivery of this Agreement (the "Iris Disclosure Letter"), with
full power and authority to vote such
5
<PAGE>
shares and transfer and otherwise dispose of such shares, free and clear of
security interests, judgments, liens, pledges, claims, charges, escrows,
encumbrances, options, warrants, rights of first refusal, rights of first offer,
mortgages, indentures, security agreements, or other similar arrangements
(collectively "Claims"). Except as set forth in the Iris Disclosure Letter or as
contemplated by this Agreement, there are no agreements or understandings
between such Stockholder and any other Stockholder or any other person with
respect to the voting, sale or other disposition of Iris Common Stock or any
other matter relating to such Iris Common Stock. There is no dispute between
such Stockholder and the other stockholders of Iris relating to such
Stockholder's respective ownership percentage of Iris Common Stock.
(b) AUTHORITY - GENERAL. Such Stockholder has full and absolute power
and authority to enter into and perform such Stockholder's obligations under
this Agreement and the Escrow Agreement, and this Agreement and the Escrow
Agreement are valid and binding obligations of such Stockholder, enforceable in
accordance with their respective terms. Neither the execution, delivery and
performance of this Agreement nor the Escrow Agreement nor the consummation of
the transactions contemplated hereby or thereby, nor compliance by such
Stockholder with any of the provisions hereof or thereof, will (i) conflict with
or result in a breach or default (or give rise to any right of termination,
cancellation or acceleration), with or without notice or lapse of time, under
any term of any instrument or agreement to which such Stockholder is a party or
by which such Stockholder or any of such Stockholder's properties may be bound
or (ii) violate any law, statute, rule, regulation or order, writ, injunction or
decree of any court, administrative agency or governmental body applicable to
such Stockholder or any of such Stockholder's properties, except for such
conflicts, breaches, defaults or violations which would not prevent the
consummation of the transactions contemplated by this Agreement or the Escrow
Agreement, result in a Claim on or against any Iris Common Stock or shares of
common stock of the Surviving Corporation or any assets, rights or property of
Iris, give rise to any Claim against Iris, Lotus or any Subsidiary of Lotus or
have any material adverse effect on the business or assets of Iris. Except as
contemplated by this Agreement, no permit, authorization, consent or approval of
or by, or any notification of or filing with, any person (governmental or
private) is required in connection with the execution, delivery and performance
by such Stockholder of this Agreement or the Escrow Agreement, or the
consummation by such Stockholder of the transactions contemplated hereby or
thereby except, with respect to Ray Ozzie, the filing of a pre-merger
notification report under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act").
6
<PAGE>
(c) INFORMATION SUPPLIED. None of the information supplied or to be
supplied by Iris or such Stockholder for inclusion or incorporation by reference
in the S-3 will, at the time the S-3 is filed with the Securities and Exchange
Commission (the "SEC") and at the time the S-3 becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(d) INVESTMENT. Such Stockholder (i) is an "accredited investor" as
such term is defined in Rule 501(a) promulgated under the Securities Act, (ii)
understands that the issuance of the Lotus Common Stock to be received by him
pursuant to the Merger has not been registered under the Securities Act and that
such shares may not be resold by him unless pursuant to the S-3 or unless an
exemption from the registration requirements of the Securities Act is available
with respect to such resale, (iii) is acquiring the Lotus Common Stock to be
received by him pursuant to the Merger for his own account and not with a view
toward the sale or distribution thereof except pursuant to the S-3, (iv)
acknowledges that he has had access to the type of information concerning Lotus
and Sub which would be set forth in a registration statement under the
Securities Act and such publicly available information about Lotus, as is
sufficient to enable such Stockholder to evaluate his investment in the Lotus
Common Stock to be received by him in the Merger, (v) acknowledges that he has
been afforded the opportunity to ask such questions as he has deemed necessary
of, and to receive answers from, representatives of Lotus with respect to the
terms and conditions of the Merger and the merits and risks of investing in the
Lotus Common Stock to be received by him in the Merger and (vi) acknowledges
that he is experienced in business and financial matters generally, is capable
of evaluating the risks of investment in Lotus Common Stock and is able to bear
complete loss of such investment.
3.2 REPRESENTATIONS AND WARRANTIES OF IRIS AND THE STOCKHOLDERS. Iris and
each of the Stockholders, jointly and severally, represent and warrant to Lotus
and Sub as follows:
(a) ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER OF IRIS.
Iris is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, to enter into this Agreement and the Agreement of
Merger, to perform its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby. Iris is duly qualified and in
good standing to do business in all jurisdictions in which the failure to be so
7
<PAGE>
qualified and in good standing to do business would have a material adverse
effect on the business, assets or operations of Iris. The Iris Disclosure Letter
sets forth a true and complete list of all jurisdictions in which Iris is
qualified and in good standing to do business and all other jurisdictions in
which Iris transacts business, including any jurisdiction in which Iris engages
in the regular, systematic solicitation of orders, maintains any sales offices
or sales staff or derives any material revenues. Iris has delivered to Lotus
true and correct copies of its Certificate of Incorporation and By-laws each as
in effect on the date hereof.
(b) EQUITY INVESTMENTS. Iris has no Subsidiaries and does not own any
capital stock or other proprietary interest, directly or indirectly, in any
corporation, association, trust, partnership, joint venture or other entity.
(c) CAPITAL STOCK; SECURITIES. The authorized capital stock of Iris
consists of 500,000 shares of Iris Common Stock, of which 260,800 shares are
validly issued and outstanding and, immediately prior to the Closing, will be
held of record by the parties and in the amounts indicated in the Iris
Disclosure Letter. All outstanding shares of Iris Common Stock are validly
issued, fully paid and nonassessable and not subject to preemptive rights.
Except as set forth in the Iris Disclosure Letter, there are no options,
warrants, rights, calls, commitments or agreements of any character to which
Iris is a party or by which it is bound calling for the issuance of shares of
capital stock of Iris or any securities convertible into or exercisable or
exchangeable for, or representing the right to purchase or otherwise receive,
any such capital stock, or other arrangement to acquire, at any time or under
any circumstance, capital stock of Iris or such other securities. Except as set
forth in the Iris Disclosure Letter, there are no voting trusts, voting
agreements, proxies or other agreements or instruments or understandings with
respect to the voting of Iris Common Stock.
(d) AUTHORITY. The execution, delivery and performance of this
Agreement and the Merger Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action on the part of Iris, and this Agreement has been duly
and validly executed and delivered by Iris and the Stockholders and is, and the
Merger Agreement when validly executed and delivered by Iris will be, a valid
and binding obligation of Iris and the Stockholders, as applicable, enforceable
in accordance with their respective terms. Except as set forth in the Iris
Disclosure Letter, neither the execution, delivery or performance of this
Agreement or the Merger Agreement nor the consummation by Iris or the
Stockholders, as applicable, of the transactions contemplated hereby or thereby
nor compliance by Iris or the Stockholders, as applicable, with any provision
hereof or thereof will (i) conflict with or result in a breach of any provision
of the
8
<PAGE>
Certificate of Incorporation or By-laws of Iris, (ii) cause a default (or
give rise to any right of termination, cancellation or acceleration), with or
without notice or lapse of time, under any of the terms, conditions or
provisions of any note, bond, lease, mortgage, indenture, license or other
instrument, obligation or agreement to which Iris or any Stockholder is a party
or by which they or any of their respective properties or assets may be bound or
(iii) violate any law, statute, rule or regulation or order, writ, judgment,
injunction or decree of any court, administrative agency or governmental body
applicable to Iris of its properties or assets, except for such conflicts,
breaches, defaults or violations as would not prevent the consummation of the
transactions contemplated by this Agreement, except for such conflicts,
breaches, defaults or violations which would not prevent the consummation of the
transactions contemplated by this Agreement, result in a Claim on or against any
Iris Common Stock or shares of common stock of the Surviving Corporation or any
assets, rights or property of Iris, give rise to any Claim against Iris, Lotus
or any Subsidiary of Lotus or have any material adverse effect on the business
or assets of Iris. Except as set forth in the Iris Disclosure Letter, no
permit, authorization, consent or approval of or by, or any notification of or
filing with, any person (governmental or private) is required in connection with
the execution, delivery or performance by Iris of this Agreement or the Merger
Agreement or the consummation of the transactions contemplated hereby or
thereby.
(e) FINANCIAL INFORMATION. The Iris Disclosure Letter contains (i) the
unaudited balance sheet of Iris at December 31, 1992 and December 31, 1993, and
the related statements of income for the twelve-month periods then ended
(including any notes thereto and other financial information included therein),
in each case prepared by Iris (collectively, the "Historical Financial
Statements") and (ii) the unaudited balance sheet of Iris as of April 30, 1994
(the "Balance Sheet"; and the date thereof being referred to herein as the
"Balance Sheet Date"), and the related unaudited statement of income for the
four-month period then ended (including any notes thereto and other financial
information included therein), in each case prepared by Iris (collectively, the
"Interim Financial Statements"). Except as set forth in the Iris Disclosure
Letter, (A) the Interim Financial Statements and the Historical Financial
Statements were prepared in accordance with the books and records of Iris and
(B) the Interim Financial Statements and, to the best knowledge of Iris and the
Stockholders, the Historical Financial Statements are true and complete in all
material respects and fairly present the financial position of Iris as of the
dates, and the results of operations for the respective periods, indicated.
(f) ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in the
Iris Disclosure Letter, (i) Iris had no
9
<PAGE>
liability of any nature (matured or unmatured, fixed or contingent) which was
not provided for or disclosed on the Balance Sheet (including, without
limitation, any liability for any Taxes), (ii) all liability reserves
established by Iris on the Balance Sheet were adequate to fully satisfy all
reserved liabilities and (iii) there were no loss contingencies (as such term is
used in Statement of Financial Accounting Standards No. 5 issued by the
Financial Accounting Standards Board in March 1975) which were not adequately
provided for or disclosed on the Balance Sheet.
(g) ABSENCE OF CHANGES. Except as set forth in the Iris Disclosure
Letter, since the Balance Sheet Date, Iris has been operated in the ordinary
course and there has not been:
(i) any material adverse change in the business or assets of Iris;
(ii) any damage, destruction or loss (whether or not covered by
insurance) in an aggregate amount exceeding $50,000 affecting any tangible
asset or property of Iris;
(iii) any material obligation or liability (whether absolute, accrued,
contingent or otherwise and whether due or to become due) created or
incurred, or any material transaction, contract or commitment entered into
by Iris other than in the ordinary course of business;
(iv) any payment, discharge or satisfaction of any material claim,
lien, encumbrance, liability or obligation by Iris outside the ordinary
course of business (whether absolute, accrued, contingent or otherwise and
whether due or to become due);
(v) any declaration, setting aside or payment of any dividend or
other distribution of any assets of any kind whatsoever with respect to any
shares of the capital stock of Iris, or any direct or indirect redemption,
purchase or other acquisition of any such shares of capital stock.
(vi) any labor trouble, problem or grievance materially adversely
affecting Iris;
(vii) any license, sale, transfer, pledge, mortgage or other
disposition of any tangible or intangible asset of Iris, including, without
limitation, any Requisite Right;
(viii) any agreement of Iris to develop, modify, or enhance any computer
software product for any party other than Lotus or any Subsidiary of Lotus;
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(ix) any agreement or contract entered into by or on behalf of Iris
which requires the delivery by Iris of a performance bond in connection
therewith;
(x) any amendment, termination or waiver of any rights of material
value to Iris;
(xi) any general increase in the compensation of employees of Iris
other than in the ordinary course of business and consistent with past
practice (including, without limitation, any increase pursuant to any
bonus, pension, profit-sharing, deferred compensation arrangement or other
plan or commitment) or any increase in compensation payable to any officer,
employee, consultant or agent thereof, or the entering into of any
employment contract with any officer or employee, or the making of any loan
to, or the engagement in any transaction with, any officer of Iris;
(xii) any change in the accounting methods or practices followed by
Iris or any change in depreciation or amortization policies or rates
theretofore adopted;
(xiii) any termination of employment of any key employee of Iris or any
expression of intention by any key employee of Iris to terminate such
employment with Iris;
(xiv) any capital expenditures or commitments therefor by Iris for
additions to property, plant or equipment of Iris other than in the
ordinary course of business;
(xv) any agreement or commitment relating to the sale by Iris of any
material fixed assets of Iris;
(xvi) any other transaction relating to Iris other than in the ordinary
course of business and consistent with past practice; or
(xvii) any agreement or understanding, whether in writing or otherwise,
for Iris to take any of the actions specified in items (i) through (xvi)
above.
(h) TITLE TO ASSETS, PROPERTIES, INTERESTS IN PROPERTIES AND RIGHTS AND
RELATED MATTERS. Iris has good and marketable title to all of the personal
property reflected on the Balance Sheet or acquired after the Balance Sheet Date
(except inventory and other assets disposed of in the ordinary course of
business since the Balance Sheet Date or accounts or notes receivable paid
subsequent to the Balance Sheet Date) free and clear of all Claims of any kind
or character, except for (i)
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those Claims set forth in the Iris Disclosure Letter and (ii) liens for current
taxes not yet due and payable.
(i) TAX MATTERS. Except as set forth in the Iris Disclosure Letter,
(i) Iris has paid all Taxes required to be paid by it prior to the date hereof
and will pay, prior to the Closing, all Taxes required to be paid by it prior to
the Closing; (ii) Iris has filed and will, prior to the Closing, file all
returns, declarations of estimated tax, tax reports, information returns and
statements required to be filed by it prior to the Closing (other than those for
which extensions shall have been granted prior to Closing) relating to any Taxes
with respect to any income, properties or operations of Iris prior to the
Closing (collectively, "Returns"); (iii) as of the time of filing, the Returns
correctly reflected (and, as to any Returns not filed as of the date hereof,
will correctly reflect) the facts regarding the income, business, assets,
operations, activities and status of Iris and any other information required to
be shown therein; (iv) Iris has timely paid all Taxes that have been shown as
due and payable on the Returns that have been filed; (v) Iris (A) has made
provision on the Balance Sheet for all Taxes payable for any periods that end on
or before the Balance Sheet Date for which no Returns have yet been filed and
for any periods that begin on or before the Balance Sheet Date and end after the
Balance Sheet Date to the extent such Taxes are attributable to the portion of
any such period ending on the Balance Sheet Date and (B) has made provision on
its books and records for all Taxes payable for any periods that end on or
before the date of the Closing for which no Returns have then been filed and for
any periods that begin on or before the date of the Closing and end after such
date to the extent such Taxes are attributable to the portion of any such period
ending on such date; (vi) Iris is not delinquent in the payment of any Taxes nor
has it requested any extension of time within which to file any Return, which
Return has not since been filed; (vii) with respect to all Tax Returns of Iris,
the statute of limitations for the assessment of Taxes has expired with respect
to all periods ending on or before January 1, 1990 (for federal income tax
purposes) and January 1, 1990 (for state tax purposes); and there are no
anticipated or pending Tax audits of any Returns of Iris; (viii) no deficiency
or addition to Taxes, interest or penalties for any Taxes has been proposed,
asserted or assessed in writing against Iris (or any member of any affiliated or
combined group of which Iris or any former subsidiary of Iris is or was a member
for which Iris could be liable); (ix) Iris has not granted, nor does there
exist, any extension, waiver or agreement for the extension of time for the
assessment or payment of any Tax by Iris ; (x) Iris is not and has not been a
party to any tax sharing agreement with any corporation; and (xi) Iris has made
a valid election, accepted by the Internal Revenue Service, under Section
1362(a) of the Code to be taxed as an "S corporation" and has qualified to be
treated under Section 1361 of the Code as an S corporation for Federal income
tax purposes for all periods
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beginning with its inception through the date hereof and will be treated as an S
corporation from the date hereof through the date of termination of its S
status, as set forth in Section 6.2(k). Iris has qualified for and made
corresponding elections under the tax laws of every state in which Iris is
subject to Tax for each of such taxable years. Iris has not made an election to
be treated as a "consenting corporation" under Section 341(f) of the Code and
has not been a personal holding company within the meaning of Section 542 of the
Code during the five-year period preceding the date of the Closing. As a result
of the Merger, Iris will transfer to Sub at least ninety percent (90%) of the
fair market value of the net assets and at least seventy percent (70%) of the
fair market value of the gross assets of Iris held by it immediately prior to
the Merger. For purposes of this calculation (i) amounts paid by Iris to its
employees as compensation related to the royalty bonus pool from Lotus Notes
revenues ("Royalty Bonuses") are not treated as assets held by Iris immediately
prior to the Merger and (ii) amounts used to pay dissenters or to pay
reorganization expenses, and all redemptions and distributions made by Iris
immediately prior to the Merger will be considered assets held by Iris
immediately prior to the Merger. Any Royalty Bonuses paid by Iris prior to the
Merger were paid in the ordinary course of business and consistent with the
manner in which Iris has historically made compensation payments to its
employees. Iris has not redeemed any of the Iris stock or made any distribution
with respect to any of the Iris stock. For purposes of this Agreement, "Tax"
means any of the Taxes and "Taxes" means, with respect to any person or entity
(A) all income Taxes (including any tax on or based upon net income, or gross
income, or income as specially defined, or earnings, or profits, or selected
items of income, earnings or profits) and all gross receipts, sales, use, ad
valorem, transfer, franchise, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property or windfall profits Taxes,
alternative or add-on minimum Taxes, customs duties or other Taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to Tax or additional amounts imposed by any taxing
authority (domestic or foreign) on such person or entity and (B) any liability
for the payment of any amount of the type described in the immediately preceding
clause (A) as a result of being a "transferee" (within the meaning of Section
6901 of the Code or any other applicable law) of another person or entity or a
member of an affiliated or combined group.
(j) REAL PROPERTY -- OWNED OR LEASED. Iris does not own any real
property or interest therein. The Iris Disclosure Letter contains a list and
brief description of all real property leased by Iris, as well as all buildings
and other structures and material improvements located on such real property
(including a brief description of the use to which such property is being
employed or for which it was intended, the name of the lessor, requirement of
consent of the lessor to assignment
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(including assignment by way of merger or change of control), termination date
or notice requirement with respect to termination, annual rental payments and
renewal or purchase options). Iris is the owner and holder of all the leasehold
estates purported to be granted by such leases and all leases to which Iris is a
party are in full force and effect and constitute valid and binding obligations
of Iris. Iris has made available to Lotus correct copies of all leases referred
to in the Iris Disclosure Letter.
(k) INTELLECTUAL PROPERTY RIGHTS.
(i) Except as set forth in the Iris Disclosure Letter:
(A) Iris owns, possesses, has the exclusive right to use, sell and
license, has the right to bring actions for the infringement of, or where
necessary, has made timely and proper application for, all Intellectual
Property Rights (as hereinafter defined), other than shrink-wrap or other
packaged licenses of software available for sale to the general public,
that are necessary for the conduct of its business as currently conducted
and as proposed to be conducted (collectively, the "Requisite Rights"),
(B) to the best knowledge of Iris and the Stockholders, the execution,
delivery and performance of this Agreement and the Merger Agreement, and
the consummation of the transactions contemplated hereby and thereby, will
not breach, violate or conflict with any instrument or agreement governing
any Requisite Rights, will not cause the forfeiture or termination or give
rise to a right of forfeiture or termination of any Requisite Right or in
any way impair the right of Iris or the Surviving Corporation to use, sell,
license or dispose of or to bring any action for the infringement of, any
Requisite Right or portion thereof;
(C) there are no royalties, honoraria, fees or other payments payable by
Iris to any person by reason of the ownership, use, license, sale or
disposition of Requisite Rights;
(D) to the best knowledge of Iris and the Stockholders, (i) none of the
Requisite Rights infringe any patent, copyright, trade secret or other
proprietary right of any third party (Lotus and Sub acknowledging that
neither Iris nor any Stockholder has made any independent investigation
regarding the existence of conflicting rights held by third parties), (ii)
there is no basis for any such infringement claim;
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(E) each current and former employee of or consultant to Iris has
executed an agreement regarding confidentiality and proprietary information
and assignment of inventions to Iris, the form of which has been provided
to Lotus; to the best knowledge of Iris and the Stockholders, no such
employee or consultant is (i) in violation of any such agreements or (ii)
under any contractual or similar obligation, or subject to any judgment or
decree of any court or administrative agency, that would conflict with
Iris's business, or that would prevent the assignment of inventions to Iris
as provided in such agreements; and
(F) Iris has taken all steps considered by it sufficient to safeguard
and maintain the secrecy and confidentiality of, and its proprietary rights
in, all Requisite Rights.
(ii) The Iris Disclosure Letter sets forth all applications and
filings made pursuant to applicable Federal, state, local and foreign laws by
Iris to perfect or protect its interest in Requisite Rights.
(iii) As used herein, the term "Intellectual Property Rights" means all
industrial and intellectual property rights, including, without limitation,
patents, patent applications, patent rights, trademarks, trademark applications,
trade names, service marks, service mark applications, copyrights, know-how,
certificates of public convenience and necessity, franchises, licenses, trade
secrets, proprietary processes and formulae, all source and object code,
algorithms, architecture, structure, display screens, layouts, processes,
inventions, development tools and all documentation and media constituting,
describing or relating to the above, including, without limitation, manuals,
memoranda and records.
(1) AGREEMENTS, ETC. (a) The Iris Disclosure Letter sets forth a true
and complete list of all written or oral contracts, agreements and other
instruments not made in the ordinary course of business to which Iris is a party
or made in the ordinary course of business and referred to in clauses (i)
through (xi) of this Section 3.2(l). Except as set forth in the Iris Disclosure
Letter, Iris is not a party to any written or oral, formal or informal,
contract, agreement or other instrument of the type specified in the following
clauses (i) through (xi) other than agreements with Lotus as a party:
(i) agreements for the development, modification or enhancement of
computer software;
(ii) distributorship, dealer, sales, advertising, agency,
manufacturer's representative, franchise or similar
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contract or any other contract relating to the payment of a commission;
(iii) collective bargaining agreement or contract with or commitment to
any labor union;
(iv) continuing contract for the future purchase or sale of products,
materials, supplies, equipment or services which calls for the expenditure
of $10,000 or more and which is not immediately terminable without cost or
other liability at or at any time after the Closing;
(v) contract or commitment for the employment of any officer,
employee or consultant or any other type of contract or understanding with
any officer, employee or consultant which is not immediately terminable
without cost or other liability at or at any time after the Closing;
(vi) profit-sharing, bonus, stock option, pension, retirement,
disability, stock purchase, hospitalization, insurance or similar plan or
agreement, formal or informal, providing benefits to any current or former
officer, employee or consultant;
(vii) indenture, mortgage, promissory note, loan agreement, guaranty or
other agreement or commitment for the borrowing of money, for a line of
credit or for a leasing transaction of a type required to be capitalized in
accordance with Statement of Financial Accounting Standards No. 13 of the
Financial Accounting Standards Board;
(viii) lease or other agreement (other than any disclosed in the Iris
Disclosure Letter in response to item (vii) of this Section 3.2(l)) under
which Iris is lessee of or holds or operates any items of tangible personal
property owned by any third party and under which payments to such third
party exceed $10,000 per annum;
(ix) agreement to make cumulative capital expenditures or commitments
therefor by Iris in excess of $10,000;
(x) agreement or arrangement for the sale of any assets, properties,
interests in properties or rights requiring the consent of any party to the
transfer and assignment of such assets, properties, interests in properties
and rights; or
(xi) agreement which restricts Iris or any of its employees from
engaging in any business anywhere in the world or otherwise limits the
business in which it may engage.
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(b) Iris does not own or operate any vehicles, boats, aircraft,
apartments or other facilities for executive, administrative or sales purposes
and Iris does not own or pay for any social club memberships. Except as set
forth in the Iris Disclosure Letter, Iris has not been alleged to be in default
in any material respect and Iris has in all respects performed all the
obligations required to be performed by Iris to date and is not in default in
any material respect under any agreement, lease, contract, commitment,
instrument or obligation, and there exists no event, condition or occurrence
which, after notice or lapse of time, or both, would constitute such a default
by it of any of the foregoing and which would materially adversely affect Iris.
Iris has made available for inspection and copying by Lotus or its
representatives true and correct copies of all documents set forth in the Iris
Disclosure Letter.
(m) LITIGATION, ETC. Except as set forth in the Iris Disclosure
Letter, there are no (i) actions, suits, claims, investigations or legal or
administrative or arbitration proceedings pending or, to the best knowledge of
Iris and the Stockholders, threatened against Iris, whether at law or in equity,
or before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality or (ii) judgments, decrees,
injunctions or orders of any court, governmental department, commission, agency,
instrumentality or arbitrator against Iris or affecting any of its properties or
assets. Iris has delivered to Lotus all documents and correspondence relating to
such matters referred to in the Iris Disclosure Letter.
(n) COMPLIANCE; GOVERNMENTAL AUTHORIZATIONS. Iris has complied in all
material respects with all applicable Federal, state, local or foreign laws,
ordinances, regulations and orders. Iris has all Federal, state, local and
foreign governmental licenses and permits necessary in the conduct of its
business, such licenses and permits are in full force and effect, no violations
are or have been recorded in respect of any thereof and no proceeding is pending
or, to the best knowledge of Iris and the Stockholders, threatened to revoke or
limit any thereof. The Iris Disclosure Letter contains a true and correct list
of all the aforesaid governmental licenses and permits, consents, orders,
decrees and other compliance agreements under which Iris is operating or bound,
and Iris has furnished to Lotus correct copies thereof. Except as set forth in
the Iris Disclosure Letter, none of such licenses and permits shall be affected
in any respect by the transactions contemplated hereby.
(o) IRIS NOT AN INTERESTED STOCKHOLDER OF AN ACQUIRING PERSON. As of
the date of this Agreement, neither Iris nor, to its best knowledge, any of its
Affiliates is an "Interested Stockholder" of Lotus as such term is defined in
Section 203 of the Delaware Statute or an "Acquiring Person" as such term is
defined in the Lotus Rights Agreement.
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(p) LABOR RELATIONS; EMPLOYEES. The Iris Disclosure Letter contains a
true and complete list of the persons employed by Iris as of the date hereof
(the "Employees"). Except as set forth in the Iris Disclosure Letter, (i) no
material grievance or problem exists between Iris and the Employees; (ii) Iris
is not delinquent in payments to any of the Employees for any wages, salaries,
commissions, bonuses or other direct or indirect compensation for any services
performed by them to the date hereof or amounts required to be reimbursed to the
Employees; (iii) upon termination of the employment of any of the Employees,
neither Iris nor Lotus will by reason of anything done prior to the Effective
Time, or by reason of the consummation of the transactions contemplated hereby,
be liable for any excise taxes pursuant to Section 4980B of the Code or to any
of the Employees for so-called "severance pay" or any other payments except for
payments on account of accrued but untaken vacation to the extent any of the
Employees do not waive their right to such payments in exchange for a carryover
of such unused vacation upon their employment with the Surviving Corporation;
(iv) Iris in its conduct of its business is in compliance in all material
respects with all Federal, state, local and foreign laws and regulations
respecting labor, employment and employment practices, terms and conditions of
employment and wages and hours; (v) there is no unfair labor practice complaint
against Iris pending before the National Labor Relations Board or any comparable
state, local or foreign agency; (vi) there is no labor strike, dispute, slowdown
or stoppage actually pending or, to the best knowledge of Iris and the
Stockholders, threatened against or involving Iris; (vii) no representation
question exists respecting the Employees; (viii) no grievance which might have a
material adverse effect on Iris nor any arbitration proceeding arising out of or
under collective bargaining agreements is pending and, to the best knowledge of
Iris and the Stockholders, no claim therefor has been asserted; (ix) no
collective bargaining agreement is currently being negotiated by Iris; (x) there
is no dispute between Iris and any of its employees regarding compensation; and
(xi) to the best knowledge of Iris and the Stockholders, no Employee intends to
terminate his or her employment with Iris.
(q) EMPLOYEE BENEFIT PLANS.
(i) The Iris Disclosure Letter identifies each "employee benefit plan",
as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and all other written or formal plans or agreements
involving direct or indirect compensation (including any employment agreements
entered into between Iris and any employee or former employee of Iris, but
excluding workers' compensation, unemployment compensation and other government-
mandated programs) currently or previously maintained or entered into by Iris
for the benefit of any employee or former employee under which Iris or any
Affiliate thereof has any present or future obligation or
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liability (the "Employee Plans"). Copies of all such Employee Plans (and, if
applicable, related trust agreements), and all amendments thereto and written
interpretations thereof have been furnished to Lotus, together with (1) the
three most recent annual reports (Form 5500, including, if applicable, Schedule
B thereto) prepared in connection with any such Employee Plan and (2) the most
recent actuarial valuation, if any, prepared in connection with any such
Employee Plan. The only Employee Plans which individually or collectively would
constitute an "employee pension benefit plan" as defined in Section 3(2) of
ERISA (collectively, the "Pension Plans") are identified as such in the Iris
Disclosure Letter. Iris has provided Lotus with complete age, salary, service
and related data for employees and former employees of Iris covered under the
Pension Plans.
(ii) No Pension Plan constitutes or has since the enactment of ERISA
constituted a "multiemployer plan", as defined in Section 3(37) of ERISA (a
"Multiemployer Plan"). No Pension Plan currently or previously maintained by
Iris is subject to Title IV of ERISA. No "prohibited transaction", as defined
in Section 406 of ERISA or Section 4975 of the Code has occurred with respect to
any Employee Plan which is covered by Title I of ERISA, excluding transactions
effected pursuant to a statutory or administrative exemption. Nothing done or
omitted to be done and no transaction or holding of any asset under or in
connection with any Employee Plan has or will make Iris or any officer or
director thereof subject to any liability under Title I of ERISA or liable for
any tax pursuant to Section 4975 of the Code that could have a material adverse
effect on the business, financial condition, results of operations, assets or
liabilities of Iris.
(iii) Each Pension Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
from its adoption to date, and each trust forming a part thereof is exempt from
tax pursuant to Section 501(a) of the Code. Iris has furnished to Lotus copies
of the most recent IRS determination letters with respect to any such Pension
Plans for which a determination letter from the IRS has been requested. With
respect to any such Pension Plan for which a determination letter from the IRS
has not been requested, the remedial amendment period described in Section
401(b) of the Code has not expired. Each such Pension Plan is being administered
in compliance with the provisions of the Tax Reform Act of 1986 and other
legislation effective as of the date hereof, where plan amendments to reflect
such legislation have not been made and are not required pursuant to such
legislation as of the date hereof. Each Pension Plan has been maintained
substantially in compliance with its terms and with the requirements prescribed
by any and all statutes, orders, rules and regulations, including, without
limitation, ERISA and the Code, which are applicable to such Pension Plans.
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(iv) There is no contract, agreement, plan or arrangement adopted by
Iris covering any employee or former employee of Iris that, individually or
collectively, could give rise to the payment by Iris of any amount that would
not be deductible by reason of Section 280G, Section 162(a)(1) or Section
162(i)(2) of the Code (as in effect prior to the amendments made to such Section
by the Technical and Miscellaneous Revenue Act of 1988).
(v) The Iris Disclosure Letter lists each employment, severance or
other similar contract, arrangement or policy and each plan or arrangement
(written or oral) providing for insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, deferred
compensation, profit-sharing, bonuses, stock options, stock appreciation or
other forms of incentive compensation or post-retirement insurance, compensation
or benefits which (1) is not an Employee Plan, (2) is entered into, maintained
or contributed to by Iris and (3) covers any employee or former employee of
Iris. Such contracts, plans and arrangements as are described above, copies or
descriptions of all of which have been furnished previously to Lotus, are
hereinafter referred to collectively as the "Benefit Arrangements". Each Benefit
Arrangement has been maintained in substantial compliance with its terms and
with the requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such Benefit Arrangements.
(vi) Except as set forth on the Iris Disclosure Letter, there has been
no amendment to, written interpretation or announcement (whether or not written)
by Iris relating to, or change in employee participation or coverage under, any
Employee Plan or Benefit Arrangement which would increase materially the expense
of maintaining such Employee Plan or Benefit Arrangement above the level of the
expense incurred in respect thereof for the fiscal year ended December 31, 1993.
Iris has provided to individuals entitled thereto all required notices and
coverage pursuant to Section 4980B of the Code with respect to any "qualifying
event" (as defined in Section 4980B(f)(3) of the Code) occurring prior to and
including the Closing Date.
(r) INSURANCE. The Iris Disclosure Letter contains a list of all
policies of liability, theft, fidelity, life, fire, product liability, health
and other forms of insurance held by Iris (specifying the insurer, amount of
coverage, type of insurance, policy number and any pending claims thereunder).
All such policies of insurance are valid and enforceable policies and are
outstanding and duly in force and all premiums with respect thereto are
currently paid. Iris has not, during the last five fiscal years, been denied or
had revoked or rescinded any policy of insurance.
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(s) BROKERS. Iris has not, nor have any of its officers, directors,
stockholders or employees, employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby.
(t) DISCLOSURE. Neither this Agreement (including the Exhibits and the
Iris Disclosure Letter attached hereto) nor any other document, certificate or
written statement prepared for and furnished to Lotus by or on behalf of Iris or
the Stockholders in connection with the transactions contemplated hereby,
contains when made any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein, in light of the circumstances under which they were furnished, not
misleading. Except as set forth in the Iris Disclosure Letter, to the best
knowledge of Iris and the Stockholders, there have been no events or
transactions, or information which has come to the attention of Iris or the
Stockholders, which, as they relate to Iris could reasonably be expected to have
a material adverse effect on the business, operations, affairs, prospects or
condition of Iris.
(u) RELATED TRANSACTIONS. Except as set forth in the Iris Disclosure
Letter, and except for compensation to regular employees of Iris, no current or
former director, officer or shareholder that is an affiliate of Iris or any
associate (as defined in the rules promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) thereof, is presently, or during the
last three fiscal years has been, (i) a party to any transaction with Iris
(including, but not limited to, any contract, agreement or other arrangement
providing for the furnishing of services by, or rental of real or personal
property from, or otherwise requiring payments to, any such director, officer or
affiliated shareholder of Iris or such associate thereof (but excluding the
payment or reimbursement of reasonable travel and other employee expenses in the
ordinary course of Iris's business)), or (ii) the direct or indirect owner of
any interest in any corporation, firm, association or business organization
which is a present (or potential) competitor, supplier or customer of Iris
(other than non-affiliated holdings in publicly held companies), nor does any
such person receive income from any source other than Iris which relates to the
business of, or should properly accrue to, Iris.
(v) EXPENSES. The Iris Disclosure Letter sets forth a true and correct
schedule of Stockholder Expenses which have been paid or incurred by or on
behalf of Iris on or prior to the date hereof. At the Effective Time, Iris
shall deliver to Lotus and Sub a true and correct schedule (the "Schedule of
Expenses") reasonably satisfactory to Lotus of all Stockholder Expenses paid or
incurred by or on behalf of Iris through the Effective Time.
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(w) DEFINITION OF BEST KNOWLEDGE. As used in this Agreement, the term
"best knowledge" of any person or entity shall mean and include the actual
knowledge of such person or entity without any duty to inquire. In connection
therewith, the knowledge (both actual and constructive) of the Stockholders
shall be imputed to be knowledge of Iris.
3.3 REPRESENTATIONS AND WARRANTIES OF LOTUS AND SUB. Lotus and Sub
represent and warrant to Iris and the Stockholders as follows:
(a) ORGANIZATION, GOOD STANDING AND POWER. Each of Lotus and Sub (i)
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, (ii) has all requisite corporate power and
authority to own, lease and operate its properties, to carry on its business as
now being conducted, to enter into this Agreement, and, in the case of Sub, the
Merger Agreement, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby and (iii) is duly
qualified and in good standing to do business in all such jurisdictions in which
the failure to be so qualified and in good standing to do business could
reasonably be expected to have a material adverse effect on the business,
assets, operations, results of operations or affairs of Lotus and Sub, takes as
a whole.
(b) AUTHORITY. The execution, delivery and performance of this
Agreement by Lotus and Sub and of the Merger Agreement by Sub and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action on the part of Lotus
and Sub, as applicable, and this Agreement has been duly and validly executed
and delivered by Lotus and Sub and is, and the Merger Agreement when validly
executed and delivered by Sub will be, valid and binding obligations of Lotus or
Sub, as applicable, enforceable in accordance with their respective terms.
Neither the execution, delivery or performance of this Agreement or the Merger
Agreement, nor the consummation of the transactions contemplated hereby or
thereby nor compliance by Lotus with any provision hereof or thereof will (i)
conflict with or result in a breach of any provisions of the certificate of
incorporation or By-laws of Lotus or Sub, (ii) cause a default (or give rise to
any right of termination, cancellation or acceleration), with or without notice
or lapse of time, under any of the terms, conditions or provisions of any note,
bond, lease, mortgage, indenture, license or other instrument, obligation or
agreement to which Lotus or Sub is a party or by which it or any of its
properties or assets is or may be bound or (iii) violate any law, statute, rule
or regulation or order, writ, judgment, injunction or decree applicable to Lotus
or Sub or any of their respective properties or assets, except for such
conflicts, breaches, defaults or violations as would not prevent the
consummation of
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the transactions contemplated by the Agreement and that would not reasonably be
expected to have a material adverse effect on Lotus and its Subsidiaries, taken
as a whole. No permit, authorization, consent or approval of or by, or any
notification of or filing with, any person (governmental or private) is required
in connection with the execution, delivery or performance by Lotus or Sub of
this Agreement or the consummation by Lotus or Sub of the transactions
contemplated hereby or thereby.
(c) CAPITAL STRUCTURE. The authorized capital stock of Lotus
consists of 100,000,000 shares of Lotus Common Stock and 5,000,000 shares of
Preferred Stock, $1.00 par value (the "Lotus Preferred Stock"), 550,000 of which
have been designated as Lotus Series A Preferred. At the close of business on
April 30, 1994, 45,931,026 shares of Lotus Common Stock were issued and
outstanding, 16,220,660 shares of Lotus Common Stock were held by Lotus in its
treasury, 3,243,970 shares of Lotus Common Stock were reserved for issuance upon
the exercise of outstanding options (the "Lotus Options") to purchase Lotus
Common Stock issued to directors, officers and employees of and consultants to
Lotus and its Subsidiaries, no shares of Lotus Preferred Stock were issued or
outstanding and 550,000 shares of Lotus Series A Preferred were reserved for
issuance upon exercise of the Lotus Rights. All outstanding shares of Lotus
Common Stock are, and the Lotus Common Stock to be received by the Stockholders
in the Merger when issued will be, validly issued, fully paid and nonassessable
and not subject to preemptive rights. The authorized capital stock of Sub
consists of 1,000 shares of Common Stock, $.01 par value, 100 of which are
issued and outstanding and held of record by Lotus. Except for the Lotus Options
and the Lotus Rights, there are no options, warrants, calls, rights, commitments
or agreements of any character to which Lotus or any of its Subsidiaries is a
party or by which it is bound obligating Lotus or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, shares of
capital stock of Lotus or any of its Subsidiaries or obligating Lotus or any of
its Subsidiaries to grant, extend or enter into any such option, warrant, call,
right, commitment or agreement. There are no voting trusts or other agreements
or understandings to which Lotus is a party with respect to the voting of the
capital stock of Lotus or any of its Subsidiaries.
(d) SEC DOCUMENTS. Lotus has furnished Iris with a correct and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by Lotus with the SEC on or after January 1, 1993 (the
"Lotus SEC Documents"), which are all the documents (other than preliminary
material) that Lotus was required to file with the SEC on or after January 1,
1993. As of their respective dates, none of the Lotus SEC Documents (including
all exhibits and schedules thereto and documents incorporated by reference
therein) contained any untrue statement of a material fact or omitted to state a
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material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and the Lotus SEC Documents complied when filed in all material
respects with the then applicable requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations promulgated by
the SEC thereunder. The financial statements of Lotus included in the Lotus SEC
Documents complied as to form in all material respects with the then applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, were prepared in accordance with generally accepted accounting
statements, as permitted by Form 10-Q promulgated by the SEC) and fairly present
principles applied on a consistent basis during the periods involved (except as
may have been indicated in the notes thereto or, in the case of the unaudited
(subject, in the case of the unaudited statements, to normal, recurring audit
adjustments) the consolidated financial position of Lotus and its consolidated
Subsidiaries as at the dates thereof and the consolidated results of their
operations and cash flows (or changes in financial position prior to the
approval of FASB 95) for the periods then ended.
(e) INFORMATION SUPPLIED. None of the information supplied or to be
supplied by Lotus for inclusion or incorporation by reference in the S-3 will,
at the time the S-3 is filed with the SEC and at the time the S-3 becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
in which they were made, not misleading.
(f) COMPLIANCE WITH APPLICABLE LAWS. Except as disclosed in the Lotus
SEC Documents filed prior to the date of this Agreement, the businesses of Lotus
and its Subsidiaries are not being conducted in violation of any law, ordinance,
regulation, rule or order of any Governmental Entity, except for violations
which individually or in the aggregate do not, and, insofar as reasonably can be
foreseen, in the future would not, have a material adverse effect on Lotus and
its Subsidiaries, taken as a whole. Except as disclosed in the Lotus SEC
Documents filed prior to the date of this Agreement, no investigation or review
by any Governmental Entity with respect to Lotus or any of its Subsidiaries is
pending or, to the best knowledge of Lotus, threatened, nor has any Governmental
Entity indicated an intention to conduct the same. Lotus and its Subsidiaries
have all permits, licenses and franchises from Governmental Entities required to
conduct their businesses as now being conducted, except for such permits,
licenses and franchises the absence of which would not, individually or in the
aggregate, have a material adverse effect on Lotus and its Subsidiaries, taken
as a whole.
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(g) LITIGATION. Except as disclosed in the Lotus SEC Documents filed
prior to the date of this Agreement or as set forth in the letter dated the date
hereof delivered by Lotus to Iris and the Stockholders in connection with the
execution and delivery of this Agreement ("Lotus Disclosure Letter"), there is
no suit, action or proceeding pending, or, to the best knowledge of Lotus,
threatened against or affecting Lotus or any of its Subsidiaries; nor is there
any judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against Lotus or any of its Subsidiaries.
(h) ABSENCE OF UNDISCLOSED LIABILITIES. At December 31, 1993, (i)
neither Lotus nor any of its Subsidiaries had any liabilities or obligations of
any nature (matured or unmatured, fixed or contingent) which were material to
Lotus and its Subsidiaries, taken as a whole, and were not provided for in the
audited consolidated balance sheet of Lotus at December 31, 1993 (the "Lotus
Balance Sheet"), included in the Form 10-k for the year ended December 31, 1993,
filed by Lotus with the SEC; and (ii) all reserves established by Lotus and set
forth in Lotus Balance Sheet were adequate. At December 31, 1993, there were no
loss contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board in March
1975) which are not adequately provided for in Lotus Balance Sheet as required
by said Statement No. 5.
(i) FEES AND EXPENSES. Neither Lotus nor any of its Subsidiaries has
paid or become obligated to pay any fee or commission to any broker, finder or
intermediary in connection with the transactions contemplated hereby.
(j) INTERIM OPERATIONS OF SUB. Sub was formed solely for the purpose
of engaging in the transactions contemplated hereby, has engaged in no other
business activities and has conducted its operations only as contemplated
hereby.
(k) BROKERS. Neither Lotus, Sub, nor any of their respective officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby.
(l) DISCLOSURE. Neither this Agreement (including the Exhibits and the
Lotus Disclosure Letter attached hereto) nor any other document, certificate or
written statement prepared for and furnished to Iris or the Stockholders by or
on behalf of Lotus or Sub in connection with the transactions contemplated
hereby, contains when made any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
and therein, in light of the circumstances under which they were furnished, not
misleading. Except as set forth in the Lotus Disclosure Letter,
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to the best knowledge of Lotus and Sub, there have been no events or
transactions, or information which has come to the attention of Lotus or Sub,
which, as they relate to Lotus or Sub, could reasonably be expected to have a
material adverse effect on the business, operations, affairs, prospects or
conditions of Lotus or Sub.
(m) CERTAIN ACTIONS AND INTENTIONS. Prior to the transaction, Lotus
will be in control of Sub within the meaning of Section 368(c)(1) of the Code.
Sub has no plan or intention to issue additional shares of its stock following
the transaction that would result in Lotus losing control of Sub within the
meaning of Section 368(c)(1) of the Code. Lotus has no plan or intention to
reacquire any of its stock issued in the Merger. Lotus has no plan or intention
to liquidate Sub, to merge Sub with and into another corporation, to sell or
otherwise dispose of the stock of Sub or to cause Sub to sell or otherwise
dispose of any of its assets acquired in the Merger, except for dispositions
made in the ordinary course of business and for transfers described in Section
368(a)(2)(C) of the Code. Following the transaction, Lotus intends to cause Sub
to continue the historic business of Iris or use a significant portion of Iris's
business assets in a business.
ARTICLE IV
CONDUCT AND TRANSACTIONS PRIOR TO
CLOSING; ADDITIONAL PRE-CLOSING AGREEMENTS
4.1 ACCESS TO RECORDS AND PROPERTIES OF IRIS; CONFIDENTIALITY; PRESS
RELEASES.
(a) From and after the date hereof until the Closing or the termination
of this Agreement pursuant to Section 9.1, Iris shall afford (i) to the
officers, independent certified public accountants, counsel and other
representatives of Lotus access, at reasonable times during normal business
hours, to all properties, books and records (including tax returns filed and
those in preparation) and personnel of Iris, so that Lotus and such other
persons may have a full opportunity to make such investigations as they shall
reasonably desire to make of the business and operations of Iris, (ii) to the
independent certified public accountants of Lotus reasonable access to the work
papers and other records of the independent certified public accountants for
Iris and (iii) to Lotus and such other persons such additional financial and
operating data and other information relating to Iris as Lotus or such other
persons shall from time to time reasonably request; provided, however, that any
such investigation shall not affect or otherwise diminish or obviate in any
respect any of the representations and warranties of Iris hereunder.
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(b) From and after the date hereof until the Closing, except as
otherwise required by law or judicial process, no party hereto shall make any
public disclosure of any matters which are the subject of this Agreement. Prior
to any disclosure of such matters pursuant to law or judicial process, the
affected party will use its best efforts to notify each other party so that each
other party may attempt to intervene in any proceedings or obtain an appropriate
protective order with respect to the matters to be disclosed.
4.2 HSR ACT. Ray Ozzie has filed with the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice a pre-merger
notification report under the HSR Act with respect to the transactions
contemplated by this Agreement. Each of the parties shall promptly comply with
all applicable requirements of the HSR Act and the rules and regulations
thereunder relating to the filing and furnishing of information pursuant
thereto.
4.3 OPERATION OF BUSINESS OF IRIS. From and after the date hereof until
the Closing, except as otherwise contemplated by this Agreement, Iris shall, and
the Stockholders shall cause Iris to, operate the business as currently operated
and only in the normal and ordinary course and, consistent with such operation,
will use its best efforts to preserve intact its present organization and its
relationships with persons having business dealings with Iris. Without limiting
the generality of the foregoing, from the date hereof, except as otherwise
contemplated by this Agreement, Iris shall not, and the Stockholders shall cause
Iris not to, voluntarily take or cause to occur any of the actions or
transactions described in Section 3.2(g).
4.4 CONSENTS. The Stockholders and Iris shall use their best efforts to
obtain the consent and approval of, or effect the notification of or filing
with, each person or authority whose consent or approval is required, as set
forth in the Iris Disclosure Letter, in order to permit the consummation of the
transactions contemplated hereby and to enable the Surviving Corporation to
conduct and operate the business of Iris as currently conducted.
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4.5 PREPARATION OF S-3. As promptly as practicable after the date of this
Agreement, Lotus shall prepare and file with the SEC a shelf registration
statement on Form S-3 (the "S-3") relating to the resale of the Lotus Common
Stock to be issued to the Stockholders pursuant to the Merger. Each of Lotus,
Iris and the Stockholders shall use their best efforts to respond to any
comments of the SEC, to have the S-3 declared effective under the Securities Act
as promptly as practicable after such filing and to keep such registration
statement effective for a period of two years after the date of the Closing. In
addition, Lotus shall prepare and file any other filings required to be filed by
it under the Exchange Act, the Securities Act or any other Federal or state
securities or "blue sky" laws relating to the Merger and the transactions
contemplated by this Agreement and the Merger Agreement. Each of Lotus and Iris
will notify the other promptly of the receipt of any comments from the SEC or
its staff and of any request by the SEC or its staff or any other government
officials for amendments or supplements to the S-3 and each will supply the
other with copies of all correspondence with the SEC or its staff or any other
government officials with respect to the S-3. The S-3 shall comply in all
material respects with all applicable requirements of law.
4.6 EFFORTS TO CONSUMMATE. Subject to the terms and conditions of this
Agreement, each of the parties shall take, or cause to be taken, all reasonable
action and to do, or cause to done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement.
4.7 POOLING ACCOUNTING. Neither Iris nor the Stockholders, as applicable,
shall take any of the actions set forth in Schedule 4.7 hereto from the date
hereof until the Closing.
4.8 AFFILIATE AGREEMENTS.
(a) Each of Lotus and Iris shall use its best efforts to obtain prior to
the Closing, executed agreements ("Affiliate Agreements") relating to the sale
of capital stock of Lotus and compliance with pooling restrictions with each
"affiliate" (as defined in Rule 145 promulgated under the Securities Act and
Accounting Series Release 135; hereinafter, a "Rule 145 Affiliate") of such
party Rule 145 Affiliate of such party, which agreements shall be substantially
in the form of Exhibit B-1 and Exhibit B-2, respectively.
(b) The Iris Disclosure Letter identifies each party who is a Rule 145
Affiliate of Iris. Iris shall provide to Lotus such information and documents
as Lotus shall reasonably
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request in connection with reviewing such Iris Disclosure Letter. Lotus shall be
entitled to place appropriate legends on certificates evidencing Lotus Common
Stock to be received by any Rule 145 Affiliate of Iris pursuant to the Merger,
and to issue appropriate stop transfer instructions to the transfer agent for
Lotus Common Stock, consistent with the terms of such Rule 145 Affiliate's
Affiliate Agreement.
4.9 LEGAL CONDITIONS TO MERGER. Each party hereto shall take all
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on such party with respect to the Merger and will take all
reasonable action necessary to cooperate with and furnish information to the
other party in connection with any such requirements imposed upon such other
party in connection with the Merger. Each party hereto shall take all reasonable
actions necessary (A) to obtain (and will take all reasonable actions necessary
to promptly cooperate with each other party in obtaining) any consent,
authorization, order or approval of, or any exemption by, any governmental
authority or other third party required to be obtained or made by such party (or
by any other party) in connection with the Merger or the taking of any action
contemplated by this Agreement or the Agreement of Merger, (B) to defend, lift,
rescind or mitigate the effect of any lawsuit, order, injunction or other action
adversely affecting the ability of such party to consummate the transactions
contemplated hereby and (C) to fulfill all conditions precedent applicable to
such party pursuant to this Agreement.
4.10 ROYALTIES UNDER DEVELOPMENT AGREEMENT. The parties hereto agree
that all royalties under the Software Development Agreement dated as of March
31, 1988, as amended (the "Software Development Agreement"), and the Development
Option Agreement dated as of December 7, 1984, as amended (the "Development
Option Agreement"; and together with the Software Development, the "Development
Agreements"), each between Lotus and Iris, as amended, shall cease to accrue for
the benefit of the Stockholders and all other stockholders of Iris as of the
date hereof; and, effective as of the Closing, Iris and the Stockholders hereby
waive any and all claims against Lotus and its Affiliates for royalties or other
amounts due under or relating to the Development Agreements, or any other
agreement, accruing as of December 31, 1993.
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4.11 NO CLAIMS TO S CORP. EARNINGS. Each of the Stockholders hereby
covenants and agrees that from and after the date hereof he shall not make any
claims on, nor shall he have any rights to, the earnings or profits of Iris that
were generated during the period that Iris was treated as an S corporation for
tax purposes, other than claims in respect of any adjustment owed the
Stockholders relating to the royalty payments described in Section 6.3(f)
hereof.
ARTICLE V
CLOSING
The closing (the "Closing") for the consummation of the transactions
contemplated by this Agreement, unless another date or place is agreed to in
writing by the parties hereto, shall take place at the offices of Lotus in
Cambridge, Massachusetts on May 31, 1994.
ARTICLE VI
CONDITIONS OF CLOSING
6.1 CONDITIONS OF EACH PARTY'S OBLIGATIONS. The obligation of each
party to perform this Agreement and effect the Merger is subject to the
satisfaction of the following conditions unless waived (to the extent such
conditions can be waived) by all parties hereto:
(a) APPROVALS. All authorizations, consents, orders or approvals of, or
declarations or filings with, or expiration of waiting periods imposed by, any
governmental agency or authority (including those imposed by the HSR Act)
necessary for the consummation of the transactions contemplated hereby shall
have been filed, occurred or been obtained.
(b) LEGAL ACTION. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the transactions contemplated hereby shall have been issued by any Federal or
state court and remain in effect. Each party agrees to use its best efforts to
have any such injunction or order lifted.
(c) LEGISLATION. No Federal, state, local or foreign statute, rule or
regulation shall have been enacted which prohibits, restricts or delays the
consummation of the transactions contemplated by Articles I and II or the Merger
Agreement or any of the conditions to the consummation of such transactions.
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6.2 CONDITIONS OF OBLIGATIONS OF LOTUS AND SUB TO PERFORM THIS AGREEMENT AND
EFFECT THE MERGER. The obligations of Lotus to effect the Merger are subject to
the satisfaction of the following conditions unless waived (to the extent such
conditions can be waived) by Lotus and Sub:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Iris and the Stockholders set forth in Sections 3.1 and 3.2 shall
in each case be correct in all material respects as of the date of this
Agreement and as of the Effective Time as though made at and as of the Effective
Time, and Lotus and Sub shall have received a certificate from Iris signed by an
authorized officer of Iris to that effect.
(b) PERFORMANCE OF OBLIGATIONS OF IRIS AND STOCKHOLDERS. Iris and the
Stockholders shall have performed all obligations required to be performed by
them under this Agreement prior to and at the Effective Time, and Lotus and Sub
shall have received a certificate from Iris signed by an authorized officer of
Iris to that effect.
(c) AUTHORIZATION. All action necessary to authorize the execution,
delivery and performance of this Agreement and the Merger Agreement, and the
consummation of the transactions contemplated hereby and thereby shall have been
duly and validly taken by Iris and the Stockholders and Iris and the
Stockholders shall have full power and right to consummate the transactions
contemplated hereby and thereby.
(d) ABSENCE OF CHANGES. There shall not have occurred any material
adverse change in the business, operations, financial condition, results of
operations, assets, liabilities or prospects of Iris.
(e) STOCKHOLDER PARTICIPATION AGREEMENT. Each of the stockholders of
Iris other than the Stockholders shall have executed and delivered to Lotus on
the date of this Agreement a Stockholder Participation Agreement, substantially
in the form of Exhibit C hereto.
(f) OPINION OF IRIS' COUNSEL. Lotus shall have received an opinion
dated the Closing Date of counsel to Iris, substantially in the form attached to
this Agreement as Exhibit D.
(g) CONSENTS. Lotus and Sub shall have received duly executed copies of
all third-party consents and approvals contemplated by this Agreement or the
Iris Disclosure Letter in form and substance reasonably satisfactory to Lotus
and Sub.
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(h) AFFILIATE AGREEMENTS. Lotus shall have received the executed Iris
Rule 145 Affiliate Agreements contemplated by Section 4.8.
(i) IRIS S ELECTION. Iris shall have terminated its election to be
treated as an S Corporation under the Code, (and made any corresponding
applicable election under the tax laws of any states in which it is subject to
Tax), the Stockholders shall have elected, pursuant to Section 1362(e)(3) of the
Code, and pursuant to the corresponding provisions of the tax laws of the States
in which Iris is subject to Tax to allocate income and loss during Iris's "S
termination year" (as such term is defined in Section 1362(e) of the Code) in
accordance with normal tax accounting rules, and Lotus shall have received a
copy of Iris' S election revocation letter together with evidence of the
submission thereof to the Internal Revenue Service reasonably satisfactory to
Lotus.
(j) ESCROW AGREEMENT. The Stockholders shall have executed and
delivered an Escrow Agreement (the "Escrow Agreement"), substantially in the
form attached to this Agreement as Exhibit E, and shall deposit the Escrow
Shares with Escrow Agent thereunder.
(k) OFFICERS CERTIFICATE; CONTINUITY OF INTEREST AGREEMENTS. Ray Ozzie,
as President of Iris, shall have executed and delivered a Representation Letter,
and the Stockholders shall have executed and delivered Continuity of Interest
Agreements, in each case relating to the tax-free treatment of the business
combination to be effected by the Merger, the forms of which are attached hereto
as Exhibits F-1 and F-2.
(l) ACCEPTANCE BY COUNSEL TO LOTUS. The sufficiency of all papers
delivered hereunder and all related proceedings shall be reasonably acceptable
to O'Sullivan Graev & Karabell, counsel to Lotus.
6.3 CONDITIONS OF OBLIGATIONS OF IRIS AND THE STOCKHOLDERS. The
obligations of Iris and the Stockholders to perform this Agreement and effect
the Merger is subject to the satisfaction of the following conditions unless
waived (to the extent such conditions can be waived):
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Lotus and Sub set forth in Section 3.3 shall be correct in all
material respects as of the date of this Agreement and as of the Effective Time
as though made at and as of the Effective Time, and Iris and the Stockholders
shall have received a certificate signed by an authorized officer of Lotus to
that effect.
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(b) PERFORMANCE OF OBLIGATIONS. Lotus and Sub shall have performed all
obligations required to be performed by them under this Agreement and the
Agreement of Merger prior to and at the Effective Time, and Iris and the
Stockholders shall have received a certificate signed by an authorized officer
of Lotus and Sub to that effect.
(c) AUTHORIZATION. All action necessary to authorize the execution,
delivery and performance of this Agreement and the Merger Agreement by Lotus and
Sub and the consummation of the transactions contemplated hereby and thereby
shall have been duly and validly taken by Lotus and Sub.
(d) OPINION OF LOTUS' AND SUB'S COUNSEL. Iris shall have received on
opinion dated the Closing Date of counsel for Lotus and Sub, substantially in
the form attached to this Agreement as Exhibit G.
(e) ABSENCE OF CHANGES. There shall not have occurred any material
adverse change in the business, operations, financial condition, results of
operations, assets, liabilities or prospects of Lotus and its Subsidiaries,
taken as a whole.
(f) ROYALTY PAYMENTS. All royalty payments accrued from December 31,
1993 through the date of this Agreement (including an estimated amount in
respect of Iris' second fiscal quarter) shall have been paid to Iris prior to
the revocation of its election to be treated as an S corporation for tax
purposes .
(g) ACCEPTANCE BY COUNSEL TO IRIS. The sufficiency of all papers
delivered hereunder and all related proceedings shall be reasonably acceptable
to Piper & Marbury, counsel to Iris and the Stockholders.
ARTICLE VII
INDEMNIFICATION
7.1 DEFINITIONS. As used in this Article VII, the following terms shall have
the following meanings:
(a) "Affiliate", as to any person, means any other person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with such person.
(b) "Lotus Indemnification Event" shall mean the following:
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(i) (A) the untruth, inaccuracy or breach of any representation or
warranty of Iris or any Stockholder contained in Section 1.6, 3.1 or 3.2,
or any certificate delivered by Iris or any Stockholder pursuant hereto or
(B) the breach of any agreement or covenant of Iris or any Stockholder
contained in this Agreement ;
(ii) the assertion of any claim, demand, liability, or obligation
against Iris (after the Closing), Lotus, Sub or the Surviving Corporation
arising from or in connection with (A) any action or inaction of Iris or
any stockholder in connection with the action of the stockholder of Iris
required to approve the transactions contemplated by this Agreement and the
Merger Agreement or (B) any assertion against any of such persons by any
stockholder of Iris of any claim with respect to any actions or the
transactions of or involving Iris prior to or at the Effective Time
(including, without limitation) the actions and transactions contemplated
by this Agreement or the Merger Agreement); and
(iii) any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering
circular, or other document (including any related registration statement,
notification or the like) incident to any registration, qualification or
compliance with respect to the Lotus Common Stock issued pursuant to the
Merger, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, in each case, if such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular, or other document in
reliance upon and in conformity with written information furnished to Lotus
by or on behalf of Iris or a Stockholder for use in such registration
statement, prospectus, offering circular or other document.
(c) "Lotus Indemnified Persons" shall mean and include Lotus, Sub, the
Surviving Corporation and their Affiliates, successors and assigns, and their
respective officers and directors.
(d) "Iris Indemnification Event" shall mean the following:
(i) the untruth, inaccuracy or breach of any representation or
warranty of Lotus or Sub contained in Section 1.6 or 3.3, any Exhibit
attached hereto or any certificate delivered by Lotus in connection
herewith at or before the Closing (or any facts or circumstances
constituting any such untruth, inaccuracy or breach);
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(ii) the breach of any agreement or covenant of Lotus contained in
this Agreement; and
(iii) any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering
circular, or other document (including any related registration statement,
notification or the like) incident to any registration, qualification or
compliance with respect to the Lotus Common Stock issued pursuant to the
Merger, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, except to the extent that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular, or other document in
reliance upon and in conformity with written information furnished to Lotus
by or on behalf of Iris or a Stockholder for use in such registration
statement, prospectus, offering circular or other document.
(e) "Iris Indemnified Persons" shall mean and include the Stockholders
and their respective successors and assigns.
(f) "Indemnified Persons" shall mean Lotus Indemnified Persons or Iris
Indemnified Persons, as the case may be.
(g) "Indemnifying Person" shall mean Lotus and the Surviving
Corporation or Iris and the Stockholders, as the case may be.
(h) "Losses" shall mean any and all losses, claims, shortages, damages,
liabilities, expenses (including reasonable attorneys' and accountants' fees),
assessments, tax deficiencies and taxes (including interest or penalties
thereon) sustained, suffered or incurred by any Indemnified Person arising from
any matter which is the subject of indemnification under Section 7.2 (excluding
Losses to the extent covered by insurance and excluding lost profits,
consequential or other speculative damages, but specifically including losses
constituting lost profits with respect to claims based on, relating to or
arising out of a breach of the representations and warranties set forth in
Section 3.2(k) only).
7.2 INDEMNIFICATION GENERALLY, ETC.
(a) Lotus Indemnification. Subject to the limitations contained in
Section 7.6(a), each of the Stockholders shall, jointly and severally, indemnify
and hold harmless Lotus
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Indemnified Persons, and each of them, from and against any and all Losses
resulting from Lotus Indemnification Events.
(b) Iris Indemnification. Subject to the limitations contained in
Section 7.6(b), Lotus shall indemnify and hold harmless Iris Indemnified
Persons, and each of them, from and against any and all Losses resulting from
Iris Indemnification Events.
7.3 ASSERTION OF CLAIMS. No claim, demand, suit or cause of action shall be
brought under Section 7.2 unless the Indemnified Persons, or any of them, give
the Indemnifying Person written notice of the existence of any such claim,
demand, suit or cause of action, stating with particularity the nature and basis
of said claim, and the amount thereof, to the extent known, and providing to the
extent reasonably available all written documentation relating thereto. Such
written notice shall be delivered to the Indemnifying Person as soon as
practicable upon receipt of actual knowledge of such claim, demand, suit or
cause of action; provided, however, that the failure to provide such written
notice shall not affect the Indemnified Persons' right to indemnification
hereunder if failure to provide such written notice does not materially
adversely affect the Indemnifying Person. Upon the giving of such written
notice as aforesaid, the Indemnified Persons, or any of them, shall have the
right to commence legal proceedings subsequent to the applicable Survival Date,
if any, for the enforcement of their rights under Section 7.2. The Indemnifying
Person shall be kept fully informed of the progress of any action, suit or
proceeding with respect to which it may have liability under Section 7.2.
7.4 DEFENSE OF THIRD PARTY CLAIMS.
(a) The Indemnifying Person shall have the right, at its sole expense,
to employ its own counsel to participate in and, subject to the further
provisions of this Section 7.4, control the defense of, any action, suit or
proceeding with respect to which it may have liability under Section 7.2
(including all proceedings on appeal or for review which counsel for the
Indemnifying Person shall deem appropriate), if it shall agree in writing that
it is obligated under Section 7.2 with respect to such action, suit or
proceeding. Notwithstanding the foregoing, the Indemnified Persons shall have
the right to control the defense of any action, suit or proceeding which (i) is
not being actively and diligently defended by the Indemnifying Person, in which
case the reasonable fees and expenses of counsel for the Indemnified Persons
shall be borne by the Indemnifying Person, or (ii) involves, in the reasonable
judgment of the Indemnified Persons, matters to a significant extent beyond the
scope of the indemnity contained in Section 7.2, in which case the fees and
expenses of counsel for the Indemnified Persons shall be borne by the
Indemnified Persons. The Indemnified
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Persons shall be kept fully informed of any action, suit or proceeding being
controlled by the Indemnifying Person and shall have the right, at their sole
expense, to employ their own counsel to participate in the defense thereof. The
Indemnifying Person shall make available to the Indemnified Persons and their
attorneys and accountants all books and records of the Indemnifying Person
relating to such action, suit or proceeding and the parties hereto agree to
render to each other such assistance as they may reasonably require of each
other in order to ensure the proper and adequate defense of any such action,
suit or proceeding.
(b) The Indemnifying Person shall not make any settlement of any action,
suit or proceeding being defended by it without the written consent of the
Indemnified Persons, which consent shall not be unreasonably withheld; provided,
however, that in the event the Indemnified Persons refuse to consent to a
settlement acceptable to the Indemnifying Person, the Indemnifying Person may
pay the amount of the proposed settlement to the Indemnified Persons and shall
thereupon be released from any further liability with respect to such action,
suit or proceeding.
(c) The Indemnified Persons shall not make any settlement of any action,
suit or proceeding with respect to which the Indemnifying Person may have
responsibility pursuant to Section 7.2 unless (i) the Indemnifying Person has
consented in writing to such settlement (in which case the amount thereof shall
be the amount of the indemnity obligation owed by the Indemnifying Persons to
the Indemnified Persons with respect thereto) or (ii) the Indemnifying Person
has been released from all liability relating thereto.
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7.5 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Subject to the
further provisions of this Section 7.5, the representations and warranties of
Iris and the Stockholders contained in Sections 3.1 and 3.2 and the
representations and warranties of Lotus and Sub contained in Section 3.3 shall
survive the Closing and shall terminate on the second anniversary of the date of
the Closing; provided, however, that (a) the representations and warranties of
Stockholders set forth in Section 3.1(a), of Iris and the Stockholders set forth
in Section 3.2(c) and of Lotus and Sub set forth in Section 3.3(c) shall survive
the Closing and remain in full force and effect without time limit and (b) the
representations and warranties of Iris and the Stockholders set forth in Section
3.2(i), of Lotus and the Stockholders set forth in Section 1.6 and of Lotus and
Sub set forth in Section 3.3(m) shall survive the Closing until the expiration
of the statute of limitations, if any, applicable to the matters set forth
therein with respect to Taxes. Except as otherwise expressly provided in this
Agreement, all agreements and covenants contained in this Agreement shall
survive the Closing and remain in full force and effect without time limit. For
convenience of reference, the date upon which any representation, warranty,
agreement or covenant shall terminate, if any, shall be referred to as the
"Survival Date".
7.6 LIMITATIONS ON INDEMNIFICATION.
(a) Lotus Indemnified Persons shall be entitled to indemnification under
Section 7.2(a) only if, and only to the extent that, the aggregate of all Losses
arising from or in connection with Lotus Indemnification Events exceeds
$150,000; provided, however, that the aggregate obligation of the Stockholders
in respect of the indemnity agreement contained in Section 7.2(a), except with
respect to any Losses resulting from a breach of the representations and
warranties of the Stockholders set forth in Section 3.1(a), or of Iris and the
Stockholders set forth in Section 3.2(c) or 3.2(i), shall not exceed $7,500,000.
Any claim by Lotus Indemnified Persons under Section 7.2(a) shall be settled
first from the Escrow Shares.
(b) Iris Indemnified Persons shall be entitled to indemnification under
Section 7.2(b) only if, and only to the extent that, the aggregate of all Losses
arising from or in connection with Iris Indemnification Events exceeds $150,000.
7.7 EXCLUSIVITY OF REMEDIES. With respect to matters covered by the
Indemnity provided in this Article VII, the Indemnified persons sole contractual
remedy therefor shall be indemnification under this Article VII.
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ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 NEGOTIATION WITH OTHERS. From and after the date hereof until the
termination of this Agreement pursuant to Section 9.1, without the express
written consent of Lotus, neither the Stockholders nor Iris shall directly or
indirectly, (i) solicit, initiate discussions or engage in negotiations with any
person, other than Lotus, relating to the possible acquisition of any interest
in Iris or any of its assets (whether such negotiations are initiated by the
Stockholders or Iris or otherwise), (ii) provide information with respect to
Iris or any of its assets to any person, other than Lotus, relating to the
possible acquisition of any interest in Iris, or any of its assets, or (iii)
enter into a transaction with any person, other than Lotus, concerning the
possible acquisition of any interest in Iris or any of its assets. Prior to the
termination of this Agreement pursuant to Section 9.1, if Iris receives an
unsolicited offer or proposal relating to the possible acquisition of any
interest in Iris or any of its assets, Iris shall immediately notify Lotus and
provide information to Lotus as to the identity of the party making any such
offer or proposal and the specific terms of such offer or proposal (including,
without limitation, the proposed price and financing therefor).
8.2 DISPOSITION OF SECURITIES; SOLICITATION; VOTING; ETC. From and after
the date hereof each Stockholder shall, as to itself:
(a) without the prior written consent of Lotus refrain from
transferring, selling or assigning to any person, or agreeing in any manner
to transfer, sell or assign to any person, or pledge, encumber, deposit in
a voting trust or grant a proxy with respect to any securities of Iris
presently or hereafter owned or controlled by him or it;
(b) refrain from soliciting or entering into any agreement or
arrangement with any person with respect to any transfer, sale or
assignment of any securities of Iris; and
(c) vote the shares of Iris Common Stock presently or hereafter owned or
controlled by such Stockholder against any merger (other than the Merger),
consolidation, sale of assets, reorganization, recapitalization,
liquidation or winding up of Iris at every meeting of shareholders of Iris
called therefor and at every adjournment thereof (or withhold consent in
writing to any such action proposed to be taken by written consent in lieu
of a meeting).
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8.3 BREACH OF SECTION 8.1 OR 8.2. The parties recognize and acknowledge
that a breach by Iris or any Stockholder of Section 8.1 or 8.2 hereof,
respectively, will cause irreparable and material loss and damage to Lotus, the
amount of which is not readily determinable and that, accordingly, each party
agrees that the issuance of an injunction or other equitable remedy is an
appropriate remedy for any such breach.
8.4 TAX RETURNS. The Stockholders will cause to be prepared, at their
expense, all Tax Returns of Iris covering all periods during which Iris was
treated as an "S" corporation for federal income tax purposes, in a manner
consistent with prior years and all applicable laws and regulations. The
Stockholders will elect to allocate income and loss for Iris' "S termination
year", as such term is defined in Section 1362(e)(3) of the Code, in accordance
with normal tax accounting rules. The Stockholders shall submit such returns to
Lotus for its reasonable review and approval and the parties will thereafter
take such actions as are necessary to accomplish the timely filing of such
returns.
ARTICLE IX
TERMINATION; AMENDMENT, MODIFICATION AND WAIVER
9.1 TERMINATION. This Agreement may be terminated at any time prior to the
Closing by:
(a) the mutual consent of Lotus, Sub, the Stockholders and Iris;
(b) Lotus or Iris, if the conditions set forth in Section 5.1 shall not
have been satisfied or waived (to the extent they may be waived) on or
prior to May 31, 1994;
(c) Lotus and Sub, if the conditions set forth in Section 5.2 shall not
have been satisfied or waived (to the extent they may be waived) on or
prior to May 31, 1994; and
(d) Iris and the Stockholders, if the Closing shall not have occurred on
or prior to May 31, 1994.
Any termination pursuant to Section 9.1(a) shall be effected by a written
instrument signed by all of the parties hereto (a "Termination Agreement"), and
any termination pursuant to this Section 9.1, other than a termination pursuant
to Section 9.1(a), shall be effected by written notice (a "Termination Notice")
from the party so terminating to the other party, which notice shall specify the
section hereof pursuant to which this Agreement is being terminated.
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9.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 9.1, this Agreement shall be of no further
force or effect except for Section 4.1(b), Section 10.1, this Section 9.2 and
Article VII, each of which shall survive the termination of this Agreement;
provided, however, that the liability of any party for any breach by such party
of the covenants or agreements of such party set forth in this Agreement
occurring prior to the termination of this Agreement shall survive the
termination of this Agreement.
9.3 AMENDMENT, MODIFICATION AND WAIVER. This Agreement shall not be
altered or otherwise amended except pursuant to an instrument in writing signed
by Lotus, Sub, Iris and the holders of at least a majority of the Iris Common
Stock held by all Stockholders. The waiver by one party of the performance of
any covenant, condition or promise shall not invalidate this Agreement, nor
shall it be considered as a waiver by such party of any other covenant,
condition or promise. The delay in pursuing any remedy or in insisting upon full
performance for any breach or failure of any covenant, condition or promise
shall not prevent a party from later pursuing any remedies or insisting upon
full performance for the same or any similar breach or failure.
ARTICLE X
MISCELLANEOUS
10.1 EXPENSES. Each of the Stockholders, Iris, Lotus and Sub shall bear
its own fees and expenses in connection with the preparation for and
consummation of the transactions contemplated hereby, except that (i) Lotus
shall bear the expense of the $25,000 filing fee for the Hart-Scott-Rodino pre-
merger notification report filed by Ray Ozzie and (ii) in the event the Merger
is consummated, all fees and expenses incurred by Iris in connection with the
Merger (including all attorneys', accountants' and other professional fees and
expenses and brokers' or finders' fees for persons engaged by Iris or the
Stockholders (or claiming to be so engaged)), shall be borne by the Stockholders
on a pro rata basis, whether or not such fees and expenses have been paid by
Iris on or before the Effective Time and whether or not such fees and expenses
are reflected in the Iris Disclosure Letter or the Schedule of Expenses (all
such fees and expenses being hereinafter collectively referred to as the
"Stockholder Expenses") and shall not be the responsibility of Iris, Lotus or
Sub.
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10.2 ENTIRE AGREEMENT. This Agreement (including the Schedules and the
Exhibits attached hereto) contains the entire agreement among the parties hereto
with respect to the transactions contemplated hereby and supersedes all prior
agreements or understandings between the parties with respect thereto.
10.3 DESCRIPTIVE HEADINGS. Descriptive headings are for convenience only
and shall not control or affect the meaning or construction of any provisions of
this Agreement.
10.4 NOTICES. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if (a) delivered
personally or sent by telecopier, (b) sent by nationally-recognized overnight
courier or (c) sent by certified mail, postage prepaid, return receipt
requested, addressed as follows:
if to Lotus, to:
Lotus Development Corporation
55 Cambridge Parkway
Cambridge, Massachusetts 02142
Attention: Thomas M. Lemberg, Esq.
Vice President and General Counsel
Telecopier: (617) 225-1195
with a copy to:
O'Sullivan Graev & Karabell
30 Rockefeller Plaza
New York, New York 10112
Attention: Kenneth S. Siegel, Esq.
Telecopier: (212) 408-2420
if to Iris or the
Stockholders, to:
Iris Associates, Inc.
One Technology Park
Westford, Massachusetts 01286
Attention: Raymond E. Ozzie
President
Telecopier: (508) 526-7724
with a copy to:
Piper & Marbury
1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430
Attention: Edwin M. Martin, Jr., Esq.
Telecopier: (202) 223-2085
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or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such
communication shall be deemed to have been given (i) when delivered if
personally delivered or sent by telecopier, (ii) on the Business Day (as
hereinafter defined) after dispatch if sent by nationally-recognized, overnight
courier and (iii) on receipt, if sent by mail. As used herein, "Business Day"
means a day that is not a Saturday, Sunday or a day on which banking
institutions in New York, New York are not required to be open.
10.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
10.6 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with (a) the laws of Massachusetts applicable to contracts made and
performed wholly therein and (b) with respect to corporate law governing the
Merger, solely by the General Corporation Law of the State of Delaware.
10.7 BENEFITS OF AGREEMENT. The terms and provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. Anything contained herein to the contrary
notwithstanding, this Agreement shall not be assignable by any party hereto
without the consent of the other parties hereto; provided, however, that Sub may
assign all or any portion of the rights hereunder to any other wholly-owned
Subsidiary of Lotus, and Iris and the Stockholders shall execute any amendment
to this Agreement necessary to provide the benefits of this Agreement to any
such assignee.
10.8 PRONOUNS. As used herein, all pronouns shall include the masculine,
feminine, neuter, singular and plural thereof whenever the context and facts
require such construction.
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the day And year first above written.
LOTUS DEVELOPMENT CORPORATION
By: /s/ John W. Martin
_________________________
Name: John W. Martin
Title: Vice President
LDC VIII ACQUISITION CORPORATION
By: /s/ John W. Martin
_________________________
Name: John W. Martin
Title: Vice President
IRIS ASSOCIATES, INC.
By: /s/ Raymond E. Ozzie
_________________________
Raymond E. Ozzie
President
STOCKHOLDERS:
/s/ Raymond E. Ozzie
____________________________
Raymond E. Ozzie
/s/ Timothy Halvorsen
____________________________
Timothy Halvorsen
/s/ Len Kawell
____________________________
Len Kawell
/s/ Steven R. Beckhardt
____________________________
Steven R. Beckhardt
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SCHEDULE 4.7
------------
FROM THE DATE OF THE AGREEMENT UNTIL THE CLOSING:
1. IRIS SHALL CONDUCT ITS ACTIVITIES ONLY IN THE NORMAL COURSE OF
BUSINESS.
2. THE STOCKHOLDERS SHALL REFRAIN FROM TRANSFERRING, SELLING OR
ASSIGNING TO ANY PERSON, OR AGREEING IN ANY MANNER TO TRANSFER, SELL OR ASSIGN
TO ANY PERSON, OR PLEDGE OR ENCUMBER, ANY IRIS COMMON STOCK (EXCEPT FOR THE
COMPENSATORY TRANSFER BY RAY OZZIE REFERRED TO IN THE OFFICER'S CERTIFICATE TO
BE DELIVERED TO LOTUS AT THE CLOSING).
3. IRIS SHALL NOT DECLARE OR PAY, OR SET ASIDE ANY AMOUNTS FOR THE
PAYMENT OF, ANY DIVIDEND OR OTHER DISTRIBUTION OF ANY ASSETS WITH RESPECT TO ITS
CAPITAL STOCK OR REDEEM OR REPURCHASE ANY SHARES OF SUCH CAPITAL STOCK.
4. IRIS SHALL NOT AUTHORIZE OR ISSUE ANY CAPITAL STOCK OR OTHER
SECURITIES OR ANY OPTIONS, WARRANTS OR OTHER RIGHTS TO ACQUIRE ANY CAPITAL STOCK
OR OTHER SECURITIES.
5. IRIS SHALL NOT INCUR ANY LONG-TERM INDEBTEDNESS.
6. IRIS SHALL NOT INCUR ANY INDEBTEDNESS, MAKE ANY GUARANTEE OR ENTER
INTO ANY FINANCING ARRANGEMENTS FOR THE BENEFIT OF ANY STOCKHOLDER OF IRIS.
