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) April 14, 1997
KURZWEIL APPLIED INTELLIGENCE, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-20256 04-2815079
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
411 Waverley Oaks Road
Waltham, Massachusetts 02154
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (617) 893-5151
Exhibit Index at Page 4
Page 1 of 4
<PAGE>
Item 5. Other Events
On April 14, 1997, Kurzweil Applied Intelligence, Inc. (the "Company") entered
into an Agreement and Plan of Merger (the "Merger Agreement") with Lernout &
Hauspie Speech Products N.V. and a wholly-owned subsidiary of Lernout & Hauspie.
The Merger Agreement provides for the merger of that subsidiary into the Company
and for the Company to be the surviving corporation. The closing of the merger
is subject to certain conditions and approvals, including the approval of the
Company's stockholders.
Under the terms of the Merger Agreement, at the effective time of the merger,
each share of Company common stock will be converted into and represent the
right to receive $4.20 in cash and a fraction of a share of Lernout & Hauspie
common stock, no par value. The fraction is based on a conversion ratio equal to
$1.05 divided by the average closing price per share of Lernout & Hauspie's
common stock on the Nasdaq National Market for the ten consecutive trading days
ending with the last trading day prior to the date of the Company's 1997 Annual
Meeting of Stockholders, except that the conversion ratio will be no less than
0.047549 of a share of Lernout & Hauspie common stock for each share of Company
common stock and no more than 0.058115 of a share of Lernout & Hauspie common
stock for each share of Company common stock.
As part of the consideration for Lernout & Hauspie entering into the Merger
Agreement, the Company has granted Lernout & Hauspie an option pursuant to a
Stock Option Agreement dated as of April 14, 1997 to purchase up to 16% of the
Company's shares outstanding during the option term at a purchase price of $5.25
per share, exercisable under certain circumstances in the event of the
termination of the Merger Agreement. The Company has the right to repurchase the
option and any shares purchased under the option under certain circumstances.
In addition, pursuant to a Loan Agreement dated as of April 14, 1997, Lernout &
Hauspie's United States subsidiary, Lernout & Hauspie Speech Products USA, Inc.
("L&H USA"), has agreed to make available to the Company until October 31, 1997
a line of credit of $1.5 million for working capital purposes. In consideration
of the line of credit, the Company has issued to L&H USA a warrant to purchase
185,000 shares of Company common stock at a purchase price of $3.21 per share.
The foregoing summaries of the Merger Agreement, the Stock Option Agreement, the
Loan Agreement and the warrant are not intended to be complete statements of all
of the material terms of those agreements. The summaries are qualified in their
entirety by the agreements themselves and related agreements that are filed
herewith as Exhibits 99.2 through 99.7.
Item 7. Financial Statements and Exhibits
(c) Exhibits.
2.1 Agreement and Plan of Merger dated as of April 14, 1997 between
Kurzweil Applied Intelligence, Inc., Lernout & Hauspie Speech
Products N.V. and Trappist Acquisition Corp.
10.1 Stock Option Agreement dated as of April 14, 1997 between
Kurzweil Applied Intelligence, Inc. and Lernout & Hauspie Speech
Products N.V.
- 2 -
<PAGE>
10.2 Loan Agreement dated as of April 14, 1997 between Kurzweil
Applied Intelligence, Inc. and Lernout & Hauspie Speech Products
USA, Inc.
10.3 Common Stock Warrant dated April 14, 1997 issued by Kurzweil
Applied Intelligence, Inc.
10.4 Line of Credit Note dated April 14, 1997.
10.5 Security Agreements dated as of April 14, 1997 between Kurzweil
Applied Intelligence, Inc. and Lernout & Hauspie Speech Products
USA, Inc.
99.1 Press release of Kurzweil Applied Intelligence, Inc. dated
April 14, 1997.
------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Kurzweil Applied Intelligence, Inc.
Date: April 17, 1997 By: /s/ Thomas E. Brew, Jr.
----------------------------
Thomas E. Brew, Jr.
President & Chief Executive Officer
- 3 -
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit No. Description At Page
- ----------- ----------- -------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as of April 14, 1997
between Kurzweil Applied Intelligence, Inc., Lernout & Hauspie
Speech Products N.V. and Trappist Acquisition Corp.
10.1 Stock Option Agreement dated as of April 14, 1997 between
Kurzweil Applied Intelligence, Inc. and Lernout & Hauspie
Speech Products N.V.
14, 1997
10.2 Loan Agreement dated as of April 14, 1997 between Kurzweil
Applied Intelligence, Inc. and Lernout & Hauspie Speech
Products USA, Inc.
10.3 Common Stock Warrant dated April 14, 1997 issued by Kurzweil
Applied Intelligence, Inc.
10.4 Line of Credit Note dated April 14, 1997.
10.5 Security Agreements dated as of April 14, 1997 between Kurzweil
Applied Intelligence, Inc. and Lernout & Hauspie Speech
Products USA, Inc.
99.1 Press Release of Kurzweil Applied Intelligence, Inc. dated April
</TABLE>
- 4 -
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
LERNOUT & HAUSPIE SPEECH PRODUCTS N.V.
TRAPPIST ACQUISITION CORP.
AND
KURZWEIL APPLIED INTELLIGENCE, INC.
DATED: APRIL 14, 1997
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I THE MERGER..............................................................................................1
1.1 THE MERGER....................................................................................................1
1.2 THE CLOSING...................................................................................................1
1.3 ACTIONS AT THE CLOSING........................................................................................2
1.4 ADDITIONAL ACTIONS............................................................................................2
1.5 CONVERSION OF SHARES..........................................................................................2
1.6 APPRAISAL RIGHTS..............................................................................................4
1.7 EXCHANGE OF SHARES............................................................................................4
1.8 DIVIDENDS.....................................................................................................6
1.9 OPTIONS AND WARRANTS..........................................................................................6
1.10 CERTIFICATE OF INCORPORATION.................................................................................7
1.11 BYLAWS.......................................................................................................8
1.12 DIRECTORS AND OFFICERS.......................................................................................8
1.13 NO FURTHER RIGHTS............................................................................................8
1.14 CLOSING OF TRANSFER BOOKS....................................................................................8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................................8
2.1 ORGANIZATION AND QUALIFICATION OF THE COMPANY.................................................................8
2.2 CAPITALIZATION................................................................................................9
2.3 SUBSIDIARIES.................................................................................................10
2.4 AUTHORIZATION OF TRANSACTION.................................................................................10
2.5 PRESENT COMPLIANCE WITH OBLIGATIONS AND LAWS.................................................................10
2.6 NO CONFLICT OF TRANSACTION WITH OBLIGATIONS AND LAWS.........................................................10
2.7 REPORTS AND FINANCIAL STATEMENTS.............................................................................11
2.8 ABSENCE OF UNDISCLOSED LIABILITIES...........................................................................12
2.9 ABSENCE OF CERTAIN CHANGES...................................................................................12
2.10 PAYMENT OF TAXES............................................................................................14
2.11 TITLE TO PROPERTIES; LIENS; CONDITION OF PROPERTIES.........................................................15
2.12 INVENTORIES; ACCOUNTS RECEIVABLE............................................................................15
2.13 INTELLECTUAL PROPERTY RIGHTS................................................................................16
2.14 CONTRACTS AND COMMITMENTS...................................................................................17
2.15 LABOR AND EMPLOYEE RELATIONS................................................................................18
2.16 EMPLOYEE BENEFITS AND ERISA.................................................................................19
2.17 ENVIRONMENTAL MATTERS.......................................................................................21
2.18 PERMITS.....................................................................................................21
2.19 WARRANTY OR OTHER CLAIMS....................................................................................21
2.20 CLAIMS AND LEGAL PROCEEDINGS................................................................................22
2.21 BORROWINGS AND GUARANTEES...................................................................................22
2.22 FINANCIAL SERVICE RELATIONS AND POWERS OF ATTORNEY..........................................................22
2.23 INSURANCE...................................................................................................22
2.24 GOVERNMENT CONTRACTS........................................................................................23
2.25 CORPORATE BOOKS AND RECORDS.................................................................................23
2.26 TRANSACTION FEE.............................................................................................23
2.27 TRANSACTIONS WITH INTERESTED PERSONS........................................................................23
2.28 ABSENCE OF SENSITIVE PAYMENTS...............................................................................23
2.29 DISCLOSURE OF MATERIAL INFORMATION..........................................................................24
2.30 REGULATORY CORRESPONDENCE...................................................................................24
2.31 STATE ANTITAKEOVER STATUTES.................................................................................24
2.32 COMPANY ACTION..............................................................................................24
2.33 HSR ACT.....................................................................................................25
</TABLE>
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page i
Execution Copy
<PAGE>
<TABLE>
<S> <C>
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE ACQUISITION SUBSIDIARY.........................25
3.1 ORGANIZATION OF PARENT AND ACQUISITION SUBSIDIARY............................................................25
3.2 CAPITALIZATION...............................................................................................26
3.3 AUTHORIZATION OF TRANSACTION.................................................................................26
3.4 NO CONFLICT OF TRANSACTION WITH OBLIGATIONS AND LAWS.........................................................26
3.5 REPORTS AND FINANCIAL STATEMENTS.............................................................................27
3.6 CLAIMS AND LEGAL PROCEEDINGS.................................................................................28
3.7 DISCLOSURE OF MATERIAL INFORMATION...........................................................................28
3.8 PARENT ACTION................................................................................................28
3.9 SHAREHOLDER VOTE NOT REQUIRED................................................................................29
3.10 TRANSACTION FEES............................................................................................29
3.11 FINANCING...................................................................................................29
3.12 PRIOR ACTIVITIES OF ACQUISITION SUBSIDIARY..................................................................29
3.13 PERMITS.....................................................................................................29
3.14 ABSENCE OF SENSITIVE PAYMENTS...............................................................................29
3.15 HSR ACT.....................................................................................................30
3.16 PRESENT COMPLIANCE WITH OBLIGATIONS AND LAWS................................................................30
ARTICLE IV COVENANTS.............................................................................................30
4.1 REASONABLE BEST EFFORTS.....................................................................................30
4.2 NOTICES AND CONSENTS.........................................................................................30
4.3 SPECIAL MEETING, PROSPECTUS/PROXY STATEMENT AND REGISTRATION STATEMENT; FAIRNESS OPINION.....................30
4.4 OPERATION OF BUSINESS.......................................................................................32
4.5 ACCESS.......................................................................................................34
4.6 NOTICE OF BREACHES...........................................................................................34
4.7 EXCLUSIVITY..................................................................................................35
4.8 LISTING OF MERGER SHARES.....................................................................................35
4.9 INDEMNIFICATION..............................................................................................36
4.10 FILING OF ANNUAL REPORTS....................................................................................36
4.11 HART-SCOTT-RODINO...........................................................................................37
4.12 EMPLOYEE WELFARE............................................................................................37
4.13 TAX RETURNS; GOOD STANDING..................................................................................37
4.14 LOAN TO COMPANY.............................................................................................37
ARTICLE V CONDITIONS TO CONSUMMATION OF MERGER...................................................................37
5.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS.......................................................................37
5.2 CONDITIONS TO OBLIGATIONS OF THE PARENT AND THE ACQUISITION SUBSIDIARY.......................................38
5.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY.....................................................................39
ARTICLE VI TERMINATION AND ABANDONMENT...........................................................................40
6.1 TERMINATION..................................................................................................40
6.2 TERMINATION BY THE PARENT....................................................................................41
6.3 TERMINATION BY THE COMPANY...................................................................................41
6.4 PROCEDURE FOR TERMINATION....................................................................................42
6.5 EFFECT OF TERMINATION AND ABANDONMENT........................................................................42
ARTICLE VII MISCELLANEOUS........................................................................................43
7.1 FEES AND EXPENSES............................................................................................43
7.2 NOTICES......................................................................................................44
7.3 PUBLICITY AND DISCLOSURES....................................................................................45
7.4 ENTIRE AGREEMENT.............................................................................................45
7.5 SEVERABILITY.................................................................................................45
</TABLE>
- -------------------------------------------------------------------------------
Agreement and Plan of Merger Page ii
Execution Copy
<PAGE>
<TABLE>
<S> <C>
7.6 ASSIGNABILITY................................................................................................45
7.7 AMENDMENTS AND WAIVERS.......................................................................................46
7.8 GOVERNING LAW; VENUE.........................................................................................46
7.9 REMEDIES.....................................................................................................46
7.10 COUNTERPARTS................................................................................................46
7.11 EFFECT OF TABLE OF CONTENTS AND HEADINGS....................................................................47
7.12 NO THIRD PARTY BENEFICIARIES................................................................................47
7.13 KNOWLEDGE...................................................................................................47
7.14 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES...............................................................47
7.15 INTEGRATION OF EXHIBITS.....................................................................................47
ARTICLE VIII DEFINITIONS.........................................................................................47
SIGNATURES.......................................................................................................50
LIST OF SCHEDULES AND EXHIBITS...................................................................................51
</TABLE>
Agreement and Plan of Merger Page iii
Execution Copy
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT entered into as of the 14th day of April, 1997, by and among
Lernout & Hauspie Speech Products N.V., a Belgian corporation, with its
principal place of business in Ieper, Belgium(the "Parent"), Trappist
Acquisition Corp., a Delaware corporation and wholly owned subsidiary of the
Parent, with its principal place of business in Burlington, Massachusetts (the
"Acquisition Subsidiary"), and Kurzweil Applied Intelligence, Inc., a Delaware
corporation, with its principal place of business in Waltham, Massachusetts
("the Company"). The Parent, the Acquisition Subsidiary and the Company are
referred to collectively herein as the "Parties."
WHEREAS, the Boards of Directors of each of the Parties have agreed that
it is in their best interests for the Acquisition Subsidiary to merge with and
into the Company upon the terms and conditions set forth herein. The Boards of
Directors of the Parent, Acquisition Subsidiary and the Company have approved
the merger.
WHEREAS, this Agreement contemplates a merger of the Acquisition
Subsidiary with and into the Company and in such merger, the stockholders of the
Company will receive a combination of cash and capital stock of the Parent in
exchange for their capital stock of the Company.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the Parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon and subject to the terms and conditions of this
Agreement and in accordance with the Delaware General Corporation Law ("DGCL"),
the Acquisition Subsidiary shall be merged with and into the Company (with such
merger referred to herein as the "Merger") at the Effective Time (as defined
below). From and after the Effective Time, the separate corporate existence of
the Acquisition Subsidiary shall cease and the Company shall continue as the
surviving corporation in the Merger (the "Surviving Corporation"). The
"Effective Time" shall be the time at which the Company and the Acquisition
Subsidiary file a certificate of merger in substantially the form attached
hereto as Exhibit A (the "Certificate of Merger") in accordance with the
relevant provisions of the DGCL, with the Secretary of State of the State of
Delaware. The Merger shall have the effects set forth in Sections 251 and 259 of
the DGCL.
1.2 The Closing. The closing of the Merger (the "Closing") shall take place
at the offices of Brown, Rudnick, Freed & Gesmer in Boston, Massachusetts,
commencing at 9:00 a.m. local time on the first business day after the receipt
of Requisite Stockholder Approval (as defined in Section 2.4), provided that on
or prior thereto, all the conditions to the obligations of the Parties to
consummate the transactions contemplated hereby as set forth in Article V have
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 1
Execution Copy
<PAGE>
been satisfied or waived, or on such other mutually agreeable later date as soon
as practicable after the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(the "Closing Date"); provided, however, that the Closing Date shall be no later
than August 15, 1997.
1.3 Actions at the Closing. At the Closing, subject to the satisfaction or
waiver of all of the conditions set forth in Article V not theretofore satisfied
or waived, (a) the Company and the Acquisition Subsidiary shall file with the
Secretary of State of the State of Delaware the Certificate of Merger and (b)
the Acquisition Subsidiary shall deliver the Merger Consideration (as defined
below) to ChaseMellon Shareholder Services or such other entity reasonably
satisfactory to the Company and the Parent to act as the exchange agent (the
"Exchange Agent") in accordance with Section 1.7.
1.4 Additional Actions. The Surviving Corporation may, at any time after
the Effective Time, take any action, including executing and delivering any
document, in the name and on behalf of either the Company or the Acquisition
Subsidiary, in order to consummate the transactions contemplated by this
Agreement.
1.5 Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of any Party or the holder of any of the
following securities:
(a) Each share of common stock, $.01 par value per share, of
the Company ("Company Shares") issued and outstanding immediately prior to the
Effective Time (other than (i) Company Shares owned by stockholders who,
pursuant to the DGCL, properly perfect their rights to appraisal in accordance
with Section 262 of the DGCL ("Dissenting Stockholders") and (ii) Company Shares
owned by the Parent or the Acquisition Subsidiary and (iii) Company Shares held
in the Company's treasury) and each O&W Company Share (as defined in Section
1.9) shall be converted into and represent the right to receive $4.20 in cash
(the "Cash Consideration"), and after conversion as provided in clauses (b) and
(c) below, such number of shares of common stock, no par value per share, of the
Parent ("Parent Common Stock") as is equal to the Conversion Ratio (the "Stock
Consideration").
The "Conversion Ratio" shall equal $1.05 divided by the Average Market
Value; provided, however, that if the Average Market Value is greater than
$22.08250 , then the Conversion Ratio shall equal 0.047549 ; and, provided,
further, that if the Average Market Value is less than $18.06750 , then the
Conversion Ratio shall equal 0.058115. For purposes hereof, the term "Average
Market Value" means the arithmetic average (rounded to the nearest five decimal
places) of the closing price per share of the Parent Common Stock as reported on
the Nasdaq National Market for the ten (10) consecutive trading days ending with
the last trading day prior to the date of the Special Meeting (as defined in
Section 4.3(a)). The number of shares of Parent Common Stock so issuable shall
be subject to equitable adjustment in the event that the Parent changes the
number of shares of Parent Common Stock issued and outstanding prior to the
Effective Time as a result of a stock split, stock dividend or similar
recapitalization with respect to the Parent Common Stock.
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 2
Execution Copy
<PAGE>
Stockholders of record of the Company together with persons deemed to
hold O&W Company Shares (determined pursuant to Section 1.9(a)), in each case as
of the Effective Time ("Company Stockholders") other than Dissenting
Stockholders, shall be entitled to receive all of the Cash Consideration and the
Stock Consideration into which their Company Shares and O&W Company Shares were
converted pursuant to this Section 1.5(a) (the "Merger Shares") upon tender of
their Company Shares or O&W Agreements (as defined in Section 1.7(a)) as set
forth in Section 1.7 below.
(b) In order to effectuate the Merger and the delivery of
Parent Common Stock in connection with the Merger, at the Closing Parent shall
deliver the Parent Common Stock to be issued hereunder by issuing a global
automatically convertible bond (the "ACO") in the original principal amount
equal to the Average Market Value per share (determined without regard to the
$22.08250 and $18.06750 limitation) multiplied by the aggregate number of shares
of Parent Common Stock to be issued in connection with the Merger pursuant to
this Section 1.5 (the "ACO Principal Amount") in form reasonably acceptable to
the parties hereto, to the Exchange Agent as agent for and for the benefit of
the Company Stockholders.
(c) At the Closing, the Exchange Agent, on behalf of the
Company Stockholders , shall convert the ACO to the capital of Parent in return
for that number of duly authorized, validly issued, fully paid and
non-assessable shares of Parent Common Stock determined by dividing the ACO
Principal Amount by the Average Market Value per share (determined without
regard to the $22.08250 and $18.06750 limitation) of Parent's Common Stock;
provided, however, that such number of shares shall be rounded to the nearest
whole number. To effectuate the foregoing at the Closing the Exchange Agent
shall present the ACO to a public notary to effect the conversion of the ACO to
the capital of Parent and the issuance of shares of Parent Common Stock on the
Closing Date as set forth in this Section 1.5 and Section 1.9(a).
(d) No certificates or scrip representing fractional Merger
Shares shall be issued to former Company Stockholders upon the surrender for
exchange of Certificates (as defined in Section 1.7(a)) or O&W Agreements, and
such former Company Stockholders shall not be entitled to any voting rights,
rights to receive any dividends or distributions or other rights as a
stockholder of the Parent with respect to any fractional Merger Shares that
would otherwise be issued to such former Company Stockholders. In lieu of any
fractional Merger Shares that would otherwise be issued, each former Company
Stockholder that would have been entitled to receive a fractional Merger Share
shall, upon proper surrender of such person's Certificates or O&W Agreements
representing such fractional Merger Shares, receive cash in an amount equal to
such fractional Merger Share multiplied by the Average Market Value (without
regard to the $22.08250 and $18.06750 limitation). The Cash Consideration, the
Merger Shares and the cash to be received in lieu of fractional Merger Shares
are collectively referred to herein as the "Merger Consideration."
(e) Each Company Share held in the Company's treasury
immediately prior to the Effective Time and each Company Share owned by the
Parent or the Acquisition
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 3
Execution Copy
<PAGE>
Subsidiary shall, by virtue of the Merger and without any further action, be
canceled and retired without payment of any consideration therefor.
(f) Each share of common stock, $.01 par value per share, of
the Acquisition Subsidiary ("Acquisition Subsidiary Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into and
thereafter evidence one share of common stock, $.01 par value per share, of the
Surviving Corporation.
1.6 Appraisal Rights.
(a) Notwithstanding any provision of this Agreement to the
contrary, any Company Shares held by a Dissenting Stockholder shall not be
converted into the right to receive Merger Consideration pursuant to Section
1.5(a), but such Dissenting Stockholder shall only be entitled to such payments
as are provided by the DGCL.
(b) Notwithstanding the provisions of Section 1.6(a), if any
Dissenting Stockholder shall effectively withdraw or lose (through failure to
perfect or otherwise) his right to appraisal, then, as of the later of the
Effective Time or the occurrence of such event, such Dissenting Stockholder's
Company Shares shall automatically be converted into the right to receive Merger
Consideration as provided in Section 1.5(a), without interest thereon.
(c) The Company shall give the Parent (i) prompt notice of
any written demands for appraisal of any Company Shares, withdrawals of such
demands, and any other instruments that relate to such demands received by the
Company, and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under the DGCL. The Company
shall not, without the prior written consent of the Parent, make any payment
with respect to any demands for appraisal of Company Shares or offer to settle
or settle any such demands.
1.7 Exchange of Shares.
(a) Prior to the Effective Time, the Parent and the Company
shall mutually appoint the Exchange Agent (or such other Exchange Agent as the
parties shall mutually agree) to effect the exchange for the Merger
Consideration of certificates that, immediately prior to the Effective Time,
represented Company Shares ("Certificates"), and Options and Warrants that, at
the Effective Time, will be deemed to be converted into O&W Company Shares ("O&W
Agreements"). On or before the Closing Date, the Parent shall deliver to the
Exchange Agent or its nominee, in trust for the benefit of holders of
Certificates and O&W Agreements, the Cash Consideration and, a certificate
(issued in the name of the Exchange Agent or its nominee) representing the ACO ,
as described in Section 1.5(b) which on the Closing Date shall be converted into
shares of Parent Common Stock, in accordance with Section 1.5(c) such that on
such date at the Closing, a certificate or certificates representing the Merger
Shares shall be available for distribution by the Exchange Agent. As soon as
practicable after the Effective Time and no later than five (5) days thereafter,
the Parent shall cause the Exchange Agent to send a notice and a transmittal
form to each holder of a Certificate or O&W Agreement (other than
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 4
Execution Copy
<PAGE>
those surrendered and paid for at the Closing) advising such holder of the
effectiveness of the Merger and the procedure for surrendering to the Exchange
Agent such Certificate or O&W Agreement in exchange for the Merger
Consideration. Each holder of a Certificate or O&W Agreement, upon proper
surrender thereof to the Exchange Agent in accordance with the instructions in
such notice, shall be entitled to receive in exchange therefor (subject to any
taxes required to be withheld) the Merger Consideration, without interest,
determined pursuant to Sections 1.5(a) and (b). Until properly surrendered, each
such Certificate or O&W Agreement shall be deemed for all purposes to evidence
only the right to receive the Merger Consideration determined pursuant to
Sections 1.5(a) and (b). Holders of Certificates shall not be entitled to
receive certificates for the Merger Shares or cash payments to which they would
otherwise be entitled until such Certificates or O&W Agreement are properly
surrendered, or an affidavit is delivered pursuant to Section 1.7(c).
(b) If any Merger Consideration is to be issued or paid in
the name of a person other than the person in whose name the Certificate or O&W
Agreement surrendered in exchange therefor is registered, it shall be a
condition to the issuance and payment of such Merger Consideration that (i) the
Certificate or O&W Agreement so surrendered shall be transferable, and shall be
properly assigned, endorsed or accompanied by appropriate stock powers, (ii)
such transfer shall otherwise be proper and (iii) the person requesting such
transfer shall pay to the Exchange Agent any transfer or other taxes payable by
reason of the foregoing or establish to the satisfaction of the Exchange Agent
that such taxes have been paid or are not required to be paid. Notwithstanding
the foregoing, neither the Exchange Agent nor any Party shall be liable to a
holder of Company Shares for any Merger Consideration issuable or payable to
such holder that is delivered to a public official in accordance with applicable
abandoned property, escheat or similar laws.
(c) In the event any Certificate or O&W Agreement shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such Certificate or O&W Agreement to be lost, stolen or
destroyed, the Parent shall direct the Exchange Agent to issue in exchange for
such lost, stolen or destroyed Certificate or O&W Agreement the Merger
Consideration issuable or payable in exchange therefor pursuant to Section 1.5.
The Board of Directors of the Parent may, in its discretion and as a condition
precedent to the issuance or payment thereof, require the owner of such lost,
stolen or destroyed Certificate or O&W Agreement to give the Parent a bond in
such sum as it may reasonably direct as indemnity against any claim that may be
made against the Parent with respect to the Certificate or O&W Agreement alleged
to have been lost, stolen or destroyed.
(d) The Exchange Agent shall invest the cash portion of the
Merger Consideration as directed by the Parent; provided, however, that all risk
of loss related to such investments shall be borne by the Parent.
(e) Promptly following the date which is twelve (12) months
after the Closing Date, the Exchange Agent shall (i) return to the Parent all
Merger Consideration (including the proceeds of any investments thereof) in its
possession, other than shares of Parent Common Stock and (ii) return all shares
of Parent Common Stock included in the Merger
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 5
Execution Copy
<PAGE>
Consideration to the Belgian Caisse des depots et Consignations or any similar
institution. Thereafter, the Exchange Agent's duties shall terminate.
Thereafter, each holder of a Certificate or O&W Agreement may surrender such
Certificate or O&W Agreement to the Parent and, subject to applicable abandoned
property, escheat and similar laws, receive in exchange therefor the Merger
Consideration (with the cash portion of such consideration to be provided by the
Parent and the Parent Common Stock portion of such consideration to be provided
by the Belgian Caisse des depots et Consignations or such other institution that
holds such shares of Parent Common Stock), without interest.
1.8 Dividends. No dividends or other distributions that are payable to the
holders of record of Parent Common Stock as of a date on or after the Effective
Time shall be paid to former Company Stockholders entitled by reason of the
Merger to receive Merger Shares until such holders surrender their Certificates
or O&W Agreements in accordance with Section 1.7. Upon such surrender, the
Parent shall pay or deliver to the persons in whose name the certificates
representing such Merger Shares are issued any dividends or other distributions
that are payable to the holders of record of Parent Common Stock as of a date on
or after the Effective Time and which were paid or delivered between the
Effective Time and the time of such surrender provided that no such person shall
be entitled to receive any interest on such dividends or other distributions.
1.9 Options and Warrants.
(a) At the Effective Time, all (i) options to purchase
Company Shares issued by the Company pursuant to its stock option plans or
otherwise ("Options"), and (ii) warrants to purchase Company Shares
("Warrants"), in each case to the extent vested or exercisable on or prior to
the Effective Date or as a result of the consummation of the Merger, shall be,
to the extent permitted by the terms thereof or agreed to by the holder thereof,
terminated and each holder of such Options and Warrants which have a per share
exercise price less than the aggregate per share dollar value of the Merger
Consideration (determined without regard to the $22.08250 and $18.06750
limitation) (such amount, the "Per Share Dollar Value"), shall receive therefor
Merger Consideration determined in accordance with Section 1.5(a), based upon a
number of Company Shares equal to the quotient of (i) the number of Company
Shares subject to each such Option or Warrant held by such holder multiplied by
the difference between the Per Share Dollar Value and the exercise price of each
such Option and Warrant , divided by (ii) the Per Share Dollar Value
(collectively, the "O&W Company Shares").
(b) At the Effective Time, the Parent shall substitute
substantially equivalent options and warrants to purchase Parent Common Stock
for all Options and Warrants to the extent unvested or unexerciseable on or
prior to the Effective Time or as a result of consummation of the Merger.
Immediately after the Effective Time, each unvested Option and Warrant
outstanding immediately prior to the Effective Time shall be deemed to
constitute an option or warrant to acquire, on the same terms and conditions as
were applicable under such Option or Warrant at the Effective Time (without
giving effect to the Merger), such number of shares of Parent Common Stock as is
equal to the number of Company Shares subject to the unexercised portion of such
Option or Warrant multiplied by the Option Conversion Ratio
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 6
Execution Copy
2
<PAGE>
(except as otherwise provided in the applicable instrument, with any fraction
resulting from such multiplication to be paid in cash upon the exercise of such
substitute option or warrant based upon the closing price of Parent Common Stock
on the Nasdaq National Market on the date of exercise). The "Option Conversion
Ratio" shall equal a fraction, the numerator of which shall be $5.25 and the
denominator of which shall be the denominator used in clause 1.5(a) to determine
the Conversion Ratio, rounded to the nearest five decimal places. The exercise
price per share of each such substituted option and warrant shall be equal to
the exercise price of such Option or Warrant immediately prior to the Effective
Time, divided by the Option Conversion Ratio. The terms, exercisability and,
vesting schedule, and all of the other terms of the Options and Warrants shall,
to the extent permitted under Belgian law, otherwise remain substantially
unchanged. Without limiting the foregoing, for purposes of determining vesting
of the Options and otherwise, employees of the Company will be credited for
their full term during which they were employed by the Company.
(c) At or prior to the Effective Time, the Parent or the
Surviving Corporation shall deliver to the holders of the Options and Warrants
subject to Section 1.9(a) appropriate notices setting forth such holders' rights
pursuant to such Options or Warrants and instructions for surrendering to the
Exchange Agent such Option or Warrant in exchange for the Merger Consideration.
As soon as practicable after the Effective Time, the Parent or the Surviving
Corporation shall deliver to the holders of Options and Warrants subject to
substitution under Section 1.9(b) hereof appropriate notices setting forth such
holders' rights pursuant to such substituted options or warrants, together with
the agreements evidencing such substituted options or warrants.
(d) The Parent shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Parent Common Stock for
delivery upon exercise of the substituted options and warrants granted in
accordance with this Section 1.9. As soon as practicable after the Effective
Time, and in any event within thirty (30) days thereafter, the Parent shall file
a Registration Statement on Form S-8 (or any successor form) under the
Securities Act of 1933, as amended (the "Securities Act") with respect to all
shares of Parent Common Stock subject to substituted options and warrants that
may be registered on Form S-8, and shall use commercially reasonable efforts to
maintain the effectiveness of such Registration Statement for so long as such
substituted options and warrants remain outstanding.
(e) The Company shall use commercially reasonable efforts to
obtain, prior to the Closing, the consent from each holder of an Option or
Warrant to the amendment of or substitution for such Option or Warrant pursuant
to this Section 1.9 (unless such consent is not required under the terms of the
applicable agreement, instrument or plan).
1.10 Certificate of Incorporation. The Certificate of Incorporation of the
Surviving Corporation shall be the Certificate of Incorporation of the Company
as amended and restated in the Certificate of Merger.
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 7 Execution Copy
4
<PAGE>
1.11 Bylaws. The Bylaws of the Surviving Corporation shall be the Bylaws of
the Acquisition Subsidiary immediately prior to the Effective Time, except that
the name of the corporation set forth therein shall be changed to the name of
the Company.
1.12 Directors and Officers. The directors of the Acquisition Subsidiary
immediately prior to the Effective Time shall become the directors of the
Surviving Corporation as of the Effective Time. The officers of the Acquisition
Subsidiary immediately prior to the Effective Time shall be the officers of the
Surviving Corporation after the Effective Time, retaining their respective
positions.
1.13 No Further Rights. From and after the Effective Time, no Company
Shares shall be deemed to be outstanding, and holders of Certificates shall
cease to have any rights with respect thereto, other than the right to receive
Merger Consideration or as otherwise provided herein or by law.
1.14 Closing of Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed and no transfer of Company Shares shall
thereafter be made. If, after the Effective Time, Certificates are presented to
the Surviving Corporation, the Parent or the Exchange Agent, they shall be
canceled and exchanged for Merger Consideration in accordance with Sections
1.5(a) and (b), subject to applicable law in the case of Company Shares held by
Dissenting Stockholders.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent that the statements
contained in this Article II are true and correct, except as set forth in the
disclosure schedule attached hereto (the "Company Disclosure Schedule"). The
Company Disclosure Schedule shall be initialed by the Parties and shall be
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article II; provided, however, that any matter disclosed in
any Section hereof or on any part of the Company Disclosure Schedule shall be
deemed disclosed for purposes of every Section hereof and every part of the
Company Disclosure Schedule; provided, further, that the Company shall make a
good faith effort to include any disclosure (by cross-reference or repeating the
disclosure) that is required by more than one representation and warranty in
each applicable portion of the Company Disclosure Schedule.
2.1 Organization and Qualification of the Company. Except as set forth on
Schedule 2.1(a) of the Company Disclosure Schedule, the Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with full power and authority to own, lease and operate its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased or such business is conducted by it. The
copies of the Company's Certificate of Incorporation as amended to date
("Charter"), certified by the Delaware Secretary of State, and of the Company's
Bylaws as amended to date, certified by the Company's Secretary, copies of which
have previously been
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 8 Execution Copy
<PAGE>
provided to the Parent, are, and will be at the Closing, complete and correct.
Except as set forth on Schedule 2.1(a) of the Company Disclosure Schedule, the
Company is duly qualified to do business and in good standing as a foreign
corporation in the jurisdictions identified in Schedule 2.1(a) and it is not
required to be licensed or qualified to conduct its business or own its property
in any other jurisdiction, except where the failure to be so licensed or
qualified would not, individually or in the aggregate, have a Company Material
Adverse Effect. A "Company Material Adverse Effect" is defined as any change,
event or other occurrence that has, or is reasonably likely to have,
individually or in the aggregate, a material adverse impact on the business,
properties, operations, prospects, assets, revenues or condition (financial or
otherwise) of the Company taken as a whole; provided, however, that "Company
Material Adverse Effect" shall be deemed to exclude the impact of any
continuation of any existing unfavorable business or financial trend (which has
been disclosed in Schedule 2.1(b) of the Company Disclosure Schedule) without a
material worsening thereof.
2.2 Capitalization. The authorized capital stock of the Company consists of
(i) 1,000,000 shares of preferred stock, $.01 par value, none of which is issued
and outstanding, and (ii) 15,000,000 shares of common stock, $.01 par value, of
which the number of issued and outstanding shares is set forth on Schedule
2.2(b) of the Company Disclosure Schedule and no shares are held in the treasury
of the Company. All issued and outstanding Company Shares are, and all Company
Shares that may be issued upon the exercise of Options and Warrants, upon
issuance in accordance with the terms and conditions specified in the
instruments pursuant to which they are issuable and upon payment therefor, will
be duly authorized and validly issued, fully paid, nonassessable, and free of
all preemptive rights. Except as set forth on Schedule 2.2(a) of the Company
Disclosure Schedule, the Company is subject to no material liability on account
of the issuance or sale of any securities, including, without limitation, all
outstanding Company Shares. Except as set forth on Schedule 2.2(b) of the
Company Disclosure (including as applicable, the number of Company Shares
subject to each instrument and the extent to which the rights granted under such
instrument are vested or may be exercised), there are no (i) outstanding or
authorized subscriptions, warrants, options or other rights granted by the
Company or binding upon the Company to purchase or acquire, or preemptive rights
with respect to the issuance or sale of, the capital stock of the Company or
which obligate the Company to issue any additional shares of its capital stock
or any securities convertible into or evidencing the right to subscribe for any
shares of its capital stock, (ii) other securities of the Company directly or
indirectly convertible into or exchangeable for shares of capital stock of the
Company, (iii) restrictions on the transfer of the Company's capital stock
imposed by or agreed to by the Company or of which the Company is otherwise
aware (other than restrictions under the Securities Act and state securities
laws), (iv) voting rights with respect to the capital stock of the Company other
than as set forth in the DGCL and the Company's Charter and Bylaws, or (v) stock
appreciation, phantom stock or similar rights granted by the Company. Schedule
2.2(c) of the Company Disclosure Schedule identifies each holder of Options and
Warrants and the number of Company Shares subject to such Option or Warrant,
which Options or Warrants (x) by their terms require the Parent to assume such
Options or Warrants, (y) contain terms and conditions that would result in
acceleration of the vesting schedule or exercise period set forth therein upon
the consummation of the Merger, or (z) contain terms and conditions that would
not allow the Company to terminate such Options or Warrants in accordance with
Section 1.9(a) above.
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 9 Execution Copy
<PAGE>
2.3 Subsidiaries. There is no corporation with respect to which the
Company, directly or indirectly, has the power to vote or direct the voting of
sufficient securities to elect 50% or more of the directors (a "Subsidiary").
The Company does not control directly or indirectly or have any direct or
indirect equity or similar participation in any corporation, joint venture,
partnership, trust, or other business association.
2.4 Authorization of Transaction. Subject to the conditions precedent set
forth herein, the Company has all requisite power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the Merger and the transactions contemplated hereby. The execution and delivery
of this Agreement and, subject to the approval of the Merger and this Agreement
by a majority of the votes represented by the outstanding Company Shares
entitled to vote on this Agreement and the Merger (the "Requisite Stockholder
Approval"), the performance by the Company of this Agreement and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of the
Company. Each of this Agreement and the Option Agreement (as defined in Section
2.32) has been duly and validly executed and delivered by the Company and
constitutes a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally or by general equitable principles including the Chancery Court
of the State of Delaware.
2.5 Present Compliances with Obligations and Laws. Except as set forth on
Schedule 2.5 of the Company Disclosure Schedule, the Company is not: (a) in
violation of its Charter or Bylaws; (b) in default in the performance of any
obligation, agreement or condition of any debt instrument which (with or without
the passage of time or the giving of notice) affords to any person the right to
accelerate any indebtedness or terminate any right; (c) in default of or breach
of (with or without the passage of time or the giving of notice) any other
contract to which it is a party or by which it or its assets are bound; or (d)
in violation of any law, regulation, administrative order or judicial order,
decree or judgment applicable to it or its business or assets, except where any
violation or default under items (b), (c), or (d) would not, individually or in
the aggregate, have a Company Material Adverse Effect.
2.6 No Conflict of Transaction With Obligations and Laws. Subject to
compliance with the applicable requirements of the Securities Act, any
applicable state securities laws, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the rules of the Nasdaq National Market, the
filing of the Certificate of Merger as required by the DGCL, and obtaining the
consents listed on Schedule 2.6(a) of the Company Disclosure Schedule, neither
the execution, delivery and performance of this Agreement by the Company, nor
the performance by the Company of the transactions contemplated hereby, will:
(i) constitute a breach or violation of the Charter or Bylaws of the Company;
(ii) require any consent, waiver, exemption, approval or authorization of,
declaration, filing or registration with, or giving of notice to any person,
court, arbitration tribunal, administrative agency or commission or other
governmental or regulatory agency or authority; (iii) constitute (with or
without the passage of time or the giving of notice) a breach of, or default
under, any debt instrument to which the Company is a party, or give any person
the right to accelerate any indebtedness or terminate, modify or cancel any
right with respect to any debt instrument; (iv) constitute (with or without the
passage of time or giving of notice) a
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 10
Execution Copy
<PAGE>
breach of, or default under, any debt instrument to which the Company is a
party, or give any person the right to accelerate any indebtedness or terminate,
modify or cancel any right with respect to any debt instrument; (iv) constitute
(with or without the passage of time or giving of notice) a default under or
breach of any other agreement, instrument or obligation to which the Company is
a party or by which the Company or any of its assets are bound; (v) result in
the creation of any lien or encumbrance upon any of the assets of the Company;
(vi) result in a violation of any law or regulation applicable to the Company or
its business or assets, (vii) result in a violation of any administrative order
or judicial order, decree or judgment applicable to the Company, or its business
or assets; or (viii) invalidate or adversely affect any permit, license or
authorization used in the Company's business, excluding from clauses (ii) (iii),
(iv), (vi) and (viii), any consent, filing, conflict, default, violation or
other matter which would not, either individually or in the aggregate, either
have a Company Material Adverse Effect or materially impair or preclude the
Company's ability to consummate the Merger or the transactions contemplated
hereby. Except as set forth in Schedule 2.6(b) of the Company Disclosure
Schedule, neither the execution, delivery and performance of this Agreement nor
the performance of the transactions contemplated hereby will give rise to a
right of any party (other than the Company), under the terms thereof to
terminate, modify or cancel any material contract, agreement or other instrument
to which the Company is a party or by which the Company or its properties are
affected which contract, agreement or other instrument is required to be
disclosed in the Company Disclosure Schedule.
2.7 Reports and Financial Statements
(a) The Company has previously furnished to the Parent
complete and accurate copies, as amended or supplemented, of its (a) Annual
Report on Form 10-K or Form 10-KSB for the fiscal years ended January 31, 1995
and 1996, as filed with the Securities and Exchange Commission (the "SEC"), and
amendments thereto, (b) proxy statements relating to all meetings of its
stockholders (whether annual or special) since September 6, 1994, (c) all other
final reports or registration statements, other than Registration Statements on
Form S-8, filed by the Company with the SEC since September 6, 1994 and (d) the
draft Annual Report on form 10-KSB for the fiscal year ended January 31, 1997
(the "Draft Report") , (such annual reports, proxy statements, registration
statements, Draft Report and other filings, together with any amendments or
supplements thereto, are collectively referred to herein as the "Company
Reports"). The Company Reports constitute all of the documents filed or required
to be filed by the Company with the SEC since September 6, 1994, other than
Registration Statements on Form S-8. The Parties acknowledge and agree that the
Draft Report shall be substantially updated to include such information as the
Company deems necessary to disclose therein, which information has previously
been disclosed to Parent. As of their respective dates and subject to the
immediately preceding sentence with respect to the Draft Report as of the date
hereof (as supplemented by the information disclosed herein), the Company
Reports did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited financial statements and unaudited interim financial
statements of the Company included in the Company Reports (together, the
"Financial Statements") (i) comply as to form in all material respects with
applicable accounting requirements and the published rules and
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 11
Execution Copy
<PAGE>
regulations of the SEC with respect thereto, (ii) have been prepared in
accordance with United States generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods covered thereby (except as
may be indicated therein or in the notes thereto, and in the case of quarterly
financial statements, as permitted by Form 10-Q or Form 10-QSB under the
Exchange Act and subject to normal recurring year-end adjustments), (iii) fairly
present the financial condition, results of operations and cash flows of the
Company as of the respective dates thereof and for the periods referred to
therein, and (iv) are consistent in all material respects with the books and
records of the Company. The Company has also previously furnished to the Parent
all documents prepared by the Company and used in connection with any offer or
sale of securities by the Company since September 6, 1994.
(b) The balance sheet contained in the Draft Report
including the footnotes thereto, is sometimes referred to hereinafter as the
"Base Balance Sheet."
(c) The books of account of the Company are complete and
correct in all material respects. The (i) current books of account and (ii) to
the extent the same are in the Company's possession, auditor's letters to
management of the Company for the past five (5) years and other significant
correspondence from or to such auditors during such period, if any, have been
made available to the Parent.
2.8 Absence of Undisclosed Liabilities. Except as disclosed in Schedule 2.8
of the Company Disclosure Schedule and except for liabilities and obligations
arising in connection with this Agreement, the Company has no material
liabilities or obligations of any nature, except (i) the liabilities recorded on
the Base Balance Sheet and the notes thereto, and (ii) the liabilities and
obligations incurred since the date of the Base Balance Sheet in the ordinary
course of business and consistent with past practice that would not, as the
Company reasonably foresees, individually or in the aggregate, have a Company
Material Adverse Effect.
2.9 Absence of Certain Changes. Except as disclosed in Schedule 2.9 of the
Company Disclosure Schedule or in the notes to the Financial Statements, since
the date of the Base Balance Sheet there has not been:
(a) any change in the financial condition, working capital,
earnings, reserves, properties, assets, liabilities, business or operations of
the Company which change by itself or in conjunction with all other such
changes, whether or not arising in the ordinary course of business has had a
Company Material Adverse Effect;
(b) any material contingent liability incurred by the
Company as guarantor or otherwise with respect to the obligations of others;
(c) any mortgage, encumbrance or lien placed on any of the
properties of the Company which remains in existence on the date hereof ;
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 12
Execution Copy
<PAGE>
(d) any material obligation or material liability incurred
by the Company other than obligations and liabilities incurred in the ordinary
course of business and consistent with past practice;
(e) any material purchase, sale or other disposition, or
any agreement or other arrangement for the purchase, sale or other disposition,
of any material properties or assets of the Company, other than in the ordinary
course of business and consistent with past practice;
(f) any damage, destruction or loss, whether or not covered
by insurance, that have had or is reasonably likely to have a Company Material
Adverse Affect;
(g) any union organization attempts or claim of unfair
labor practices (other than routine internal employee grievances) involving the
Company, any change in the compensation payable or to become payable by the
Company to any of its officers, or, other than in the ordinary course of
business and consistent with past practices, its employees or agents, or any
change in any bonus, pension, or profit sharing payment, entitlement or
arrangement made to or with any of such officers, employees or agents;
(h) any change with respect to the management personnel of
the Company that has had or is reasonably likely to have a Company Material
Adverse Effect;
(i) any payment or discharge of a material lien, claim,
obligation or liability of the Company which was not shown on the Base Balance
Sheet or incurred in the ordinary course of business and consistent with past
practice thereafter;
(j) any obligation or liability incurred by the Company to
any of its employees, officers, directors or shareholders or any loans or
advances made by the Company to any of its officers, directors or shareholders
except normal compensation, benefits and expense allowances payable in the
ordinary course of business consistent with past practice;
(k) any write-down of the value of any inventory (including
write-downs by reason of shrinkage or mark-down), except for write-downs and
write-offs that are in the aggregate less than $15,000 incurred in the ordinary
course of business and consistent with past practice;
(l) any disposal or lapse of any rights to the use of any
trademark, tradename, patent or copyright, or disposal of or disclosure by the
Company to any person other than the Parent or employees of the Company of any
trade secret, formula, process or know-how not theretofore a matter of public
knowledge other than pursuant to confidentiality agreements;
(m) any change in any method of accounting or accounting
practice;
(n) any action taken to issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
or authorize the issuance, sale or delivery of, or
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 13
Execution Copy
<PAGE>
redeem or repurchase, any stock of any class or any other securities or any
rights, warrants or options to acquire any such stock or other securities
(except pursuant to the redemption, conversion or exercise of the Options and
Warrants outstanding on the date hereof), or amend any of the terms of any such
convertible securities or Options or Warrants (except as contemplated in this
Agreement);
(o) any action taken to split, combine or reclassify any
shares of its capital stock; declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of its capital stock;
(p) any action taken to alter, modify, amend or issue any
option, warrant or other right to purchase Company Shares (other than to
Parent);
(q) any action taken to alter, modify or amend or enter
into any agreement with any management personnel of the Company; or
(r) any agreement, whether in writing or otherwise, to take
any action described in this Section 2.09.
2.10 Payment of Taxes. Except as set forth on Schedule 2.10 of the Company
Disclosure Schedule, the Company has duly and timely filed all Federal, state,
local, and foreign government income, excise, gross receipts or franchise tax
returns, real estate and personal property tax returns, sales and use tax
returns, employee tax and contribution returns, and all other tax returns,
reports and declarations, including valid extensions therefore, or estimated
taxes required to be filed by them, with respect to all applicable taxes ("Tax
Returns"), including without limitation, with respect to all income, profit,
franchise, sales, use, real property, personal property, ad valorem, excise,
employment, social security and wage withholding, severance, stamp, occupation,
and windfall profits taxes, of every kind, character or description, and imposed
by any government or quasi-governmental authority (domestic or foreign), and any
interest or fines, and any and all penalties or additions relating to such
taxes, charges, fees, levies or other assessments ("Taxes") except to the extent
that such failures to file, taken together do not, individually or in the
aggregate, have a Company Material Adverse Effect. All of the Tax Returns are
complete and correct in all material respects. All Taxes shown to be due on each
Tax Return have been paid, reserved against or are being contested in good faith
by the Company (which contest is being diligently pursued and is described on
Schedule 2.10 of the Company Disclosure Schedule). All Taxes and other
assessments and levies which the Company is required to withhold or collect have
been withheld or collected and paid over or will be paid over to proper
governmental authorities as required except for the collection of sales or use
taxes in such amounts as would not have a Company Material Adverse Effect.
Except as set forth on Schedule 2.10 of the Company Disclosure Schedule, to the
Company's knowledge the Tax Returns have never been examined by any government
entity, including the Internal Revenue Service and the Massachusetts Department
of Revenue. Except as set forth on Schedule 2.10 of the Company Disclosure
Schedule, the Company has no knowledge of any intention on the part of any
government entity to examine any of the Tax Returns. Except as set forth on
Schedule 2.10 of the Company Disclosure Schedule, no deficiencies have been
asserted or assessments
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 14
Execution Copy
<PAGE>
made against the Company, nor is the Internal Revenue Service nor any other
taxing authority now asserting or, to the knowledge of the Company, threatening
to assert against the Company any deficiency or claim for additional taxes or
interest thereon or penalties in connection therewith. The Company has not
waived any statute of limitations for any year, which waiver is still in effect.
To the Company's knowledge, the provisions for taxes reflected in the
above-mentioned financial statements are adequate, in all material respects, to
cover any tax liabilities of the Company. The Company has not filed a consent
under Section 341(f) of the Code. The Company has not ever been part of an
affiliated group filing consolidated returns, or entered into any tax allocation
or tax sharing agreement.
2.11 Title to Properties; Liens; Condition of Properties.
(a) The Company does not own, directly or indirectly, any
real property. The Company has delivered or made available to Parent true,
correct and complete copies of all material leases, subleases, rental
agreements, contracts of sale, tenancies or licenses related to any of the real
or personal property currently used by the Company in its business.
(b) The Company owns outright all of its personal property
which is not leased and to the Company's knowledge, all of its leases are valid,
binding and enforceable in accordance with their terms against the parties
thereto and each such lease is subsisting and no material default exists under
any thereof. The Company has not received written notice that any party to any
such lease intends to cancel, terminate or refuse to renew the same.
(c) None of the personal property owned by the Company is
subject to any mortgage, pledge, deed of trust, lien (other than for taxes not
yet due and payable), conditional sale agreement or security title, except as
specifically disclosed in Schedule 2.11 of the Company Disclosure Schedule or in
the Base Balance Sheet.
(d) All machinery and equipment of the Company are in
reasonable working order and repair, in view of their age, are adequate for the
uses to which they are being put, have been reasonably maintained and conformed
in all material respects with all applicable ordinances, regulations and safety
or other laws.
2.12 Inventories; Accounts Receivable.
(a) All inventories of finished goods and raw materials of
the Company reflected on the Base Balance Sheet were as of the date thereof ,
and those existing at the Closing will to the Company's knowledge be, except as
reserved against in accordance with GAAP, of a quality and quantity salable in
the ordinary course of the business of the Company and are recorded on the
Company's books and records at the lower of cost or market price. Purchase
commitments for raw materials and parts are not in excess of anticipated
requirements, and none are at prices materially in excess of current market
prices. Except as set forth in Schedule 2.12 of the Company Disclosure Schedule,
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
consistent with past practice.
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 15
Execution Copy
<PAGE>
(b) All of the accounts receivable of the Company shown or
reflected on the Base Balance Sheet, less a reserve for bad debts in the amount
shown on the Base Balance Sheet, are, and those existing at the time of Closing,
less the reserve related thereto, will be, valid and to the Company's knowledge,
enforceable claims which arose out of transactions with unaffiliated parties.
Except as set forth in Schedule 2.12 of the Company Disclosure Schedule, no
customer has informed the Company of its intention to resist or delay paying any
receivable.
2.13 Intellectual Property Rights.
(a) The Company owns or possesses the adequate right to use
all Intellectual Property Rights (as defined below) necessary to the conduct of
its business as it is presently being conducted or as presently contemplated to
be conducted in 1997. Schedule 2.13(a) of the Company Disclosure Schedule
contains a list of all patents, trade names, registered copyrights, trademarks
and service marks, and applications for the same owned by the Company. Except as
set forth on Schedule 2.13(a), the Company has unencumbered title to the
Intellectual Property Rights set forth in Schedule 2.13(a) which are listed as
owned by the Company and to the Company's knowledge there are no pending
challenges to such title nor, to the knowledge of the Company, have others
threatened to challenge such title. No rights or licenses to use Intellectual
Property Rights have been granted or acquired by the Company except licenses
associated with sales of products to end user customers in the ordinary course
of business and consistent with past practice or those listed in Schedule
2.13(b) of the Company Disclosure Schedule. Schedule 2.13(c) of the Company
Disclosure Schedule lists all material licenses, agreements, obligations and
contracts relating to the Intellectual Property Rights to which the Company is a
party or by which, to the Company's knowledge, the Company is bound, except
licenses associated with sales of products to end user customers in the ordinary
course of business and consistent with past practice. Each of the licenses,
agreements, obligations and contracts listed in Schedule 2.13(c) (i) is in full
force and effect, (ii) the Company is not in default under any such instrument,
and (iii) there are no outstanding, or to the knowledge of the Company,
threatened, disputes or disagreements with respect to any such instrument.
Except as listed in Schedule 2.13(d) of the Company Disclosure Schedule, to the
knowledge of the Company, there have been (i) no claims or assertions made by
others that the Company has infringed any Intellectual Property Rights of others
by the sale of products or any other activity in the preceding five year period
and (ii) to the Company's knowledge no infringements by the Company during such
period. Except as set forth in Schedule 2.13(e) of the Company Disclosure
Schedule, the Company has no knowledge of any infringement of Intellectual
Property Rights of the Company by others. All such patents, registered
trademarks, service marks, and copyrights owned by the Company are in good
standing and are recorded on the public record in the name of the Company,
except for those failures to be in good standing and so recorded that would not,
individually or in the aggregate, have a Company Material Adverse Effect. True,
complete and correct copies of all material listed in Schedules 2.13(a),
2.13(b), 2.13(c), 2.13(d) and 2.13(e) of the Company Disclosure Schedule have
been delivered or made available to the Parent. For purposes of this Agreement,
"Intellectual Property Rights" shall mean all of the Company's rights relating
to patents, trademarks, service marks, tradenames, copyrights, mask works,
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 16
Execution Copy
<PAGE>
inventions, processes, trade secrets, know-how, software and any documentation
relating to the manufacture, marketing and maintenance of products by the
Company.
(b) Except as listed on Schedule 2.13(f) of the Company
Disclosure Schedule, all current full-time employees of and technical
consultants to the Company have entered into proprietary information and
invention agreements with the Company and copies of such agreements have been
made available or provided to Parent. Except as set forth on Schedule 2.13(f) of
the Company Disclosure Schedule, to the Company's knowledge, no employee of the
Company has entered into any agreement that prohibits him from performing the
work in which the employee is presently engaged or requires the employee to
transfer, assign, or disclose information concerning his work to anyone other
than the Company.
(c) The manner in which the Company has manufactured,
packaged, shipped, advertised, labeled and sold its products complies in all
material respects with all the material applicable laws and regulations
pertaining thereto. Except as set forth on Schedule 2.13(g) of the Company
Disclosure Schedule, the Company has not deposited, and is not obligated to
deposit, any source code regarding its products into any source code escrows or
similar arrangements and the Company is not under any contractual or other
obligation to disclose the source code or, other than to end-users or bundlers,
any other material proprietary information included in or relating to its
products.
2.14 Contracts and Commitments.
(a) Except for contracts, commitments, plans, agreements and
licenses described in Schedule 2.14(a), Schedule 2.13(b) or Schedule 2.15 of the
Company Disclosure Schedule (correct and complete copies of which, if written,
have been delivered or made available to the Parent), the Company is not a party
to or subject to:
(i) any contract or agreement for the purchase of
any commodity, material, equipment or asset, except purchase orders in the
ordinary course for less than $10,000 each, such orders not exceeding in the
aggregate $50,000;
(ii) any other contracts or agreements creating
any obligations of the Company after the date of the Base Balance Sheet of
$20,000 or more with respect to any such contract or agreement, other than sales
and purchase commitments in the ordinary course of business and consistent with
past practice;
(iii) any contract or agreement providing for the
purchase of all or substantially all of its requirements of a particular product
from a supplier;
(iv) any material contract or agreement which by
its terms does not terminate or is not terminable without penalty by the Company
(or its successor or assign) within 90 days after the date hereof;
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 17
Execution Copy
<PAGE>
(v) any contract or agreement for the sale,
license or lease of its products not made in the ordinary course of business and
consistent with past practice;
(vi) any contract with any sales agent or
distributor of products of the Company;
(vii) any contract containing covenants limiting
the freedom of the Company to compete in any line of business or with any person
or entity;
(viii) any material license or franchise
agreement (as licensor or licensee or franchisor or franchisee);
(ix) any arrangement or obligation with respect
to the return of inventory or merchandise other than on account of a defective
condition, incorrect quantities or missed delivery dates; or
(x) any contract, subcontract or other agreement
with any agency of the United States government or other governmental entity .
(b) The Company is not in material default under any
contracts, commitments, plans, agreements or licenses described in Schedule
2.14(a) of the Company Disclosure Schedule nor does the Company have knowledge
of any termination, cancellation, limitation or modification or change in any
business relationship with any material supplier or customer contemplated by
such customer or supplier. For the purposes hereof, a supplier is material if it
accounted for more than $25,000 of the orders of the Company for purchases of
raw materials and other products essential to its manufacturing processes during
either of the last two completed fiscal years. A customer is material if it
accounted for more than $25,000 of the orders of the Company in either of the
last two completed fiscal years. Except as set forth on Schedule 2.14(b) of the
Company Disclosure Schedule, the Company has not had any customer who accounted,
directly or indirectly, for more than five percent (5%) of its sales during the
last two fiscal years and the Company has no supplier from whom it has purchased
more than five percent (5%) of the goods and services that it purchased during
the last two fiscal years.
2.15 Labor and Employee Relations.
(a) Except as shown on Schedule 2.15(a) of the Company
Disclosure Schedule, there are no currently effective material written
consulting or employment agreements or other material agreements with individual
consultants or employees to which the Company is a party. Complete and accurate
copies of all such written agreements have been delivered or made available to
Parent. Also shown on Schedule 2.15(a) of the Company Disclosure Schedule are
the name and rate of compensation (including all salary, bonus, benefit and
compensation) of each officer and employee of the Company, including all bonus
compensation.
(b) None of the employees of the Company is covered by any
collective bargaining agreement with any trade or labor union, employees'
association or similar
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 18
Execution Copy
<PAGE>
association. The Company has complied in all material respects with applicable
laws, rules and regulations relating to the employment of labor, including
without limitation those relating to wages, hours, unfair labor practices,
discrimination, and payment of social security and similar taxes. There are no
representation elections, arbitration proceedings, labor strikes, slowdowns or
stoppages, material grievances or other labor troubles pending, or, to the
knowledge of the Company, overtly threatened, with respect to the employees of
the Company.
(c) Except as set forth on Schedule 2.15(c), there are no
complaints against the Company pending or, to the knowledge of the Company,
overtly threatened before the National Labor Relations Board or any similar
foreign, state or local labor agencies, or before the Equal Employment
Opportunity Commission or any similar foreign, state or local agency, by or on
behalf of any employee or former employee of the Company.
(d) There is no material contingent liability for severance
pay, accrued vacation pay for prior years or similar items as of the date of the
Base Balance Sheet not set forth on the Base Balance Sheet or on Schedule
2.15(d) of the Company Disclosure Schedule. Except as set forth on Schedule
2.15(d), the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not trigger any
severance pay obligation under any contract or to the Company's knowledge,
assuming the Surviving Corporation does not terminate employees, at law.
(e) The Company has provided or made available to Parent a
description of all written and other material employment policies under which
the Company operates.
(f) Except where the failure to so be in compliance,
individually or in the aggregate, would not have a Company Material Adverse
Effect, the Company is in compliance with all Federal, foreign (as applicable),
and state worker's safety laws and requirements.
(g) Except as disclosed on Schedule 2.15(g) of the Company
Disclosure Schedule, to the knowledge of the Company, no executive, key employee
or group of employees has any plans to terminate his or her employment with the
Company.
(h) No salaried or commissioned employee has left the
employment of the Company since the date of the Base Balance Sheet, except where
such departure would not be reasonably likely to have a Company Material Adverse
Effect.
2.16 Employee Benefits and ERISA.
(a) Schedule 2.16(a) of the Company Disclosure Schedule sets
forth a list of all employee compensation and benefit plans, agreements,
commitments or arrangements of any type for any current or former employee,
officer or director, or dependent thereof, of the Company which is:
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 19
Execution Copy
<PAGE>
(i) an employee benefit plan within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"); or
(ii) a compensation, stock purchase, stock option,
stock bonus, stock appreciation, severance, health, welfare, life, disability or
other benefit plan, fund, program or arrangement which is not covered by clause
(i) above.
(Hereinafter, "ERISA Benefit Plan" refers to plans or arrangements under clause
(i) above and "Benefit Plan" refers to plans or arrangements under clauses (i)
and (ii) above.)
(b) There are no Benefit Plans of the Company with respect to
which the Company has any liability or contingent liability not listed on
Schedule 2.16(b) of the Company Disclosure Schedule. There have been no
multiemployer plans within the meaning of Section 3(37) or 4001(a)(3) of ERISA
or defined benefit plans within the meaning of Section 3(35) of ERISA covering
employees or former employees of the Company or ERISA Affiliate within the last
ten (10) years; for purposes of this sentence, "ERISA Affiliate" means any trade
or business, whether or not incorporated, that together with the Company, would
be deemed to be a controlled group, affiliated service group or "single
employer" within the meaning of section 4001 of ERISA or section
414(b),(c)(m),or (o) of the Code.
(c) With respect to each Benefit Plan described on Schedule
2.16 (c), the Company has furnished or made available to Parent complete and
accurate copies of each Benefit Plan, including all amendments thereto, the
three most recent Form 5500s (if required), the most recent Internal Revenue
Service determination letter (if any), all summary plan descriptions and any
summaries of material modifications (if any), summary annual reports (if any),
and all reports (if any) of the ERISA Benefit Plan required by ERISA and the
regulations thereunder. The Company has also furnished Parent copies of any
material insurance contracts or trust agreements through which any ERISA Benefit
Plan is funded, any custodial or investment contracts relating to assets or
benefits under the ERISA Benefit Plan, and any contracts relating to record
keeping or administration for the ERISA Benefit Plan. To the knowledge of the
Company, there has not been any material adverse change occurring with respect
to any ERISA Benefit Plan since the date of the most recently completed and
filed annual report.
(d) Each ERISA Benefit Plan which is a pension plan within the
meaning of Section 3(2) of ERISA which is intended to be qualified under Section
401(a) of the Code is so qualified, any trust through which it is funded is
exempt from tax under Section 501(a) of the Code. Any cash or deferred
arrangement of an ERISA Benefit Plan is a qualified cash or deferred arrangement
under Section 401(k) of the Code.
(e) With respect to each Benefit Plan:
(i) each Benefit Plan materially complies currently
and in all material respects complied in the past, as to form and operation,
with the provisions of all applicable Federal and state laws, such as ERISA and
the Code, including without limitation all requirements regarding
discrimination, disclosure, and continuation coverage (under Section
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 20
Execution Copy
<PAGE>
4980B of the Code); and the Company has not, and to the knowledge of the Company
no other party has engaged in a nonexempt "prohibited transaction" (as defined
in Section 4975 of the Code or enumerated in Section 406(a) or (b) of ERISA)
with respect to an ERISA Benefit Plan or engaged in other activities which would
constitute a breach of fiduciary duty with respect to which the Company or any
Benefit Plan may be liable or otherwise damaged in any material respect;
(ii) to the Company's knowledge, no such Benefit
Plan is currently under audit or investigation by any governmental agency or
body, and there are no actions, suits or claims (other than routine claims for
benefits) pending or to the Company's knowledge threatened against any of the
Benefit Plans or against the assets of any Benefit Plan; and
(iii) all premiums due in connection with the
Benefit Plan and premiums for life and health insurance and annuity contracts,
have been paid in full when due or within any applicable grace period;
(iv) all reports and filings made pursuant to ERISA,
including without limitation all Form 5500s and attachments, summary annual
reports, and any other documents reasonably necessary to enable Parent to
perform its responsibilities with respect to any employee program subsequent to
the Closing, are and shall be available at the offices of the Company on and
immediately after the Closing.
(f) Except as required by COBRA or the Family Medical Leave
Act, the Company has not made any promises or incurred any obligation to provide
any health or other welfare benefits to any retirees, former employees, or their
dependents.
2.17 Environmental Matters. The Company has complied in all respects with
all applicable environmental laws, where the failure to so comply would result
in a Company Material Adverse Effect.
2.18 Permits. The Company holds all licenses, permits, registrations,
orders, authorizations, approvals and franchises which are required to permit it
to conduct its business as presently conducted, except where the failure to hold
such licenses, permits, registrations, orders, authorizations, approvals or
franchises would not, individually or in the aggregate, have a Company Material
Adverse Effect. All such licenses, permits, registrations, orders,
authorizations, approvals and franchises are listed on Schedule 2.18 of the
Company Disclosure Schedule and are now to the Company's knowledge, valid and in
full force and effect, and the Surviving Corporation, unless otherwise indicated
on Schedule 2.18 of the Company Disclosure Schedule, shall have full benefit of
the same. The Company has not received any notification of any asserted present
failure (or past and unremedied failure) by it to have obtained any such
license, permit, registration, order, authorization, approval or franchise.
2.19 Warranty or Other Claims. Except as disclosed on Schedule 2.19 of the
Company Disclosure Schedule, no product manufactured, sold, leased or licensed
by the
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 21
Execution Copy
<PAGE>
Company is subject to any guaranty, warranty or right of return beyond
the applicable standard terms and conditions of sale, lease or license, which
have been made available to the Parent or which may be imposed by law. Schedule
2.19 of the Company Disclosure Schedule sets forth the aggregate expenses
incurred by the Company in fulfilling its obligations under its guaranty,
warranty and right of return provisions during each of the last two completed
fiscal years. Except as set forth in Schedule 2.19 of the Company Disclosure
Schedule, there are no existing or, to the knowledge of the Company threatened
claims against the Company for services or merchandise which are defective or
fail to meet any service or product warranties other than in the ordinary course
of business consistent with past experience. Except as set forth in Schedule
2.19 of the Company Disclosure Schedule, no claim has been asserted against the
Company since August 1, 1996 for renegotiation or price redetermination of any
completed business transaction. The Company's products are free from known
significant defects and to the knowledge of the Company, conform to the
specifications, documentation and sample demonstration furnished to the
Company's customers and made available to Parent.
2.20 Claims and Legal Proceedings. Except for matters described in Schedule
2.20 of the Company Disclosure Schedule, there are no claims, actions, suits,
arbitrations, proceedings or investigations pending (or, to the knowledge of the
Company, threatened) against the Company, and there are no outstanding court
orders, court decrees, or court stipulations to which the Company is a party or
by which any of its assets are bound, any of which (a) affect this Agreement or
the transactions contemplated hereby, or (b) materially restrict the present
business properties, operations, prospects, assets, revenues or condition
(financial or otherwise) of the Company, or (c) would, individually or in the
aggregate have a Company Material Adverse Effect or materially impair or
preclude the Company's ability to consummate the Merger or the other
transactions contemplated hereby.
2.21 Borrowing and Guarantees. Except as shown on Schedule 2.21 of the
Company Disclosure Schedule, there are no agreements and undertakings pursuant
to which the Company (a) is borrowing or is entitled to borrow any money, (b) is
lending or has committed itself to lend any money, or (c) is a guarantor or
surety with respect to the obligations of any person. Complete and accurate
copies of all such written agreements have been delivered or otherwise made
available to Parent.
2.22 Financial Service Relations and Powers of Attorney. All of the
arrangements which the Company has with any bank depository institution or other
financial services entity, whether or not in the Company's name, are described
on Schedule 2.22 hereto, indicating with respect to each of such arrangements
the type of arrangement maintained (such as checking account, borrowing
arrangement, safe deposit box, etc.), the banking institution and the person or
persons authorized in respect thereof. The Company does not have any outstanding
powers of attorney.
2.23 Insurance. Schedule 2.23 of the Company Disclosure Schedule lists all
insurance policies in force on the date hereof covering the businesses,
properties and assets of the Company and all outstanding claims against such
policies. All such policies are currently in
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 22
Execution Copy
<PAGE>
effect. Except as set forth on Schedule 2.23 of the Company Disclosure Schedule,
the Company has not received notice of the cancellation of any such insurance in
effect on the date hereof.
2.24 Government Contracts. The Company has not ever had a contract or
subcontract terminated for default and has never been determined to be
"nonresponsible" by any agency of the United States government. The Company does
not have any outstanding agreements, contracts or commitments that require it to
obtain or maintain a government security clearance.
2.25 Corporate Books and Records. The minute books and stock ledgers of the
Company, copies of which have been made available for inspection by Parent,
accurately record all material action taken by the Company's stockholders, board
of directors and committees thereof.
2.26 Transaction Fee. Except for Montgomery Securities, which will receive
a fee of $375,000 plus out-of-pocket expenses up to $25,000, the Company has not
employed any investment banker, broker, finder or intermediary in connection
with the transactions contemplated hereby who is entitled to a fee or any
commission the receipt of which is conditioned upon the consummation of the
Merger. The Company has provided the Parent with a true and complete copy of the
retainer letter for the services of Montgomery Securities, and the Company has
no other agreements, obligations or understandings in connection therewith.
2.27 Transactions with Interested Persons. Except as disclosed in Schedule
2.27 of the Company Disclosure Schedule, no director, executive officer, or to
the Company's knowledge, supervisory employee, or stockholder of the Company, or
their respective spouses or children, (i) owns, directly or indirectly, on an
individual or joint basis, any material interest in, or serves as an officer or
director of, any customer, competitor or supplier of the Company or any
organization which has a material contract or arrangement with the Company, or
(ii) has any material contract or agreement with the Company other than as
disclosed on a schedule hereto, and all such agreements are, except as noted on
such schedule, on arms-length terms.
2.28 Absence of Sensitive Payments. Neither the Company, nor to the
knowledge of the Company, any of the Company's directors, officers, agents,
stockholders or employees, on behalf of the Company:
(a) has made or has agreed to make any contributions,
payments or gifts of funds or property to any governmental official, employee or
agent where either the payment or the purpose of such contribution, payment or
gift was or is illegal under the laws of the United States, any state thereof,
or any other jurisdiction (foreign or domestic);
(b) has established or maintained any unrecorded fund or
asset for any purpose; or
(c) has made or has agreed to make any contribution or
expenditure, or has reimbursed any political gift or contribution or expenditure
made by any other person to
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 23
Execution Copy
<PAGE>
candidates for public office, whether Federal, state or local (foreign or
domestic) where such contributions were a violation of applicable law.
2.29 Disclosure of Material Information. No representation or warranty by
the Company contained in this Agreement, and no statement contained in the
Company Disclosure Schedule, any exhibit to this Agreement or certificate issued
by or to be issued by the Company and furnished or to be furnished to Parent
pursuant to this Agreement contains or will contain any untrue statement of a
material fact or omits, or will omit to state any material fact necessary, in
light of the circumstances under which it was or will be made, in order to make
the statements herein or therein not misleading.
2.30 Regulatory Correspondence. The Company has made available to the
Parent true and correct copies of any and all material correspondence in the
Company's possession, from or to any governmental or regulatory agencies or
bodies since September 6, 1994 years, including, without limitation, all
significant correspondence with the Securities and Exchange Commission, the
National Association of Securities Dealers and the United States Justice
Department.
2.31 State Antitakeover Statutes. The Company has granted all approvals and
taken all other steps necessary to exempt the Merger and the other transactions
contemplated hereby from the requirements and provisions of Section 203 of the
DGCL.
2.32 Company Action.
(a) The Board of Directors of the Company, at a meeting duly
called and held, has by the unanimous vote of all directors present (i)
determined that the Merger is fair and in the best interests of the Company and
its stockholders, (ii) approved the Merger in accordance with the provisions of
the DGCL, (iii) approved this Agreement, the Certificate of Merger and the
Option Agreement, (iv) authorized the execution and delivery of this Agreement,
the Certificate of Merger and, the Option Agreement, and (v) directed that this
Agreement and the Merger be submitted to the Company Stockholders for their
approval and resolved to recommend that Company Stockholders vote in favor of
the approval of this Agreement and the Merger.
(b) The Board of Directors has received the opinion of
Montgomery Securities dated of recent date, satisfactory to the Company and its
Board of Directors to the effect that the terms of the Merger are fair to the
Company Stockholders from a financial point of view (the "Montgomery Opinion").
(c) On the date hereof, the Company has entered into an
option agreement (the "Option Agreement") with the Parent in substantially the
form attached hereto as Exhibit B pursuant to which the Company grants the
Parent an option, under certain circumstances whereby this Agreement is
terminated and the Merger does not take place as contemplated herein, to purchas
Company Shares from time to time at a price of $5.25 per share.
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 24
Execution Copy
<PAGE>
(d) The Company shall use its reasonable efforts to obtain
and deliver to the Parent the written agreement of all executive officers and
directors, to the extent such persons own Company Shares (the "Company
Affiliates") substantially in the form attached hereto as Exhibit C (an
"Affiliate Agreement") pursuant to which each of the Company Affiliates shall
(i) acknowledge that the Merger Shares are subject to certain resale
restrictions under Rule 145 of the Securities Act, and (ii) with respect to the
Company Affiliates who are directors or executive officers of the Company, such
Company Affiliates shall agree to vote all Company Shares owned by them or over
which they have voting control, in favor of the Merger and this Agreement and
irrevocably grant a proxy, coupled with an interest, to the Parent or its
designee to vote such Company Shares in favor of this Agreement the Merger.
Schedule 2.32 of the Company Disclosure Schedule identifies all such persons who
are as of the date hereof Company Affiliates.
(e) The Board of Directors of the Company has authorized the
Company to enter into a license agreement (the "License Agreement") with the
Parent pursuant to which the Company grants the Parent a license, on
commercially reasonable terms and conditions no more favorable than the Company
would provide to any acceptable unaffiliated third party, to use any and all
intellectual property rights and proprietary technology of the Company, in the
event this Agreement is terminated for any reason and the Merger does not take
place as contemplated herein
2.33 HSR Act. The Company is not controlled by a $100,000,000 person within
the meaning of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PARENT
AND THE ACQUISITION SUBSIDIARY
Each of the Parent and the Acquisition Subsidiary hereby jointly and
severally represent and warrant to the Company as follows:
3.1 Organization of Parent and Acquisition Subsidiary. The Parent is a
corporation duly organized, validly existing and in good standing under the laws
of Belgium 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 conducted by it. The
Acquisition Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the State of 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 conducted by it. The Parent owns all of the issued and outstanding
capital stock of the Acquisition Subsidiary. The Acquisition Subsidiary was
formed solely for the purpose of the Merger and engaging in the transactions
contemplated hereby. The copies of the Parent's Restated Articles of
Incorporation and the Acquisition Subsidiary's Certificate of Incorporation,
each as amended to date, certified in the case of the Acquisition Subsidiary by
the Delaware Secretary of State, and of the Acquisition
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 25
Execution Copy
<PAGE>
Subsidiary's Bylaws, as amended to date, certified by the Secretary of the
Acquisition Subsidiary copies of which have been delivered to the Company, are,
and, subject to any and all amendments described in that certain proxy statement
dated April 9, 1997 (a copy of which has also been delivered to the Company),
will be at the Closing, complete and correct.
3.2 Capitalization. All of the Merger Shares will be, when issued in
accordance with this Agreement, duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights. There are no authorized or
outstanding options, warrants, calls, rights, commitments or other agreements of
any character to which the Acquisition Subsidiary is a party or by which it is
bound requiring it to issue, transfer, sell, purchase, redeem or acquire any
shares of capital stock or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe for or acquire, any
shares of capital stock of Acquisition Subsidiary. The capitalization of the
Parent reflected in the Draft Audited Financial Statements (as defined in
Section 3.5) is correct and complete as of the date set forth therein.
3.3 Authorization of Transaction. Each of the Parent and the Acquisition
Subsidiary has all requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and to consummate the Merger
and the transactions contemplated hereby. The execution and delivery of this
Agreement and the performance of this Agreement and a consummation by each of
the Parent and the Acquisition Subsidiary of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of each of the Parent and the Acquisition Subsidiary. This Agreement
has been duly and validly executed and delivered by each of the Parent and the
Acquisition Subsidiary and constitutes valid and binding obligations of the
Parent and the Acquisition Subsidiary, enforceable against them in accordance
with its terms, except to the extent that its enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors' rights generally or by general equitable
principles.
3.4 No Conflict of Transaction With Obligations and Laws. Subject to
compliance with the applicable requirements of the Coordinated Laws on
Commercial Companies of Belgium (which have been described in a memorandum which
has been made available to the Company), the Securities Act, any applicable
state takeover or securities laws, the Exchange Act, the Nasdaq National Market
and the filing of the Certificate of Merger and any other documents as required
by the DGCL, neither the execution, delivery and performance of this Agreement,
nor the performance of the transactions contemplated hereby, will: (i)
constitute a breach or violation of the Charter or Bylaws of the Parent or the
Acquisition Subsidiary; (ii) require any consent, waiver, exemption, approval or
authorization of, declaration, filing or registration with, or giving of notice
to any person, court, arbitration tribunal, administrative agency or commission
or other governmental or regulatory agency or authority; (iii) except as set
forth on Schedule 3.4, conflict with or constitute (with or without the passage
of time or the giving of notice) a breach of, or default under, any debt
instrument to which the Parent (including any subsidiary of the Parent) or the
Acquisition Subsidiary is a party, or give any person the right to accelerate
any indebtedness or terminate, modify or cancel any right with respect to any
debt instrument; (iv) constitute (with or without the passage of time or giving
of notice) a default under or breach of any other agreement, instrument or
obligation to which the Parent (including any subsidiary of the Parent)
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 26
Execution Copy
<PAGE>
or the Acquisition Subsidiary is a party or by which the Parent (including any
subsidiary of the Parent) or the Acquisition Subsidiary or any of their assets
are bound; (v) result in the creation of any lien or encumbrance upon any of the
assets of the Parent (including any subsidiary of the Parent) or the Acquisition
Subsidiary; (vi) result in a violation of any law, regulation, administrative
order or judicial order, decree or judgment applicable to the Parent (including
any subsidiary of the Parent) or the Acquisition Subsidiary, or their businesses
or assets; or (vii) invalidate or adversely affect any permit, license or
authorization used in the Parent's (including any subsidiary of the Parent) or
the Acquisition Subsidiary's business, excluding from clauses (ii) through (vii)
consents, waivers, exemptions, approvals or authorizations, declarations,
filings or registrations, notices, conflicts, breaches, defaults, liens or
encumbrances, or violations which would not, either individually or in the
aggregate, either have a Parent Material Adverse Effect or materially impair or
preclude the Parent's or the Acquisition Subsidiary's ability to consummate the
Merger or the transactions contemplated hereby. Except as set forth on Schedule
3.4 hereof, neither the execution, delivery and performance of this Agreement
nor the performance of the transactions contemplated hereby will give rise to a
right of any party (other than the Parent or the Acquisition Subsidiary) to
terminate, modify or cancel any material contract, agreement or other instrument
to which the Parent is a party or by which the Parent or its properties are
affected. A "Parent Material Adverse Effect" is defined as any fact, change,
event or any other occurrence or circumstance that has, or is reasonably likely
to have, individually or in the aggregate, a material adverse impact on the
business, properties, operations, prospects, assets, revenues or condition
(financial or otherwise) of the Parent and its subsidiaries taken as a whole;
provided, however, that "Parent Material Adverse Effect" shall be deemed to
exclude the impact of any continuation of any existing unfavorable business or
financial trend (which has been disclosed herein) without a material worsening
thereof.
3.5 Reports and Financial Statements
(a) The Parent has previously furnished to the Company
complete and accurate copies, as amended or supplemented, of its (a) Annual
Report on Form 20-F for the fiscal year 1995 as filed with the SEC, and any
amendments thereto, (b) proxy statements relating to all meetings of its
stockholders (whether annual or special) since December 6, 1995, (c) all other
reports or registration statements, other than Registration Statements on Form
S-8, filed by the Parent with the SEC since December 6, 1995 and (d) the draft
consolidated audited financial statements for the fiscal year ended December 31,
1996 (the "Draft Audited Financial Statements") together with a draft of
management's discussion and analysis of financial condition and operations (such
annual report, proxy statements, registration statements, Draft Audited
Financial Statements and other filings, together with any amendments or
supplements thereto, are collectively referred to herein as the "Parent
Reports"). The Parent Reports constitute all of the documents filed or required
to be filed by the Parent with the SEC since December 6, 1995, other than any
Registration Statement on Form S-8. As of their respective dates, the Parent
Reports and that certain Private Placement Memorandum dated April 4, 1997 ( a
copy of which has been provided to the Company) and the Parent Reports
incorporated therein by reference, did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 27
Execution Copy
<PAGE>
circumstances under which they were made, not misleading. The consolidated
audited financial statements of the Parent included in the Parent Reports
(together, the "Parent Financial Statements") (i) comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, (ii) have been prepared
in accordance with GAAP applied on a consistent basis throughout the periods
covered thereby (except as may be indicated therein or in the notes thereto),
(iii) fairly present the consolidated financial condition, results of operations
and cash flows of the Parent and each of its subsidiaries as of the respective
dates thereof and for the periods referred to therein, and (iv) are consistent
in all material respects with the books and records of the Parent. The Parent
has also previously made available to the Company all documents used in
connection with any offer or sale of securities, for purposes of raising
capital, by the Parent since December 6, 1995.
(b) The consolidated balance sheet contained in the Draft
Audited Financial Statements, including the footnotes thereto, is sometimes
referred to hereinafter as the "Parent Base Balance Sheet."
(c) The books of account of the Parent are complete and
correct in all material respects. The current books of account and auditor's
letters to management of the Parent since December 6, 1995 and other significant
correspondence from or to such auditors during such period, if any, have been
made available to the Company.
3.6 Claims and Legal Proceedings. There are no claims, actions, suits,
arbitrations, proceedings or investigations pending (or, to the best knowledge
of Parent, threatened) against Parent or any of its subsidiaries, and there are
no outstanding court orders, court decrees, or court stipulations to which
Parent or any of its subsidiaries is a party or by which any of their respective
assets are bound, any of which (a) affect this Agreement or the transactions
contemplated hereby, or (b) materially restrict the present business,
properties, operations, prospects, assets or condition, financial or otherwise,
of Parent or any of its subsidiaries, or (c) would, individually or in the
aggregate have a Parent Material Adverse Effect or materially impair or preclude
the Parent's or the Acquisition Subsidiary's ability to consummate the Merger or
the other transactions contemplated hereby.
3.7 Disclosure of Material Information. No representation or warranty by
the Parent or the Acquisition Subsidiary contained in this Agreement, and no
statement contained in the Parent's disclosure schedule or any exhibit to this
Agreement or certificate issued by or to be issued by the Parent or the
Acquisition Subsidiary and furnished or to be furnished to the Company pursuant
to this Agreement contains or will contain any untrue statement of a material
fact or omits, or will omit to state any material fact necessary, in light of
the circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading.
3.8 Parent Action. The Parent has received the opinion of Hambrecht & Quist
satisfactory to the Parent to the effect that the terms of the Merger are fair
to the Parent from a financial point of view. A copy of such letter has been
previously furnished to the Company.
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 28
Execution Copy
<PAGE>
3.9 Shareholder Vote Not Required. No vote of the holders of the
outstanding shares of Parent Common Stock is required to approve this Agreement,
the Merger or the transactions contemplated by this Agreement.
3.10 Transaction Fees. Except for Hambrecht & Quist, neither the Parent nor
the Acquisition Subsidiary has employed any investment banker, broker, finder or
intermediary in connection with the transactions contemplated hereby who might
be entitled to a fee or any commission the receipt of which is conditioned upon
the consummation of the Merger.
3.11 Financing. The Acquisition Subsidiary and the Parent have sufficient
funds and/or available financing to pay the Merger Consideration for all Company
Shares, the O&W Company Shares and all fees and expenses related to the Merger.
3.12 Prior Activities of Acquisition Subsidiary. The Acquisition
Subsidiary has not incurred any liabilities or obligations, except those
incurred in connection with its organization or with the negotiation of this
Agreement or the performance hereof, and the financing of the Merger and the
consummation of the transactions contemplated thereby. Except as contemplated by
the foregoing, Acquisition Subsidiary has not engaged in any business activities
of any type or kind whatsoever, nor entered into any agreements or arrangements
with any person, nor is it subject to or bound by any obligation or undertaking.
3.13 Permits. Each of the Parent and the Acquisition Subsidiary holds all
licenses, permits, registrations, orders, authorizations, approvals and
franchises which are required to permit it to conduct its business as presently
conducted, except where the failure to hold such licenses, permits,
registrations, orders, authorizations, approvals or franchises would not,
individually or in the aggregate, have a Parent Material Adverse Effect.
3.14 Absence of Sensitive Payments. Neither the Parent, nor to the
knowledge of the Parent, any of the Parent's directors, officers, agents,
stockholders or employees, on behalf of the Parent:
(a) has made or agreed to make any contributions, payments
or gifts of funds or property to any governmental official, employee or agent
where either the payment or the purpose of such contribution, payment or gift
was or is illegal under the laws of the United States, any state thereof or any
other jurisdiction (foreign or domestic);
(b) has established or maintained any unrecorded fund or
asset for any purpose, or has made any false or artificial entries on any of its
books or records for any reason; or
(c) has made or has agreed to make any contribution or
expenditure, or has reimbursed any political gift or contribution or expenditure
made by any other person to candidates for public office, whether Federal, state
or local (foreign or domestic), where such contributions were in violation of
applicable law.
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 29
Execution Copy
<PAGE>
3.15 HSR Act. The Parent is not controlled by a $100,000,000 person within
the meaning of the HSR Act.
3.16 Present Compliance with Obligations and Laws. The Parent is not: (a)
in violation of its Charter or Bylaws; (b) in default in the performance of any
obligation, agreement or condition of any debt instrument which (with or without
the passage of time or the giving of notice) affords to any person the right to
accelerate any indebtedness or terminate any right; (c) in default of or breach
of (with or without the passage of time or the giving of notice) any other
contract to which it is party or by which it or its assets are bound; or (d) in
violation of any law, regulation, administrative order or juridical order,
decree, or judgment applicable to it or its business or assets, accept where any
violation or default under items (b), (c) or (d) would not, individually or in
the aggregate, have a Parent Material Adverse Effect.
ARTICLE IV
COVENANTS
4.1 Reasonable Best Efforts. Each of the Parties shall use, and the Parent
shall cause the Acquisition Subsidiary to use, reasonable best efforts to take
all actions and to do all things necessary, proper or advisable to consummate
the Merger and the transactions contemplated by this Agreement, including, but
not limited to the delivery of certificates reasonably requested in connection
with any opinions to be delivered hereunder.
4.2 Notices and Consents. Each of the Parties shall use reasonable best
efforts to obtain, at its reasonable expense, all such waivers, permits,
consents, approvals or other authorizations from third parties and governmental
entities or authorities, and to effect all such registrations, filings and
notices with or to third parties and governmental entities or authorities, as
may be necessary or desirable in connection with the transactions contemplated
by this Agreement.
4.3 Special Meeting, Prospectus/Proxy Statement and Registration Statement;
Fairness Opinion.
(a) The Parent and the Company shall jointly prepare, and
the Company shall file with the SEC under the Exchange Act, subject to the other
provisions of this Agreement, proxy materials for the purpose of soliciting
proxies from Company Stockholders to vote in favor of the adoption of this
Agreement and the approval of the Merger at a meeting of Company Stockholders to
be called and held for such purpose (and if so determined by the Company, for
the annual election of directors and the ratification and appointment of its
auditors) (the "Special Meeting"). Such proxy materials shall be in the form of
a prospectus/proxy statement to be used for the purpose of offering the Merger
Shares to Company Stockholders and soliciting such proxies from Company
Stockholders (such prospectus/proxy statement, together with any accompanying
letter to stockholders, notice of meeting and form of proxy, shall be referred
to herein as the "Prospectus/Proxy Statement"). The Parent and Acquisition
Subsidiary shall furnish to the Company all information concerning the Parent
and Acquisition Subsidiary as
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 30
Execution Copy
<PAGE>
the Company may reasonably request in connection with the preparation of the
Prospectus/Proxy Statement. The Parent and its counsel shall be given an
opportunity to review and comment on the Prospectus/Proxy Statement prior to its
filing with the SEC. The Company, with the assistance of the Parent, shall
promptly respond to any SEC comments on the Prospectus/Proxy Statement and shall
otherwise use reasonable best efforts to resolve as promptly as practicable all
SEC comments thereon.
(b) A copy of the Montgomery Opinion shall be delivered by
the Company to the Parent no later than the day that the preliminary proxy
materials described in subparagraph (a) above are first filed with the SEC.
(c) The Parent shall prepare and file with the SEC under the
Securities Act and all other applicable regulatory bodies as soon as reasonably
practicable, a Registration Statement on Form F-4 with respect to shares of
Parent Common Stock to be issued in the Merger (the "Registration Statement"),
which shall include the Prospectus/ Proxy Statement as a part thereof. The
Company and its counsel shall be given an opportunity to review and comment on
the Registration Statement prior to its filing with the SEC. The Parent, with
the assistance of the Company, shall promptly respond to any SEC comments on the
Registration Statement and shall otherwise use reasonable best efforts to cause
the Registration Statement to be declared effective as promptly as practicable.
The Parent shall also take any and all such actions to satisfy the requirements
of the Securities Act, including Rule 145 thereunder, and the Exchange Act.
Prior to the Closing Date, the Parent shall use its reasonable, good faith
efforts to cause the shares of Parent Common Stock to be issued pursuant to the
Merger to be registered or qualified under all applicable securities or Blue Sky
laws of each of the states and territories of the United States, and to take any
other such actions which may be necessary to enable the Parent Common Stock to
be issued pursuant to the Merger in each such jurisdiction.
(d) Promptly following the resolution of all SEC comments on
the Prospectus/Proxy Statement and the declaration of effectiveness of the
Registration Statement, the Company shall distribute the Prospectus/Proxy
Statement to its stockholders and, pursuant thereto, shall call the Special
Meeting in accordance with the DGCL and subject to the other provisions of this
Agreement, solicit proxies from Company Stockholders to vote in favor of the
adoption of this Agreement and the approval of the Merger at the Special
Meeting.
(e) The Company shall comply with all applicable provisions
of and rules under the Exchange Act and all applicable provisions of the DGCL in
the preparation, filing and distribution of the Prospectus/Proxy Statement, the
solicitation of proxies thereunder, and the calling and holding of the Special
Meeting. Without limiting the foregoing, the Company shall ensure that the
Prospectus/Proxy Statement does not, as of the date on which it is distributed
to Company Stockholders, and as of the date of the Special Meeting, contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in light of the circumstances under which
they were made, not misleading (provided that the Company shall not be
responsible for the accuracy or completeness of any information relating to the
Parent and the Acquisition Subsidiary or any other information furnished by the
Parent in writing for inclusion in the Prospectus/Proxy Statement). The
information supplied by the
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 31
Execution Copy
<PAGE>
Company for inclusion in the Registration Statement will not as of the effective
date of the Registration Statement (or any amendment or supplement thereto) or
at the time of the Special Meeting, contain any statement which, at such time
and in light of the circumstances under which it is made, is false or misleading
with respect to any material fact, or omits to state any material fact required
to be stated therein or necessary in order to make the statements therein not
false or misleading.
(f) The Parent shall comply with all applicable provisions
of and rules under the Securities Act and state securities laws in the
preparation, filing and distribution of the Registration Statement and the
offering and issuance of the Merger Shares. Without limiting the foregoing, the
Parent shall ensure that the Registration Statement does not, as of its
effective date, and as of the date of the Special Meeting, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading
(provided that the Parent shall not be responsible for the accuracy or
completeness of any information relating to the Company or any other information
furnished by the Company in writing for inclusion in the Registration
Statement). The information supplied by the Parent for inclusion in the
Prospectus/Proxy Statement to be sent to the stockholders of the Company in
connection with the Special Meeting will not, on the date the Prospectus/Proxy
Statement (or any amendment or supplement thereto) is first mailed to
stockholders of the Company or at the time of the Special Meeting, contain any
statement which, at such time and in light of the circumstances under which it
is made, is false or misleading with respect to any material fact, or omits to
state any material fact required to be stated therein or necessary in order to
make the statements therein not false or misleading.
(g) The Company, acting through its Board of Directors,
shall include in the Prospectus/Proxy Statement the recommendation of its Board
of Directors that the Company Stockholders vote in favor of the adoption of this
Agreement and the approval of the Merger, and shall otherwise use reasonable
best efforts to obtain the Requisite Stockholder Approval. Notwithstanding the
foregoing, the obligations set forth in this paragraph (g) shall not apply (and
the Board of Directors shall be permitted to modify or withdraw any such
recommendation previously made) if the Board of Directors of the Company, after
consultation with and based upon the written advice of independent legal counsel
(who may be the Company's regular legal counsel), determines in good faith that
to not withdraw such recommendation would constitute a breach of the fiduciary
duties of the Board of Directors under applicable law.
4.4 Operation of Business. Except as contemplated by this Agreement, during
the period from the date of this Agreement to the Effective Time, the Company
shall (and shall cause each Subsidiary to) conduct its operations in the
ordinary course of business and consistent with past practice and in compliance
in all material respects with applicable laws and regulations and, to the extent
consistent therewith, use reasonable efforts to preserve intact its current
business organization, keep its physical assets in good working condition, keep
available the services of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it to the end that its goodwill and ongoing business shall not be impaired in
any material respect. Without limiting the generality of the foregoing, prior to
the Effective Time, the Company shall not, without the written consent of the
Parent:
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 32
Execution Copy
<PAGE>
(a) issue, sell, deliver or agree or commit to issue, sell
or deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) or authorize the
issuance, sale or delivery of, or redeem or repurchase, any stock of any class
or any other securities or any rights, warrants or options to acquire any such
stock or other securities, or amend any of the terms of any such convertible
securities, Options or Warrants, other than the issuance of Company Shares upon
the exercise of outstanding Options and Warrants;
(b) split, combine or reclassify any shares of its capital
stock or declare, set aside or pay any dividend or other distribution (whether
in cash, stock or property or any combination thereof) in respect of its capital
stock;
(c) except in the ordinary course of business and consistent
with past practice: create, incur or assume any debt not currently outstanding
(including obligations in respect of capital leases) other than loans incurred
to satisfy the working capital needs of the Company; assume, guarantee, endorse
or otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person; or make any loans, advances
or capital contributions to, or investments in, any other person;
(d) enter into, adopt or amend any ERISA Benefit Plan or
Benefit Plan or any employment or severance agreement or arrangement or (except
for normal increases in the ordinary course of business and consistent with past
practice) increase in any manner the compensation or fringe benefits of, or
materially modify the employment terms of, its directors, officers or employees,
generally or individually, or pay any benefit not required by the terms in
effect on the date hereof of any existing ERISA Benefit Plan or Benefit Plan;
(e) acquire, sell, lease, encumber or dispose of any shares
or other equity interests in or securities of any corporation, partnership,
association or other business organization or division thereof or any assets,
other than purchases and sales of assets in the ordinary course of business and
consistent with past practice;
(f) amend its Charter or Bylaws;
(g) change in any material respect its accounting methods,
principles or practices, except insofar as may be required by a generally
applicable change in GAAP;
(h) discharge or satisfy any security interest, lien or
other encumbrance or pay any obligation or liability other than in the ordinary
course of business and consistent with past practice;
(i) mortgage or pledge any of its property or assets or
subject any such assets to any security interest, lien or other encumbrance,
except to fund the Company's working capital needs;
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 33
Execution Copy
<PAGE>
(j) sell, assign, transfer or license any Intellectual
Property Assets, other than in the ordinary course of business and consistent
with past practice;
(k) enter into, amend, terminate, take or omit to take any
action that would constitute a violation of or default under, or waive any
material rights under, any material contract or agreement;
(1) make or commit to make any capital expenditure in excess
of $10,000 per item or $50,000 in the aggregate;
(m) take any action or fail to take any action permitted by
this Agreement with the knowledge that such action or failure to take action
would result in (i) any of the representations and warranties of the Company set
forth in this Agreement becoming untrue in any material respect or (ii) any of
the conditions to the Merger set forth in Article V not being satisfied; or
(n) agree in writing or otherwise to take any of the
foregoing actions.
In addition, the Company shall not without prior oral consultation with
the Parent hire any employees or retain any consultants other than nonmanagement
or nonsupervisory personnel in the ordinary course of business.
4.5 Access. Each party shall permit representatives of the other to have
access (at all reasonable times and in a manner so as not to interfere with the
normal business operations of the other party) to all premises, properties,
financial and accounting records, contracts, other records and documents, and
personnel of or pertaining to such party. Each Party (a) shall treat and hold as
confidential any Confidential Information (as defined below), (b) shall not use
any of the Confidential Information except in connection with this Agreement,
and (c) if this Agreement is terminated for any reason whatsoever, shall return
to the disclosing Party all tangible embodiments (and all copies) thereof which
are in its possession. For purposes of this Agreement, "Confidential
Information" means any information of the disclosing Party that is furnished to
another Party by the disclosing Party in connection with this Agreement:
provided, however, that it shall not include any information (i) which, at the
time of disclosure, is available publicly, (ii) which, after disclosure, becomes
available publicly through no fault of the receiving Party, (iii) which the
receiving Party demonstrates it knew or to which the receiving Party had legal
access prior to disclosure, or (iv) which is required by law to be disclosed.
4.6 Notice of Breaches. The Company shall promptly deliver to the Parent
written notice of any event or development that would (a) render any statement,
representation or warranty of the Company in this Agreement (including the
Company Disclosure Schedule) inaccurate or incomplete in any material respect,
or (b) constitute or result in a breach by the Company of, or a failure by the
Company to comply with, any agreement or covenant in this Agreement applicable
to such Party. The Parent or the Acquisition Subsidiary shall promptly deliver
to the Company written notice of any event or development that would (i) render
any statement, representation or warranty of the Parent or the Acquisition
Subsidiary in this
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 34
Execution Copy
<PAGE>
Agreement inaccurate or incomplete in any material respect,
or (ii) constitute or result in a breach by the Parent or the Acquisition
Subsidiary of, or a failure by the Parent or the Acquisition Subsidiary to
comply with, any agreement or covenant in this Agreement applicable to such
Party. No such disclosure shall be deemed to avoid or cure any such
misrepresentation or breach.
4.7 Exclusivity.
(a) The Company shall not, and the Company shall use
reasonable best efforts to cause each of its officers, directors, employees,
representatives and agents not to, directly or indirectly, (i) encourage,
solicit, initiate, engage or participate in negotiations with any person or
entity (other than the Parent) concerning any merger, consolidation, sale of
material assets, tender offer, recapitalization, material accumulation of
Company Shares, proxy solicitation or other business combination involving the
Company, or any division of the Company (an "Acquisition Transaction") or (ii)
or take any other action intended or designed to facilitate the efforts of any
person or entity (other than Parent) relating to a possible Acquisition
Transaction.
(b) Notwithstanding anything herein to the contrary, in the
event that there is an unsolicited proposal for or an unsolicited indication of
a serious interest in entering into, an Acquisition Transaction from a bona fide
financially capable third party that contains no financing contingency, the
Company, at its discretion, shall be permitted to furnish to and communicate
with any such party all publicly available information requested by such party.
In the event that such party requests information in addition to that which is
publicly available, the Company may furnish to and communicate with such third
party non-public information and otherwise negotiate with such party, only if
(i) two (2) business days prior written notice shall have been given to the
Parent and (ii)(A) the Company's Board of Directors shall have been advised in
writing by its investment banker that it believes such third party is
financially capable, without any financing contingency, of consummating an
Acquisition Transaction, (B) the Company's Board of Directors shall have been
advised, by the written opinion of outside counsel to the Company, that any
failure to provide such non-public information to such party would constitute a
breach of the fiduciary responsibilities of the Board of Directors to the
Company Stockholders and (C) the Company's Board of Directors, after weighing
such advice, determines that failing to furnish such information would
constitute a breach of the Board's fiduciary duties. Notwithstanding anything
herein to the contrary, nothing shall prohibit the Board of Directors of the
Company from responding to a tender offer or complying with its obligations
under Sections 14d-9 or 14e-2 of the Exchange Act.
4.8 Listing of Merger Shares. On or before the Effective Time, the Parent
shall list the Merger Shares on the Nasdaq National Market.
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 35
Execution Copy
<PAGE>
4.9 Indemnification.
(a) The Parent and the Acquisition Subsidiary agree that all
rights to indemnification for acts or omissions occurring prior to the Effective
Time of the Merger now existing in favor of the current directors and officers
of the Company as provided in the Charter or Bylaws of the Company or in any
indemnification agreements shall survive the Merger and shall continue in full
force and effect in accordance with their terms.
(b) For a period of six (6) years after the Effective Time,
the Surviving Corporation shall cause to be maintained in effect the current
policies of directors' and officers' liability insurance maintained by the
Company (or policies of at least the same coverage and amounts containing terms
and conditions which are no less advantageous) with respect to claims arising
from facts or events which occurred before the Effective Time; provided,
however, that the Surviving Corporation shall not be obligated to make annual
premium payments for such insurance to the extent that such premiums exceed an
amount equal to 200% of the annual premiums paid as of the date hereof by the
Company for such insurance and if such premiums exceed such amount the Surviving
Corporation shall purchase insurance policies in amounts and with coverage as
reasonably can be purchased for such amount.
(c) Parent agrees to be jointly and severally liable with
the Company and the Surviving Corporation for their indemnification obligations
to the Company's current directors and officers, in all capacities in which such
directors or officers served the Company prior to the Effective Time, as set
forth in the Company's Charter and Bylaws or in any indemnification agreements
by and between the Company and such current directors and officers and to the
extent such indemnification by the Company is permitted under DGCL.
(d) Parent further agrees to be jointly and severally liable
with the Surviving Corporation for any indemnification obligation it may have to
directors (in any capacity) of the Company who continue to serve as directors of
the Surviving Corporation after the Effective Time pursuant to any
indemnification agreements entered into by the Company with such directors, with
respect to acts or events (in any capacity) while serving as a director of the
Surviving Corporation on or after the Effective Time to the extent such
indemnification by the Surviving Corporation is permitted under DGCL.
(e) In the event the Parent or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its properties
and assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of the Parent
assume the obligations set forth in this Section 4.9.
(f) The provisions of this Section 4.9 are intended to be
for the benefit of, and shall be enforceable by, each indemnified party and his
or her heirs and representatives.
4.10 Filing of Annual Reports. As soon as practicable following the
execution of this Agreement, Parent shall use its reasonable best efforts to
file its Annual Report on Form 20-F for
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 36
Execution Copy
<PAGE>
the fiscal year ended December 31, 1996 with the SEC and the Company shall use
its reasonable best efforts to file its Annual Report on Form 10-KSB for the
fiscal year ended January 31, 1997 with the SEC.
4.11 Hart-Scott-Rodino To each party's knowledge, based upon the published
financial statements of each party and the representations set forth herein, no
filing pursuant to the HSR Act is required to be made with respect to the Merger
and the other transactions contemplated hereby. In the event that such filing
may be required at a later date as a result of either or both parties'
publication of further financial information, such additional governmental
approval requirement and the approvals required for the consummation of the
transactions contemplated hereby shall not constitute a breach of any covenants
or representations and warranties under this Agreement, and each party shall use
all commercially reasonable efforts to file as promptly as practicable such
Notification and Report Forms under the HSR Act with the Federal Trade
Commission and the Antitrust Division of the Department of Justice, and use all
commercially reasonable efforts to respond as promptly as practicable to all
inquiries received from such governmental agencies for additional information or
documentation in order to obtain as soon as practicable all necessary
governmental approvals, if any, for the transactions contemplated hereby under
the HSR Act. In the event that a filing is required under the HSR Act, the
outside Closing Date shall be extended for a period of 45 days.
4.12 Employee Welfare. Parent agrees to honor, and to cause the Surviving
Corporation to honor, in accordance with their terms, all arrangements described
in Schedule 4.12 of the Company Disclosure Schedule. The provisions of this
Section 4.12 are intended to be for the benefit of, and enforceable by, each of
the persons set forth in Schedule 4.12 of the Company Disclosure Schedule and
their heirs and representatives.
4.13 Tax Returns: Good Standing. As soon as practicable following the
execution of this Agreement, and in any event prior to the Closing Date, the
Company shall (i) file its 1995 Federal tax return, (ii) file tax returns in
Massachusetts covering the past three years, and (iii) take any and all action
necessary to bring itself into good standing in the State of Delaware.
4.14 Loan to Company. The Parent shall cause its subsidiary to make funds
available to the Company in accordance with that certain Loan Agreement by and
between the Company and Lernout & Hauspie Speech Products USA, Inc., a
wholly-owned subsidiary of the Parent ("L&H USA"), dated the date hereof (the
"Loan Agreement"). The Company shall, and the Parent shall cause L&H USA to,
comply in all material respects with their respective agreements, obligations
and covenants under the Loan Agreement.
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 Conditions to Each Party's Obligations. The respective obligations of
each Party to consummate the Merger are subject to the satisfaction of or waiver
by each of the Parties of the following conditions:
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 37
Execution Copy
<PAGE>
(a) this Agreement and the Merger shall have received the
Requisite Stockholder Approval;
(b) the Registration Statement shall have become effective
in accordance with the provisions of the Securities Act and applicable state
securities laws, and no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC or any state and remain
in effect; and
(c) the Merger Shares shall have been authorized for listing
on the Nasdaq National Market.
5.2 Conditions to Obligations of the Parent and the Acquisition Subsidiary.
The obligation of each of the Parent and Acquisition Subsidiary to consummate
the Merger is subject to the satisfaction of or waiver by the Parent and the
Acquisition Subsidiary of the following additional conditions:
(a) the Company shall have obtained all of the waivers,
permits, consents, approvals or other authorizations, and effected all
registrations, filings and notices the failure of which to obtain would result
in a Company Material Adverse Effect;
(b) the representations and warranties of the Company set
forth in Article II shall be true and correct in all material respects when made
on the date hereof and shall be true and correct in all material respects as of
the Effective Time as if made as of the Effective Time, except for
representations and warranties made as of a specific date, which shall be true
and correct in all material respects as of such date and except if such
inaccuracies individually or in the aggregate do not cause a Company Material
Adverse Effect;
(c) the Company shall have performed or complied in all
material respects with its agreements and covenants required to be performed or
complied with under this Agreement as of or prior to the Effective Time;
(d) the Company shall have delivered to the Parent and the
Acquisition Subsidiary a certificate of its Chairman, President or Chief
Financial Officer to the effect that each of the conditions specified in clause
(a) of Section 5.1 and clauses (a) through (c) of this Section 5.2 is satisfied;
(e) the Parent and the Acquisition Subsidiary shall have
received from Mintz Levin Cohn Ferris Glovsky and Popeo, P.C., counsel to the
Company, an opinion with respect to the matters set forth in Exhibit D attached
hereto, addressed to the Parent and the Acquisition Subsidiary and dated as of
the Closing Date;
(f) no action, suit or proceeding shall be pending or
threatened before any governmental entity or authority which is reasonably
likely to (i) prevent consummation of any
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 38
Execution Copy
<PAGE>
of the transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation or (iii) affect materially and adversely the right of the Parent to
own, operate or control any of the assets and operations of the Surviving
Corporation following the Merger, and no such judgment, order, decree,
stipulation or injunction shall be in effect; provided, however, that the Parent
shall contest or cooperate with the Company in contesting, as applicable, the
action, suit or proceeding and if any injunction or order has been so issued
will use reasonable efforts to have it dismissed;
(g) the number of shares of Company Stock held by Dissenting
Stockholders shall not exceed 7% of the issued and outstanding Company Shares;
(h) all vested or exercisable Options and Warrants that have
an exercise price per share greater than the Per Share Dollar Value shall have
been amended, to the extent necessary, such that they may be terminated in
accordance with Section 1.9(a) hereof; and
(i) from the date of this Agreement to the Effective Time,
there shall not have been any event or development which results in a Company
Material Adverse Effect, nor shall there nave occurred any event or development
which is reasonably likely to result in a Company Material Adverse Effect.
5.3 Conditions to Obligations of the Company. The obligation of the Company
to consummate the Merger is subject to the satisfaction of or waiver by the
Company of the following additional conditions:
(a) the representations and warranties of the Parent and the
Acquisition Subsidiary set forth in Article III (other than Section 3.6(a))
shall be true and correct in all material respects when made on the date hereof
and shall be true and correct in all material respects as of the Effective Time
as if made as of the Effective Time, except for representations and warranties
made as of a specific date, which shall be true and correct in all material
respects as of such date;
(b) each of the Parent and the Acquisition Subsidiary shall
have performed or complied with in all material respects its agreements and
covenants required to be performed or complied with under this Agreement as of
or prior to the Effective Time;
(c) each of the Parent and the Acquisition Subsidiary shall
have delivered to the Company a certificate of its Chairman and Chief Financial
Officer to the effect that each of the conditions specified in clauses (b) and
(c) of Section 5.1 and clauses (a), (b) and (d) of this Section 5.3 is satisfied
in all respects;
(d) the Parent and the Acquisition Subsidiary shall have
obtained all waivers, permits, consents, approvals or other authorizations and
effected all registrations, filings and notices, the failure of which to obtain
would result in a Parent Material Adverse Effect;
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 39
Execution Copy
<PAGE>
(e) no writ, order, decree or injunction of a court of
competent jurisdiction or governmental entity shall have been entered against
the Parent, the Acquisition Subsidiary or the Company which prohibits the
consummation of the Merger; provided, however, that the Company shall have
contested or cooperated with Parent or the Acquisition Subsidiary, as
applicable, in contesting, the action suit or proceeding giving rise to such
writ, order, decree or injunction and shall have used reasonable efforts to have
the same dismissed;
(f) if any court of competent jurisdiction in the United
States or other governmental body in the United States shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger which has not been dismissed or vacated;
provided, however, that the Company shall have contested or cooperated with the
Parent or the Acquisition Subsidiary in contesting, as applicable, the action,
suit or preceding pursuant to which such order was issued and shall have used
reasonable efforts to have such order dismissed;
(g) the Company shall have received from Brown, Rudnick,
Freed & Gesmer, United States counsel to the Parent and the Acquisition
Subsidiary an opinion with respect to the matters set forth in Exhibit E
attached hereto, addressed to the Company and dated as of the Closing Date; and
(h) the Company shall have received from Loeff Claeys
Verbeke, Belgian counsel to the Parent an opinion with respect to the matters
set forth in Exhibit F attached hereto, addressed to the Company and dated as of
the Closing Date.
ARTICLE VI
TERMINATION AND ABANDONMENT
6.1 Termination. In connection with the structure of the transactions
as described in this Agreement, the parties have agreed that this Agreement
shall not be terminated, nor the Merger abandoned, except in accordance with the
provisions of this Article VI, all strictly construed against the Party seeking
such termination. This Agreement may be terminated and the Merger may be
abandoned any time prior to the Effective Time, whether before or after approval
by the Company Stockholders:
(i) by mutual written consent of the Boards of Directors of
the Parent and the Company;
(ii) by either the Parent or the Company, if, without fault of
such terminating party, the Merger shall not have been consummated on or before
August 15, 1997;
(iii) by either the Parent or the Company, if any court of
competent jurisdiction in the United States or other governmental body in the
United States shall have issued an order (other than a temporary restraining
order), decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger, and such order, decree ruling or other action
shall
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 40
Execution Copy
<PAGE>
have become final and nonappealable provided that the party seeking termination
shall have diligently contested such ruling;
(iv) by either the Parent or the Company, if this Agreement
and the Merger fail to receive the Requisite Stockholder Approval; or
(v) by either Parent or the Company if (i) the Board of
Directors of the Company shall withdraw, modify or change its recommendation so
that it is not in favor of this Agreement or the Merger or shall have resolved
to do any of the foregoing or (ii) the Board of Directors of the Company shall
have recommended or resolved to recommend to its stockholders an Acquisition
Transaction other than the Merger.
6.2 Termination by the Parent. This Agreement may be terminated and the
Merger may be abandoned by action of the Board of Directors of the Parent, at
any time prior to the Effective Time, before or after the approval by the
Company Stockholders, if:
(i) the Company shall have failed to comply in any material
respect with any of the covenants or agreements contained in this Agreement such
that the Closing condition set forth in Section 5.2(c) would not be satisfied ;
provided, however, that if such failure or failures are capable of being cured
prior to the Effective Time, such failure, or failures shall not have been cured
within fifteen (15) days of delivery to the Company of written notice of such
failure or failures.
(ii) there exists a breach or breaches of any representation
or warranty of the Company contained in this Agreement in any material respect
such that the Closing condition set forth in Section 5.2(b) would not be
satisfied; provided, however, that if such failure, breach or breaches are
capable of being cured prior to the Effective Time, such failure, breach or
breaches shall not have been cured within fifteen (15) days (except that with
respect to Section 4.14 the period shall be seven (7) days) of delivery to the
Company of written notice of such failure, breach or breaches; or
(iii) the Company shall furnish or disclose non-public
information to a third party with respect to any Acquisition Transaction, or
shall have resolved to do the foregoing and publicly disclose such resolution.
6.3 Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the approval by the Company Stockholders, by action of the Board of Directors of
the Company, if:
(i) the Parent or the Acquisition Subsidiary shall have failed
to comply in any material respect with any of the covenants or agreements
contained in this Agreement such that the closing condition set forth in Section
5.3(b) would not be satisfied ; provided, however, that if such failure or
failures are capable of being cured prior to the Effective Time, such failure,
or
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 41
Execution Copy
<PAGE>
failures shall not have been cured within fifteen (15) days of delivery to
the Parent of written notice of such failure or failures; or
(ii) there exists a breach or breaches of any representation
or warranty of the Parent or the Acquisition Subsidiary contained in this
Agreement in any material respect such that the Closing condition set forth in
Section 5.3(a) would not be satisfied; provided, however that if such failure,
breach or breaches are capable of being cured prior to the Effective Time, such
failure, breach or breaches shall not be cured within fifteen (15) days (except
that with respect to Section 4.14 the period shall be seven (7) days) of
delivery to the Parent of written notice of such failure, breach or breaches.
6.4 Procedure for Termination. In the event of termination and abandonment
of the Merger by the Parent or the Company pursuant to this Article VI, written
notice thereof shall forthwith be given to the other.
6.5 Effect of Termination and Abandonment.
(a) In the event of termination of this Agreement and
abandonment of the Merger pursuant to this Article VI, no Party hereto (or any
of its directors or officers) shall have any liability or further obligation to
any other Party to this Agreement, except as provided in Section 4.5 (regarding
confidentiality) and this Section 6.5 and except that nothing herein shall
relieve any Party from liability for any breach of this Agreement.
(b) In the event of: a termination of this Agreement pursuant
to Sections 6.1(iv) or (v), or any termination of this Agreement by the Parent
pursuant to Section 6.2, then the Company shall , within five (5) business days
thereafter, pay the Parent by wire transfer of immediately available funds to an
account specified by the Parent up to $1.5 million for all documented out of
pocket reasonable fees and expenses incurred by the Parent (including the
reasonable fees and expenses of counsel, accountants, consultants and advisors)
in connection with this Agreement and the transactions contemplated hereby
(subject to such $1.5 million limit, "Parent Documented Expenses").
(c) In the event of a termination of this Agreement pursuant
to Section 6.1(v) , the Company shall, within five (5) business days thereafter,
pay the Parent by wire transfer of immediately available funds to an account
specified by the Parent a fee of $2.2 million (the "Termination Fee"), less any
Parent Documented Expenses paid to Parent.
(d) To the extent that the Termination Fee has not already
become payable and been paid, and, if prior to any termination pursuant to
Sections 6.1 (iii) (if and only if the action arose out of or relates to a
competing Business Combination Transaction) or (iv), or Sections 6.2(i) or (iii)
any person shall have made or discussed with the Company a proposal concerning a
Business Combination Transaction and prior to or within twelve (12) months after
the termination of this Agreement the Company or any of its Subsidiaries, or any
Company Affiliate enters into a definitive agreement with a third party with
respect to a Business Combination Transaction or a Business Combination
Transaction is effected, then the Company,
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 42
Execution Copy
<PAGE>
prior to entering into any such definitive agreement or any such Business
Combination Transaction being effected, shall, within five (5) business days
thereafter, pay the Parent by wire transfer of immediately available funds to an
account specified by the Parent the Termination Fee, less any Parent Documented
Expenses paid to Parent.
(e) As used in this Section 6.5, the term "Business
Combination Transaction" shall mean any of the following involving the Company
or any subsidiary of the Company, that is material to the business, results of
operation, prospects or financial condition of the Company : (1) any merger,
consolidation, share exchange, business combination or other similar transaction
(other than the Merger) in which the shareholders of the Company would own less
than 75% of the surviving entity following the consummation thereof; (2) any
sale, lease, exchange, transfer or other disposition of 50% or more of the
assets of the Company and its Subsidiaries, taken as a whole, in a single
transaction or series of transactions; or (3) the acquisition by a person or
entity, or any "group" (as such term is defined under Section 13(d) of the
Exchange Act and the rules and regulations thereunder) of beneficial ownership
of 25% or more of the Company Shares, whether by tender offer, exchange offer or
otherwise.
(f) In the event of a termination of this Agreement by the
Company, pursuant to Section 6.3 (i) or (ii) then the Parent shall promptly pay
the Company by wire transfer of immediately available funds to an account
specified by the Company up to $1.5 million for all documented fees and expenses
incurred by the Company (including the reasonable fees and expenses of counsel,
accountants, consultants and advisors) in connection with this Agreement and the
transactions contemplated hereby.
ARTICLE VII
MISCELLANEOUS
7.1 Fees and Expenses. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expense provided that the Parent and the Company shall
share equally all fees and expenses in connection with the filing of the
Registration Statement and the printing and mailing of the Prospectus/Proxy
Statement. The Parent acknowledges and agrees that the Company has disclosed
that it is obligated and will become further obligated for fees and expenses
(including fees and expenses of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. and Roger M. Barzun, Esquire, its counsel, Arthur Anderson & Co., LLP, its
independent accountants, and Montgomery Securities, its financial advisor)
incurred by it in connection with the Merger and the transactions contemplated
hereby. It is understood and agreed that certain of such fees and expenses may
be paid by the Company prior to the execution of this Agreement, and the Parent
agrees to refrain from taking any action which would prevent or delay the
payment of reasonable fees and expenses by the Company. Further, the Parent
agrees to take, and cause the Acquisition Subsidiary to take, all action
necessary to cause the Surviving Corporation to pay promptly any of the
foregoing reasonable fees and expenses incurred, but not paid, by the Company
prior to the Effective Time.
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 43
Execution Copy
<PAGE>
7.2 Notices. Any notice or other communication in connection with this
Agreement shall be deemed to be delivered if in writing (or in the form of a
facsimile transmission, receipt telephonically confirmed) addressed as provided
below and if either (a) actually delivered electronically or physically at said
address, or (b) in the case of a letter, three (3) business days shall have
elapsed after the same shall have been sent by nationally recognized overnight
courier:
If to the Company to:
Kurzweil Applied Intelligence, Inc.
441 Waverly Oaks Road
Waltham, MA 02154
Attn: Chief Executive Officer
Tel: 617-893-5151
Fax: 617-893-6525
with a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Attn: Peter F. Demuth, Esq.
Tel: 617-542-6000
Fax: 617 542-2241
If to the Parent or the Acquisition Subsidiary, to:
Lernout & Hauspie Speech Products N.V.
Sint-Krispijnstraat 7
8900 Ieper, Belgium
Attn: President
Tel: 011 32 57 219500
Fax: 011 32 57 208489
and
Lernout & Hauspie Speech Products USA, Inc.
20 Burlington Mall Road
Burlington, MA 01803
Attn: President
Tel: 617-238-0960
Fax: 617-238-0986
with a copy to:
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 44
Execution Copy
<PAGE>
Lernout & Hauspie Speech Products N.V.
Sint-Krispijnstraat 7
8900 Ieper, Belgium
Attn: Legal Department
Tel: 011 32 57 219500
Fax: 011 32 57 208489
Brown, Rudnick, Freed & Gesmer, P.C.
One Financial Center
Boston, MA 02111
Attn: Lawrence M. Levy, Esquire
Tel: 617-856-8200
Fax: 617-856-8201
and in any case at such other address as the addressee shall have specified by
written notice. All periods of notice shall be measured from the date of
delivery thereof.
7.3 Publicity and Disclosure. No Party shall issue or approve any press
releases or any public disclosure or announcement, either written or oral, of
the transactions contemplated by this Agreement without the prior knowledge and
written consent of the other parties; provided, however, that any Party may make
any public disclosure it believes in good faith is required by law or regulation
(in which case the disclosing Party shall advise the other Parties and provide
them with a copy of the proposed disclosure prior to making the disclosure).
7.4 Entire Agreement. This Agreement (including all exhibits or schedules
appended to this Agreement and all documents delivered pursuant to or referred
to in this Agreement, all of which are hereby incorporated herein by reference)
constitutes the entire agreement between the parties, and all promises,
representations, understandings, warranties and agreements with reference to the
subject matter hereof and inducements to the making of this Agreement relied
upon by any party hereto, have been expressed herein or in the documents
incorporated herein by reference.
7.5 Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision hereof.
7.6 Assignability. This Agreement may not be assigned otherwise than by
operation of law (a) by the Parent or the Acquisition Subsidiary without the
prior written consent of the Company or (b) by the Company without the prior
written consent of the Parent. However, any or all rights of the Parent to
receive performance (but not the obligations of the Parent to Company hereunder)
of the Company hereunder, may be assigned by the Parent to any direct or
indirect subsidiary, parent or other affiliate of the Parent. This Agreement
shall inure to the benefit of and be binding upon the Parties hereto and their
respective successors and permitted assigns.
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 45
Execution Copy
<PAGE>
7.7 Amendments and Waivers. The Parties may mutually amend any provision of
this Agreement at any time prior to the Effective Time with the prior
authorization of their respective Boards of Directors; provided, however, that
any amendment effected subsequent to the Requisite Stockholder Approval shall be
subject to the restrictions contained in the DGCL. No amendment of any provision
of this Agreement shall be valid unless the same shall be in writing and signed
by all of the Parties. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
7.8 Governing Law; Venue
(a) Except as otherwise required under Belgian law, this
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware (other than the choice of law principles thereof), except that
any representations and warranties with respect to real and tangible property
shall be governed by and construed in accordance with the laws of the
jurisdiction where such property is situated if other than in the State of
Delaware.
(b) Any claim, action, suit or other proceeding initiated by
any Party, under or in connection with this Agreement may be asserted, brought,
prosecuted and maintained in any Federal or state court in the State of
Delaware, as the Party bringing such action, suit or proceeding shall elect,
having jurisdiction over the subject matter thereof, and the Parties hereby
waive any and all rights to object to the laying of venue in any such court and
to any right to claim that any such court may be an inconvenient forum. Each of
the Parties hereby submit themselves to the jurisdiction of each such court and
agree that service of process on them in any such action, suit or proceeding may
be effected by the means by which notices are to be given to it under this
Agreement.
7.9 Remedies. The Parties hereto acknowledge that the remedy at law for any
breach of the obligations undertaken by the Parties hereto is and will be
insufficient and inadequate and that the Parties hereto shall be entitled to
equitable relief, in addition to remedies at law. In the event of any action to
enforce the provisions of this Agreement, each of the Parties shall waive the
defense that there is an adequate remedy at law. Without limiting any remedies
the Parties may otherwise have hereunder or under applicable law, in the event
any Party refuses to perform its obligations under this Agreement, the other
Parties shall have, in addition to any other rights at law or equity, the right
to specific performance.
7.10 Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 46
Execution Copy
<PAGE>
7.11 Effect of Table of Contents and Headings. Any table of contents, title
of an article or section heading herein contained is for convenience of
reference only and shall not affect the meaning of construction of any of the
provisions hereof.
7.12 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns; provided, however, that the provisions in
Article I concerning issuance of the Merger Shares are intended for the benefit
of the Company Stockholders and Sections 4.9 and 4.12 are intended for the
benefit of the individuals specified therein and their respective legal
representatives.
7.13 Knowledge. "To the knowledge," "to the best knowledge, information and
belief," or any similar phrase shall be deemed to refer to the knowledge of the
directors and executive officers of a party and to include the assurance that
such knowledge is based upon a reasonable investigation by such persons, unless
otherwise expressly provided.
7.14 Nonsurvival of Representations and Warranties. None of the
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for those covenants and agreements contained herein and therein
which by their terms apply in whole or in part after the Effective Time.
7.15 Integration of Exhibits. All Exhibits and Schedules attached to this
Agreement are integral parts of this Agreement as if fully set forth herein, and
all statements appearing therein shall be deemed disclosed for all purposes and
not only in connection with the specific representation in which they are
explicitly referenced.
ARTICLE VIII
DEFINITIONS
The following capitalized terms used herein shall have the meanings
ascribed in the indicated sections.
<TABLE>
<S> <C>
ACO..................................................................................... 1.5(b)
ACO Principal Amount.................................................................... 1.5(b)
Acquisition Subsidiary.................................................................. First Paragraph
Acquisition Transaction................................................................. 4.7(a)
Affiliate Agreement..................................................................... 2.33(a)
Average Market Value.................................................................... 1.5(a)
Base Balance Sheet...................................................................... 2.7(b)
Benefit Plan............................................................................ 2.16(a)(iii)
Business Combination Transaction........................................................ 6.5(b)
Certificate of Merger................................................................... 1.1
</TABLE>
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 47
Execution Copy
<PAGE>
<TABLE>
<S> <C>
Certificates............................................................................ 1.7(a)
Charter................................................................................. 2.1
Closing................................................................................. 1.2
Closing Date............................................................................ 1.2
Code.................................................................................... 1.9(a)
Company................................................................................. First Paragraph
Company Affiliates...................................................................... 2.32(d)
Company Disclosure Schedule............................................................. First Paragraph of
Article II
Company Material Adverse Effect......................................................... 2.1
Company Reports......................................................................... 2.7(a)
Company Shares.......................................................................... 1.5(a)
Company Stockholders.................................................................... 1.5(a)
Confidential Information................................................................ 4.5
Conversion Ratio........................................................................ 1.5(a)
DGCL.................................................................................... 1.1
Effective Time.......................................................................... 1.1
ERISA................................................................................... 2.16(a)(i)
ERISA Affiliate......................................................................... 2.16(a)
ERISA Benefit Plan...................................................................... 2.16(a)(iii)
Escrow Agent............................................................................ 1.7(a)
Escrow Agreement........................................................................ 1.7(a)
Escrow Amount........................................................................... 1.7(a)
Exchange Act............................................................................ 2.6
Exchange Agent.......................................................................... 1.3
Financial Statements.................................................................... 2.7(a)
GAAP.................................................................................... 2.7(a)
HSR Act................................................................................. 2.33
Indemnification Representative.......................................................... 1.7(a)
Intellectual Property Rights............................................................ 2.13(a)
Merger.................................................................................. 1.1
Merger Consideration.................................................................... 1.5(b)
Merger Shares........................................................................... 1.5(a)
Options................................................................................. 1.9(a)
Option Conversion Ratio 1.9(b)
O&W Agreements.......................................................................... 1.7(a)
O&W Company Shares...................................................................... 1.9(a)
Parent.................................................................................. First Paragraph
Parent Base Balance Sheet............................................................... 3.5(b)
Parent Common Stock..................................................................... 1.5(a)
Parent Documented Expenses.............................................................. 6.5(b)
Parent Financial Statements............................................................. 3.5(a)
Parent Material Adverse Effect.......................................................... 3.4
Parent Reports.......................................................................... 3.5(a)
Parties................................................................................. First Paragraph
</TABLE>
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 48
Execution Copy
<PAGE>
<TABLE>
<S> <C>
PBGC.................................................................................... 2.16(g)(ii)
Prospectus/Proxy Statement.............................................................. 4.3(a)
Registration Statement.................................................................. 4.3(c)
Requisite Stockholder Approval.......................................................... 2.4
SEC..................................................................................... 2.7(a)
Securities Act.......................................................................... 1.9(c)
Site.................................................................................... 2.17(a)
Special Meeting......................................................................... 4.3(a)
Subsidiary.............................................................................. 2.3
Surviving Corporation................................................................... 1.1
Tax Returns............................................................................. 2.10
Taxes................................................................................... 2.10
Termination Fee......................................................................... 6.5(b)
Warrants................................................................................ 1.9(a)
</TABLE>
[THE REMAINDER OF THIS PAGE IS LEFT BLANK INTENTIONALLY]
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 49
Execution Copy
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as an instrument under seal in multiple counterparts as of the date set
forth above by their duly authorized representatives.
0
LERNOUT & HAUSPIE SPEECH PRODUCTS, N.V.
BY: /s/ P. Haiispic
----------------------------------
Name: Pol haiispic
Title: Managing Director
TRAPPIST ACQUISITION CORP.
BY: /s/ A. Baction
-----------------------------------
Name: A. Baction
Title: President
KURZWEIL APPLIED INTELLIGENCE, INC.
BY: /s/ Thomas E. Brew Jr.
-----------------------------------
Name: Thomas E. Brew, Jr.
Title: President CEO
<PAGE>
AGREEMENT AND PLAN OF MERGER
List of Schedules and Exhibits
Schedule 2.1- Organization and Qualification of the Company
Schedule 2.2(a) Capitalization
Schedule 2.2(b) - Capitalization
Schedule 2.2(c) - Capitalization
Schedule 2.5 - Present Compliance with Obligations and Laws
Schedule 2.6(a)- No Conflict of Transaction with Obligations and Laws
Schedule 2.6(b) - No Conflict of Transaction with Obligations and Laws
Schedule 2.8- Absence of Undisclosed Liabilities
Schedule 2.9- Absence of Certain Changes
Schedule 2.10- Payment of Taxes
Schedule 2.11 - Title to Properties; Liens; Condition of Properties
Schedule 2.12- Liabilities
Schedule 2.13(a) - Intellectual Property Rights
Schedule 2.13(b) - Intellectual Property Rights
Schedule 2.13(c) - Intellectual Property Rights
Schedule 2.13(d) - Intellectual Property Rights
Schedule 2.13(e) - Intellectual Property Rights
Schedule 2.13(f) - Intellectual Property Rights
Schedule 2.13(g) - Intellectual Property Rights
Schedule 2.14(a) - Contracts and Commitments
Schedule 2.14(b) - Contracts and Commitments
Schedule 2.15- Labor and Employee Relations
Schedule 2.15(a) - Labor and Employee Relations
Schedule 2.15(c) - Labor and Employee Relations
Schedule 2.15(d) - Labor and Employee Relations
Schedule 2.15(g) - Labor and Employee Relations
Schedule 2.16(a) - Employee Benefits and ERISA
Schedule 2.16(b) - Employee Benefits and ERISA
Schedule 2.16(c) - Employee Benefits and ERISA
Schedule 2.18 - Permits
Schedule 2.19 - Warranty or Other Claims
Schedule 2.20 - Claims and Legal Proceedings
Schedule 2.21 - Borrowings and Guarantees
Schedule 2.22 - Financial Service Relations and Powers of Attorney
Schedule 2.23 - Insurance
Schedule 2.27 - Transactions with Interested Persons
Schedule 2.32 - Company Affiliates
Schedule 3.4 - No Conflict of Transaction With Obligations and Laws
Schedule 4.12 - Employee Welfare
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 51
Execution Copy
<PAGE>
Exhibit A - Certificate of Merger
Exhibit B - Option Agreement
Exhibit C - Affiliate Agreement
Exhibit D - Opinion of Counsel to the Company
Exhibit E - Opinion of US Counsel to the Parent and the
Acquisition Subsidiary
Exhibit F - Opinion of Belgian Counsel to the Parent
- --------------------------------------------------------------------------------
Agreement and Plan of Merger Page 52
Execution Copy
STOCK OPTION AGREEMENT
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN
PROVISIONS CONTAINED HEREIN AND TO RESALE RESTRICTIONS
UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND APPLICABLE
STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED
WITHOUT REGISTRATION OR AN EXEMPTION THEREFROM
STOCK OPTION AGREEMENT, dated April 14, 1997, between KURZWEIL APPLIED
INTELLIGENCE, INC., a Delaware corporation ("Issuer"), and LERNOUT & HAUSPIE
SPEECH PRODUCTS N.V., a Belgian corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), which agreement has been
executed by the parties hereto simultaneously with this Agreement. All
capitalized terms not otherwise defined herein shall have the meanings ascribed
to such terms in the Merger Agreement.
WHEREAS, as a condition to Grantee's entering into the Merger Agreement
and in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
l. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to 1,454,076
fully paid and nonassessable shares of Issuer's Common Stock, par value $.01 per
share ("Common Stock"), at a price of $5.25 per share (the "Option Price");
provided further that in no event shall the number of shares of Common Stock for
which this Option is exercisable exceed 16% of the Issuer's issued and
outstanding shares of Common Stock. The number of shares of Common Stock that
may be received upon the exercise of the Option and the Option Price are subject
to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock
are issued or otherwise become outstanding after the date of this Agreement
(other than pursuant to this Agreement), the number of shares of Common Stock
subject to the Option shall be increased so that, after such issuance, it equals
16% (less such number previously acquired upon exercise hereof) of the number of
shares of Common Stock then issued and outstanding without giving effect to any
shares subject or issued pursuant to the Option. Nothing contained in this
Section l(b) or elsewhere in this Agreement shall be deemed to authorize Issuer
or Grantee to breach any provision of the Merger Agreement.
- --------------------------------------------------------------------------------
STOCK OPTION AGREEMENT Page 1
<PAGE>
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or in part, at any time or from time to time for a period (the "Exercise
Period") commencing upon the satisfaction of all of the conditions set forth in
Section 2(b)(i), (ii), (iii) and (iv), and ending on the later to occur of (i)
twelve (12) months from the date of the termination of the Merger Agreement,
(ii) ninety (90) days following the consummation of a Business Combination
Transaction effected during the twelve (12) month period referred to in clause
(i), or (iii) ninety (90) days following the consummation of a Business
Combination Transaction effected after the twelve (12) month period referred to
in clause (i), but with respect to which the Issuer or any of its Subsidiaries
or Affiliates has entered into a definitive agreement with a third party within
said twelve (12) month period. The term "Holder" shall mean the holder or
holders of the Option.
(b) The obligation of the Issuer to sell shares of
Common Stock subject to this Option is subject to the satisfaction of all of the
following conditions:
(i) The conditions requiring the Issuer to pay
the Grantee the Termination Fee pursuant to Section 6.5 of the Merger Agreement
shall have occurred;
(ii) Prior to or within twelve (12) months after
the termination of the Merger Agreement, the Issuer or any of its Subsidiaries,
or any Company Affiliate shall have entered into a definitive agreement with a
third party with respect to a Business Combination Transaction or a Business
Combination Transaction shall have been effected;
(iii) There shall be no preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, nor any statute, rule, regulation or order promulgated or enacted by
any governmental authority, prohibiting or otherwise restraining such exercise
of the Option; and
(iv) The representations and warranties of
Grantee contained in Section 12 hereof shall be true and correct in all material
respects on the date thereof as if made on such date.
This Option shall terminate, and the Grantee shall have no rights hereunder in
the event that (a) the Merger contemplated by the Merger Agreement is
consummated, (b) the Merger Agreement is terminated under circumstances that
could not give rise to the satisfaction of the conditions set forth in clause
2(b)(i) of this Option, or (c) Holder fails to exercise the Option prior to the
expiration of the Exercise Period.
(c) Issuer shall notify Grantee promptly in writing of the occurrence
of an event described in clause 2(b)(ii) (a "Triggering Event"), it being
understood that the giving of such notice by Issuer shall not be a condition to
the right of the Holder to exercise the option.
(d) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date")
- --------------------------------------------------------------------------------
STOCK OPTION AGREEMENT Page 2
<PAGE>
specifying (i) the total number of shares it will purchase pursuant to such
exercise and (ii) a place in the Eastern United States and date not earlier than
three (3) business days nor later than thirty (30) days from the Notice Date for
the closing of such purchase (the "Closing Date"); provided that if prior
notification to or approval of any regulatory agency is required in connection
with such purchase, the Holder and, to the extent required, the Issuer shall
promptly file the required notice or application for approval and shall
expeditiously process the same and the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have been
obtained and any requisite waiting period or periods shall have passed. Any
exercise of the Option shall be deemed to occur on the Notice Date relating
thereto.
(e) At the closing referred to in subsection (d) of this Section 2, the
Holder shall pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer. The failure or
refusal of Issuer to designate a bank account for deposit of the purchase price
shall not preclude the Holder from exercising the Option.
(f) At such closing, simultaneously with the delivery of immediately
available funds, Issuer shall deliver to the Holder a certificate or
certificates representing the number of shares of Common Stock purchased by the
Holder and, if the Option should be exercised in part only, a new Option
evidencing the rights of the Holder thereof to purchase the balance of the
shares purchasable hereunder, and the Holder shall deliver to issuer the
original executed copy of this Agreement and a letter agreeing that the Holder
will not offer to sell or otherwise dispose of such shares in violation of
applicable law or the provisions of this Agreement.
(g) Certificates for Common Stock delivered at a closing hereunder may
be endorsed with a restrictive legend that shall read substantially as follows:
"'The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the
registered holder hereof and Trappist, Inc. and to resale
restrictions arising under the Securities Act of 1933, as amended,
and applicable state law. A copy of such agreement is on file at
the principal office of Trappist, Inc. and will be provided to the
holder hereof without charge upon receipt by Trappist, Inc. of a
written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act"), in the
above legend shall be removed by delivery of substitute certificate(s) without
such reference if the Holder shall have delivered to Issuer a copy of a letter
from the staff of the SEC, or an opinion of counsel, in form and substance
reasonably satisfactory to Issuer to the effect that such legend is not required
for purposes of the 1933 Act; (ii) the reference to the provisions of this
Agreement in the above legend shall be removed by delivering of substitute
certificate(s) without such reference if shares have been sold or transferred in
compliance with the provisions of this Agreement and under circumstances that do
not require the retention of such reference; and (iii) the legend shall be
removed in its entirety if
- --------------------------------------------------------------------------------
STOCK OPTION AGREEMENT Page 3
<PAGE>
the conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(i) Upon the giving by the Holder to Issuer of the irrevocable written
notice of exercise of the Option provided for under subsection (d) of this
Section 2 and the tender of the applicable purchase price, the Holder shall be
deemed to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of Issuer shall
then be closed or that certificates representing such shares of Common Stock
shall not then be actually delivered to the Holder. Issuer shall pay all
expenses, and any and all United States federal, state and local taxes and other
charges that may be payable by the Issuer in connection with the preparation,
issue and delivery of stock certificates under this Section 2 in the name of the
Holder.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock, (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act,
intentionally avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
Issuer; and (iii) promptly to take all action as may from time to time be
required (including complying with all premerger notification reporting and
waiting period requirements specified in 15 U.S.C. 18a and regulations
promulgated thereunder in order to permit the Holder to exercise the Option and
the Issuer to duly and effectively issue shares of Common Stock pursuant hereto.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date.
5. In addition to the adjustment in the number of shares of Common
Stock that are purchasable upon exercise of the Option pursuant to Section 1 of
this Agreement, the number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment from
time to time as provided in this Section 5. In the event of any change in, or
distributions in respect of, the Common Stock by reason of stock dividends,
split-ups, mergers, recapitalizations, combinations, subdivisions, conversions,
exchanges of shares,
- --------------------------------------------------------------------------------
STOCK OPTION AGREEMENT Page 4
<PAGE>
or the like, the type and number of shares of Common Stock purchasable upon
exercise hereof and the Option Price shall be appropriately adjusted in such
manner as shall fully preserve the economic benefits provided hereunder and
proper provision shall be made in any agreement governing any such transaction
to provide for such proper adjustment and the full satisfaction of the Issuer's
obligations hereunder.
6. Upon the occurrence of a Triggering Event that occurs prior to the
end of the Exercise Period, Issuer shall, at the request of Grantee delivered
within 90 days of such Triggering Event, promptly prepare, file and keep current
a shelf registration statement under the 1933 Act covering any shares issued and
issuable pursuant to this Option and shall use its reasonable best efforts to
cause such registration statement to become effective and remain current in
order to permit the sale or other disposition of any shares of Common Stock
issued upon total or partial exercise of this Option ("Option Shares") in
accordance with any plan of disposition requested by Grantee. Issuer will use
its reasonable best efforts to cause such registration statement first to become
effective and then to remain effective for such period not in excess of 180 days
from the day such registration statement first becomes effective or such shorter
time as may be reasonably necessary to effect such sales or other dispositions.
Grantee shall have the right to demand only one such registration. The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
the Option Shares as provided above, Issuer is in registration with respect to
an underwritten public offering of shares of Common Stock, and if in the good
faith judgment of the managing underwriter or managing underwriters, or, if
none, the sole underwriter or underwriters, of such offering the inclusion of
the Holder's Option Shares would interfere with the successful marketing of the
shares of Common Stock offered by Issuer, the number of Option Shares otherwise
to be covered in the registration statement contemplated hereby may be reduced;
and provided, however, that after any such required reduction the number of
Option Shares to be included in such offering for the account of the Holder
shall constitute at least 25% of the total number of shares to be sold by the
Holder and Issuer in the aggregate; and provided further, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practical and no reduction shall thereafter occur. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in such
underwriting agreements for the Issuer. As a condition to the Company's
obligations under this paragraph the Holder shall either first exercise this
Option or irrevocably agree to exercise this Option upon or prior to the
effective date of the Registration Statement.
7. (a) (i) At any time following the date on which this Option became
exercisable and (ii) at or within 30 days following the exercise of the Option,
either in whole or in part, upon request of the Issuer, Holder shall in the case
of clause (i) tender the Option, and in the case of clause (ii) tender the
Option Shares to the Issuer for repurchase with respect to the Option (the
"Option Repurchase Price") at a repurchase price equal to the product obtained
by multiplying (1) the number of shares as to which this Option is then
exercisable by (2) the
- --------------------------------------------------------------------------------
STOCK OPTION AGREEMENT Page 5
<PAGE>
difference between the market offer price (defined below) and the exercise price
per share, and with respect to the Option Shares at a price (the "Option Share
Repurchase Price") equal to the market/offer price (as defined below) multiplied
by the number of Option Shares to be repurchased. The term "market/offer price"
shall mean the highest of (i) the price per share of Common Stock at which a
tender offer or exchange offer therefor has been made, (ii) the price per share
of Common Stock to be paid by any third party pursuant to an agreement with
Issuer contemplating a Business Combination, (iii) the highest closing price per
share of the Common Stock for the thirty (30) trading days immediately preceding
the Issuer's election hereunder; or (iv) in the event of a sale of all or a
substantial portion of Issuer's assets, the sum of the price paid in such sale
for such assets and the current market value of the remaining net assets of
Issuer, divided by the number of shares of Common Stock of Issuer outstanding at
the time of such sale. In determining the market/offer price, the value of
consideration other than cash shall be determined by a nationally recognized
investment banking firm selected by the Holder and reasonably acceptable to the
Issuer.
(b) Upon Issuer's request pursuant to Section 7(a), Holder shall
surrender to Issuer, at its principal office, certificates for the Option Shares
to be repurchased. Within five business days after the surrender of the
certificates representing Option Shares to be repurchased, Issuer shall deliver
or cause to be delivered to the Holder the Option Share Repurchase Price
therefor.
8. (a) In the event that prior to the expiration of the Exercise
Period, Issuer shall enter into an agreement (i) to consolidate with or merge
into any person, other than Grantee or one of its Subsidiaries, and Issuer shall
not be the continuing or surviving Corporation of such consolidation or merger,
(ii) to permit any person, other than Grantee or one of its Subsidiaries, to
merge into Issuer and Issuer shall be the continuing or surviving corporation,
but, in connection with such merger, the then outstanding shares of Common Stock
shall be changed into or exchanged for stock or other securities of any other
person or cash or any other property or the then outstanding shares of Common
Stock shall after such merger represent less than 50% of the outstanding voting
shares and voting share equivalents of the merged company, or (iii) to sell or
otherwise transfer all or substantially all of its assets to any person, other
than Grantee or one of its Subsidiaries, then, and in each such case, the
agreement governing such transaction shall make proper provision so that the
Issuer's obligation under this Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an option (the "Substitute Option"), at the election of
the Holder, of either (x) the Acquiring Corporation (as hereinafter defined) or
(y) any person that controls the Acquiring Corporation (as defined below).
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing
or surviving corporation of a consolidation or merger
with Issuer (if other than Issuer), (ii) Issuer in a
merger in which Issuer is the continuing or surviving
person, and (iii) the transferee of all or
substantially all of Issuer's assets.
- --------------------------------------------------------------------------------
STOCK OPTION AGREEMENT Page 6
<PAGE>
(2) "Substitute Common Stock" shall mean the common stock
issued by the issuer of the Substitute Option upon
exercise of the Substitute Option.
(c) The Substitute Option shall have the same terms as the
Option, provided, that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as possible
and in no event less advantageous to the Holder. The issuer of the Substitute
Option shall also enter into an agreement with the then Holder or Holders of the
Substitute Option in substantially the same form as this Agreement, which shall
be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number
of shares of Substitute Common Stock as is equal to the market/offer price
multiplied by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price (which shall mean the average closing
price of a share of the Substitute Common Stock for the thirty (30) trading days
immediately preceding the consolidation, merger or sale in question). The
exercise price of the Substitute Option per share of Substitute Common Stock
shall then be equal to the Option Price multiplied by a fraction, the numerator
of which shall be the number of shares of Common Stock for which the Option is
then exercisable and the denominator of which shall be the number of shares of
Substitute Common Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs,
shall the Substitute Option be exercisable for more than 16% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than 16%
of the shares of Substitute Common Stock outstanding prior to exercise but for
this clause (e), the excess shall be canceled.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. (a) At any time after the issuance of the Substitute Option or at or
within thirty days after exercise of the Substitute Option, either in whole or
in part, upon request of the Substitute Option Issuer, the Substitute Option
Holder shall tender the Substitute Option or the Substitute Option Shares to the
Substitute Option Issuer for repurchase at a price with respect to the
Substitute Option (the "Substitute Option Repurchase Plan") equal to the number
of shares under the Substitute Option multiplied by the difference between the
highest closing price (as defined below) and the exercise price, and with
respect to the Substitute Option Shares (the "Substitute Option Share Repurchase
Price") equal to the highest closing price (as defined below) multiplied by the
number of Substitute Option Shares to be repurchased. The term "highest closing
price" shall mean the highest closing price for shares of Substitute Common
Stock within the thirty (30) trading day period immediately preceding the date
the Substitute Option Issuer gives notice of the required repurchase of the
Substitute Option or the Substitute Option Shares to be repurchased.
- --------------------------------------------------------------------------------
STOCK OPTION AGREEMENT Page 7
<PAGE>
(b) Upon the Substitute Option Issuer's request, the
Substitute Option Holder shall surrender to the Substitute Option Issuer, at its
principal office the Substitute Option or the certificates for the Substitute
Option Shares to be repurchased. As promptly as practicable, and in any event
within five business days after the surrender of the certificates representing
Substitute Option Shares to be repurchased the Substitute Option Issuer shall
deliver or cause to be delivered to the Substitute Option Holder the Substitute
Option Repurchase Price or the Substitute Option Share Repurchase Price as
applicable.
10. The period for exercise of certain rights under Sections 2 and 6
shall be extended: (i) to the extent necessary to obtain all regulatory
approvals for the exercise of such rights, and for the expiration of all
statutory waiting periods; and (ii) to the extent necessary under Section 16(b)
of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its terms
will have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrances and security interests created by the Issuer or the Acquiring
Corporation (as applicable) and not subject to any preemptive rights.
(c) Issuer has taken and will take all action so that the
entering into of this Option Agreement, the acquisition of shares of Common
Stock hereunder and the other transactions contemplated hereby do not and will
not result in the grant of any preemptive, anti-dilution or other similar rights
to any person under any other agreement.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to
enter into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the
- --------------------------------------------------------------------------------
STOCK OPTION AGREEMENT Page 8
<PAGE>
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Grantee. This Agreement has
been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or
other securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the Securities Act.
13. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other person, without the express written consent of the other party.
14. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation making application to list the
shares of Common Stock issuable hereunder on the Nasdaq National Market, or any
other exchange or market upon which the Issuer's securities are traded, upon
official notice of issuance
15. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief.
16. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7 or 9, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 5
hereof), it is the express intention of Issuer to allow the Holder to acquire or
to allow the Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
17. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
telecopy, or by registered or certified mail (postage prepaid, return receipt
requested) or reputable overnight (two business days for international
deliveries) courier at the respective addresses of the parties set forth in the
Merger Agreement.
18. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
- --------------------------------------------------------------------------------
STOCK OPTION AGREEMENT Page 9
<PAGE>
19. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
20. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
21. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- --------------------------------------------------------------------------------
STOCK OPTION AGREEMENT Page 10
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
LERNOUT & HAUSPIE SPEECH PRODUCTS N.V.
By: /s/ Jo Lernout
Name: Jo Lernout
Title: Managing Director
KURZWEIL APPLIED INTELLIGENCE, INC.
By: /s/ Thomas E. Brew, Jr.
Name: Thomas E. Brew, Jr.
Title: President
- --------------------------------------------------------------------------------
STOCK OPTION AGREEMENT Page 11
LOAN AGREEMENT
LOAN AGREEMENT dated as of April 14, 1997 entered into by and between
Lernout & Hauspie Speech Products USA, Inc., a Delaware corporation having a
place of business at 20 Burlington Mall Road, Burlington, Massachusetts 01803
("Lender") and Kurzweil Applied Intelligence, Inc., a Delaware corporation
having a place of business in Waltham, Massachusetts ("Borrower").
W I T N E S S E T H:
--------------------
WHEREAS, Borrower has requested that Lender make available to Borrower
a line of credit in the amount of up to $1,500,000 to finance Borrower's license
payments and working capital needs;
WHEREAS, Lender is willing to do so, but only on the terms and subject
to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrower and
Lender agree as follows.
1. CERTAIN DEFINITIONS. As used herein the terms set forth on Schedule
I hereto shall have the meanings set forth thereon.
2. THE LOAN.
(a) At any time after the date hereof through June 30, 1997 (the
"Commitment Period"), Lender shall, at Borrower's request, make a loan to
Borrower (the "Loan"), subject to the terms and conditions contained in this
Agreement and in an aggregate amount not to exceed $1,500,000. Once repaid, the
Loan may not be reborrowed. The Loan shall be due and payable as set forth in
the Line of Credit Note.
(b) The Loan shall be evidenced by the Line of Credit Note in the form
of Exhibit A hereto. The Loan shall bear interest and be payable as set forth in
the Line of Credit Note.
(c) Proceeds of the Loan shall be used by Borrower to finance
Borrower's license payments and working capital needs.
(d) Borrower may request that Lender advance the Loan on not less than
seven (7) days' prior written notice to Lender, made after the satisfaction of
the conditions precedent set forth below. The Lender shall make only one advance
hereunder. Lender shall make the Loan available to Borrower by wire transfer or
otherwise as Borrower requests in its notice to advance
<PAGE>
the Loan (provided that Borrower shall reimburse Lender for any administrative
expense (wire transfer fees and the like) incurred by Lender in connection with
such advance methods, except for an advance by bank or certified check).
3. REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by Borrower to Lender with respect to its business, properties, financial
statements and related matters under Article II of that certain Agreement and
Plan of Merger by and among Borrower, Lernout & Hauspie Speech Products N.V. and
Trappist Acquisition Corp. dated as of April 14, 1997 (the "Merger Agreement")
are hereby incorporated by reference. By executing this Agreement, Borrower
shall be deemed to have made such representations and warranties as of the date
hereof. In addition, the Borrower represents as follows:
(a) Its exact legal name is as set forth in the preamble to this
Agreement and Borrower is not generally known by or using any fictitious or
other name or trade name or style.
(b) Its chief executive office and the office where it keeps its books
and records concerning its assets is that shown in the preamble to this
Agreement.
4. BORROWER'S AGREEMENTS. The agreements and covenants made by Borrower
to Lender under Article IV of the Merger Agreement are hereby incorporated by
reference. By executing this Agreement, Borrower shall be deemed to have made
such agreements and covenants as of the date hereof. In addition, the Borrower
agrees as follows:
(a) Borrower will notify Lender, at least thirty (30) days prior to any
such event, of any change in Borrower's exact legal name, any change in its
place of business or location as set forth in the preamble to this Agreement, or
its establishment of any new place of business or location, or any change in
Borrower's organizational structure.
(b) Borrower will not incur any indebtedness or other obligations after
the date of this Agreement from Prospect Leasing Division of Bankers Leasing
Association, Inc.
5. EVENTS OF DEFAULT; REMEDIES.
Upon the occurrence and during the continuance of an Event of Default
(as defined on Schedule I hereto), (a) the Borrower shall have no further right
to request the Loan hereunder, (b) the Loan shall bear interest at the Default
Rate of Interest, as defined in the Line of Credit Note, (c) the Lender may by
notice to Borrower accelerate the payment of the Loan and all other obligations
of Borrower hereunder and demand payment thereof; and (d) Lender may proceed to
enforce payment of any of the foregoing and shall have and may exercise any and
all rights under the Uniform Commercial Code or which are afforded to Lender
herein, in the Security Agreement and other collateral documents executed in
connection herewith, or otherwise. Notwithstanding the foregoing, Lender shall
forbear from the exercise of its rights to foreclose or otherwise realize upon
or take possession of or use Borrower's intellectual property (including without
limitation, patents, trademarks and copyrights) until the earlier of ninety(90)
days after the occurrence of an Event of Default or January 31, 1998, so long as
(i) there occurs and is
<PAGE>
continuing no Event of Default of the type described in subsections (f) or (g)
of the definition of such term, and (ii) Borrower does not take any action to
contest the validity or priority of Lender's lien and security interest in such
intellectual property, or any other collateral.
6. EXPENSES. Borrower agrees to pay Lender on demand any and all
reasonable out-of-pocket costs and expenses of any nature (including without
limitation reasonable attorneys' fees and disbursements) which may be incurred
by Lender in connection with exercise of Lender's rights against the Borrower
after an Event of Default; any exercise of Lender's right of acceleration; any
enforcement, collection or other proceedings with respect to the Loan; or any
bankruptcy, insolvency or other similar proceedings of the Borrower.
7. CONDITIONS PRECEDENT.
Borrower acknowledges and agrees that Lender will not make the Loan
hereunder, nor will Lender entertain any request from Borrower for the Loan
hereunder, unless and until all of the following conditions have been satisfied
and remain satisfied as of the date of funding the Loan:
(a) Representations and Warranties. Borrower's representations and
warranties contained herein shall be correct and complete in all material
respects;
(b) Covenants. Borrower shall be in compliance in all material respects
with all covenants and agreements contained herein;
(c) No Events of Default. There shall exist no Event of Default or any
event which, with the passage of time or the giving of notice or both, would
constitute an Event of Default;
(d) Delivery of Documents. Borrower shall have delivered, or caused to
be delivered, to Lender the documents listed on Schedule II, duly executed bythe
Borrower, and in form and substance reasonably satisfactory to Lender;
(e) Merger Agreement. The Merger Agreement shall not have been
terminated by any party thereto, nor shall the Merger (as defined in the Merger
Agreement) have been abandoned (provided that the termination of the Merger
Agreement or abandonment of the Merger by Lernout & Hauspie Speech Products,
N.V. other than explicitly in accordance with the Merger Agreement shall not
constitute the failure of this condition).
8. MISCELLANEOUS PROVISIONS.
(a) Notices. Unless otherwise specified herein, all other notices
hereunder shall be in writing directed to the addresses shown at the end of this
Agreement. Written notices and communications shall be effective and shall be
deemed received on the day when delivered by hand or by facsimile transmission;
on the next business day, if by commercial overnight courier; and on the third
business day, if by registered or certified mail, postage prepaid.
<PAGE>
(b) No Waiver. No failure to exercise and no delay in exercising, on
the part of Lender, any right or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right or remedy. Waiver by
Lender of any right or remedy on any one occasion shall not be construed as a
bar to or waiver thereof or of any other right or remedy on any future occasion.
Lender's rights and remedies hereunder, under any agreement or instrument
supplemental hereto or under any other agreement or instrument shall be
cumulative, may be exercised singly or concurrently and are not exclusive of any
rights or remedies provided by law.
(c) Assignment. This Agreement shall be binding upon and shall inure to
the benefit of Borrower and Lender and their respective successors and assigns;
PROVIDED THAT Borrower may not assign or transfer any rights or obligations
hereunder without Lender's prior written consent.
(d) Governing Law; Jurisdiction. This Agreement shall be governed by
the laws of the Commonwealth of Massachusetts (other than its laws relating to
conflicts of laws).
<PAGE>
[SIGNATURE PAGE TO LOAN AGREEMENT]
Executed as an instrument under seal on the date set forth above.
KURZWEIL APPLIED INTELLIGENCE, INC.
By: /s/ Thomas E. Brew Jr.
--------------------------------
Name: Thomas E. Brew Jr.
Title: President & CEO
Address:
--------
411 Waverley Oaks Road
Waltham, MA 02154
LERNOUT & HAUSPIE SPEECH PRODUCTS
USA, INC.
By: /s/ Gaston Bastiaens
--------------------------------
Name: Gaston Bastiaens
Title: President
Address:
--------
20 Burlington Mall Road
Burlington, MA 01803
<PAGE>
EXHIBIT A
---------
[LINE OF CREDIT NOTE]
<PAGE>
LINE OF CREDIT NOTE
$1,500,000.00 Boston, Massachusetts
April 14, 1997
FOR VALUE RECEIVED, the undersigned KURZWEIL APPLIED INTELLIGENCE, INC. a
Delaware corporation ("Maker"), hereby promises to pay to the order of LERNOUT &
HAUSPIE SPEECH PRODUCTS USA, INC., a Delaware corporation, at its place of
business at 20 Burlington Mall Road, Burlington, Massachusetts 01803 ("Lender"),
the sum of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000.00), or so much
as may have been advanced to Maker as provided in that certain Loan Agreement
(the "Loan Agreement") dated as of the date hereof between Maker and Lender,
together with interest on the unpaid principal amount from time to time
outstanding prior to demand at a fixed rate per annum equal to the Prime Rate in
effect as of the date hereof.
Prior to the occurrence of an Event of Default, as defined in the Loan
Agreement, interest shall accrue but shall not be payable currently. All
outstanding principal and interest shall be due and payable in full on October
31, 1997.
After the occurrence and during the continuance of an Event of Default, (a)
principal outstanding hereunder shall bear interest at a fixed rate equal to the
sum of the Prime Rate in effect as of the date hereof plus three percent (3%)
per annum (the "Default Rate of Interest"), and (b) the Lender shall be entitled
to accelerate all outstanding principal and interest due hereunder and demand
immediate payment in full of the same.
Interest and fees shall be calculated on the basis of a 360-day year times the
actual number of days elapsed. "Prime Rate," as used herein, shall mean for any
day the highest "prime rate" published in The Wall Street Journal under the
heading "Money Rates" on such day (or on the next day on which The Wall Street
Journal is published). In no event shall interest payable hereunder exceed the
highest rate permitted by applicable law. To the extent any interest received by
Lender exceeds the maximum amount permitted, such payment shall be credited to
principal, and any excess remaining after full payment of principal shall be
refunded to Maker. This Note evidences borrowings under the Loan Agreement and
is secured by and entitled to the benefits of the provisions of the Loan
Agreement and any other instruments or documents executed in connection
therewith. The principal of this Note is subject to prepayment in full or in
part at any time without premium or penalty.
Maker and all guarantors and endorsers hereby waive presentment, demand, notice,
protest, and all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Note, and assent to extensions
of the time of payment or forbearance or other indulgence without notice. No
delay or omission of Lender in exercising any right or remedy hereunder shall
constitute a waiver of any such right or remedy. Acceptance by Lender of any
<PAGE>
payment after demand shall not be deemed a waiver of such demand. A waiver on
one occasion shall not operate as a bar to or waiver of any such right or remedy
on any future occasion.
Executed as an instrument under seal as of the date first above written.
WITNESS: KURZWEIL APPLIED INTELLIGENCE, INC.
/s/ By: /s/ Thomas E. Brew Jr.
- ----------------------------- --------------------------------
Name: Thomas E. Brew Jr.
Title: President & CEO
-2-
<PAGE>
SCHEDULE I
----------
DEFINITIONS
-----------
"Event of Default" means any one or more of the following events:
(a) failure by Borrower to pay any principal, interest or
other amount due hereunder or on account of the Loan, within five (5)
days of the date when due;
(b) failure by Borrower to perform or discharge, observe or
comply with any of its covenants or agreements set forth herein or in
the Line of Credit Note or Security Agreement, (or any of the other
security documents delivered in connection herewith), or under Article
IV of the Merger Agreement in accordance with the terms thereof
(provided that except for defaults under Sections 4.4(c), (e), (i) or
(j) of the Merger Agreement, such failure shall not constitute an Event
of Default unless the same has not been waived by Lender or cured
within 15 days after the occurrence of failure);
(c) any representation, warranty of Borrower to Lender set
forth herein is found to have been false or misleading in any material
respect as of the time when made;
(d) Borrower's liquidation, termination, dissolution or
ceasing to carry on any substantial part of its current business;
(e) The consummation of any Business Combination Transaction,
as defined in Section 6.5(e) of the Merger Agreement.
(f) commencement by Borrower of a voluntary proceeding seeking
relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law, or seeking appointment of a trustee,
receiver, liquidator or other similar official for it or any
substantial part of its assets; or its consent to any of the foregoing
in an involuntary proceeding against it; or Borrower shall generally
not be paying its debts as they become due or admit in writing its
inability to do so; or an assignment for the benefit of, or the
offering to or entering into by Borrower of any composition, extension,
reorganization or other agreement or arrangement with, its creditors;
or
(g) commencement of an involuntary proceeding against Borrower
seeking relief with respect to it or its debts under any bankruptcy,
insolvency or other similar law, or seeking appointment of a trustee,
receiver, liquidator or other similar official for it or any
substantial part of its assets, which proceeding is not dismissed or
stayed within sixty (60) days.
"Line of Credit Note" means the note executed and delivered by Borrower to
Lender in the form of Exhibit A hereof, made to evidence the Loan.
"Loan" has the meaning given in Section 2(a) hereof.
<PAGE>
SCHEDULE II
-----------
CLOSING AGENDA
--------------
$1,500,000 Loan
from Lernout & Hauspie Speech Products USA, Inc.
to Kurzweil Applied Intelligence, Inc.
Closing Date: April __, 1997
<TABLE>
<CAPTION>
Responsible
Document Party
-------- -----
<S> <C> <C>
1. Loan Agreement BRF&G
2. Line of Credit Note BRF&G
3. Security Agreement BRF&G
4. Patent Collateral Assignment and Security Agreement BRF&G
5. Trademark Collateral Assignment and Security Agreement BRF&G
6. Copyright Security Agreement BRF&G
7. UCC financing statements BRF&G
8. Stock Warrant BRF&G
9. Casualty and Liability Insurance Certificates, showing Lender as Borrower
loss payee and additional insured
</TABLE>
THE TRANSFER OF THIS WARRANT IS SUBJECT TO RESALE RESTRICTIONS
UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND APPLICABLE
STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED
WITHOUT REGISTRATION OR AN EXEMPTION THEREFROM
COMMON STOCK WARRANT
To Purchase 185,000
Shares of Common Stock of
Kurzweil Applied Intelligence, Inc.
April 14, 1997
THIS CERTIFIES THAT, in consideration for the commitment of Lernout &
Hauspie Speech Products USA, Inc. ("L&H USA"), a Delaware corporation and wholly
owned subsidiary of Lernout & Hauspie Speech Products N.V., a Belgian
corporation (said parent corporation being referred to herein as "L&H") to lend
up to $1,500,000 to Kurzweil Applied Intelligence, Inc. (the "Company"), a
Delaware corporation, pursuant to a Loan Agreement (the "Loan Agreement") of
even date herewith between L&H USA and the Company, L&H USA or its registered
assigns is entitled to subscribe for and purchase from the Company at any time
after the date hereof to and including the Expiration Date (as defined in
Section 1 hereof), One Hundred Eighty-Five Thousand (185,000) fully paid and
nonassessable shares of the Company's common stock $.01 par value, at a price of
$3.21 per share of common stock.
This Warrant is subject to the following provisions, terms and conditions:
1. Expiration: Exercise; Transferability.
--------------------------------------
(a) This Warrant may be exercised in whole or in part, at any time
after the date hereof to and including the Expiration Date; provided, however,
that the holder's right to exercise this Warrant shall expire immediately upon
the failure of L&H USA to make the loan as required under the Loan Agreement and
the termination by the Company of that certain Agreement and Plan of Merger
dated the date hereof among the Company, L&H and a wholly owned subsidiary of
L&H (the "Merger Agreement"), pursuant to Section 6.3 of the Merger Agreement;
and provided further that the Holder may not exercise this Warrant for so long
as L&H USA is in default of its obligation to loan funds in accordance with the
terms of the Loan Agreement and such default is continuing. As used herein
"Expiration Date" shall mean April 14, 2002 or the Effective Date (as defined
under the Merger Agreement).
(b) The rights represented by this Warrant may be exercised by the
holder hereof in whole or in part (but not as to a fractional share of stock),
by written notice of exercise
-1-
<PAGE>
delivered to the Company ten (10) days prior to the intended date of exercise
and by the surrender of this Warrant (properly endorsed if required) at the
principal office of the Company and upon payment to it by certified or bank
check or wire transfer of the purchase price for such shares.
(c) This Warrant may be transferred without restriction, but subject
to the opinion of counsel as provided by paragraph 7 herein that such transfer
is not in violation of federal or state securities laws.
2. Issuance of Shares.
-------------------
The Company agrees that the shares issuable under this Warrant shall
be and are deemed to be issued to the record holder hereof as of the close of
business on the date on which this Warrant shall have been exercised by
surrender of the Warrant and payment for the shares. Subject to the provisions
of the next succeeding paragraph, certificates for the shares of stock so
purchased shall be delivered to the holder hereof within a reasonable time, not
exceeding ten (10) days after the rights represented by this Warrant shall have
been so exercised and the shares paid for, and, unless this Warrant has expired,
a new Warrant representing the number of shares, if any, with respect to which
this Warrant shall not then have been exercised shall also be delivered to the
holder hereof within such time.
Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of this
Warrant, except in accordance with the provisions, and subject to the
limitations, of paragraph 7 hereof.
3. Covenants of Company.
---------------------
The Company covenants and agrees that all shares issued upon the
exercise of the rights represented by this Warrant will, upon issuance, be duly
authorized and issued, fully paid, nonassessable, and, without limiting the
generality of the foregoing, the Company covenants and agrees that it will from
time to time take all such action as may be required to assure that the par
value per share of the common stock is at all times equal to or less than the
then effective purchase price per share of the common stock issuable pursuant to
this Warrant. The Company further covenants and agrees that, during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized, and reserved for the purpose of issue
or transfer upon exercise of the subscription rights evidenced by this Warrant,
a sufficient number of shares of its common stock to provide for the exercise of
the rights represented by this Warrant.
4. Anti-Dilution Adjustments.
--------------------------
The above provisions are, however, subject to the following:
(a) In case the Company shall at any time hereafter subdivide or
combine the outstanding shares of common stock or declare a dividend payable in
common stock, the exercise price of this Warrant in effect immediately prior to
the subdivision, combination or record date for such dividend payable in common
stock shall forthwith be proportionately increased, in the
2
<PAGE>
case of combination, or decreased, in the case of subdivision or dividend
payable in common stock. Upon each adjustment of the exercise price, the holder
of this Warrant shall thereafter be entitled to purchase, at the exercise price
resulting from such adjustment, the number of shares obtained by multiplying the
exercise price immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment and dividing
the product thereof by the exercise price resulting from such adjustment.
(b) No fractional shares of common stock are to be issued upon the
exercise of this Warrant, but the Company shall pay a cash adjustment in respect
of any fraction of a share which would otherwise be issuable in an amount equal
to the same fraction of the market price per share of common stock on the day of
exercise as determined in good faith by the Company.
(c) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of common stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for common stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the shares of common stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such common stock equal to the number of shares of such stock immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby had such reorganization, reclassification, consolidation,
merger or sale not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of the holder of this
Warrant to the end that the provisions hereof (including without limitation
provisions for adjustments of the Warrant purchase price and of the number of
shares purchasable upon the exercise of this Warrant) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise hereof. The Company shall not
effect any such consolidation, merger or sale unless prior to the consummation
thereof the successor corporation (if other than the Company) resulting from
such consolidation or merger, or the corporation purchasing such assets, shall
assume by written instrument executed and mailed to the registered holder hereof
at the last address of such holder appearing on the books of the Company, the
obligation to deliver to such holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holder may be entitled to
purchase.
Notwithstanding any language to the contrary set forth in this
paragraph 4(c), if an occurrence or event described herein shall take place in
which the shareholders of the Company receive cash for their shares of common
stock of the Company and a successor corporation or corporation purchasing
assets shall survive the transaction then, at the election of the record holder
hereof, such corporation shall be obligated to purchase this Warrant (or the
unexercised part hereof) from the record holder without requiring the holder to
exercise all or part of the Warrant. If such corporation refuses to so purchase
this Warrant then the Company shall purchase the Warrant for cash. In either
case the purchase price shall be the amount per share that
3
<PAGE>
shareholders of the outstanding common stock of the Company shall receive as a
result of the transaction multiplied by the number of shares covered by the
Warrant, minus the aggregate exercise price of the Warrant. Such purchase shall
be closed within 60 days following the election of the holder to sell this
Warrant.
(d) Upon any adjustment of the Warrant purchase price, then, and in
each such case, the Company shall give written notice thereof, by first class
mail, postage prepaid, addressed to the registered holder of this Warrant at the
address of such holder as shown on the books of the Company, which notice shall
state the Warrant purchase price resulting from such adjustment and the increase
or decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(e) If any event occurs as to which in the good faith determination of
the Board of Directors of the Company the other provisions of this paragraph 4
are not strictly applicable or if strictly applicable would not fairly protect
the purchase rights of the holder of this Warrant in accordance with the
essential intent and principles of such provisions, then the Board of Directors
shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to protect such purchase rights
as aforesaid.
5. Common Stock.
-------------
As used herein, the term "common stock" shall mean and include the
Company's presently authorized shares of common stock and shall also include any
capital stock of any class of the Company hereafter authorized which shall not
be limited to fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution, dissolution or
winding up of the Company; provided that the shares purchasable pursuant to this
Warrant shall include shares designated as common stock of the Company on the
date of original issue of this Warrant or, in the case of any reclassification
of the outstanding shares thereof, the stock, securities or assets provided for
in Section 4 above.
6. No Voting Rights.
-----------------
This Warrant shall not entitle the holder hereof to any voting rights
or other rights as a stockholder of the Company.
7. Transfer of Warrant or Resale of Shares.
----------------------------------------
In the event the holder of this Warrant desires to transfer this
Warrant or any common stock issued upon the exercise hereof, the holder shall
provide the Company with a written notice describing the manner of such transfer
and an opinion of counsel (reasonably acceptable to the Company) that the
proposed transfer may be effected without registration or qualification (under
any Federal or State law), whereupon such holder shall be entitled to transfer
this Warrant or to dispose of shares of common stock received upon the previous
exercise hereof in accordance with the notice delivered by such holder to the
Company; provided, that an appropriate legend
4
<PAGE>
may be endorsed on this Warrant or the certificates for such shares respecting
restrictions upon transfer thereof necessary or advisable in the opinion of
counsel satisfactory to the Company to prevent further transfers which would be
in violation of Section 5 of the Securities Act of 1933.
If, in the opinion of counsel referred to in this paragraph 7,
the proposed transfer or disposition described in the written notice given
pursuant to this paragraph 7 may not be effected without registration or
qualification of this Warrant or the shares of common stock issued upon the
exercise hereof, the Company shall promptly give written notice thereof to the
holder hereof, and such holder will limit its activities in respect to such
proposed transfer or disposition as, in the opinion of such counsel, are
permitted by law.
8. Registration Rights.
--------------------
(a) If the Company proposes to claim an exemption under Section 3(b)
for a public offering of any of its securities or to register under the
Securities Act of 1933, as amended (the "Securities Act") (except by a claim of
exemption or registration statement on a form that does not permit the inclusion
of shares by its security holders) any of its securities, it will give written
notice to all registered holders of Warrants, and all registered holders of
shares of common stock acquired upon the exercise of Warrants (the "Common
Shares"), of its intention to do so and, on the written request of any such
registered holders given within twenty (20) days after receipt of any such
notice, the Company will use its best efforts to cause all Common Shares which
such holders shall have requested the registration or qualification thereof, to
be included in such notification or registration statement proposed to be filed
by the Company; provided, however, that nothing herein shall prevent the Company
from, at any time, abandoning or delaying any such registration initiated by it.
If any such registration shall be underwritten in whole or in part, the Company
may require that the shares requested for inclusion pursuant to this Section be
included in the underwriting on the same terms and conditions as the securities
otherwise being sold through the underwriters. In the event that, in the good
faith judgment of the managing underwriter of such public offering, the
inclusion of all of the shares originally covered by a request for registration
would reduce the number of shares to be offered by the Company or interfere with
the successful marketing of the shares of stock offered by the Company, the
number of shares otherwise to be included pursuant to this Section in the
underwritten public offering may be reduced. Those shares which are thus
excluded from the underwritten public offering shall be withheld from the market
for a period, not to exceed 90 days, which the managing underwriter reasonably
determines is necessary in order to effect the underwritten public offering. All
expenses of such offering, except the fees of special counsel to such holders
and brokers' commissions or underwriting discounts payable by such holders,
shall be borne by the Company.
(b) Further, on one occasion only upon request by the holders of
Warrants and/or the holders of shares issued upon the exercise of the Warrants
who collectively (i) have the right to purchase at least 50% of the shares
subject to the Warrants, (ii) hold directly at least 50% of the shares purchased
hereunder, or (iii) have the right to purchase or hold directly an aggregate of
at least 50% of the shares purchasable or purchased hereunder, the Company will
promptly take all necessary steps, at the option of such holders, to register or
qualify the sale of
5
<PAGE>
the Warrants or such shares by the holders thereof, or to register the issuance
by the Company of shares upon the exercise of Warrants, under the Securities Act
(and, upon the request of such holders, under Rule 415 thereunder) and such
state laws as such holders may reasonably request; provided that (i) such
request must be made no earlier than August 15, 1997 and no later than the
Expiration Date; and (ii) the Company may delay the filing of any registration
statement requested pursuant to this section to a date not more than ninety (90)
days following the date of such request if in the opinion of the Company's
principal investment banker at the time of such request such a delay is
necessary in order not to adversely affect financing efforts then underway at
the Company or if in the opinion of the Company such a delay is necessary or
advisable to avoid disclosure of material nonpublic information. The costs and
expenses directly related to any registration requested pursuant to this
section, including but not limited to legal fees of the Company's counsel, audit
fees, printing expense, filing fees and fees and expenses relating to
qualifications under state securities or blue sky laws incurred by the Company
shall be borne entirely by the Company; provided, however, that the persons for
whose account the securities covered by such registration are sold shall bear
the expenses of underwriting commissions applicable to their shares and fees of
their legal counsel. If the holders of Warrants and the holders of shares of
common stock underlying the Warrants are the only persons whose shares are
included in the registration pursuant to this section, such holders shall bear
the expense of inclusion of audited financial statements in the registration
statement which are not dated as of the Company's normal fiscal year or are not
otherwise prepared by the Company for its own business purposes. The Company
shall keep effective and maintain any registration, qualification, notification
or approval specified in this paragraph for such period as may be necessary for
the holders of the Warrants and such common stock to dispose thereof, and from
time to time shall amend or supplement, at the holder's expense, the prospectus
or offering circular used in connection therewith to the extent necessary in
order to comply with applicable law.
If at the time any written request for registration is received by the
Company pursuant to this Section 8(b), the Company has determined to proceed
with the actual preparation and filing of a registration statement under the
Securities Act in connection with the proposed offer and sale for cash of any of
its securities by it or any of its security holders, such written request shall
be deemed to have been given pursuant to Section 8(a) hereof rather than this
Section 8(b), and the rights of the holders of Warrants and or shares issued
upon the exercise of the Warrants covered by such written request shall be
governed by Section 8(a) hereof.
The managing underwriter of an offering registered pursuant to this
Section 8(b), if any, shall be selected by the holders of a majority of the
Warrants and/or shares issued upon the exercise of the Warrants for which
registration has been requested and shall be reasonably acceptable to the
Company. Without the written consent of the holders of a majority of the
Warrants and/or shares issued upon the exercise of the Warrants for which
registration has been requested pursuant to this Section 8(b), neither the
Company nor any other holder of securities of the Company may include securities
in such registration if in the good faith judgment of the managing underwriter
of such public offering the inclusion of such securities would interfere with
the successful marketing of the Warrants and/or shares issued upon the exercise
of the Warrants or require the exclusion of any portion of the Warrants and/or
shares issued upon the exercise of the Warrants to be registered. Subject to the
preceding sentence, shares to be
6
<PAGE>
excluded from an underwritten public offering shall be selected in the manner
provided in Section 8(a) hereof.
(c) If and whenever the Company is required by the provisions of
Sections 8(a) or 8(b) hereof to effect the registration of Warrants and/or
shares issued upon the exercise of the Warrants under the Securities Act, the
Company will:
(i) Prepare and file with the Commission a registration statement
with respect to such securities, and use its best efforts to cause
such registration statement to become and remain effective for such
period as may be reasonably necessary to effect the sale of such
securities;
(ii) prepare and file with the Commission such amendments to such
registration statement and supplements to the prospectus contained
therein as may be necessary to keep such registration statement
effective for such period as may be reasonably necessary to effect the
sale of such securities;
(iii) furnish to the security holders participating in such
registration and to the underwriters of the securities being
registered such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such other
documents as such underwriters may reasonably request in order to
facilitate the public offering, of such securities;
(iv) use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as such participating holders may
reasonably request in writing within 30 days following the original
filing of such registration statement, except that the Company shall
not for any purpose be required to execute a general consent to
service of process or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified;
(v) notify the security holders participating in such
registration, promptly after it shall receive notice thereof, of the
time when such registration statement has become effective or a
supplement to any prospectus forming a part of such registration
statement has been filed;
(vi) notify such holders promptly of any request by the
Commission for the amending or supplementing of such registration
statement or prospectus or for additional information;
(vii) prepare and file with the Commission, promptly upon the
request of any such holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel
for such holders (and concurred in by counsel for the Company), is
required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the Warrants or
shares by such holder;
7
<PAGE>
(viii) prepare and promptly file with the Commission and promptly
notify such holders of the filing of such amendment or supplement to
such registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a prospectus
relating to such securities is required to be delivered under the
Securities Act, any event shall have occurred as the result of which
any such prospectus or any other prospectus as then in effect would
include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light
of the circumstances in which they were made, not misleading;
(ix) advise such holders, promptly after it shall receive notice
or obtain knowledge thereof of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement
or the initiation or threatening of any proceeding for that purpose
and promptly use its best efforts to prevent the issuance of any stop
order or to obtain its withdrawal if such stop order should be issued;
(x) not file any amendment or supplement to such registration
statement or prospectus to which a majority in interest of such
holders shall have reasonably objected on the grounds that such
amendment or supplement does not comply in all material respects with
the requirements of the Securities Act or the rules and regulations
thereunder, after having been furnished with a copy thereof at least
five business days prior to the filing thereof, unless in the opinion
of counsel for the Company the filing of such amendment or supplement
is reasonably necessary to protect the Company from any liabilities
under any applicable federal or state law and such filing will not
violate applicable law; and
(xi) at the request of any such holder, furnish on the effective
date of the registration statement and, if such registration includes
an underwritten public offering, at the closing provided for in the
underwriting agreement: (i) opinions, dated such respective dates, of
the counsel representing the Company for the purposes of such
registration, addressed to the underwriters, if any, and to the holder
or holders making such request, covering such matters as such
underwriters and holder or holders may reasonably request; and (ii)
letters, dated such respective dates, from the independent certified
public accountants of the Company, addressed to the underwriters, if
any, and to the holder or holders making such request, covering such
matters as such underwriters and holder or holders may reasonably
request, in which letter such accountants shall state (without
limiting the generality of the foregoing) that they are independent
certified public accountants within the meaning of the Securities Act
and that in the opinion of such accountants the financial statements
and other financial data of the Company included in the registration
statement or the prospectus or any amendment or supplement thereto
comply in all material respects with the applicable accounting
requirements of the Securities Act.
8
<PAGE>
(d) The Company hereby indemnifies the holder of this Warrant and of
any common stock issued or issuable hereunder, its officers and directors, and
any person who controls such Warrant holder or such holder of common stock
within the meaning of Section 15 of the Securities Act, against all losses,
claims, damages and liabilities caused by any untrue statement of a material
fact contained in any registration statement, prospectus, notification or
offering circular (and as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or any preliminary prospectus
or caused by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as such losses, claims, damages or liabilities are caused by any untrue
statement or omission contained in information furnished in writing to the
Company by such Warrant holder or such holder of common stock expressly for use
therein, and each such holder by its acceptance hereof severally agrees that it
will indemnify and hold harmless the Company and each of its officers who signs
such registration statement and each of its directors and each person, if any,
who controls the Company within the meaning of Section 15 of the Securities Act
with respect to losses, claims, damages or liabilities which are caused by any
untrue statement or omission contained in information furnished in writing to
the Company by such holder expressly for use therein.
9. Additional Right to Convert Warrant.
------------------------------------
(a) The holder of this Warrant shall have the right to require the
Company to convert this Warrant (the "Conversion Right") at any time prior to
its expiration into shares of common stock as provided for in this Section 9.
Upon exercise of the Conversion Right, the Company shall deliver to the holder
(without payment by the holder of any Exercise Price) that number of shares of
common stock equal to the quotient obtained by dividing (x) the value of the
Warrant at the time the Conversion Right is exercised (determined by subtracting
the aggregate Exercise Price for the Warrant Shares in effect immediately prior
to the exercise of the Conversion Right from the aggregate Fair Market Value for
the Warrant Shares immediately prior to the exercise of the Conversion Right) by
(y) the Fair Market Value of one share of common stock immediately prior to the
exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the holder, at any time
or from time to time, prior to its expiration, on any business day by delivering
a written notice in the form attached hereto (the "Conversion Notice") to the
Company at the offices of the Company exercising the Conversion Right and
specifying (i) the total number of shares of common stock the Warrantholder will
purchase pursuant to such conversion and (ii) a place and date not less than one
nor more than 20 business days from the date of the Conversion Notice for the
closing of such purchase.
(c) At any closing under Section 9(b) hereof, (i) the holder will
surrender the Warrant and (ii) the Company will deliver to the holder a
certificate or certificates for the number of shares of common stock issuable
upon such conversion, together with cash, in lieu of any fraction of a share,
and (iii) the Company will deliver to the holder a new warrant representing the
number of shares, if any, with respect to which the warrant shall not have been
exercised.
9
<PAGE>
(d) "Fair Market Value" means, with respect to the Company's common
stock, as of any date:
(i) if the common stock is listed or admitted to unlisted trading
privileges on any national securities exchange or is not so listed or
admitted but transactions in the common stock are reported on the
Nasdaq National Market; the reported closing price of the common stock
on such exchange or by the Nasdaq National Market as of such date (or,
if no shares were traded on such day, as of the next preceding day on
which there was such a trade), or
(ii) if the common stock is not so listed or admitted to unlisted
trading privileges or reported on the Nasdaq National Market, and bid
and asked prices therefor in the over-the-counter market are reported
by the Nasdaq or National Quotation Bureau, Inc. (or any comparable
reporting service), the mean of the closing bid and asked prices as of
such date, as so reported by the Nasdaq System, or, if not so reported
thereon, as reported by National Quotation Bureau, Inc. (or such
comparable reporting service); or
if the common stock is not so listed or admitted to unlisted trading
privileges, or reported on the Nasdaq National Market, and such bid and asked
prices are not so reported by the Nasdaq System or National Quotation Bureau,
Inc. (or any comparable reporting service), such price as the Company's Board of
Directors determines in good faith in the exercise of its reasonable discretion.
10
<PAGE>
10. Lost Warrants or Stock Certificates.
------------------------------------
The Company covenants to the holder hereof that upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft, destruction,
or mutilation of this Warrant or any stock certificate issued upon exercise
hereof and, in the case of any such loss, theft or destruction, upon receipt of
an indemnity reasonably satisfactory to the Company, or in the case of any such
mutilation upon surrender and cancellation of such Warrant or stock certificate,
the Company will make and deliver a new Warrant or stock certificate, of like
tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock
certificate.
11
<PAGE>
IN WITNESS WHEREOF, Kurzweil Applied Intelligence, Inc. has caused this
Warrant to be executed by its duly authorized officers and this Warrant to be
dated as of April 14, 1997.
KURZWEIL APPLIED INTELLIGENCE, INC.
By
---------------------------------------
12
<PAGE>
EXERCISE FORM
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
KURZWEIL APPLIED INTELLIGENCE, INC.
The undersigned, the holder of the attached Warrant, hereby irrevocably
elects to exercise the purchase right represented by such warrant for, and to
purchase thereunder _____________ shares of the Common Stock, $.01 par value, of
Kurzweil Applied Intelligence, Inc. and herewith makes payment of
$______________ therefor, and requests that the certificates for such shares be
issued in the name of _________________________________________ and be delivered
to ________________________________________ whose address is ______________
_________.
LERNOUT & HAUSPIE SPEECH PRODUCTS N.V.
Dated: By:
--------------------------------- ----------------------------------
(Address)
(City - State - Zip)
13
<PAGE>
ASSIGNMENT FORM
(TO BE SIGNED ONLY UPON TRANSFER OF THE WARRANT)
For value received, the undersigned hereby sells, assigns and transfers
unto those individuals listed on Exhibit A, attached hereto, the right
represented by the attached Warrant to purchase the number of shares opposite
their names on the attached Exhibit A of Common Stock, $.01 par value, of
Kurzweil Applied Intelligence, Inc. to which the within warrant relates, and
appoints ____________________________ attorney to transfer said right on the
books of Kurzweil Applied Intelligence, Inc.
Dated: LERNOUT & HAUSPIE SPEECH PRODUCTS N.V.
By:
-----------------------------------
In the presence of:
- ------------------------------
- ------------------------------
14
<PAGE>
CONVERSION NOTICE
(TO BE SIGNED ONLY UPON EXERCISE OF CONVERSION RIGHT
SET FORTH IN SECTION 9 OF THE WARRANT)
TO KURZWEIL APPLIED INTELLIGENCE, INC.:
The undersigned, the holder of the attached Warrant, hereby irrevocably
elects to exercise the Conversion Right set forth in Section 9 of such Warrant
and to purchase ___________________ shares of the Common Stock, of Kurzweil
Applied Intelligence, Inc. The closing of this conversion shall take place at
the offices of the undersigned on ____________________________. Certificates for
the shares ____________________________________ to be delivered at the closing
shall be issued in the name of ________________________________ whose address is
- ------------------------------.
Dated:
--------------------------- -----------------------------------------
(Signature must "conform in all respects
to the name of holder as specified on
the face of the Warrant)
(Address)
(City - State - Zip)
LINE OF CREDIT NOTE
$1,500,000.00 Boston, Massachusetts
April 14, 1997
FOR VALUE RECEIVED, the undersigned KURZWEIL APPLIED INTELLIGENCE, INC. a
Delaware corporation ("Maker"), hereby promises to pay to the order of LERNOUT &
HAUSPIE SPEECH PRODUCTS USA, INC., a Delaware corporation, at its place of
business at 20 Burlington Mall Road, Burlington, Massachusetts 01803 ("Lender"),
the sum of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000.00), or so much
as may have been advanced to Maker as provided in that certain Loan Agreement
(the "Loan Agreement") dated as of the date hereof between Maker and Lender,
together with interest on the unpaid principal amount from time to time
outstanding prior to demand at a fixed rate per annum equal to the Prime Rate in
effect as of the date hereof.
Prior to the occurrence of an Event of Default, as defined in the Loan
Agreement, interest shall accrue but shall not be payable currently. All
outstanding principal and interest shall be due and payable in full on October
31, 1997.
After the occurrence and during the continuance of an Event of Default, (a)
principal outstanding hereunder shall bear interest at a fixed rate equal to the
sum of the Prime Rate in effect as of the date hereof plus three percent (3%)
per annum (the "Default Rate of Interest"), and (b) the Lender shall be entitled
to accelerate all outstanding principal and interest due hereunder and demand
immediate payment in full of the same.
Interest and fees shall be calculated on the basis of a 360-day year times the
actual number of days elapsed. "Prime Rate," as used herein, shall mean for any
day the highest "prime rate" published in The Wall Street Journal under the
heading "Money Rates" on such day (or on the next day on which The Wall Street
Journal is published). In no event shall interest payable hereunder exceed the
highest rate permitted by applicable law. To the extent any interest received by
Lender exceeds the maximum amount permitted, such payment shall be credited to
principal, and any excess remaining after full payment of principal shall be
refunded to Maker. This Note evidences borrowings under the Loan Agreement and
is secured by and entitled to the benefits of the provisions of the Loan
Agreement and any other instruments or documents executed in connection
therewith. The principal of this Note is subject to prepayment in full or in
part at any time without premium or penalty.
Maker and all guarantors and endorsers hereby waive presentment, demand, notice,
protest, and all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Note, and assent to extensions
of the time of payment or forbearance or other indulgence without notice. No
delay or omission of Lender in exercising any right or remedy hereunder shall
constitute a waiver of any such right or remedy. Acceptance by Lender of any
<PAGE>
payment after demand shall not be deemed a waiver of such demand. A waiver on
one occasion shall not operate as a bar to or waiver of any such right or remedy
on any future occasion.
Executed as an instrument under seal as of the date first above written.
WITNESS: KURZWEIL APPLIED INTELLIGENCE, INC.
/s/ By: /s/ Thomas E. Brew Jr.
- ----------------------------- --------------------------------
Name: Thomas E. Brew Jr.
Title: President & CEO
-2-
SECURITY AGREEMENT
SECURITY AGREEMENT made by KURZWEIL APPLIED INTELLIGENCE, INC. (the
"Debtor") in favor of LERNOUT & HAUSPIE SPEECH PRODUCTS USA, INC. (the "Secured
Party"). In consideration of the agreement of Secured Party to extend credit or
other financial accommodations to the Debtor, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Debtor hereby agrees for the benefit of Secured Party as follows:
1. Grant of Security Interest. As collateral security for the payment
and performance when due of the Obligations (defined below), the Debtor hereby
collaterally assigns, mortgages, and pledges to Secured Party, and hereby grants
to Secured Party a security interest in, all of the Debtor's right, title and
interest in, to and under the Collateral (defined below).
"Collateral" means all the Debtor's present and future right, title and
interest in and to any of the following property, wherever located and
whether now owned or hereafter acquired: All of the Debtor's tangible
and intangible personal property, including without limitation, all
inventory, equipment and other goods, all accounts receivable, notes,
drafts, acceptances, instruments and documents, chattel paper, general
intangibles, deposit accounts, books and records, and all cash and
non-cash proceeds of the foregoing in whatever form received, including
without limitation insurance proceeds, but excluding rights (other than
payment rights) under agreements to the extent that the inclusion of
such rights would cause a default by the Borrower under the terms of
any agreement. Any of the foregoing terms which are specifically
defined in the Uniform Commercial Code as in effect in the Commonwealth
of Massachusetts shall have the meanings given therein.
"Obligations" means any and all payment and performance obligations of
the Debtor to Secured Party, now existing or hereafter arising, direct
or indirect, absolute or contingent, due or to become due, liquidated
or unliquidated, arising under that certain Loan Agreement between
Debtor and Secured Party dated as of the date hereof (the "Loan
Agreement"), and that certain $1,500,000 Line of Credit Note executed
by Debtor to the order of Secured Party in connection therewith, and
each other document executed and delivered to secure such obligations.
2. Secured Party's Rights and Obligations. Debtor shall remain liable
under all accounts receivable, instruments and documents and general
intangibles. Secured Party shall not have any obligation or liability under any
accounts receivable, instruments and documents or general intangibles by reason
of this Security Agreement or the exercise of Secured Party's rights and
remedies hereunder, nor shall Secured Party be required to perform the Debtor's
obligations pursuant thereto. Secured Party shall have no obligation to inquire
as to the sufficiency of any payment received by it on account of any of
Debtor's accounts receivable or to take any action to collect or enforce the
payment of any account receivable.
<PAGE>
3. Further Assurances. Debtor will join with Secured Party in executing
such UCC financing statements as Secured Party may reasonably request. At
Secured Party's request from time to time, the Debtor will execute and deliver
any and all such further instruments and documents and take such further actions
as Secured Party may reasonably deem desirable in obtaining the full benefits of
this Security Agreement. The Debtor also hereby authorizes Secured Party to
execute on behalf of the Debtor and file UCC financing or continuation
statements with appropriate jurisdictions in order to perfect the security
interests granted herein.
4. Events of Default. The occurrence of any Event of Default as
defined in the Loan Agreement shall constitute an Event of Default hereunder.
5. Remedies Upon Default. Upon the occurrence and during the
continuance of any Event of Default, and subject to the terms of the Loan
Agreement:
(a) Secured Party may declare all Obligations secured hereby
immediately due and payable and shall have all of the rights and remedies of a
secured party under the Uniform Commercial Code as now in effect in the
Commonwealth of Massachusetts or under other applicable law.
(b) Secured Party may notify Debtor's account or contract debtors (or
other obligors whose obligations to Debtor secure this agreement) of Secured
Party's security interest and that such account or contract debtors are to make
payments directly to Secured Party. Secured Party may send this notice in
Debtor's name or in Secured Party's name, and at Secured Party's request Debtor
will join in Secured Party's notice, provide written confirmation of Secured
Party's security interest and request that payment be sent to Secured Party.
Secured Party may enforce this obligation by specific performance. Secured Party
may collect all amounts due on the accounts and accounts receivable. Upon and
after notification by Secured Party to Debtor, Debtor shall hold any proceeds
and collections of any of the collateral in trust for Secured Party and shall
not commingle such proceeds or collections with any other of Debtor's funds, and
Debtor shall deliver all such proceeds to Secured Party immediately upon
Debtor's receipt thereof in the identical form received and duly endorsed or
assigned to Secured Party.
(c) At the request of Secured Party, the Debtor shall cause the
Collateral, or such portion of the Collateral as Secured Party may direct, to be
assembled for Secured Party at such location (including, without limitation,
Debtor's business address) as Secured Party may request. Secured Party will give
to the Debtor reasonable notice of the time and place of any public sale of
Collateral or of the time after which any private sale or other intended
disposition thereof is to be made. Such requirement of reasonable notice shall
be met if such notice is delivered to the address of the Debtor set forth in
this Agreement at least fifteen (15) days before the time of the proposed sale
or disposition. Any such sale may take place from Debtor's location or such
other location as Secured Party may designate. Debtor shall remain liable for
any deficiency in payment of the Obligations after any such sale.
(d) Notwithstanding the foregoing, Secured Party shall forbear from the
exercise of its rights to foreclose or otherwise realize upon or take possession
of or use Debtor's intellectual
-2-
<PAGE>
property (including without limitation, patents, trademarks and copyrights)
until the earlier of ninety (90) days after the occurrence of an Event of
Default or January 31, 1998, so long as (i) there occurs and is continuing no
Event of Default of the type described in subsections (f) or (g) of the
definition of such term as set forth in the Loan Agreement, and (ii) Debtor does
not take any action to contest the validity or priority of Secured Party's lien
and security interest in such intellectual property, or any other collateral.
Debtor hereby irrevocably appoints Secured Party as its true and lawful
attorney-in-fact with full power of substitution to take any of the foregoing
actions in the name of the Debtor or Secured Party to carry out the terms of
this Agreement and to protect, enforce, preserve or perfect Secured Party's
rights hereunder. Such power of attorney is irrevocable and shall be deemed to
be coupled with an interest.
6. Miscellaneous. Expenses of enforcing Secured Party's rights
hereunder after and during the continuance of an Event of Default including, but
not limited to, preparation for sale, selling or the like and Secured Party's
reasonable attorneys' fees and other expenses shall be payable by Debtor and
shall be secured hereby. None of the terms or provisions of this Agreement may
be waived, altered, modified or amended except by an instrument in writing, duly
executed by Secured Party and Debtor. Secured Party's rights and remedies
hereunder or under any other agreement or instrument shall be cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law. This Agreement shall be binding on and inure to the
benefit of the respective successors and assigns of the Debtor and Secured
Party. This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
EXECUTED an instrument under seal as of April 14, 1997.
KURZWEIL APPLIED INTELLIGENCE, INC.
By:
-------------------------------
Name:
Title:
UCC financing statements to be filed in:
Secretary of State, Massachusetts
Town of Waltham, Massachusetts
Secretary of State, Virginia
Fairfax County, Virginia
-3-
<PAGE>
PATENT SECURITY AGREEMENT
-------------------------
AGREEMENT dated as of April 14, 1997 made by KURZWEIL APPLIED
INTELLIGENCE, INC., a Delaware corporation with its chief executive office
located at 411 Waverley Oaks Road, Waltham, Massachusetts 02154 ("Borrower"), in
favor of LERNOUT & HAUSPIE SPEECH PRODUCTS USA, INC., a Delaware corporation
with a place of business at 20 Burlington Mall Road, Burlington, Massachusetts
01803, and its successors, assigns, and other legal representatives ("Secured
Party").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Borrower and Secured Party are parties to a Loan Agreement,
dated as of April 14, 1997 (the "Loan Agreement"), and certain agreements,
documents and instruments entered into pursuant thereto, (collectively, with the
Loan Agreement, the "Loan Documents"), pursuant to which Secured Party has
agreed to make certain loans to Borrower; and
WHEREAS, Secured Party's willingness to enter into the Loan Documents
and make the loans and credit accommodations available thereunder is subject to
the condition, among others, that Borrower execute and deliver this Patent
Security Agreement;
NOW, THEREFORE, in consideration of the premises and for one dollar
($1.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and in addition to, and not in limitation of,
any rights of the Secured Party under the Loan Documents, Borrower hereby agrees
for the benefit of Secured Party as follows:
1. DEFINITIONS.
------------
1.1 All capitalized terms used herein and not otherwise defined herein
shall have the respective meanings provided therefore in the Loan Agreement. In
addition, the following terms shall have the meanings set forth in this Section
1 or elsewhere in this Security Agreement referred to below:
"PTO" shall mean the United States Patent and Trademark Office.
"Patents" shall mean all of the following now or hereafter owned by
the Borrower:
(a) all letters patent of the United States or any other
country, and all applications for letters patent of the
United States or any other country;
(b) all re-issues, continuations, divisions,
continuations-in-part, renewals or extensions thereof;
1
<PAGE>
(c) the inventions disclosed or claimed therein, including
the right to make, use, practice and/or sell (or license or
otherwise transfer or dispose of) the inventions disclosed or
claimed therein; and
(d) the right (but not the obligation) to make and prosecute
applications for such Patents.
Patents shall include but not be limited to those set forth on Schedule A
attached hereto.
"Patent Collateral" shall mean all of the Borrower's right, title and interest
in and to all of the Patents, the Patent License Rights, and the Patent Rights,
and all additions, improvements, and accessions to, all substitutions for and
replacements of, and all products and Proceeds (including insurance proceeds) of
any and all of the foregoing, and all books and records and technical
information and data describing or used in connection with any and all such
rights, interests, assets or property.
"Patent License Rights" shall mean any and all past, present or future rights
and interests of the Borrower pursuant to any and all past, present and future
licensing agreements in favor of the Borrower, or to which the Borrower is a
party, pertaining to any Patents or Patent Rights, owned or used by third
parties in the past, present or future, including the right to enforce, sue and
recover for, any past, present or future breach or violation of any such
agreements but only to the extent that the inclusion thereof in this Agreement
does not and will not cause a default under the terms of any agreement (except
that all payment rights of Borrower shall be included in this Agreement).
"Patent Rights" shall mean any and all past, present or future rights in, to and
associated with the Patents throughout the world, whether arising under federal
law, state law, common law, foreign law, or otherwise, including but not limited
to the following: all such rights arising out of or associated with the Patents;
the right (but not the obligation) to register claims under any federal, state
or foreign patent law or regulation; the right (but not the obligation) to sue
or bring opposition or bring cancellation proceedings for any and all past,
present and future infringements of or any other damages or injury to the
Patents or the Patent Rights, and the rights to damages or profits due or
accrued arising out of or in connection with any such past, present or future
infringement, damage or injury; and the Patent License Rights.
"Proceeds" shall mean any consideration received from the sale, exchange,
license, lease or other disposition or transfer of any right, interest, asset or
property which constitutes Patent Collateral, any value received as a
consequence of the ownership, possession, use or practice of any Patent
Collateral, and any payment received from any insurer or other person or entity
as a result of the destruction or the loss, theft or other involuntary
conversion, of whatever nature, of any right, interest, asset or property which
constitutes Patent Collateral.
2
<PAGE>
2. GRANT OF SECURITY; COLLATERAL ASSIGNMENT.
-----------------------------------------
2.1 Grant of Security Interest. As collateral security for the complete
and timely performance and satisfaction of all Obligations (as defined in the
Security Agreement from Borrower to Secured Party dated April 14, 1997), the
Borrower hereby unconditionally grants to Secured Party, a continuing security
interest in and lien on the Patent Collateral, and pledges, mortgages and
hypothecates the Patent Collateral to Secured Party.
2.2 Supplemental to Loan Documents. The parties expressly acknowledge
and agree that they have executed and delivered the Loan Documents pursuant to
which the Borrower unconditionally granted to Secured Party, a continuing
security interest in and lien on the Collateral (including the Patent
Collateral). In no event shall this Security Agreement, or the recordation of
this Security Agreement (or any document hereunder) with the PTO, or any other
governmental or public office or agency, adversely affect or impair, in any way
or to any extent, the other Loan Documents, the security interest of Secured
Party in the Collateral (including the Patent Collateral) pursuant to the other
Loan Documents, the attachment and perfection of such security interest under
the Code, or the present or future rights and interests of Secured Party in and
to the Collateral under or in connection with this Security Agreement, the other
Loan Documents, and/or the Code. Any and all rights and interests of Secured
Party in and to the Patent Collateral (and any and all obligations of the
Borrower with respect to the Patent Collateral) provided herein, or arising
hereunder or in connection herewith, shall only supplement and be cumulative and
in addition to the rights and interests of Secured Party (and the obligations of
the Borrower) in, to or with respect to the Collateral (including the Patent
Collateral) provided in or arising under or in connection with the other Loan
Documents.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER. The
Borrower represents and warrants to, and covenants and agrees with, Secured
Party, as follows:
3.1 Title. The Borrower will, subject to its reasonable business
judgment, take all actions as it shall determine to defend its right, title and
interests in and to the Patents and the Patent Collateral against claims of any
third parties.
3.2 Maintenance of Patent Collateral. The Borrower shall take such
actions (including but not limited to institution and maintenance of suits,
proceedings or actions) it determines to be appropriate to maintain, protect,
preserve, care for and enforce the Patent Collateral.
3.3 No Infringements. The Borrower shall use reasonable efforts
consistent with past practices to protect against any infringement or
unauthorized or improper use of the Patents. In the event any such infringement
or unauthorized or improper use by any third party has been reasonably
established by the Borrower, the Borrower shall promptly notify Secured Party.
3
<PAGE>
3.4 Filing for Perfection of Interest. Borrower acknowledges that
Secured Party may cause this Security Agreement to be recorded with the PTO.
4. REMEDIES UPON AN EVENT OF DEFAULT. During the continuance of an
Event of Default:
(a) Secured Party may declare all Obligations secured hereby
immediately due and payable and shall have all of the rights and remedies of a
secured party under the Uniform Commercial Code as now in effect in the
Commonwealth of Massachusetts or under other applicable law.
(b) Secured Party may notify any obligors with respect to the Patent
Collateral of Secured Party's security interest and that such obligors are to
make payments directly to Secured Party. Secured Party may send this notice in
Borrower's name or in Secured Party's name, and at Secured Party's request
Borrower will join in Secured Party's notice, provide written confirmation of
Secured Party's security interest and request that payment be sent to Secured
Party. Secured Party may enforce this obligation by specific performance.
Secured Party may collect all amounts due from such obligors. Upon and after
notification by Secured Party to Borrower, Borrower shall hold any proceeds and
collections of any of the Patent Collateral in trust for Secured Party and shall
not commingle such proceeds or collections with any other of Borrower's funds,
and Borrower shall deliver all such proceeds to Secured Party immediately upon
Borrower's receipt thereof in the identical form received and duly endorsed or
assigned to Secured Party.
(c) Secured Party will give to the Borrower reasonable notice of the
time and place of any public sale of Patent Collateral or of the time after
which any private sale or other intended disposition thereof is to be made. Such
requirement of reasonable notice shall be met if such notice is delivered to the
address of the Borrower set forth in this Agreement at least fifteen (15) days
before the time of the proposed sale or disposition. Any such sale may take
place from Borrower's location or such other location as Secured Party may
designate. Borrower shall remain liable for any deficiency in payment of the
Obligations after any such sale.
(d) Notwithstanding the foregoing, Secured Party shall forbear from
the exercise of its rights to foreclose or otherwise realize upon or take
possession of or use Borrower's Patent Collateral until the earlier of ninety
(90) days after the occurrence of an Event of Default or January 31, 1998, so
long as (i) there occurs and is continuing no Event of Default of the type
described in subsections (f) or (g) of the definition of such term as set forth
in the Loan Agreement, and (ii) Borrower does not take any action to contest the
validity or priority of Secured Party's lien and security interest in such
intellectual property, or any other collateral.
Borrower hereby irrevocably appoints Secured Party as its true and
lawful attorney-in-fact with full power of substitution to take any of the
foregoing actions in the name of the Borrower or Secured Party to carry out the
terms of this Agreement and to protect, enforce, preserve or perfect Secured
Party's rights hereunder. Such power of attorney is irrevocable and shall be
deemed to be coupled with an interest.
4
<PAGE>
(e) No Obligation of Secured Party. Nothing herein shall be construed
as obligating Secured Party to take any of the foregoing actions at any time.
5. LIABILITIES, INDEMNITY AND COSTS.
---------------------------------
5.1 Liability for Uses of Patent Collateral. The Borrower shall be
liable for any and all uses or misuses of and the practice, manufacture, sales
(or other transfers or dispositions) of any of the Patent Collateral by the
Borrower and its affiliates. The Borrower shall also be exclusively liable for
any claim, suit, loss, damage, expense or liability arising out of or in
connection with the fault, negligence, acts or omissions of the Borrower
(regardless of whether such fault, negligence, acts or omissions occurred or
occur prior to or after such license termination).
5.2 License Agreement Obligations. Nothing in this Security Agreement
shall relieve the Borrower from any performance of any covenant, agreement or
obligation of the Borrower under any license agreement now or hereafter in
effect licensing any part of the Patent Collateral, or from any liability to any
licensee or licensor under any such license agreement or to any other party, or
shall impose any liability on Secured Party for any act or omission of the
Borrower in connection with any such license agreement.
6. POWER OF ATTORNEY. The provisions of this Section 6 shall be
subject in all events to the terms and conditions of the Loan Agreement.
6.1 Grant. The Borrower hereby grants to Secured Party, and any
officer or agent of Secured Party as Secured Party may designate in its sole
discretion, a power of attorney, thereby constituting and appointing Secured
Party (and Secured Party's designee) its true and lawful attorney-in-law and
attorney-in-fact, effective upon the occurrence and during the continuation of
an Event of Default, for the purpose of assigning, selling, licensing or
otherwise transferring or disposing of all right, title and interest of the
Borrower in and to any of the Patent Collateral in accordance with the terms
hereof. The Borrower hereby ratifies all that such attorney shall lawfully do or
cause to be done by virtue hereof.
6.2 Irrevocable. The foregoing power of attorney is coupled with an
interest and is irrevocable until this Security Agreement shall terminate.
7. General Provisions.
-------------------
7.1 Loan Agreement Controls. This Security Agreement is supplemental
to the Loan Agreement, the terms of which, including, without limitation, the
notice and governing law provisions, consent to service of process and
jurisdiction and prohibition on non-written waivers, the Borrower expressly
accepts, confirms and acknowledges are incorporated herein by reference.
5
<PAGE>
In the event of any irreconcilable conflict between the provisions of this
Security Agreement and the Loan Agreement the provisions of the Loan Agreement
shall control.
7.2 Specific Enforcement. Due to the unique nature of the Patent
Collateral, and in order to preserve its value, the Borrower agrees that the
Borrower's agreements, duties and obligations under this Security Agreement
shall be subject to specific enforcement and other appropriate equitable orders
and remedies.
IN WITNESS WHEREOF, Borrower has caused this Security Agreement to be
executed by its duly authorized officer as of the date first written above.
WITNESS: KURZWEIL APPLIED INTELLIGENCE, INC.
By:
- ------------------------------------- -------------------------------
Name:
Title:
STATE:
COUNTY: ____________ __, 1997
Then personally appeared the above-named ______________ and stated that
he is a duly authorized _______________ of Kurzweil Applied Intelligence, Inc.
(the "Corporation") and acknowledged the foregoing instrument to be his free act
and deed, and the free act and deed of said Corporation, before me,
-------------------------------
Notary Public
My Commission Expires:
6
<PAGE>
SCHEDULE A TO
PATENT COLLATERAL ASSIGNMENT
AND SECURITY AGREEMENT
PATENTS
-------
See Attached.
7
<PAGE>
TRADEMARK SECURITY AGREEMENT
----------------------------
AGREEMENT dated as of April 14, 1997 made by KURZWEIL APPLIED
INTELLIGENCE, INC., a Delaware corporation with chief executive office at 411
Waverley Oaks Road, Waltham, Massachusetts 02154 ("Borrower"), in favor of
LERNOUT & HAUSPIE SPEECH PRODUCTS USA, INC., a Delaware corporation with a place
of business at 20 Burlington Mall Road, Burlington, Massachusetts 01803, and its
successors, assigns, and other legal representatives ("Secured Party").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Borrower and Secured Party are parties to a Loan Agreement,
dated as of April 14, 1997 (the "Loan Agreement"), and certain supplements,
agreements and instruments entered into pursuant thereto as such may be amended,
modified or supplemented from time to time (collectively, with the Loan
Agreement, the "Loan Documents"), pursuant to which Secured Party may make
certain loans to Borrower; and
WHEREAS, Secured Party's willingness to enter into the Loan Documents
and make the loans and credit accommodations available thereunder is subject to
the condition, among others, that Borrower execute and deliver this Trademark
Security Agreement;
NOW, THEREFORE, in consideration of the premises and for one dollar
($1.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and in addition to, and not in limitation of,
any rights of the Secured Party under the Loan Documents, Borrower hereby agrees
for the benefit of Secured Party as follows:
1. DEFINITIONS.
------------
1.1 All capitalized terms used herein shall have the
respective meanings provided therefor in the Loan Documents. In addition, the
following terms shall have the meanings set forth in this Section 1 or elsewhere
in this Security Agreement referred to below:
"Proceeds" shall mean any consideration received from
the sale, exchange, license, lease or other transfer or disposition of any
right, interest, asset or property which constitutes Trademark Collateral, any
value received as a consequence of the ownership, possession, or use of any
Trademark Collateral, and any payment received from any insurer or other person
or entity as a result of the destruction, loss, theft or other involuntary
conversion of whatever nature of any right, interest, asset or property which
constitutes Trademark Collateral.
"PTO" shall mean the United States Patent and
Trademark Office.
"Trademarks" shall mean all of the trademarks,
service marks, designs, logos, indicia, trade names, corporate names, company
names, business names, fictitious business names, trade styles, elements of
package or trade dress, and/or other source and/or
-1-
<PAGE>
product or service identifiers, and general intangibles of like nature, used or
associated with or appurtenant to the products, services and business of the
Borrower, which (i) are set forth on Schedule A attached hereto, or (ii) have
been adopted, acquired, owned, held or used by the Borrower and are now owned,
held or used by the Borrower, in the Borrower's business, or with the Borrower's
products and services, or in which the Borrower has any right, title or
interest, or (iii) are in the future adopted, acquired, owned, held and/or used
by the Borrower in the Borrower's business or with the Borrower's products and
services, or in which the Borrower in the future acquires any right, title or
interest.
"Trademark Collateral" shall mean all of the
Borrower's right, title and interest (to the extent Borrower has any such right,
title or interest) in and to all of the Trademarks, the Trademark Registrations,
the Trademark Rights, and all additions, improvements and accessions to,
substitutions for, replacements of, and all products and Proceeds (including
insurance proceeds) of any and all of the foregoing provided, however, that
Trademark Collateral shall exclude all rights of Borrower (except payment
rights) to the extent that the inclusion of such rights would cause a default by
Borrower under the terms of any agreement.
"Trademark Registrations" shall mean all past,
present or future federal, state, local and foreign registrations of the
Trademarks (and all renewals and extensions of such registrations), all past,
present and future applications for any such registrations of the Trademarks
(and any such registrations thereof upon approval of such applications),
together with the right (but not the obligation) to apply for such registrations
(and prosecute such applications), and to take any and all actions necessary or
appropriate to maintain such registrations in effect and/or renew and extend
such registrations.
"Trademark Rights" shall mean any and all past,
present or future rights in, to and associated with the Trademarks throughout
the world, whether arising under federal law, state law, common law, foreign law
or otherwise, including but not limited to the following: all such rights
arising out of or associated with the Trademark Registrations; the right (but
not the obligation) to register claims under any state, federal or foreign
trademark law or regulation; the right (but not the obligation) to sue or bring
opposition or cancellation proceedings for any and all past, present and future
infringements or dilution of or any other damages or injury to the Trademarks,
the Trademark Rights, and the rights to damages or profits due or accrued
arising out of or in connection with any such past, present or future
infringement, dilution, damage or injury.
"Use" of any Trademark shall include all uses of such
Trademark by, for or in connection with the Borrower or its business or for the
direct or indirect benefit of the Borrower or its business, including but not
limited to all such uses by the Borrower itself, by any of the affiliates of the
Borrower, or by any licensee or contractor of the Borrower.
-2-
<PAGE>
2. GRANT OF SECURITY; COLLATERAL ASSIGNMENT.
-----------------------------------------
2.1 Grant of Security Interest. As collateral security for the
complete and timely payment, performance and satisfaction of all Obligations (as
defined in the Security Agreement from Borrower to Secured Party dated April 14,
1997), the Borrower hereby unconditionally grants to the Secured Party, a
continuing security interest in and lien on the Trademark Collateral, and
pledges, mortgages and hypothecates (but does not transfer title to) the
Trademark Collateral to the Secured Party.
2.2 Supplemental to Loan Documents. The parties expressly acknowledge
and agree that the Borrower has delivered the Loan Documents pursuant to which
the Borrower unconditionally granted to the Secured Party a continuing security
interest in and lien on the Collateral (including the Trademark Collateral). In
no event shall this Security Agreement, or the recordation of this Security
Agreement (or any document hereunder) with the PTO, adversely affect or impair,
in any way or to any extent, the Loan Documents, the security interest of the
Secured Party in the Collateral (including the Trademark Collateral) pursuant to
the Loan Documents, the attachment and perfection of such security interest
under the Code, or the present or future rights and interests of the Secured
Party in and to the Collateral under or in connection with the Loan Documents,
this Security Agreement and/or the Code. Any and all rights and interests of the
Secured Party in and to the Trademark Collateral (and any and all obligations of
the Borrower with respect to the Trademark Collateral) provided herein, or
arising hereunder or in connection herewith, shall only supplement and be
cumulative and in addition to the rights and interests of the Secured Party (and
the obligations of the Borrower) in, to or with respect to the Collateral
(including the Trademark Collateral) provided in or arising under or in
connection with the other Loan Documents.
3. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants to, and covenants and agrees with, Secured Party, as follows:
3.1 Title. The Borrower will subject to its reasonable business
judgment, take all actions as it shall determine to defend its right, title and
interests in and to the Trademarks and the Trademark Collateral against claims
of any third parties.
3.2 Maintenance of Trademark Collateral. The Borrower shall take such
actions (including but not limited to institution and maintenance of suits,
proceedings or actions) as it determines to be appropriate to maintain, protect,
preserve, care properly for and enforce the Trademarks and the Trademark
Registrations, Trademark Rights and to preserve the Borrower's rights in the
Trademarks.
3.3 No Infringements. To the best of the Borrower's knowledge and
belief, there is at present no material infringement or unauthorized or improper
use of the Trademarks or the Trademark Registrations or the Trademark Rights
related thereto. In the event any such infringement or unauthorized or improper
use by any third party has been reasonably established
-3-
<PAGE>
by the Borrower, the Borrower shall promptly notify the Secured Party and shall
have the right to sue and recover therefor and to retain any and all damage so
recovered or obtained.
4. RIGHTS OF AND LIMITATIONS ON SECURED PARTY.
-------------------------------------------
4.1 Borrower to Remain Liable. It is expressly agreed by Borrower that
Borrower shall remain liable to observe and perform all the conditions and
obligations to be observed and performed by it relating to the Trademark
Collateral. Secured Party shall not have any obligation or liability under or in
relation to the Trademark Collateral by reason of the execution and delivery of
this Security Agreement and Secured Party's rights hereunder, or the grant of a
security interest by Borrower to Secured Party of, or the receipt in accordance
with this Agreement by Secured Party of, any payment relating to any Trademarks,
nor shall Secured Party be required or obligated in any manner to perform or
fulfill any of the obligations of Borrower relating to the Trademark Collateral
or be liable to any party on account of Borrower's use of the Trademark
Collateral.
4.2 Specific Enforcement. Due to the unique nature of the Trademark
Collateral, and in order to preserve its value, the Borrower agrees that the
Borrower's agreements, duties and obligations under this Security Agreement
shall be subject to specific enforcement and other appropriate equitable orders
and remedies.
5. REMEDIES UPON AN EVENT OF DEFAULT. During the continuance of an
Event of Default:
(a) Secured Party may declare all Obligations secured hereby
immediately due and payable and shall have all of the rights and remedies of a
secured party under the Uniform Commercial Code as now in effect in the
Commonwealth of Massachusetts or under other applicable law.
(b) Secured Party may notify any obligors with respect to the Trademark
Collateral of Secured Party's security interest and that such obligors are to
make payments directly to Secured Party. Secured Party may send this notice in
Borrower's name or in Secured Party's name, and at Secured Party's request
Borrower will join in Secured Party's notice, provide written confirmation of
Secured Party's security interest and request that payment be sent to Secured
Party. Secured Party may enforce this obligation by specific performance.
Secured Party may collect all amounts due from such obligors. Upon and after
notification by Secured Party to Borrower, Borrower shall hold any proceeds and
collections of any of the Trademark Collateral in trust for Secured Party and
shall not commingle such proceeds or collections with any other of Borrower's
funds, and Borrower shall deliver all such proceeds to Secured Party immediately
upon Borrower's receipt thereof in the identical form received and duly endorsed
or assigned to Secured Party.
(c) Secured Party will give to the Borrower reasonable notice of the
time and place of any public sale of Trademark Collateral or of the time after
which any private sale or other intended disposition thereof is to be made. Such
requirement of reasonable notice shall be met if
-4-
<PAGE>
such notice is delivered to the address of the Borrower set forth in this
Agreement at least fifteen (15) days before the time of the proposed sale or
disposition. Any such sale may take place from Borrower's location or such other
location as Secured Party may designate. Borrower shall remain liable for any
deficiency in payment of the Obligations after any such sale.
(d) Notwithstanding the foregoing, Secured Party shall forbear from
the exercise of its rights to foreclose or otherwise realize upon or take
possession of or use Borrower's Trademark Collateral until the earlier of ninety
(90) days after the occurrence of an Event of Default or January 31, 1998, so
long as (i) there occurs and is continuing no Event of Default of the type
described in subsections (f) or (g) of the definition of such term as set forth
in the Loan Agreement, and (ii) Borrower does not take any action to contest the
validity or priority of Secured Party's lien and security interest in such
intellectual property, or any other collateral.
Borrower hereby irrevocably appoints Secured Party as its true and
lawful attorney-in-fact with full power of substitution to take any of the
foregoing actions in the name of the Borrower or Secured Party to carry out the
terms of this Agreement and to protect, enforce, preserve or perfect Secured
Party's rights hereunder. Such power of attorney is irrevocable and shall be
deemed to be coupled with an interest.
6. GENERAL PROVISIONS. This Security Agreement is supplemental to the
Loan Agreement, the terms of which, including, without limitation, the notice
and governing law provisions, consent to service of process and jurisdiction and
prohibitions on non-written waivers, the Borrower expressly accepts, confirms
and acknowledges are incorporated herein by reference. In the event of any
irreconcilable conflict between the provisions of this Security Agreement and
the Loan Agreement, the provisions of the Loan Agreement shall govern.
IN WITNESS WHEREOF, Borrower has caused this Security Agreement to be
executed by its duly authorized officer as of the date first written above.
WITNESS: KURZWEIL APPLIED INTELLIGENCE, INC.
By:
- ---------------------------------- --------------------------------
Name:
-------------------------
Title:
-------------------------
-5-
<PAGE>
STATE:
COUNTY: April __, 1997
Then personally appeared the above-named ______________ and stated that
he is a duly authorized _______________ of Kurzweil Applied Intelligence, Inc.
(the "Corporation") and acknowledged the foregoing instrument to be his free act
and deed, and the free act and deed of said Corporation, before me,
-------------------------------------
Notary Public
My Commission Expires:
-6-
<PAGE>
SCHEDULE A TO
TRADEMARK COLLATERAL ASSIGNMENT
AND SECURITY AGREEMENT
TRADEMARKS, TRADEMARK REGISTRATION,
-----------------------------------
SERVICE MARKS
-------------
See Attached.
-7-
<PAGE>
COPYRIGHT SECURITY AGREEMENT
AGREEMENT dated as of April 14, 1997 made by KURZWEIL APPLIED
INTELLIGENCE, INC., a Delaware corporation with its chief executive office
located at 411 Waverley Oaks Road, Waltham, Massachusetts 02154 ("Borrower"), in
favor of LERNOUT & HAUSPIE SPEECH PRODUCTS USA, INC., a Delaware corporation
with a place of business at 20 Burlington Mall Road, Burlington, Massachusetts
01803, and its successors, assigns, and other legal representatives ("Secured
Party").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Borrower and Secured Party are parties to a Loan Agreement,
dated as of April 14, 1997, and certain agreements, documents and instruments
entered into pursuant thereto, or in connection therewith, as may be amended,
supplemented or modified from time to time (the "Loan Agreement"), pursuant to
which Secured Party and Borrower have agreed to certain financial arrangements;
and
WHEREAS, Secured Party's willingness to make loans and provide credit
accommodations pursuant to the Loan Agreement is subject to the condition, among
others, that Borrower execute and deliver this Copyright Security Agreement;
NOW THEREFORE, in consideration of the premises and for one dollar
($1.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and in addition to, and not in limitation of,
any rights of the Secured Party under the Loan Agreement, Borrower hereby agrees
for the benefit of Secured Party as follows:
1. DEFINITIONS; RULES OF INTERPRETATION.
-------------------------------------
1.1. Definitions. All capitalized terms used herein and not otherwise
defined herein shall have the respective meanings provided therefor in the Loan
Agreement. In addition, the following terms shall have the meanings set forth in
this Section 1 or elsewhere in this Agreement referred to below:
"Agreement" shall mean this Copyright Security Agreement, as it may be
amended or supplemented from time to time.
"Copyright Collateral" shall mean all of the Borrower's right, title
and interest in and to all of the Copyrights, the Copyright Registrations, the
Copyright Rights, and all additions, improvements and accessions to,
substitutions for, replacements of, and all products and Proceeds (including
insurance proceeds) of any and all of the foregoing. Copyright Collateral does
not include copies of copyrighted works held by the Borrower as inventory which
is not characterized as spare parts inventory and does not include rights (other
than payment rights) under agreements to the extent that the inclusion of such
rights would cause a default by Borrower under the terms of any agreement.
<PAGE>
"Copyright Office" shall mean the United States Copyright Office.
"Copyright Registrations" shall mean all past, present or future
federal, state, local and foreign registrations, supplemental registrations and
recordings of the Copyrights (and all renewals and extensions of such
registrations and recordings), including all such registrations in the Copyright
Office, all past, present and future applications for any such registrations and
recordings of the Copyrights (and any such registrations and recordings thereof
upon approval of such applications), together with the right (but not the
obligation) to apply for such registrations and recordings (and prosecute such
applications), and to take any and all actions necessary or appropriate to
maintain such registrations and recordings in effect and/or to renew and extend
such registrations and recordings.
"Copyright Rights" shall mean any and all past, present or future
rights in, to and associated with the Copyrights throughout the world, whether
arising under federal law, state law, common law, foreign law, international
treaty or convention, or otherwise, including but not limited to the following:
all such rights arising out of or associated with the Copyright Registrations;
the right (but not the obligation) to register claims under any state, federal
or foreign copyright law or regulation; the right (but not the obligation) to
sue or bring cancellation or other actions or proceedings for any and all past,
present and future infringements of or any other damages or injury to the
Copyrights or the Copyright Rights, and the rights to damages or profits due or
accrued arising out of or in connection with any such past, present or future
infringement, damage or injury.
"Copyrights" shall mean all Copyright Rights, which (i) are set forth
on Schedule A attached hereto, or (ii) are now owned by the Borrower, or in
which the Borrower has any right, title or interest, or (iii) are hereafter
acquired by the Borrower or in which the Borrower hereafter acquires any right,
title or interest.
"Loan Agreement" shall have the meaning given such term in the
recitals hereto.
"Proceeds" shall mean any consideration received from the sale,
exchange, license, lease or other transfer or disposition of any right,
interest, asset or property which constitutes Copyright Collateral, any value
received as a consequence of the ownership, possession, or use of any Copyright
Collateral, and any payment received from any insurer or other person or entity
as a result of the destruction, loss, theft or other involuntary conversion of
whatever nature of any right, interest, asset or property which constitutes
Copyright Collateral.
1.2. UCC Terms. Unless otherwise defined herein or in the Loan
Agreement, terms used in Article 9 of the Uniform Commercial Code of the
Commonwealth of Massachusetts are used herein as therein defined.
1.3. Rules of Interpretation. All definitions (whether set forth
herein or by reference) shall apply equally to both the singular and plural
forms of the terms defined. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms. The words
"include," "includes" and "including" shall be deemed to be followed by the
-2-
<PAGE>
phrase "without limitation" or the phrase "but not limited to" All reference
herein to Sections, Exhibits and Schedules shall be deemed references to
Sections of and Exhibits and Schedules to this Agreement unless the context
otherwise requires.
2. GRANT OF SECURITY.
2.1. Grant of Security Interest. As collateral security for the
complete and timely payment, performance and satisfaction of all Obligations (as
defined in the Security Agreement from Borrower to Secured Party dated April 14,
1997), the Borrower hereby unconditionally grants to the Secured Party, a
continuing security interest in and lien on the Copyright Collateral, and
pledges, mortgages and hypothecates (but does not transfer title to) the
Copyright Collateral to the Secured Party.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER. The
Borrower represents and warrants to, and covenants and agrees with, the Secured
Party, as follows:
3.1. Title. Except as set forth in the Loan Agreement, the Borrower is
and will continue to be the sole and exclusive owner of the entire legal and
beneficial right, title and interest in and to the Copyright Collateral, free
and clear of any lien, charge, security interest or other encumbrance, except
for the security interest and conditional assignment created by this Agreement,
and the Loan Agreement, and except for liens and encumbrances explicitly
permitted pursuant to the Loan Agreement. To the extent deemed necessary or
appropriate by the Borrower in its reasonable business judgment, the Borrower
will defend its right, title and interests in and to the Copyright Collateral
against claims of any third parties.
3.2. Maintenance of Copyright Collateral. The Borrower shall take such
actions (including but not limited to institution and maintenance of suits,
proceedings or actions) as it determines to be appropriate (in its reasonable
business judgment) to maintain protect, preserve, care properly for and enforce
the Copyright Collateral.
3.3. No Abandonment. Except as is in the Borrower's reasonable
business judgment, the Borrower shall not abandon or dedicate to the public any
of the Copyrights or the Copyright Registrations or Copyright Rights related
thereto, nor do any act nor omit to do any act if such act or omission is of a
character that tends to cause or contribute to the abandonment or dedication to
the public of any Copyright Collateral.
3.4. No Infringements. The Borrower shall use commercially reasonable
efforts to protect against, and consistent with its past practices and
reasonable business judgment shall take actions with respect to, infringements
or unauthorized or improper uses with respect to the Copyright Collateral. In
the event of any material infringements or unauthorized or improper uses of any
such property of material value, the Borrower shall promptly notify the Secured
Party and shall have the right to sue and recover therefor and to retain any and
all damages so recovered or obtained. In the event the Borrower fails so to sue
or bring legal action, the
-3-
<PAGE>
Borrower shall notify the Secured Party within sixty (60) days after the date of
original notice to the Secured Party.
3.5. Maintenance of Registrations. The Borrower, with counsel of its
own choosing and at its expense, shall take actions which the Borrower in its
reasonable business judgment determines are necessary and appropriate to
preserve and maintain in full force and effect the Copyrights, Copyright
Registrations and Copyright Rights.
3.6. Filings for Perfection of Interest. The Borrower acknowledges and
agrees that a copy of this Agreement (or instruments executed and delivered
pursuant hereto) may be filed by Secured Party and recorded with the Copyright
Office with respect to the Borrower's Copyrights registered at present or in the
future with the Copyright Office (or with respect to which registration
applications are at present or in the future pending or filed with the Copyright
Office).
4. ENFORCEMENT OF COPYRIGHT RIGHTS.
--------------------------------
4.1. In General. Except as otherwise provided in Section 4.2 hereof,
the Borrower shall have the right as it deems appropriate to commence and
prosecute in its own name, as real party in interest, for its own benefit and at
its own expense, such suits, proceedings or other actions to restrain, prevent
or recover for infringement, misuse, misappropriation, unfair competition, or
other damage or injury as are in its reasonable business judgment necessary or
appropriate to maintain, protect and enforce the Copyrights, the Copyright
Registrations and the Copyright Rights.
4.2. Upon Event of Default. Upon the occurrence and during the
continuation of an Event of Default:
(a) Secured Party may declare all Obligations secured hereby
immediately due and payable and shall have all of the rights and remedies of a
secured party under the Uniform Commercial Code as now in effect in the
Commonwealth of Massachusetts or under other applicable law.
(b) Secured Party may notify any obligors with respect to the
Copyright Collateral of Secured Party's security interest and that such obligors
are to make payments directly to Secured Party. Secured Party may send this
notice in Borrower's name or in Secured Party's name, and at Secured Party's
request Borrower will join in Secured Party's notice, provide written
confirmation of Secured Party's security interest and request that payment be
sent to Secured Party. Secured Party may enforce this obligation by specific
performance. Secured Party may collect all amounts due from such obligors. Upon
and after notification by Secured Party to Borrower, Borrower shall hold any
proceeds and collections of any of the Copyright Collateral in trust for Secured
Party and shall not commingle such proceeds or collections with any other of
Borrower's funds, and Borrower shall deliver all such proceeds to Secured Party
immediately upon Borrower's receipt thereof in the identical form received and
duly endorsed or assigned to Secured Party.
-4-
<PAGE>
(c) Secured Party will give to the Borrower reasonable notice of the
time and place of any public sale of Copyright Collateral or of the time after
which any private sale or other intended disposition thereof is to be made. Such
requirement of reasonable notice shall be met if such notice is delivered to the
address of the Borrower set forth in this Agreement at least fifteen (15) days
before the time of the proposed sale or disposition. Any such sale may take
place from Borrower's location or such other location as Secured Party may
designate. Borrower shall remain liable for any deficiency in payment of the
Obligations after any such sale.
(d) Notwithstanding the foregoing, Secured Party shall forbear from
the exercise of its rights to foreclose or otherwise realize upon or take
possession of or use Borrower's Copyright Collateral until the earlier of ninety
(90) days after the occurrence of an Event of Default or January 31, 1998, so
long as (i) there occurs and is continuing no Event of Default of the type
described in subsections (f) or (g) of the definition of such term as set forth
in the Loan Agreement, and (ii) Borrower does not take any action to contest the
validity or priority of Secured Party's lien and security interest in such
intellectual property, or any other collateral.
Borrower hereby irrevocably appoints Secured Party as its true and
lawful attorney-in-fact with full power of substitution to take any of the
foregoing actions in the name of the Borrower or Secured Party to carry out the
terms of this Agreement and to protect, enforce, preserve or perfect Secured
Party's rights hereunder. Such power of attorney is irrevocable and shall be
deemed to be coupled with an interest.
5. LIABILITIES
-----------
Liability for Uses of Copyright Collateral. The Borrower shall be
liable for any and all uses or misuses of any of the Copyright Collateral by
itself and its affiliates. The Borrower shall also be exclusively liable for any
claim, suit, loss, damage, expense or liability arising out of or in connection
with the fault, negligence, acts or omissions of the Borrower (regardless of
whether such fault, negligence, acts or omissions occurred or occur prior to or
after termination). This Section 5 is for the purpose of establishing and
allocating, as between the Borrower and the Secured Party, certain liabilities;
it is not intended to create any affirmative obligations of the Borrower to the
Secured Party other than those set forth elsewhere in this Agreement, and the
Loan Agreement.
6. POWER OF ATTORNEY
-----------------
6.1. Grant. The Borrower hereby grants to the Secured Party, and any
officer or agent of the Secured Party as the Secured Party may designate in its
sole discretion, a power of attorney, thereby constituting and appointing the
Secured Party (and the Secured Party's designee) its true and lawful
attorney-in-law and attorney-in-fact, effective upon the occurrence and during
the continuation of an Event of Default, for the purpose of assigning, selling,
licensing or otherwise transferring or disposing of all right, title and
interest of the Borrower in and to any of the Copyright Collateral in accordance
with the terms hereof. The Borrower hereby ratifies all that such attorney shall
lawfully do or cause to be done by virtue hereof.
-5-
<PAGE>
6.2. Irrevocable. The foregoing power of attorney is coupled with an
interest and is irrevocable until this Agreement shall terminate.
7. SPECIFIC ENFORCEMENT.
Due to the unique nature of the Copyright Collateral, and in order to
preserve its value, the Borrower agrees that the Borrower's agreements, duties
and obligations under this Agreement shall be subject to specific enforcement
and other appropriate equitable orders and remedies.
8. TERMINATION.
This Agreement shall create a continuing security interest in and
conditional assignment of the Copyright Collateral. Upon payment and
satisfaction in full of the Obligations, and the termination of all commitments
of the Secured Party set forth in the Loan Agreement, this Agreement shall
automatically terminate and shall be of no further force and effect, and the
security interest granted hereby shall terminate and all rights to the Copyright
Collateral shall revert to the Borrower. Upon any such termination, the Secured
Party shall execute and deliver to the Borrower such documents, and shall take
such other actions, as may reasonably be requested by the Borrower to evidence
or record such termination.
9. PROVISIONS OF GENERAL APPLICATION.
9.1. Loan Agreement Controls. In the event of any irreconcilable
conflict between the provisions of this Agreement and the Loan Agreement the
provisions of the Loan Agreement shall control.
9.2. Severability. In the event any term or provision of this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
to any extent or in any respect, or otherwise determined to be of no effect, in
any jurisdiction, such invalidity, illegality, unenforceability or determination
shall affect only such term or provision, or part thereof, in only such
jurisdiction. The parties agree they will negotiate in good faith to replace any
provision so held invalid, illegal or unenforceable, or so determined, with a
valid, enforceable and effective provision which is as similar as possible in
substance and effect to the provision which is invalid, illegal, unenforceable
or of no effect.
IN WITNESS WHEREOF, the Borrower, by its duly authorized officer, have
duly executed this Agreement, as an instrument under seal, as of the date first
set forth above.
KURZWEIL APPLIED INTELLIGENCE, INC.
By:
-------------------------------------
Name:
Title:
-6-
<PAGE>
COMMONWEALTH OF MASSACHUSETTS
County: ______________________ April __, 1997
Then personally appeared the above-named _______________ and stated
that he is the duly authorized officer of Kurzweil Applied Intelligence, Inc.
and acknowledged the foregoing instrument to be his/her free act and deed, and
the free act and deed of said corporation, before me.
-----------------------------------
Notary Public
My Commission Expires:
-7-
<PAGE>
SCHEDULE A
-8-
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
- ---------------------
Contact: Thomas B. Doherty
Chief Financial Officer
Kurzweil Applied Intelligence, Inc.
Tel.: (617) 893-5151
KURZWEIL APPLIED INTELLIGENCE, INC. ANNOUNCES MERGER AGREEMENT
WITH LERNOUT & HAUSPIE SPEECH PRODUCTS N.V.
AND UNAUDITED FINANCIAL RESULTS FOR THE FISCAL
YEAR ENDED JANUARY 31, 1997
WALTHAM, Mass., April 14, 1997 --- Kurzweil Applied Intelligence, Inc. (NASDAQ:
KURZ) today announced the signing of a definitive merger agreement which
provides for a merger with Lernout & Hauspie Speech Products N.V., a Belgian
corporation listed on the Nasdaq National Market (NASDAQ: LHSPF) and a developer
of advanced speech technology for various commercial applications and products.
Under the terms of the merger agreement, which has been approved by the Boards
of Directors of both companies, Kurzweil AI shareholders will receive $4.20 in
cash and $1.05 in Lernout & Hauspie stock for each share of Kurzweil AI common
stock, subject to adjustment under certain circumstances. As a result of the
transaction, Kurzweil AI will become a wholly-owned subsidiary of Lernout &
Hauspie. The acquisition will be accounted for using purchase accounting, and
the closing is subject to certain conditions and approvals, including the
approval of Kurzweil AI's shareholders. The parties currently anticipate that
the transaction will be consummated in June 1997. In addition, to finance
Kurzweil AI's working capital needs prior to the closing of the acquisition,
Lernout & Hauspie has agreed to make available to Kurzweil AI a line of credit
of up to $1,500,000.
Thomas E. Brew, Jr., the Company's President and Chief Executive Officer, said:
"Kurzweil AI is pleased to be joining forces with internationally-recognized
Lernout & Hauspie. We expect the combined companies' strengths will lead to the
introduction of innovative speech products and increased market share in the
speech recognition technology arena. Our recent entry into the PC retail channel
is now starting to significantly increase revenues for our PC applications
products which I believe will result in increased revenues in the succeeding
quarters in fiscal 1998. In addition, our medical software and PC applications
research and development teams will add an extra dimension to Lernout &
Hauspie's increasing focus on the growing voice-enabled PC market."
Kurzweil AI also released its unaudited financial results for the fiscal year
ended January 31, 1997. The Company reported revenue of $8,547,000 and a net
loss of $4,140,000 or ($.50) per share, for the fiscal year ended January 31,
1997 as compared to revenue of $9,360,000 and a net loss of $2,586,000 or ($.38)
per share for the fiscal year ended January 31, 1996. The Company reported
revenue of $2,193,000 for the fourth quarter ended January 31, 1997, a 5%
increase over the $2,096,000 of revenue reported for the same period in the
prior fiscal year. The net loss in the fourth quarter of fiscal 1997 was
$1,425,000 or ($.16) per share, as compared to a net loss of $1,282,000 or
($.19) per share for the fourth quarter of fiscal 1996. The Company has attached
unaudited balance sheets and statements of operations for the fiscal years ended
January 31, 1997 and January 31, 1996.
- 5 -
<PAGE>
Kurzweil Applied Intelligence, Inc., headquartered in Waltham, Mass., was
founded in 1982. The Company develops, markets and supports automated voice
recognition systems used to create documents and interact with personal
computers by voice.
###
All product names referenced herein are trademarks of their respective
companies.
This release and other information related to Kurzweil Applied Intelligence,
Inc. can be referenced on the Company's home page on the World Wide Web at
http://www.kurzweil.com, or by calling (671) 893-5151.
###
This press release contains forward-looking statements as that term is defined
in the Private Securities Litigation Reform Act of 1995. Such statements are
based on management's current expectations and are subject to a number of risks,
factors and uncertainties, including but not limited to economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices, which could cause the actual results or
performance of the Company to differ materially from those described herein. For
a more detailed description of the risks, factors and uncertainties affecting
the Company, refer to the discussions under the headings "Certain Factors That
May Affect Future Results" and "Cautionary Statement" in the Company's Annual
Report on Form 10-KSB and other of the Company's publicly available filings with
the Securities and Exchange Commission
###
- 6 -
<PAGE>
KURZWEIL APPLIED INTELLIGENCE, INC.
BALANCE SHEETS
(unaudited)
(in thousands, except for per share data)
<TABLE>
<CAPTION>
January 31, 1997 January 31, 1996
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $456 $2,084
Marketable securities available for sale 982 501
Trade accounts receivable, net 2,158 1,221
Inventory 354 398
Other current assets 188 262
------- -------
Total current assets 4,138 4,466
Property and equipment, net 721 924
Intangible assets 678 1,745
Capitalized software development costs, net 2,532 1,593
Other assets 104 136
------- -------
Total assets $8,173 $8,864
======= =======
LIABILITIES
Current liabilities:
Accounts payable $1,115 $665
Accrued expenses 2,100 2,211
Capital lease obligations 29
Current portion of other long-term liabilities 1,019 902
------- -------
Total current liabilities 4,234 3,807
Capital lease obligations
Other long-term liabilities 1,152 2,169
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000 shares
authorized; none issued and outstanding
Common stock, $.01 par value, 15,000,000 shares authorized;
9,061,880 and 5,773,387 shares issued and outstanding respectively 91 57
Additional paid-in capital 66,727 57,647
Common stock to be issued 5,075
Accumulated deficit (64,031) (59,891)
Total stockholders' equity 2,787 2,888
-------- --------
Total liabilities and stockholders' equity $8,173 $8,864
======== ========
</TABLE>
- 7 -
<PAGE>
KURZWEIL APPLIED INTELLIGENCE, INC.
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Three Months Ended January 31, Twelve Months Ended January 31,
------------------------------- -------------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $2,193 $2,096 $8,547 $9,360
Operating costs and expenses:
Cost of product and maintenance revenue 1,158 1,521 3,937 4,777
Sales and marketing 1,168 878 4,057 3,582
Research and development 818 578 3,066 2,340
General and administrative 512 454 1,752 1,503
---------- ---------- ---------- ----------
Total operating costs and expenses 3,656 3,431 12,812 12,202
---------- ---------- ---------- ----------
Operating loss (1,463) (1,335) (4,265) (2,842)
Interest expense 2 3 12
Interest income 38 46 115 196
Other (expense) income, net 9 13 72
Net loss ($1,425) ($1,282) ($4,140) ($2,586)
========== ========== ========== ==========
Net loss per common share ($0.16) ($0.19) ($0.50) ($0.38)
========== ========== ========== ==========
Weighted average number of common
shares outstanding 9,060,555 6,766,466 8,342,157 6,755,779
========== ========== ========== ==========
</TABLE>
- 8 -
