<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
----------------------------------
Date of Report (Date of earliest event reported): MAY 29, 1996
------------
BROOKTROUT TECHNOLOGY, INC.
(Exact name of Registrant as specified in charter)
MASSACHUSETTS 0-20698 04-2814792
- ---------------------------- ------------------------ -------------------
(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification no.)
410 FIRST AVENUE, NEEDHAM, MA 02194
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 449-4100
----------------------------------------------------
(Registrant's telephone number, including area code)
There are __ pages in this Report, including exhibits.
Page 1 of __
Exhibit Index Begins on Page __
<PAGE> 2
ITEM 2. ACQUISITION OF ASSETS
On May 29, 1996, Brooktrout Technology, Inc. (the "Registrant")
consummated the acquisition of all of the outstanding equity interests of
Technically Speaking, Inc., a Massachusetts corporation ("TSI"), for 475,328
shares of the Registrant's newly issued common stock. The amount of the
consideration was determined on the basis of the Registrant's valuation of TSI.
The Registrant acquired TSI from Andrew Fox, Beverly Fox, Robert Friedman,
Raymond Phillips, Michael Tinglof, Joe Finegold, Diamentino Fidalgo and Michael
Healy, none of whom was affiliated with the Registrant, any director or officer
of the Registrant or any associate of any such director or officer. The
acquisition was structured as a tax-free reorganization to be accounted for as a
pooling of interests. The terms of this transaction are described more fully in
a press release issued on March 8, 1996, a copy of which is included as an
exhibit hereto and incorporated herein by reference.
The Registrant has agreed to register approximately 50% of the shares
of its common stock issued to the equity holders of TSI for resale under the
Securities Act of 1933.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
Balance sheet of TSI as of December 31, 1995, and related
statements of income, shareholders' equity and cash flows for the
year then ended, audited by Deloitte & Touche LLP.
(b) Pro Forma Condensed Combining Balance Sheet at December 31, 1995
and Pro Forma Condensed Combining Income Statements for the years
ended December 31, 1995, 1994 and 1993.
(c) Exhibits
2.1 Amended and Restated Agreement and Plan of Merger among
the Registrant, Brooktrout Acquisition Corp., Technically
Speaking, Inc. ("TSI") and the stockholders of TSI, dated
May 29, 1996.
23.1 Consent of Deloitte & Touche LLP.
99.1 Press release of the Registrant, dated March 8, 1996.
(Incorporated by reference to Exhibit 99.1 of the
Registrant's Current Report on Form 8- K dated March 8,
1996.)
3
<PAGE> 4
BALANCE SHEET OF TSI AS OF DECEMBER 31, 1995, AND RELATED STATEMENTS OF INCOME,
SHAREHOLDERS' EQUITY AND CASH FLOWS FOR THE YEAR THEN ENDED, AUDITED BY DELOITTE
& TOUCHE LLP.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Technically Speaking, Inc.:
We have audited the accompanying balance sheet of Technically Speaking,
Inc. (the "Company") as of December 31, 1995, and the related statements of
income, shareholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1995, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
As described in Note 1 to the financial statements, on March 8, 1996, the
Company and its shareholders entered into an Agreement and Plan of Merger with
Brooktrout Technology, Inc.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 8, 1996
4
<PAGE> 5
TECHNICALLY SPEAKING, INC.
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1995
1994 -----------
-----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash......................................................... $ 28,274 $ --
Accounts receivable (net of allowance for doubtful accounts
of $33,026 in 1994 and $71,913 in 1995)..................... 220,086 1,639,537
Inventory.................................................... 37,759 71,000
----------- -----------
Total current assets.................................... 286,119 1,710,537
PROPERTY AND EQUIPMENT, Net....................................... 46,085 184,402
OTHER ASSETS...................................................... 1,720 13,676
----------- -----------
TOTAL............................................................. $ 333,924 $ 1,908,615
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit borrowings.................................... $ -- $ 50,000
Accounts payable and accrued expenses........................ 144,637 446,194
Due to shareholders.......................................... 1,928 --
Deferred revenue............................................. -- 188,000
----------- -----------
Total current liabilities............................... 146,565 684,194
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, no par value:
Series A; 200,000 shares authorized, 100,000 shares issued
and outstanding; at issuance price........................ 100 100
Series B; 200,000 shares authorized, none issued or
outstanding;.............................................. -- --
Retained earnings............................................ 187,259 1,224,321
----------- -----------
Total shareholders' equity.............................. 187,359 1,224,421
----------- -----------
TOTAL............................................................. $ 333,924 $ 1,908,615
=========== =========
</TABLE>
See notes to financial statements.
5
<PAGE> 6
TECHNICALLY SPEAKING, INC.
STATEMENTS OF INCOME
PERIOD FROM SEPTEMBER 1, 1993 (DATE OF INCEPTION) TO
DECEMBER 31, 1993 AND YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES:
Software licenses................................. $ 208,926 $ 584,032 $ 2,316,453
Hardware.......................................... 122,470 869,492 1,441,550
Consulting........................................ -- 10,000 769,693
Maintenance....................................... -- -- 13,000
----------- ----------- -----------
Total revenues............................... 331,396 1,463,524 4,540,696
----------- ----------- -----------
COST AND EXPENSES:
Cost of sales -- licenses......................... 11,585 44,885 111,488
Cost of sales -- hardware......................... 85,607 625,534 1,108,038
Cost of sales -- consulting....................... -- 39,858 166,387
Selling and marketing............................. 27,769 266,588 969,416
Research and development.......................... 82,714 235,181 622,286
General and administrative........................ 21,030 170,178 516,465
----------- ----------- -----------
Total costs and expenses..................... 228,705 1,382,224 3,494,080
----------- ----------- -----------
OPERATING INCOME....................................... 102,691 81,300 1,046,616
OTHER INCOME, Net...................................... -- 3,268 12,745
----------- ----------- -----------
NET INCOME............................................. $ 102,691 $ 84,568 $ 1,059,361
=========== ========= =========
HISTORICAL INCOME PER COMMON SHARE..................... $ 1.03 $ 0.85 $ 10.39
=========== ========= =========
PRO FORMA DATA:
Historical net income............................. $ 102,691 $ 84,568 $ 1,059,361
Provision for income taxes........................ 42,000 34,000 424,000
----------- ----------- -----------
PRO FORMA NET INCOME................................... $ 60,691 $ 50,568 $ 635,361
=========== ========= =========
PRO FORMA INCOME PER COMMON SHARE...................... $ 0.61 $ 0.51 $ 6.23
=========== ========= =========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES... 100,000 100,000 101,953
=========== ========= =========
</TABLE>
See notes to financial statements.
6
<PAGE> 7
TECHNICALLY SPEAKING, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
PERIOD FROM SEPTEMBER 1, 1993 (DATE OF INCEPTION) TO
DECEMBER 31, 1993 AND YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- RETAINED
SERIES A SERIES B EARNINGS TOTAL
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
INITIAL CAPITALIZATION OF THE COMPANY........... $100 $-- $ -- $ 100
Net income................................. -- -- 102,691 102,691
-------- -------- ---------- ----------
BALANCE, DECEMBER 31, 1993 (Unaudited).......... 100 -- 102,691 102,791
Net income................................. -- -- 84,568 84,568
-------- -------- ---------- ----------
BALANCE, DECEMBER 31, 1994 (Unaudited).......... 100 -- 187,259 187,359
Net income................................. -- -- 1,059,361 1,059,361
Distributions to shareholders.............. -- -- (22,299) (22,299)
-------- -------- ---------- ----------
BALANCE, DECEMBER 31, 1995...................... $100 $-- $1,224,321 $1,224,421
======== ======= ========= =========
</TABLE>
See notes to financial statements.
7
<PAGE> 8
TECHNICALLY SPEAKING, INC.
STATEMENTS OF CASH FLOWS
PERIOD FROM SEPTEMBER 1, 1993 (DATE OF INCEPTION) TO
DECEMBER 31, 1993 AND YEARS ENDED DECEMBER 31, 1994 AND 195
<TABLE>
<CAPTION>
1994
------------ 1995
1993 (UNAUDITED) ------------
------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 102,691 $ 84,568 $ 1,059,361
Adjustments to reconcile net income to cash used
in operating activities:
Depreciation............................... 388 4,382 22,896
Changes in assets and liabilities:
Account receivable.................... (127,771) (92,315) (1,419,451 )
Inventory............................. -- (37,759) (33,241 )
Due to (from) shareholders............ 1,828 100 (1,928 )
Other assets.......................... (280) (1,440) (11,956 )
Accounts payable and accrued
expenses............................ 29,373 115,264 301,557
Deferred revenue...................... -- -- 188,000
------------ ------------ ------------
Cash provided by operating
activities..................... 6,229 72,800 105,238
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES --
Purchase of property and equipment................. (5,825) (45,030) (161,213 )
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders...................... -- -- (22,299 )
Proceeds from issuance of common stock............. 100 -- --
Net proceeds from line of credit................... -- -- 50,000
------------ ------------ ------------
Cash provided by financing
activities..................... 100 -- 27,701
------------ ------------ ------------
INCREASE (DECREASE) IN CASH.......................... 504 27,770 (28,274 )
CASH AT BEGINNING OF PERIOD.......................... -- 504 28,274
------------ ------------ ------------
CASH AT END OF PERIOD................................ $ 504 $ 28,274 $ --
============ ============ ============
</TABLE>
See notes to financial statements.
8
<PAGE> 9
TECHNICALLY SPEAKING, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business -- Technically Speaking, Inc. (the "Company") was incorporated in
Massachusetts to engage in the business of computer software and hardware
development in the area of telecommunications and other related technical
fields. The Company's operating facility is located in Massachusetts, although
the Company does business throughout the United States.
Agreement and Plan of Merger -- On March 8, 1996, the shareholders entered
into an Agreement and Plan of Merger with Brooktrout Technology, Inc. ("BTI")
whereby the shareholders agreed to exchange their shares of common stock for
shares of common stock of BTI. The transaction is expected to close in May 1996.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition -- The Company recognizes revenue from software license
sales upon delivery of the software. Revenue from maintenance and support
contracts is deferred and recognized as the services are performed. Maintenance
and support revenues included with an initial license fee are unbundled and
recognized as the services are performed.
Concentration of Credit Risk -- The majority of the Company's revenues are
from customers in high technology industries, who are not required to provide
collateral for amounts owed to the Company. The Company's customers are
dispersed over a wide geographic area and are subject to periodic review under
the Company's credit policies.
Inventory -- Inventory, which consists of finished goods, is carried at the
lower of cost or market, determined on a first-in, first-out basis.
Property and Equipment -- Property and equipment are recorded at cost and
depreciated using the straight-line method over their estimated useful lives.
Research and Development and Software Costs -- Research and development
costs are expensed as incurred. Costs associated with the development of
software are expensed prior to establishing technological feasibility. To date,
no development costs have qualified for capitalization.
Income Taxes -- The Company and its shareholders have elected to be treated
as a Subchapter S corporation under the Internal Revenue Code. As a result, the
Company's income is taxed at the shareholder level and no provision is made for
income taxes by the Company. Concurrent with the change in ownership described
above, this election will terminate and the Company will be subject to income
taxes on a prospective basis.
Although not subject to income taxes since the Company's income is taxed at
the shareholder level, differences have arisen between the reported amounts of
assets and liabilities and the related tax bases of these items due to the use
of the cash method of accounting for income tax purposes. At December 31, 1994
and 1995, these differences are approximately as follows:
<TABLE>
<CAPTION>
1994 1995
-------- -----------
<S> <C> <C>
(UNAUDITED)
Accounts receivable......................................... $220,000 $ 1,640,000
Accounts payable and accrued expenses....................... (145,000) (446,000)
Deferred revenue............................................ -- (188,000)
-------- -----------
Gross temporary differences................................. $ 75,000 $ 1,006,000
======== =========
</TABLE>
9
<PAGE> 10
TECHNICALLY SPEAKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Had the Company been subject to income taxes, these temporary differences
would have resulted in the recording of deferred tax liabilities of
approximately $30,000 and $402,000 at December 31, 1994 and 1995, respectively.
Cash Flow Information -- Supplemental disclosure of cash flow information
is as follows:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
--------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Cash paid for interest expense............................ $ -- $ -- $3,216
</TABLE>
Income Per Common Share -- Income per common share is computed using the
weighted average number of common and common equivalent shares outstanding
during each period. Common equivalent shares consist of stock options using the
treasury stock method. Pro forma income per common share is based upon reported
net income adjusted for a pro forma tax charge.
Distributions to Stockholders -- The Company's policy is to distribute
annually to its shareholders an amount sufficient to pay the income taxes on the
Subchapter S income reported on their personal returns. In 1995 and 1996,
distributions of $22,299 and $12,000 were made based on 1994 and 1995 Subchapter
S income, respectively. No significant tax liability was incurred for 1993
income, therefore, no distribution was required.
Use of Estimates -- The preparation of financial statements requires, of
necessity, the use of estimates to determine the appropriate carrying value of
certain assets and liabilities. Actual results could differ from these
estimates.
Fair Value of Financial Instruments -- Financial instruments held or used
by the Company consist of cash, accounts receivable, accounts payable, and the
line of credit. The fair value of these instruments is based on management's
estimates as of December 31, 1994 and 1995, which could change if market
conditions change. Given the nature of the items considered financial
instruments and the variable rate borne by the line of credit, management
believes that carrying value approximates fair value for all financial
instruments.
NEW ACCOUNTING PRONOUNCEMENTS
Accounting for Long-Lived Assets -- In 1994, the FASB issued SFAS No. 121,
"Accounting for Impairment of Long-Lived Assets and for Assets Held for Sale,"
which will be effective for fiscal 1996. Adoption is not expected to have a
material impact on the Company's financial position.
Accounting for Stock Compensation -- In 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which is effective in fiscal 1996.
SFAS No. 123 prescribes a fair value approach to measuring the compensation
element of grants or awards of equity instruments to employees or outsiders.
SFAS No. 123 will allow companies to continue to use the intrinsic value
methodology provisions of APB 25 for measuring compensation to employees;
however, companies are required to use the fair value method to measure
compensation to outsiders. The Company has not yet determined the impact of
adoption of this accounting pronouncement.
10
<PAGE> 11
TECHNICALLY SPEAKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment and estimated useful lives consist of the following
at September 30:
<TABLE>
<CAPTION>
1995
1994 --------
------------
(UNAUDITED)
<S> <C> <C>
Computer and office equipment (5 years).......... $ 5,825 $150,196
Other equipment (7 years)........................ 44,403 42,403
Furniture (7 years).............................. 627 19,469
------------ --------
Total............................................ 50,855 212,068
Less accumulated depreciation.................... 4,770 27,666
------------ --------
Property and equipment, net...................... $ 46,085 $184,402
============ ========
</TABLE>
3. COMMON STOCK
Stock Option Plan -- The Company's 1995 Stock Plan (the "Plan"), adopted in
January 1995, provides for grants of options to purchase up to 200,000 shares of
the Company's class B common stock. Grants may be in the form of incentive stock
options or nonstatutory options. Exercise prices and vesting periods are
determined by the Compensation Committee of the Board of Directors on the date
of grant. All grants made under the Plan have been at estimated fair market
value, as determined by the Board of Directors. Options generally vest ratably
over a four-year period, although all option grants contain acceleration
provisions in the event of a change in control of the Company. A summary of
activity in the plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICE
---------- ---------
<S> <C> <C>
Granted in January 1995 and outstanding at
December 31, 1995............................... 2,040 $5.00
=========== ========
Exercisable at December 31, 1995.................. 488
===========
</TABLE>
4. COMMITMENTS
The Company leases its office facilities under noncancellable operating
leases. The lease contains rent holiday and escalation clauses. Rent expense
under the lease is recognized on a straight-line basis. Total rent expense was
approximately $4,900, $19,900 and $87,100 for the period from September 1, 1993
to December 31, 1993 and for the years ended December 31, 1994 and 1995,
respectively.
Future minimum payments under noncancellable leases for years ending
December 31 are as follows:
<TABLE>
<S> <C>
1996........................................................... $145,144
1997........................................................... 214,700
1998........................................................... 233,968
1999........................................................... 235,344
2000........................................................... 238,096
Thereafter..................................................... 79,824
</TABLE>
11
<PAGE> 12
TECHNICALLY SPEAKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. SIGNIFICANT CUSTOMERS
During the year ended December 31, 1994, one customer represented
approximately 33% of the Company's total revenue. During the year ended December
31, 1995, two customers represented 35% and 15% of the Company's total revenue.
6. LINE OF CREDIT
On March 16, 1995, a working capital line of credit in the amount of
$100,000, collateralized by the assets of the Company, was made available for
use by the Company by a bank. At December 31, 1995, there were $50,000 of
borrowings outstanding under this facility. Borrowings bear interest at the
bank's prime rate plus 1.25% (9.75% at December 31, 1995). In connection with
this facility, the Company must meet certain covenants contained in the
agreement. Borrowings under the line are collateralized by substantially all of
the Company's assets and repayment is guaranteed by the shareholders.
7. EMPLOYEE RETIREMENT PLAN
The Company has a 401(k) employee savings plan, established in 1995, which
allows employees to defer specified amounts of their compensation on a pretax
basis. The Company will contribute $.50 for every $1 contributed by an eligible
employee up to a maximum of 6% of that employee's compensation. Company
contributions to the plan were $19,900 in 1995.
* * * * * *
12
<PAGE> 13
PRO FORMA CONDENSED COMBINING BALANCE SHEET AT DECEMBER 31, 1995 AND PRO FORMA
CONDENSED COMBINING INCOME STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995,
1994 AND 1993.
PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
The following unaudited Pro Forma Condensed Combining Balance Sheet at
December 31, 1995 and Pro Forma Condensed Combining Income Statements for the
years ended December 1995, 1994 and 1993 (the "Pro Forma Condensed Combining
Financial Statements") illustrate the effect of the Merger as if the Merger had
occurred as of the beginning of the earliest period presented. Pursuant to the
terms of the Merger, each holder of TSI Common Stock will be entitled to receive
shares of Brooktrout Common Stock based on an exchange ratio of 4.6681 shares of
Brooktrout Common Stock for each share of TSI Common Stock. The Pro Forma
Condensed Combining Balance Sheet combines Brooktrout's December 31, 1995
consolidated balance sheet incorporated by reference herein with TSI's December
31, 1995 balance sheet appearing elsewhere herein. The Pro Forma Condensed
Combining Income Statements combine Brooktrout's historical results for each of
the three fiscal years ended December 31, 1995, 1994 and 1993 with the
corresponding TSI results for the three fiscal years ended December 31, 1995,
1994 and 1993, respectively. The Pro Forma Condensed Combining Financial
Statements do not give effect to any transaction charges associated with the
consummation of the Merger. All such costs are estimated to approximate $1.2
million ($1.0 million, net of related tax effects). The Pro Forma Combining
Condensed Financial Statements have been prepared on the basis that the Merger
will be accounted for as a pooling of interests.
The accompanying pro forma condensed combined financial statements do not
purport to be indicative of the results of operations or financial condition
that would have been achieved if the Company and TSI had operated as a combined
company during the period presented. In addition, the accompanying pro forma
condensed combined financial statements do not purport to be indicative of the
results of operations or financial condition which may be achieved in the
future.
The accompanying pro forma condensed combined financial statements have
been prepared using the principles and assumptions set forth in the accompanying
Notes to Pro Forma Condensed Combining Financial Statements and should be read
in conjunction with the consolidated financial statements and notes thereto of
the Company incorporated herein by reference and the financial statements and
notes thereto of TSI included in Appendix B to this Proxy Statement.
13
<PAGE> 14
PRO FORMA CONDENSED COMBINING BALANCE SHEET
AS OF DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
-----------------------
BROOKTROUT TSI ADJUSTMENTS COMBINED
---------- ------ ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents...................... $ 14,230 $14,230
Marketable securities..................... 7,924 7,924
Accounts receivable....................... 4,499 $1,639 6,138
Inventory................................. 3,807 71 3,878
Deferred tax assets....................... 454 454
Other prepaid expenses.................... 366 366
---------- ------ --------
TOTAL CURRENT ASSETS.................... 31,280 1,710 32,990
---------- ------ --------
Equipment and furniture:
Computer equipment........................ 1,346 1,346
Furniture and office equipment............ 327 212 539
---------- ------ --------
Total................................... 1,673 212 1,885
Less accumulated depreciation and
amortization......................... (824) (28) (852 )
---------- ------ --------
EQUIPMENT AND FURNITURE -- NET.......... 849 184 1,033
Intangibles and other assets.............. 585 14 599
---------- ------ --------
TOTAL................................... $ 32,714 $1,908 $34,622
========= ====== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit............................ $ 50 $ 50
Current portion of long-term debt......... $ 6 6
Accounts payable and other accrued
expenses................................ 4,517 446 4,963
Customer deposits......................... 376 376
Accrued warranty costs.................... 336 336
Accrued compensation and commission....... 1,185 1,185
Deferred revenue.......................... 188 188
Accrued income taxes...................... 1,063 1,063
---------- ------ --------
TOTAL CURRENT LIABILITIES............... 7,483 684 8,167
---------- ------ --------
Deferred rent.................................. 10 10
Stockholders equity:
Common stock, $.01 par value; 5,989,586 shares
for Brooktrout and 100,000 for TSI (6,464,914
shares pro forma)............................ 60 $ 5 65
Additional paid-in capital..................... 16,921 $(5) 16,916
Unrealized gains on marketable securities...... 49 49
Retained earnings.............................. 8,191 1,224 9,415
---------- ------ --------
TOTAL STOCKHOLDERS' EQUITY..................... 25,221 1,224 26,445
---------- ------ --------
TOTAL..................................... $ 32,714 $1,908 $34,622
========= ====== =========
</TABLE>
The accompanying notes are an integral part of these
Pro Forma Condensed Combining Financial Statements.
14
<PAGE> 15
PRO FORMA CONDENSED COMBINING INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
-----------------------
BROOKTROUT TSI ADJUSTMENTS COMBINED
---------- ------ ----------- --------
<S> <C> <C> <C> <C>
Revenue........................................ $ 34,392 $4,541 $(260)(7) $38,673
Cost and expenses:
Cost of product sold...................... 16,633 1,386 (260)(7) 17,759
Research and development.................. 4,200 622 4,822
Selling, general and administrative....... 7,658 1,486 9,144
---------- ------ ----------- --------
Total cost and expenses.............. 28,491 3,494 (260) 31,725
---------- ------ ----------- --------
Income from operations......................... 5,901 1,047 -- 6,948
---------- ------ ----------- --------
Other income:
Interest/other income..................... 952 15 -- 967
Interest expense.......................... (4) (3) (7 )
---------- ------ --------
Total other income................... 948 12 960
---------- ------ --------
Income before income tax provision............. 6,849 1,059 7,908
Income tax provision(6)........................ 2,705 -- 2,705
---------- ------ ----------- --------
Net income..................................... $ 4,144 $1,059 $-- $ 5,203
========= ====== =========== =========
Net income..................................... $ 4,144 $1,059 $ 5,203
Pro forma tax charge........................... -- 424 424
---------- ------ --------
Pro forma net income........................... $ 4,144 $ 635 $ 4,779
========= ====== =========
Pro forma income per common share:............. $ 0.66 $ 6.23 $ 0.71
========= ====== =========
Weighted average number of common and common
equivalent shares outstanding................ 6,243 102 6,718
========= ====== =========
</TABLE>
The accompanying notes are an integral part of these
Pro Forma Condensed Combining Financial Statements.
15
<PAGE> 16
PRO FORMA CONDENSED COMBINING INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
------------------------
BROOKTROUT TSI ADJUSTMENTS COMBINED
----------- ------ ------------ ---------
<S> <C> <C> <C> <C>
Revenue........................................ $23,462 $1,464 $ (38)(7) $24,888
Cost and expenses:
Cost of product sold......................... 11,383 710 (38)(7) 12,055
Research and development..................... 3,288 235 3,523
Selling, general and administrative.......... 5,248 438 5,686
----------- ------ ------------ ---------
Total cost and expenses................... 19,919 1,383 (38) 21,264
----------- ------ ------------ ---------
Income from operations......................... 3,543 81 -- 3,624
----------- ------ ------------ ---------
Other income:
Interest/other income........................ 600 4 604
Interest expense............................. (10) -- (10)
----------- ------ ---------
Total other income........................ 590 4 594
----------- ------ ---------
Income before income tax provision............. 4,133 85 4,218
Income tax provision(6)........................ 1,589 -- 1,589
----------- ------ ------------ ---------
Net income..................................... $ 2,544 $ 85 $ -- $ 2,629
========== ====== ============ ==========
Net income..................................... $ 2,544 $ 85 $ 2,629
Pro forma tax charge........................... -- 34 34
----------- ------ ---------
Pro forma net income........................... $ 2,544 $ 51 $ 2,595
========== ====== ==========
Pro forma income per common share:............. $ 0.42 $ 0.51 $ 0.40
========== ====== ==========
Weighted average number of common and common
equivalent shares outstanding................ 6,087 100 6,562
========== ====== ==========
</TABLE>
The accompanying notes are an integral part of these
Pro Forma Condensed Combining Financial Statements.
16
<PAGE> 17
PRO FORMA CONDENSED COMBINING INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
BROOKTROUT TSI COMBINED
----------- ---- ----------
<S> <C> <C> <C>
Revenue......................................................... $17,729 $331 $ 18,060
Cost and expenses:
Cost of product sold.......................................... 8,637 97 8,734
Research and development...................................... 2,501 83 2,584
Selling, general and administrative........................... 4,246 48 4,294
----------- ---- ----------
Total cost and expenses.................................... 15,384 228 15,612
----------- ---- ----------
Income from operations.......................................... 2,345 103 2,448
----------- ---- ----------
Other income:
Interest/other income......................................... 494 494
Interest expense.............................................. (14) (14)
----------- ---- ----------
Total other income......................................... 480 -- 480
----------- ---- ----------
Income before income tax provision and change in accounting
principle..................................................... 2,825 103 2,928
Income tax provision(6)......................................... 986 -- 986
----------- ---- ----------
Income before change in accounting principle.................... 1,839 103 1,942
Change in accounting principle.................................. 337 337
----------- ---- ----------
Net income...................................................... $ 2,176 $103 $ 2,279
========== ===== ==========
Net income...................................................... $ 2,176 $103 $ 2,279
Pro forma tax charge............................................ -- 42 42
----------- ---- ----------
Pro forma net income............................................ $ 2,176 $61 $ 2,237
========== ===== ==========
Pro forma income per common share:
Before change in accounting principle......................... $0.30 $.61 $0.29
------- --- ------
------- --- ------
Net income.................................................... $0.36 $.61 $0.34
------- --- ------
------- --- ------
Weighted average number of common and common equivalent shares
outstanding................................................... 6,047 100 6,522
========== ===== ==========
</TABLE>
The accompanying notes are an integral part of these
Pro Forma Condensed Combining Financial Statements.
17
<PAGE> 18
BROOKTROUT TECHNOLOGY, INC. AND TECHNICALLY SPEAKING, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINING FINANCIAL STATEMENTS
1. The Pro Forma Condensed Combining Financial Statements are presented
for illustrative purposes only and do not give effect to any synergies which
could be expected to occur due to the integration of Brooktrout's and TSI's
operations. Additionally, the Pro Forma Condensed Combining Financial Statements
exclude (1) the transaction costs related to the Merger and (2) nonrecurring
costs and expenses associated with integrating the operations of the businesses.
The nonrecurring cost estimate is preliminary and is therefore subject to
change. The transaction costs and other nonrecurring expenses will be charged to
operations upon consummation of the merger. The Pro Forma Condensed Combining
Financial Statements assume that the Merger qualifies as a "tax-free"
reorganization for federal income tax purposes and a "pooling of interests" for
accounting purposes.
2. Stockholders' equity as of December 31, 1995 has been adjusted to
reflect the issuance of 475,328 shares of Brooktrout Common Stock in exchange
for all of the issued and outstanding shares of TSI common stock and options.
3. Pro forma combined net income per share is based on the combined
weighted average number of common and common equivalent shares, after adjusting
TSI's historical weighted average common shares for the conversion into
Brooktrout shares at a ratio of 4.6681. Common equivalent shares consist of
common stock issuable upon the exercise of outstanding options and warrants.
4. All intercompany transactions or balances included in the Pro Forma
Condensed Combining Financial Statements have been eliminated and no adjustments
are required to conform the accounting policies of Brooktrout and TSI.
5. Total costs associated with the Merger are estimated to be
approximately $1.2 million. Transaction costs incurred by Brooktrout and TSI
include fees to financial advisors, legal, accounting and other related
expenses. Nonrecurring costs and expenses associated with integrating the
operations of the two companies will be charged against income of the combined
company at the consummation of the Merger which is anticipated to occur in May
1996. The Pro Forma Condensed Combining Balance Sheet does not include the
effect of recording these costs.
6. Brooktrout adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes ("FAS No.109"), effective in 1993. TSI has elected
to be treated as a Subchapter S corporation for income tax purposes. Under this
election, income is taxed directly to the shareholders. Accordingly, TSI's
historical financial statements do not reflect a provision for income taxes. Pro
forma income per share reflects tax charges of $452, $34, and $42 in 1995, 1994
and 1993 respectively, to provide taxes on TSI's income for those periods at a
40% effective tax rate.
7. To eliminate intercompany sales and purchases.
18
<PAGE> 19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be filed on its behalf by the
undersigned thereunto duly authorized
BROOKTROUT TECHNOLOGY, INC.
Dated: June 12, 1996 By: /s/ Robert C. Leahy
-----------------------
Robert C. Leahy
Vice President
19
<PAGE> 1
EXHIBIT 2.1
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
by and among
BROOKTROUT TECHNOLOGY, INC.
as Buyer
BROOKTROUT ACQUISITION CORP.
THE STOCKHOLDERS OF TECHNICALLY SPEAKING, INC.
as Sellers
and
TECHNICALLY SPEAKING, INC.
May 29, 1996
<PAGE> 2
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. THE MERGER.............................................. 1
1.1 The Merger.............................................. 1
1.2 Conversion of Company Shares; Escrow.................... 2
1.3 Time and Place of Closing............................... 3
1.4 Sellers' Representative................................. 3
1.5 Further Assurances...................................... 4
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
SELLERS................................................. 5
2.1 Making of Representations and Warranties................ 5
2.2 Organization and Qualifications of the Company.......... 5
2.3 Capital Stock of the Company; Beneficial Ownership...... 5
2.4 No Subsidiaries......................................... 6
2.5 Authority of the Company................................ 6
2.6 Real and Personal Property.............................. 7
2.7 Financial Statements.................................... 8
2.8 Taxes................................................... 9
2.9 Collectibility of Accounts Receivable................... 10
2.10 Inventories............................................. 10
2.11 Absence of Certain Changes.............................. 11
2.12 Ordinary Course......................................... 13
2.13 Banking Relations....................................... 13
2.14 Intellectual Property................................... 13
2.15 Contracts............................................... 15
2.16 Litigation.............................................. 16
2.17 Compliance with Laws.................................... 16
2.18 Insurance............................................... 17
2.19 Warranty or Other Claims................................ 17
2.20 Powers of Attorney...................................... 17
2.21 Finder's Fee............................................ 17
2.22 Permits; Burdensome Agreements.......................... 17
2.23 Corporate Records; Copies of Documents.................. 18
2.24 Transactions with Interested Persons.................... 18
2.25 Employee Benefit Programs............................... 18
2.26 Environmental Matters................................... 20
2.27 List of Directors and Officers.......................... 21
2.28 Disclosure.............................................. 21
2.30 Backlog................................................. 21
2.31 Employees; Labor Matters................................ 22
2.32 Customers, Distributors and Suppliers................... 22
2.33 Transfer of Shares...................................... 23
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
2.34 Stock Repurchase............................................. 23
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLERS.................... 23
3.1 Company Shares............................................... 23
3.2 Authority.................................................... 23
3.3 Finder's Fee................................................. 24
3.4 Agreements................................................... 24
SECTION 4. COVENANTS OF THE COMPANY AND THE SELLERS..................... 25
4.1 Making of Covenants and Agreements........................... 25
4.2 Conduct of Business.......................................... 25
4.3 Authorization from Others.................................... 28
4.4 Notice of Default............................................ 28
4.5 Consummation of Agreement.................................... 28
4.6 Access; Cooperation of the Company and Sellers............... 28
4.7 No Solicitation of Other Offers.............................. 29
4.8 Confidentiality.............................................. 29
4.10 Tax Returns.................................................. 29
4.11 Pooling of Interests; Tax Free Reorganization............... 29
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER AND
ACQUISITION SUBSIDIARY....................................... 30
5.1 Making of Representations and Warranties..................... 30
5.2 Organization of Buyer and Acquisition Subsidiary............. 30
5.3 Authority of Buyer and Acquisition Subsidiary................ 30
5.4 Litigation................................................... 31
5.5 Finder's Fee................................................. 31
SECTION 6. COVENANTS OF BUYER........................................... 32
6.1 Making of Covenants and Agreement............................ 32
6.2 Confidentiality.............................................. 32
SECTION 7. CONDITIONS................................................... 33
7.1 Conditions to the Obligations of Buyer....................... 33
SECTION 8. REGISTRATION RIGHTS.......................................... 36
8.1 Registration of Brooktrout Shares............................ 36
8.2 Sale of Brooktrout Shares by Seller.......................... 36
8.3 Registration Expenses........................................ 37
8.4 Piggyback Registrations...................................... 37
8.5 Indemnification.............................................. 38
8.6 Additional Obligation of Holders of Registrable Securities... 39
8.7 Additional Obligations of the Buyer.......................... 39
8.8 Reports Under the Securities Exchange Act of 1934............ 40
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 9. TERMINATION OF AGREEMENT; ABANDONMENT OF MERGER;
RIGHTS TO PROCEED......................................... 41
9.1 Termination............................................... 41
9.2 Effect of Termination..................................... 41
9.3 Right to Proceed or Defer Closing......................... 41
SECTION 10. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.............. 42
10.1 Survival of Warranties.................................... 42
SECTION 11. INDEMNIFICATION........................................... 42
11.1 Indemnification by the Sellers............................ 42
11.2 Indemnification by Buyer.................................. 43
11.3 Notice; Defense of Claims................................. 43
SECTION 12. MISCELLANEOUS............................................. 45
12.1 Fees and Expenses......................................... 45
12.2 Governing Law............................................. 45
12.3 Notices................................................... 45
12.4 Entire Agreement.......................................... 46
12.5 Assignability; Binding Effect............................. 47
12.6 Captions and Gender....................................... 47
12.7 Execution in Counterparts................................. 47
12.8 Amendments................................................ 47
12.9 Publicity and Disclosures................................. 47
12.10 Consent to Jurisdiction................................... 47
12.11 Specific Performance...................................... 47
12.13 Company's Tax Returns..................................... 48
12.14 Payment of Tax Liabilities Dividends...................... 49
12.15 Date of Agreement ........................................ 50
</TABLE>
(iii)
<PAGE> 5
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
W I T N E S S E T H
WHEREAS, AN Agreement was entered into as of March 8, 1996, pursuant to
Section 78 of Chapter 156B of the Massachusetts Business Corporation Law, by and
among Brooktrout Technology, Inc., a Massachusetts corporation ("Buyer"),
Brooktrout Acquisition Corp., a Massachusetts corporation and wholly-owned
subsidiary of Buyer (the "Acquisition Subsidiary"), Technically Speaking, Inc.,
a Massachusetts corporation (the "Company"), and Andrew Fox, Beverly Fox and
Robert Friedman (collectively referred to as the "Sellers" and individually as a
"Seller").
WHEREAS, the Sellers own of record and beneficially all of the issued
and outstanding capital stock of the Company, consisting of 100,000 shares of
the Company's Series A Common Stock, no par value per share (said shares being
referred to herein as the "Company Shares");
WHEREAS, the Sellers desire to sell the Company to Buyer, and Buyer
desires to acquire the Company;
WHEREAS, it is intended that the transactions effected by this
Agreement (the "Acquisition") qualify as (i) a "pooling of interests" under
generally accepted accounting principles; and (ii) a tax-free reorganization
under the provisions of Sections 368(a) of the United States Internal Revenue
Code of 1986, as amended (the "Code");
WHEREAS, Buyer has formed the Acquisition Subsidiary for the purpose of
merging the Acquisition Subsidiary into the Company to effect the Acquisition
(the "Merger"); and
WHEREAS, in the event the Merger is consummated, (i) all options to
purchase the Company's Series B common stock, no par value per share, held by
the persons listed on Exhibit A hereto (collectively referred to as the
"Optionee-Sellers" and individually as an "Optionee-Seller") will become fully
vested and (ii) the Optionee-Sellers desire to exercise their options in full
and acquire all of the 2,040 shares of the Company's Series B Common Stock (said
shares being referred to herein as the "Option Shares");
NOW, THEREFORE, in order to consummate said Acquisition and in
consideration of the mutual agreements set forth herein, the parties hereto
agree to amend and restate the Agreement and Plan of Merger, effective as of May
29, 1996, as follows:
SECTION 1. THE MERGER.
0.1 The Merger. (a) In reliance upon the mutual representations and
warranties herein contained and made at the Closing (as defined in Section 1.3)
and subject to the satisfaction of all of the conditions contained herein, the
parties hereto agree to effect the
<PAGE> 6
Merger as provided herein. The Acquisition Subsidiary and the Company shall be
the constituent corporations to the Merger. The Merger shall be effective at the
time of the Closing or such later time as determined pursuant to the terms of
this Agreement (the "Effective Time"). At the Effective Time, the Acquisition
Subsidiary shall be merged with and into the Company in accordance with Section
78 of Chapter 156B of the Massachusetts Business Corporation Law, and the
Company shall be the surviving corporation in the Merger (the "Surviving
Corporation"). The identity, existence, rights, privileges, powers, franchises,
properties and assets of the Company shall continue unaffected and unimpaired by
the Merger. At the Effective Time, the identity and separate existence of the
Acquisition Subsidiary shall cease, the outstanding capital stock of the
Acquisition Subsidiary shall be canceled, and all of the rights, privileges,
powers, franchises, properties and assets of the Acquisition Subsidiary shall be
vested in the Surviving Corporation.
(b) The purposes of the Surviving Corporation shall be the
corporate purposes authorized for the Company immediately prior to the Effective
Time.
(c) The Surviving Corporation shall be authorized to issue the same
capital stock that the Company had authorized for issuance immediately prior to
the Effective Time, which consists of 200,000 shares of Class A Common Stock, no
par value per share, and 200,000 shares of Class B Common Stock, no par value
per share. Such Class A Common Stock and Class B Common Stock shall have the
same preferences, voting powers, qualifications, special and relative rights and
privileges as held by the Class A Common Stock and Class B Common Stock of the
Company immediately prior to the Effective Date.
(d) The Articles of Organization and Bylaws of the Company, as
amended and in effect immediately prior to the Effective Time, shall be the
Articles of Organization and Bylaws of the Surviving Corporation until
thereafter amended as provided by law.
(e) The directors and officers of the Surviving Corporation shall
be the incumbent directors and officers of the Company immediately prior to the
Effective Time. Such officers shall continue in office as officers of the
Surviving Corporation until their successors shall have been elected and
qualified or until their earlier resignation or removal.
(f) At the Effective Time, the stock books of the Acquisition
Subsidiary shall be permanently closed.
0.2 Conversion of Company Shares; Escrow. The parties hereto agree
that, upon consummation of the Merger at the Effective Time, (a) each Company
Share and Option Share shall automatically, without any further action on the
part of the Buyer or the Sellers, be converted into the right to receive 4.65825
duly authorized, validly issued, fully paid and non-assessable shares of common
stock, $.01 par value per share, of Buyer ("Common Stock"). The 475,328 shares
of Buyer's Common Stock resulting from this conversion (the "Brooktrout Shares")
shall be allocated among the Sellers and such other stockholders of the Company
as set forth on Exhibit A hereof;
2
<PAGE> 7
(b) Sellers will immediately tender to Buyer all of the
certificates representing the Company Shares set forth on Exhibit A;
(c) Buyer will exchange such certificates for certificates
representing the Brooktrout Shares in the amounts set forth on Exhibit A, and
Buyer will deliver 90% of the Brooktrout Shares to Sellers; and
(d) Buyer will deposit with the Escrow Agent in accordance with the
terms of the Escrow Agreement (as hereinafter described) 10% of the Brooktrout
Shares (the "Escrowed Purchase Price").
0.3 Time and Place of Closing. The closing of the Acquisition and the
Merger provided for in this Agreement (herein called the "Closing") shall be
held at the offices of Goodwin, Procter & Hoar, LLP at 53 State Street, Boston,
Massachusetts 02109 on May 29, 1996 or at such other place or an earlier or
later date or time as may be mutually agreed upon by the parties or established
pursuant to Section 9.3 hereof.
0.4 Sellers' Representative.
(a) In order to administer efficiently (i) the implementation of
the Agreement by the Sellers, (ii) the waiver of any condition to the
obligations of the Sellers to consummate the transactions contemplated hereby,
and (iii) the settlement of any dispute with respect to the Agreement, the
Sellers hereby designate Beverly Fox as their representative (the "Sellers'
Representative").
(b) The Sellers hereby authorize the Sellers' Representative (i) to
take all action necessary in connection with the implementation of the Agreement
on behalf of the Sellers, the waiver of any condition to the obligations of the
Sellers to consummate the transactions contemplated hereby, or the settlement of
any dispute, (ii) to give and receive all notices required to be given under the
Agreement and (iii) to take any and all additional action as is contemplated to
be taken by or on behalf of the Sellers by the terms of this Agreement.
(c) In the event that the Sellers' Representative dies, becomes
legally incapacitated or resigns from such position, Andrew Fox shall fill such
vacancy and shall be deemed to be the Sellers' Representative for all purposes
of this Agreement; however, no change in the Sellers' Representative shall be
effective until Buyer is given notice of it by the Sellers.
(d) All decisions and actions by the Sellers' Representative shall
be binding upon all of the Sellers, and no Seller shall have the right to
object, dissent, protest or otherwise contest the same, in the absence of fraud,
gross negligence or willful misconduct of the Sellers' Representative.
3
<PAGE> 8
(e) By their execution of this Agreement, the Sellers agree that:
(i) Buyer shall be able to rely conclusively on the
instructions and decisions of the Sellers' Representative as to any
actions required or permitted to be taken by the Sellers or the
Sellers' Representative hereunder, and no party hereunder shall have
any cause of action against Buyer for any action taken by Buyer in
reliance upon the instructions or decisions of the Sellers'
Representative;
(ii) all actions, decisions and instructions of the Sellers'
Representative shall be conclusive and binding upon all of the Sellers
and no Seller shall have any cause of action against the Sellers'
Representative for any action taken, decision made or instruction given
by the Sellers' Representative under this Agreement, except for fraud,
gross negligence or willful breach of this Agreement by the Sellers'
Representative;
(iii) the Sellers' Representative shall be deemed to fulfill
any fiduciary obligation to the Sellers so long as no Seller is
adversely affected by any action or failure to act of the Sellers'
Representative in a disproportionate measure compared to any other
Seller.
(iv) remedies available at law for any breach of the
provisions of this Section 1.4 are inadequate; therefore, Buyer shall
be entitled to temporary and permanent injunctive relief without the
necessity of proving damages if Buyer brings an action to enforce the
provisions of this Section 1.4; and
(v) the provisions of this Section 1.4 are independent and
severable, shall constitute an irrevocable power of attorney, coupled
with an interest and surviving death, granted by the Sellers to the
Sellers' Representative and shall be binding upon the executors, heirs,
legal representatives and successors of each Seller.
(f) All fees and expenses incurred by the Sellers' Representative
shall be paid by the Sellers.
0.5 Further Assurances. The Sellers from time to time after the Closing
at the request of Buyer and without further consideration shall execute and
deliver further instruments of transfer and assignment and take such other
action as Buyer may reasonably require to fully implement the provisions of this
Agreement. The Buyer from time to time after the Closing at the request of the
Sellers' Representative and without further consideration shall execute and
deliver further instruments of transfer and assignment and take such other
action as the Sellers' Representative may reasonably require to fully implement
the provisions of this Agreement.
4
<PAGE> 9
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS.
2.1 Making of Representations and Warranties. As a material inducement
to Buyer to enter into this Agreement and consummate the transactions
contemplated hereby, the Company and each of the Sellers jointly and severally
hereby make to Buyer the representations and warranties contained in this
Section 2; provided, however, that no Seller shall have any right of indemnity
or contribution from the Company with respect to any breach of representation or
warranty hereunder. The representations and warranties contained in this section
of this Article 2 are made as of the date of execution of this Agreement and are
qualified in their entirety by the corresponding portions of the Schedules
attached hereto.
2.2 Organization and Qualifications of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Massachusetts with full corporate power and authority to
own or lease its properties and to conduct its business in the manner and in the
places where such properties are owned or leased or such business is currently
conducted or proposed to be conducted. The copies of the Company's Articles of
Organization, as amended to date, certified by the Massachusetts Secretary of
State, and of the Company's by-laws, as amended to date, certified by the
Company's Clerk, and heretofore delivered to Buyer's counsel, are complete and
correct, and no amendments thereto are pending. Except as disclosed in Schedule
2.2, the Company is not in violation of any term of its Articles of Organization
or By-laws. The Company is not required to be licensed or qualified to conduct
its business in any jurisdiction other than the Commonwealth of Massachusetts.
2.3 Capital Stock of the Company; Beneficial Ownership.
(a) The authorized capital stock of the Company consists of (a)
200,000 shares of Class A Common Stock, no par value per share, of which 100,000
shares are duly and validly issued, outstanding, fully paid and non-assessable
and of which 100,000 shares are authorized but unissued and (b) 200,000 shares
of Class B Common Stock, no par value per share, of which no shares are
outstanding and of which 200,000 shares are authorized but unissued. Except as
disclosed in Schedule 2.3(c), there are no outstanding options, warrants,
rights, commitments, preemptive rights or agreements of any kind for the
issuance or sale of, or outstanding securities convertible into, any additional
shares of capital stock of any class of the Company. None of the Company's
capital stock has been issued in violation of any federal or state law. Except
as set forth in the Schedule 2.3 attached hereto, there are no voting trusts,
voting agreements, proxies or other agreements, instruments or undertakings with
respect to the voting of the Company Shares to which the Company or any of the
Sellers is a party.
(b) Each of the Sellers owns beneficially and of record the Company
Shares set forth opposite such Seller's name on Exhibit A hereto free and clear
of any liens, restrictions or encumbrances.
5
<PAGE> 10
(c) The Company has adopted a 1995 Stock Option Plan (the "Option
Plan") which provides for the issuance of up to 200,000 shares of Class B Common
Stock. As of the date hereof, options to purchase 2,040 shares of Common Stock
have been granted and are outstanding under the Option Plan to the persons, in
the amounts and at the exercise prices set forth in Exhibit A, and no options
have been exercised.
2.4 No Subsidiaries. The Company has no subsidiaries or investments in
any other corporation or business entity.
2.5 Authority of the Company. The Company has full right, authority and
power to enter into this Agreement and each agreement, document and instrument
to be executed and delivered by the Company pursuant to this Agreement and to
carry out the transactions contemplated hereby. The execution, delivery and
performance by the Company of this Agreement and each such other agreement,
document and instrument have been duly authorized by all necessary action of the
Company and no other action on the part of the Company or the Sellers is
required in connection therewith.
This Agreement and each agreement, document and instrument executed and
delivered by the Company pursuant to this Agreement constitutes, or when
executed and delivered will constitute, valid and binding obligations of the
Company enforceable in accordance with their terms. The execution, delivery and
performance by the Company of this Agreement and each such agreement, document
and instrument:
(i) does not and will not violate any provision of the
Articles of Organization or by-laws of the Company;
(ii) does not and will not violate any laws of the United
States, or any state or other jurisdiction applicable to the Company or
require the Company to obtain any approval, consent or waiver of, or
make any filing with, any person or entity (governmental or otherwise)
that has not been obtained or made; and
(iii) does not and will not result in a breach of, constitute a
default under, accelerate any obligation under, or give rise to a right
of termination of any indenture or loan or credit agreement or any
other agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination
or arbitration award to which the Company is a party or by which the
property of the Company is bound or affected, or result in the creation
or imposition of any mortgage, pledge, lien, security interest or other
charge or encumbrance on any of the Company's assets or the Company
Shares, except as specifically identified on Schedule 2.5.
6
<PAGE> 11
2.6 Real and Personal Property.
(a) Real Property. The Company owns no real property. All real
property which the Company leases is identified on the Schedule 2.6(a) (the
"Leased Real Property").
(i) Status of Leases. All leases of Leased Real Property are
identified on Schedule 2.6(a), and true and complete copies thereof
have been delivered to Buyer. Each of said leases has been duly
authorized and executed by the parties and is in full force and effect.
Except as disclosed on Schedule 2.6(a), the Company is not in default
under any of said leases, nor has any event occurred which, with notice
or the passage of time, or both, would give rise to such a default. To
the Company's and the Sellers' knowledge, the other party to each of
said leases is not in default under any of said leases and there is no
event which, with notice or the passage of time, or both, would give
rise to such a default.
(ii) Consents. Except as set forth in Schedule 2.6(a), no
consent or approval is required with respect to the transactions
contemplated by this Agreement from the other parties to any lease of
Leased Real Property or from any regulatory authority, no filing with
any regulatory authority is required in connection therewith, and to
the extent that any such consents, approvals or filings are required,
the Company or the Sellers will obtain or complete them before the
Closing.
(iii) Compliance with the Law. The Company has not received any
notice from any governmental authority of any violation of any law,
ordinance, regulation, license, permit or authorization issued with
respect to the Leased Real Property that has not been heretofore
corrected and no such violation exists which could have a material
adverse affect on the operation or value of the Leased Real Property.
All improvements located on or constituting part of the Leased Real
Property and their use and operation by the Company were and are now in
compliance in all respects with all applicable laws, ordinances,
regulations, licenses, permits and authorizations, expect as set forth
in Schedule 2.6(a). No approval or consent to the transactions
contemplated by this Agreement is required of any governmental
authority with jurisdiction over any aspect of the Leased Real Property
or its use or operations. The Company has not received any notice of
any real estate tax deficiency or assessment or is aware of any
proposed deficiency, claim or assessment with respect to any of the
Leased Real Property, or any pending or threatened condemnation
thereof.
(b) Personal Property. A complete list containing a description of
the machinery and equipment of the Company that is reflected as capitalized in
the Base Balance Sheet (as hereinafter defined) is contained in Schedule 2.6(b)
hereto. Except as specifically disclosed in said Schedule or in the Base Balance
Sheet, the Company has good and marketable title to all of its personal
property; provided that no representation is made in this Section 2.6 with
respect to the Intellectual Property, which is addressed in Section 2.14. None
of such personal property or assets is subject to any mortgage, pledge, lien,
conditional sale
7
<PAGE> 12
agreement, security title, encumbrance or other charge except as specifically
disclosed in said Schedule or in the Base Balance Sheet, other than (i) liens
securing taxes or other governmental charges not yet due; (ii) deposits or
pledges made in connection with social security obligations; and (iii) liens of
carriers, warehousemen, mechanics and materialmen, less than 120 days old as to
obligations not yet due (collectively, "Permitted Encumbrances"). The Base
Balance Sheet reflects all personal property of the Company. Except as otherwise
specified in Schedule 2.6(b) hereto, all leasehold improvements, furnishings,
machinery and equipment of the Company are in good repair, have been well
maintained, and substantially comply with all applicable laws, ordinances and
regulations, and such machinery and equipment is in good working order,
reasonable wear and tear excepted. Neither the Company nor any of the Sellers
knows of any pending or threatened change of any such law, ordinance or
regulation which could adversely affect the Company or its business.
2.7 Financial Statements.
(a) The Company has delivered to Buyer the following financial
statements, copies of which are attached hereto as Schedule 2.7:
(i) Unaudited balance sheets of the Company for its fiscal
years ended on December 31, 1995 and 1994 and statements of income,
retained earnings and cash flows for the years then ended, including
any worksheets and other supporting documentation for each general
ledger account.
(ii) Unaudited balance sheets of the Company as of February 29,
1996 (herein the "Base Balance Sheet") and statements of income,
retained earnings and cash flows for the period then ended.
The Sellers have delivered to Buyer a certificate of the Company's President and
Chief Financial Officer dated as of the date hereof to the effect that said
financial statements have been prepared in accordance with generally accepted
accounting principles applied consistently during the periods covered thereby,
are complete and correct in all material respects and present fairly in all
material respects the financial condition of the Company at the dates of said
statements and the results of its operations for the periods covered thereby,
subject, in the case of the Base Balance Sheet, to normal year-end adjustments,
which shall not be material in amount.
(b) As of the date of the Base Balance Sheet, the Company has no
liabilities of any nature, whether accrued, absolute, contingent or otherwise,
asserted or unasserted, known or unknown (including without limitation,
liabilities as guarantor or otherwise with respect to obligations of others,
liabilities for taxes due or then accrued or to become due, or contingent or
potential liabilities relating to activities of the Company or the conduct of
its business prior to the date of the Base Balance Sheet regardless of whether
claims in respect thereof had been asserted as of such date), except liabilities
stated or adequately reserved against on the Base Balance Sheet, or reflected in
Schedules furnished to Buyer hereunder as
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of the date hereof or immaterial liabilities incurred in the ordinary course of
business of the Company which are not required to be reflected in the Base
Balance Sheet or the notes thereto under generally accepted accounting
principles.
(c) As of the date hereof, the Company has not had any liabilities
of any nature, whether accrued, absolute, contingent or otherwise, asserted or
unasserted, known or unknown (including without limitation, liabilities as
guarantor or otherwise with respect to obligations of others, or liabilities for
taxes due or then accrued or to become due or contingent or potential
liabilities relating to activities of the Company or the conduct of its business
prior to the date hereof, regardless of whether claims in respect thereof had
been asserted as of such date), except liabilities (i) stated or adequately
reserved against on the Base Balance Sheet or the notes thereto, (ii) reflected
in Schedules furnished to Buyer hereunder on the date hereof, or (iii) incurred
after the date of the Base Balance Sheet in the ordinary course of business of
the Company consistent with the terms of this Agreement.
2.8 Taxes.
(a) Except as set forth on Schedule 2.8, the Company has paid or
caused to be paid all federal, state, local, foreign, and other taxes, including
without limitation, income taxes, estimated taxes, alternative minimum taxes,
excise taxes, sales taxes, use taxes, value-added taxes, gross receipts taxes,
franchise taxes, capital stock taxes, employment and payroll-related taxes,
withholding taxes, stamp taxes, transfer taxes, windfall profit taxes,
environmental taxes and property taxes, whether or not measured in whole or in
part by net income, and all deficiencies, or other additions to tax, interest,
fines and penalties owed by it (collectively, "Taxes"), required to be paid by
it through the date hereof.
(b) Except as set forth on Schedule 2.8, the Company has in
accordance with applicable law filed all federal, state, local and foreign tax
returns required to be filed by it through the date hereof, and all such returns
correctly and accurately set forth the amount of any Taxes relating to the
applicable period. A list of all federal, state, local and foreign income tax
returns filed with respect to the Company for taxable periods ended on or after
December 31, 1990 is set forth in Schedule 2.8 attached hereto, and said
Schedule indicates those returns that have been audited or currently are the
subject of an audit. For each taxable period of the Company ended on or after
December 31, 1990, the Company has delivered to Buyer correct and complete
copies of all federal, state, local and foreign income tax returns, examination
reports and statements of deficiencies assessed against or agreed to by the
Company.
(c) The Company has received no notice that the Internal Revenue
Service or any other governmental authority is now asserting or threatening to
assert against the Company any deficiency or claim for additional Taxes. The
Company has received no notice that any claim has ever been made by an authority
in a jurisdiction where the Company does not file reports and returns that the
Company is or may be subject to taxation by that jurisdiction. There are no
security interests on any of the assets of the Company that arose in
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<PAGE> 14
connection with any failure (or alleged failure) to pay any Taxes. The Company
has never entered into a closing agreement pursuant to Section 7121 of the
Internal Revenue Code of 1986, as amended (the "Code").
(d) Except as set forth in Schedule 2.8 attached hereto, there has
not been any audit of any tax return filed by the Company, no such audit is in
progress, and the Company has not been notified by any tax authority that any
such audit is contemplated or pending. Except as set forth in Schedule 2.8, no
extension of time with respect to any date on which a tax return was or is to be
filed by the Company is in force, and no waiver or agreement by the Company is
in force for the extension of time for the assessment or payment of any Taxes.
(e) The Company has never been (nor has it ever had any liability
for unpaid Taxes because it once was) a member of an "affiliated group" (as
defined in Section 1504(a) of the Code). Except as set forth in Schedule 2.8,
the Company has never filed, and has never been required to file, a
consolidated, combined or unitary tax return with any other entity. Except as
set forth in Schedule 2.8, the Company does not own and has never owned a direct
or indirect interest in any trust, partnership, corporation or other entity.
Except as set forth in Schedule 2.8 attached hereto, the Company is not a party
to any tax sharing agreement.
(f) The Company has elected to qualify, and as of the date of
execution hereof currently qualifies, as a Small Business Corporation (an "S
Corporation") under Section 1362 of the Code. Upon consummation of the Closing,
the Company will no longer qualify as an S Corporation.
(g) For purposes of this Agreement, all references to Sections of
the Code shall include any predecessor provisions to such Sections and any
similar provisions of federal law.
2.9 Collectibility of Accounts Receivable. All of the accounts
receivable of the Company as shown or reflected on the Base Balance Sheet or
existing at the date hereof (less the reserve for bad debts set forth on the
Base Balance Sheet) are or will be at the Closing valid and enforceable claims,
fully collectible and subject to no setoff or counterclaim. The Company has no
accounts or loans receivable from any person, firm or corporation which is
affiliated with the Company or from any director, officer or employee of the
Company, except as disclosed on Schedule 2.9 hereto.
2.10 Inventories. Except as disclosed in Schedule 2.10, all items in
the inventories of the Company shown on the Base Balance Sheet or existing at
the date hereof are of a quality and quantity saleable in the ordinary course of
business of the Company at profit margins consistent with their experience
during the fiscal year ended December 31, 1995. Except as disclosed in Schedule
2.10, said inventories reflect write-downs to realizable values in the case of
items which are below standard quality or have become obsolete or unsaleable
(except at
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prices less than cost) through regular distribution channels in the ordinary
course of the business of the Company. No such write-downs since January 1, 1993
have had a material adverse effect on the financial condition or results of
operations of the Company. The values of the inventories stated in the Base
Balance Sheet and any subsequent financial statements of the Company reflect the
normal inventory valuation policies of the Company and were determined at the
lower of cost or market in accordance with generally accepted accounting
principles, practices and methods consistently applied. Purchase commitments for
raw materials and parts are not in excess of normal requirements and none are at
prices materially in excess of current market prices. All inventory items are
located on the Leased Real Property, except for equipment on consignment and
located at customers' offices as described on Schedule 2.10. Since the date of
the Base Balance Sheet, no inventory items have been sold or disposed of except
through sales in the ordinary course of business at profit margins consistent
with the experience of the Company during the fiscal year ended December 31,
1995, and all sales commitments for the products of the Company are at prices
not less than inventory values plus selling expenses and said profit margins.
2.11 Absence of Certain Changes.
(a) Except as disclosed in Schedule 2.11 attached hereto, since
the date of the Base Balance Sheet there has not been:
(i) Any change in the financial condition, properties,
assets, liabilities, business or operations of the Company, which
change by itself or in conjunction with all other such changes, whether
or not arising in the ordinary course of business, has been materially
adverse with respect to the Company;
(ii) Any contingent liability incurred by the Company as
guarantor or otherwise with respect to the obligations of others or any
cancellation of any material debt or claim owing to, or waiver of any
material right of, the Company;
(iii) Any mortgage, encumbrance or lien placed on any of the
properties of the Company which remains in existence on the date hereof
or will remain on the Closing Date, except for Permitted Encumbrances;
(iv) Any obligation or liability of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted,
known or unknown (including without limitation liabilities for Taxes
due or to become due or contingent or potential liabilities relating to
products or services provided by the Company or the conduct of the
business of the Company since the date of the Base Balance Sheet
regardless of whether claims in respect thereof have been asserted),
incurred by the Company other than obligations and liabilities incurred
in the ordinary course of business consistent with the terms of this
Agreement (it being understood that product or service liability claims
shall not be deemed to be incurred in the ordinary course of business);
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<PAGE> 16
(v) Any purchase, sale or other disposition, or any
agreement or other arrangement for the purchase, sale or other
disposition, of any of the properties or assets of the Company other
than in the ordinary course of business;
(vi) Any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the properties, assets
or business of the Company;
(vii) Any declaration, setting aside or payment of any
dividend by the Company, or the making of any other distribution in
respect of the capital stock of the Company, or any direct or indirect
redemption, purchase or other acquisition by the Company of its own
capital stock;
(viii) Any labor trouble or claim of unfair labor practices
involving the Company; any change in the compensation payable or to
become payable by the Company to any of its officers, employees, agents
or independent contractors other than normal merit increases in
accordance with its usual practices; or any bonus payment or
arrangement made to or with any of such officers, employees, agents or
independent contractors;
(ix) Any change with respect to the officers or management
of the Company;
(x) Any payment or discharge of a material lien or
liability of the Company which was not shown on the Base Balance Sheet
or incurred in the ordinary course of business thereafter;
(xi) Any obligation or liability incurred by the Company to
any of its officers, directors, Sellers or employees, or any loans or
advances made by the Company to any of its officers, directors, Sellers
or employees, except normal compensation and expense allowances payable
to officers or employees;
(xii) Any change in accounting methods or practices, credit
practices or collection policies used by the Company;
(xiii) Any other transaction entered into by the Company other
than transactions in the ordinary course of business; or
(xiv) Any agreement or understanding whether in writing or
otherwise, for the Company to take any of the actions specified in
paragraphs (i) through (xiii) above.
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(b) To the best knowledge of Sellers, the Company and Sellers have
disclosed to Buyer all facts and circumstances regarding the Company and the
transactions it has engaged in which could reasonably be expected to adversely
affect or preclude accounting for the Acquisition (as structured by this
Agreement and the Non-competition Agreements of even date herewith as described
in Section 7 hereof) as a pooling of interest if consummated at any time from
the date hereof through March 8, 1997. As of the date hereof, to the best
knowledge of the Sellers and the Company, the factual representations set forth
on Exhibit B hereto are true and accurate.
2.12 Ordinary Course. Except as contemplated by this Agreement, since
the date of the Base Balance Sheet, the Company has conducted its business only
in the ordinary course and consistently with its prior practices.
2.13 Banking Relations. All of the arrangements which the Company has
with any banking institution are completely and accurately described in Schedule
2.13 attached hereto, indicating with respect to each of such arrangements the
type of arrangement maintained (such as checking account, borrowing
arrangements, safe deposit box, etc.) and the person or persons authorized in
respect thereof.
2.14 Intellectual Property.
(a) Except as described in Schedule 2.14, the Company has
exclusive ownership of, or exclusive license to use, all patent, copyright,
trade secret, trademark, or other proprietary rights (collectively,
"Intellectual Property") used or to be used in the business of the Company as
presently conducted or contemplated. Except as described in Schedule 2.14, all
of the rights of the Company in such Intellectual Property are freely
transferable. Except as described in Schedule 2.14, there are no claims or
demands of any other person pertaining to any of such Intellectual Property and
no proceedings have been instituted, or are pending or threatened, which
challenge the rights of the Company in respect thereof. The Company has the
right to use, free and clear of claims or rights of other persons, all customer
lists, designs, manufacturing or other processes, computer software, systems,
data compilations, research results and other information required for or
incident to its products or its business as presently conducted or contemplated,
subject, however, to the license agreements set forth on Schedule 2.14.
(b) All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights which are owned by or
licensed to the Company or used or to be used by the Company in its business as
presently conducted or contemplated, and all other items of Intellectual
Property which are material to the business or operations of the Company, are
listed in Schedule 2.14. All of such patents, patent applications, trademark
registrations, trademark applications and registered copyrights which are owned
by the Company have been duly registered in, filed in or issued by the United
States Patent and Trademark Office, the United States Register of Copyrights, or
the corresponding offices of other jurisdictions as identified on said Schedule,
and have been properly maintained and
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renewed in accordance with all applicable provisions of law and administrative
regulations of the United States and each such jurisdiction.
(c) All licenses or other agreements under which the Company is
granted rights in Intellectual Property are listed in Schedule 2.14. All said
licenses or other agreements are in full force and effect, there is no material
default by any party thereto, and, except as set forth on Schedule 2.14, all of
the rights of the Company thereunder are freely assignable. To the knowledge of
Company, the licensors under said licenses and other agreements have and had all
requisite power and authority to grant the rights purported to be conferred
thereby. True and complete copies of all such licenses or other agreements, and
any amendments thereto, have been provided to Buyer.
(d) All licenses or other agreements under which the Company has
granted rights to others in Intellectual Property owned or licensed by the
Company are listed in Schedule 2.14. All of said licenses or other agreements
are in full force and effect, there is no material default by any party thereto,
and, except as set forth on Schedule 2.14, all of the rights of Company
thereunder are freely assignable. True and complete copies of all such licenses
or other agreements, and any amendments thereto, have been provided to Buyer.
(e) Except as described in Schedule 2.14, the Company has taken
all steps required in accordance with sound business practice to establish and
preserve its ownership of all Intellectual Property rights with respect to its
products, services and technology. Except as described in Schedule 2.14, the
Company has required all employees having access to non-public information of
Company to execute agreements under which such employees are required to convey
to the Company ownership of all inventions and developments conceived or created
by them in the course of their employment and to maintain the confidentiality of
all such information of Company, and copies of all such agreements have been
provided to Buyer. The Company has not made any such information available to
any person other than employees of Company except pursuant to written agreements
requiring the recipients to maintain the confidentiality of such information and
appropriately restricting the use thereof. The Company has no knowledge of any
infringement by others of any Intellectual Property rights of the Company.
(f) The present and contemplated business, activities and products
of the Company do not infringe any Intellectual Property of any other person. No
proceeding charging the Company with infringement of any adversely held
Intellectual Property has been filed or, to the Company's or the Sellers'
knowledge, is threatened to be filed. Except as described in Schedule 2.14, to
the Company's and the Sellers' knowledge, there exists no unexpired patent or
patent application which includes claims that would be infringed by or otherwise
adversely affect the products, activities or business of the Company. The
Company is not making unauthorized use of any confidential information or trade
secrets of any person, including without limitation, any former employer of any
past or present employee of Company. Except as set forth in Schedule 2.14,
neither the Company nor, to the knowledge of the Company and the Sellers, any of
their employees have any agreements or arrangements
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with any persons other than the Company related to confidential information or
trade secrets of such persons or restricting any such employee's ability to
engage in business activities of any nature. The activities of their employees
on behalf of the Company do not violate any such agreements or arrangements
known to the Company.
(g) Schedule 2.14 sets forth a true and complete list of all
computer software products and computer hardware products currently being
marketed by the Company which are proprietary to the Company (the "Proprietary
Products"). The Company's rights in the Proprietary Products constitute
Intellectual Property subject to all of the representations and warranties set
forth in the foregoing provisions of this Section 2.14. Except as set forth in
Schedule 2.14, the software and designs of the Proprietary Products have been
developed and implemented in a professional manner and are documented in
accordance with normal professional standards so as to enable a qualified
software or hardware engineer, as applicable, to maintain and modify the
Proprietary Products conveniently and effectively on the basis of such
documentation. The Company has conducted a regular program of maintaining and
updating the Proprietary Products in response to defects on problem reports, and
has in effect reliable procedures for version control with respect to the
Proprietary Products. Except as set forth on Schedule 2.14, the Company is not
aware of any material software or design defects in any of the Proprietary
Products, any failure of any of the Proprietary Products to conform in all
material respects to its specifications and documentation.
2.15 Contracts. Except for contracts, commitments, plans, agreements
and licenses described in Schedule 2.15 (true and complete copies of which have
been delivered to Buyer) or Exhibit A hereto, the Company is not a party to or
subject to:
(a) any plan or contract providing for bonuses, pensions, options,
stock purchases, deferred compensation, retirement payments, profit sharing,
collective bargaining or the like, or any contract or agreement with any labor
union;
(b) any employment contract or contract for services that is not
terminable within 30 days by the Company without liability for any penalty or
severance payment;
(c) any contract or agreement for the purchase of any commodity,
material or equipment except purchase orders in the ordinary course for less
than $3,000 each, such orders not exceeding $10,000 in the aggregate;
(d) any other contracts or agreements creating any obligations of
the Company of $10,000 or more with respect to any such contract or agreement
not specifically disclosed elsewhere under this Agreement;
(e) any contract or agreement providing for the purchase of
Proprietary Products of third parties for inclusion in products sold by the
Company or otherwise for resale by the Company, or providing for the purchase of
all or substantially all of its requirements of a particular product from a
supplier;
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(f) any contract or agreement involving more than $5,000 which by
its terms does not terminate or is not terminable without penalty by the Company
or its successors within one year after the date hereof;
(g) any contract or agreement for the sale or lease of its
products extending beyond a single order or otherwise not made in the ordinary
course of business;
(h) any contract with any sales agent or distributor of products
of the Company;
(i) any contract containing covenants limiting the freedom of the
Company to compete in any line of business or with any person or entity;
(j) any contract or agreement for the purchase of any fixed asset
for a price in excess of $10,000 whether or not such purchase is in the ordinary
course of business;
(k) any license agreement (as licensor or licensee);
(l) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for the borrowing of money; or
(m) any contract or agreement with any officer, employee, director
or Seller of the Company or with any persons or organizations controlled by or
affiliated with any of them.
The Company is not in default under any such contracts, commitments,
plans, agreements or licenses described in said Schedule and has no knowledge of
conditions or facts which with notice or passage of time, or both, would
constitute a default.
2.16 Litigation. Schedule 2.16 hereto lists all currently pending
litigation and governmental or administrative proceedings or investigations to
which the Company is a party. Except for matters described in Schedule 2.16,
there is no litigation or governmental or administrative proceeding or
investigation pending or, to the knowledge of the Company or the Sellers,
threatened against the Company or their affiliates which may have any material
adverse effect on the properties, assets, prospects, financial condition or
business of the Company or which would prevent or hinder the consummation of the
transactions contemplated by this Agreement. With respect to each matter set
forth therein, Schedule 2.16 sets forth a description of the matter, the forum
(if any) in which it is being conducted, the parties thereto and the type and
amount of relief sought.
2.17 Compliance with Laws. Except as set forth in Schedule 2.17 hereto,
the Company is, and all products sold by the Company are, in compliance in all
material respects with all applicable statutes, ordinances, orders, judgements,
decrees, rules and regulations promulgated by any federal, state, municipal
entity, agency, court or other governmental
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authority which apply to the Company or to the conduct of its business or to
such products, and the Company has received no notice of a violation or alleged
violation of any such statute, ordinance, order, rule or regulation.
2.18 Insurance. The physical properties and assets of the Company are
insured to the extent disclosed in Schedule 2.18 attached hereto and all such
insurance policies and arrangements are disclosed in said Schedule. Said
insurance policies and arrangements are in full force and effect, all premiums
with respect thereto are currently paid, and the Company is in compliance in all
material respects with the terms thereof. Except as set forth in Schedule 2.18,
said insurance is adequate and customary for the business engaged in by the
Company and, except as set forth in Schedule 2.18, is sufficient for compliance
by the Company with all requirements of law and all agreements and leases to
which the Company is a party.
2.19 Warranty or Other Claims. Except as described in Schedule 2.19,
there are no existing or, to the Company's or the Sellers' knowledge, threatened
product liability, warranty or other similar claims, or any facts upon which a
material claim of such nature could be based, against the Company for products
or services which are defective or fail to meet any product or service
warranties. No claim has been asserted against the Company for renegotiation or
price redetermination of any business transaction, and there are no facts upon
which any such claim could be based.
2.20 Powers of Attorney. Except as described in Schedule 2.20, neither
the Company nor any Seller has any outstanding power of attorney, except as
granted pursuant to this Agreement.
2.21 Finder's Fee. The Company has not incurred or become liable for
any broker's commission or finder's fee relating to or in connection with the
transactions contemplated by this Agreement.
2.22 Permits; Burdensome Agreements. Schedule 2.22 lists all permits,
registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from federal, state or local
authorities in order for the Company to conduct its business as of the date of
execution hereof. The Company has obtained all such Approvals, which are valid
and in full force and effect, and is operating in compliance therewith. Such
Approvals include, but are not limited to, those required under federal, state
or local statutes, ordinances, orders, requirements, rules, regulations, or laws
pertaining to environmental protection, public health and safety, worker health
and safety, buildings, highways or zoning. Except as disclosed in Schedule 2.22
or in any other Schedule hereto, the Company is not subject to or bound by any
agreement, judgment, decree or order which may materially and adversely affect
its business or prospects, its condition, financial or otherwise, or any of its
assets or properties.
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2.23 Corporate Records; Copies of Documents. The corporate record books
of the Company accurately record all corporate action taken by its stockholders,
board of directors and committees. The copies of the corporate records of the
Company, as made available to Buyer for review, are true and complete copies of
the originals of such documents. The Company has made available for inspection
and copying by Buyer and its counsel true and correct copies of all documents
referred to in this Section or in the Schedules delivered to Buyer pursuant to
this Agreement.
2.24 Transactions with Interested Persons. Except as set forth in
Schedule 2.24 hereto, neither the Company, any Seller, officer, supervisory
employee or director of the Company or, to the knowledge of Company, any of
their respective spouses or immediate family members, (a) is indebted to or is
owed money by the Company (other than with respect to indebtedness under expense
reimbursement arrangements and related advances in the ordinary course of
business not exceeding $1,000 in any individual case), (b) is a party to any
material contract or arrangement with the Company, or (c) owns directly or
indirectly on an individual or joint basis any material interest in, or serves
as an officer or director or in another similar capacity of, any competitor or
supplier of Company, or any organization which has a material contract or
arrangement with the Company.
2.25 Employee Benefit Programs.
(a) Schedule 2.25 lists every Employee Program (as defined below)
that has been maintained (as defined below) by the Company at any time during
the three-year period ending on the Closing date.
(b) Each Employee Program which has ever been maintained by the
Company and which has at any time been intended to qualify under Section 401(a)
or 501(c)(9) of the Code has received a favorable determination or approval
letter from the Internal Revenue Service ("IRS") regarding its qualification
under such section and has, in fact, been qualified under the applicable section
of the Code from the effective date of such Employee Program through and
including the Closing (or, if earlier, the date that all of such Employee
Program's assets were distributed). No event or omission has occurred which
would cause any such Employee Program to lose its qualification under the
applicable Code section.
(c) The Company does not know and has no reason to know, of any
failure of any party to comply with any laws applicable to the Employee Programs
that have been maintained by the Company. With respect to any Employee Program
ever maintained by the Company, there has occurred no "prohibited transaction,"
as defined in Section 406 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or Section 4975 of the Code, or breach of any duty
under ERISA or other applicable law (including, without limitation, any health
care continuation requirements or any other tax law requirements, or conditions
to favorable tax treatment, applicable to such plan), which could result,
directly or indirectly, in any taxes, penalties or other liability to the
Company or Buyer. No litigation, arbitration, or governmental administrative
proceeding (or investigation) or other proceeding
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(other than those relating to routine claims for benefits) is pending or
threatened with respect to any such Employee Program.
(d) Neither the Company nor any Affiliate (as defined below) (i)
has ever maintained any Employee Program which has been subject to title IV of
ERISA (including, but not limited to, any Multiemployer Plan (as defined below))
or (ii) has ever provided health care or any other non-pension benefits to any
employees after their employment is terminated (other than as required by part 6
of subtitle B of title I of ERISA) or has ever promised to provide such
post-termination benefits.
(e) With respect to each Employee Program maintained by the
Company within the three years preceding the Closing, complete and correct
copies of the following documents (if applicable to such Employee Program) have
previously been delivered to Buyer: (i) all documents embodying or governing
such Employee Program, and any funding medium for the Employee Program
(including, without limitation, trust agreements) as they may have been amended;
(ii) the most recent IRS determination or approval letter with respect to such
Employee Program under Code Sections 401 or 501(c)(9), and any applications for
determination or approval subsequently filed with the IRS; (iii) the three most
recently filed IRS Forms 5500, with all applicable schedules and accountants'
opinions attached thereto; (iv) the summary plan description for such Employee
Program (or other descriptions of such Employee Program provided to employees)
and all modifications thereto; (v) any insurance policy (including any fiduciary
liability insurance policy) related to such Employee Program; (vi) any documents
evidencing any loan to an Employee Program that is a leveraged employee stock
ownership plan; and (vii) all other materials reasonably necessary for Buyer to
perform any of its responsibilities with respect to any Employee Program
subsequent to the Closing (including, without limitation, health care
continuation requirements).
(f) For purposes of this section:
(i) "Employee Program" means (A) all employee benefit plans
within the meaning of ERISA Section 3(3), including, but not limited
to, multiple employer welfare arrangements (within the meaning of ERISA
Section 3(4)), plans to which more than one unaffiliated employer
contributes and employee benefit plans (such as foreign or excess
benefit plans) which are not subject to ERISA; and (B) all stock option
plans, bonus or incentive award plans, severance pay policies or
agreements, deferred compensation agreements, supplemental income
arrangements, vacation plans, and all other employee benefit plans,
agreements, and arrangements not described in (A) above. In the case of
an Employee Program funded through an organization described in Code
Section 501(c)(9), each reference to such Employee Program shall
include a reference to such organization.
(ii) An entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides (or has promised to provide)
benefits under such Employee Program, or has any obligation (by
agreement or under applicable law) to
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contribute to or provide benefits under such Employee Program, or if
such Employee Program provides benefits to or otherwise covers
employees of such entity, or their spouses, dependents, or
beneficiaries.
(iii) An entity is an "Affiliate" of the Company if it would
have ever been considered a single employer with the Company under
ERISA Section 4001(b) or part of the same "controlled group" as the
Company for purposes of ERISA Section 302(d)(8)(C).
(iv) "Multiemployer Plan" means a (pension or non-pension)
employee benefit plan to which more than one employer contributes and
which is maintained pursuant to one or more collective bargaining
agreements.
2.26 Environmental Matters.
(a) Except as set forth in Schedule 2.26 hereto, (i) no Hazardous
Material (as defined below) has ever been or is threatened to be spilled,
released, or disposed of at any site presently or formerly owned, operated,
leased, or used by the Company, or has ever been located in the soil or
groundwater at any such site; (ii) no Hazardous Material has ever been
transported from any site presently or formerly owned, operated, leased, or used
by the Company for treatment, storage, or disposal at any other place; (iii) the
Company does not presently own, operate, lease, or use, nor has it previously
owned, operated, leased, or used any site on which underground storage tanks are
or were located; and (iv) no lien has ever been imposed by any governmental
agency on any property, facility, machinery, or equipment owned, operated,
leased, or used by the Company in connection with the presence of any Hazardous
Material.
(b) Except as set forth in Schedule 2.26 hereto, (i) the Company
has no liability under, nor has it ever violated, any Environmental Law (as
defined below); (ii) the Company, any property owned, operated, leased, or used
by the Company, and any facilities and operations thereon, are presently in
compliance with all applicable Environmental Laws; (iii) the Company has not
entered into or been subject to any judgment, consent decree, compliance order,
or administrative order with respect to any environmental or health and safety
matter or received any request for information, notice, demand letter,
administrative inquiry, or formal or informal complaint or claim with respect to
any environmental or health and safety matter or the enforcement of any
Environmental Law; and (iv) the Company has no reason to believe that any of the
items enumerated in clause (iii) of this subsection will be forthcoming.
(c) Except as set forth in Schedule 2.26 hereto, to the best of
the Company's or any Seller's knowledge, no site owned, operated, leased, or
used by the Company contains any asbestos or asbestos-containing material, any
polychlorinated biphenyls (PCBs) or equipment containing PCBs, or any urea
formaldehyde foam insulation.
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(d) The Company has provided to Buyer copies of all documents,
records, and information in the possession of the Company or any Seller
concerning any environmental or health and safety matter relevant to the
Company, whether generated by the Company or others, including without
limitation, environmental audits, environmental risk assessments, site
assessments, documentation regarding off-site disposal of Hazardous Materials,
spill control plans, and reports, correspondence, permits, licenses, approvals,
consents, and other authorizations related to environmental or health and safety
matters issued by any governmental agency.
(e) For purposes of this Section 2.26, (i) "Hazardous Material"
shall mean and include any hazardous waste, hazardous material, hazardous
substance, petroleum product, oil, toxic substance, pollutant, contaminant, or
other substance which may pose a threat to the environment or to human health or
safety, as defined or regulated under any Environmental Law; (ii) "Environmental
Law" shall mean any environmental or health and safety-related law, regulation,
rule, ordinance, or by-law at the foreign, federal, state, or local level,
whether existing as of the date of execution hereof, previously enforced, or
subsequently enacted; and (iii) "Company" shall mean and include the Company and
all other entities for whose conduct the Company is or may be held responsible
under any Environmental Law.
2.27 List of Directors and Officers. Schedule 2.27 hereto contains a
true and complete list of all current directors and officers of the Company. In
addition, Schedule 2.27 hereto contains a list of all managers, employees and
consultants of the Company who, individually, have received or are scheduled to
receive compensation from the Company for the fiscal year ended December 31,
1995 or the fiscal year ending December 31, 1996. In each case such Schedule
includes the current job title and aggregate annual compensation of each such
individual.
2.28 Disclosure. The representations, warranties and statements
contained in this Agreement and in the certificates, exhibits and schedules
delivered by the Company pursuant to this Agreement to Buyer do not contain any
untrue statement of a material fact, and, when taken together, do not omit to
state a material fact required to be stated therein or necessary in order to
make such representations, warranties or statements not misleading in light of
the circumstances under which they were made. There are no facts which presently
or may in the future have a material adverse affect on the business, properties,
prospects, operations or condition of the Company which have not been
specifically disclosed herein or in a Schedule furnished herewith, other than
general economic conditions affecting the industries in which the Company
operate.
2.29 [Intentionally Omitted]
2.30 Backlog. As of the date hereof, the Company has a backlog of firm
orders for the sale or lease of products or services, for which revenues have
not been recognized by the Company, as set forth in Schedule 2.30.
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2.31 Employees; Labor Matters. The Company employs a total of
approximately 27 full-time employees and two part-time employees and generally
enjoy good employer-employee relationships. The Company does not currently
employ, will not as of the Closing date employ, and has not employed during the
six calendar months prior to the Closing date 50 or more employees in any single
facility in Massachusetts. The Company does not employ a total of 100 or more
employees (excluding employees who work less than 20 hours per week or who have
worked for the Company less than six of the last twelve months) and will not
have employed 100 or more employees at any point during the 90 days prior to and
including the Closing date. Except as described in Schedule 2.31, the Company is
not delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed for
it to the date of execution hereof or amounts required to be reimbursed to such
employees. Upon termination of the employment of any of said employees, neither
the Company nor Buyer will by reason of the transactions contemplated under this
Agreement or anything done prior to the Closing be liable to any of said
employees for so-called "severance pay" or any other payments, except as set
forth in Schedule 2.31 or Exhibit A hereto. The Company has no policy, practice,
plan or program of paying severance pay or any form of severance compensation in
connection with the termination of employment, except as set forth in said
Schedule. Except as described in Schedule 2.31, the Company is in compliance
with all applicable laws and regulations respecting labor, employment, fair
employment practices, work place safety and health, terms and conditions of
employment, and wages and hours. There are no charges of employment
discrimination or unfair labor practices, nor are there any strikes, slowdowns,
stoppages of work, or any other concerted interference with normal operations
which are existing, pending or, to the Company's or the Sellers' knowledge,
threatened against or involving the Company. Except as disclosed on Schedule
2.31, no question concerning union representation exists respecting any
employees of the Company. There are no grievances, complaints or charges that
have been filed against the Company under any dispute resolution procedure
(including, but not limited to, any proceedings under any dispute resolution
procedure under any collective bargaining agreement) that might have an adverse
effect on the Company or the conduct of their respective businesses, and there
is no arbitration or similar proceeding pending and no claim therefor has been
asserted. No collective bargaining agreement is in effect or is currently being
or is about to be negotiated by the Company. The Company has received no
information indicating that any of its employment policies or practices is
currently being audited or investigated by any federal, state or local
government agency. The Company is, and at all times since November 6, 1986 has
been, in compliance with the requirements of the Immigration Reform Control Act
of 1986.
2.32 Customers, Distributors and Suppliers. Schedule 2.32(a) sets forth
any customer, sales representative or distributor (whether pursuant to a
commission, royalty or other arrangement) which accounts for more than 5% of the
sales of the Company for the twelve months ended December 31, 1995 or the two
months ended as of the date of the Base Balance Sheet (collectively, the
"Customers and Distributors"). Schedule 2.32(b) lists all of the suppliers of
the Company to whom during the fiscal year ended December 31, 1995 the Company
made payments aggregating $5,000 or more showing, with respect to each, the
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name, address, description of transaction and dollar volume involved (the
"Suppliers"). The relationships of the Company with its Customers, Distributors
and Suppliers are good commercial working relationships. No Customer,
Distributor or Supplier has canceled, materially modified, or otherwise
terminated its relationship with the Company, or has during the last twelve
months decreased materially its services, supplies or materials to the Company
or its usage or purchase of the services or products of the Company, nor to the
knowledge of Company, does any Customer, Distributor or Supplier have any plan
or intention to do any of the foregoing.
2.33 Transfer of Shares. No holder of stock of the Company has at any
time transferred any of such stock to any employee of the Company, which
transfer constituted or could be viewed as compensation for services rendered to
the Company by said employee.
2.34 Stock Repurchase. The Company has never redeemed or repurchased
any of its capital stock.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLERS.
As a material inducement to Buyer to enter into this Agreement and
consummate the transactions contemplated hereby, each Seller hereby severally
makes to Buyer each of the representations and warranties set forth in this
Section 3 with respect to such Seller. No Seller shall have any right of
indemnity or contribution from the Company with respect to the breach of any
representation or warranty hereunder. The representations and warranties
contained in each section of this Article 3 are made as of the date of execution
of this Agreement and are qualified in their entirety by the corresponding
portions of the Schedules attached hereto.
3.1 Company Shares. Such Seller owns of record and beneficially the
number of the Company Shares set forth opposite such Seller's name in Exhibit A.
Such Company Shares are, and at the Effective Time will be, duly authorized,
validly issued, fully paid, non-assessable and free and clear of any and all
liens, encumbrances, charges or claims, under Article 8 of the Massachusetts
Uniform Commercial Code or otherwise.
3.2 Authority. Such Seller has full right, authority, power and
capacity to enter into this Agreement and each agreement, document and
instrument to be executed and delivered by or on behalf of such Seller pursuant
to this Agreement and to carry out the transactions contemplated hereby and
thereby. This Agreement and each agreement, document and instrument executed and
delivered by such Seller pursuant to this Agreement constitutes a valid and
binding obligation of such Seller, enforceable in accordance with their
respective terms, and each Seller has full power and authority to transfer, sell
and deliver the Company Shares to Buyer pursuant to this Agreement. As of the
date of execution hereof, the execution, delivery and performance of this
Agreement and each such agreement, document and instrument:
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(i) does not and will not violate any laws of the United
States or any state or other jurisdiction applicable to such Seller, or
require such Seller to obtain any approval, consent or waiver from, or
make any filing with, any person or entity (governmental or otherwise)
that has not been obtained or made; and
(ii) does not and will not result in a breach of, constitute a
default under, accelerate any obligation under, or give rise to a right
of termination of, any indenture or loan or credit agreement or any
other agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination
or arbitration award to which such Seller is a party or by which the
property of such Seller is bound or affected, or result in the creation
or imposition of any mortgage, pledge, lien, security interest or other
charge or encumbrance on any assets of the Company or on Company Shares
owned by such Seller.
3.3 Finder's Fee. Such Seller has not incurred or become liable for any
broker's commission or finder's fee relating to or in connection with the
transactions contemplated by this Agreement.
3.4 Agreements. Each Seller is not a party to any non-competition,
trade secret or confidentiality agreement with any party other than the Company.
There are no agreements or arrangements not contained herein or disclosed in a
Schedule hereto, to which such Seller is a party relating to the business of the
Company or to such Seller's rights and obligations as a Seller, director or
officer of the Company. Such Seller does not own, directly or indirectly, on an
individual or joint basis, any material interest in, or serve as an officer or
director of, any customer, competitor or supplier of the Company, or any
organization which has a contract or arrangement with the Company. Such Seller
has not at any time transferred any of the stock of the Company held by or for
such holder to any employee of the Company, which transfer constituted or could
be viewed as compensation for services rendered to the Company by said employee.
The execution, delivery and performance of this Agreement will not violate or
result in a default or acceleration of any obligation under any contract,
agreement, indenture or other instrument involving the Company to which such
Seller is a party.
3.5 Investor Restrictions. Each Seller understands that because the
Brooktrout Shares have not been registered under the Securities Act of 1933, as
amended from time to time (the "1933 Act"), or applicable state securities laws,
such Seller cannot dispose of any or all of the Brooktrout Shares unless such
shares are subsequently registered under the 1933 Act and applicable state
securities laws, or exemptions from such registration are available. Each Seller
understands that each certificate representing the Brooktrout Shares will bear
the following legend or one substantially similar thereto:
The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act") or the
securities laws of any state. These shares may not be transferred
without an effective registration statement for such shares under the
Act or a valid exemption from such registration.
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3.6 Exchange Act Filings. Each Seller acknowledges receipt of Buyer's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and the
Buyer's Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31,
June 30 and September 30, 1995 (the "Exchange Act Filings"). Each Seller is not
relying on any information or representations with regard to Buyer or the
Brooktrout Shares other than the information contained in the Exchange Act
Filings and the representations and warranties of Buyer contained in this
Agreement.
SECTION 4. COVENANTS OF THE COMPANY AND THE SELLERS.
4.1 Making of Covenants and Agreements. The Company and the Sellers
jointly and severally hereby make the covenants and agreements set forth in this
Section 4 and the Sellers agree to cause the Company to comply with such
agreements and covenants. No Seller shall have any right of indemnity or
contribution from the Company with respect to the breach of any covenant or
agreement hereunder.
4.2 Conduct of Business. Between the date of this Agreement and the
Closing Date, the Company will:
(a) Conduct its business only in the ordinary course and refrain
from changing or introducing any method of management or operations except in
the ordinary course of business and consistent with prior practices;
(b) Refrain from making any purchase, sale or disposition of any
asset or property other than in the ordinary course of business, from purchasing
any capital asset costing more than $10,000 and from mortgaging, pledging,
subjecting to a lien or otherwise encumbering any of its properties or assets
other than in the ordinary course of business;
(c) Refrain from incurring any contingent liability as a guarantor
or otherwise with respect to the obligations of others, and from incurring any
other contingent or fixed obligations or liabilities except in the ordinary
course of business;
(d) Refrain from entering into any of the following contracts:
(i) any plan or contract providing for bonuses, pensions,
options, stock purchases, deferred compensation, retirement payments,
profit sharing, collective bargaining or the like, or any contract or
agreement with any labor union;
(ii) any employment contract or contract for services that is
not terminable within 30 days by the Company without liability for any
penalty or severance payment;
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(iii) any contract or agreement for the purchase of any
commodity, material or equipment except purchase orders in the ordinary
course for less than $5,000 each, such orders not exceeding $20,000 in
the aggregate;
(iv) any other contracts or agreements creating any
obligations of the Company of $10,000 or more with respect to any such
contract or agreement not specifically disclosed elsewhere under this
Agreement or otherwise generally incurred in the ordinary course of
business;
(v) any contract or agreement providing for the purchase of
Proprietary Products of third parties for inclusion in products sold by
the Company or otherwise for resale by the Company, or providing for
the purchase of all or substantially all of its requirements of a
particular product from a supplier except as disclosed in Schedule
2.14;
(vi) any contract or agreement involving more than $5,000
which by its terms does not terminate or is not terminable without
penalty by the Company or its successors within one year after the date
hereof;
(vii) any contract or agreement for the sale or lease of its
products extending beyond a single order or otherwise not made in the
ordinary course of business;
(viii) any contract with any sales agent or distributor of
products of the Company, except those entered into in the ordinary
course of business;
(ix) any contract containing covenants limiting the freedom
of the Company to compete in any line of business or with any person or
entity;
(x) any contract or agreement for the purchase of any fixed
asset for a price in excess of $10,000, other than the currently
planned payment of approximately $30,000 for a file server, $13,000 of
which is reflected on the Base Balance Sheet;
(xi) any license agreement (as licensor or licensee), except
those entered into in the ordinary course of business;
(xii) any indenture, mortgage, promissory note, loan
agreement, guaranty or other agreement or commitment for the borrowing
of money, other than with the consent of the Buyer; or
(xiii) any contract or agreement with any officer, employee,
director or Seller of the Company or with any persons or organizations
controlled by or affiliated with any of them;
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provided, however, that, the Company may request in writing at any time that the
Buyer waive compliance with any provision of this Subsection 4.2(d), and the
Buyer may waive such compliance in writing at any time.
(e) Refrain from making any change or incurring any obligation to
make a change in its Articles of Organization, By-laws or authorized or issued
capital stock;
(f) Refrain from declaring, setting aside or paying any dividend,
making any other distribution in respect of its capital stock or making any
direct or indirect redemption, purchase or other acquisition of its stock,
except as follows:
(i) The Company may declare and distribute to the Sellers a
dividend no greater than the amount that is sufficient to pay the federal and
state tax liabilities of the Sellers resulting from the Company's operations
during the tax year ended December 31, 1995, such dividend to be calculated in a
manner consistent with past dividend payment practices of the Company. To the
extent such dividend is not distributed to the Sellers prior to the Closing
Date, it may be distributed on or after the Closing Date, under Section 12.14(c)
hereof.
(ii) Consistent with past dividend payment practices of the
Company, the Company may declare a dividend for the purpose of distributing an
amount of cash to the Sellers approximately equal to the federal and state tax
liabilities of the Sellers resulting from the Company's operations during the
short tax year beginning January 1, 1996 and ending on the Closing Date. Such
dividend shall be payable to the Sellers in two installments on or after the
Closing Date, as more fully set forth in Section 12.14(b) hereof. The amount of
such dividend shall be no greater than the amount of the dividend provided for
in Section 12.14(a) hereof.
(g) Refrain from making any change in the compensation payable or
to become payable to any of the Sellers;
(h) Refrain from prepaying any loans (if any) from the Sellers,
its officers or directors or making any change in its borrowing arrangements,
other than expense advances and reimbursements in the ordinary course of
business;
(i) Use its best efforts to prevent any change with respect to its
management and supervisory personnel and banking arrangements without the
written consent of Buyer;
(j) Use commercially reasonable efforts to keep intact its
business organization, to preserve and protect all Intellectual Property and
other assets of the Company, to keep available its present officers and
employees and to preserve the goodwill of all suppliers, customers, independent
contractors and others having business relations with it;
(k) Have in effect and maintain at all times all insurance of the
kind, in the amount and with the insurers set forth in the Schedule 2.18 hereto
or equivalent insurance with any substitute insurers approved in writing by
Buyer; and
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(l) Furnish Buyer with unaudited monthly balance sheets and
statements of income and retained earnings and cash flows of the Company within
ten (10) days after each month end for each month ending more than ten (10) days
before the Closing.
(m) Permit Buyer and its authorized representatives to have full
access to all its properties, assets, records, tax returns, contracts and
documents and furnish to Buyer or its authorized representatives such financial
and other information with respect to its business or properties as Buyer may
from time to time reasonably request.
(n) Not knowingly engage in any transaction or cause any fact or
circumstance to occur which would preclude accounting for the Acquisition (as
structured by this Agreement and the Non-competition Agreements of even date
herewith as described in Section 7 hereof) as a pooling of interests if
consummated at any time from the date hereof through March 8, 1997.
4.3 Authorization from Others. Prior to the Closing Date, the Sellers
and the Company will use their best efforts to obtain the authorizations,
consents and permits of others required to permit the consummation by the
Sellers, the Company of the transactions contemplated by this Agreement, as set
forth on Schedule 7.1.
4.4 Notice of Default. From the date of execution hereof and through
the Closing Date, promptly upon the occurrence of, or promptly upon the Company
or a Seller becoming aware of the impending or threatened occurrence of, any
event which would cause or constitute a breach or default, or would have caused
or constituted a breach or default had such event occurred or been known to the
Company or such Seller prior to the date of execution hereof, of any of the
representations, warranties or covenants of the Company or the Sellers contained
in or referred to in this Agreement or in any Schedule or Exhibit referred to in
this Agreement, the Company or the Sellers shall give detailed written notice
thereof to Buyer and the Company and the Sellers shall use commercially
reasonable efforts to prevent or promptly remedy the same.
4.5 Consummation of Agreement. The Company and each of the Sellers
shall use their best efforts to perform and fulfill all conditions and
obligations on their parts to be performed and fulfilled under this Agreement,
to the end that the transactions contemplated by this Agreement shall be fully
carried out. To this end, the Company will obtain prior to the Closing all
necessary authorizations or approvals of its Sellers and Board of Directors.
4.6 Access; Cooperation of the Company and Sellers. The Company and
each of the Sellers shall provide the Buyer and its agents full and unrestricted
access to the Company's premises, records, assets, officers and employees, and
shall cooperate with all reasonable requests of Buyer and Buyer's counsel in
connection with the consummation of the transactions contemplated hereby.
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4.7 No Solicitation of Other Offers. From the date of execution hereof
through the earlier of the Closing Date or termination of this Agreement
pursuant to Section 9.1, neither the Company, the Sellers, nor any of their
representatives will, directly or indirectly, solicit, encourage, assist,
initiate discussions or engage in negotiations with, provide any information to,
or enter into any agreement or transaction with, any person, other than Buyer,
relating to the possible acquisition of the Company Shares, the Company or any
of their assets, except for the sale of assets in the ordinary course of
business of the Company consistent with the terms of this Agreement.
4.8 Confidentiality. The Company and the Sellers agree that, unless
and until the Closing has been consummated, each of the Company, the Sellers and
their officers, directors, agents and representatives will hold in strict
confidence, and will not use, any confidential or proprietary data or
information obtained from Buyer with respect to its business or financial
condition except for the purpose of evaluating, negotiating and completing the
transaction contemplated hereby. Information generally known in Buyer's industry
or which has been disclosed to the Company or the Sellers by third parties which
have a right to do so shall not be deemed confidential or proprietary
information for purposes of this agreement. If the transaction contemplated by
this Agreement is not consummated, the Company and the Sellers will return to
Buyer (or certify that they have destroyed) all copies of such data and
information, including but not limited to financial information, customer lists,
business and corporate records, worksheets, test reports, tax returns, lists,
memoranda, and other documents prepared by or made available to the Company or
the Sellers in connection with the transaction.
4.9 Disclosure. Until such time as the transactions contemplated
hereby have been publicly disclosed, and except for purposes of obtaining any
third party consents required to consummate the transactions contemplated
hereby, the Company and the Sellers shall not make any public disclosure with
respect to the transaction contemplated hereby, except pursuant to a joint press
release in a form agreeable to the Buyer to be issued promptly following the
execution and delivery of this Agreement.
4.10 Tax Returns. The Company and the Sellers shall cooperate with
Buyer to permit the Company in accordance with applicable law to promptly
prepare and file on or before the due date or any extension thereof all federal,
state and local tax returns required to be filed by the Company with respect to
taxable periods ending on or before the Closing.
4.11 Pooling of Interests; Tax-Free Reorganization. Sellers acknowledge
that Buyer contemplates that the Acquisition will be treated as a "pooling of
interests" under generally accepted accounting principles and as a tax-free
reorganization under the Internal Revenue Code. In connection therewith, Sellers
hereby represent to Buyer that they have no intention, either directly or
indirectly, to sell, transfer or otherwise dispose of any Brooktrout Shares, or
cause any Brooktrout Shares to be sold, transferred or otherwise disposed of,
(a) until such time as unaudited financial statements covering at least thirty
(30) days of the combined operations of Buyer and the Company following the
Acquisition have been published by Buyer
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and (b) in excess of 50% of the Brooktrout Shares issued to each Seller
hereunder until two years have elapsed following the Closing.
4.12 Employee Programs. The Company and the Sellers shall cooperate
fully with Buyer to take all steps necessary under the relevant documents and
applicable law to maintain the qualification of each Employee Program identified
on Schedule 2.25 notwithstanding the Merger.
4.13 [Intentionally Omitted]
4.14 Termination of Bank Credit Facility. The Sellers and the Company
shall terminate the Company's $100,000 line of credit with The First National
Bank of Boston prior to the Merger.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER AND ACQUISITION SUBSIDIARY.
5.1 Making of Representations and Warranties. As a material inducement
to the Company and the Sellers to enter into this Agreement and consummate the
transactions contemplated hereby, Buyer and the Acquisition Subsidiary hereby
make the representations and warranties to the Company and the Sellers contained
in this Section 5.
5.2 Organization of Buyer and Acquisition Subsidiary. The Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of Massachusetts with full corporate power to own or lease its properties and to
conduct its business in the manner and in the places where such properties are
owned or leased or such business is conducted by it. The Acquisition Subsidiary
is a corporation duly organized, validly existing and in good standing under the
laws of Massachusetts with full corporate power to own or lease its properties
and to conduct its business in the manner and in the places where such
properties are owned or leased or such business is conducted by it.
5.3 Authority of Buyer and Acquisition Subsidiary. (a) Buyer has full
right, authority and power to enter into this Agreement and each agreement,
document and instrument to be executed and delivered by Buyer pursuant to this
Agreement and to carry out the transactions contemplated hereby. The execution,
delivery and performance by Buyer of this Agreement and each such other
agreement, document and instrument have been duly authorized by all necessary
corporate action of Buyer and no other action on the part of Buyer is required
in connection therewith. This Agreement and each other agreement, document and
instrument executed and delivered by Buyer pursuant to this Agreement
constitute, or when executed and delivered will constitute, valid and binding
obligations of Buyer enforceable in accordance with their terms. The execution,
delivery and performance by Buyer of this Agreement and each such agreement,
document and instrument:
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(i) does not and will not violate any provision of the
Articles of Organization or by-laws of Buyer;
(ii) does not and will not violate any laws of the United
States or of any state or any other jurisdiction applicable to Buyer or
require Buyer to obtain any approval, consent or waiver of, or make any
filing with, any person or entity (governmental or otherwise) which has
not been obtained or made; and
(iii) does not and will not result in a breach of, constitute a
default under, accelerate any obligation under, or give rise to a right
of termination of any indenture, loan or credit agreement, or other
agreement mortgage, lease, permit, order, judgment or decree to which
Buyer is a party and which is material to the business and financial
condition of Buyer.
(b) The Acquisition Subsidiary has full right, authority and power
to enter into this Agreement and each agreement, document and instrument to be
executed and delivered by the Acquisition Subsidiary pursuant to this Agreement
and to carry out the transactions contemplated hereby. The consummation of the
Merger and the execution, delivery and performance by the Acquisition Subsidiary
of this Agreement and each such other agreement, document and instrument have
been duly authorized by all necessary corporate action of the Acquisition
Subsidiary and no other action on the part of the Acquisition Subsidiary is
required in connection therewith. This Agreement and each other agreement,
document and instrument executed and delivered by the Acquisition Subsidiary
pursuant to this Agreement constitute, or when executed and delivered will
constitute, valid and binding obligations of the Acquisition Subsidiary
enforceable in accordance with their terms. The execution, delivery and
performance by the Acquisition Subsidiary of this Agreement and each such
agreement, document and instrument does not and will not violate any provision
of the Articles of Organization or by-laws of the Acquisition Subsidiary.
Immediately prior to the Merger, the Acquisition Subsidiary will have 200,000
shares of common stock, $.01 par value per share, authorized for issuance and
1,000 shares of common stock, $.01 par value per share, issued and outstanding,
held of record by the Buyer.
5.4 Litigation. There is no litigation pending or, to its knowledge,
threatened against Buyer or the Acquisition Subsidiary which would prevent or
hinder the consummation of the transactions contemplated by this Agreement.
5.5 Finder's Fee. Neither the Buyer nor the Acquisition Subsidiary has
incurred or become liable for any broker's commission or finder's fee relating
to or in connection with the transactions contemplated by this Agreement, other
than to Broadview Associates, L.P.
5.6 Brooktrout Shares. As of the Closing, and after giving effect to
the adoption of the amendment to the Buyer's Articles of Organization referred
to in Section 7.1(k), (a) the Brooktrout Shares will have been duly authorized,
and when issued pursuant to the terms of the Merger, will be validly issued and
outstanding, fully paid and nonassessable, (b) each of
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the Sellers will be the lawful owner of the number of Brooktrout Shares set
forth opposite his or her name on Exhibit A, free and clear of any pledges,
liens or other encumbrances created by the Buyer, except as contemplated hereby,
when issued in exchange for the number of Company Shares set forth opposite such
Seller's name on Exhibit A. As of the date of execution hereof, except as set
forth in Exhibit C, there are no: (i) outstanding warrants, options or other
rights to purchase or acquire, or securities exchangeable for or convertible
into, any shares of Common Stock, (ii) preemptive rights with respect to the
issuance or sale by the Buyer of any of its securities, (iii) restrictions on
the transfer or voting of any shares of the Common Stock or (iv) existing rights
with respect to registration under the 1933 Act of any of the Buyer's
securities.
SECTION 6. COVENANTS OF BUYER.
6.1 Making of Covenants and Agreement. Buyer hereby makes to each
Seller the covenants and agreements set forth in this Section 6.
6.2 Confidentiality. Buyer agrees that, unless and until the Closing
has been consummated, Buyer and its officers, directors, agents and
representatives will hold in strict confidence, and will not use any
confidential or proprietary data or information obtained from the Company or the
Sellers with respect to the business or financial condition of the Company
except for the purpose of evaluating, negotiating and completing the transaction
contemplated hereby. Information generally known in the industries of the
Company or which has been disclosed to Buyer by third parties which have a right
to do so shall not be deemed confidential or proprietary information for
purposes of this Agreement. If the transaction contemplated by this Agreement is
not consummated, Buyer will return to the Company (or certify that it has
destroyed) all copies of such data and information, including but not limited to
financial information, customer lists, business and corporate records,
worksheets, test reports, tax returns, lists, memoranda, and other documents
prepared by or made available to Buyer in connection with the transaction.
6.3 Consummation of Agreement. Buyer shall use its best efforts to
perform and fulfill all conditions and obligations to be performed and fulfilled
by it under this Agreement, to the end that the transactions contemplated by
this Agreement shall be fully carried out. To this end, Buyer shall obtain prior
to the Closing all necessary approvals and authorizations of its Board of
Directors and shall use commercially reasonable efforts to obtain approval of
its shareholders of all actions necessary to consummate the transactions
contemplated by this Agreement and the issuance of the Brooktrout Shares,
including without limitation the recommendation by Buyer's management to its
shareholders of approval of the amendment to Buyer's Articles of Organization
referred to in Section 7.1(k) and the voting of Buyer's management, in their
individual capacities as stockholders, in favor thereof. Buyer shall use its
best efforts to publish as soon as possible unaudited financial statements
covering at least thirty (30) days of the combined operations of Buyer and the
Company following the Acquisition.
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6.4 Tax Free Reorganization. Buyer shall not engage in any transaction
or cause any fact or circumstance to occur which might prevent the Acquisition
from being treated as a tax-free reorganization under the Internal Revenue Code.
6.5 Maintenance of Records. After the Effective Date, Buyer shall cause
the Surviving Corporation to maintain a copy of this Agreement in the
Commonwealth of Massachusetts at the offices of the Surviving Corporation.
6.6 [Intentionally Omitted]
SECTION 7. CONDITIONS.
7.1 Conditions to the Obligations of Buyer. The obligation of Buyer to
consummate this Agreement and the transactions contemplated hereby are subject
to the fulfillment or waiver, prior to or at the Closing, of the following
conditions precedent:
(a) Representations; Warranties; Covenants. Each of the
representations and warranties of the Company and the Sellers contained in
Section 2 shall be true and correct in all material respects (except for such
representations and warranties that are qualified by their terms as to
materiality, which representations and warranties as so qualified shall be true
in all respects) as of the date of this Agreement; and the Company and each of
the Sellers shall, on or before the Closing, have performed all of their
obligations hereunder which by the terms hereof are to be performed on or before
the Closing.
(b) Certificate from Officers. The Sellers shall have delivered to
Buyer a certificate of the Company's President and Chief Financial Officer dated
as of the Closing to the effect that the statements set forth in paragraph (a)
and (b) above in this Section 7.1 are true and correct.
(c) Opinion of Counsel. On the Closing Date, Buyer shall have
received from Lucash, Gesmer & Updegrove, counsel for the Company and the
Sellers, an opinion as of said date, substantially in the form attached hereto
as Exhibit D.
(d) No Litigation. No action, proceeding or litigation shall have
been commenced against the Buyer, the Company or any of the Sellers which
reasonably questions the validity of the transactions contemplated by this
Agreement or the right of the Buyer, the Company or the Sellers to enter into
this Agreement.
(e) Consents. The Company, the Sellers and Buyer shall have
received all authorizations, waivers, consents and permits, in form and
substance reasonably satisfactory to Buyer, from all third parties set forth on
Schedule 7.1.
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(f) Non-Competition Agreements. Each of the Sellers shall have
executed and delivered to Buyer a Non-Competition Agreement in substantially the
form of Exhibit E attached hereto.
(g) FIRPTA Withholding. At or prior to the Closing, Buyer shall
have received from each Seller a "transferor's certificate of non-foreign
status" as provided in the Treasury Regulations under Section 1445 of the Code
outstanding in the form attached hereto as Exhibit F attached hereto.
(h) Massachusetts Tax Certificate. At or prior to the Closing,
Buyer shall have received from the Company a certificate of payment/good
standing from the Commissioner of Revenue as provided in Massachusetts General
Laws Chapter 62C, Section 44(a).
(i) Releases. The Company shall have delivered to Buyer general
releases signed by each of the Sellers of all claims which any of them have
against the Company in the form attached hereto as Exhibit G.
(j) Accountants' Confirmation. Buyer shall have also received
confirmation from Deloitte & Touche LLP that the Company's financial records and
related information are adequate to enable the Buyer to satisfy all requirements
of generally accepted accounting principles and of the Securities and Exchange
Commission (the "SEC") with regard to presentation and inclusion of the
Company's historical financial statements on an audited basis in connection with
filings and disclosures required to be made by the Buyer.
(k) Stockholder Approval. The stockholders of Buyer shall have
approved, at their annual meeting scheduled for May 29, 1996, an amendment to
Buyer's Articles of Organization to increase Buyer's authorized shares of common
stock to a number sufficient to permit Buyer to issue the Brooktrout Shares set
forth in Section 1.2 hereof.
(l) Escrow Agreement. Each of Sellers, Buyer, the Company and the
Escrow Agent shall have executed and delivered the Escrow Agreement,
substantially in the form attached hereto as Exhibit H and the escrowed
Brooktrout Shares shall have been deposited with the Escrow Agent to be held in
escrow pursuant to the provisions of the Escrow Agreement.
(m) Financial Statements. The Company shall have delivered to Buyer
the following financial statements:
(i) Balance sheets of the Company for its fiscal year ended on
December 31, 1995 and statements of income, retained earnings and cash
flows for the years then ended, which statements are audited by the
Buyer's independent public accountant.
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(ii) An unaudited balance sheet dated as of April 30, 1996, and
statements of income, retained earnings and cash flows for the period
then ended.
The Sellers shall have delivered to Buyer a certificate of the
Company's President and Chief Financial Officer dated as of the date hereof to
the effect that said financial statements have been prepared in accordance with
generally accepted accounting principles applied consistently during the periods
covered thereby, are complete and correct in all material respects and present
fairly in all material respects the financial condition of the Company at the
dates of said statements and the results of its operations for the periods
covered thereby, subject, in the case of the April 30, 1996 balance sheet, to
normal year-end adjustments, which shall not be material in amount.
(n) Exercise of Stock Options. All of the outstanding stock options
set forth on Exhibit A shall have been exercised immediately prior to the
Merger.
7.2 Conditions to Obligations of the Company and the Sellers. The
obligation of the Company and the Sellers to consummate this Agreement and the
transactions contemplated hereby is subject to the fulfillment or waiver, prior
to or at the Closing, of the following conditions precedent:
(a) Representations; Warranties; Covenants. Each of the
representations and warranties of Buyer contained in Section 5 shall be true and
correct in all material respects as though made on and as of the Closing; Buyer
shall, on or before the Closing, have performed all of its obligations hereunder
which by the terms hereof are to be performed on or before the Closing; and
Buyer shall have delivered to the Company and the Sellers a certificate of the
President or any Vice President of Buyer dated on the Closing to such effect.
(b) No Litigation. No action, proceeding or litigation shall have
been commenced against the Buyer, the Company or any of the Sellers which
reasonably questions the validity of the transactions contemplated by this
Agreement or the right of the Buyer, the Company or the Sellers to enter into
this Agreement.
(c) Opinion of Counsel. On the Closing Date, the Company and the
Sellers shall have received from Goodwin, Procter & Hoar, LLP counsel for Buyer,
an opinion as of said date, in form attached hereto as Exhibit I.
(d) Minimum Stock Valuation. The average per share daily closing
price on the NASDAQ National Market System of the Common Stock of Buyer for the
period of five (5) business days ending two business days prior to the Closing
Date shall be equal to or greater than $16.67.
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SECTION 8. REGISTRATION RIGHTS.
8.1 Registration of Brooktrout Shares.
(a) Buyer shall prepare and file with the SEC as soon as
practicable a registration statement on the appropriate form (together with all
amendments and supplements to any such registration statement, including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such registration statement (the
"Registration Statement") under the 1933 Act, and the rules and regulations
promulgated thereunder, for the registration (the "Registration") of the
secondary offering of 50% of the Brooktrout Shares for the account of the
Sellers (to apportioned among the Sellers on a pro rata basis). Buyer shall use
its reasonable efforts to have the Registration declared effective by the SEC on
or before the earlier of (a) the day after unaudited financial statements
covering at least thirty (30) days of the combined operations of Buyer and the
Company following the Acquisition have been published by Buyer or (b) the
ninetieth (90th) day following the Closing Date. Buyer shall take such steps as
are required to register such Brooktrout Shares for sale on a delayed or
continuous basis under Rule 415 of the 1933 Act and to keep such Registration
Statement continuously effective for a period of twenty-four (24) months
following the Closing Date, or such shorter period that will terminate when all
of the Brooktrout Shares have been sold by the Sellers (the "Trading Period").
While such Registration Statement remains in effect, Buyer may at any time
deliver to Sellers written notice to the effect that sales may not be effected
under the Registration Statement for a period of time (the "Blackout Period")
because of the existence of material facts not disclosed in such Registration
Statement and in the then-current prospectus included therein; upon receipt of
any such notice, Sellers shall refrain from selling any Brooktrout Shares under
such Registration Statement until they have received notice from Buyer to the
effect that such sales may then be effected; provided, however, that the
Blackout Period shall not exceed, in aggregate, twenty (20) business days during
the first two months following the Closing Date. Buyer shall promptly update
such Registration Statement and the prospectus included therein in order to
permit the Brooktrout Shares to be sold, and the Trading Period shall
automatically be extended by a number of days equal to the number of days that
the Sellers were instructed to refrain from selling Brooktrout Shares pursuant
to the preceding sentence.
(b) Sellers shall cooperate with Buyer in connection with the
Registration and shall provide such information and execute such documents as
Buyer shall reasonably request in connection with the Registration.
(c) Buyer may in its sole discretion grant to any owner of
Brooktrout Shares registration rights of any kind or nature, provided that such
rights do not interfere with the rights of Sellers and the obligations of Buyer
under this Article 8.
8.2 Sale of Brooktrout Shares by Seller. If at any time any Seller
elects to sell all or any of his Brooktrout Shares, Seller shall conduct such
sales only through registered securities brokers ("Brokers").
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8.3 Registration Expenses. Buyer shall be responsible for and shall pay
all fees, costs and expenses incurred by it relating to the Registration,
including without limitation, all SEC and securities exchange, NASDAQ
registration and filing fees, and all fees and expenses of compliance by Buyer
with the federal securities laws or any applicable state blue sky laws, but not
including any fees and expenses of Sellers' counsel or otherwise incurred by
Sellers, and not including any fees or expenses paid to underwriters engaged by
any Seller.
8.4 Piggyback Registrations.
(a) Right to Piggyback. At any time prior to the date two years
after the Closing, whenever the Buyer proposes to register any of its Common
Stock or securities convertible into or exchangeable or exercisable for Common
Stock ("Equity Securities") under the 1933 Act (other than pursuant to a
registration primarily for sales of securities to employees of the Buyer) or
otherwise sell any of its Equity Securities under Rule 144A under the 1933 Act,
Regulation S or other similar provision and the registration form or type of
offering to be used may be used for the registration or offering of Brooktrout
Shares, Buyer will give prompt written notice to all Sellers of its intention to
effect such a registration or offering (a "Piggyback Registration") and will
include in such registration any of the Brooktrout Shares registered or eligible
for registration pursuant to Section 8.1(a) and with respect to which the Buyer
has received written requests for inclusion therein within fifteen (15) days
after the receipt of the Buyer's notice except as set forth in paragraphs (c)
and (d) below, which written request may specify all or part of a holder's
Brooktrout Shares.
(b) Piggyback Expenses. The types of expenses specified in Section
8.3 will be paid by Buyer in all Piggyback Registrations.
(c) Priority on Primary Registrations. If a Piggyback Registration
is an underwritten primary registration or offering on behalf of the Buyer, and
the managing underwriters advise Buyer in writing that in their opinion the
number of securities requested to be included in such registration or offering
exceeds the number which can be sold in such offering without adversely
affecting such underwriters' ability to effect an orderly distribution of such
securities, Buyer will include in such registration: first, the securities Buyer
proposes to sell, and second, all securities held by stockholders of Buyer which
Buyer has agreed to include therein (including the Brooktrout Shares requested
to be included in such registration or offering) pro rata among the holders of
such securities on the basis of the total number of shares of Common Stock (or
equivalents) held by such stockholders in each case.
(d) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration or offering on behalf of
holders of the Buyer's securities, and the managing underwriters advise Buyer in
writing that in their opinion the number of securities requested to be included
in such registration or offering exceeds the number which can be sold in such
offering without adversely affecting such underwriters' ability to effect an
orderly distribution of such securities, Buyer will include in such registration
or offering: first, the securities requested to be included therein by the
holders on whose behalf such
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registration or offering was initiated, and second, the Brooktrout Shares
requested to be included in such registration or offering and any other
securities requested to be included in such registration or offering by
stockholders of Buyer which Buyer has agreed to include therein, pro rata among
the holders of such securities on the basis of the number of shares of Common
Stock (or equivalents) represented by such holders. If any holder of Brooktrout
Shares who has requested inclusion in such registration or offering disapproves
of the terms of the underwriting, he or she may elect to withdraw therefrom by
written notice to Buyer, the underwriter and the holders of Brooktrout Shares
who initiated the offering.
(e) Buyer represents and warrants to Sellers that Exhibit C sets
forth the number of shares of Common Stock (or equivalents), excluding the
Brooktrout Shares, subject to piggyback registration rights that Buyer has
granted as of the Closing Date.
8.5 Indemnification. Incident to any registration statement referred to
in this Section 8 and subject to applicable law, Buyer will indemnify and hold
harmless each underwriter, each holder of Brooktrout Shares so registered, and
each person who controls any of them within the meaning of Section 15 of the
1933 Act or Section 20 of the Exchange Act of 1934 (the "Exchange Act") and the
rules and regulations promulgated thereunder, from and against any and all
losses, claims, damages, expenses and liabilities, joint or several (including
any investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the 1933 Act,
the Exchange Act or other federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based on (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement (including
any related preliminary or definitive prospectus, or any amendment or supplement
to such registration statement or prospectus), (ii) any omission or alleged
omission to state in such document a material fact required to be stated in it
or necessary to make the statements in it not misleading, or (iii) any violation
by Buyer of the 1933 Act, any state securities or "blue sky" laws or any rule or
regulation thereunder in connection with such registration, provided that Buyer
will not be liable to the extent that such loss, claim, damage, expense or
liability arises from and is based on an untrue statement or omission or alleged
untrue statement or omission made in reliance on and in conformity with
information furnished in writing to Buyer by such underwriter, holder or
controlling person expressly for use in such registration statement. With
respect to such untrue statement or omission or alleged untrue statement or
omission in the information furnished in writing to Buyer by such holder
expressly for use in such registration statement, such holder will indemnify and
hold harmless each underwriter, Buyer (including its directors, officers,
employees and agents), each other holder of Brooktrout Shares so registered, and
each person who controls any of them within the meaning of Section 15 of the
1933 Act or Section 20 of the Exchange Act, from and against any and all losses,
claims, damages, expenses and liabilities, joint or several, to which they, or
any of them, may become subject under the 1933 Act, the Exchange Act or other
federal or state statutory law or regulation, at common law or otherwise to the
same extent provided in the immediately preceding sentence in an amount not to
exceed the amount of proceeds received by
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such holder from the sale of Brooktrout Shares in such offering. Each party
entitled to indemnification under this Section 8.5 (the "Indemnified Party")
shall give notice to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party has actual knowledge
of any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom, provided that the Indemnified Party may participate in such
defense at such Indemnified Party's expense. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
with respect to such claim or litigation.
8.6 Additional Obligation of Holders of Registrable Securities. Buyer
shall have no obligation to register any Brooktrout Shares in an offering in
which Buyer is also registering securities for its own account unless the holder
of such Brooktrout Shares enters into an underwriting agreement in customary
form with the underwriter or underwriters selected for the offering by Buyer
(which shall not require the holder of Brooktrout Shares to indemnify the
underwriter with respect to misstatements or omissions in the registration
statement other than misstatements or omissions in written material supplied by
such holder expressly for inclusion in the registration statement) and, if
requested by the underwriter(s), an agreement appointing one or more (but not
more than three) persons approved by a majority in interest of the holders of
Brooktrout Shares whose shares are to be included in the registration statement,
to act as attorney-in-fact for such holder and as escrow agent for the
Brooktrout Shares to be included in the offering in customary form. In any
registered offering, each holder of Brooktrout Shares to be included in the
registration statement shall provide Buyer in a writing signed by such holder
such information about such holder as, in the opinion of securities counsel to
Buyer, shall be either necessary or appropriate to enable Buyer to comply with
the 1933 Act and applicable state securities laws. Such information shall be
provided to Buyer within a reasonable time after written request is made by
Buyer and shall be supplied by such holder whether or not any Brooktrout Shares
of such holder are to be included in the registration.
8.7 Additional Obligations of the Buyer. With respect to any
registration hereunder, the Buyer shall:
(a) Prepare and file with the SEC a registration statement with
respect to such securities and use reasonable efforts to cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby, including without limitation the extension of such period
of distribution by a period of days equal to the period during which any
suspension of trading is in effect;
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as
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may be necessary to comply with the provisions of the 1933 Act with respect to
the disposition of all securities covered by such registration statement;
(c) Furnish to the Sellers such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Brooktrout Shares owned by them;
(d) Use reasonable efforts to qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably appropriate for the distribution of the
securities covered by the registration statement;
(e) use reasonable efforts to notify NASDAQ of the issuance of the
Brooktrout Shares covered by such registration statement; and
(f) notify each seller of Brooktrout Shares and each underwriter
under such registration statement as promptly as possible, at any time when a
prospectus relating thereto is required to be delivered under the 1933 Act, of
the happening of any event of which the Buyer has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing.
8.8 Reports Under the Securities Exchange Act of 1934. With a view to
making available to the Sellers the benefits of Rule 144 promulgated under the
1933 Act and any other rule or regulation of the SEC that may at any time permit
a Seller to sell securities of the Buyer to the public without registration, the
Buyer agrees to use its reasonable efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other
documents required of the Buyer under the 1933 Act and the Exchange Act; and
(c) furnish to any Seller forthwith upon request a written
statement by the Buyer that it has complied with the reporting requirements of
Rule 144 and of the 1933 Act and the Exchange Act, a copy of the most recent
annual or quarterly report of the Buyer, and such other reports and documents so
filed by the Buyer as may be reasonably requested in availing any Seller of any
rule or regulation of the SEC permitting the selling of any securities of the
Buyer held by it without registration.
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SECTION 9. TERMINATION OF AGREEMENT; ABANDONMENT OF MERGER; RIGHTS TO PROCEED OR
DEFER CLOSING.
9.1 Termination. At any time prior to the Closing, this Agreement may
be terminated, and the Merger thus abandoned, as follows:
(i) by mutual written consent of all of the parties to this
Agreement;
(ii) by Buyer, pursuant to written notice by Buyer to the
Company and the Sellers, if any of the conditions set forth in Section
7.1 of this Agreement have not been satisfied at or prior to the
Closing, or if it has become reasonably and objectively certain that
any of such conditions, other than a condition within the control of
the Company or any Seller, will not be satisfied at or prior to the
Closing, such written notice to set forth such conditions which have
not been or will not be so satisfied;
(iii) by the Company and the Sellers, pursuant to written
notice by the Company and the Sellers to Buyer, if any of the
conditions set forth in Section 7.2 of this Agreement have not been
satisfied at or prior to the Closing, or if it has become reasonably
and objectively certain that any of such conditions, other than a
condition within the control of Buyer, will not be satisfied at or
prior to the Closing, such written notice to set forth such conditions
which have not been or will not be so satisfied; and
(iv) by the Sellers if for any reason the Closing has not
occurred on or prior to June 15, 1996.
9.2 Effect of Termination. All obligations of the parties hereunder
shall cease, and the Merger shall be abandoned, upon any termination pursuant to
Section 9.1, provided, however, that (i) the provisions of this Section 9,
Section 4.9, Section 6.2, Section 12.1 and Section 12.9 hereof shall survive any
termination of this Agreement; (ii) nothing herein shall relieve any party from
any liability for a material error or omission in any of its representations or
warranties contained herein or a material failure to comply with any of its
covenants, conditions or agreements contained herein, if such error, omission or
failure was deliberate or willful (a "Deliberate Breach"); but in the absence of
a Deliberate Breach, the liability of the responsible party to the other party
shall be limited to out-of-pocket expenses incurred by the other party in
connection with negotiating, preparing and entering into this Agreement and
carrying out the transactions contemplated hereby (and in no event shall the
Company or the Sellers be liable for in excess of $300,000 in the aggregate) and
(iii) any party may proceed as further set forth in Section 9.3 below.
9.3 Right to Proceed or Defer Closing. Anything in this Agreement to
the contrary notwithstanding, (a) if any of the conditions specified in Section
7.1 or Section 7.2(c) hereof have not been satisfied on or before the scheduled
date of Closing, Buyer shall have the right to proceed with the transactions
contemplated hereby without waiving any of its rights
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hereunder or, at Buyer's option, defer the date of Closing from time to time to
a date selected by Buyer which shall be within a reasonable time following the
satisfaction of all such conditions that are not waived by Buyer and in any
event not later than June 15, 1996, and (b) if any of the conditions specified
in Section 7.2 or Section 7.1(f) hereof have not been satisfied, the Sellers
shall have the right to proceed with the transactions contemplated hereby
without waiving any of their rights hereunder or, at the option of the Sellers,
defer the date of Closing from time to time to a date selected by the Sellers
which shall be within a reasonable time following the satisfaction of all such
conditions that are not waived by the Sellers, and in any event not later than
June 15, 1996.
SECTION 10. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
10.1 Survival of Warranties. Each of the representations, warranties,
agreements, covenants and obligations herein or in any schedule, exhibit,
certificate or financial statement delivered by any party to the other party
incident to the transactions contemplated hereby are material, shall be deemed
to have been relied upon by the other party and shall survive the Closing
regardless of any investigation and shall not merge in the performance of any
obligation by either party hereto; provided, however, that such representations
and warranties shall expire on the same dates as and to the extent that the
rights to indemnification with respect thereto under Section 11 shall expire.
SECTION 11. INDEMNIFICATION.
11.1 Indemnification by the Sellers. Subject to Section 8.5 hereof
(which shall constitute the exclusive indemnification for liability relating to
registration of securities pursuant to Section 8), Sellers jointly and severally
agree subsequent to the Closing to indemnify and hold the Company and Buyer
(individually a "Buyer Indemnified Party" and collectively the "Buyer
Indemnified Parties") harmless from and against any damages, liabilities,
losses, taxes, fines, penalties, costs, and expenses (including, without
limitation, reasonable fees of counsel) of any kind or nature whatsoever
(whether or not arising out of third-party claims and including all amounts paid
in investigation, defense or settlement of the foregoing) which may be sustained
or suffered by any of them arising out of or based upon any of the following
matters:
(a) fraud or a deliberate or wilful breach by the Company or any
Seller of any of their representations, warranties or covenants under this
Agreement or in any certificate, schedule or exhibit delivered pursuant hereto;
(b) any other breach of any representation, warranty or covenant
of the Company or any Seller under this Agreement or in any certificate,
schedule or exhibit delivered pursuant hereto, or by reason of any claim, action
or proceeding asserted or
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<PAGE> 47
instituted growing out of any matter or thing constituting a breach of such
representations, warranties or covenants; and
(c) any liability of the Company for Taxes arising from an event
or transaction prior to the Closing or as a result of the Closing which have not
been paid or provided for or reserved against by the Company, including without
limitation, any increase in Taxes due to the unavailability of any loss or
deduction claimed by the Company.
Sellers' obligation to indemnify Buyer under Sections 11.1(b) and 11.1(c) shall
expire on the earlier of (i) the first anniversary of the Closing Date or (ii)
the date of issuance of the first independent audit report on the financial
statements of the Buyer and the Company following the Closing Date.
11.2 Indemnification by Buyer. Subject to Section 8.5 hereof (which
shall constitute the exclusive remedy for liability relating to registration of
securities pursuant to Section 8), Buyer agrees, subsequent to the Closing and
for a period expiring on the first anniversary of the Closing, to indemnify and
hold the Sellers (individually a "Seller Indemnified Party" and collectively the
"Seller Indemnified Parties") harmless from and against any damages,
liabilities, losses and expenses (including, without limitation, reasonable fees
of counsel) of any kind or nature whatsoever (whether or not arising out of
third-party claims and including all amounts paid in investigation, defense or
settlement of the foregoing) which may be sustained or suffered by any of them
arising out of or based upon any breach of any representation, warranty or
covenant made by Buyer in this Agreement or in any certificate delivered by
Buyer hereunder, or by reason of any third-party claim, action or proceeding
asserted or instituted growing out of any matter or thing constituting such a
breach.
11.3 Notice; Defense of Claims. An indemnified party may make claims
for indemnification hereunder by giving written notice thereof to the
indemnifying party within the period in which indemnification claims can be made
hereunder. If indemnification is sought for a claim or liability asserted by a
third party, the indemnified party shall also give written notice thereof to the
indemnifying party promptly after it receives notice of the claim or liability
being asserted, but the failure to do so shall not relieve the indemnifying
party from any liability except to the extent that it is prejudiced by the
failure or delay in giving such notice. Such notice shall summarize the bases
for the claim for indemnification and any claim or liability being asserted by a
third party. Within 20 days after receiving such notice the indemnifying party
shall give written notice to the indemnified party stating whether it disputes
the claim for indemnification and whether it will defend against any third party
claim or liability at its own cost and expense. If the indemnifying party fails
to give notice that it disputes an indemnification claim within 20 days after
receipt of notice thereof, it shall be deemed to have accepted and agreed to the
claim, which shall become immediately due and payable. The indemnifying party
shall be entitled to direct the defense against a third party claim or liability
with counsel selected by it (subject to the consent of the indemnified party,
which consent shall not be unreasonably withheld) as long as the indemnifying
party is conducting a good faith and diligent defense. The indemnified party
shall at all times have the
43
<PAGE> 48
right to fully participate in the defense of a third party claim or liability at
its own expense directly or through counsel; provided, however, that if the
named parties to the action or proceeding include both the indemnifying party
and the indemnified party and the indemnified party is advised that
representation of both parties by the same counsel would be inappropriate under
applicable standards of professional conduct, the indemnified party may engage
separate counsel at the expense of the indemnifying party. The indemnified party
shall not settle or compromise any claim by a third party for which it is
entitled to indemnification hereunder without the prior written consent of the
indemnifying party, which shall not be unreasonably withheld, unless suit shall
have been instituted against it and the indemnifying party shall not have taken
control of such suit after notification thereof as provided above. If no such
notice of intent to dispute and defend a third party claim or liability is given
by the indemnifying party, or if such good faith and diligent defense is not
being or ceases to be conducted by the indemnifying party, the indemnified party
shall have the right, at the expense of the indemnifying party, to undertake the
defense of such claim or liability (with counsel selected by the indemnified
party), and to compromise or settle it, exercising reasonable business judgment.
The indemnified party shall make available such information and assistance as
the indemnifying party may reasonably request and shall cooperate with the
indemnifying party in such defense, at the expense of the indemnifying party.
11.4 Limitations of Liability; Payment. None of the Sellers shall be
required to indemnify Buyer for any claims or liabilities hereunder if the
aggregate of such claims does not exceed $75,000 (the "Deductible Amount"),
whereupon Sellers shall be required to indemnify the indemnified party with
respect to the excess, if any, of the full amount of all such claims over the
Deductible Amount (the "Indemnification Amount"). Each of Sellers and Buyer
hereby agree that Buyer shall be reimbursed as follows:
(a) first, the Indemnification Amount shall be paid out of the
Escrowed Purchase Price pursuant to the Escrow Agreement;
(b) second, if the Indemnification Amount exceeds the Escrowed
Purchase Price, such excess shall be paid by Sellers to the Buyer in
cash, or, in lieu of cash, at Sellers' option, by tender to the Buyer
of an appropriate number of Brooktrout Shares, at the fair market value
thereof, determined in the same manner as set forth in the Escrow
Agreement (whether or not the Escrow Agreement is in force at such
time), until the Indemnification Amount exceeds $6 million; and
(c) finally, to the extent that the Indemnification Amount
otherwise exceeds $6 million, such excess shall be payable as follows
and shall be payable only after the second anniversary of the Closing
Date: at Sellers' option (i) by payment of such excess in cash or (ii)
by the tender to the Buyer of an appropriate number of Brooktrout
Shares, which shall be valued at the average per share daily closing
price on the NASDAQ National Market System for the period five (5)
business days ending two business days prior to the second anniversary
of the Closing Date (the "Second Anniversary Closing Price");
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<PAGE> 49
provided that the liability of Sellers to Buyer under this Agreement shall in no
event exceed $12,000,000 in the aggregate or, in the event that the Sellers have
elected to tender Brooktrout Shares pursuant to Subsection 11.4(c), the
liability of Sellers to Buyer under this Agreement shall in no event exceed $6
million plus the product of the Second Anniversary Closing Price multiplied by
237,664 (which shall in no event exceed $12 million).
11.5 Exclusive Remedy. The Buyer, the Company and the Sellers
acknowledge and agree that the provisions of this Article 11 shall be their
exclusive remedy for any damages arising out of or related to this Agreement.
Except as provided in this Article 11, no party shall have any right to money
damages for any breach of this Agreement or in contract, tort or otherwise
arising out of or related to this Agreement.
SECTION 12. MISCELLANEOUS.
12.1 Fees and Expenses.
(a) Except as set forth in Section 9.2, each of the parties will
bear its own expenses in connection with the negotiation and the consummation of
the transactions contemplated by this Agreement, and no expenses of the Company
or the Sellers relating in any way to the Acquisition hereunder and the
transactions contemplated hereby, including without limitation legal, accounting
or other professional expenses of the Company or Seller, shall be charged to or
paid by the Company or Buyer.
(b) The Sellers will pay all costs incurred, whether at or
subsequent to the Closing, in connection with the Acquisition as contemplated by
this Agreement, including without limitation, all transfer taxes and charges
applicable to such transfer, and all costs of obtaining permits, waivers,
registrations or consents with respect to any assets, rights or contracts of the
Company.
12.2 Governing Law. This Agreement shall be construed under and
governed by the internal laws of the Commonwealth of Massachusetts without
regard to its conflict of laws provisions.
12.3 Notices. Any notice, request, demand or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been given if delivered or sent by facsimile transmission, upon receipt, or if
sent by registered or certified mail, upon the sooner of the date on which
receipt is acknowledged or the expiration of five (5) days after deposit in
United States post office facilities properly addressed with postage prepaid.
All notices to a party will be sent to the addresses set forth below or to such
other address or person as such party may designate by notice to each other
party hereunder:
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<PAGE> 50
TO BUYER: Robert C. Leahy
Brooktrout Technology, Inc.
410 First Avenue
Needham, MA 02194
With a copy to: Goodwin, Procter & Hoar, LLP
Exchange Place
Boston, MA 02109
Attn: Thomas P. Storer, P.C.
TO COMPANY: Andrew Fox
Technically Speaking, Inc.
333 Turnpike Road
Southborough, MA 01772
With a copy to: Lucash, Gesmer & Updegrove
40 Broad Street
Boston, MA 02109
Attention: William Contente, Esq.
TO ANY SELLER: [Seller's Name]
Technically Speaking, Inc.
333 Turnpike Road
Southborough, MA 01772
With a copy to: Lucash, Gesmer & Updegrove
40 Broad Street
Boston, MA 02109
Attention: William Contente, Esq.
Any notice given hereunder may be given on behalf of any party by his counsel or
other authorized representatives.
12.4 Entire Agreement. This Agreement, including the Schedules and
Exhibits referred to herein and the other writings specifically identified
herein or contemplated hereby, is complete, reflects the entire agreement of the
parties with respect to its subject matter, and supersedes all previous written
or oral negotiations, commitments and writings. No promises, representations,
understandings, warranties and agreements have been made by any of the parties
hereto except as referred to herein or in such Schedules and Exhibits or in such
other
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<PAGE> 51
writings; and all inducements to the making of this Agreement relied upon by
either party hereto have been expressed herein or in such Schedules or Exhibits
or in such other writings.
12.5 Assignability; Binding Effect. This Agreement may not be assigned
by Buyer without the written consent of the Sellers' Representative. This
Agreement may not be assigned by the Sellers or the Company without the prior
written consent of Buyer. This Agreement shall be binding upon and enforceable
by, and shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns.
12.6 Captions and Gender. The captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine pronoun in
reference to a party hereto shall be deemed to include the feminine or neuter,
as the context may require.
12.7 Execution in Counterparts. For the convenience of the parties and
to facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
12.8 Amendments. This Agreement may not be amended or modified, nor
may compliance with any condition or covenant set forth herein be waived, except
by a writing duly and validly executed by each party hereto, or in the case of a
waiver, the party waiving compliance.
12.9 Publicity and Disclosures. No press releases or public
disclosure, either written or oral, of the transactions contemplated by this
Agreement, shall be made by a party to this Agreement without the prior
knowledge and written consent of Buyer and the Company.
12.10 Consent to Jurisdiction. Each of the parties hereby consents to
personal jurisdiction, service of process and venue in the federal or state
courts of Massachusetts for any claim, suit or proceeding arising under this
Agreement, or in the case of a third party claim subject to indemnification
hereunder, in the court where such claim is brought.
12.11 Specific Performance. The parties agree that it would be
difficult to measure damages which might result from a breach of this Agreement
by the Buyer, the Company or the Sellers and that money damages would be an
inadequate remedy for such a breach. Accordingly, if there is a breach or
proposed breach of any provision of this Agreement by the Buyer, the Company or
the Sellers, and the non-breaching party does not elect to terminate under
Section 9, the non-breaching party shall be entitled, in addition to any other
remedies which it may have, to an injunction or other appropriate equitable
relief to restrain such breach without having to show or prove actual damage to
the non-breaching party.
12.12 Waiver of Stockholder Agreement. The Sellers and the Company
hereby waive all compliance with the Stockholders Agreement by and among the
Sellers, the Company and Neil R. Schauer as Trustee, dated November 20, 1995.
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<PAGE> 52
12.13 Company's Tax Returns.
(a) The Company shall make reasonable efforts to cause to be
prepared and filed, on or before the Closing Date, the Company's federal and
state income tax returns for the tax year ended December 31, 1995, at the
Company's expense. In the event that any such return is not filed on or before
the Closing Date, the Company shall make timely application for an extension of
time to file such return, and shall cause such return to be prepared and filed
on or before the extended due date.
(b) In no event later than June 12, 1996, the Company shall cause
to be prepared, at the Buyer's expense, draft federal and state income tax
returns for the Company for its short tax year ended on the Closing Date. Such
returns shall be prepared by Deloitte & Touche, LLP, or another firm of
certified public accountants acceptable to the Sellers. Provided that the
Sellers have, as provided in Section 12.14(b) hereof, received the first
installment payment of the dividend described in Section 12.14(a), such returns
shall be prepared on the accrual method of accounting and shall be accompanied
by a completed Form 3115; unless the prior consent of each of the Sellers is
obtained, the preparation of such returns shall otherwise be consistent with the
manner in which the Company's returns for prior tax years have been prepared.
Promptly upon preparation of such draft returns, copies thereof, together with
copies of the Company's financial and other information used to prepare them,
shall be forwarded to each of the Sellers. Within fourteen (14) days of receipt
of such returns and such information, each Seller shall give written notice to
the Company of any errors or any inconsistencies with the manner in which the
Company's prior tax returns have been prepared, believed by the Seller to exist
in either of such returns. The Sellers and the Company shall promptly thereafter
attempt in good faith to resolve any disagreement regarding items or matters
which any Seller believes to be in error, but which the Company believes to be
correct. Any disagreement which cannot be so resolved by June 30, 1996, other
than a good-faith disagreement over how the federal or state tax laws ought to
be interpreted, shall be referred by either party to the American Arbitration
Association to be settled by arbitration in Boston, Massachusetts in accordance
with the commercial arbitration rules of said Association. Unless otherwise
directed by the arbitrator, the fees and expenses of the arbitrator shall be
borne 50% by the Sellers and 50% by the Company. Any disagreement over how the
federal or state tax laws ought to be interpreted which cannot be resolved by
July 15, 1996, shall be resolved in favor of the Company's good-faith
interpretation. However, nothing contained in this Agreement shall be construed
as an agreement with respect to the preparation or filing of any individual
income tax return of any of the Sellers, or as a limitation of any sort on the
ability of any Seller to prepare and file his or her individual income tax
returns as the Seller sees fit. Promptly after any disagreements have been
resolved as provided above, the Company shall cause the Company's federal and
state income tax returns for the short year ended on the Closing Date to be
prepared, and shall cause such returns to be timely filed (by the original or
extended due dates), such returns to be substantially identical to the
agreed-upon draft returns.
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<PAGE> 53
12.14 Payment of Tax Liabilities Dividends.
(a) Consistent with past dividend payment practices of the
Company, the Company shall declare a dividend to its shareholders of record as
of the day immediately preceding the Closing Date, for the purpose of
distributing an amount of cash to the Sellers approximately equal to the federal
and state tax liabilities of the Sellers resulting from the Company's operations
during the short tax year beginning January 1, 1996 and ending on the Closing
Date, calculated using the accrual method of accounting. Such dividend shall be
payable in cash in two installments on or after the Closing Date, as provided in
Paragraph (b) of this Section 12.14, and shall be in an aggregate amount to be
determined according to the following formula: forty-four percent (44%)
multiplied by the net pass-through income (as hereinafter defined) of the
Company for the period beginning January 1, 1996 and ending on the Closing Date.
For this purpose, "net pass-through income" shall mean the sum of (i) the
Company's nonseparately computed income as defined in Internal Revenue Code
Section 1366(a)(2), plus (ii) the Company's items of income described in
Internal Revenue Code Section 1366(a)(1) other than any tax-exempt income and
any net capital loss.
(b) The first installment of the dividend described in Paragraph
(a) of this Section 12.14 shall be paid not later than May 31, 1996. The amount
of such installment shall equal ninety percent (90%) of what the aggregate
amount of such dividend would be if it were determined, according to the formula
set forth in Paragraph (a), based on the Company's draft federal income tax
return required to be prepared under Section 12.13(b) hereinabove, including all
changes to such return that have been agreed to as of such date. The second
installment of such dividend shall be determined and paid promptly after any and
all disagreements regarding the preparation of the Company's federal income tax
return for the period ended on the Closing Date have been resolved as provided
in Section 12.13(b) and the Company's federal income tax return has been
prepared for filing as therein provided. The amount of such installment shall
equal the difference between (i) the aggregate amount of the dividend described
in Paragraph (a) of this Section 12.14, according to the formula therein set
forth and based on the Company's federal income tax return as so finally
prepared for filing, and (ii) the amount of the first installment payment as
hereinabove determined. Any payment required hereunder which is not paid by June
3, 1996, shall bear interest at the rate of ten percent (10%) per annum.
(c) Consistent with past dividend payment practices of the
Company, the Company has declared or shall declare a dividend to its
shareholders as described in Section 4.2(f) hereof. Any part of such dividend
which has not been paid prior to the Closing Date shall be paid on or promptly
after the Closing Date.
(d) The Buyer shall take all necessary actions to assure that the
Company has available funds with which to make each of the installment payments
provided for in Paragraphs (b) and (c) hereinabove.
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<PAGE> 54
12.15 Date of Agreement. Any reference to the "date of this Agreement"
or the "date of execution of this Agreement" contained herein shall be deemed to
refer to March 8, 1996.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 55
IN WITNESS WHEREOF the parties hereto have caused this Amended and
Restated Agreement to be executed under seal, as of the date set forth above by
their duly authorized representatives.
BROOKTROUT TECHNOLOGY, INC.
By /s/ Eric R. Giler
-----------------------
Eric R. Giler
President
BROOKTROUT ACQUISITION CORP. ATTEST:
By : /s/ Eric R Giler /s/ Robert C. Leahy
----------------------- -----------------------
Eric R. Giler Robert C. Leahy
President Treasurer
TECHNICALLY SPEAKING, INC. ATTEST:
By: /s/ Andrew Fox /s/ Beverly Fox
----------------------- -----------------------
Andrew Fox Beverly Fox
President Treasurer
SELLERS:
/s/ Andrew Fox
-----------------------
Andrew Fox
/s/ Beverly Fox
-----------------------
Beverly Fox
/s/ Robert Friedman
-----------------------
Robert Friedman
<PAGE> 56
List of Exhibits and Schedules
Exhibit A: List of Sellers, Stockholdings and Consideration to be Paid
B: Representations Regarding Pooling
C: Warrants and Options for Brooktrout Common Stock
D: Opinion of Counsel for the Company and the Sellers
E: Non-Competition Agreement
F: FIRPTA Representation
G: Releases
H: Escrow Agreement
I: Opinion of Counsel for Buyer
Schedule 2.3 Voting Agreements, etc.
2.6(a) Real Property
2.6(b) Personal Property
2.7 Financial Statements
2.8 Tax Disclosures
2.9 Affiliated Accounts Receivable
2.10 Inventories
2.11 Absence of Changes
2.13 Banking Arrangements
2.14 Intellectual Property
2.15 Contracts, etc.
2.16 Litigation
2.17 Compliance with Laws
2.18 Insurance
2.19 Warranty Claims
2.22 Permits, Burdensome Agreements
2.24 Transactions with Interested Persons
2.25 Employee Benefit Programs
2.26 Environmental Matters
2.27(a) Officers and Directors
2.27(b) Suppliers
2.30 Backlog
2.31 Labor Matters
2.32(a) Customers and Distributors
2.32(b) Suppliers
7.1 Consents To Be Obtained
<PAGE> 57
EXHIBIT A
List of Sellers, Stockholdings and Consideration to be Paid
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
OWNERSHIP
OF
NAME AND ADDRESS OF COMPANY BROOKTROUT SHARES TO BE
SELLER SHARES RECEIVED
- ---------------------------------------------------------------------
<S> <C> <C>
ANDREW FOX 35,000 163,039
699 GROVE STREET
FRAMINGHAM, MA 01710
- ---------------------------------------------------------------------
BEVERLY FOX 35,000 163,039
699 GROVE STREET
FRAMINGHAM, MA 01710
- ---------------------------------------------------------------------
ROBERT FRIEDMAN 30,000 139,747
6 SAMUEL HARRINGTON ROAD
WESTBORO, MA 01581
- ---------------------------------------------------------------------
</TABLE>
Outstanding Stock Options
<TABLE>
<CAPTION>
NAME OPTIONS HELD
- ---- ------------
<S> <C>
Raymond Phillips 765 shares, exercisable at $5.00 per share
Michael Tinglof 510 shares, exercisable at $5.00 per share
Joe Finegold 255 shares, exercisable at $5.00 per share
Diamentino Fidalgo 255 shares, exercisable at $5.00 per share
Michael Healy 255 shares, exercisable at $5.00 per share
</TABLE>
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-55708 on Form S-8, and in Registration Statement No. 33-55900 on Form S-8,
both of Brooktrout Technology, Inc., of our report dated March 8, 1996 (which
expresses an unqualified opinion and includes an explanatory paragraph relating
to the merger with Brooktrout Technology, Inc.) on the financial statements of
Technically Speaking, Inc. as of December 31, 1995 and for the year then ended,
appearing in the Current Report on Form 8-K of Brooktrout Technology, Inc.
filed on June 12, 1996.
Boston, Massachusetts
June 12, 1996
