<PAGE>
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): September 9, 1998
INTERLEAF, INC.
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(Exact name of registrant as specified in its charter)
Massachusetts 0-14713 2729042
- ---------------------------- ----------------- ------------------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
62 Fourth Avenue
Waltham, Massachusetts 02451
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 290-0710
<PAGE>
Item 5. Acquisition or Disposition of Assets
On September 9, 1998, Interleaf, Inc. (the "Company") entered into Stock
Purchase Agreements effective as of August 31, 1998 (collectively the
"Purchase Agreements") with each of Dona D. Ray, Davis K. Marksbury, Jr., and
Donald J. Kloiber (the "Sellers"), the three owners of all of the capital
stock of PDR Automated Systems & Publications, Inc., a Kentucky corporation
("PDR"). PDR is a company engaged in the business of providing technical
documentation services.
Pursuant to the terms of the Purchase Agreements, the Company acquired all of
the capital stock of PDR as of August 31, 1998 for (i) approximately $2.7
million in cash plus six month warrants to purchase 250,000 shares of Company
common stock at an exercise price of $2.85 issued at closing, and (ii) an
installment payment of $1.5 million on March 31, 1999 (subject to adjustment)
and a second installment payment to bring the total to $3.0 million (also
subject to adjustment) on September 30, 1999 (collectively, the "Installment
Payments"). In addition, the Company agreed to pay the Sellers an aggregate
of $75,000 in cash, payable 50% at the closing and 50% in February 1999, and
to pay to them any amounts PDR receives with respect to certain accounts
receivable.
The first Installment Payment is subject to decrease (but not below $500,000
in the aggregate) or increase (but not beyond $2.5 million in the aggregate)
by differing percentages of the amount, if any, by which the revenues of PDR
during the six-month period followed the closing derived from certain
customer accounts exceed or are less than $1.5 million. The second
Installment Payment is subject to similar adjustment (with a zero floor and
no ceiling) based upon the amount by which such revenues for the full
12-month period following closing exceed or are less than $3 million.
Each Installment Payment is payable in the form of Company common stock
having a market value (defined by reference to a trailing ten day average
trading price) on the date of delivery equal to the dollar amount due on the
Installment Payment, except that the Company has the option of paying in cash
rather than stock if the market value of its common stock is less than $2.85
per share or if, despite its reasonable efforts, the shares to be delivered
have not been registered under the Securities Act of 1933, as amended, for
resale by the Sellers. The Company further agreed that to the extent that it
makes an Installment Payment in the form of its common stock and the Sellers
resell that stock in the public markets in the manner provided in the Stock
Purchase Agreements and those sales result in the Sellers receiving less than
90% of the dollar amount of the Installment Payment, the Company will make an
additional cash payment to the Sellers to bring the amount received up to 90%
and repurchase any remaining unsold shares.
In connection with the execution of the Stock Purchase Agreements, the
Company also entered into a one year employment agreement with Dona Ray and
one year consulting agreements with the other two stockholders of PDR, each
of which includes a noncompetition provision. The aggregate amount payable
under these three agreements is $225,000.
2
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The assets of PDR acquired as a result of the stock purchases are
primarily its contractual and business relationships, certain computer
software programs, office leases and office furnishings and equipment.
The acquisition was financed out of the Company's working capital.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired.
The financial statements of PDR required by Regulation S-X to be filed with
the Commission will be filed by an amendment to this Form 8-K or within 60
days hereafter.
(c) Exhibits.
10.1 Stock Purchase Agreement by and among Interleaf, Inc., PDR
Automated Systems and Publications, Inc. and Dona D. Ray, with variable
information for otherwise identical agreements with Messrs. Marksbury and
Kloiber.
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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.
Interleaf, Inc.
Date: September 24, 1998 By: /s/ Peter W. Rice
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Peter W. Rice
EXHIBIT INDEX
Exhibit Description At
No. Page
4.1 Form of Stock Purchase Warrant issued to each of Ms. Ray 4
and Messrs. Marksbury and Kloiber.
10.1 Stock Purchase Agreement by and among Interleaf, Inc., PDR 9
Automated Systems and Publications, Inc. and Dona D. Ray,
with variable information for otherwise identical
agreements with Messrs. Marksbury and Kloiber.
3
<PAGE>
EXHIBIT 4.1
NEITHER THIS WARRANT NOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR STATE SECURITIES LAWS. NO SALE, TRANSFER OR OTHER
DISPOSITION OF THIS WARRANT OR SAID SHARES MAY BE EFFECTED WITHOUT (i)
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO UNDER APPLICABLE
STATE SECURITIES LAWS, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER SUCH
LAWS IS AVAILABLE.
Warrant No. STOCK PURCHASE WARRANT No. of Shares
----------- --------
To Subscribe for and Purchase Common Stock of
INTERLEAF, INC.
THIS CERTIFIES that, for value received, [NAME] (together with any
subsequent transferees of all or any portion of this Warrant, the "Holder"), is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe for and purchase from INTERLEAF, INC., a Massachusetts corporation
(hereinafter called the "Company"), at the Warrant Exercise Price defined below,
[NUMBER] fully paid and non-assessable shares of the Company's Common Stock.
This Warrant is one of an issue of the Company's Common Stock Purchase
Warrants (herein the "Warrants"), identical in all respects except as to the
names of the holders thereof and the number of shares of Common Stock
purchasable thereunder, issued pursuant to the Purchase Agreement, as defined
below.
1. Definitions. As used herein the following term shall have the following
meaning:
"Common Stock" means the Company's Common Stock, $.01 par value per
share (the "Common Stock").
"Purchase Agreement" means that certain Stock Purchase Agreement
effective as of August 31, 1998 and executed on September 9, 1998 among the
Company, PDR Automated Systems & Publications, Inc., and the Holder.
"Warrant Exercise Price" means a price of two dollars and eighty-five
cents ($2.85) per share, subject to adjustment as provided in Section 6.
"Warrant Expiration Date" means February 28, 1999.
"Warrant Shares" means the shares of Common Stock covered by this
Stock Purchase Warrant.
3. Exercise of Warrant. The purchase rights represented by this Warrant may be
exercised, in whole or in part and from time to time after the date of issue and
at any time prior to the Warrant Expiration Date, by the surrender of this
Warrant and the duly executed Notice of Exercise (the form of which is attached
as Exhibit A) at the principal office of the Company and by the payment to the
Company, by check, of an amount equal to the then applicable Warrant Exercise
Price per share multiplied by the number of Warrant Shares then being purchased.
Upon exercise, the Holder shall be entitled to receive, within a reasonable
time, a certificate or
<PAGE>
certificates, issued in the Holder's name or in such name or names as the Holder
may direct, for the number of Warrant Shares so purchased.
Partial Exercise; Exchange. Upon any partial exercise of the Warrants evidenced
hereby, there shall be signed and issued to the Warrant holder a new Warrant
certificate in respect of the Warrants evidenced hereby which are not exercised.
These Warrants may be exchanged at the offices of the Company by surrender of
this Warrant certificate properly endorsed for transfer for one or more new
Warrant certificates for the same aggregate number of Warrants as evidenced by
the Warrant certificate surrendered.
No Fractional Shares. No fractional shares shall be issued upon the exercise of
this Warrant. In lieu thereof, a cash payment shall be made equal to such
fraction multiplied by the fair market value of such shares of Common Stock, as
determined in good faith by the Company's Board of Directors.
Shares to be Issued; Reservation of Shares. The Company covenants that the
Warrant Shares that may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon issuance in accordance herewith, be fully
paid and non-assessable, and free from all liens and charges with respect to the
issue thereof. Prior to the Warrant Expiration Date, the Company will at all
times have authorized and reserved, for the purpose of issuance upon exercise of
the purchase rights represented by this Warrant, a sufficient number of shares
of its Common Stock to provide for the exercise of the right represented by this
Warrant.
3. Adjustments of Warrant Exercise Price and Number of Shares. If there shall be
any change in the Common Stock of the Company through merger, consolidation,
reorganization, recapitalization, stock dividend, stock split or other change in
the corporate structure of the Company, appropriate adjustments shall be made by
the Board of Directors of the Company (or if the Company is not the surviving
corporation in any such transaction, the Board of Directors of the surviving
corporation) in the aggregate number and kind of shares subject to this Warrant,
and the number and kind of shares and the price per share then applicable to
shares covered by the unexercised portion of this Warrant.
No Rights as Shareholders. This Warrant does not entitle the Holder to any
voting rights or other rights as a shareholder of the Company prior to exercise
of this Warrant and the payment for the Warrant Shares so purchased.
Notwithstanding the foregoing, the Company agrees to transmit to the Holder such
information, documents and reports as are generally distributed to holders of
the capital stock of the Company concurrently with the distribution thereof to
the shareholders. Upon valid exercise of this Warrant and payment for the
Warrant Shares so purchased in accordance with the terms of the Warrant, the
Holder or the Holder's designee, as the case may be, shall be deemed a
shareholder of the Company.
Sale or Transfer of the Warrant and the Warrant Shares; Legend. The Warrant and
the Warrant Shares shall not be sold or transferred unless either (i) they first
shall have been registered under the Securities Act of 1933 and applicable state
securities laws, or (ii) such sale or transfer is exempt from the registration
requirements of such laws. Each certificate representing any Warrant shall bear
the legend set out on page 1 hereof. Each certificate representing any Warrant
Shares shall bear a legend substantially in the following form, as appropriate:
THE SHARES EVIDENCED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO UNDER
2
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THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO
AN EXEMPTION THEREFROM.
4. Modifications and Waivers. This Warrant may not be changed, waived,
discharged or terminated except by an instrument in writing signed by the party
against which enforcement of the same is sought.
Notices. Any notice, request or other document required or permitted to be given
or delivered to the Holder or the Company shall be delivered, or shall be sent
by certified or registered mail, postage prepaid, to the Holder at its address
shown on the books of the Company or in the case of the Company, at the address
indicated therefor on the signature page of this Warrant, or, if different, at
the principal office of the Company.
Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants with
the Holder that upon its receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, of an
indemnity or security reasonably satisfactory to it, and upon reimbursement to
the Company of all reasonable expenses incidental thereto, and upon surrender
and cancellation of this Warrant or stock certificate, if mutilated, 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.
Representations and Warranties of Holder. By accepting this Warrant, the Holder
represents and warrants that he, she or it is acquiring this Warrant and the
Warrant Shares upon exercise of the Warrant for his, her or its own account, for
investment and not with a view to, or for sale in connection with, any
distribution thereof or any part thereof. Holder represents and warrants that
he, she or it is (a) experienced in the evaluation of businesses similar to the
Company, (b) has such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of an investment in the
Company, (c) has the ability to bear the economic risks of an investment in the
Company, (d) has been furnished with or has had access to such information as is
specified in subparagraph (b)(2) of Rule 502 promulgated under the Securities
Act of 1933 and (e) has been afforded the opportunity to ask questions of and to
receive answers from the officers of the Company and to obtain any additional
information necessary to make an informed investment decision with respect to an
investment in the Company.
5. Binding Effect on Successors. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets, and all of the obligations of
the Company relating to the Warrant Shares issuable upon exercise of this
Warrant shall survive the exercise and termination of this Warrant and all of
the covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the Holder.
Governing Law. This Warrant shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the laws of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, INTERLEAF, INC. has caused this Warrant to be executed by
its officer thereunto duly authorized.
ORIGINAL ISSUANCE AS OF: August 31, 1998
INTERLEAF, INC.
3
<PAGE>
----------------------------
By: Craig Newfield
Vice President and
General Counsel
Address: 62 Fourth Street
Waltham, MA 02154
4
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
To: INTERLEAF, INC.
1. The undersigned hereby elects to purchase _________ shares of Common Stock of
INTERLEAF, INC. pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price of such shares in full.
Please issue a certificate or certificates representing said shares in the name
of the undersigned or in such other name or names as are specified below.
The undersigned represents that the aforesaid shares of Common Stock are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
The undersigned further represents that such shares shall not be sold or
transferred unless either (1) they first shall have been registered under
applicable state securities laws or (ii) or an exemption from applicable state
registration requirements is available.
In the event of partial exercise, please re-issue an appropriate Warrant
exercisable for the remaining shares.
-------------------------------
Address:
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(Signature)
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(Date)
5
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Variables Terms for Stock Purchase Agreements
The Stock Purchase Agreements with Dona D. Ray, Davis Marksbury, Jr. and
Daniel J. Kloiber are all identical except for the differences in the dollar
amounts in Sections 1.1 and 1.2 of the Agreements, as follows:
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<CAPTION>
<S> <C>
Section 1.1: Section 1.1(a):
Ray: 3,200 company shares Ray: $876,000
Marksbury: 4,800 shares Marksbury: $1,314,000
Kloiber: 2,000 shares Kloiber: $547,500
Section 1.1(b): Section 1.1(c):
Ray: 80,000 shares Ray: $12,000
Marksbury: 120,000 shares Marksbury: $18,000
Kloiber: 50,000 shares Kloiber: $7,500
Section 1.1(d): Section 1.1(e):
Ray: $480,000 Ray: $555,000
Marksbury: $720,000 Marksbury: $720,000
Kloiber: $300,000 Kloiber: $225,000
Section 1.1(f): Section 1.2(a)(i):
Ray: 9.83% Ray: 38% and $760,000
Marksbury: 37.82% Marksbury: 10% and $200,000
Kloiber: 52.35% Kloiber: 2% and $40,000
Section 1.2(a)(ii): Section 1.2(b):
Ray: 24% and $160,000 Ray: 38% and 24%
Marksbury: 36% and $240,000 Marksbury: 10% and 36%
Kloiber: 15% and $100,000 Kloiber: 2% and 15%
</TABLE>
<PAGE>
Exhibit 10.1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BY AND AMONG
INTERLEAF, INC.
PDR AUTOMATED SYSTEMS & PUBLICATIONS, INC.
AND
DONA D. RAY
DATED: As of August 31, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
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ARTICLE 1. PURCHASE AND SALE OF STOCK. . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purchase of Company Shares. . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Adjustment of Installment Payments. . . . . . . . . . . . . . . . . . . . 2
1.3 Form of Payment of Installment Payments . . . . . . . . . . . . . . . . . 3
1.4 Procedures With Respect to Adjustments to Installment Payments. . . . . . 3
1.5 Price and Liquidity Protection. . . . . . . . . . . . . . . . . . . . . . 4
1.6 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . . . . 5
1.7 Delivery of Company Shares. . . . . . . . . . . . . . . . . . . . . . . . 5
1.8 Post-Closing Delivery of Closing Date Balance Sheet. . . . . . . . . . . 6
1.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.12 Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLER. . . . . . . . 6
2.1 Organization and Qualification of Company . . . . . . . . . . . . . . . . 6
2.2 Capitalization of Company; Title to Stock . . . . . . . . . . . . . . . . 7
2.3 Other Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 Authorization of Transaction. . . . . . . . . . . . . . . . . . . . . . . 7
2.5 Present Compliance with Obligations and Laws. . . . . . . . . . . . . . . 8
2.6 No Conflict of Transaction With Obligations and Laws. . . . . . . . . . . 8
2.7 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.8 Absence of Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . 9
2.9 Conduct of Business; Absence of Certain Changes . . . . . . . . . . . . . 9
2.10 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.11 Title to Properties; Liens; Condition of Properties. . . . . . . . . . . 11
2.12 Collectibility of Receivables. . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
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<TABLE>
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2.13 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.14 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . 13
2.15 Contracts and Commitments. . . . . . . . . . . . . . . . . . . . . . . . 14
2.16 Labor and Employee Relations . . . . . . . . . . . . . . . . . . . . . . 16
2.17 Employee Benefits and ERISA. . . . . . . . . . . . . . . . . . . . . . . 17
2.18 Government Authorizations. . . . . . . . . . . . . . . . . . . . . . . . 19
2.19 Warranty or Other Claims . . . . . . . . . . . . . . . . . . . . . . . . 19
2.20 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.21 Borrowings and Guarantees. . . . . . . . . . . . . . . . . . . . . . . . 20
2.22 Financial Service Relations and Powers of Attorney . . . . . . . . . . . 20
2.23 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.24 Minute Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.25 Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.26 Transactions with Interested Persons . . . . . . . . . . . . . . . . . . 20
2.27 Absence of Sensitive Payments. . . . . . . . . . . . . . . . . . . . . . 21
2.28 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.29 Investment Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.30 Disclosure of Material Information . . . . . . . . . . . . . . . . . . . 21
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . 21
3.1 Organization of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.3 Authorization of Transaction. . . . . . . . . . . . . . . . . . . . . . . 22
3.4 No Conflict of Transaction with Obligations and Laws. . . . . . . . . . . 22
3.5 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 4. COVENANTS OF THE COMPANY AND THE SELLER . . . . . . . . . . . . . . . . 23
4.1 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
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<CAPTION>
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4.2 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.3 Governmental Permits and Approvals; Consents. . . . . . . . . . . . . . . 25
4.4 Assignment of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.5 Maintenance of Government Authorizations. . . . . . . . . . . . . . . . . 26
4.6 Collection of Receivables . . . . . . . . . . . . . . . . . . . . . . . . 26
4.7 Risk of Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.8 Employee/Contractor Compensation. . . . . . . . . . . . . . . . . . . . . 26
4.9 Breach of Representations and Warranties. . . . . . . . . . . . . . . . . 26
4.10 Consummation of Agreement. . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 5. COVENANTS OF THE BUYER. . . . . . . . . . . . . . . . . . . . . . . . . 27
5.1 Breach of Representation and Warranties . . . . . . . . . . . . . . . . . 27
5.2 Offers of Employment. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.3 Consummation of Agreement . . . . . . . . . . . . . . . . . . . . . . . . 27
5.4 Collection of Receivables . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 6. CONDITIONS TO OBLIGATIONS OF BUYER. . . . . . . . . . . . . . . . . . . 27
6.1 Due Diligence Review. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.2 Representations; Warranties; Covenants. . . . . . . . . . . . . . . . . . 27
6.3 Receipt of Deliverables . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.4 Parallel Agreements With Other Sellers. . . . . . . . . . . . . . . . . . 28
6.5 Available Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.6 Employment of Key Employees . . . . . . . . . . . . . . . . . . . . . . . 28
6.7 Employment and Non-Competition Agreements . . . . . . . . . . . . . . . . 28
6.8 Opinion of Sellers' Counsel . . . . . . . . . . . . . . . . . . . . . . . 28
6.9 Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.10 Absence of Certain Litigation. . . . . . . . . . . . . . . . . . . . . . 28
6.11 No Bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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ARTICLE 7. CONDITIONS TO OBLIGATIONS OF THE SELLER . . . . . . . . . . . . . . . . 29
7.1 Due Diligence Review. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.2 Representations; Warranties; Covenants. . . . . . . . . . . . . . . . . . 29
7.3 Receipt of Deliverables . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 Employment Agreement and Non-Competition Payment. . . . . . . . . . . . . 30
7.5 Opinion of Buyer's General Counsel. . . . . . . . . . . . . . . . . . . . 30
7.6 Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 8. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.1 Indemnification by Seller . . . . . . . . . . . . . . . . . . . . . . . . 30
8.2 Indemnification by Buyer. . . . . . . . . . . . . . . . . . . . . . . . . 32
8.3 Defense of Third Party Actions. . . . . . . . . . . . . . . . . . . . . . 33
8.4 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.5 Payment of Indemnification. . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 9. TERMINATION OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . 34
9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.3 Right to Proceed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE 10. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE 11. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.1 Survival of Warranties . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.2 Right to Offset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.3 Sale or Change in Control of Buyer . . . . . . . . . . . . . . . . . . . 39
11.4 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.6 Publicity and Disclosures. . . . . . . . . . . . . . . . . . . . . . . . 42
11.7 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
11.8 Time Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.9 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.10 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.11 Assignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.12 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.13 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.14 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.15 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.16 Effect of Table of Contents and Headings. . . . . . . . . . . . . . . . 44
</TABLE>
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STOCK PURCHASE AGREEMENT
AGREEMENT entered into effective as of the 31st day of August,
1998, among Interleaf, Inc., a Massachusetts corporation ("Buyer"), PDR
Automated Systems & Publications, Inc., a Kentucky corporation (the
"Company"), and Dona D. Ray of Nicholasville, Kentucky (the "Seller").
RECITALS
WHEREAS, the Seller and certain other persons identified on
Schedule 2.2 hereto (collectively referred to herein as the "Sellers")
collectively own all of the outstanding shares of Common Stock, no par value
per share, of the Company (the "Company Shares"); and
WHEREAS, Buyer wishes to acquire all of the outstanding
capital stock of the Company; and
WHEREAS, each Seller has separately negotiated to sell his or
her Company Shares to Buyer;
NOW, THEREFORE, in consideration for the mutual agreements
contained herein and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1. PURCHASE AND SALE OF STOCK.
1.1 Purchase of Company Shares. Subject to the provisions of this
Agreement, the Seller agrees to sell, and Buyer agrees to purchase, at the
Closing (as herein defined) Three Thousand Two (3,200) Company Shares, and to
pay for such Company Shares the following amounts (the "Purchase Price"):
(a) At the Closing, the amount of Eight Hundred Seven-Six
Thousand Dollars ($876,000.00)payable in cash by certified check or wire
transfer of immediately available funds;
(b) At the Closing, delivery to Seller of a six month Stock
Purchase Warrant to purchase Eighty Thousand (80,000) shares of Common Stock
of the Buyer at an exercise price of $2.85, such Warrant to be substantially
in the form of Exhibit A hereto;
(c) On February 28, 1999, the amount of Twelve Thousand
Dollars ($12,000.00) payable in cash by certified check or wire transfer of
immediately available funds;
(d) On March 31, 1999, the amount of Four Hundred Eighty
Thousand Dollars ($480,000.00), subject to adjustment as provided in
Section 1.2 below (the "First Installment Payment");
(e) On September 30, 1999, the amount of Five Hundred
Fifty-Five Thousand Dollars ($555,000.00), subject to adjustment as provided
in Section 1.2 below (the "Second Installment Payment"); and
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(f) An amount equivalent to 9.83% of any and all monies
received by the Company from Pitney Bowes Inc. in satisfaction of the Pitney
Bowes Receivable which appears on the Closing Date Balance Sheet and which is
due from Pitney Bowes Inc. on or before January 31, 1999. This payment is
contingent upon the Company's receipt of the Pitney Bowes Receivable and is
due within ten days of the Company's receipt of said Pitney Bowes Receivable.
In the event Pitney Bowes Inc. defaults in its payment of the Pitney Bowes
Receivable, the Buyer agrees to notify the Seller of the default and to work
cooperatively with the Seller to collect the Pitney Bowes Receivable. The
Buyer's and Company's cooperation shall include taking the steps commercially
reasonably necessary to allow the Seller to collect the Pitney Bowes
Receivable in the name of the Seller, including, but not limited to, the
Seller enforcing collection of the receivable in the Company's name and the
assignment of all Company's and Buyer's right, title and interest in and to
the Pitney Bowes Receivable to the Sellers. Notwithstanding anything to the
contrary in this Agreement, this payment is not subject to any setoff by the
Buyer. In addition, the Buyer shall not take any action to defer or hinder
the receipt of payment from Pitney Bowes Inc. as currently scheduled. The
Pitney Bowes Receivable may not be used by Buyer as collateral security for
any reason.
Certain capitalized terms used herein and not otherwise defined are defined in
Article 10.
1.2 Adjustment of Installment Payments. The Installment Payments payable
under Sections 1.1(d) and (e) above shall be subject to adjustment as set
forth below:
(a) The amount of the First Installment Payment shall be adjusted as
follows:
(i) It shall be increased by 38% of the amount, if any, by which
Key Location Revenue recognized by Buyer during the First
Installment Period exceeds $1,500,000; provided, that the
First Installment Payment shall not be increased by more than
Seven Hundred Sixty Thousand Dollars ($760,000.00); and
(ii) It shall be reduced by 24% of the amount, if any, by which
Key Location Revenue recognized by Buyer during the First
Installment Period is less than $1,500,000; provided, that the
amount of the First Installment Payment shall not be reduced
below One Hundred Sixty Thousand Dollars ($160,000.00);
(b) The amount of the Second Installment Payment shall be the
amount calculated as follows (but shall not be less than zero): (i)
calculate the amount by which Key Location Revenue is less than or more than
$3,000,000 for the Combined Installment Period; (ii) multiply that amount by
38% if it is a positive number or by 24% if it is a negative number; (iii)
add that amount to $3,000,000 if it is positive or subtract it from
$3,000,000 if it is negative; and (iv) subtract the amount of the First
Installment Payment.
(c) The adjustment of any Installment Payment based upon the level
of Key Location Revenues is premised upon compliance by both Buyer and Sellers
with written agreement to be entered into (which shall constitute an Ancillary
Agreement) in which they will agree on certain operational management issues
during the Combined Installment Period.
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1.3 Form of Payment of Installment Payments.
(a) Subject to paragraph (b), below, Buyer shall make payment of the
First Installment Payment and the Second Installment Payment by causing to be
delivered to Seller that number of duly authorized, validly issued, fully
paid and non-assessable shares of Buyer's Common Stock, $.10 par value per
share ("Buyer Common Stock"), which have a Market Value on the date of
delivery of such shares equal to the amount due. (Those shares of Buyer
Common Stock delivered in payment of any Installment Payment to any of
Sellers are hereafter referred to as "Interleaf Shares.") Buyer may not make
payment to Seller in the form of Interleaf Shares unless a registration
statement under the Securities Act covering the resale of such Interleaf
Shares shall have been declared effective by the SEC.
(b) Notwithstanding paragraph (a), above, Buyer may make payment of
either Installment Payment in the form of cash rather than Interleaf Shares
if:
(i) on the due date for payment of such Installment Payment,
notwithstanding reasonable efforts by Buyer, a registration
statement under the Securities Act covering resale of such
Interleaf Shares shall not have been declared effective by the
SEC; or
(ii) on the due date for payment of such Installment Payment or on any
one of the three trading days immediately preceding such due date,
the Market Value of Buyer's Common Stock is equal to or less than
$2.85 per share.
1.4 Procedures With Respect to Calculation of Adjustments to Installment
Payments.
(a) Buyer will calculate the Key Location Revenue for each fiscal
quarter of the Combined Installment Period (the quarters ended on the last
day of November 1998 and February, May and August 1999) and Buyer's Chief
Financial Officer shall deliver a report to Seller certifying as to the Key
Location Revenues for that period not later than 20 calendar days after the
end of the period.
(b) Seller shall have the right by notice to Buyer within sixty (60)
days after the end of either Installment Period to have an audit of the Key
Location Revenue for either the First Installment Period or the Combined
Installment Period performed by an independent public accounting firm of its
choice, provided that it shall consider in good faith a proposal by
PricewaterhouseCoopers LLC for such engagement. The expenses of that audit
will be borne by Seller and not by the Buyer, unless the amount owed to
Seller as determined by such independent auditing firm is determined to be
10% or more larger than the amount certified by Buyer's Chief Financial
Officer; in which case Buyer shall reimburse Seller for the cost of the
audit.
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1.5 Price and Liquidity Protection
(a) If the Seller receives Interleaf Shares as payment of either
Installment Payment, the Seller agrees to attempt in good faith to sell such
Interleaf Shares during the applicable Selling Period as follows:
(i) Seller shall coordinate his/her sales during the applicable Selling
Period with those of all other Sellers through a single registered
broker/dealer;
(ii) the Sellers collectively shall offer during each week of the
applicable Selling Period to sell between 5% and 10% of the
aggregate number of Interleaf Shares delivered to all Sellers at
the beginning of such Selling Period; provided, that the Sellers
collectively shall not, without Buyer's consent, offer to sell more
than either (A) 125% of the Average Daily Volume (measured on the
first trading day of that week) during any given week, or (B) the
lesser of (x) 5% of all Interleaf Shares delivered on the first day
of that Selling Period, or (y) 50% of the Average Daily Volume on
any given trading day;
(iii) the price at which any Interleaf Share are offered for sale shall
be not less than the volume-weighted average of the averages of the
high and low reported trading prices of Buyer Common Stock on the
Nasdaq National Market for the ten trading days preceding the day
that such Interleaf Shares are offered for sale; and
(iv) none of the Sellers shall directly, indirectly or through any of
their respective family members, affiliates, employees or agents,
or anybody acting on their behalf, engage in any short sales,
swaps, purchasing of puts, or other hedging activities, that
involve the direct or indirect use of Buyer Common Stock or
securities derivative from Buyer Common Stock, for any reason.
(b) The inability of the Seller to sell any portion of the Interleaf
Shares because of the price and volume limitations set forth in paragraph (a)
above shall not constitute failure to comply with the obligation to endeavor
to sell Seller's Interleaf Shares for purposes of this Section 1.5.
(c) If the Sellers reasonably comply with their obligations to sell the
Interleaf Shares in the manner described above, and provided that the other
terms and conditions of this Agreement are satisfied, Buyer agrees that on
the first business day following the completion of the applicable Selling
Period, Buyer will:
(i) pay to Seller an amount equal to ninety percent (90%) of (A) the
applicable Installment Payment minus the aggregate gross proceeds
received by the Seller from the sale of the his/her Interleaf
Shares during such Selling Period, multiplied by (B) the percentage
of Interleaf Shares in that Installment that were actually sold by
Seller; and
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(ii) offer to repurchase from Seller any Interleaf Shares which were not
sold during such Selling Period at a price per share equal to
the-then current Market Value for Buyer Common Stock; provided,
however, that such repurchase price shall not be less than 90% nor
more than 110% of the Market Value of the Buyer Common Stock on the
date of delivery of the Interleaf Shares as payment for that
Installment.
(d) Seller may, by written notice to Buyer before the close of business
on the first trading day of any week, elect not to sell some or all of the
Interleaf Shares otherwise to be offered during that week (such number to be
not less than 5% or more than 10% of the aggregate number of Interleaf Shares
delivered at the beginning of the applicable Selling Period). Any shares so
elected shall not be considered as sold for purposes of paragraph (c)(i)
above and shall no longer be eligible for repurchase under paragraph (c)(ii)
above.
(e) As security for Buyer's obligations under this Section 1.5, Buyer
shall deliver to Seller at the time of making the First Installment Payment,
and thereafter shall maintain in place until the payment of amounts due under
Section 1.5(c), collateral to secure its obligations hereunder with a value
equal to 25% of the amount of the Installment Payments remaining unpaid from
time to time (without taking into account adjustment under Section 1.2),
reduced by the Market Value of any Interleaf Shares removed from the selling
programs under paragraph (d) above. This collateral security shall be in the
form of an irrevocable stand-by letter of credit or other form reasonably
satisfactory to the Seller.
1.6 Time and Place of Closing. The Closing shall be held at the offices of
Brown, Rudnick, Freed & Gesmer at 10:00 a.m., on September 8, 1998, or at
such other place, date or time as may be fixed by mutual agreement of the
parties (the "Closing Date"); provided, however, that in no event shall the
Closing Date be extended beyond September 15, 1998.
1.7 Delivery of Company Shares. At the Closing, the Company and/or Seller
shall deliver or cause to be delivered to Buyer, among other things:
(a) certificates for all Seller's Company Shares, duly endorsed in
blank for transfer, or with stock powers attached duly executed in blank,
with all signatures notarized or, at the election of Buyer, guaranteed;
(b) such other documents as may be required to effect a valid transfer
of the Company Shares by the Seller, free and clear of any and all
Encumbrances under Article 8 of the Uniform Commercial Code of the
Commonwealth of Massachusetts or otherwise;
(c) general releases by all officers, directors and stockholders of the
Company of any liability of the Company to them, or any claim that they may
have against the Company, including without limitation claims for accrued but
unpaid compensation, vacation and benefits; and
(d) such other documents as may be required elsewhere in this Agreement
or may be reasonably requested by counsel to Buyer.
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1.8 Post-Closing Delivery of Closing Date Balance Sheet.
(a) Within forty-five (45) days after the Closing, the independent
public accountants of the Seller will at the Buyer's request and expense
prepare and deliver to each of the parties to this Agreement a report (the
"Closing Report") which includes (i) a balance sheet of the Company as of the
Closing Date prepared in conformance with generally accepted accounting
principles applied in a manner consistent with manner applied in the
financial statements delivered pursuant to Section 2.7 of this Agreement (the
"Closing Date Balance Sheet"), and (ii) a calculation of the amount, if any,
by which either the net book value or the cash and cash equivalents as of the
Closing Date were less than the amounts required by Section 6.4 hereof.
(b) The Buyer and the Sellers will be afforded a period of thirty (30)
days after given it to review the Closing Report. Within ten (10) days after
the end of that review period, the Sellers shall be jointly and severally
obligated to deliver to the Buyer an amount equal to the amount which would
have been necessary to add to the Company's cash on the Closing Date so that
(i) the net book value of the Company on the Closing Date would have been not
less than $1,376,000, and (ii) cash and cash equivalents on the Closing would
have been not less than $440,000. The parties may agree on a holdback from
the payment under Section 1.1(a) until the Closing Date Balance Sheet is
delivered.
1.9 Further Assurances. Company and the Seller from time to time after the
Closing, at the request of Buyer and without further consideration, shall
execute and deliver such further instruments of transfer and assignment (in
addition to those delivered under Section 1.7) and take such other action as
Buyer may reasonably require to more effectively transfer the Company Shares
to the Buyer.
1.10 Tax Returns. Seller, together with the other Sellers, shall caused to
be prepared and filed on behalf of the Company by the due date therefor a tax
return for the short taxable year of the Company as an S corporation
terminating effective as of August 31, 1998 and shall not file any election
to report on any basis other than the closing of the books method. Sellers
shall be responsible to pay or accrue as of the Closing Balance Sheet Date
all taxes due for such short taxable year under federal, state and local law.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLER.
The Company and the Seller hereby jointly and severally represent and
warrant to Buyer as follows:
2.1 Organization and Qualification of Company. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Kentucky, with full power and authority to own, operate 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.
Copies of the Company's Charter, certified by the Secretary of State of
Kentucky, and of the Company's bylaws as amended to date, certified by the
Company's
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Secretary, which are attached as Schedule 2.1 hereto, are complete and
correct. The Company is duly qualified to do business and in good standing
as a foreign corporation in each of the jurisdictions identified on Schedule
2.1 and it is not required to be licensed or qualified to conduct its
business or own its property in any other jurisdiction.
2.2 Capitalization of Company; Title to Stock.
(a) The authorized capital stock of the Company consists of 10,000
shares of Common Stock, no par value, all of which are validly issued and
outstanding. The issuance of all of such issued and outstanding shares was
duly authorized and all such shares are fully paid and nonassessable, were
issued in compliance with applicable Federal and state securities laws, and
were not issued in violation of any person's preemptive rights. There are no
shares of capital stock reserved for any purpose. There are no (i)
outstanding or authorized subscriptions, warrants, options or other rights
granted by the Company or any Seller to purchase or acquire, or preemptive
rights with respect to the issuance or sale of, the capital stock of the
Company, or which obligate or may 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) agreements
relating to the voting of the Company's capital stock, (iv) restrictions on
the transferability of the Company's capital stock (by agreement, charter,
statute or otherwise), or (v) other agreements between the Seller and any
other person relating to the Company Shares. No "phantom" stock, stock
appreciation rights or agreements or similar rights or agreements exist which
are intended to confer on any person rights similar to any rights accruing to
owners of Company Shares.
(b) Seller is the record and beneficial owner of the number of Company
Shares set forth next to his/her name on Schedule 2.2 hereto and is in
possession of the certificates evidencing such ownership. Seller does not own
of record or beneficially any other shares of capital stock of the Company,
or any rights, options, or warrants with respect thereto. The Company Shares
to be delivered by Seller to Buyer pursuant to this Agreement will be, when
delivered, duly authorized, validly issued, fully paid and nonassessable, and
will be free and clear of all Encumbrances under Article 8 of the Uniform
Commercial Code of the State of Kentucky or otherwise.
2.3 Other Investments. The Company does not own any securities issued by any
other business organization or governmental authority. The Company is not a
partner or participant in any joint venture or partnership of any kind.
2.4 Authorization of Transaction. The Company has the full power and
authority to execute and deliver this Agreement and any Ancillary Agreements
to which it is a party and to perform its obligations hereunder and
thereunder, and to carry out the transactions contemplated hereby and
thereby. The Seller has the unrestricted and absolute power, authority and
capacity to execute and deliver this Agreement and the Ancillary Agreements
to which he/she is a party and to perform his/her obligations hereunder and
thereunder, and to carry out the transactions contemplated hereby and
thereby. All necessary action, corporate or otherwise, has been taken by
Seller and the Company to authorize the execution, delivery and performance
of this
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Agreement and each of the Ancillary Agreements and the transactions
contemplated hereby and thereby. The Agreement has been, and each Ancillary
Agreement will be at the Closing, duly executed and delivered by the Company
and Seller and the Agreement and each Ancillary Agreement is, or upon the
Closing will be, the legal, valid and binding obligation of the Company and
Seller if a party thereto, enforceable against the Company and Seller in
accordance with its terms.
2.5 Present Compliance with Obligations and Laws. 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 in 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 Court Orders or any Government
Authorization that is held by the Company applicable to it or its business or
assets. The Company has conducted and is now conducting its business and the
ownership and operation of its assets in compliance with all Laws. The
Company has not received any written notice or complaint of violations or
alleged violations of Law in the last three (3) years.
2.6 No Conflict of Transaction With Obligations and Laws.
(a) Except as set forth on Schedule 2.6, neither the execution,
delivery and performance of this Agreement or any Ancillary Agreement, nor
the performance of the transactions contemplated hereby and thereby, will:
(i) contravene, conflict with, or constitute a breach or violation of any
provision of the Charter or bylaws of the Company or any resolutions of the
Company's Board of Directors; (ii) require any consent, approval or
authorization of or declaration, filing or registration with any person
(other than a governmental agency as described in paragraph (b) below),
including consents of parties to loans, contracts, leases, licenses and other
agreements; (iii) 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 Company is a party, or give any person the right to
accelerate any indebtedness or terminate, modify or cancel any right; (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 it or its assets are bound; (v)
result in the creation of any Encumbrance upon any Company Shares or any of
the assets of the Company; (vi) contravene, conflict with, or result in a
violation of any Court Order or Law, or give any Government Authority, or any
other person, the right to exercise any remedy or obtain any relief under any
Court Order or Law, to which the Company or Sellers are subject or by which
the properties or assets of the Company are bound, or (vii) contravene,
conflict with or result in a violation of any of the terms or requirements
of, or give any Governmental Authority the right to revoke, withdraw,
suspend, cancel, terminate or modify, any Government Authorization.
(b) The execution, delivery and performance of this Agreement and the
transactions contemplated hereby by the Company and Sellers do not require
any Governmental Authorization, except for those which are set forth on
Schedule 2.6.
2.7 Financial Statements.
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(a) Attached as Schedule 2.7(a) hereto are the following financial
statements of the Company, together with all related compilation, review or
audit reports issued by the Company's independent certified public
accountants with respect thereto, all of which are complete and correct and
present fairly the assets, liabilities, and financial position of the Company
on the date thereof, and the results of operations and changes in the
financial condition of the Company for the periods covered thereby, and such
financial statements have been prepared in accordance with generally accepted
accounting principals ("GAAP") consistently applied throughout the periods
involved and prior periods: substantially final drafts of the Audited
Consolidated Balance Sheet, Statement of Profit and Loss, Statement of
Changes in Stockholders Equity and Statement of Cash Flows for the calendar
years 1996 and 1997 and for the six month period ended June 30, 1998. The
draft audited balance sheet of the Company dated June 30, 1998 included in
such financial statements is referred to herein as the "Base Balance Sheet".
The final audited statements will be delivered within twenty (20) days after
Closing.
(b) The books of account of the Company for the period of the financial
statements referred to in paragraph (a) are complete and correct in all
material respects and have been maintained on a consistent basis. All
auditor's letters to management of the Company for that period and other
significant correspondence from or to such auditors during such period, if
any, are attached to Schedule 2.7(b).
2.8 Absence of Undisclosed Liabilities. The Company has no liabilities of
any nature, whether accrued, absolute, contingent or otherwise (including
without limitation liabilities as guarantor or otherwise with respect to
obligations of others, or liabilities for taxes due or then accrued or to
become due), except: (a) liabilities stated or adequately reserved against on
the Base Balance Sheet: or (b) liabilities incurred since the Base Balance
Sheet Date in the ordinary course of business consistent with past practices
which, to the extent in excess of $7,500 with respect to any individual item,
are set forth on Schedule 2.8 (none of which is a claim for breach of
contract, breach of duty, breach of warranty, tort, or infringement of an
intellectual property right). There is no fact which materially adversely
affects, or may in the future (so far as can now be reasonably foreseen),
materially adversely affect, the business, properties, operations or
conditions of the Company which has not been specifically disclosed herein or
on a schedule hereto.
2.8 Conduct of Business; Absence of Certain Changes. Except as set forth on
Schedule 2.9, since the Base Balance Sheet Date, Sellers and the Company have
conducted the business of the Company only in the ordinary course of
business, consistent with prior practices and, whether or not in the ordinary
course of business, there has not been any change in the financial condition,
including 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 been materially adverse with respect to the
Company. Without limiting the generality of the foregoing, except as
disclosed on Schedule 2.9, since the Base Balance Sheet Date there has not
been:
(a) any amendment to the Charter or bylaws of the Company;
(b) any contingent liability incurred by the Company as guarantor or
otherwise with respect to the obligations of others;
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(c) any Encumbrance placed on any of the properties of the Company
which remains in existence on the date hereof;
(d) any obligation or liability incurred by the Company other than
obligations and liabilities incurred in the ordinary course of business
consistent with past practice (none of which is a claim for breach of
contract, breach of duty, breach of warranty, tort or infringement of an
intellectual property right);
(e) any sale or other disposition, or any agreement or other
arrangement for the sale or other disposition, of any of the properties or
assets of the Company other than in the ordinary course of business;
(f) any capital expenditure or commitment in excess of $2,500 with
respect to any individual item or in excess of $50,000 with respect to all
such items, or any lease or agreement to lease any assets with an annual
rental in excess of $2,500 with respect to any individual item or in excess
of $50,000 with respect to all such items;
(g) any damage, destruction or loss, whether or not covered by
insurance, of any of the assets or business of the Company;
(h) any labor trouble or claim of unfair labor practices involving the
Company;
(i) any change in the compensation or other amounts payable or to
become payable by the Company to any of its officers, employees or agents
other than compensation adjustments to persons who are not officers,
directors or stockholders made in the ordinary course of business consistent
with past practice; 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; or any grant of any loans or severance or termination
pay; or any entrance into or variation of the terms of any employment
agreement or adoption of or increase in, the benefits under any Benefit Plan;
(j) any change with respect to the management or supervisory personnel
of the Company;
(k) 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 thereafter;
(l) any obligation or liability incurred by the Company to any of its
officers, directors or shareholders or any loans or advances made by the
Company to any of its officers, directors or shareholders, except normal
compensation and expense allowances payable to officers;
(m) any write-downs of the value of any inventory (including
write-downs by reason of shrinkage or mark-down) or write-offs as
uncollectible of any notes or accounts receivable, except for write-downs or
write-offs that are in the aggregate less than $10,000 and are incurred in
the ordinary course of business;
(n) any disposal, sale, assignment, license or lapse of any rights to
the use of any trademark, tradename, patent, copyright, license or disposal,
sale, assignment, or license of or disclosure to any person other than Buyer
of any trade secret, technology, formula, process,
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know-how or other confidential information not theretofore a matter of public
knowledge other than pursuant to confidentiality agreements;
(o) any change in any method of accounting or accounting practice; or
(p) any agreement, whether in writing or otherwise, to take any action
described in this Section 2.9.
2.10 Payment of Taxes. Except as set forth on Schedule 2.10:
(a) The Company has duly and timely filed all Tax Returns with respect
to all Taxes. All of the Tax Returns are complete and correct in all
respects. The Federal and state Tax Returns filed by the Company for the
most recent five (5) fiscal years are listed on Schedule 2.10 and have been
delivered to the Buyer. All Taxes shown to be due on such Tax Returns have
been paid or are being contested in good faith by the Company and such
contest is being diligently pursued, all of which contested Taxes are listed
on Schedule 2.10. With respect to all other Taxes for which no return is
required or which have not yet accrued or otherwise become due, adequate
provision has been made in the pertinent financial statements referred to in
Section 2.7 above (as of the date thereof). 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. All transfer, excise and other Taxes
payable to any jurisdiction by reason of the surrender of the Company Shares
pursuant to this Agreement shall be paid or provided for by Sellers after the
Closing out of the consideration payable by Buyer hereunder.
(b) The Tax Returns have been examined by the Internal Revenue Service
only for calendar year 1994. They have never been examined by the States of
Kentucky, California, Massachusetts or North Carolina. The Company is not
aware of any intention on the part of any Governmental Authority to examine
any of the Tax Returns. No deficiencies have been asserted or assessments
made against the Company, nor is the Internal Revenue Service nor any other
Governmental Authority now asserting or, to the knowledge of the Company or
any Seller, 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 extended the time for the filing of any Tax
Return or the assessment of deficiencies or waived any statute of limitations
for any year, which extension or waiver is still in effect.
(c) The Company has not filed a consent under Section 341(f) of the
Code.
(d) The Company is an S Corporation as defined under Section 1361 of
the Code, and the Company and its predecessors have at all times since its
incorporation had, and at the time of Closing will have, valid Federal
elections to be taxed as an S-Corporation and have never been subject to tax
under Subchapter C of the Code. The Company has had since its incorporation,
and will have on the Closing Date, a valid S election in effect under the
laws of the State of Kentucky.
2.11 Title to Properties; Liens; Condition of Properties.
(a) The Company does not own any real property. Set forth on Schedule
2.11 hereto is a listing of all leases under which the Company leases real
property, together with a
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description of such property, the name of the landlord and a description of
the significant terms of each lease ("Real Property"). Also set forth on
Schedule 2.11 is a complete description of the machinery, equipment and other
tangible personal property (including leasehold improvements) with an
original cost in excess of $5,000 used or owned by the Company and a listing
of all leases under which the Company leases any personal property as of the
Closing Date requiring annual rental payments in excess of $10,000, together
with a description of such property (collectively, the "Material Personal
Property"). Schedule 2.11 lists all locations where Material Personal
Property or the Company's inventory (other than goods in transit in the
ordinary course of business) are located. The Real Property and Material
Personal Property include all properties and assets (whether real, personal
or mixed, tangible or intangible) reflected on the Base Balance Sheet or
purchased by the Company since the Base Balance Sheet (except for such
properties or assets sold since the Base Balance Sheet Date in the ordinary
course of business), and is sufficient to conduct the Company's business as
currently conducted.
(b) True, correct and complete copies of all leases, notices of leases,
subleases, rental agreements, contracts of sale, tenancies and licenses,
together with all amendments, modifications and renewals thereof, related to
any of the Real Property or the Material Personal Property are listed on
Schedule 2.11 and have been delivered to Buyer. All of the foregoing
agreements are valid, subsisting and enforceable in accordance with their
terms against the parties thereto. The Company is in full compliance with
all terms and conditions of such agreements and no event has occurred nor
does any circumstance exist that (with or without notice or the passage of
time or both) would constitute a violation or default under any such
agreements and the Company has neither given nor received notice of any
alleged violation or of any default under any such agreement.
(c) The Company has good and marketable title in fee simple to all of
its personal property. Except as set forth on Schedule 2.11, none of the
personal property owned or used by the Company is subject to any Encumbrance
(other than for taxes not yet due and payable), or other adverse claim or
charge or interest of any kind.
(d) Except as set forth on Schedule 2.11, all buildings, machinery and
equipment used or owned by the Company are in satisfactory condition, working
order and repair, normal wear and tear excepted, are adequate for the uses to
which they are being put, and have been adequately maintained, and
substantially conform with all applicable ordinances, regulations and zoning,
safety or other laws, and neither the Company nor any Seller knows of any
pending or threatened change of any such ordinance, regulation or zoning,
safety or other law, and there is no pending or threatened condemnation of
any such property.
2.12 Collectibility of Receivables. All of the accounts receivable, trade
accounts, notes receivable, contract receivables, unbilled invoices and other
receivables ("Receivables") 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 on the Closing Date, will be, (a) valid
and enforceable claims, (b) which arose out of transactions with unaffiliated
parties, (c) fully collectible within one hundred twenty (120) days of
invoice date through normal means of collection, and (d) subject to no
set-off, defense or counterclaim. None of the Receivables has at any time
been placed for collection with any attorney, collection agency or similar
individual or entity. The reserves for doubtful accounts and the values at
which Receivables are accrued on
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the Base Balance Sheet are and on the Closing Date Balance Sheet will be,
accrued in accordance with GAAP applied on a basis consistent with prior
financial statements of the Company. A complete and accurate list of each
Receivable accrued on the Company's books on June 30, 1998, which lists the
name, age and amount thereof, has been delivered to Buyer. An accurate
summary of the aging of the Company's Receivables on July 31, 1998, is
attached as Schedule 2.12 and an accurate aging of the Company's Receivables
as of the Closing Date will be delivered with the Closing Balance Sheet.
Since December 31, 1997, there has not been a material change in the
Company's Receivables aging practice.
2.13 Inventories. Since the date of the Base Balance Sheet, no inventory
items have been sold or disposed of except through sales in the ordinary
course of business at prices no less than prevailing market prices.
2.14 Intellectual Property Rights.
(a) The Company owns or has the right to use all Intellectual Property
necessary to or regularly used in the conduct of the business of the Company
as presently conducted. All material rights of ownership of, and material
licenses to use, Intellectual Property are listed on Schedule 2.14(b), and
all material royalty obligations for use of such Intellectual Property are
reflected in the license agreements listed on Schedule 2.14(b), copies of
which have been provided to the Buyer.
(b) The Company does not have any Statutory Intellectual Property
rights other than the trademark registrations set forth on Schedule 2.14(c)
and all of the trademark registrations so listed:
(i) have been duly registered, filed in, or issued by, the United
States Patent and Trademark Office or the corresponding
offices of other countries identified on said schedule; and to
the extent registered, have been properly maintained and
renewed in accordance with all applicable laws and regulations
in the United States and such foreign countries;
(ii) are owned exclusively by the Company, free and clear of any
licenses sublicenses, liens or encumbrances (other than any
security interests held by the Company's senior lender), such
that no other person has any right or interest in or license
to use or right to license others to use any of the Statutory
Intellectual Property (except for non-exclusive licenses or
sublicenses granted in the ordinary course of business);
(iv) are freely transferable (except as otherwise required by law);
and
(v) are not subject to any outstanding order, decree, judgment or
stipulation.
(d) All works of authorship, copyrightable or not, were developed and
authored as original works of authorship either by full-time employees of the
Company within the normal scope of their duties as works for hire, or by
third persons as works for hire under an express written agreement so stating
or under a written agreement expressly transferring and assigning all rights
to the Company.
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(e) Except as set forth on Schedule 2.14(d), each employee of the
Company has executed a Proprietary Information and Inventions Agreement in
the form which has been provided to Buyer. All other noncompetition,
nonsolicitation, confidentiality, nondisclosure and related covenants and
agreements related to Trade Secrets to which the Company is a party or which
benefit the Company are listed on Schedule 2.14(d). Except as set forth on
Schedule 2.14(d), all such agreements are valid, binding and enforceable
against the parties thereto except where the failure to be valid, binding or
enforceable would not have a material adverse effect on the Company. There
are no defaults or conditions which, after notice or lapse of time or both,
would constitute a default by the Company, nor by any other party thereto.
(f) All material licenses and other agreements pursuant to which any
item of Intellectual Property is licensed to the Company or is licensed by
the Company are valid, binding and enforceable, and, subject to any third
party consents as set forth on Schedule 2.6, will continue as such
notwithstanding consummation of the transactions contemplated hereby. There
does not exist under any such license or agreement a default or an event or
condition which, after notice or lapse of time or both, would constitute a
default by the Company or, a default by another party thereto.
(g) No proceedings to which the Company is a party are pending which
(i) challenge the rights of the Company in respect of the Intellectual
Property required to be listed on Schedule 2.14(b), or (ii) charge the
Company with infringement of any other person's rights in Intellectual
Property and, to the knowledge of the Company, no such proceeding to which
the Company is not a party has been filed, nor are any such proceedings
pending or threatened to be filed.
(h) The Company is not infringing upon any Statutory Intellectual
Property rights of any other person and none of the rights in Statutory
Intellectual Property listed on Schedule 2.14(b) is being infringed by any
other person. The Company is not using or in any way making use of any Trade
Secrets of any third party, including without limitation a former employer of
any present or past employee of the Company, and to the knowledge of the
Company, no other person is using any Trade Secret of the Company without
authorization.
(i) No director, officer or employee of the Company owns, directly or
indirectly, in whole or in part, any Intellectual Property right which the
Company has used, is presently using, or the use of which is reasonably
necessary to its business as now conducted or contemplated to be conducted.
2.15 Contracts and Commitments.
(a) Except for contracts, commitments, plans, agreements and licenses
described in Schedule 2.15(a) hereto, the Company is not a party to or
subject to any contract, agreement or commitment (written or oral):
(i) for the purchase of any commodity, material, equipment or asset,
except contracts or agreements (except for purchase orders in the
ordinary course of business involving payments of less than $10,000
each);
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(ii) creating any obligations of the Company after the Base Balance
Sheet Date which call for payments of more than $10,000 during any
month for agreements without a fixed term or more than $20,000 over
the term of the agreement for agreements with a fixed term;
(iii) providing for the purchase of all or substantially all of its
requirements of a particular product from a supplier;
(iv) which by its terms does not terminate or is not terminable without
premium or penalty by the Company (or its successor or assign) upon
ninety (90) days notice;
(v) for the sale or lease of its products not made in the ordinary
course of business;
(vi) with any sales agent or distributor of products of the Company;
(vii) containing covenants limiting the freedom of the Company to compete
in any line of business or with any person or entity;
(viii) for a license or franchise (as licensor or licensee or franchisor
or franchisee);
(ix) involving any arrangement or obligation with respect to the return
of inventory or merchandise other than on account of a defect in
condition, or failure to conform to the applicable contract;
(x) with the United States government; or
(xi) which is material to the assets or business of the Company.
(b) Each of the contracts, commitments, plans, agreements and licenses
to which the Company is a party, including without limitation those listed on
Schedule 2.15(a) is valid, binding and enforceable against the Company and,
to the knowledge of the Company and the Sellers, against the other parties
thereto; the Company is in full compliance with all terms and conditions of
each contract to which it is a party; and except as set forth on Schedule
2.15(b) no event has occurred or circumstance exists that (with or without
notice or the passage of time or both) would constitute a violation of or
default under such contract by the Company or, to the knowledge of the
Company and the Sellers, by the other party or parties thereto, and the
Company has neither given nor received notice of any alleged violation of or
default under any such contract.
(c) Except as set forth on Schedule 2.15(c), since January 1, 1997, the
Company has not experienced any termination, cancellation, or material
limitation or modification, or change in any business relationship with any
material supplier or customer, nor has the Company or the Sellers received
notice or otherwise have knowledge that any customer or supplier intends to
cease, or materially reduce or change the terms of, doing business with the
Company or to terminate any agreement with the Company where such action has
had or would have a material adverse effect on the business of the Company.
Schedule 2.15(c) lists every material customer or supplier of the Company and
the amount of business with that customer. For purposes hereof, a
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supplier is material if during calendar 1997, or during the six month period
ended June 30, 1998 it accounted for more than five percent (5%) by value of
the orders of the Company for purchase of all its raw materials and other
products essential to its manufacturing processes for such year. A customer
is material if it accounted for more than three percent (3%) by value of the
orders of the Company or services provided by the Company during calendar
1997 or during the six month period ended June 30, 1998.
(d) The total backlog of the Company (including all accepted and
unfulfilled sales orders) is not materially less than the backlog amount set
forth on Schedule 2.15(d), and the aggregate of all outstanding purchase
orders issued by the Company (including all contracts or commitments for the
purchase by the Company of materials or other supplies) is not materially
more than the purchase order amount set forth on such Schedule 2.15(d). All
such sales and purchase commitments were made in the ordinary course of
business. For purposes of this Section 2.15(d), "material" shall mean an
amount not less than 15% of the aggregate amount of backlog or purchase
orders, respectively, shown on Schedule 2.15(d).
2.16 Labor and Employee Relations.
(a) Except as shown on Schedule 2.16 hereto, there are no currently
effective consulting or employment agreements or other agreements with
individual consultants or employees to which the Company is a party or of
which the Company is a beneficiary (including noncompetition covenants).
Complete and accurate copies of all such written agreements are attached to
Schedule 2.16. Also shown on Schedule 2.16 are the name and rate of
compensation (including all bonus compensation and other remunerative
payments of any kind) of each officer, employee, consultant, contractor or
agent of the Company.
(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 association. No labor organization or group of employees has made a
pending demand for recognition. There are no labor representation questions
involving the Company and, to the knowledge of the Company and Sellers, there
is no organizing activity involving the Company pending by any labor
organization or group of employees. There are no representation elections,
arbitration proceedings, labor strikes, slowdowns or stoppages, material
grievances, lockouts, or other labor troubles pending or, to the knowledge of
the Company and Sellers, threatened with respect to the employees of the
Company, nor has the Company experienced any work stoppage or other material
labor difficulty during the five (5) years immediately preceding the date of
this Agreement.
(c) The Company has complied in all respects with all applicable Laws
relating to the employment of labor, including without limitation those
relating to wages, hours, unfair labor practices, discrimination, civil
rights, plant closings, immigration and the collection and payment of social
security and similar taxes.
(d) There are no complaints, proceedings, investigations or charges
against the Company pending or, to the knowledge of Sellers, threatened
before any Government Authority, court or arbitrator, including the National
Labor Relations Board or any similar state or local labor agencies, or the
Equal Employment Opportunity Commission or any similar state or local agency,
by or on behalf of any employee or former employee of the Company.
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(e) The Company has paid in full (or made provisions for payment in
full) to its employees, agents and contractors all wages, salaries,
commissions, bonuses and other direct compensation for all services performed
by them. The Company does not have any contingent liability for sick leave,
vacation time, holiday pay, severance pay or similar items not set forth on
the Base Balance Sheet or on a schedule hereto. 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 at law.
(f) Except as set forth on Schedule 2.16, there has not been any
citation, fine or penalty imposed or asserted against the Company under any
foreign, federal, state or local law on regulations relating to employment,
immigration or occupational safety matters.
(g) Those individuals classified as independent contractors of the
Company are properly classified as such, and are not employees of the
Company. The Company has paid in full (or made provisions for payment in
full) for all wages, salaries, commissions, bonuses and other direct
compensation for all work performed by them. The Company has complied with
and has no liabilities whatsoever with respect to payroll, social security,
and other employment related taxes for such independent contractors. Except
as indicated on Schedule 2.16, the Sellers have not received any complaint
from a contractor or from a customer concerning any contractor's engagement
by the Sellers, or performance of services for a customer.
2.17 Employee Benefits and ERISA.
(a) Schedule 2.17 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:
(i) an employee benefit plan within the meaning of Section 3(3) of
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
2.17. 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 an ERISA Affiliate within the last ten (10) years.
(c) With respect to each Benefit Plan described on Schedule 2.17, the
Company has furnished or made available to Buyer complete and accurate copies
of each Benefit Plan, including all amendments thereto. With respect to each
ERISA Benefit Plan listed thereon, the Company has furnished 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) required by ERISA and the regulations
thereunder. The Company has also furnished Buyer
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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 and each of the Sellers, 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, and 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 complies currently and has complied in the past,
as to form and operation, with the provisions of all applicable
Laws, including without limitation all requirements regarding
discrimination, disclosure, and continuation coverage (under
Section 4980B of the Code).
(ii) The Company has not, and to the knowledge of the Company and each
of the Sellers 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;
(iii) all required government filings, reports, and notices have been
properly and timely made, and all such filings and employee
disclosures required to be made within thirty (30) days after
Closing that are based in whole or in part upon the period prior to
the Closing shall have been prepared and delivered to Buyer on or
before the Closing;
(iv) 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 and each of the Sellers' knowledge threatened against any
of the Benefit Plans or against the assets of any Benefit Plan;
(v) 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;
(vi) 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 Buyer to
perform its responsibilities with respect
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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; and
(vii) there are no actions, suits or claims (other than routine claims
for benefits) pending or threatened against any of the Benefit
Plans or against the assets of any Benefit Plan.
(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.
2.18 Government Authorizations. The Company holds all Government
Authorizations which are required to own its properties and assets and to
permit it to conduct its businesses as presently conducted. All such
Government Authorizations are listed on Schedule 2.18 hereto, together with
the applicable expiration date, and are now, and will be after the Closing,
valid and in full force and effect, and Buyer shall have full benefit of the
same, and no proceeding is pending, or to the knowledge of the Company or any
of the Sellers, threatened seeking the revocation or limitations of any
Government Authorization.
2.19 Warranty or Other Claims.
(a) Neither the Company nor any Seller knows of any existing or
threatened claims, or any facts upon which a claim is likely to be asserted
against the Company for services provided or merchandise which is defective
or fails to meet any service or product warranties. No claim has been
asserted against the Company for material renegotiation or price
redetermination of any business transaction, and neither the Company nor any
Seller has knowledge of any facts upon which any such claim is likely to be
asserted.
(b) All products that were designed, manufactured or sold by the
Company complied with applicable contracts, agreed product specifications,
Laws and standards (whether Company, government or industry) and, to the
knowledge of the Company and the Sellers, there are no defects in such
products.
2.20 Litigation. Except as set forth on Schedule 2.20, there is no action,
suit, claim, proceeding, investigation or arbitration proceeding pending (or,
to the knowledge of the Company or any Seller, threatened) against or
otherwise involving the Company or any of the Company Shares or any of the
officers, directors, former officers or directors, employees, shareholders or
agents of the Company (in their capacities as such) and there are no
outstanding Court Orders to which the Company is a party or by which any of
its assets are bound, any of which (a) question this Agreement or any
Ancillary Agreement or any action to be taken hereby or thereby or affect the
transactions contemplated hereby, or (b) materially restrict the present
business properties, operations, prospects, assets or condition, financial or
otherwise, of the Company or (c) will result in any materially adverse change
in the business, properties, operations, prospects, assets or the condition,
financial or otherwise, of the Company. Neither the Company nor any Seller
has any reason to believe that any such action, suit, proceeding,
investigation or arbitration proceeding may be brought against the Company.
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2.21 Borrowings and Guarantees. Except as set forth on Schedule 2.21, there
are no agreements or 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 to Buyer and are attached to Schedule 2.21.
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
completely and accurately described on Schedule 2.22 hereto, indicating with
respect to each of such arrangements (i) the type of arrangement maintained
(such as checking account, borrowing arrangements, safe deposit box, etc.),
(ii) the current balance as of the date reported, (iii) the name of the
financial institution and (iv) the person or persons authorized in respect
thereof. The Company does not have any outstanding powers of attorney.
2.23 Insurance. Set forth on Schedule 2.23 is a complete and correct list of
all policies of insurance maintained by or on behalf of the Company
(including insurance providing benefits for employees) in effect on the date
hereof, together with complete and correct information with respect to the
premiums, coverages, insurers, expiration dates, and deductibles in respect
of such policies. Full and complete copies of all such policies, and
summaries thereof, have been delivered to Buyer. There are no claims pending
under any of said policies, or disputes with insurers, and all premiums due
and payable thereunder have been paid, and all such policies are in full
force and effect in accordance with their respective terms. No notice of
cancellation or termination has been received with respect to any such policy
and there is no basis upon which the insurance company would have the right
to terminate any such policy during the policy term and no notice relating to
non-renewal reduction of coverage or increase in premium has been received by
the company with respect to any such policy. The Company has no current or
prior insurance policy which remains subject to a retroactive adjustment of
the premiums payable thereunder, except for adjustments in workers
compensation coverage based upon changes in payroll level.
2.24 Minute Books. Except as set forth on Schedule 2.24, the minute books
and stock records of the Company accurately record all action taken by the
shareholders, board of directors and committees thereof of the Company and
all issuances and transfers of capital stock of the Company. Complete and
accurate copies of all minute books and stock records of the Company have
been delivered to or made available for inspection by Buyer.
2.25 Finder's Fee. Except as set forth on Schedule 2.25, neither the Company
nor any Seller has incurred or become liable for any broker's commission or
finder's fee relating to or in connection with the transactions contemplated
by this Agreement.
2.26 Transactions with Interested Persons. Except as set forth on Schedule
2.26, no officer, supervisory employee, director or stockholder of the
Company, or any Seller, or their respective spouses or children, (i) owns,
directly or indirectly, on an individual or joint basis, any interest in, or
serves as an officer or director of, any customer, competitor or supplier of
the Company or any organization which has a contract or arrangement (written
or oral) with the Company, or (ii)
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has any contract or agreement (written or oral) with the Company. All such
agreements which do exist are on arms-length terms.
2.27 Absence of Sensitive Payments. The Company has not, nor to the
knowledge of the Company or any Seller have any of the Company's directors,
officers, agents, stockholders or employees or any other person associated
with or acting on behalf of the Company:
(a) made or agreed to make any solicitations, contributions, payments
or gifts of funds or property to any governmental official, employee or agent
where either the payment or the purpose of such solicitation, 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) or prohibited
by the policy of the Company or of any of its suppliers or customers;
(b) 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) made or agreed to make any contribution or expenditure, or
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 or would be a violation
of applicable Law.
2.28 Environmental Matters. Except for commercially reasonable quantities of
office supplies, the Company has never generated, transported, used, stored,
treated, disposed or, or managed any Hazardous Material, to the knowledge of
the Company, the Company has no material liability under, nor has the Company
ever violated in any material respect, any federal or applicable state
environmental law. For purposes of this Section 2.29, "Hazardous Material"
means any hazardous waste, hazardous material, hazardous substance, petroleum
product, oil, toxic substance, pollutant, or contaminant, as defined or
regulated under any Federal or state environmental law, or any other
substance which may pose a threat to the environment or to human health or
safety.
2.29 Investment Matters.
(a) Each of the Sellers is an "accredited investor" within the meaning
of Rule 501(a)(3) under the Securities Act.
(b) Except as provided herein, none of the Sellers will sell, transfer
or otherwise dispose of any of the Interleaf shares unless (i) a registration
statement filed with the Securities and Exchange Commission pursuant to the
Securities Act with respect thereto is in effect or (ii) an exemption from
such registration is available.
2.30 Disclosure of Material Information. Neither this Agreement nor any
Ancillary Agreement, the financial statements (including the footnotes
thereto), any Schedule, any exhibit, document or certificate delivered by or
on behalf of the Company or Seller pursuant hereto contains any untrue
statement of a material fact, or omits to state a material fact necessary to
make the statements herein or therein not misleading in light of
circumstances under which made.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF BUYER.
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Buyer hereby represents and warrants to Seller as follows:
3.1 Organization of Buyer. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts with full corporate power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased or such business is conducted by it.
3.2 Capitalization. Any Interleaf Shares issued to Seller under this
Agreement will be, when issued in accordance with this Agreement, duly
authorized, validly issued, fully paid, nonassessable and free of all
preemptive rights and will be registered under an effective registration
statement under the Securities Act for resale by the Seller.
3.3 Authorization of Transaction. Buyer has the full power and authority to
execute and deliver this Agreement and each Ancillary Agreements to which it
is a party and to perform its obligations hereunder and thereunder. The
execution and delivery of this Agreement and each Ancillary Agreement and the
performance of this Agreement and each Ancillary Agreement and the
consummation by the Buyer of the transactions contemplated hereby and thereby
have been duly and validly authorized by all necessary corporate action.
This Agreement and each Ancillary Agreement have been duly and validly
executed and delivered by the Buyer and constitute a valid and binding
obligations of the Buyer, enforceable against the Buyer in accordance with
their terms.
3.4 No Conflict of Transaction with Obligations and Laws.
(a) Neither the execution, delivery and performance of this
Organization or any of the agreements contemplated hereby, nor the
performance of the transactions contemplated hereby, will (i) constitute a
breach or violation of the Buyer's Articles of Organization or Bylaws; (ii)
conflict with or constitute (with or without the passage of time or the
giving of notice) a breach of, or default under any material agreement,
instrument or obligation to which the Buyer is a party or by which its assets
are bound which would materially affect the performance by the Buyer of its
obligations under this Agreement; or (iii) result in a violation of Law or
Court Order applicable to the Buyer.
(b) The execution, delivery and performance of this Agreement and the
transactions contemplated hereby by the Buyer do not require the consent,
waiver, approval, authorization, exemption of or giving of notice to any
Governmental Authority or other third party.
3.5 Reports. Buyer's Common Stock is registered under the Exchange Act, and
Buyer is subject to the periodic reporting requirements thereof. The Buyer
has previously furnished to the Company complete and accurate copies, as
amended or supplemented, of its (a) Annual Report on Form 10-K for the fiscal
years ended March 31, 1997 and 1998, as filed with the SEC, (b) proxy
statements relating to all meetings of its stockholders (whether annual or
special) since January 1, 1997 and (c) all other reports filed with the SEC
pursuant to the Exchange Act since January 1, 1997 (such annual reports,
proxy statements and other filings, together with any amendments or
supplements thereto, are collectively referred to herein as the "Buyer
Reports").
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As of their respective dates, the Buyer 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 consolidated
audited financial statements, and schedules (if any) of the Buyer included in
the Buyer Reports (together, the "Buyer 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 Buyer 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
Buyer.
ARTICLE 4. COVENANTS OF THE COMPANY AND THE SELLER.
The Company and the Seller hereby covenant and agree with the Buyer as
follows:
4.1 Conduct of Business. Between the date of this Agreement and the
Closing, the Company will do the following unless Buyer shall otherwise
consent in writing:
(a) conduct its business only in the ordinary course of business and
refrain from changing or introducing any method of management or operations
except in the ordinary course of business;
(b) except with respect to the sale of inventory in the ordinary course
of business, refrain from making any purchase, sale or disposition of any
asset or property other than in the ordinary course of business, from
purchasing any capital asset costing more than $2,500 and from mortgaging,
pledging, subjecting to a lien or otherwise encumbering any of its properties
or assets;
(c) refrain from incurring any contingent liability as a guarantor or
otherwise with respect to the obligations of others, and from incurring any
other contingent or fixed obligations or liabilities except those that are
usual and normal in the ordinary course of business;
(d) refrain from entering into any material agreement or amending or
terminating any material contract, agreement or license to which it is a
party or waiving or releasing any material right or claim;
(e) maintain its equipment and other assets in good working condition
and repair according to the standards that it maintained to the date of this
Agreement, subject only to ordinary wear and tear;
(f) refrain from making any change or incurring any obligation to make
a change in its Charter or bylaws or its authorized or issued capital stock
or any other of its securities, including warrants and options;
(g) refrain from entering into any employment contract (other than as
may be contemplated by this Agreement) or making any change in the
compensation payable or to become payable to any of its officers, employees
or agents, except that the Company may pay or
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accrue for bonuses to its employees on account of the Company's performance
in calendar 1998 consistent with past practices;
(h) refrain from instituting, terminating, changing or making any
representations, either oral or written, to increase or change any Benefit
Plan or adopting any new employee benefit plan or program;
(i) withhold or remit with respect to all employees all employment
taxes;
(j) refrain from making any change in accounting methods or practices;
(k) refrain from prepaying any loans from its stockholders, officers or
directors (if any) or making any change in its borrowing arrangements;
(l) refrain from merging, consolidating or reorganizing with, or
acquiring, any entity;
(m) refrain from agreeing to any audit assessment by any taxing
authority or filing any Federal or state income or franchise tax return or
amendment thereto, unless copies of such Tax Returns have been delivered to
the Buyer for its review and approval prior to filing or from revoking any
tax election or making any agreement or settlement with any taxing authority;
(n) use its best efforts to prevent any change with respect to its
banking arrangements;
(o) use its best efforts to keep intact its business organization, to
keep available its present officers, agents and employees and to preserve the
goodwill of all suppliers, customers and others having business relations
with it;
(p) have in effect and maintain at all times all insurance of the kind,
in the amount and with the insurers set forth in Schedule 2.23 or equivalent
insurance with any substitute insurers approved by Buyer;
(q) perform all of its obligations under all contracts and other
agreements relating to the Company, including the discharge of all accounts
payable of the Company according to the terms and conditions of all invoices
therefor, except when the amount thereof is being contested in good faith, by
appropriate proceedings and with adequate reserves therefore being set aside
on the books of the Company;
(r) maintain true, correct and complete books of accounts and records
relating to the business of the Company;
(s) comply in all respects with all Laws applicable to the conduct of
the Company's business or its properties or assets;
(t) promptly upon its knowledge thereof, advise Buyer in writing of the
termination or resignation of any key employee and the circumstances
therefore;
(u) refrain from entering into any contract or commitment providing for
payments in excess of $25,000 in any fiscal year, except in the ordinary
course of business after consultation with Buyer;
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(v) pay all taxes, assessments, governmental charges or levies imposed
upon it or its income, profits or assets, or otherwise required to be paid by
it, nor fail to pay when due any liability or charge that if, unpaid, might
become an Encumbrance upon any of the Company's assets;
(w) promptly upon its knowledge thereof, advise Buyer in writing of (i)
any material adverse change in the financial condition or operations of the
business of the Company; (ii) any event, condition or circumstance occurring
from the date hereof until the Closing Date that would constitute a violation
or breach of any representation, warranty, covenant, agreement or provision
contained in this Agreement (provided, however, that such disclosure shall
not be deemed to cure any violation or breach of any such representation,
warranty, covenant, agreement or provision), or (iii) any event, occurrence,
transaction or other item that would have been or required to have been
disclosed on any Schedule, delivered hereunder, had such event, occurrence,
transaction or item existed on the date hereof; and
(x) not take or permit to be taken any action that is represented or
warranted in Section 2.9 not to have been taken by the Company or the Seller
since the Base Balance Sheet Date unless inconsistent with the provisions of
this Section 4.1.
4.2 Access to Information. From and after the date hereof, at reasonable
times and upon reasonable notice to the Company, Buyer shall be entitled,
through its employees, advisors and representatives, to make such
investigation of the assets, properties, facilities, personnel, business and
operations of the Company and the business of the Company and, to make such
examination of the books, records and financial condition of the Company and
the business of the Company, as Buyer reasonably requests. No investigation
by Buyer shall diminish, or waive any of the representations, warranties,
covenants or agreements of the Company or Seller under this Agreement or any
of the Ancillary Agreements. The Company and Seller shall furnish the
representatives of Buyer during the due diligence period with all information
and copies of documents concerning the affairs of the business of the Company
as such representatives may reasonably request and shall cause the
appropriate officers, employees, consultants, agents, accountants and
attorneys of Seller to cooperate fully with such representatives in
connection with such review and examination and shall make full disclosure to
Buyer of all material facts affecting the financial condition and business
operations of the Company.
4.3 Governmental Permits and Approvals; Consents. The Company and the
Seller shall use their best efforts (with the reasonable assistance of Buyer
to the extent required to obtain such approvals) to obtain promptly (i) all
permits and approvals from any Governmental Authority required to be obtained
by the Company for the lawful consummation of the Closing, (ii) the consents
set forth or required to be set forth on Schedule 2.6, and (iii) appropriate
estoppel representation letters in form and substance reasonably satisfactory
to Buyer from the lessors of the Real Property.
4.4 Assignment of Contracts. To the extent that the sale of the Company
Shares by all the Sellers constitutes an assignment under the terms of any
contract to which the Company is a party (including the lease for real
property) or Governmental Authorization which requires the consent of another
party, the Company and Seller agree to use their best efforts (with the
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reasonable assistance of the Buyer to the extent necessary to obtain such
consents) to obtain the consent of such other party to the assignment.
4.5 Maintenance of Government Authorizations. Seller shall at all times
prior to the Closing Date cause the Company to preserve and maintain each of
the Government Authorizations free and clear of all Encumbrances. Seller
shall not take any action or permit the Company to take any action which
would cause any Governmental Authority to institute proceedings regarding any
of the Government Authorizations or take any other action which would result
in the Company being in noncompliance in any material respect with the
requirements of any governmental or regulatory body having jurisdiction
thereof.
4.6 Collection of Receivables. Between the date hereof and the Closing
Date, the Company will use prudent practices in collection procedures in
order to collect the Receivables so as not to jeopardize Buyer's future
customer relations.
4.7 Risk of Loss. Legal title and risk of loss with respect to the assets
of the Company and the Company Shares shall not pass to Buyer until the
Closing. Prior to the Closing, if any of the assets of the Company are
destroyed or damages by fire or other casualty, Buyer may, at its option, if
the amount of such destruction or damage is in excess of $100,000, terminate
this Agreement.
4.8 Employee/Contractor Compensation. Seller agrees to cause the Company to
discharge when due all compensation and benefits to any employee, agent,
consultant and contractor under all pay and compensation practices applicable
to the business of the Company and under any employment agreements payable in
the ordinary course of business, except to the extent otherwise reflected on
the Closing Balance Sheet.
4.9 Breach of Representations and Warranties. Promptly upon the occurrence
of, or promptly upon the Company or Seller becoming aware of the impending or
threatened occurrence of, any event which would cause or constitute a breach,
or would have caused or constituted a breach had such event occurred or been
known to the Company or Seller prior to the date hereof, of any of the
representations and warranties of the Company and Seller contained in or
referred to in this Agreement, such person shall give detailed written notice
thereof to Buyer and the Company and Seller shall use their best efforts to
prevent or promptly remedy the same.
4.10 Consummation of Agreement. Seller shall use his/her best efforts to
perform and fulfill, and to cause the Company to perform and fulfill, all
conditions and obligations on their part to be performed and fulfilled under
this Agreement, to the end that the transactions contemplated by this
Agreement shall be fully carried out. To this end, each of the Company and
Seller will obtain all necessary authorizations or approvals, including those
from the stockholders and Board of Directors of the Company. From the date
hereof until the termination of this Agreement, neither the Company nor
Seller will discuss or negotiate with any other party, or entertain or
consider any inquiries or proposals received from any other party, concerning
the possible disposition of the Company's business, assets or capital stock.
ARTICLE 5. COVENANTS OF THE BUYER
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The Buyer hereby covenants and agrees with the Seller and Company as
follows:
5.1 Breach of Representation and Warranties. Promptly upon the occurrence
of, or promptly upon the Buyer becoming aware of the impending or threatened
occurrence of, any event which would cause or constitute a breach, or would
have caused or constituted a breach had such event occurred or been known to
the Buyer prior to the date hereof, of any of the representations and
warranties of the Buyer contained in or referred to in this Agreement, such
person shall give detailed written notice thereof to the Company and Seller
and the Buyer shall use its best efforts to prevent or promptly remedy the
same.
5.2 Offers of Employment. The Buyer shall offer employment to those key
employees of the Company listed on Schedule 5.2, such offers of employment to
be on terms no less favorable than the current terms of their employment by
the Company as described on Schedule 2.16, and to include the transition
and/or relocation packages set forth on Schedule 5.2.
5.3 Consummation of Agreement. Buyer shall use its best efforts to perform
and fulfill all conditions and obligations on its part to be performed and
fulfilled under this Agreement, to the end that the transactions contemplated
by this Agreement shall be fully carried out. Buyer will obtain all
necessary authorizations of its Board of Directors.
5.4 Collection of Receivables. Buyer agrees to use efforts consistent with
its past practice on its own accounts receivable to collect the Receivables
of Seller. If there are any Receivables which are not collected by Buyer
within one hundred twenty (120) days of invoice, it shall promptly give
notice of such fact to Seller, and Seller (in conjunction with the other
Sellers) may elect to indemnify Buyer for the face amount of the Receivable
in accordance with Section 9 hereof and have Buyer assign its rights of
collection of such Receivable to the Seller or Sellers.
ARTICLE 6. CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate this Agreement and the
transactions contemplated hereby are subject to the condition that on or
before the Closing the actions required by this Article 6 will have been
accomplished.
6.1 Due Diligence Review. Buyer shall have completed a review of the assets
and business of the Company which is satisfactory to the Buyer in its sole
discretion in all respects. Such review shall include a review of all of the
financial files and records of the Company, including, without limitation,
review the business and legal records and files of the Company, including
customer files, correspondence, invoices, licenses and permits (provided that
Buyer shall refrain from contacting any customers or suppliers of the Company
without the prior approval of Sellers), full access to the Company's physical
properties and appropriate personnel of the Company, and all patents and
written materials related to the Company's trade secrets and proprietary
systems, all of which shall be made available pursuant to Section 4.2 of this
Agreement. The target date for completion of Buyer's due diligence is
August 27, 1998.
6.2 Representations; Warranties; Covenants. Each of the representations
and warranties of the Company and Seller contained in Article 2 shall be true
and correct as though made on and as
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of the Closing Date and the Company and the Company and Seller shall, on or
before the Closing, have performed all of their obligations hereunder which
by the terms hereof are to be performed by them on or before the Closing.
The Company and the Seller each shall have delivered to Buyer a certificate
dated as of the Closing to the foregoing effect.
6.3 Receipt of Deliverables. Buyer shall have received the instruments,
certificates and documents called for delivery at Closing pursuant to Article
I hereof.
6.4 Parallel Agreements With Other Sellers. The Buyer shall have
simultaneously consummated a similar stock purchase agreement with each of
the other Sellers (the "Parallel Agreements"), and as a result of
consummation of this Agreement and those Parallel Agreements shall have
acquired good and marketable title to 100% of the outstanding capital stock
of the Company, free and clear of any Encumbrances.
6.5 Available Cash. On the Closing Date, the Chief Financial Officer of the
Company shall certify to Buyer that the cash and cash equivalents on the
Closing Date are not less than $440,000.
6.6 Employment of Key Employees. Not less than seventy-five (75%) percent of
those key employees listed on Schedule 5.2, to whom the Buyer has previously
offered continuation of employment in accordance with Section 5.2 hereof
shall have accepted Buyer's offer and indicated in writing their intent to
remain employed as indicated in Buyer's offer.
6.7 Employment and Non-Competition Agreements. Ms. Dona D. Ray, Mr. Davis L.
Marksbury, Jr. and Mr. Daniel J. Kloiber each shall have executed and
delivered to Buyer an Employment and Non-Competition Agreement or Consulting
and Non-Competition Agreement having substantially the terms and conditions
set forth in Exhibits C-1, C-2 and C-3 attached hereto, respectively.
6.8 Opinion of Sellers' Counsel. At the Closing, Buyer shall have received
from counsel for Sellers and the Company an opinion dated as of the Closing
substantially in the form set forth as Exhibit D hereto.
6.9 Material Adverse Change. From the date of this Agreement to the
Closing, there shall not have been any event or development which
individually or in the aggregate, is reasonably likely to result in a
material adverse change on the business, properties, operations, assets,
revenues or condition (financial or otherwise) of the Company.
6.10 Absence of Certain Litigation. There shall not be any (a) injunction,
restraining order or order of any nature issued by any court of competent
jurisdiction which directs that this Agreement or any material transaction
contemplated hereby shall not be consummated as herein provided, (b) suit,
action or other proceeding by any Government Authority, pending or threatened
to be filed or initiated, wherein such complainant seeks the restraint or
prohibition of the consummation of any material transaction contemplated by
this Agreement or Ancillary Agreements or asserts the illegality thereof or
(c) suit, action or other proceeding by a private party pending before any
court or Governmental Authority, or threatened to be filed or initiated,
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which in the reasonable opinion of counsel for Buyer is likely to result in
the restraint or prohibition of the consummation of any material transaction
contemplated hereby or the obtaining of an amount in payment (or
indemnification) of material damages from or other material relief against
any of the parties or against any directors or officers of Buyer, in
connection with the consummation of any material transaction contemplated
hereby.
6.11 No Bankruptcy.
The Company shall not (i) have commenced a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself or
its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or substantially all of
its property, or have consented to any such relief or to the appointment of
or taking possession by any such official in an involuntary case or other
proceeding commenced against it, or have made a general assignment for the
benefit of its creditors, or (ii) have an involuntary case or other
proceeding commenced against it seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereinafter in effect or seeking the appointing of a
trustee, receiver, liquidate, custodian or similar official of it or
substantially all of its property or (iii) have an attachment placed on all
or a significant portion of its assets.
ARTICLE 7. CONDITIONS TO OBLIGATIONS OF THE SELLER.
The obligations of the Seller to consummate this Agreement and the
transactions contemplated hereby are subject to the condition that on or
before the Closing the actions required by this Article 7 will have been
accomplished.
7.1 Due Diligence Review. Seller shall have completed a review of the
assets and business of the Company which is satisfactory to the Seller in
his/her sole discretion in all respects. Such review shall include a review
of all of the financial files and records of the Buyer, including, without
limitation, review, the business and legal records and files of the Buyer,
including customer files, correspondence, invoices, licenses and permits
(provided that Sellers shall refrain from contacting any customers or
suppliers of the Buyer without the prior approval of Buyer), and full access
to the Buyer's physical properties and appropriate personnel of the Buyer,
and all patents and written materials related to the Buyer's trade secrets
and proprietary systems. The target date for completion of Seller's
diligence is August 27, 1998.
7.2 Representations; Warranties; Covenants. Each of the representations and
warranties of Buyer contained in Article 3 shall be true and correct as
though made on and as of the Closing Date and Buyer shall, on or before the
Closing have performed all of its obligations hereunder which by the terms
hereof are to be performed by it on or before the Closing. Buyer shall have
delivered to Seller a certificate dated as of the Closing to the foregoing
effect.
7.3 Receipt of Deliverables. Seller shall have received the payments,
instruments, certificates and documents called for delivery at Closing
pursuant to Article I hereof.
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7.4 Employment Agreement and Non-Competition Payment. The Buyer shall have
executed and delivered to Seller an Employment Agreement in the Form of
Exhibit C-1 hereto and shall have made the payments called for therein.
7.5 Opinion of Buyer's General Counsel. Seller shall have received from
Craig Newfield, General Counsel to Buyer, an opinion dated as of the Closing
substantially in the form set forth as Exhibit E attached hereto.
7.6 Material Adverse Change. There shall be no material adverse change to
the business of the Company since the date of this Agreement to the Closing.
ARTICLE 8. INDEMNIFICATION.
8.1 Indemnification by Seller.
(a) Subject to the limitations in paragraph (b) below, the Seller,
jointly and severally with the other Sellers entering into the Parallel
Agreements, agrees to defend, indemnify and hold harmless Buyer's Indemnified
Persons from and against all Losses directly or indirectly incurred by or
sought to be imposed upon any of them:
(i) resulting from or arising out of any breach of any of the
representations or warranties (other than those in Sections 2.1,
2.2, 2.8, 2.10 and, solely to the extent relating to title, Section
2.11) made by the Company or the Seller in or pursuant to this
Agreement or by the Company or any other Seller in or pursuant to
the corresponding sections of the Parallel Agreements, or in any
agreement, document or instrument executed and delivered pursuant
hereto or thereto or in connection with the Closing; provided that,
for the purpose of this Section 8.1, any qualification of such
representations and warranties by reference to the materiality of
matters stated therein, shall be disregarded in determining the
amount of Losses arising from such breach;
(ii) resulting from or arising out of any breach of any of the
representations or warranties made by the Company or the Seller
pursuant to Sections 2.1, 2.2, 2.8, 2.10 and, solely to the extent
related to title, Section 2.11 in or pursuant to this Agreement, or
by the Company or any other Seller in or pursuant to the
corresponding sections of the Parallel Agreements;
(iii) resulting from or arising out of any breach of any covenant or
agreement made by Sellers in or pursuant to this Agreement or by
the Company or any other Seller in or pursuant to the corresponding
sections of the Parallel Agreements;
(iv) in respect of any liability or obligation of the Company which
Seller has expressly assumed or agreed to be responsible for
hereunder or under an Ancillary Agreement or which any other Seller
has expressly agreed to assume or be responsible for under a
Parallel Agreement or an agreement ancillary thereto;
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(v) resulting from or arising out of any liability, payment or
obligation arising out of any litigation or similar matter required
to be disclosed on Schedule 2.21 hereto or in any Parallel
Agreement, except to the extent of reserves with respect thereto on
the Base Balance Sheet;
(vi) resulting from or arising out of the intentional misrepresentation
or breach of warranty of the Company or any Seller or any
intentional failure of the Company or any Seller to perform or
comply with any covenant or agreement of the Company or any Seller,
respectively contained herein or in any Parallel Agreement;
(vii) resulting from or arising out of any liability, payment or
obligation in respect of any taxes owing by the Company, Sellers or
Buyer, as successor to the Company, of any kind or description
(including interest and penalties with respect thereto) for all
periods, or portions thereof, up to an including the Closing Date,
except to the extent of reserves with respect thereto on the Base
Balance Sheet;
(viii) resulting from or arising out of any third party action, whether by
a governmental authority or other third party for damages,
including fines or penalties, or clean-up costs or other compliance
costs under any environmental law or from the violation of any
environmental law arising out of the operations of the Company on
or before the Closing Date;
(ix) resulting from or arising out of any Benefit Plan and relating to
matters occurring prior to the Closing; or
(x) equal to the amount by which the actual net book value and the cash
and cash equivalents of the Company on the Closing Date are less
than $1,376,000 and $440,000, respectively.
(b) The right to indemnification under paragraph (a) is subject to the
following limitations:
(i) The Seller shall have no liability under paragraph (a) unless one
or more of the Buyer's Indemnified Persons gives written notice to
the Seller asserting a claim for Losses, including reasonably
detailed facts and circumstances pertaining thereto, before the
expiration of the period set forth below:
(A) for claims under (i), (v), (ix) and (x), a period of two (2)
years from the Closing Date;
(B) for claims under clauses (iii), (vii), and (viii), for so
long as any claim may be made in respect of such matters under
any applicable statute of limitations, as it may be extended by
Seller, or by Buyer with Seller's written consent; and
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(C) for claims under clauses (ii), (iv) and (vi) of paragraph (a)
above, without limitation as to time;
except that, for any claim based upon a covenant or undertaking
which by its terms is to be performed after the Closing, then the
period above shall commence on the date when such covenant or
agreement should have been performed.
(ii) Indemnification for claims under paragraph (a) above (other than
under clauses (a)(ii), (iv), (vi), (vii), (viii), (ix) and (x))
shall be payable by Sellers only if the aggregate amount of all
Losses hereunder by Buyer's Indemnified Persons shall exceed
$60,000, at which point Sellers jointly or severally shall be
responsible for all Losses, including the first $60,000 of such
Losses. The aggregate liability of all Sellers for indemnification
under paragraph (a) above (other than under clauses (a)(ii), (iv),
(v) and (vi)) shall not exceed the aggregate Purchase Price paid by
all of them under this Agreement and the Parallel Agreements.
(iii) The gross amount with respect to a claim for indemnification for
which the Seller may be liable to a Buyer's Indemnified Person
pursuant to this Article 8 shall be reduced by any insurance
proceeds actually recovered by or on behalf of the Indemnified
Person on account of the indemnifiable Loss.
(iv) Seller shall not be liable to Buyer under this Agreement for any
Losses which result from or arise out of the conduct of the
Company's business after the Closing.
8.2 Indemnification by Buyer.
(a) Subject to the limitations in paragraph (b) below, from and after the
Closing Date, Buyer shall indemnify and hold harmless Sellers' Indemnified
Persons from any and all Losses directly or indirectly incurred by or sought to
be imposed upon them:
(i) resulting from or arising out of any breach of any of the
representations or warranties made by Buyer, in or pursuant to this
Agreement, any Ancillary Agreements, any Parallel Agreement or in
any agreement, document or instrument executed and delivered
pursuant hereto or thereto or in connection with the Closing;
(ii) resulting from or arising out of any breach of any covenant or
agreement made by Buyer or Parent in or pursuant to this Agreement,
any Ancillary Agreements, any Parallel Agreement or in any
agreement, document or instrument executed and delivered pursuant
hereto or thereto or in connection with the Closing; or
(iii) resulting from or arising out of Buyer's fraud.
(b) The right of indemnification under paragraph (a) above is subject to
the following limitations:
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(i) Buyer shall have no liability under paragraph (a) above unless a
Sellers' Indemnified Person gives written notice to Buyer asserting
a claim for Losses, including reasonably detailed facts and
circumstances pertaining thereto, before the expiration of the
period set forth below:
(A) for claims under clause (i) of paragraph (a) above, two (2)
years from the Closing Date; and
(B) for claims under clause (ii)-(iii) of paragraph (a) above,
for so long as any claim may be made in respect of such matters
under any applicable statute of limitations, as it may be
extended.
(ii) The gross amounts with respect to a claim for indemnification for
which the Buyer may be liable to all Seller Indemnified Persons
pursuant to this Article 8 and corresponding provisions of the
Parallel Agreements shall not exceed the aggregate fair market
value of the Company's capital stock on the Closing Date.
8.3 Defense of Third Party Actions.
(a) Promptly after receipt of notice of any Third Party Action, any
person who believes he, she or it may be an Indemnified Person will give
notice to the potential Indemnifying Person of such action. The omission to
give such notice to the Indemnifying Person will not relieve the Indemnifying
Person of any liability hereunder unless it was prejudiced thereby, nor will
it relieve it of any liability which it may have other than under this
Article 8.
(b) Upon receipt of a notice of a Third Party Action, the Indemnifying
Person shall have the right, at its option and at its own expense, to
participate in and be present at the defense of such Third Party Action, but
not to control the defense, negotiation or settlement thereof, which control
shall remain with the Indemnified Person, unless the Indemnifying Person
makes the election provided in paragraph (c) below.
(c) By written notice within forty-five (45) days after receipt of a
notice of a Third Party Action, an Indemnifying Person may elect to assume
control of the defense, negotiation and settlement thereof, with counsel
reasonably satisfactory to the Indemnified Person; provided, however, that
the Indemnifying Person agrees (i) to promptly indemnify the Indemnified
Person for its expenses to date, and (ii) to hold the Indemnified Person
harmless from and against any and all Losses caused by or arising out of any
settlement of the Third Party Action approved by the Indemnifying Person or
any judgment in connection with that Third Party Action. The Indemnifying
Persons shall not in the defense of the Third Party Action enter into any
settlement which does not include as a term thereof the giving by the third
party claimant of an unconditional release of the Indemnified Person, or
consent to entry of any judgment except with the consent of the Indemnified
Person.
(d) Upon assumption of control of the defense of a Third Party Action
under paragraph (c) above, the Indemnifying Person will not be liable to the
Indemnified Person
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hereunder for any legal or other expenses subsequently incurred in connection
with the defense of the Third Party Action, other than reasonable expenses of
investigation.
(e) Any person who has not assumed control of the defense of any Third
Party Action shall have the duty to cooperate with the party which assumed
such defense.
8.4 Miscellaneous.
(a) Buyer's Indemnified Persons shall be entitled to indemnification under
Section 8.1(a) and Sellers' Indemnified Persons shall be entitled to
indemnification under Section 8.2(a), regardless of whether the matter giving
rise to the applicable liability, payment, obligation or expense may have
been previously disclosed to any such person unless expressly disclosed on
each particular Schedule requiring such disclosure.
(b) If any Loss is recoverable under more than one provision hereof, the
Indemnified Person shall be entitled to assert a claim for such Loss until
the expiration of the longest period of time within which to assert a claim
for Loss under any of the provisions which are applicable.
(c) Buyer may, at its option, recover any amount owing by the Sellers for
indemnification hereunder by setoff against any amounts that may otherwise be
due from the Buyer or the Company to the Seller whether hereunder or
otherwise, to the extent provided in Section 11.2; provided that Buyer shall
not be required to recover such claims in such manner and may proceed against
the Indemnified Party at any time or times for recovery of indemnification
claims.
8.5 Payment of Indemnification.
Claims for indemnification under this Article 8 shall be paid or otherwise
satisfied by Indemnifying Persons within thirty (30) days after notice
thereof is given by the Indemnified Person.
ARTICLE 9. TERMINATION OF AGREEMENT.
9.1 Termination. At any time prior to the Closing, this Agreement may be
terminated (a) by mutual consent of the parties, (b) by either side if there
has been a material misrepresentation, breach of warranty or breach of
covenant by the other side in its representations, warranties and covenants
set forth herein, (c) by Buyer if the conditions stated in Article 6 have not
been satisfied at or prior to the Closing, (d) by the Sellers if the
conditions stated in Article 7 have not been satisfied at or prior to the
Closing, or (e) if the Closing shall not have occurred and the transactions
contemplated hereby consummated by September 15, 1998, provided that the
right to terminate under this clause (e) shall not be available to any
parties whose breach has been the cause of such failure to close.
9.2 Effect of Termination. In the event of termination or abandonment of
this Agreement in accordance with the provisions of this Article 9, no party
to this Agreement shall have any liability or further obligation to any other
party, except as provided in Article 8 and Section 10.5 of this Agreement,
and except that nothing herein shall relieve any party from liability for any
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breach of this Agreement. In the event that this Agreement is so terminated,
each party will return all papers, documents, financial statements and other
data furnished to it by or with respect to each other part (including any
copies thereof made by the first party). Each party will bear its own costs
associated with or incurred as a result of the negotiation, execution and
termination of this Agreement.
9.3 Right to Proceed. Anything in this Agreement to the contrary
notwithstanding, if any of the conditions specified in Article 6 hereof have
not been satisfied, Buyer shall have the right to proceed with the
transactions contemplated hereby without waiving its rights hereunder and
have all obligations, undertakings, agreements and other provisions of this
Agreement specifically performed by the Company and Sellers and Buyer shall
have the right to obtain and order such specific performance in any of the
Courts in the United States or any state or political subdivision thereof.
If any of the conditions specified in Article 7 hereof have not been
satisfied, Seller shall have the right to proceed with the transactions
contemplated hereby without waiving its rights hereunder.
ARTICLE 10. DEFINITIONS.
As used in this Agreement, the following terms have the indicated meanings:
"Ancillary Agreements" means (i) the side agreement on control points
referred to in Section 1.4(c) hereof, (ii) the Warrant in the form of Exhibit
A issued to Seller; (iii) the Employment Agreement with Seller; and, (iv)
such other agreements as are to be executed and delivered pursuant to this
Agreement.
"Average Daily Volume" means the average of the daily trading volume of the
Buyer's Common Stock on the Nasdaq National Market for the 20 trading days
preceding the day in question, divided by two to adjust for Nasdaq reporting
of both sides of a trade.
"Base Balance Sheet: means the Company's balance sheet as of June 30, 1998
included in the financial statements described in Section 2.7.
"Base Balance Sheet" has the meaning specified in Section 2.7.
"Base Balance Sheet Date" means June 30, 1998.
"Benefit Plan" has the meaning specified in Section 2.17.
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"Buyer's Indemnified Persons" means the Buyer, its subsidiary and affiliated
corporations, their respective directors, officers, employees, stockholders
and agents, the Company after the Closing, and any person serving as a
director, officer, employee or agent of the Company at Buyer's request after
the Closing.
"Charter" means the Company's Articles of Incorporation, as amended.
"Closing" means the closing of the purchase and sale provided for in this
Agreement.
"Closing Date Balance Sheet" has the meaning specified in Section 1.8.
"Closing Report" has the meaning specified in Section 1.8
"Code" means the Internal Revenue Code of 1986, as amended.
"Combined Installment Period" means the period September 1, 1998 - August 31,
1999.
"Company Shares" means the shares of Common Stock, no par value, of the
Company issued and outstanding.
"Court Order" means any court order, judgment, administrative or judicial
order, writ, decree, stipulation, arbitration award or injunction.
"Encumbrance" means any lien, option (including right of first refusal or
first offer), encumbrance, restriction, mortgage, pledge, security interest,
claim or charge of any kind or character.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"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.
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"ERISA Benefit Plan" has the meaning specified in Section 2.17.
"First Installment Payment" has the meaning specified in Sections 1.1 and 1.2
hereof.
"First Installment Period" means the period from September 1, 1998 through
February 28, 1999.
"Government Authority" means any governmental authority, whether foreign,
federal, state, local or other political subdivision or agency of any of the
foregoing.
"Government Authorizations" means any license, permit, order, concession,
grant, authorization, consent or approval.
"Installment Payment" means either the First Installment Payment or the
Second Installment Payment.
"Indemnified Person" means any person entitled to be indemnified under this
Article 8.
"Indemnifying Person" means any person obligated to indemnify another person
under this Article 8.
"Intellectual Property" means (i) all patents, patent applications, trade
marks (whether registered or unregistered) or service marks, trade mark or
service mark applications, trade names and copyrights (collectively,
"Statutory Intellectual Property"), (ii) all Trade Secrets, and (iii) all
industrial or intellectual property rights of every kind and description.
"Interleaf Shares" means the Common Stock, $.10 par value per share, of Buyer
delivered to Seller pursuant hereto and to the other Sellers pursuant to any
Parallel Agreement.
"Key Location Revenue" shall have the meaning as mutually agreed by the
Parties.
"Laws" means all applicable statutes, laws, ordinances, rules and regulations.
"Losses" means all losses, damages (including, without limitation, punitive
and consequential damages), fines, penalties, liabilities, payments and
obligations, and all expenses related thereto. Losses shall include any
reasonable legal fees and costs incurred by any of the Indemnified Persons
subsequent to the Closing in defense of or in connection with any alleged or
asserted liability, payment or obligation, whether or not any liability or
payment, obligation or judgment is ultimately imposed against the Indemnified
Persons and whether or not the Indemnified Persons are made or become parties
to any such action.
"Material Personal Property" has the meaning specified in Section 2.11.
"Market Value" of the Buyer's Common Stock for a given date means the
volume-weighted average of the closing prices for the Buyer's Common Stock on
the Nasdaq National Market for the ten trading days immediately preceding
such date.
"Parallel Agreement" has the meaning specified in Section 6.4.
"Purchase Price" has the meaning specified in Section 1.1.
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"Real Property" has the meaning specified in Section 2.11.
"Receivables" has the meaning specified in Section 2.12.
"SEC" means the Securities and Exchange Commission.
"Second Installment Payment" has the meaning specified in Sections 1.1 and
1.2 hereof.
"Second Installment Period" means the period from March 1, 1999 - August 31,
1999.
"Securities Act" means the Securities Act of 1933, as amended.
"Sellers" means the Seller and each of the other owners of capital stock of
the Company listed on Schedule 2.2 selling their Company Shares to the Buyer
pursuant to a Parallel Agreement.
"Seller's Indemnified Persons" means each of the Sellers, their heirs and
assigns.
"Selling Period" means the six month period beginning on the date of delivery
of an Installment Payment in the form of Interleaf Shares.
"Software" means the software programs which perform the functions more
particularly described on Schedule 2.14, and includes all prior and future
versions thereof, all work in progress, all derivatives, portions,
adaptations, extracts, copies, documentation, manuals, programmers' note,
architecture, data models, logic models, and all Intellectual Property
embodied, contained reduced to practice, expressed, displayed, used or
exploited therein or through the use thereof.
"Taxes" means all applicable taxes, including without limitation, income,
profit, franchise, sales, use, real property, personal property, ad valorem,
excise, employment, social security and wage withholding taxes, severance,
stamp, occupation, and windfall taxes, of every kind, character or
description imposed by any governmental 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 assessments.
"Tax Returns" means all Federal, state, local, and foreign, government
income, excise, gross receipts and 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 therefor, or estimated taxes required to be filed
by it, with respect to all Taxes.
"Third Party Action" means any written assertion of a claim, or the
commencement of any action, suit, or proceeding, by a third party as to which
any person reasonably believes it may be an Indemnified Person hereunder.
"Trade Secrets" means all trade secrets and manufacturing and other secret
processes and technologies required for or used in the manufacture,
development, marketing and maintenance
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of products, including software, which are useful and/or provide a
competitive advantage and as to which the Sellers have made reasonable
efforts to maintain confidentiality.
ARTICLE 11. MISCELLANEOUS.
11.1 Survival of Warranties. All representations, warranties, agreements,
covenants and obligations herein or in any schedule, certificate or financial
statement delivered by any party to another party incident to the
transactions contemplated hereby are material, shall be deemed to have been
relied upon by the other party and shall survive the Closing for the
applicable periods set forth in Article 8 and shall be further actionable
subject to the limitations set forth therein, regardless of any investigation
and shall not merge in the performance of any obligation by either party
hereto.
11.2 Right to Offset. Buyer has the right to offset and credit any and/or
all payments to be made by it under this Agreement to or for the benefit of
the Sellers (other than the First Installment Payment, which shall not be
subject to offset by reason of claims) by reason of any claim by Buyer
against Seller or the Company for indemnification pursuant to Section 8.1
hereof. If the Buyer does exercise its right of set-off hereunder, it shall
give Seller ten calendar days advance written notice of that fact in
accordance with the provisions hereof. If Buyer does exercise its right of
set-off, it shall do so for all Sellers pro rata to their ownership interests
in the Company before Closing. If it is ultimately determined (by final
judgment of a court of competent jurisdiction not subject to further appeal,
by binding arbitration award, or by agreement between the parties) that Buyer
was not entitled to set off the amount so set-off, Buyer shall pay Seller
interest on the amount withheld from the date when it should have been paid
to the date of payment at an interest rate equal to the rate at which Buyer
could then borrow funds from its principal commercial lending bank.
11.3 Sale or Change in Control of Buyer. If, within eighteen (18) months
from the date of Closing, there shall be any change in the Interleaf Shares
as a result of a merger, consolidation, exchange or similar change in the
Buyer's Common Stock which would preclude the operation of Section 1.5 hereof
(a "Reorganization Transaction") Buyer will use its best efforts to obtain an
agreement of the other parties to the Reorganization Transaction either (i)
to repurchase any remaining Interleaf Shares for an amount in cash equal to
the net minimum obligation of Buyer under the price guaranty provided by
Section 1.5(c) as of the date of such Reorganization Transaction, or (ii) to
agree that the price and liquidity provisions set forth in Section 1.5 hereof
are applicable to the securities of the acquiring or surviving entity
received by the Seller in the Reorganization Transaction. Buyer shall not
have the obligation under (ii) of the preceding sentence to obtain comparable
price and liquidity protection for the benefit of the Seller if in Buyer's
opinion such agreement would prevent the Buyer's use of a pooling of
interests method of accounting; provided, that if the Seller does not receive
comparable price and liquidity protections in connection with the
Reorganization Transaction, then the Buyer shall offer on one occasion to
repurchase Seller's Interleaf Shares at a price per share equal to not less
than 90% nor more than 110% of the Market Value of the Interleaf Shares on
the date of delivery of the Interleaf Shares being repurchased.
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11.4 Fees and Expenses. Each of the parties will bear its own expenses in
connection with the negotiation and the consummation of the transactions
contemplated by this Agreement, or its negotiation and termination (if
terminated), including without limitation all legal, accounting and
investment banking or advisory fees, except that accounting and legal fees
properly booked as Company expenses prior to August 31, 1998 may be paid by
the Company provided they do not cause the Company's Closing Date net book
value and cash and cash equivalents to be less than $1,376,000 and 440,000,
respectively.
11.5 Notices. All notices, requests, demands and other communications
required or permitted to be given (i) hereunder by any party hereto shall be
in writing and shall be deemed to have been duly given when received if
delivered personally, or (ii) on the business day following the business day
sent if sent by prepaid domestically recognized overnight receipted courier
if sent domestically, or (iii) on the third business day following the day
sent if sent by prepaid internationally recognized overnight receipted
courier if sent internationally, or (iv) when receipt is telephonically
acknowledged if sent by telecopier transmission on a business day or, if not
a business day, on the next following business day, or (v) when answered back
if sent by telex, if on a business day, or if not a business day, or the next
following business day, to the parties at the following addresses (or at such
other addresses as shall be specified by the parties by like notice):
If to the Sellers or, prior to the Closing, to the Company, to:
Dona D. Ray
77 Avenue of Champions
Nicholasville, Kentucky 40356
and
PDR Automated Systems & Publications, Inc.
800 Corporate Drive, #200
Lexington, KY 40503-2793
Attn.: Dona D. Ray, President
Tel: (606) 223-4005
Fax: (606) 223-7938
with a copy to:
Vimont & Wills, PLLC
155 East Main Street, Suite 300
Lexington, KY 40507-1317
Attn.: Bernard F. Lovely, Esquire
Tel:(606) 252-2202
Fax:(605) 259-2927
If to the Buyer, to:
Interleaf, Inc.
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62 Fourth Street
Waltham, MA 02154
Attn.: Craig Newfield, V.P. & General Counsel
Tel: 781-768-1086
Fax: 781-768-1145
with a copy to:
Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, Massachusetts 02111
Attn.: David Murphree, 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.
11.6 Publicity and Disclosures. Except as may be otherwise required for
compliance by Buyer with applicable stock market rules or securities laws
(and subject to applicable limitations contained in contracts to which the
Company is a party), neither Buyer nor the Company shall issue nor approve
any news release or other public announcement concerning this Agreement (or
any schedules or exhibits hereto) without the prior written approval of the
other. Buyer and the Company agree to issue a mutually satisfactory press
release concerning the execution of this Agreement or consummation of the
transactions contemplated by this Agreement.
11.7 Confidentiality. The parties agree that they will keep confidential
and not disclose or divulge any confidential, proprietary or secret
information which they may obtain from another party hereto in connection
with the transactions contemplated herein, or pursuant to inspection rights
granted hereunder, or reveal the financial or other terms and conditions of
this Agreement unless such information is or hereafter becomes public
information through means other than a default hereof by such party or is
required to be disclosed by applicable law, including applicable securities
laws or stock exchange rules or regulations; provided, however, that Buyer
shall use its reasonable best efforts to obtain any consents of third parties
or confidential treatment, as applicable, in connection with the disclosure
of information relating to contracts to which the Company is a party as may
be required by the terms of such contracts. The obligations of this Section
10.7 shall survive any termination of this Agreement.
11.8 Time Period. The parties acknowledge that time is of the essence with
respect to the fulfillment of the respective obligations of the parties
hereto and the Closing of the Transaction as contemplated by this Agreement.
11.9 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
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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.
11.10 Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision hereof.
11.11 Assignability. This Agreement may not be assigned otherwise by
operation of law or otherwise (a) by Buyer without the prior written consent
of Sellers or (b) by Sellers without the prior written consent of Buyer.
However, any or all rights of Buyer to receive performance (but not the
obligations of Buyer to Sellers hereunder) and rights to assert claims
against Sellers in respect of breaches of representations, warranties or
covenants of Sellers hereunder, may be assigned by Buyer to any direct or
indirect subsidiary or other affiliate of Buyer, but any such assignee of
Buyer's rights hereunder shall take such rights subject to any defenses,
counterclaims and rights of setoff to which Sellers might be entitled under
this Agreement. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
11.12 Amendment. This Agreement may be amended only by a written agreement
executed all parties hereto.
11.13 Governing Law.
(a) This Agreement shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts (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.
(b) Any claim, action, suit or other proceeding initiated by any party to
this Agreement, under or in connection with this Agreement may be asserted,
brought, prosecuted and maintained in any Federal or state court in The
Commonwealth of Massachusetts, 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.
11.14 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, Sellers shall waive the defense
that there is an adequate remedy at law. Sellers acknowledge that the
Company Shares are unique and cannot be obtained on the open market. Without
limiting any remedies Buyer may otherwise have hereunder or under applicable
law, in the event Sellers refuse to perform their obligations under this
Agreement, Buyer shall have, in addition to any other rights at law or
equity, the right to specific performance.
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11.15 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.
11.16 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.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as an instrument under seal in multiple counterparts by their duly
authorized representatives on September 8, 1998, to be effective as of the
date first set forth above.
INTERLEAF, INC.
BY:
-----------------------------------
Name:
--------------------------------
Title:
--------------------------------
PDR AUTOMATED SYSTEMS & PUBLICATIONS,
INC.
BY:
-----------------------------------
Name: Dona D. Ray
Title: President
SELLER:
-------------------------------
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STOCK PURCHASE AGREEMENT
List of Schedules and Exhibits
------------------------------
<TABLE>
<CAPTION>
SCHEDULES
- ---------
<S> <C>
Schedule 2.1 Organization and Qualification of Company
Schedule 2.2 Stock Ownership
Schedule 2.6 No Conflict of Transactions with Obligations and Laws
Schedule 2.7(a) Financial Statements
Schedule 2.7(b) Auditor's Letters
Schedule 2.8 Liabilities Since Base Balance Sheet
Schedule 2.9 Conduct of Business
Schedule 2.10 Taxes
Schedule 2.11 Real Property Leases and Personal Property
Schedule 2.12 Receivables
Schedule 2.14(b) Intellectual Property Rights
Schedule 2.14(c) Qualifications to Statutory Intellectual Property Rights
Schedule 2.14(d) Confidentiality Agreements, Non-Competition Agreements,
Etc.
Schedule 2.15(a) Contracts
Schedule 2.15(b) Defaults
Schedule 2.15(c) Material Suppliers and Customers
Schedule 2.15(d) Backlog
Schedule 2.16 Consulting and Employee Agreements
Schedule 2.17 Employee Benefits and ERISA Plan
Schedule 2.18 Government Authorizations
Schedule 2.20 Litigation
Schedule 2.21 Borrowings and Guarantees
Schedule 2.22 Financial Services
Schedule 2.23 Insurance Policies
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Schedule 2.25 Finder's Fee
Schedule 2.26 Transactions with Interested Parties
Schedule 5.2 List of Key Employees
</TABLE>
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<PAGE>
EXHIBITS
- --------
<TABLE>
<CAPTION>
<S> <C>
Exhibit A Form of Warrant
Exhibit B Form of Release
Exhibits C-1,
C-2, C-3 Forms of Employment and Non-Competition Agreement and
Consulting and Non-Competition Agreement
Exhibit D Opinion of Company's and Seller's Counsel
Exhibit E Opinion of Buyer's General Counsel
</TABLE>
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