<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): JUNE 30, 1997
BROOKTROUT TECHNOLOGY, INC.
(Exact name of Registrant as specified in charter)
<TABLE>
<CAPTION>
<S> <C> <C>
MASSACHUSETTS 33-51424 04-2814792
(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification no.)
</TABLE>
410 FIRST AVENUE, NEEDHAM, MA 02194
(Address of principal executive offices) (Zip Code)
(617) 449-4100
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 30, 1997, Brooktrout Technology, Inc. (the "Registrant")
entered into and closed a definitive agreement to acquire substantially all of
the assets and assume certain specified liabilities of Netaccess, Inc., a
Delaware corporation ("Netaccess"), for approximately $11 million in cash.
The terms of this transaction are described more fully in a press
release issued on June 30, 1997, a copy of which is included as an exhibit
hereto and incorporated herein by reference.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
The Financial Statements of Netaccess, Inc. required by this
Item will be filed by the Registrant by amendment of this Current Report on Form
8-K no later than September 15, 1997.
(b) Pro Forma Financial Information.
The Pro Forma Financial Information required by this Item will
be filed by the Registrant by amendment of this Current Report on Form 8-K no
later than September 15, 1997.
(c) Exhibits
2.1 Asset Purchase Agreement among the Registrant, BTINH
Operating Company, Inc., a Delaware corporation
("Buyer"), Netaccess, Inc., a Delaware corporation
("Seller"), and Xircom, Inc., a California
corporation and the sole stockholder of Seller (the
"Stockholder"), dated June 30, 1997.
99.1 Press release of the Registrant, dated June 30, 1997.
3
<PAGE> 4
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: July 14, 1997 By:/s/ Eric R. Giler
-----------------
Eric R. Giler
President
<PAGE> 1
ASSET PURCHASE AGREEMENT
by and among
BTINH OPERATING COMPANY, INC.
as Buyer
BROOKTROUT TECHNOLOGY, INC.
as Parent
NETACCESS, INC.
as Seller
and
XIRCOM, INC.
as Seller's Sole Stockholder
June 30, l997
<PAGE> 2
ASSET PURCHASE AGREEMENT
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. PURCHASE AND SALE OF ASSETS.................................................................1
1.1 Sale of Assets..............................................................................1
1.2 Assumption of Specified Liabilities, Assumed Contracts and
Warranty Liabilities........................................................................3
1.3 Purchase Price and Payment..................................................................5
1.4 Time and Place of Closing...................................................................7
1.5 Delivery of Agreement of Assumption of Assumed Liabilities..................................7
1.6 Transfer of Subject Assets..................................................................7
1.7 Delivery of Records and Contracts...........................................................7
1.8 Further Assurances..........................................................................8
1.9 Allocation of Purchase Price................................................................8
1.10 Sales and Transfer Taxes....................................................................8
1.11 Accounts Receivable.........................................................................8
1.12 Procedures for Assets not Transferable......................................................8
1.13 Employees, Wages and Benefits...............................................................9
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER AND
STOCKHOLDER................................................................................10
2.1 Making of Representations and Warranties...................................................10
2.2 Organization and Qualifications of Seller..................................................10
2.3 Subsidiaries...............................................................................11
2.4 Capital Stock of Seller; Beneficial Ownership..............................................11
2.5 Authority of Seller and the Stockholder....................................................11
2.6 Real and Personal Property.................................................................13
2.7 Financial Statements.......................................................................15
2.8 Taxes......................................................................................16
2.9 Collectibility of Accounts Receivable......................................................16
2.10 Inventories................................................................................16
2.11 Absence of Certain Changes.................................................................17
2.12 Ordinary Course............................................................................18
2.13 Banking Relations..........................................................................18
2.14 Intellectual Property......................................................................19
2.15 Contracts..................................................................................20
2.16 Litigation.................................................................................22
2.17 Compliance with Laws.......................................................................22
2.18 Insurance..................................................................................22
2.19 Warranty or Other Claims...................................................................22
2.20 Powers of Attorney.........................................................................23
2.21 Finder's Fee...............................................................................23
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C>
2.22 Permits; Burdensome Agreements.............................................................23
2.23 [INTENTIONALLY OMITTED]....................................................................23
2.24 Transactions with Interested Persons.......................................................23
2.25 Employee Benefit Programs..................................................................23
2.26 Environmental Matters......................................................................25
2.27 Directors and Officers.....................................................................26
2.28 Disclosure.................................................................................26
2.29 Backlog....................................................................................26
2.30 Employees; Labor Matters...................................................................27
2.31 Customers, Distributors and Suppliers......................................................27
2.32 Purchase Commitments.......................................................................28
2.33 Required Consents..........................................................................28
SECTION 3. COVENANTS OF SELLER AND THE STOCKHOLDER....................................................28
3.1 Making of Covenants and Agreements.........................................................28
3.2 Notice of Default..........................................................................28
3.3 Consummation of Agreement..................................................................28
3.4 Cooperation of Seller......................................................................28
3.5 Non-competition............................................................................29
3.6 No Solicitation of Employees...............................................................31
3.7 Confidentiality............................................................................31
3.8 Tax Returns................................................................................31
3.9 Bank Accounts..............................................................................31
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER....................................................32
4.1 Making of Representations and Warranties...................................................32
4.2 Organization of Buyer......................................................................32
4.3 Authority of Buyer.........................................................................32
4.4 Litigation.................................................................................33
4.5 Finder's Fee...............................................................................33
SECTION 5. CONDITIONS.................................................................................33
5.1 Conditions to the Obligations of Buyer.....................................................33
5.2 Conditions to Obligations of Seller........................................................35
SECTION 6. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING...............................................36
6.1 Survival of Warranties.....................................................................36
6.2 Collection of Assets.......................................................................36
6.3 Payment of Obligations.....................................................................36
SECTION 7. INDEMNIFICATION............................................................................37
7.1 Indemnification by Seller and Stockholder..................................................37
7.2 Limitations on Indemnification by Seller and Stockholder...................................38
7.3 Indemnification by Buyer and Parent........................................................38
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C> <C>
7.4 Limitation on Indemnification by Buyer and Parent..........................................39
7.5 Notice; Defense of Claims..................................................................39
SECTION 8. MISCELLANEOUS........................................................................................40
8.1 Bulk Sales Law.............................................................................40
8.2 Fees and Expenses..........................................................................40
8.3 Governing Law..............................................................................40
8.4 Notices....................................................................................40
8.5 Entire Agreement...........................................................................41
8.6 Assignability; Binding Effect..............................................................42
8.7 Captions and Gender........................................................................42
8.8 Execution in Counterparts..................................................................42
8.9 Amendments.................................................................................42
8.10 Publicity and Disclosures..................................................................42
8.11 Consent to Jurisdiction....................................................................42
</TABLE>
List of Exhibits and Schedules
<TABLE>
<CAPTION>
<S> <C>
Schedule 1.2(a) Specified Liabilities
Schedule 1.2(b) Assumed Contracts
Schedule 2.5(a) Defaults
Schedule 2.6(b) Leased Real Property
Schedule 2.6(c) Machinery, Equipment and Other Tangible Personal Property
Schedule 2.7 Financial Statements
Schedule 2.8 Income Tax Returns
Schedule 2.9 Accounts or Loans Receivable from Affiliated Persons
Schedule 2.10 Inventory
Schedule 2.11 Absence of Certain Changes
Schedule 2.13 Banking Relations
Schedule 2.14 Intellectual Property
Schedule 2.14(e) Confidentiality Agreements
Schedule 2.15 Contracts
Schedule 2.16 Litigation
Schedule 2.17 Compliance with Laws
Schedule 2.18 Insurance
Schedule 2.19 Warranty or Other Claims and Warranty Terms
Schedule 2.22 Permits; Burdensome Agreements
Schedule 2.24 Transactions with Interested Persons
Schedule 2.25 Employee Benefit Programs
Schedule 2.26 Environmental Matters
Schedule 2.27 Directors and Officers
Schedule 2.29 Backlog
Schedule 2.30 Labor Matters
Schedule 2.31(a) Customers and Distributors
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<CAPTION>
Page
<S> <C>
Schedule 2.31(b) Suppliers
Schedule 2.32 Purchase Commitments
Schedule 5.1(q) Licenses
Exhibit 1.3 Form of Closing Statement of Assets and Liabilities
Exhibit 1.5 Agreement of Assumption of Assumed Liabilities
Exhibit 1.6(a) Agreement of Transfer of Subject Assets
Exhibit 1.6(b) Agreement of Assignment and Assumption of Trademarks
Exhibit 1.9 Estimated Allocation of Purchase Price
Exhibit 5.1(f) Opinion of Counsel for Seller
Exhibit 5.1(j) Transition Services Agreement
Exhibit 5.1(k) FIRPTA Withholding Certificate
Exhibit 5.2(d) Opinion of Counsel for Buyer
</TABLE>
(iv)
<PAGE> 6
ASSET PURCHASE AGREEMENT
AGREEMENT entered into as of June 30, l997 by and among BTINH OPERATING
COMPANY, INC., a Delaware corporation ("Buyer"), BROOKTROUT TECHNOLOGY, INC., a
Massachusetts corporation ("Parent"), NETACCESS, INC., a Delaware corporation
("Seller"), and XIRCOM, INC., a California corporation and the sole stockholder
of Seller (the "Stockholder").
W I T N E S S E T H
WHEREAS, subject to the terms and conditions hereof, Seller desires to
sell substantially all of its assets; and
WHEREAS, subject to the terms and conditions hereof, Buyer desires to
purchase said assets of Seller for the consideration specified herein and the
assumption of certain trade liabilities as specified herein;
NOW, THEREFORE, in order to consummate said purchase and sale and in
consideration of the mutual agreements set forth herein, the parties hereto
agree as follows:
SECTION 1. PURCHASE AND SALE OF ASSETS.
1.1 Sale of Assets.
(a) Subject to the provisions of this Agreement, Seller agrees
to sell and Buyer agrees to purchase, at the Closing (as defined in Section 1.4
hereof), all of the properties, assets and business of Seller of every kind and
description, tangible and intangible, real, personal or mixed, and wherever
located, including, without limitation, the following:
(i) all inventory, work-in-progress, finished goods
and raw materials (collectively, the "Inventory");
(ii) all machinery, equipment and leasehold and
personal property;
(iii) all goodwill and intellectual property rights,
including trade secrets, proprietary information, designs, styles,
technologies, inventions, know-how, formulae, processes, procedures,
research records, test information, software and software
documentation, market surveys, marketing know-how and manufacturing,
research and technical information, trade names, copyrights and
copyright registrations, service marks and trademarks (including
applications and registrations therefor) specifically listed on
Schedule 2.14 attached hereto, which such trademarks are all the
trademarks needed in connection with Seller's business, patents and
patent applications
<PAGE> 7
(including, without limitation, the trade names, copyrights and
copyright registrations, and patents and patent applications described
in Schedule 2.14 attached hereto), and all licenses to or from third
parties with respect to the foregoing or rights related thereto, in
each case which is used or held for use in the Seller's business;
(iv) all accounts receivable of the Seller's business
(the "Receivables");
(v) all of Seller's rights and interests in and to
all orders, commitments, contracts and agreements it has received or is
a party to including, without limitation, the backlog of orders for the
sale or lease of products or services for which no revenues have been
recognized by Seller and any and all rights under any proprietary
rights agreements and non-disclosure agreements;
(vi) all of Seller's right, title and interest in and
to all franchises, licenses, permits, certifications, approvals and
authorizations relating to the business of the Seller;
(vii) all cash, cash equivalents, investments and
prepaid expenses; and
(viii) all other assets and properties of every
nature whatsoever tangible and intangible, and wherever located, used
or held for use in connection with the Seller's business, including,
without limitation, all assets shown or reflected in the Base Balance
Sheet (as defined in Section 2.7 hereof) of Seller, and all of Seller's
goodwill and the exclusive right to use the name of Seller as all or
part of a trade or corporate name.
(b) Notwithstanding the foregoing, there shall be excluded
from such purchase and sale the following property and assets:
(i) Assets and property disposed of since the date of
the Base Balance Sheet in the ordinary course of business and such
other assets as have been or are disposed of as expressly permitted by
the terms of this Agreement; and
(ii) Seller's corporate franchise, stock record
books, corporate record books containing minutes of meetings of
directors and stockholders and such other records as have to do
exclusively with Seller's organization or stock capitalization
(collectively, the "Corporate Records"); provided, however, that Seller
shall provide Buyer prior to the Closing with copies of each of the
foregoing, certified by Seller to be true, correct and complete copies.
The assets, property and business of Seller to be sold to and purchased
by Buyer under this Agreement are hereinafter sometimes referred to as the
"Subject Assets," and the assets,
2
<PAGE> 8
property and business of the Seller which are excluded from the Subject Assets
under this Section 1.1(b) are hereinafter sometimes referred to as the "Excluded
Assets."
1.2 Assumption of Specified Liabilities, Assumed Contracts and Warranty
Liabilities. Upon the sale and purchase of the Subject Assets, Buyer shall
assume and agree to pay or discharge when due in accordance with their
respective terms only those trade liabilities of Seller incurred in the ordinary
course of business as described on Schedule 1.2(a) which are outstanding at the
time of the Closing and all trade liabilities of the type set forth on Schedule
1.2(a) incurred by Seller since the date of the Base Balance Sheet in the
ordinary course of business and consistent with the terms of this Agreement
which are outstanding at the time of the Closing (the "Specified Liabilities").
Buyer shall also assume in accordance with their terms (a) all performance
obligations arising from and after the Closing Date under those leases and other
contracts set forth on Schedule 1.2(b) (the "Assumed Contracts") and (b) product
warranty liabilities other than any warranty liabilities arising in connection
with Shiva Corporation or any of its affiliates, whether related to the
agreement between Shiva Corporation and Seller, dated September 1, 1995 or
otherwise with respect to sales of products on or prior to the Closing Date (the
"Shiva Warranty Liability") arising from Seller's sales of products in the
ordinary course of business (the "Warranty Liabilities"). Except for the
Specified Liabilities, the Assumed Contracts and the Warranty Liabilities, Buyer
shall not assume or be bound by any obligations or liabilities of Seller or any
affiliate of Seller of any kind or nature, known, unknown, accrued, absolute,
contingent or otherwise, whether now existing or hereafter arising whatsoever.
In connection therewith and notwithstanding the foregoing, it is specifically
agreed that Buyer shall not assume and shall not pay any other liabilities of
the Seller, including, without limitation, the following:
(i) Liabilities incurred by Seller in connection with
or relating to this Agreement and the transactions provided for herein,
including, without limitation, counsel and accountant's fees (except
that Buyer agrees to pay one-half (1/2) of the audit fees reasonably
incurred in connection with Seller's obligation to provide the audited
financial statements pursuant to Section 2.7(a)(i), which such one-half
of audit fees is estimated to be not in excess of $25,000), any
broker's commissions or finder's fees and expenses pertaining to the
performance by Seller and its affiliates of its or their obligations
hereunder;
(ii) Taxes (as defined in Section 2.8 hereof) of
Seller (whether relating to periods before or after the transactions
contemplated in this Agreement or incurred by Seller in connection with
this Agreement, including any increase in taxes as a result of the
applicability of Section 280G of the Code, and the transactions
provided for herein), including any liability for Taxes arising out of
the inclusion of Seller in any group filing consolidated, combined or
unitary tax returns or arising out of any transferee liability;
(iii) Liabilities relating to all debt and other
amounts owed to related parties or affiliates of the Seller;
3
<PAGE> 9
(iv) Liabilities related to any accrued bonuses or
compensation due to Seller's employees or other amounts due to Seller's
employees whether as a consequence of the transaction contemplated
hereby or by virtue of any agreements between Seller or Stockholder and
one or more of Seller's employees relating to a change in control of
Seller or Stockholder, including, without limitation, those Change in
Control Agreements between Stockholder and each of William Rosenberger,
Eric Mikisch, Michael Shaeffer, Charlie Snell, and Richard Sterry;
(v) Liabilities of Seller with respect to any
options, warrants, agreements or convertible or other rights to acquire
any shares of its capital stock of any class; and
(vi) Liabilities in connection with or relating to
all actions, suits, claims, proceedings, demands, assessments and
judgments, costs, losses, liabilities, damages, deficiencies and
expenses (whether or not arising out of third-party claims), including,
without limitation, interest, penalties, reasonable attorneys' and
accountants' fees and all amounts paid in investigation, defense or
settlement of any of the foregoing.
In furtherance of the foregoing, Seller shall be responsible for and
pay any and all losses, damages, obligations, liens, assessments, judgments,
fines, disposal and other costs and expenses, liabilities and claims, including,
without limitation, interest, penalties and reasonable fees of counsel,
engineers and experts, as the same are incurred, of every kind or nature
whatsoever (all the foregoing being a "Claim" or the "Claims"), made by or owed
to any person, other than Parent or Buyer, if any, to the extent any of the
foregoing relates to the operations and assets of the Seller's business and
arises in connection with or on the basis of events, acts, omissions, conditions
or any other state of facts occurring or existing prior to or on the Closing
(including, in each case, without limitation, any Claim relating to or
associated with product liability matters, tax matters, pension and benefits
matters, any failure to comply with applicable laws and/or permitting or
licensing requirements, personal injury and property damage matters and
environmental and worker health and safety matters). Buyer shall be responsible
for and pay any and all Claims to the extent they relate to (x) the Assumed
Liabilities or (y) the operation by Buyer of the Subject Assets after the
Closing and arise in connection with or on the basis of events, acts, omissions,
conditions or any other state of facts occurring or existing after the Closing
(including, in each case, without limitation, any Claim relating to or
associated with product liability matters, warranty claims, tax matters, pension
and benefit matters, any failure to comply with applicable laws and/or
permitting or licensing requirements, personal injury and property damage
matters and environmental and worker health and safety matters). Any Claim,
other than for the payment of the Assumed Liabilities, relating to operations
and assets of the Seller's business and arising in connection with or on the
basis of events, acts, omissions, conditions or any other state of facts
(collectively, "Facts") occurring or existing both before and after the Closing
will be apportioned between Seller and Buyer according to their relative degrees
of causation. Pursuant to the foregoing, Seller agrees with Buyer that Seller
shall be solely responsible for any and all claims for injury
4
<PAGE> 10
(including death) or claims for damage, direct or consequential, resulting from
or connected with products shipped or sold by Seller or services of the Seller's
business provided on or prior to the Closing, and Buyer shall have no liability
for such claims. Buyer agrees with Seller that Buyer shall be solely responsible
for any and all warranty claims or claims for injury (including death) or claims
for damage, direct or consequential, resulting from or connected with products
shipped or sold or services provided by Buyer after the Closing.
The liabilities which are not assumed by Buyer under this Agreement are
hereinafter sometimes referred to as the "Excluded Liabilities." The Specified
Liabilities, Assumed Contracts and Warranty Liabilities are collectively
sometimes referred to as the "Assumed Liabilities." The assumption of said
liabilities by any party hereunder shall not enlarge any rights of third parties
under contracts or arrangements with Buyer or Seller and nothing herein shall
prevent any party from contesting in good faith with any third party any of said
liabilities.
1.3 Purchase Price and Payment. In consideration of the sale by Seller
to Buyer of the Subject Assets, subject to the assumption by Buyer of the
Liabilities and the satisfaction of all of the conditions contained herein,
Buyer agrees that at the Closing it will (a) deliver to Seller Ten Million Eight
Hundred Seventy-One Thousand Dollars ($10,871,000) (the "Estimated Purchase
Price") by bank cashiers check in Boston Clearing House funds or by wire
transfer of immediately available funds.
The Estimated Purchase Price shall be subject to adjustment as provided
below. The Estimated Purchase Price as so adjusted is herein referred to as the
"Purchase Price".
(a) Purchase Price Adjustment.
(i) Within sixty (60) days of the Closing and
determined as of the Closing, Seller shall at its expense cause an
audit for the purpose of preparing a statement of Subject Assets
acquired and Assumed Liabilities (the "Closing Statement of Assets and
Liabilities") in the form attached hereto as Exhibit 1.3. Within five
(5) days following completion of such audit, Seller shall prepare and
deliver the Closing Statement of Assets and Liabilities to Buyer. The
Closing Statement of Assets and Liabilities shall be accompanied by a
check or wire transfer of an amount equal to the "Net Worth Difference"
(as defined below), if any, together with interest as described in
Section 1.3(a)(iv). It is understood by the parties hereto that any
such payment may not represent payment in full of the final Purchase
Price, which such final Purchase Price shall be determined as provided
in this Section 1.3. Said Statement shall (x) be complete and correct
in all material respects, (y) represent a fair statement of the Subject
Assets and Assumed Liabilities in all material respects and (z) be
prepared on the same basis, and in accordance with generally accepted
accounting principles using the same methods and procedures applied on
a basis consistent with the methods and procedures used to prepare the
Base Balance Sheet. In addition, in preparing the Closing Statement of
Assets and Liabilities, reserve levels, including reserves and
allowances for accounts receivables, inventories, warranty claims, and
other items,
5
<PAGE> 11
shall be determined on a basis consistent with that used to determine
such reserves in the Base Balance Sheet, adjusted only for changes in
circumstances, such as known bad debts, increases in dollar amount or
quantities, or identified potential liabilities. Notwithstanding the
foregoing, the parties hereto agree as follows: (i) the "Accrued
warranty reserve" on the Closing Statement of Assets and Liabilities
shall remain at $219,630 and not be reduced; (ii) the "Obsolescense
reserve" on the Closing Statement of Assets and Liabilities shall be
the sum of $591,992 from the Base Balance Sheet plus $439,000 that was
recorded during the quarter ended June 30, 1997; (iii) the inventory
accounts on the Closing Statement of Assets and Liabilities shall not
be adjusted upward by $165,000 which Seller and Stockholder have
indicated they believe is an amount by which such accounts in the
aggregate were understated on the Base Balance Sheet on account of
overhead; and (iv) the fixed asset depreciation accounts on the Closing
Statement of Assets and Liabilities shall not be adjusted downward by
$35,000 which amount Seller and Stockholder have indicated they believe
is an amount by which such accounts in the aggregate were overstated on
the Base Balance Sheet. Buyer's accountants will be provided reasonable
and timely access to the audit working papers of Seller's accountants
documenting the procedures they performed in forming their opinion on
the Closing Statement of Assets and Liabilities.
(ii) If the amount of total Subject Assets less
Assumed Liabilities ("Net Worth") as shown on the Closing Statement of
Assets and Liabilities is less than $8,110,000 (such difference, the
"Net Worth Difference") then the Purchase Price shall be equal to the
Estimated Purchase Price decreased by the Net Worth Difference.
(iii) If Buyer disagrees with the Closing Statement
of Assets and Liabilities, Buyer shall, within forty-five (45) days
after receipt thereof, furnish to Seller a written statement of such
disagreement, together with an explanation of the reasons therefor. The
parties hereto shall first use commercially reasonable efforts to
resolve such disagreement among themselves. If the parties are unable
to resolve the dispute within ten (10) business days after delivery of
such notification, the dispute shall be submitted to accountants other
than Ernst & Young LLP or Deloitte & Touche LLP jointly selected by
Buyer and Seller (the "Accountants"). The Accountants shall be
instructed to apply the same methods, policies and procedures as were
applied in preparing the Base Balance Sheet. The determination of the
Accountants as to the resolution of any dispute shall be binding and
conclusive upon all parties hereto. All determinations pursuant to this
Section 1.3(b)(iii) shall be in writing and shall be delivered to Buyer
and Seller. Any adjustment to the Estimated Purchase Price made
pursuant to this Section 1.3(b) may be entered in and enforced by any
court having jurisdiction thereover. The fees and expenses of the
Accountants in connection with the resolution of disputes pursuant to
this Section 1.3(b)(iii) shall be borne equally by the Buyer and
Seller.
(iv) If, pursuant to Section 1.3(b)(ii), the Purchase
Price is less than the Estimated Purchase Price, the difference (less
any adjustment amount previously
6
<PAGE> 12
paid pursuant to Section 1.3(a)(i)), together with interest thereon at
the base lending rate as announced by BankBoston at its headquarters
and in effect from time to time plus one percent (1%), calculated
daily, from the Closing to the payment of such difference, shall be
paid by Seller to Buyer. Any cash amount due to Buyer shall be paid or
delivered within five (5) business days after the later of (i) delivery
of the Closing Statement of Assets and Liabilities and (ii) the earlier
of (A) the resolution of any dispute by Buyer and Seller following
notification of their disagreement or (B) a determination by the
Accountants pursuant to Section 1.3(b)(iii) above. Any such cash amount
shall be paid by wire transfer of immediately available funds to an
account designated by Buyer.
(c) Notwithstanding anything contained herein to the contrary,
in no event shall the Purchase Price be increased above the Estimated Purchase
Price.
(d) The parties hereto acknowledge and agree that the
adjustment to the Estimated Purchase Price provided for in this Section 1.3
shall not be limited in any way by the limitations on indemnification in Section
7; provided that no claim for indemnification shall result in a duplication of
any adjustment under this Section 1.3.
1.4 Time and Place of Closing. The closing of the purchase and sale
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, MA, at
the close of business on the date hereof.
1.5 Delivery of Agreement of Assumption of Assumed Liabilities. At the
Closing, Buyer shall deliver or cause to be delivered to Seller, an Agreement
for Assumption of the Assumed Liabilities by Buyer in the form of Exhibit 1.5
hereto.
1.6 Transfer of Subject Assets. At the Closing, Seller shall deliver or
cause to be delivered to Buyer good and sufficient instruments of transfer
transferring to Buyer title to all the Subject Assets. Such instruments of
transfer (a) shall be in the form attached hereto as Exhibit 1.6 and (b) shall
effectively vest in Buyer good and marketable title to all the Subject Assets
free and clear of all liens, restrictions and encumbrances not shown or
reflected on the Base Balance Sheet.
1.7 Delivery of Records and Contracts. At the Closing, Seller shall
deliver or cause to be delivered to Buyer all of Seller's leases, contracts,
commitments, agreements (including without limitation non-competition
agreements) and rights, with such assignments thereof and consents to
assignments as are necessary to assure Buyer of the full benefit of the same.
Seller shall also deliver to Buyer at the Closing all of Seller's business
records, state tax returns, books and other data relating to its assets,
business and operations (except corporate records and other property of Seller
excluded under Subsection 1.1(b) as to which only copies need be delivered in
accordance with such Section), and Seller shall take all requisite steps to put
Buyer in actual possession and operating control of the assets and business of
Seller.
7
<PAGE> 13
Notwithstanding the foregoing, (i) Seller need not deliver those records not
located at Seller's offices for which physical delivery may not be practicable
provided that Seller and Stockholder provide Buyer with such reasonable access
to such records as Buyer may deem necessary from time to time; and (ii) Seller
and its counsel may retain copies of such records as Seller deems necessary in
its reasonable good faith judgment for the purposes of satisfying its financial,
tax, and legal reporting requirements, provided that, at or prior to Closing,
but in no event shall Seller, Stockholder or its counsel retain copies of
materials which constitute technology which is part of the Subject Assets.
1.8 Further Assurances. Seller 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 more effectively transfer and assign to, and
vest in, Buyer each of the Subject Assets. Seller shall cooperate with Buyer to
permit Buyer to enjoy Seller's rating and benefits under the workman's
compensation laws and unemployment compensation laws of applicable
jurisdictions, to the extent permitted by such laws. Nothing herein shall be
deemed a waiver by Buyer of its right to receive at the Closing an effective
assignment of each of the leases, contracts, commitments or rights of Seller as
otherwise set forth in this Agreement.
1.9 Allocation of Purchase Price. Attached hereto as Exhibit 1.9 is an
estimate prepared by Buyer of the allocation of the purchase price (and all
other capitalized costs) reasonably among the Subject Assets. Within ninety (90)
days of the Closing, Buyer shall, after consultation with Stockholder, allocate
the purchase price (and all other capitalized costs) reasonably among the
Subject Assets on a basis substantially consistent with the estimate provided as
Exhibit 1.9 attached hereto. Such allocation shall be made in accordance with
the provisions of Section 1060 of the Internal Revenue Code of 1986, as amended
(the "Code"), and shall be binding upon Buyer and Seller for all purposes
(including financial accounting purposes, financial and regulatory reporting
purposes and tax purposes). Buyer and Seller also each agree to file IRS Form
8594 consistent with the foregoing and in accordance with Section 1060 of the
Code.
1.10 Sales and Transfer Taxes. All sales and transfer taxes, fees,
duties and other similar expenses under applicable law incurred in connection
with this Agreement or the transactions contemplated thereby will be borne and
paid by Seller, and Seller shall promptly reimburse Buyer for the payment of any
such tax, fee or duty which it is required to make under applicable law.
1.11 Accounts Receivable. Seller and Stockholder shall use commercially
reasonable efforts to assist Buyer in collecting the Receivables following the
Closing. Any and all amounts received by Seller and Stockholder in respect of
any Receivables shall be promptly remitted to Buyer.
1.12 Procedures for Assets not Transferable. If any of the contracts or
agreements or any other property or rights included in the Subject Assets is not
assignable or transferable
8
<PAGE> 14
either by virtue of the provisions thereof or under applicable law without the
consent of some party or parties and any such consent is not obtained prior to
the Closing, this Agreement and the related instruments of transfer shall not
constitute an assignment or transfer thereof and, unless otherwise agreed
between Buyer and Seller with respect to such contract, Buyer shall not assume
Seller's obligations with respect thereto as provided herein, but Seller shall
use all commercially reasonable efforts to obtain any such consent as soon as
possible after the Closing or otherwise obtain for Buyer the practical benefit
of such property or rights and Buyer shall use all commercially reasonable
efforts to assist in that endeavor. In the event that any purchase order
included in the Subject Assets is not assigned by Seller by reason of the
foregoing provisions of this Section 1.12, Buyer agrees to purchase from Seller
at the contract price all property thereunder which Seller is obligated to
purchase and Seller agrees to sell the same to Buyer at such price. In the event
that any sales order included in the Subject Assets is not assigned by Seller by
reason of the foregoing provisions of this Section 1.12, Buyer agrees to sell to
Seller any products required to complete such contracts at the same price
provided for therein and otherwise to complete such contracts on behalf of
Seller and Seller agrees to purchase the same from Buyer at such price. If
Seller fails to comply with the provisions of this Section 1.12, Buyer may on
its own behalf undertake to complete such contracts and collect amounts due
thereunder in the name of Seller.
1.13 Employees, Wages and Benefits.
(a) Seller shall terminate all employees of the Seller's
business and Seller shall be responsible for making all severance payments to
such terminated employees in respect of such terminations. Buyer shall not
assume or have any obligations or liabilities with respect to any employees of
Seller or such terminations. Buyer intends to hire all or substantially all such
terminated employees immediately as at-will employees, provided that each such
employee agrees, as a condition of employment, after the Closing at
substantially the same salary as previously provided by Seller, to execute
Buyer's standard form of Proprietary Information and Inventions Agreement and
such other agreements as Buyer deems reasonably necessary to conduct its
business. Nothing in this Agreement shall be construed as a commitment or
obligation of Buyer to accept for employment, or otherwise continue the
employment of, any of Seller's employees.
(b) Seller shall pay all wages, salaries, commissions and the
cost of all fringe benefits provided to each employee of the Seller's business
which shall have become due for work performed as of and through the Closing,
and Seller shall collect and pay all taxes in respect of such wages, salaries,
commissions and benefits.
(c) Seller acknowledges and agrees that Buyer is not, except
as provided below, assuming and shall not have any obligations or liabilities
under any benefit plan maintained by, or for the benefit of employees of, the
Seller's business, including without limitation obligations for severance.
9
<PAGE> 15
(d) Effective as of the Closing, Buyer shall establish a
defined contribution 401(k) profit sharing plan (the "Buyer's Plan") to provide
benefits to those Employees employed by it immediately following the Closing
(the "Transferred Employees") who were, as of immediately prior to the Closing,
entitled to coverage under the Seller's 401(k) Profit Plan ("Seller's Plan").
The Buyer's Plan shall credit all Transferred Employees with the actual vesting
service under Seller's Plan. In consideration of the transfer of assets
described below, the Buyer's Plan shall assume and discharge all obligations and
liabilities of Seller's Plan for all benefits held under the Seller's Plan for
the Transferred Employees.
(e) As soon as practicable after the Closing, (i) Seller, at
its expense, shall cause the trustee or other funding medium of Seller's Plan to
transfer to the trustee or other fiduciary of the Buyer's Plan the portion of
Seller's Plan assets allocated to the accounts of the Transferred Employees,
together with the earnings accrued under Seller's Plan for the period from the
Closing to the date of actual transfer of assets and (ii) Seller shall provide
Buyer with such pertinent data or information and in such form or format as
Buyer may reasonably require to determine the Transferred Employees' service,
compensation and account balances under Seller's Plan as of the Closing.
(f) Seller and Buyer shall take such actions as may be
required by Section 414(l) of the Code in connection with the spinoff and
transfer of assets from Seller's Plan to Buyer's Plan. All costs associated with
such spinoff and transfer shall be borne by the Seller.
(g) The Transferred Employees will become covered under the
welfare benefit plans maintained by Buyer upon commencement of employment with
Buyer.
(h) Seller shall take such actions as may be necessary to
permit each Transferred Employee to continue to be eligible to submit for
reimbursement under Seller's health care and dependent care flexible spending
accounts maintained in accordance with Sections 105, 129 and 125 of the Code
expenses incurred after the Closing and prior to the end of the current coverage
periods.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER AND
STOCKHOLDER.
2.1 Making of Representations and Warranties. As a material inducement
to Buyer to enter into this Agreement and consummate the transactions
contemplated hereby, Seller and the Stockholder jointly and severally hereby
make to Buyer the representations and warranties contained in this Section 2.
2.2 Organization and Qualifications of Seller. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
Delaware 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 Seller's Articles of
10
<PAGE> 16
Incorporation as amended to date, certified by the Delaware Secretary of State,
and of Seller's by-laws, as amended to date, certified by Seller's Clerk or
Secretary, and heretofore delivered to Buyer's counsel, are complete and
correct, and no amendments thereto are pending. Seller is not in violation of
any term of its Articles of Incorporation or by-laws. Seller is duly qualified
to do business as a foreign corporation in New Hampshire, California, Maryland
and Pennsylvania, and it is not required to be licensed or qualified to conduct
its business or own its property in any other jurisdiction.
2.3 Subsidiaries. Seller has no subsidiaries and does not own any
securities issued by any other business organization or governmental authority,
except U.S. Government securities, bank certificates of deposit and money market
accounts acquired as short-term investments in the ordinary course of its
business. Seller does not own or have any direct or indirect interest in or
control over any corporation, partnership, joint venture or entity of any kind.
2.4 Capital Stock of Seller; Beneficial Ownership.
(a) The authorized capital stock of Seller consists of 1,000
shares of Common Stock, $1.00 par value, of which 100 shares are duly and
validly issued, outstanding, fully paid and non-assessable and of which 900
shares are authorized but unissued. 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 Seller. None of Seller's capital stock
has been issued in violation of any federal or state law. There are no voting
agreements, trusts, proxies or other agreements, instruments or undertakings
with respect to the voting of Seller's capital stock to which Seller or the
Stockholder is a party.
(b) The Stockholder owns beneficially and of record 100 shares
of Common Stock of Seller, which constitutes all of Seller's outstanding capital
stock.
2.5 Authority of Seller and the Stockholder.
(a) Seller has full right, authority and power to enter into
this Agreement and each agreement, document and instrument to be executed and
delivered by Seller pursuant to this Agreement and to carry out the transactions
contemplated hereby. The execution, delivery and performance by Seller of this
Agreement and each such other agreement, document and instrument have been duly
authorized by all necessary action of Seller and its Stockholder and no other
action on the part of Seller or its Stockholder is required in connection
therewith.
This Agreement and each agreement, document and instrument executed and
delivered by Seller pursuant to this Agreement constitutes, or when executed and
delivered will constitute, valid and binding obligations of Seller enforceable
in accordance with their terms.
11
<PAGE> 17
The execution, delivery and performance by Seller of this Agreement and each
such agreement, document and instrument:
(i) does not and will not violate any provision of
the Articles of Incorporation or by-laws of Seller;
(ii) does not and will not violate any laws of the
United States, or any state or other jurisdiction applicable to Seller
or require Seller 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, give rise
to a right of termination of, or permit any third party to exercise any
additional rights under, 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 Seller is a party or by
which the property of 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 of the Subject Assets, except as
specifically identified on Schedule 2.5(a).
(b) The Stockholder 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 him or her 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 the Stockholder pursuant to this Agreement constitutes, or when
executed and delivered will constitute, valid and binding obligations of the
Stockholder enforceable in accordance with their respective terms. The
execution, delivery and performance by the Stockholder of this Agreement and
each such agreement, document and instrument:
(i) does not and will not violate any laws of the
United States, or any state or other jurisdiction applicable to the
Stockholder or require the Stockholder 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
(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 the Stockholder is
a party or by which the property of the Stockholder is bound or
affected, or result in the creation or imposition
12
<PAGE> 18
of any mortgage, pledge, lien, security interest or other charge or
encumbrance on any of the Subject Assets.
2.6 Real and Personal Property.
(a) Owned Real Property. Seller does not own any real property
("Owned Real Property").
(b) Leased Real Property. All of the real property leased by
Seller as tenant or lessee is identified on Schedule 2.6(b) (collectively
referred to herein as the "Leased Real Property"). Seller hereby makes the
following representations and warranties with respect to the Leased Real
Property:
(i) Leases. The copies of the leases of the Leased
Real Property, together with any amendments thereto, (collectively, the
"Leases") delivered by Seller to Buyer and the information with respect
to each of the Leases set forth in Schedule 2.6(b) is complete,
accurate, true and correct. With respect to each of the Leases, except
as set forth on Schedule 2.6(b):
(A) each of the Leases is in full force and
effect and has not been modified, amended, or altered, in
writing or otherwise;
(B) all obligations of the landlord or
lessor under the Leases which have accrued have been performed
in all material respects, and to the best of the knowledge of
Seller, no landlord or lessor is in default in any material
respect under any Lease;
(C) all obligations of the tenant or lessee
under the Leases which have accrued have been performed in all
material respects, and Seller is not in default under any
Lease, and no circumstance presently exists which, with notice
or the passage of time, or both, would give rise to a default
by Seller; and
(D) Seller has obtained or will obtain prior
to the Closing the consent of each landlord or lessor under
any Leases whose consent is required to the transfer of the
Leased Real Property to Buyer, and such transfer will not give
any landlord or lessor under any Lease any remedy, including,
without limitation, any right to declare a default under any
Lease.
(ii) Title and Description. Seller holds a good,
clear, marketable, valid and enforceable leasehold interest in the
Leased Real Property pursuant to the Leases, subject only to the right
of reversion of the landlord or lessor under the Leases, free and clear
of all other prior or subordinate interests, including, without
limitation, mortgages, deeds of trust, ground leases, leases,
subleases, assessments, tenancies, claims, covenants, conditions,
restrictions, easements, judgments or other
13
<PAGE> 19
encumbrances or matters affecting title, and free of encroachments onto
or off of the Leased Real Property, except for (x) easements,
covenants, restrictions and similar encumbrances that do not and could
not interfere with the use of the Leased Real Property as currently
used and improved, and (y) minor encroachments that do not and are not
likely to affect materially the value or use of the Leased Real
Property as currently used and improved and that could be removed
without material cost ((x) and (y) are collectively referred to as
"Permitted Encumbrances"), and except for matters set forth on Schedule
2.6(b).
(iii) Condition. Except as set forth on Schedule
2.6(b), there are, to Seller's knowledge, no material defects in the
physical condition of any improvements constituting a part of the
Leased Real Property, including, without limitation, structural
elements, mechanical systems, roofs or parking and loading areas, and
all of such improvements are in good operating condition and repair,
have been well maintained and are free from infestation by rodents or
insects. Except as set forth on Schedule 2.6(b), to Seller's knowledge
none of the Leased Real Property is subject to special flood or
mudslide hazards or within the 100 year flood plain. To Seller's
knowledge all water, sewer, gas, electric, telephone, drainage and
other utilities required by law or necessary for the current or planned
operation of the Leased Real Property have been installed and connected
pursuant to valid permits, and are sufficient to service the Leased
Real Property.
(iv) Compliance with Law; Government Approvals.
Seller has received no notice from any governmental authority of any
violation of any law, ordinance, regulation, license, permit or
authorization issued with respect to any of the Leased Real Property
that has not been corrected heretofore, and no such violation by Seller
or, to its knowledge, by any landlord of Seller now exists which could
have an adverse effect on the operation or value of any of the Leased
Real Property. All improvements constituting a part of the Leased Real
Property are in compliance in all respects with all applicable laws,
ordinances, regulations, licenses, permits and authorizations, and
there are presently in effect all licenses, permits and authorizations
required by law, ordinance, or regulation. There is at least the
minimum access required by applicable subdivision or similar law to the
Leased Real Property. Seller has received no notice of any pending or
threatened real estate tax deficiency or reassessment or condemnation
of all or any portion of any of the Leased Real Property.
(c) Personal Property. A complete list of Seller's machinery,
equipment and other tangible personal property is contained in Schedule 2.6(c).
Except as specifically disclosed in said Schedule or in the Base Balance Sheet
(as hereinafter defined), Seller has good and marketable title to all of its
personal property. None of such personal property or assets is subject to any
mortgage, pledge, lien, conditional sale agreement, security agreement,
encumbrance or other charge except as specifically disclosed in said Schedule or
in the Base Balance Sheet or immaterial liens imposed by law, such as
mechanics', materialmen's, warehousemen's and carriers' liens, which secure
obligations incurred in the ordinary course
14
<PAGE> 20
of business and which are not yet past due (such liens, "Permitted Liens").
Except as set forth on Schedule 2.6(c), the Base Balance Sheet reflects all
personal property of Seller, and the Subject Assets are sufficient for Buyer to
continue the business of Seller as conducted by Seller. Except as otherwise
specified in Schedule 2.6(c), and except for deficiencies which do not
materially adversely impair the value of any of the Subject Assets, all
leasehold improvements, furnishings, machinery and equipment of Seller 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. Seller does not know of any pending or threatened change
of any such laws, ordinances or regulations which could adversely affect Seller
or its business.
2.7 Financial Statements.
(a) Seller has delivered to Buyer the following financial
statements, copies of which are attached hereto as Schedule 2.7:
(i) Balance sheets of Seller at September 30, 1994
and 1996 and statements of income, retained earnings and cash flows for
the years ended September 30, 1994 and 1996, with appropriate
footnotes, audited by Arthur Andersen LLP and Ernst & Young LLP,
respectively, and unaudited balance sheet, statement of income,
retained earnings and cash flows for the year ended September 30, 1995,
certified by the Stockholder's Chief Financial Officer.
(ii) Unaudited balance sheet of Seller as of March
31, 1997 (third column) (herein the "Balance Sheet") and statements of
income, retained earnings and cash flows for the six-month period then
ended, with appropriate footnotes, certified by Stockholder's chief
financial officer.
(iii) Unaudited balance sheet of Seller as of March
31, 1997 labeled "Base Balance Sheet" (first column) together with the
"Base Balance Sheet Detail" (such balance sheet with such detail, the
"Base Balance Sheet").
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 Seller at the dates of said statements and the results of
its operations and its cash flows for the periods covered thereby.
(b) As of the date of the Base Balance Sheet, Seller had no
liabilities of any nature, whether accrued, absolute, contingent or otherwise
(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 liabilities relating to activities of Seller or the
conduct of its business prior to the date of the Base Balance Sheet), except
liabilities stated
15
<PAGE> 21
or adequately reserved against on the Base Balance Sheet, disclosed in the notes
thereto, or reflected in Schedules furnished to Buyer hereunder as of the date
hereof.
(c) As of the date hereof, Seller had and will have no
liabilities of any nature, whether accrued, absolute, contingent or otherwise
(including without limitation liabilities as guarantor or otherwise with respect
to obligations or others, or liabilities for taxes due or then accrued or to
become due or contingent liabilities relating to activities of Seller or the
conduct of its business prior to the date hereof), 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 in the ordinary course of business of Seller consistent with the
terms of this Agreement.
2.8 Taxes.
(a) Seller has (i) timely and accurately filed within the time
period for filing or any extension granted with respect thereto all federal,
state, local and other returns, estimates and reports ("Returns") relating to
any and all taxes or other governmental charges, obligations or fees and any
related interest or penalties ("Tax" or "Taxes") it is required to file and has
paid all Taxes shown due thereon or has provided adequate reserves therefor on
its books and records, and (ii) withheld with respect to Seller's employees all
federal and state income Taxes, FICA, FUTA and other Taxes required to be
withheld and paid such withheld amounts to the appropriate governmental body
within the time period required by law. All state Returns filed with respect to
Seller for the taxable period ended on September 30, 1995 are set forth on and
attached to Schedule 2.8 hereto.
(b) Neither the Internal Revenue Service nor any other
governmental authority is now asserting or, to the knowledge of Seller or the
Stockholder, threatening to assert against Seller any deficiency or claim for
additional Taxes for which the Buyer might become liable. There are no security
interests on any of the Subject Assets that arose in connection with any failure
(or alleged failure) to pay any Taxes.
2.9 Collectibility of Accounts Receivable. All of the accounts
receivable of Seller (less the reserve for bad debts) are or will be at the
Closing valid and enforceable claims, fully collectible (to the knowledge of
Seller and Stockholder) and subject to no set off or counterclaim and do not
relate to sales pursuant to which the Seller is potentially obligated, following
the Closing, to (a) accept the return of products sold, (b) provide any
additional services or (c) grant any payment terms not in the ordinary course of
business. Seller has no accounts or loans receivable from any person, firm or
corporation which is affiliated with Seller or from any director, officer or
employee of Seller, except as disclosed on Schedule 2.9, and all accounts and
loans receivable from any such person, firm or corporation shall be paid in cash
prior to the Closing.
2.10 Inventories. Except as disclosed in Schedule 2.10, all items in
the inventories of Seller are of a quality and quantity saleable in the ordinary
course of its business. The
16
<PAGE> 22
valuations of inventory on the Base Balance Sheet are consistent with the
inventory costs used to generate the cost of goods sold used during the fiscal
year ended September 30, 1996. 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 unsalable (except at
prices less than cost) through regular distribution channels in the ordinary
course of the business of Seller. No such write-downs since September 30, 1995
have had a material adverse affect on the financial condition or results of
operations of Seller. The values of the inventories stated in the Base Balance
Sheet and any subsequent financial statements of Seller reflect the normal
inventory valuation policies of Seller 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 in excess
of current market prices. All inventory items are located on the Leased Real
Property and no inventory is currently located at customers or vendors on
assignment, on consignment or on an evaluation basis. 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 and without unusual price discounts or
other price discounting inconsistent with Seller's prior past practices and all
sales commitments made for Seller's products are at prices not less than
inventory values plus selling expenses.
2.11 Absence of Certain Changes. Except as disclosed in Schedule 2.11,
since the date of the Base Balance Sheet there has not been:
(a) Any change in the financial condition, properties, assets,
liabilities, business or operations of Seller 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 Seller;
(b) Any contingent liability incurred by Seller 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, Seller;
(c) Any mortgage, encumbrance or lien, other than Permitted
Liens (as defined in Section 2.6(c)), placed on any of the properties of Seller
which remains in existence on the date hereof or will remain on the Closing
Date;
(d) Any obligation or liability of any nature incurred by
Seller, whether accrued, absolute, contingent or otherwise (including without
limitation liabilities for Taxes due or to become due or contingent or potential
liabilities relating to products or services provided by Seller or the conduct
of Seller's business since the date of the Base Balance Sheet), other than
obligations and liabilities incurred in the ordinary course of business
consistent with the terms of this Agreement;
17
<PAGE> 23
(e) 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 Seller other than in the ordinary course of business;
(f) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the value of the Subject Assets;
(g) Any declaration, setting aside or payment of any dividend by
Seller, or the making of any other distribution in respect of the capital stock
of Seller, or any direct or indirect redemption, purchase or other acquisition
by Seller of its own capital stock;
(h) Any labor trouble or claim of unfair labor practices
involving Seller; any change in the compensation payable or to become payable by
Seller 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;
(i) Any change in the personnel constituting the officers or
management of Seller;
(j) Any payment or discharge of a material lien or liability of
Seller which was not shown on the Base Balance Sheet or incurred in the ordinary
course of business thereafter;
(k) Any obligation or liability incurred by Seller to any of its
officers, directors, stockholders or employees, or any loans or advances made by
Seller to any of its officers, directors, stockholders or employees, except
normal compensation and expense allowances;
(l) Any change in accounting methods or practices, credit
practices or collection policies used by Seller;
(m) Any other transaction entered into by Seller other than
transactions in the ordinary course of business; or
(n) Any agreement or understanding whether in writing or
otherwise, for Seller to take any of the actions specified in paragraphs (a)
through (m) above.
2.12 Ordinary Course. Since the date of the Base Balance Sheet, Seller
has conducted its business only in the ordinary course and consistently with its
prior practices.
2.13 Banking Relations. All of the arrangements which Seller has with
any banking institution are completely and accurately described in Schedule
2.13, indicating with respect to each of such arrangements the type of
arrangement maintained (such as checking account,
18
<PAGE> 24
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, Seller 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 Seller as presently conducted or
contemplated. Seller's rights in all of such Intellectual Property are freely
transferable. 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 Seller in respect
thereof. Seller 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; provided that Stockholder and Seller do not
represent that their use does not infringe upon Intellectual Property rights of
others except as provided in Section 2.14(f).
(b) All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights which are owned by or
licensed to Seller or used or to be used by Seller in its business as presently
conducted or contemplated, and all other items of Intellectual Property which
are material to the business or operations of Seller, are listed in Schedule
2.14. All of such patents, patent applications, trademark registrations,
trademark applications and registered copyrights 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 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 Seller is
granted rights in Intellectual Property are listed in Schedule 2.14, other than
nonexclusive licenses to Seller of generally available commercial software. 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 Seller's rights thereunder are freely assignable. To the knowledge
of Seller, 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 Seller has
granted rights to others in Intellectual Property owned or licensed by Seller
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 Seller's rights thereunder are
19
<PAGE> 25
freely assignable. True and complete copies of all such licenses or other
agreements, and any amendments thereto, have been provided to Buyer.
(e) Seller has employed sound business practice to establish and
preserve its ownership of all Intellectual Property rights with respect to its
products, services and technology. Except as noted on Schedule 2.14(e), Seller
has required all professional and technical employees, and other employees
having access to valuable non-public information of Seller, to execute
agreements under which such employees are required to convey to Seller 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
Seller. Seller has not made any such information available to any person other
than employees of Seller except pursuant to written agreements requiring the
recipients to maintain the confidentiality of such information and appropriately
restricting the use thereof, which written agreements are listed on Schedule
2.14(e). Seller has no knowledge of any infringement by others of any of its
Intellectual Property rights.
(f) To Seller's knowledge, the present and contemplated business,
activities and products of Seller do not infringe any Intellectual Property of
any other person. No proceeding charging Seller with infringement of any
adversely held Intellectual Property has been filed or is threatened to be
filed. To Seller's 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 Seller. Seller 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 Seller. Except as set forth in Schedule 2.14, neither Seller nor, to
the knowledge of Seller, any of its employees have any agreements or
arrangements with any persons other than Seller 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
Seller's employees on behalf of Seller do not violate any such agreements or
arrangements known to Seller which any such employees have with other persons.
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 its counsel), Seller 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;
(c) any contract or agreement for the purchase of any commodity,
material or equipment except purchase orders (i) listed on Schedule 2.32, or
(ii) in the ordinary course for less than $2,500 each, such orders for less than
$2,500 each not exceeding $50,000 in the
20
<PAGE> 26
aggregate, of which no more than $70,000 represents contracts to purchase
non-inventory items;
(d) any other contracts or agreements creating any obligations of
Seller 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 all
or substantially all of its requirements of a particular product from a
supplier;
(f) any contract or agreement involving more than $10,000 which
by its terms does not terminate or is not terminable without penalty by Seller
or any successor or assign within one year after the date hereof;
(g) any contract or agreement for the sale or lease of its
products not made in the ordinary course of business;
(h) any contract which, as a result of the execution, delivery
and performance of this Agreement and each agreement, document and instrument
executed and delivered by Seller pursuant to this Agreement will give rise to or
permit any third party to exercise additional rights under any contract or
agreement to which Seller is a party and which is included in or related to the
Subject Assets or the Liabilities, including, without limitation, any contract
which provides for the transfer of any intellectual property, such as source
code or other information, upon a change in control of the Seller;
(i) any contract with any sales agent or distributor of products
of Seller;
(j) any contract containing covenants limiting the freedom of
Seller to compete in any line of business or with any person or entity;
(k) any contract or agreement for the purchase of any fixed asset
for a price in excess of $5,000 whether or not such purchase is in the ordinary
course of business;
(l) any license agreement (as licensor or licensee);
(m) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for the borrowing of money; or
(n) any contract or agreement with any officer, employee,
director or stockholder of Seller or with any persons or organizations
controlled by or affiliated with any of them.
21
<PAGE> 27
Seller 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 Seller 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 Seller, threatened against Seller or any
affiliate of Seller which is reasonably likely to have a material adverse effect
on Seller's properties, assets, prospects, financial condition or business 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 Seller
is in compliance in all material respects with all applicable statutes,
ordinances, orders, judgments, decrees and rules and regulations promulgated by
any federal, state, municipal or other governmental authority which apply to the
Seller or to the conduct of its business, and Seller has not received 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 Seller are insured
to the extent disclosed in Schedule 2.18 and all insurance policies and
arrangements of Seller 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 Seller is in compliance in all material respects with
the terms thereof. Said insurance is adequate and customary for the business
engaged in by Seller and is sufficient for compliance by Seller with all
requirements of law and all agreements and leases to which Seller is a party.
2.19 Warranty or Other Claims. There are no existing or threatened
product liability, warranty or other similar claims, or any facts upon which a
material claim of such nature could be based, against Seller for products
shipped or services provided prior to Closing which are defective or fail to
meet any product or service warranties except as disclosed in Schedule 2.19. The
total amount of warranty claims (including costs of correction at normal
internal rates of charge) arising on or after the Closing Date with respect to
products shipped by Seller before the Closing Date will not exceed $220,000. No
claim has been asserted against Seller for renegotiation or price
redetermination of any business transaction, and there are no facts upon which
any such claim could be based. Seller's standard warranty terms are as set forth
on Schedule 2.19. Other than as set forth on Schedule 2.19, no warranty terms
have been granted which provide any greater rights than Seller's standard
warranty terms.
22
<PAGE> 28
2.20 Powers of Attorney. Seller has not granted powers of attorney which
are presently outstanding except limited powers of attorney granted to financial
institutions in the ordinary course of business pursuant to financial accounts.
2.21 Finder's Fee. Neither Seller nor the Stockholder 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 by Seller.
2.22 Permits; Burdensome Agreements. Schedule 2.22 lists all permits,
registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from foreign, federal, state or local
authorities, including all international product approvals, in order for Seller
to conduct its business and for its products to be used, including the
applicable authority granting such Approval and the scope or subject matter of
such Approval. Seller 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,
all such Approvals will be available and assigned to Buyer and remain in full
force and effect upon Buyer's purchase of the Subject Assets, and no further
Approvals will be required in order for Buyer to conduct the business currently
conducted by Seller subsequent to the Closing. Except as disclosed in Schedule
2.22 or in any other Schedule hereto, Seller is not subject to or bound by any
agreement, arrangement, 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.
2.23 [INTENTIONALLY OMITTED]
2.24 Transactions with Interested Persons. Except as set forth in
Schedule 2.24 hereto, neither Seller, nor any stockholder, officer, supervisory
employee or director of Seller or, to the knowledge of Seller, any of their
respective spouses or family members 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
Seller, or any organization which has a material contract or arrangement with
Seller.
2.25 Employee Benefit Programs.
(a) Seller's Plan (as defined in Section 1.13(e)) has received a
favorable determination or approval letter from the Internal Revenue Service
("IRS") regarding its qualification under section 401(a) of the Code and it has,
in fact, been continuously qualified under such section of the Code since the
effective date of Seller's Plan. No event or omission has occurred which would
cause Seller's Plan to lose its qualification under Section 401(a) of the Code.
23
<PAGE> 29
(b) Seller does not know, and has no reason to know, of any
failure of any party to comply with any laws applicable to Seller's Plan. With
respect to any Employee Program ever maintained by Seller, 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 Buyer. No litigation, arbitration, or governmental
administrative proceeding (or investigation) or other proceeding (other than
those relating to routine claims for benefits) is pending or threatened with
respect to any such Employee Program.
(c) Neither Seller 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.
(d) With respect to Seller's Plan, complete and correct copies of
the following documents have previously been delivered to Buyer: (i) all
documents embodying or governing such plan, and any funding medium for the plan
(including, without limitation, trust agreements) as they may have been amended;
(ii) the most recent IRS determination or approval letter with respect to such
plan under Code Section 401, 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;
and (iv) the summary plan description for such plan (or other descriptions of
such Employee Program provided to employees) and all modifications thereto;
(e) 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
or cash option plans, restricted stock 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.
24
<PAGE> 30
(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 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 Seller if it would
have ever been considered a single employer with Seller under ERISA
Section 4001(b) or part of the same "controlled group" as Seller 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, or as otherwise
permitted by law (i) Seller has never generated, transported, used, stored,
treated, disposed of, or managed any Hazardous Waste (as defined below); (ii) no
Hazardous Material (as defined below) has ever been or is threatened to be
spilled, released, or disposed of by Seller or, to Seller's knowledge, by any
other party, at any site presently or formerly owned, operated, leased, or used
by Seller, or has ever been located in the soil or groundwater at any such site;
(iii) no Hazardous Material has ever been transported by Seller or, to Seller's
knowledge, by any other party, from any site presently or formerly owned,
operated, leased, or used by Seller for treatment, storage, or disposal at any
other place; (iv) Seller does not presently own, operate, lease, or use, nor has
it previously owned, operated, leased, or used any site on which to Seller's
knowledge underground storage tanks are or were located; and (v) to Seller's
knowledge, no lien has ever been imposed by any governmental agency on any
property, facility, machinery, or equipment owned, operated, leased, or used by
Seller in connection with the presence of any Hazardous Material.
(b) Except as set forth in Schedule 2.26, (i) Seller has never
violated, any Environmental Law (as defined below); (ii) Seller operates its
business in compliance with all applicable Environmental Laws; (iii) Seller has
never 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) Seller has no knowledge or reason to know 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 Seller's
knowledge, no site owned, operated, leased, or used by Seller contains any
asbestos or asbestos-containing
25
<PAGE> 31
material, any polychlorinated biphenyls (PCBs) or equipment containing PCBs, or
any urea formaldehyde foam insulation.
(d) Seller has provided or made available to Buyer or its counsel
copies of all documents, records, and information maintained by Seller for
regulatory purposes concerning any environmental or health and safety matter
relevant to Seller, whether generated by Seller 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) "Hazardous
Waste" shall mean and include any hazardous waste as defined or regulated under
any Environmental Law; (iii) "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 hereof,
previously enforced, or subsequently enacted; and (iv) "Seller" shall mean and
include Seller and all affiliated persons for whose conduct Seller is or may be
held responsible under any Environmental Law.
2.27 Directors and Officers. Schedule 2.27 contains a true and complete
list of all current directors and officers of Seller. In addition, Schedule 2.27
contains a list of all managers, employees and consultants of Seller, identified
as full-time, part-time or temporary employees, and their compensation. 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 Seller 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 Seller which have not been specifically
disclosed herein, in the Seller's Confidential Information Memorandum
distributed by Broadview Associates or in a Schedule furnished herewith, other
than general economic conditions affecting Seller's industry.
2.29 Backlog. As of June 27, 1997, Seller has a backlog of firm orders
for the sale or lease of products or services, for which revenues have not been
recognized by Seller, as set forth in Schedule 2.29 and, unless otherwise set
forth on such Schedule, all such orders have
26
<PAGE> 32
been made in the ordinary course of business. Stockholder and Seller covenant to
provide an update to such Schedule 2.29 as of the Closing not later than two (2)
business days following the Closing, which such updated schedule shall become
the final Schedule 2.29.
2.30 Employees; Labor Matters. Seller generally enjoys good
employer-employee relationships. Seller 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 hereof or amounts
required to be reimbursed to such employees. Upon termination of the employment
of any of said employees, neither Seller nor Buyer will by reason of the
acquisition transaction 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 2.30. Seller does not have any 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. Seller 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 existing, pending or threatened against or involving
Seller. No question concerning representation exists respecting any group of
employees of Seller. There are no grievances, complaints or charges that have
been filed against Seller 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 Seller or
the conduct of its business and no arbitration or similar proceeding is 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 Seller. Seller
has received no information to indicate that any of its employment policies or
practices is currently being audited or investigated by any federal, state or
local government agency. Seller is, and at all times since November 6, 1986 has
been, in compliance with the requirements of the Immigration Reform Control Act
of 1986.
2.31 Customers, Distributors and Suppliers. Schedule 2.31(a) sets forth
any customer, representative or distributor (whether pursuant to a commission,
royalty or other arrangement) for the six (6) months ended as of the date of the
Base Balance Sheet (collectively, the "Customers and Distributors"). Schedule
2.31(b) is a true and complete list of the suppliers of Seller to whom, during
either the fiscal year ended September 30, l996 or the six (6) months ended as
of the date of the Base Balance Sheet, Seller made payments aggregating $10,000
or more showing, with respect to each, the name, address and dollar volume
involved (the "Suppliers"). The relationships of Seller with its Customers,
Distributors and Suppliers are good commercial working relationships. Except as
set forth on Schedule 2.31(b), no Customer, Distributor or Supplier of Seller
has canceled, materially modified, or otherwise terminated its relationship with
Seller, or has during said period decreased materially its usage or purchase of
the services or products of Seller or its services, supplies or materials
furnished to Seller, nor does any Customer, Distributor or Supplier have, to the
knowledge of Seller, any plan or intention to do any of the foregoing.
27
<PAGE> 33
2.32 Purchase Commitments. Schedule 2.32 sets forth as of June 27, 1997
all commitments in excess of $2,500 for the purchase or lease by Seller of raw
materials, parts, equipment, components, products or services, and such
commitments are not in excess of Seller's normal requirements in the ordinary
course of business or at prices in excess of current market prices. Stockholder
and Seller covenant to provide an update to such Schedule 2.32 as of the Closing
not later than two (2) business days following the Closing, which such updated
schedule shall become the final Schedule 2.32.
2.33 Required Consents. Seller has obtained all required or necessary
authorizations, consents or permits of others required to permit the
consummation by Seller of the transactions contemplated by this Agreement.
SECTION 3. COVENANTS OF SELLER AND THE STOCKHOLDER.
3.1 Making of Covenants and Agreements. Seller and the Stockholder
hereby make their respective covenants and agreements set forth in this Section
3 and Stockholder agrees to cause Seller to comply with such covenants and
agreements.
3.2 Notice of Default. Promptly upon the occurrence of, or promptly upon
Seller or the Stockholder 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 Seller or the Stockholder prior to the date hereof, of any of the
representations, warranties or covenants of Seller or the Stockholder contained
in or referred to in this Agreement or in any Schedule or Exhibit referred to in
this Agreement, Seller shall give detailed written notice thereof to Buyer and
shall use all commercially reasonable efforts to prevent or promptly remedy the
same.
3.3 Consummation of Agreement. Seller and the Stockholder shall use all
commercially reasonable 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, Seller will promptly in connection with or following
the Closing take all appropriate actions to:
(a) Change Seller's name to a corporate name to another title
which does not include the words or use the names "Netaccess," "Net Access,"
"Primary Rate," "PRI" or any similar name and further agree, from and after the
Closing not to use any such names or words; and
(b) Transfer the Subject Assets, including all Intellectual
Property, to Buyer.
3.4 Cooperation of Seller. Seller and Stockholder shall cooperate with
all reasonable requests of Buyer and Buyer's counsel in connection with the
consummation of the transactions contemplated hereby, including (i) filing any
UCC termination statements
28
<PAGE> 34
necessary to transfer the Subject Assets free of all liens; and (ii) providing
all necessary audited financial statements and consents of the auditors
preparing such audited financial statements, and access to all other financial
information required for Buyer (i) to comply with its reporting obligations
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
(ii) to comply with the requirements of the Securities Act of 1933, as amended
(the "Securities Act"), in connection with any registration statement thereunder
and shall use its best efforts to cause their counsel and auditors cooperate
with all such requests of Buyer and Buyer's counsel. The expense of all
reasonable necessary consents of Seller's auditors required for Buyer to comply
with its reporting obligations under the Exchange Act, including, without
limitation, any auditor's consent necessary in connection with the filing of a
Form 8-K in connection with the transaction contemplated hereby, shall be borne
by the Seller. Notwithstanding anything contained in this Agreement to the
contrary, this covenant shall survive the Closing or other termination of this
Agreement.
3.5 Non-competition. As a material inducement to Buyer to enter into
this Agreement and consummate the transactions contemplated hereby, each of
Seller and Stockholder agrees, on behalf of themselves and on behalf of their
affiliates, that, for four (4) years after the Closing (the "Non-Compete
Period"), it will not, whether as the result of an Acquisition (as defined
below) or otherwise, without the prior written consent of Buyer, directly or
indirectly, engage or participate in, be employed by or assist in any manner or
in any capacity, or have any interest in or make any loan to any person, firm,
corporation or business which engages in any activity anywhere in the world
which is competitive with the business and operations of Buyer or any of Buyer's
subsidiaries so long as Buyer or any of Buyer's subsidiaries (or its or their
successor, if any) shall engage in such activity.
Notwithstanding the foregoing:
(A) During the first two years of the Non-Compete Period, Seller,
Stockholder and their affiliates (each, an "Acquiring Person") shall not
be prohibited from engaging in an Acquisition of a Competing Business
other than a Material Competing Business (a "Permitted Acquisition"),
provided that, in the event of such a Permitted Acquisition, the
Acquiring Person shall, within the first sixty (60) days following the
closing of the Permitted Acquisition (or such shorter period as Buyer,
in its sole discretion determines), negotiate in good faith with Buyer
to sell the portion of the acquired business that constitutes a
Competing Business to Buyer on commercially reasonable terms. In the
event that the Acquiring Person and Buyer are unable to reach a
definitive agreement regarding the sale of the Competing Business within
such time, or in the event that Buyer indicates in writing prior to the
expiration of such sixty (60) day period that it is not interested in
purchasing such Competing Business, the Acquiring Person shall sell,
liquidate or discontinue the operations of the Competing Business within
a period of time to be agreed upon by the parties hereto by separate
agreement on or before Closing. In the event of any such Permitted
Acquisition, until such time as the Acquiring Person completes the sale
of or liquidates or discontinues such portion of the acquired business
that constitutes a Competing Business to Buyer or
29
<PAGE> 35
any other third party, neither the Acquiring Person nor any affiliate
thereof shall contribute any additional capital or funds (other than to
satisfy necessary and reasonable working capital requirements) to the
Competing Business or transfer technology thereto.
(B) During the third and fourth years of the Non-Compete Period,
the Acquiring Persons shall not be prohibited from engaging in a
Permitted Acquisition, provided that, in the event of such a Permitted
Acquisition, the Acquiring Person shall, within the first sixty (60)
days following the closing of the Permitted Acquisition (or such shorter
period as Buyer, in its sole discretion determines), negotiate in good
faith with Buyer to sell the portion of the acquired business that
constitutes a Competing Business to Buyer on commercially reasonable
terms. In the event that the Acquiring Person and Buyer are unable to
reach a definitive agreement regarding the sale of the Competing
Business within such time, or in the event that Buyer indicates in
writing prior to the expiration of such sixty (60) day period that it is
not interested in purchasing such Competing Business, the Acquiring
Person shall use commercially reasonable efforts to sell the Competing
Business to a third party on commercially reasonable terms within a
period of time to be agreed to by the parties hereto by separate
agreement on or before Closing. In the event that the Acquiring Person
is not able to sell the Competing Business during such period, the
Acquiring Person shall be permitted to retain the Competing Business.
In the event of any such Permitted Acquisition, until such time as (a)
the Acquiring Person completes the sale of such portion of the acquired
business that constitutes a Competing Business or (b) the expiration of
both the initial sixty (60) day period and the additional period of time
to be agreed upon by the parties hereto by separate agreement on or
before Closing, neither the Acquiring Person nor any affiliate thereof
shall contribute any additional capital or funds (other than to satisfy
necessary and reasonable working capital requirements) to the Competing
Business or transfer technology thereto.
For the purposes of this Section 3.5, an "Acquisition" shall be defined
as acquiring by merger, purchase of assets or otherwise, any business, entity or
operation which may include a segment, division, business unit, or other
operational component or product line; a "Competing Business" shall be defined
as directly or indirectly designing, manufacturing or selling (i) T1&E1 Primary
Rate ISDN, (ii) multiport Basic Rate ISDN and (iii) multiport modem wide area
network access hardware and related software products used in servers or
multi-user systems used in remote access and computer telephony applications; a
"Material Competing Business" shall be defined as any business, entity or
operation which may include a segment, division, business unit, or other
operational component or product line which derives annual revenues from a
Competing Business that exceed the lesser of (a) twenty percent (20%) of the
overall revenues of the business or (b) Four Million Dollars ($4,000,000).
30
<PAGE> 36
Seller agrees to enforce, and to cause any other existing or future
subsidiaries or affiliates of Seller or Stockholder to enforce the agreements
with their respective employees who are retained by Seller, Stockholder or any
other existing or future subsidiaries or affiliates of Seller or Stockholder, as
applicable, following the Closing which agreements prohibit such employees from
competing (as described above) with or disclosing confidential information of
Buyer or any of its subsidiaries or affiliates.
3.6 No Solicitation of Employees. Neither Seller, the Stockholder, nor
any of their representatives or affiliates will at any time during the two (2)
year period after the Closing, directly or indirectly, employ any person who, at
any time up to the Closing, was an employee of Seller or Buyer, or solicit,
encourage, assist, initiate discussion or engage in negotiation with any such
person regarding employment, provided that the restriction contained in this
Section 3.6 will not apply against Stockholder commencing on the 31st day
following the Closing Date with respect to the hire of any employee of Seller
not hired as an employee by Buyer as of or within 30 days from the Closing Date;
provided, however, that neither Seller, Stockholder nor any of their
representatives or affiliates shall have during such 30-day period disclosed the
existence of or the substance of this Section 3.6 to any such employee.
3.7 Confidentiality. Seller and the Stockholder agree that, after the
Closing has been consummated, Seller, its officers, directors, agents and
representatives, and the Stockholder will hold in strict confidence, and will
not use, distribute or make available to others, any confidential or proprietary
data or information of Seller that is used in connection with or related to the
Seller's business, the Subject Assets or the Assumed Liabilities. For this
purpose, the following shall be deemed not to constitute confidential or
proprietary data or information (a) information which is generally known to the
public or in the trade, or becomes so generally known without breach of this
Agreement by Seller or Stockholder; (b) information disclosed to Seller or
Stockholder without restriction by a third party who is not in breach of any
obligation of confidentiality in making such disclosure; or (c) information
which is required to be disclosed by law or legal process, provided that Seller
or Stockholder shall notify Buyer prior to making such disclosure and shall
permit Buyer to intervene in any relevant proceeding to protect its interests.
3.8 Tax Returns. Seller, in accordance with applicable law, shall (i)
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 it with respect to
taxable periods of Seller that include any period ending on or before the
Closing and (ii) pay all Taxes of Seller attributable to periods ending on or
before the Closing. Seller shall provide Buyer with (i) its state tax returns
for the 1996 fiscal year when filed with respect to those states in which it
files a separate return and (ii) state tax returns in which it files on a
consolidated basis with portions unrelated to Seller redacted.
3.9 Bank Accounts. Immediately following the Closing, Seller and
Stockholder agree to take any and all actions required to direct Seller's bank
to sweep the funds related to Seller's business received in Seller's or
Stockholder's bank or similar accounts and lockbox, if
31
<PAGE> 37
any, to an account designated by Buyer and not to revoke such instructions
without the prior written consent of Buyer.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER.
4.1 Making of Representations and Warranties. As a material inducement
to Seller and the Stockholder to enter into this Agreement and consummate the
transactions contemplated hereby, Buyer hereby makes the representations and
warranties to Seller and the Stockholder contained in this Section 4.
4.2 Organization of Buyer. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
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.
4.3 Authority of Buyer. 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:
(i) does not and will not violate any provision of the
Certificate of Incorporation 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 any other agreement, mortgage, lease,
permit, order, judgment or decree to which Buyer is a
party and which is material to the business and financial
32
<PAGE> 38
condition of Buyer and its parent and affiliated
organizations on a consolidated basis.
4.4 Litigation. There is no litigation or governmental or administrative
proceeding or investigation pending or, to its knowledge, threatened against
Buyer which would prevent or hinder the consummation of the transactions
contemplated by this Agreement.
4.5 Finder's Fee. Buyer 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.
SECTION 5. CONDITIONS.
5.1 Conditions to the Obligations of Buyer. The obligation of Buyer to
consummate this Agreement and the transactions contemplated hereby are subject
to the fulfillment, prior to or at the Closing, of the following conditions
precedent:
(a) Representations; Warranties; Covenants. Each of the
representations and warranties of Seller and Stockholder contained in Section 2
shall be true and correct as though made on and as of the Closing; and Seller
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.
(b) No Material Change. There shall have been no material adverse
change in the financial condition, prospects, properties, assets, liabilities,
business or operations of Seller since the date hereof, whether or not in the
ordinary course of business.
(c) Certificate from Officers. Seller shall have delivered to
Buyer a certificate of Seller's and Stockholder'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 5.1 are true and correct.
(d) Approval of Buyer's Counsel. All actions, proceedings,
instruments and documents required to carry out this Agreement and the
transactions contemplated hereby and all related legal matters contemplated by
this Agreement shall have been approved by Goodwin, Procter & Hoar LLP as
counsel for Buyer, and such counsel shall have received on behalf of Buyer such
other certificates, opinions, and documents in form satisfactory to such
counsel, as Buyer may reasonably require from Seller and the Stockholder to
evidence compliance with the terms and conditions hereof as of the Closing and
the correctness as of the Closing of the representations and warranties of the
Stockholder and Seller and the fulfillment of their respective covenants.
33
<PAGE> 39
(e) Opinion of Counsel. On the date of the Closing, Buyer shall
have received from Wilson, Sonsini, Goodrich & Rosati, counsel for Seller, an
opinion as of said date, in form attached hereto as Exhibit 5.1(e).
(f) Audited Financials. On or prior to the Closing, Buyer shall
have received audited financial statements for the fiscal year ended September
30, 1996 together with originally executed reports of the auditors who have
prepared such audited financial statements and all necessary consents required
for Buyer to comply with its reporting obligations under the Securities Exchange
Act of 1934, as amended.
(g) No Litigation. There shall have been no determination by
Buyer, acting in good faith, that the consummation of the transactions
contemplated by this Agreement has become inadvisable or impracticable by reason
of the institution or threat by any person or any federal, state or other
governmental authority of litigation, proceedings or other action against Buyer,
Seller or Stockholder or any material adverse change in the laws or regulations
applicable to Seller.
(h) Consents and Assignments. Seller (and, to the extent
applicable, Stockholder) shall have made all filings with and notifications of
governmental authorities, regulatory agencies and other entities required to be
made by Seller (and, to the extent applicable, Stockholder) in connection with
the execution and delivery of this Agreement, the performance of the
transactions contemplated hereby and the continued operation of the business of
Seller by Buyer subsequent to the Closing; and Seller and Buyer shall have
received all authorizations, waivers, consents and permits, in form and
substance reasonably satisfactory to Buyer, from all third parties, including,
without limitation, applicable governmental authorities, regulatory agencies,
lessors, lenders and contract parties, required to permit the continuation of
the business of Seller and the consummation of the transactions contemplated by
this Agreement, and in connection with the transfer of Subject Assets or
Seller's contracts, permits, leases, licenses and franchises, to avoid a breach,
default, termination, acceleration or modification of any indenture, loan or
credit agreement or any other agreement, contract, instrument, mortgage, lien,
lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award as a result of, or in connection with, the
execution and performance of this Agreement.
(i) Hart-Scott-Rodino. All required Hart-Scott-Rodino filings
under the HSR Act shall have been completed and all applicable time limitations
under such Act shall have expired without a request for further information by
the relevant federal authorities under such Act, or in the event of such a
request for further information, the expiration of all applicable time
limitations under the Act shall have occurred without the objection of such
federal authorities.
(j) Transition Services Agreement. Seller, Stockholder and Buyer
shall have executed and delivered a Transition Services Agreement in
substantially the form of Exhibit 5.1(j) attached hereto.
34
<PAGE> 40
(k) FIRPTA Withholding. At or prior to the Closing, Buyer shall
have received from Stockholder a "transferor's certificate of non-foreign
status" as provided in the Treasury Regulations under Section 1445 of the Code
substantially in the form attached hereto as Exhibit 5.1(k).
(l) Business Relations. Buyer shall be reasonably satisfied
based on personal interviews with Seller's Customers, Distributors and Suppliers
that such Customers, Distributors and Suppliers intend to continue their current
level of business with Seller after the Closing.
(m) Employee Programs. Seller shall have taken all steps
reasonably necessary under the relevant documents and applicable law for Buyer
to succeed to the position of Seller with respect to each Employee Program
identified on Schedule 2.25.
(n) No Liens. Prior to or at the Closing, the Subject Assets
shall be free and clear of all liens, encumbrances and charges.
(o) No Intercompany Debt. Prior to or at the Closing, all
accounts receivable or accounts payable owed to or by Seller from or to any
related party or affiliate of Seller or Stockholder shall be paid in full.
(p) Assignment of Certain Rights of Stockholder. Stockholder
shall have assigned to Buyer all rights including under any proprietary
information or nondisclosure agreements as are necessary to conduct Seller's
business.
(q) Licenses. Seller and Stockholder have assisted Buyer in
obtaining the third-party licenses set forth on Schedule 5.1(q) attached hereto
and Stockholder represents that it has made all lump sum payments required
thereunder.
5.2 Conditions to Obligations of Seller. Seller's obligation to
consummate this Agreement and the transactions contemplated hereby is subject to
the fulfillment, prior to or at the Closing, of the following conditions
precedent:
(a) Representations; Warranties; Covenants. 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 Seller a certificate of the President or any Vice President of
Buyer dated on the Closing to such effect.
(b) Approval of Seller's Counsel. All actions, proceedings,
instruments and documents required to carry out this Agreement and the
transactions contemplated hereby and all related legal matters contemplated by
this agreement shall have been approved by Wilson, Sonsini, Goodrich & Rosati,
as counsel for Seller, and such counsel shall have received on behalf of Seller
and the Stockholder such other certificates, opinions and documents in form
satisfactory to counsel for Seller as Seller may reasonably require from Buyer
to evidence
35
<PAGE> 41
compliance with the terms and conditions hereof as of the Closing and the
correctness as of the Closing of the representations and warranties of Buyer and
the fulfillment of its covenants.
(c) No Litigation. There shall have been no determination by
Seller, acting in good faith, that the consummation of the transactions
contemplated by this Agreement has become inadvisable or impracticable by reason
of the institution or threat by any person or any federal, state or other
governmental authority of material litigation, proceedings or other action
against Buyer, Seller or the Stockholder or any material adverse change in the
laws or regulations applicable to Buyer.
(d) Opinion of Counsel. On the Closing Date, Seller shall have
received from Goodwin, Procter & Hoar LLP, counsel for Buyer, an opinion as of
said date, in form attached hereto as Exhibit 5.2(d).
(e) Hart-Scott-Rodino. All required Hart-Scott-Rodino filings
under the HSR Act shall have been completed and all applicable time limitations
under such Act shall have expired without a request for further information by
the relevant federal authorities under such Act, or in the event of such a
request for further information, the expiration of all applicable time
limitations under the Act without the objection of such federal authorities.
SECTION 6. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
6.1 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.
6.2 Collection of Assets. Subsequent to the Closing, Buyer shall have
the right and authority to collect all receivables and other items transferred
and assigned to it by Seller hereunder and to endorse with the name of Seller
any checks received on account of such receivables or other items, and Seller
agrees that it will promptly transfer or deliver to Buyer from time to time, any
cash or other property that Seller may receive with respect to any claims,
contracts, licenses, leases, commitments, sales orders, purchase orders,
receivables of any character or any other items included in the Subject Assets.
6.3 Payment of Obligations. Seller shall pay all of the Excluded
Liabilities in the ordinary course of business as they become due.
36
<PAGE> 42
SECTION 7. INDEMNIFICATION.
7.1 Indemnification by Seller and Stockholder. Seller and Stockholder
jointly and severally agree subsequent to the Closing to indemnify and hold
Buyer and its respective subsidiaries and affiliates and persons serving as
officers, directors, partners or employees thereof (individually a "Buyer
Indemnified Party" and collectively the "Buyer Indemnified Parties") harmless
from and against any damages, liabilities, diminution in value, 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, intentional misrepresentation or a deliberate or
wilful breach by Seller or the Stockholder 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 or warranty of Seller
or the Stockholder under this Agreement or in any certificate, schedule or
exhibit delivered pursuant hereto, or by reason of any claim, action or
proceeding asserted or instituted growing out of any matter or thing
constituting a breach of such representations or warranties;
(c) any other breach of any covenant of Seller or Stockholder
under this Agreement or in any certificate, schedule or exhibit delivered
pursuant hereto, or by any reason or any claim, action or proceeding asserted or
instituted growing out of any matter or thing constituting a breach of such
covenant;
(d) the Shiva Warranty Liability or any other claims made by
Shiva Corporation with respect to the matters or events occurring or facts or
circumstances existing with respect to sales of products or services by Seller
to or Seller's relationship or activities with Shiva Corporation on or prior to
the Closing;
(e) all claims asserted under the Bulk Sales Act;
(f) any failure by Seller or the Stockholder to perform and
discharge any of the Excluded Liabilities as set forth in this Agreement;
(g) any liability of Seller or the Stockholder for Taxes (as
defined in Section 2.8);
(h) any liability of the Buyer arising out of intercompany
accounts or balances of, between or among the Seller and its affiliates or
related parties existing as of the date of the Closing; and
37
<PAGE> 43
(i) any liability related to claims of patent infringement made
or threatened against Seller or Stockholder by Omni Dimensional Networks or
Business Software Alliance.
7.2 Limitations on Indemnification by Seller and Stockholder.
Notwithstanding the foregoing, the right of Buyer Indemnified Parties to
indemnification under Section 7.1 shall be subject to the following provisions:
(a) No indemnification shall be payable pursuant to Subsection
7.1(b) above to any Buyer Indemnified Party, unless the total of all claims for
indemnification pursuant to Section 7.1 shall exceed $100,000 in the aggregate,
whereupon the amount of such claims in excess of $100,000 shall be recoverable
in accordance with the terms hereof;
(b) No indemnification shall be payable to a Buyer Indemnified
Party with respect to claims asserted pursuant to Subsection 7.1(b) (exclusive
of claims for indemnification for Taxes or a breach of any representation,
warranty or covenant with respect to Taxes or tax related matters or any breach
relating to or involving fraud or intentional misrepresentation) after October
31, 1998 (the "Indemnification Cut-Off Date"); and
(c) No indemnification shall be payable pursuant to Subsection
7.1(b) above to a Buyer Indemnified Party (exclusive of claims for
indemnification for Taxes or a breach of any representation, warranty or
covenant with respect to Taxes or the related matters or any breach relating to
or involving fraud or intentional misrepresentation) to the extent that the
aggregate amount payable exceeds Four Million Five Hundred Thousand Dollars
($4,500,000).
7.3 Indemnification by Buyer and Parent . Buyer and Parent jointly and
severally agree to indemnify and hold Seller and its representatives, affiliates
and persons serving as officers, directors or employees thereof and the
Stockholder (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 of the following matters:
(a) a 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 claim, action or proceeding asserted or instituted growing out
of any matter or thing constituting such a breach; and
(b) any failure by Buyer to perform and discharge any of the
Liabilities as set forth in this Agreement.
38
<PAGE> 44
7.4 Limitation on Indemnification by Buyer and Parent. Notwithstanding
the foregoing, the right of Seller Indemnified Parties to indemnification under
Section 7.3 shall be subject to the following provisions:
(a) No indemnification pursuant to Section 7.3(a) shall be
payable to Seller or the Stockholder, unless the total of all claims for
indemnification pursuant to Section 7.3(a) shall exceed $100,000 in the
aggregate, whereupon the amount of such claims in excess of $100,000 shall be
recoverable in accordance with the terms hereof;
(b) No indemnification shall be payable to Seller or the
Stockholder with respect to claims asserted pursuant to Section 7.3(a) above
after the Indemnification Cut-Off Date; and
(c) No indemnification shall be payable pursuant to Subsection
7.3(a) above to a Seller Indemnified Party (exclusive of claims for
indemnification for Taxes or a breach of any representation, warranty or
covenant with respect to Taxes or the related matters or any breach relating to
or involving fraud or intentional misrepresentation) to the extent that the
aggregate amount payable exceeds Four Million Five Hundred Thousand Dollars
($4,500,000).
7.5 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 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, whose reasonable fees and
expenses shall be borne by the indemnifying party. If no such notice of intent
to dispute and defend a third party claim or liability is given by the
39
<PAGE> 45
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.
If the third party claim or liability is one that by its nature cannot be
defended solely by the indemnifying party, then 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.
SECTION 8. MISCELLANEOUS.
8.1 Bulk Sales Law. Buyer waives compliance by Seller with the
provisions of any applicable bulk sales, fraudulent conveyance or other law for
the protection of creditors in connection with the transfer of the Subject
Assets under this Agreement.
8.2 Fees and Expenses.
(a) 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 Seller relating in any way to the purchase
and sale of the Subject Assets hereunder and the transactions contemplated
hereby, including without limitation legal, accounting or other professional
expenses of Seller or the Stockholder, shall be charged to or paid by Buyer or
included in any of the Liabilities.
(b) Seller will pay all costs incurred, whether at or subsequent
to the Closing, in connection with the transfer of the Subject Assets to Buyer
as contemplated by this Agreement, including without limitation, all sales, use,
excise, real property and other transfer taxes and charges applicable to such
transfer; all recording charges and fees applicable to the recordation of deeds
and mortgages and other instruments of transfer; and all costs of obtaining or
transferring permits, registrations, applications and other tangible and
intangible properties. Buyer will pay all premiums, charges and costs of
obtaining and providing surveys, appraisals, UCC and title searches and title
insurance for the benefit of Buyer with respect to the Subject Assets.
8.3 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.
8.4 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 with
confirmation of transmission, or if sent by registered or certified mail or by a
nationally recognized commercial courier, upon the sooner of the date on which
receipt is acknowledged or the expiration of three days after deposit in
40
<PAGE> 46
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:
TO BUYER: Netaccess Acquisition Corp.
c/o Brooktrout Technology, Inc.
410 First Avenue
Needham, MA 02192
Attention: Eric Giler, President
With a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attention: H. David Henken, Esq.
Thomas P. Storer, P.C.
TO SELLER: Netaccess, Inc.
c/o Xircom, Inc.
2300 Corporate Center Drive
Thousand Oaks, California 91320-1420
Attention: General Counsel
With a copy to: Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Larry W. Sonsini, Esq.
Howard S. Zeprun, Esq.
TO THE STOCKHOLDER: Xircom, Inc.
2300 Corporate Center Drive
Thousand Oaks, California 91320-1420
Attention: General Counsel
With a copy to: Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Larry W. Sonsini, Esq.
Howard S. Zeprun, Esq.
Any notice given hereunder may be given on behalf of any party by his counsel or
other authorized representatives.
8.5 Entire Agreement. This Agreement, including the Schedules and
Exhibits referred to herein and the other writings specifically identified
herein or contemplated hereby,
41
<PAGE> 47
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 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.
8.6 Assignability; Binding Effect. After the Closing, Buyer's rights and
obligations hereunder shall be freely assignable, provided that Buyer's
obligations under Section 7 shall be assignable only (a) to any direct or
indirect subsidiary of Brooktrout Technology, Inc.; (b) to a person who acquires
all or substantially all of Buyer's assets by merger, purchase or otherwise or
(c) otherwise with the consent of Stockholder, which consent shall not be
unreasonably withheld. This Agreement may not be assigned by Seller 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.
8.7 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.
8.8 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.
8.9 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.
8.10 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
consent of Buyer and Seller.
8.11 Consent to Jurisdiction. Solely for the purpose of allowing a party
to enforce its indemnification and other rights hereunder, each of the parties
hereby consents to personal jurisdiction, service of process and venue in the
federal or state courts of Massachusetts, or in the court in which any claim for
which indemnification may be sought hereunder is brought against an indemnified
party.
[THIS SPACE INTENTIONALLY LEFT BLANK]
42
<PAGE> 48
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date set forth above by their duly authorized
representatives.
BUYER:
BTINH OPERATING COMPANY, INC.
/s/ Robert C. Leahy
By:___________________________________
Treasurer
Title:________________________________
PARENT:
BROOKTROUT TECHNOLOGY, INC.
/s/ Robert C. Leahy
By:___________________________________
Vice President
Title:________________________________
SELLER:
NETACCESS, INC.
/s/ Randall H. Holliday
By:___________________________________
Secretary
Title:________________________________
STOCKHOLDER:
XIRCOM, INC.
/s/ Randall H. Holliday
By:___________________________________
Secretary
Title:________________________________
43
<PAGE> 1
COMPANY PRESS RELEASE
Source: Brooktrout Technology, Inc.
BROOKTROUT ACQUIRES NETACCESS
ACQUISITION OF LEADING NETWORK INTERFACE & MULTIPORT MODEM PRODUCT VENDOR
EXPANDS BROOKTROUT'S ELECTRONIC MESSAGING PRODUCT OFFERINGS
NEEDHAM, Mass., June 30/PRNewswire/ -- Brooktrout Technology, Inc. (Nasdaq:
BRKT) today announced that it has acquired Netaccess, a wholly-owned subsidiary
of Xircom, Inc. (Nasdaq: XIRC). The transaction was completed today for an
aggregate purchase price of $11 million plus assumption of certain operating
liabilities of Netaccess. Netaccess is a leading supplier of Primary Rate ISDN
telephone network interface products for computer telephony systems and
multiport modem products for open, standards-based remote access systems.
Netaccess will operate as an independent, wholly-owned subsidiary of Brooktrout
from its existing offices in Salem, New Hampshire. This acquisition expands
Brooktrout's leadership position as a provider of high value-added software and
hardware electronic messaging products by adding a full line of data
communications products.
Complementing Brooktrout's expertise in voice and facsimile messaging, Netaccess
is the leading provider of Primary Rate ISDN and modem communications software
and hardware. Netaccess is a leading supplier to remote access system OEMs such
as 3Com and Motorola, and to networking VARs who are creating remote access
servers using Microsoft Corporation's Windows NT Remote Access Service and
Novell Inc.'s NetWare Connect. Netaccess' Primary Rate ISDN telephone network
interface products are used by telecommunication service providers such as
Atlas Telecom and computer telephony system vendors such as Lucent
Technologies.
The acquisition will be accounted for as a purchase and, accordingly,
Brooktrout expects to allocate the purchase price to the assets acquired based
upon an independent appraisal of their fair value. Based on preliminary
information available to Brooktrout, it expects to record a one-time charge in
the second quarter of 1997 of $3.5 to $4 million ($2.2 to $2.5 million after tax
benefits) reflecting the anticipated allocation of purchase price to in-process
research and development efforts. This anticipated allocation is subject to
finalization and could change.
Also, Brooktrout announced that it expects that revenue and earnings for the
second quarter, 1997, will not meet analysts' expectations. Sales have been
lower than anticipated during the quarter and only a modest increase is
expected over the previous year's comparable quarter. These estimates are based
upon information currently available to the company. "While the fax portion of
our business from the CPE and service provider segments has slowed," said Eric
Giler, president of Brooktrout, "we believe this acquisition places Brooktrout
in a leadership position in the open remote access server and Primary Rate ISDN
telephone network interface product portions of the electronic messaging
market." Brooktrout will report its financial results for the quarter ending
June 30, 1997, on or about July 31, 1997.
"The acquisition of Netaccess enables Brooktrout to fulfill its vision of
providing high-value technologies for the whole range of electronic messaging
applications -- voice, fax and data --
<PAGE> 2
worldwide," said Eric Giler, president of Brooktrout. "Brooktrout can now offer
customers products that span the entire range of electronic messaging
technologies, as well as a complete international product family of multiport
modems, and Primary Rate telephone network interface products."
"The acquisition of Netaccess by Brooktrout will enhance the global offerings
to our customers who create computer telephony products and enterprise remote
access servers," said Bill Rosenberger, president of Netaccess. "Together we
bring a strong range of industry-leading application development software and
hardware for internetworking and computer telephony systems. Our complementary
products will continue to lead the convergence of the telecommunications and
networking markets." Bill Rosenberger will remain as president of Netaccess. It
is anticipated that the entire staff of Netaccess will remain with the company.
Except for historical information contained in this release, there may be
forward-looking statements that do not give full weight to all the potential
risks including, but not limited to, product demand and market acceptance,
rapid changes in technology, the impact of competition and the integration of
acquired companies. Actual results may differ materially. Additional
information concerning those and other factors is contained in the "Risk
Factors" section of the Registration Statement filed with the Securities and
Exchange Commission on June 26, 1996.
About Netaccess
Netaccess manufactures a complete line of T1/E1 Primary Rate ISDN wide area
network access cards, quad BRI ISDN cards, multi-port analog modems and ISDN
software. The company sells its products on an OEM basis to RAS and CTI system
vendors, and also serves the open RAS market through distribution to VARs and
systems integrators. Motorola most recently awarded Netaccess its coveted
Supplier Award for Excellence. The award honors the company and its president
for their innovative and high quality project management, system installation,
and service support work. Netaccess can count itself among the few companies in
the world to receive one of the industry's top honors for its business.
About Brooktrout
Brooktrout Technology, Inc., headquartered in Needham, Mass., is a leading
supplier of advanced software and hardware products for system vendors and
service providers in the electronic messaging market. Brooktrout's products
enable its customers to deliver a wide range of solutions for the integration
and cost-effective management of fax, voice and data communications in
telecommunications and networking environments. An industry pioneer, Brooktrout
was the first company to introduce multi-channel fax boards, to combine fax and
voice processing on a single board, to provide fax application development
tools under UNIX and Windows NT, and first to provide on-board ISDN interfaces
for direct connection to ISDN lines. The company holds U.S. patents on
fax-on-demand document retrieval and the use of direct inward dialing (DID)
telephone service with fax message systems.
- --------------------
SOURCE: Brooktrout Technology, Inc.
Contact: Bob Leahy or Anne Marie Clark of Brooktrout Technology, Inc.,
617-449-4100
- --------------------
