AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1999
REGISTRATION NO. 333-____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------------------
INTERLEAF, INC.
(Exact name of Registrant as Specified in its Charter)
MASSACHUSETTS 04-2729042
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification
Number)
62 FOURTH AVENUE
WALTHAM, MASSACHUSETTS 02451
(781) 290-0710
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
-----------------------------------
CRAIG NEWFIELD, ESQ.
INTERLEAF, INC.
62 FOURTH AVENUE
WALTHAM, MASSACHUSETTS 02451
(781) 290-0710
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
----------------------------------
COPIES TO:
DAVID H. MURPHREE, ESQ.
BROWN, RUDNICK, FREED & GESMER
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
TEL: (617) 856-8200
FAX: (617) 856-8201
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under Securities Act of 1933,
please check the following box. [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
<TABLE>
<CAPTION>
====================================================================================================
CALCULATION OF REGISTRATION FEE
====================================================================================================
| Amount | Proposed | Proposed | Amount Of |
Title of Each Class Of | To Be | Maximum Offering | Maximum Aggregate | Registration |
Securities To Be Registered | Registered | Price Per Share(1) | Offering Price (1) | Fee |
- -----------------------------|------------|--------------------|--------------------|--------------|
<S> <C> <C> <C> <C>
Common Stock, $.01 par value | 165,405 | $19.84 | $3,282,255 | $912 |
====================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the Registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended. Based on the
average of the high and low price of the Common Stock as reported on the
Nasdaq National Market on October 14, 1999.
--------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
PRELIMINARY PROSPECTUS DATED OCTOBER 15, 1999, SUBJECT TO COMPLETION
The information contained in this prospectus is not complete and the securities
may not be sold until the related registration statement filed with the
Securities and Exchange Commission or any applicable state securities commission
is effective. This prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
================================================================================
INTERLEAF, INC.
165,405 SHARES OF COMMON STOCK
This prospectus relates to the resale of 165,405 shares of the common
stock of Interleaf. These shares are already outstanding and may be
offered for sale from time to time for the accounts of the selling
stockholders listed on page 8 of this prospectus.
The common stock presently is traded on the Nasdaq National Market
under the symbol "LEAF". On October 14, 1999, the last reported sale
price of the common stock on the Nasdaq National Market was $20.375 per
share.
An investment in the common stock offered under this prospectus
involves a high degree of risk. See "Risk Factors" beginning on page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
THE DATE OF THIS PROSPECTUS IS OCTOBER __, 1999.
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<PAGE>
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SUMMARY
ABOUT INTERLEAF
Interleaf and its subsidiaries develop and market software products used in the
creation, publication, management and distribution of information and documents
in electronic and paper form. Interleaf's software products enable customers to
compose, edit, view, print, control, manage and distribute information and
documents on a cost-effective and efficient basis.
Interleaf's core product line includes:
o electronic publishing;
o document management systems;
o intranet publishing; and
o content management software.
Interleaf also provides technical support and maintenance, consulting, custom
application development, and implementation services to its customers.
Interleaf's principal executive offices are located at 62 Fourth
Avenue, Waltham, Massachusetts 02451, and its telephone number is (781)
290-0710.
SUMMARY OF THE OFFERING
Securities Offered: 165,405 shares of common stock.
Plan of Distribution: The shares of common stock covered by this prospectus
may be offered from time to time by the selling
stockholders. See "Plan of Distribution."
Trading: The common stock presently is traded on the Nasdaq
National Market under the symbol "LEAF."
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<PAGE>
RISK FACTORS
The following risk factors should be carefully considered in evaluating
Interleaf and its business.
INTERLEAF IS DEPENDENT ON THE SUCCESS OF ITS NEW E-CONTENT PRODUCTS AND
SERVICES.
Interleaf's strategy for future growth depends upon the successful
development, introduction and customer acceptance of new and improved products
and services such as the content management products (called BladeRunnerTM) and
related services being developed by the e-content company, a division of
Interleaf. Content management refers to processes and technology which enable a
business enterprise to create and package information content (such as text,
graphics, documents and hyperlinks) from throughout an organization and its
business partners as part of a dynamic, integrated web-based solution. There is
a risk that the market for content management products and services may not
grow, that Interleaf may not be successful in developing content management
software, or that the marketplace may not accept Interleaf's software.
Interleaf's new products are based on the "XML" language (eXtensible Markup
Language). There are risks that this new technology will change, and as a result
the new products will not meet market and customer requirements. There is also a
risk that XML will be supplanted as the de facto standard in the content
management market, and that BladeRunner will become obsolete or that Interleaf
will be forced to migrate the product to a new technology.
INTERLEAF'S QUARTERLY OPERATING RESULTS MAY FLUCTUATE.
Interleaf believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and that investors should not rely on
them as indications of future performance because of the following factors:
o Interleaf typically ships a substantial amount of its products in
the final weeks, or even the final days, of each quarter;
o The length of Interleaf's sales cycle makes it difficult to
predict when Interleaf will receive license revenue; and
o Any shortfall or delay in the recognition of revenue from even a
limited number of software license transactions could cause
significant variations in Interleaf's operating results from
quarter to quarter because Interleaf's expenses are relatively
fixed.
These factors also increase the risk that Interleaf's results in some
quarters will be below the expectations of stock analysts or investors. Such an
"earnings surprise" frequently will result in a drop in the market price of a
company's stock.
INTERLEAF FACES INTENSE COMPETITION IN BOTH THE TECHNICAL DOCUMENTATION AND
CONTENT MANAGEMENT MARKETS FROM COMPETITORS WITH GREATER RESOURCES.
The market for Interleaf's existing technical documentation products is
very competitive, subject to rapid change and significantly affected by
activities of other industry participants. Several competitors in that market
have greater market penetration, greater name recognition, a larger installed
base of customers and significantly greater financial, technical and marketing
resources than Interleaf.
-3-
<PAGE>
While Interleaf has identified its primary existing competitors in the
content management market, this market is still developing and subject to rapid
change. As a result, new competitors may emerge very quickly, or very large
companies such as Microsoft Corporation may decide to enter the market,
presenting significant competitive challenges and causing turmoil in the market.
INTERLEAF NEEDS TO MAINTAIN A GOOD WORKING RELATIONSHIP WITH MICROSOFT, AND TO
DEVELOP NEW RELATIONSHIPS WITH OTHER COMPANIES.
Interleaf also needs to maintain a good working relationship with
Microsoft Corporation, since many of Interleaf's products are designed to be
accessed using Microsoft software such as Microsoft Word, Office, SQL Server and
NT. Interleaf believes that market penetration and acceptance of its new content
management products will depend significantly on developing relationships with
companies that will promote, market, re-sell and integrate BladeRunner,
including relationships with third party resellers, system integrators and other
companies. Interleaf cannot guaranty that it will be able to develop and
maintain these relationships.
INTERLEAF'S INTELLECTUAL PROPERTY HAS LIMITED PROTECTION; OTHERS COULD
MISAPPROPRIATE INTERLEAF'S INTELLECTUAL PROPERTY AND INTERLEAF MAY NOT BE ABLE
TO ENFORCE ITS RIGHTS; INTERLEAF'S INTELLECTUAL PROPERTY COULD INFRINGE ON
RIGHTS OF OTHERS.
Interleaf's success is heavily dependent upon the protection of its
proprietary technology through a combination of copyrights, trademarks, patents,
trade secrets and technical measures. There is the risk that Interleaf's
attempts to protect its rights will not be adequate or that competitors may
independently develop similar technology. Interleaf seeks to protect its
software, documentation and other written materials primarily under trade secret
and copyright laws, which afford only limited protection. The laws of some
foreign countries do not provide the same level of protection to Interleaf's
proprietary rights as do the laws of the United States. Policing unauthorized
use of Interleaf's products is difficult. While Interleaf cannot determine the
extent to which piracy of its software products exists, some software piracy can
be expected.
Interleaf is not aware that any of its products infringe the
proprietary rights of third parties. However, in the future, third parties may
claim that Interleaf's current or future products infringe on their proprietary
rights. Claims of this type could be very time-consuming, result in costly
litigation, cause product shipment delays or require Interleaf to enter into
costly royalty or licensing agreements.
INTERLEAF'S FOREIGN SALES AND FINANCIAL RESULTS MAY FLUCTUATE BECAUSE OF
CURRENCY EXCHANGE RATE FLUCTUATIONS.
Interleaf generates sales primarily in U.S. dollars, British pounds,
and Euros and incurs expenses principally in the same currencies. Fluctuations
in the value of the U.S. dollar and foreign currencies have caused, and are
likely to continue to cause, amounts translated into U.S. dollars to fluctuate
in comparison with previous periods. Interleaf generally has not attempted to
limit its foreign currency exposure through foreign currency exchange rate
hedging transactions. Exchange rate fluctuations or other risks associated with
international operations may have a material adverse affect on Interleaf's
business, financial condition and results of operations. Interleaf's worldwide
business operations also may be affected by changes in demand resulting from
these currency exchange rate fluctuations, as well as by governmental controls
and other risks associated with international sales (such as changes in various
regulatory requirements, political and economic changes and disruptions,
export/import controls, tariff regulations, difficulties in staffing and
managing foreign sales and support operations, greater difficulties in trade
accounts receivable collection, and possibly adverse tax consequences).
-4-
<PAGE>
YEAR 2000 PROBLEMS COULD AFFECT INTERLEAF'S BUSINESS.
Some computers, software, and other equipment include programming code
in which calendar year data is abbreviated to only two digits. As a result of
this design decision, some of the systems do not properly recognize a year that
begins with "20" instead of "19". These problems are widely expected to increase
in frequency and severity as the year 2000 approaches, and are commonly referred
to as the "Millennium Bug" or "Year 2000 problem". Interleaf has made
significant efforts to address its Year 2000 issues, as described in its Annual
Report on Form 10-K for the fiscal year ended March 31, 1999. At this time, we
have not identified any significant risks associated with its Year 2000
readiness, although there is a risk that unanticipated problems may arise. Any
costs, which are not expected to be material, that are associated with
compliance efforts are being funded out of cash flow from operations.
RECENT ACQUISITIONS HAVE RISKS.
As part of its business strategy to acquire and develop new products
and services, Interleaf acquired PDR Automated Systems and Publications, Inc.,
Horizon Interactive, Inc., Docu-Net, Inc. and the remaining outstanding capital
of Interleaf Italia Srl and certain assets of Softquad and Texcel International
AB during the past 13 months. The risks related to these acquisitions include,
among others, the difficulty of assimilating the operations, information systems
and personnel of the acquired businesses; difficulties in assimilating the
acquired products into Interleaf's current and future products, sales force and
sales channels; the risk that customers of the acquired businesses will react
unfavorably to the acquisition and as a result Interleaf will not reap the
benefits that it had expected; and difficulties in retaining and integrating
employees of the acquired businesses.
RECENT DEVELOPMENTS
The e-content company, a division of Interleaf, Inc., has recently
commenced the development of a BladeRunner application which Interleaf believes
has significant potential for growth. This new application, code named "XWAP,"
will make use of eXtensible Style Language (XSL) to enable a single copy of a
customer's content residing in the company's content management product,
BladeRunner, to be transformed and transmitted to any wireless or Internet
device (such as a personal digital assistant, cell phone or electronic book),
rendering that content in a fashion appropriate for the particular device. For
example, while a PC supports frames, animated images, and high resolution color
displays, a cell phone does not. XWAP will dynamically generate pages viewable
and appropriate for the particular device to which the content is being
distributed.
The Company believes that over time, multi-device portals and Web sites
will be a key growth area of the World Wide Web, and that this new XWAP
BladeRunner application could become an important source of revenue for the
Company. However, this application does not yet exist and the Company's efforts
to develop, market and derive revenue from this application are subject to a
variety of risks, including: the failure of the market for multi-device portals
and Web sites to grow as expected; difficulties in designing and developing the
application on time and with the required quality; changes in the XML and XSL
language and standards or the emergence of new competing technologies; and the
development of similar applications by other companies, including
telecommunications companies, having far greater resources than Interleaf.
-5-
<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus and in the
documents incorporated by reference are forward-looking. The following and
similar expressions identify forward-looking statements:
o expects
o anticipates
o estimates
Forward-looking statements include, but are not limited to, statements
related to:
o Interleaf's plans, objectives, expectations and intentions;
o the timing of, availability and functionality of products under
development or recently introduced; and
o general economic conditions.
Actual results may differ materially from those suggested by the
forward-looking statements for various reasons, including those discussed under
"Risk Factors." These forward-looking statements speak only as of the date of
this prospectus, or in the case of forward-looking statements in documents
incorporated by reference, as of the dates of those documents.
USE OF PROCEEDS
Interleaf will not receive any proceeds from the sale by the selling
stockholders listed below of the shares of common stock offered under this
prospectus.
SELLING STOCKHOLDERS
The shares of common stock covered by this prospectus are being offered
by those selling stockholders listed below. On August 31, 1998, Interleaf
purchased all of the outstanding shares of PDR Automated Systems and
Publications, Inc. pursuant to stock purchase agreements with Dona Ray, Davis
Marksbury and Daniel Kloiber (referred to as "PDR selling stockholders"). The
purchase price for the PDR shares under these agreements was payable in
installments on August 31, 1998, February 28, 1999, March 31, 1999 and September
30, 1999. The installments payable in March and September of 1999 were payable
in shares of Interleaf common stock having a then current market value
substantially equal to the dollar amount of the installment payment obligation.
Immediately prior to the effectiveness of the registration statement of which
this prospectus is a part, Interleaf issued 143,526 shares to the PDR selling
stockholders as payment of the September 1999 installment.
On September 29, 1999, Interleaf purchased all of the outstanding
shares of Horizon Interactive, Inc. pursuant to a stock purchase agreement with
Horizon, Steven Imke, Dale Chavez and Randy Welsch. The purchase price of the
Horizon shares under this agreement was payable in installments on September 29,
1999, October 1, 2000 and October 15, 2000. The installments may be paid in
shares of the common stock having a then current market value substantially
equal to the cash amount of the installment. On September 29, 1999, Interleaf
issued 16,879 shares to Steven Imke, Dale Chavez and Randy Welsch as payment of
the September 1999 installment.
On September 29, 1999, Interleaf purchased all of the outstanding
shares of Docu-Net, Inc. pursuant to a stock purchase agreement with Docu-Net,
Daniel Schweitzer and Larry Scott. The purchase price of the
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<PAGE>
Docu-Net shares under this agreement was payable in installments on September
29, 1999 and on or before October 3, 2000. The installments may be paid in
shares of the common stock having a then current market value substantially
equal to the cash amount of the installment. On September 29, 1999, Interleaf
issued 5,000 shares to Daniel Schweitzer and Larry Scott as payment of the
September 1999 installment.
In connection with the PDR acquisition, each PDR selling stockholder
entered into an agreement with Interleaf to assist in effecting a professional
and smooth transition of the business operations of PDR to Interleaf. In
particular, Dona Ray entered into an employment agreement with a term of one
year and Davis Marksbury and Daniel Kloiber entered into consulting agreements
with terms of three months. Prior to the PDR acquisition, the selling
stockholders held the following offices at PDR: Ms. Ray held the offices of
President and Chief Financial Officer, Mr. Marksbury held the office of Chairman
of the Board and Mr. Kloiber held the offices of Vice President and Secretary.
In connection with the Horizon acquisition, each Horizon selling
stockholder entered into an agreement with Interleaf to become an Interleaf
employee having sales and management responsibility for the Horizon business.
Prior to the Horizon acquisition, Mr. Imke was a director and President, and Mr.
Chavez was a director and Vice-President, of Horizon.
In connection with the Docu-Net acquisition, Mr. Daniel Schweitzer
entered into an agreement with Interleaf to become an Interleaf employee having
sales and management responsibility for the Docu-Net business. Prior to the
Docu-Net acquisition, Mr. Schweitzer was a director and Vice President, and
Larry Scott was a director and the President of Docu-Net.
Other than as just described, none of the selling stockholders has held
any position or office or had any other material relationship with Interleaf
during the past three years.
The following table sets forth:
o the number of shares of common stock beneficially owned by each of
the selling stockholders as of October 14, 1999 (including any
shares which that selling stockholder has the right to acquire
within 60 days after October 14, 1999 by the exercise of options)
after taking into account the shares of common stock issued as
payment of the September 1999 purchase price installments for the
PDR, Docu-Net and Horizon shares;
o the maximum number of shares of common stock that may be offered
by the selling stockholder under this prospectus;
o the number of shares of common stock that will be beneficially
owned by each selling stockholder assuming all of the shares that
may be offered under this prospectus are sold; and
o the percentage of common stock owned after the offering if all of
the shares that may be offered under this prospectus are sold.
The information with regard to each selling stockholder provided in the
table and footnotes below is based upon information provided to Interleaf by
that selling stockholder.
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<PAGE>
<TABLE>
<CAPTION>
Number of
Shares
Number of Shares Maximum Number Beneficially Percentage of
Name of Beneficially Owned as of Shares Being Owned after Class Owned
Beneficial Owner of October 14, 1999 Offered Offering After Offering
------------------ ------------------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Dona D. Ray 71,700 7,1700 0 0%
Davis L. Marksbury 65,542 55,542 10,000 0%
Daniel J. Kloiber 22,584 16,284 6,300 0%
Steven Imke 13,503 13,503 0 0%
Daniel Schweitzer 2,500 2,500 0 0%
Larry Scott 2,500 2,500 0 0%
Dale J. Chavez 1,688 1,688 0 0%
Randy Welsch 1,688 1,688 0 0%
</TABLE>
PLAN OF DISTRIBUTION
We are registering all of the shares on behalf of the selling
stockholders. "Selling stockholders," as used in this prospectus, includes
donees, pledgees, transferees or other successors in interest selling shares
received from a named selling stockholder after the date of this prospectus.
The selling stockholders may sell their shares from time to time. The
selling stockholders will act independently of Interleaf in making decisions
with respect to the timing, manner and size of each sale. The sales may be made
on one or more markets at prices and at terms then prevailing or at prices
related to the then current market price, or in negotiated transactions. The
selling stockholders may sell their shares by one or more of, or a combination
of, the following methods:
o purchases by a broker-dealer as principal and the resale by such
broker or dealer for its account pursuant to this prospectus,
o ordinary brokerage transactions and transactions in which the
broker solicits purchasers,
o block trades in which the broker-dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction,
o an over-the-counter distribution in accordance with the rules of
the NASDAQ National Market,
o in privately negotiated transactions,
o in put or call option transactions or short sales related to the
shares, and
o for shares that qualify for resale under Rule 144 of the
Securities Act, under that rule rather than this prospectus.
Selling stockholders may make sales directly to purchasers or through
broker-dealers. If making sales through broker-dealers, those broker-dealers may
in turn arrange for other broker-dealers to participate. Broker-dealers will
receive commissions or discounts from the selling stockholders in amounts to be
negotiated immediately prior to the sale. In offering the shares covered by this
prospectus, the selling stockholders and any broker-dealers who execute sales
for the selling stockholders may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with those sales.
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<PAGE>
Any profits realized by the selling stockholders and the compensation of any
broker-dealer may be deemed to be underwriting discounts and commissions.
In addition, if any selling stockholder is an affiliate of a
broker-dealer, and sells its shares prior to one year after acquiring those
shares then, in the view of the SEC staff, that selling stockholder is an
underwriter and may only sell stock under this prospectus if Interleaf is
eligible to use Form S-3 for a sale of stock by it. As of the date hereof,
Interleaf is eligible to use Form S-3 for a sale of stock by it.
In connection with sales of the shares, the selling stockholders may
enter into hedging transactions with financial institutions, including
broker-dealers. In connection with those transactions, those financial
institutions may engage in short sales of the common stock in the course of
hedging the positions they assume with selling stockholders. The selling
stockholders may also sell the common stock short and redeliver the shares to
close out their short positions. The selling stockholders may also enter into
option or other transactions with financial institutions which require the
delivery to those financial institutions of shares offered by this prospectus.
The financial institution may then resell those shares pursuant to this
prospectus (as supplemented or amended to reflect such transaction). The selling
stockholders may also pledge shares to a financial institution, and, upon a
default, the financial institution may make sales of the pledged shares pursuant
to this prospectus (as supplemented or amended to reflect such transaction).
The selling stockholders may agree to indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities, including liabilities arising under the
Securities Act.
To the extent required, this prospectus may be amended and supplemented
from time to time to describe a specific plan of distribution. If Interleaf is
notified by a selling stockholder that any material arrangement has been entered
into with a broker-dealer for the sale of shares through a block trade, special
offering, exchange distribution or secondary distribution or a purchase by a
broker or dealer, a supplement to this prospectus will be filed, if required
under the Securities Act, disclosing (i) the name of each selling stockholder
and of the participating broker-dealers(s), (ii) the number of shares involved,
(iii) the price at which the shares were sold, (iv) the commissions paid or
discounts or concessions allowed to such broker-dealers(s), where applicable,
(v) that the broker-dealer(s) did not conduct any investigation to verity the
information set out or incorporated by reference in this prospectus and (vi)
other facts material to the transaction. In addition, upon Interleaf being
notified by a selling stockholder that a donee or pledgee intends to sell more
than 500 shares, a supplement to this prospectus will be filed.
In order to comply with the securities law of certain states, shares
sold in those states must be sold only through registered or licensed brokers or
dealers. In addition, in certain states the shares may not be sold unless they
have been registered or qualified for sale in that state or unless the seller
complies with an exemption.
We have advised the selling stockholders that the anti-manipulation
rules of Regulation M under the Securities Exchange Act may apply to sales of
shares in the market and to the activities of the selling stockholders and their
affiliates.
Except as provided herein, Interleaf has agreed to pay all expenses
incident to the offer and sale of the common stock offered by the selling
stockholders under this prospectus. Interleaf estimates such expenses to be
approximately $33,412. The selling stockholders will pay all selling
commissions, brokerage fees and related expenses.
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<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
on the SEC's Website at "http://www.sec.gov."
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934.
1. Annual Report on Form 10-K for the fiscal year ended March 31,
1999;
2. Quarterly Report on Form 10-Q and the amendments thereto for the
fiscal quarter ended June 30, 1999;
3. Current Report on Form 8-K filed on August 17, 1999; and
4. The description of Interleaf's common stock contained in the
registration statement on Form 8-A filed on June 11, 1986,
including all amendments or reports filed for the purpose of
updating such description.
You may request a copy of these filings at no cost, by writing or
telephoning our General Counsel at the following address:
Interleaf, Inc.
62 Fourth Avenue
Waltham, Massachusetts 02451
(781) 290-0710
This prospectus is part of a registration statement we filed with the
SEC. You should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide you with different information.
We are not making an offer of these securities in any state where the offer is
not permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of the document.
LEGAL MATTERS
The validity of the shares of common stock offered hereby has been
passed upon for Interleaf by Craig Newfield, Esq., General Counsel of Interleaf.
EXPERTS
The financial statements as of and for the year ended March 31, 1999
incorporated in this Prospectus by reference to the Annual Report on Form 10-K
for the year ended March 31, 1999, have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
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The consolidated financial statements of Interleaf, Inc. as of and for
the two years ended March 31, 1998 appearing in Interleaf, Inc.'s Annual Report
(Form 10-K) for the year ended March 31, 1999, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
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<PAGE>
This prospectus is part of a registration
statement that we filed with the SEC. You INTERLEAF, INC.
should rely only on the information or
representations provided in this
prospectus. We have authorized no one to
provide you with different information.
We are not making an offer in any 165,405 SHARES OF COMMON STOCK
jurisdiction where the offering is not
permitted.
PROSPECTUS
OCTOBER __, 1999
TABLE OF CONTENTS PAGE
Summary..................................... 2
Risk Factors................................ 3
Recent Developments......................... 5
Forward Looking Statements.................. 6
Use of Proceeds............................. 6
Selling Stockholders........................ 6
Plan of Distribution........................ 8
Where You Can Find More Information......... 10
Legal Matters............................... 10
Experts..................................... 10
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities
registered hereby. All amounts are estimated except the SEC and Nasdaq filing
fee. Costs of issuance and distribution will be borne by the Registrant as
follows:
SEC Registration Fee $ 912
Nasdaq Listing Fee $ 17,500
Accounting Fees and Expenses $ 2,500 *
Legal Fees and Expenses $ 7,500 *
Miscellaneous $ 5,000 *
--------
Total $ 33,412
========
*Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) Section 67 of the Massachusetts Business Corporation Law permits
indemnification of present and former directors and officers to the extent
specified in or authorized by (i) the articles of organization, (ii) a by-law
adopted by the stockholders, (iii) a vote adopted by the holders of a majority
of the shares of stock entitled to vote, or (iv) in the case of officers who are
not directors, by the Board of Directors, except that no indemnification shall
be provided for any person with respect to any matter as to which he shall have
been adjudicated in any proceeding not to have acted in good faith in the
reasonable belief that his action was in the best interests of the corporation.
Section 67 also provides that the absence of any express provision for
indemnification shall not limit any right of indemnification existing
independently of such Section.
(b) Article V of Interleaf's By-laws provides that Interleaf shall, to
the extent legally permissible, indemnify each former or present director or
officer against all liabilities and expenses imposed upon or incurred by any
such person in connection with, or arising out of, the defense or disposition of
any action, suit or other proceeding, civil or criminal, in which he may be
threatened or involved, by reason of his having been a director or officer;
provided that Interleaf shall provide no indemnification with respect to any
matter as to which any such person shall be finally adjudicated in such action,
suit or proceeding not to have acted in good faith in the reasonable belief that
his action was in the best interests of Interleaf. If any such action is
disposed of, on the merits or otherwise, without the disposition being adverse
to the director or officer and without an adjudication that such person did not
act in good faith in the reasonable belief that his action was in the best
interests of Interleaf, the director or officer is entitled to indemnification
as a matter of right. In all other cases, indemnification shall be made as of
right unless after investigation (a) by the Board of Directors by a majority
vote of a quorum of disinterested directors, or (b) by written opinion of
independent legal counsel (who may be regular counsel of Interleaf), or (c) the
holders of a majority of outstanding stock entitled to vote (exclusive of stock
owned by any interested directors or officers), it shall be determined by clear
and convincing evidence that such person did not act in good faith and in a
manner reasonably believed to be in or not opposed to the best interest of
Interleaf. Indemnification may include advancement of expenses of defending an
action upon receipt of an undertaking by the person indemnified to repay such
advances if it is ultimately determined that such person is not entitled to
indemnification under Article V. Article V also provides that the right of
indemnification provided therein is not exclusive of and does not affect any
other rights to which any director or officer may be entitled under any
agreement, statute, vote of stockholders or otherwise. The Company's obligation
to indemnify under Article V shall be offset to the extent of any other source
of indemnification or any otherwise applicable insurance coverage.
II-1
<PAGE>
(c) The Company has entered into an Agreement to Defend and Indemnify
with each of its officers and directors. Pursuant to these agreements, Interleaf
has agreed, to the extent legally permissible, to indemnify such person against
all losses (including, without limitation, judgments, fines and penalties) and
expenses (including, without limitation, amounts paid in settlement and counsel
fees and disbursements) incurred by such person in connection with or as a
result of any claim, action, suit or other proceeding, civil or criminal, or
appeal related thereto, in which he may be involved by reason of his having been
a director or officer or by reason of any action taken or not taken in his
capacity as director or officer; provided that no indemnification shall be
provided with respect to any matter as to which such person shall not have acted
in good faith in the reasonable belief that his action was in the best interests
of Interleaf. If any such claim, action, suit or proceeding is disposed of, on
the merits or otherwise, without the disposition being adverse to such person,
without a plea of guilty or NOLO CONTENDRE and without an adjudication that such
person did not act in good faith in the reasonable belief that his action was in
the best interests of Interleaf, the director or officer is entitled to
indemnification as a matter of right. In all other cases, indemnification shall
be made upon a determination that such person's conduct was in good faith and in
the reasonable belief that his action was in the best interests of Interleaf by
(a) a quorum of disinterested directors, or (b) independent legal counsel (who
may be regular counsel of Interleaf), or (c) the holders of a majority of
outstanding stock entitled to vote (exclusive of stock owned by an interested
directors or officer). Expenses may be advanced by Interleaf prior to any final
disposition of any such action upon receipt of an undertaking by the person
indemnified to repay such advances if it is ultimately determined that such
person is not entitled to indemnification under the Agreement. Such Agreements
provide that the right of indemnification provided therein is in addition to any
rights to which any person concerned may be entitled by other agreements or as a
matter of law, and shall inure to the benefit of the heirs, executors and
administrators of the indemnified person. The rights of indemnification provided
in such Agreements are in addition to any rights under any insurance policy in
effect, provide that to the extent any claim is covered by any such insurance
policy, Interleaf will provide coverage after the full coverage of the insurance
policy is exhausted or otherwise unavailable.
(d) Article 6D of Interleaf's Articles of Organization provides that,
to the fullest extent permitted by Chapter 156B of the Massachusetts General
Laws, a director of Interleaf shall not be personally liable to Interleaf or its
stockholders for monetary damages for breach of fiduciary duty as a director,
notwithstanding any provision of law imposing such liability. Section 13(b)(1
1/2) of Chapter 156B of the Massachusetts General Laws permits a corporation to
include in its articles of organization a provision eliminating or limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary as a director, except for (i) any
breach of the director's duty of loyalty to the corporation and its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (ii) improper
issuances of stock or unauthorized distributions to stockholders, or (iv) any
transaction in which the director derived an improper personal benefit.
ITEM 16. EXHIBITS
The exhibits listed in the accompanying Exhibit Index are filed as part of this
Registration Statement on Form S-3.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information in the registration statement;
(iii)To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
II-2
<PAGE>
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this section do
not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to section 13 or section
15(d) of the Exchange Act that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g) Not applicable.
(h) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(i) Not applicable.
(j) Not applicable.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in City of Waltham, Commonwealth of Massachusetts, on October 15,
1999.
INTERLEAF, INC.
By: /s/ Jaime W. Ellertson
-----------------------------
Jaime W. Ellertson, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jaime W. Ellertson, Peter Rice and Craig
Newfield, and each of them (with full power to each of them to act alone), his
or her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this registration statement, and to file the same,
with all exhibits thereto and other documents in connection therewith, and, in
connection with any registration of additional securities pursuant to Rule
462(b) under the Securities Act, to sign any abbreviated registration statement
and any and all amendments thereto, and to file the same, with all exhibits
thereto and other documents in connection therewith, in each case, with the
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or either of them, or
their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Jaime W. Ellertson President and Chief Executive Officer, October 15, 1999
- -------------------------------- and Chairman of the Board of Directors
Jaime W. Ellertson (Principal Executive Officer)
/s/ Peter J. Rice Vice President of Finance and Administration, October 15, 1999
- -------------------------------- Chief Financial Officer and Treasurer
Peter J. Rice (Principal Financial and Accounting Officer)
/s/ Frederick B. Bamber Director October 15, 1999
- --------------------------------
Frederick B. Bamber
/s/ David A. Boucher Director October 15, 1999
- --------------------------------
David A. Boucher
/s/ Rory J. Cowan Director October 15, 1999
- --------------------------------
Rory J. Cowan
/s/ Marcia J. Hooper Director October 15, 1999
- --------------------------------
Marcia J. Hooper
/s/ John A. Lopiano Director October 15, 1999
- --------------------------------
John. A. Lopiano
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
3.1 Restated Articles of Organization of Interleaf, as amended (Filed as
the applicable exhibit to Interleaf's Report on Form 10-Q for the
fiscal quarter ended September 30, 1997)*
3.2 By-Laws of Interleaf, as amended (Filed as the applicable exhibit to
Interleaf's Annual Report on Form 10-K for the fiscal year ended
March 31, 1994)*
4.1 Specimen Certificate for shares of Interleaf's common stock (Filed as
the Exhibit 4.01 to Interleaf's Annual Report on Form 10-K for the
fiscal year ended March 13, 1999 )*
4.2 Stock Purchase Agreement by and among Interleaf, PDR and Donna D.
Ray, with variable information for otherwise identical agreements
with Messrs. Marksbury and Kloiber (Filed as Exhibit 10.1 to
Interleaf's Current Report on Form 8-K, dated September 24, 1998)*
5.1 Legal Opinion of Craig Newfield, Esq.**
10.1 Stock Purchase Agreement among Interleaf, Horizon Interactive, Inc.,
and Steven Imke, Dale J. Chavez and Randy Welsch, dated September 29,
1999 **
10.2 Stock Purchase Agreement among Interleaf, Docu-Net, Inc., and Daniel
Schweitzer and Larry Scott, dated September 29, 1999 **
23.1 Consent of PricewaterhouseCoopers LLP **
23.2 Consent of Ernst & Young LLP**
23.3 Consent of Craig Newfield, Esq. (contained in Exhibit 5.1)**
24 Power of Attorney (contained on Signature Page of this registration
statement)**
- ---------------
* Not filed herewith. In accordance with Rule 411 promulgated
pursuant to the Securities Act of 1933, as amended, reference is
made to the documents previously filed with the Commission,
which are incorporated by reference herein.
** Filed herewith.
II-5
EXHIBIT 5.1
October 15, 1999
Interleaf, Inc.
62 Fourth Avenue
Waltham, MA 02451
Gentlemen:
I have assisted in the preparation of a Registration Statement on Form S-3 to be
filed with the Securities and Exchange Commission (the "Registration
Statement"), relating to 165,405 shares of Common Stock, $.01 par value per
share (the "Shares"), of Interleaf, Inc., a Massachusetts corporation (the
"Company"), issued in connection with certain Stock Purchase Agreements between
the Company and certain stockholders of PDR Automated Systems and Publications,
Inc., Docu-Net, Inc. and Horizon Interactive, Inc. (collectively, the
"Agreements").
I have examined (i) the Restated Articles of Organization and By-laws of the
Company and all amendments thereto, (ii) the Agreements, and (iii) such records
of meetings of the directors and stockholders of the company, documents and
other instruments as in my judgment are necessary or appropriate to enable me to
render the opinion expressed below.
In my examination of the foregoing documents, I have assumed the genuineness of
all signatures and the authenticity of all documents submitted to me as
originals, the conformity to original documents of all documents submitted to me
as certified or photostatic copies, and the authenticity of the originals of
such latter documents.
Based upon the foregoing, I am of the opinion that the Shares have been duly
authorized for issuance and, when issued pursuant to the terms of the
Agreements, will be legally issued, fully paid and nonassessable.
I hereby consent to the use of my name in the Registration Statement and consent
to the filing of this opinion with the Securities and Exchange Commission as an
exhibit to the Registration Statement.
Very truly yours,
/s/ Craig Newfield
- ------------------
Craig Newfield,
General Counsel
EXHIBIT 10.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BY AND AMONG
INTERLEAF, INC.
HORIZON INTERACTIVE, INC.
AND
STEVEN IMKE, Dale J. Chavez AND RANDY WELSCH
DATED: As of September 29, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Stock Purchase Agreement
<PAGE>
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
ARTICLE 1. PURCHASE AND SALE OF STOCK.........................................1
1.1 PURCHASE OF COMPANY SHARES...........................................1
1.2 TIME AND PLACE OF CLOSING............................................2
1.3 DELIVERY OF COMPANY SHARES...........................................2
1.4 FURTHER ASSURANCES...................................................3
1.5 TAX REPORTING........................................................3
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS..........3
2.1 ORGANIZATION AND QUALIFICATION OF COMPANY............................3
2.2 CAPITALIZATION OF COMPANY; TITLE TO STOCK............................3
2.3 OTHER INVESTMENTS....................................................4
2.4 AUTHORIZATION OF TRANSACTION.........................................4
2.5 PRESENT COMPLIANCE WITH OBLIGATIONS AND LAWS.........................5
2.6 NO CONFLICT OF TRANSACTION WITH OBLIGATIONS AND LAWS.................5
2.7 FINANCIAL STATEMENTS.................................................5
2.8 ABSENCE OF UNDISCLOSED LIABILITIES...................................6
2.9 CONDUCT OF BUSINESS; ABSENCE OF CERTAIN CHANGES......................6
2.10 PAYMENT OF TAXES..................................................6
2.11 TITLE TO PROPERTIES; LIENS; CONDITION OF PROPERTIES...............7
2.12 COLLECTIBILITY OF RECEIVABLES.....................................7
2.13 INTELLECTUAL PROPERTY RIGHTS......................................7
2.14 CONTRACTS AND COMMITMENTS.........................................8
2.15 LABOR AND EMPLOYEE RELATIONS......................................9
2.16 EMPLOYEE BENEFITS AND ERISA......................................10
- --------------------------------------------------------------------------------
Stock Purchase Agreement Page i
<PAGE>
2.17 GOVERNMENT AUTHORIZATIONS........................................11
2.18 WARRANTY OR OTHER CLAIMS.........................................11
2.19 LITIGATION.......................................................11
2.20 BORROWINGS AND GUARANTEES........................................11
2.21 INSURANCE........................................................11
2.22 MINUTE BOOKS.....................................................12
2.23 FINDER'S FEE.....................................................12
2.24 TRANSACTIONS WITH INTERESTED PERSONS.............................12
2.25 ABSENCE OF SENSITIVE PAYMENTS....................................12
2.26 ENVIRONMENTAL MATTERS............................................12
2.27 DISCLOSURE OF MATERIAL INFORMATION...............................12
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF BUYER...........................13
3.1 ORGANIZATION OF BUYER...............................................13
3.2 AUTHORIZATION OF INTERLEAF SHARES...................................13
3.3 AUTHORIZATION OF TRANSACTION........................................13
3.4 NO CONFLICT OF TRANSACTION WITH OBLIGATIONS AND LAWS................13
3.5 REPORTS.............................................................13
ARTICLE 4. CONDITIONS TO OBLIGATIONS OF BUYER................................14
4.1 REPRESENTATIONS; WARRANTIES; COVENANTS..............................14
4.2 EMPLOYMENT AND NON-COMPETITION AGREEMENTS...........................14
4.3 OPINION OF SELLERS' COUNSEL.........................................14
4.4 ABSENCE OF CERTAIN LITIGATION.......................................15
ARTICLE 5. CONDITIONS TO OBLIGATIONS OF THE SELLERS..........................15
5.1 REPRESENTATIONS; WARRANTIES; COVENANTS..............................15
5.2 EMPLOYMENT AGREEMENT AND NON-COMPETITION PAYMENT....................15
ARTICLE 6. AGREEMENT OF PARTIES.......................................15
- --------------------------------------------------------------------------------
Stock Purchase Agreement Page ii
<PAGE>
6.1 TERMINATION OF LETTER AGREEMENT.....................................15
ARTICLE 7. INDEMNIFICATION...................................................17
7.1 INDEMNIFICATION BY SELLERS..........................................17
7.2 INDEMNIFICATION BY BUYER............................................18
7.3 DEFENSE OF THIRD PARTY ACTIONS......................................19
7.4 MISCELLANEOUS.......................................................19
7.5 PAYMENT OF INDEMNIFICATION..........................................20
ARTICLE 8. TERMINATION OF AGREEMENT..........................................20
8.1 TERMINATION.........................................................20
8.2 EFFECT OF TERMINATION...............................................20
8.3 RIGHT TO PROCEED....................................................20
ARTICLE 9. DEFINITIONS.......................................................21
ARTICLE 10.MISCELLANEOUS.....................................................24
10.1 SURVIVAL OF WARRANTIES...........................................24
10.2 RIGHT TO OFFSET..................................................24
10.3 FEES AND EXPENSES................................................24
10.4 NOTICES..........................................................24
10.5 CONFIDENTIALITY..................................................25
10.6 PUBLICITY AND DISCLOSURES........................................25
10.7 ASSIGNABILITY....................................................25
10.8 REMEDIES.........................................................25
10.9 GOVERNING LAW; JURISDICTION; VENUE...............................26
10.10 MISCELLANEOUS....................................................26
- --------------------------------------------------------------------------------
Stock Purchase Agreement Page iii
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
AGREEMENT entered into effective as of the 29th day of September, 1999,
among Interleaf, Inc., a Massachusetts corporation ("Buyer"), Horizon
Interactive, Inc., a Colorado corporation (the "Company"), and each of Steven
Imke, Dale J.
Chavez and Randy Welsch (the "Sellers").
RECITALS
WHEREAS, the Sellers collectively own all of the outstanding shares of
capital stock of the Company (the "Company Shares"); and
WHEREAS, Buyer wishes to acquire all of the outstanding capital stock
of the Company;
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:
(Certain capitalized terms used herein and not otherwise defined are
defined in Article 9.)
ARTICLE 1. PURCHASE AND SALE OF STOCK.
1.1 Purchase of Company Shares.
(a) Subject to the provisions of this Agreement, the Sellers agree to sell, and
Buyer agrees to purchase, the Company Shares for the following amounts (the
"Purchase Price"):
(i) The amount of $190,000, payable at the Closing, in the form of
Buyer's Shares valued at Fair Market Value. The amount of this
payment shall be increased by the amount by which Qualified
Net Assets exceed $12,300 on the Closing Date or decreased by
the amount by which $12,300 exceeds Qualified Current Assets
on that date.
(ii) The amount of $120,000, payable on October 1, 2000, in the
form of Buyer's Shares valued at Fair Market Value.
(iii) Additional consideration determined based upon Revenues
recognized by Interleaf during the Earnout Period (the
"October Consideration") which shall be payable on or before
October 15, 2000 (as such payment date may be delayed by Buyer
in good faith for a reasonable time not to exceed fifteen (15)
days in order for Buyer to complete its accounting of such
Revenues) in cash or, at Buyer's option, in Buyer Shares of
equal Fair Market Value as of October 15, 2000, as follows:
- --------------------------------------------------------------------------------
Stock Purchase Agreement Page 1
<PAGE>
Cumulative Amount of
Revenues October Consideration
-------- ---------------------
Less than $1,550,000 0
$1,550,000 or more but less than $1,650,000 $ 10,000
$1,650,000 or more but less than $1,750,000 $ 35,000
$1,750,000 or more but less than $1,900,000 $ 60,000
$1,900,000 or more but less than $2,050,000 $110,000
$2,050,000 or more but less than $2,250,000 $185,000
$2,250,000 or more but less than $2,500,000 $285,000
$2,500,000 or more but less than $2,750,000 $410,000
$2,750,000 or more but less than $3,000,000 $550,000
$3,000,000 or more $700,000
(b) In addition, at the Closing, Buyer will provide to the Company the
funds to pay, and cause the Company to pay the full amount owed by the Company
to Bank One; provided that Buyer may elect to assume such outstanding debt in
lieu of making such payment.
(c) In addition, at Closing Buyer will grant each Seller other than
Randy Welsch an option to purchase 5,000 shares of Buyers Shares at an exercise
price equal to the closing price of the Buyer Shares on the date of Closing, (A)
if Buyer recognizes revenues of $140,000 or more from the operations of the
Company during September, 1999, such options shall vest on a semi-annual basis
over two years, and (B) if such revenue is less than $140,000, such option shall
vest 100% on September 30, 2001.
1.2 Time and Place of Closing. The Closing shall be held at the offices of the
Buyer in Waltham, MA at 10:00 a.m., on September 29, 1999, 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 October 15, 1999.
1.3 Delivery of Company Shares. At the Closing, the Company and/or the Sellers
shall deliver or cause to be delivered to Buyer, among other things:
(a) certificates for all Sellers' 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 Sellers, free and clear of any and all Encumbrances
under Article 8 of the Uniform Commercial Code of the State of Colorado 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 substantially in the form of Exhibit A; and
- --------------------------------------------------------------------------------
Stock Purchase Agreement Page 2
<PAGE>
(d) such other documents as may be required elsewhere in this Agreement
or may be reasonably requested by counsel to Buyer.
1.4 Other Agreements. The parties shall execute and deliver such documents, and
take such other actions, as are contemplated under Article 6 below.
1.5 Further Assurances. Company and the Sellers 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 1.3) and take such other action as
Buyer may reasonably require to more effectively transfer the Company Shares to
the Buyer, and to effect the transactions contemplated herein (including any
adjustments necessary to the financial statements necessary for the Buyer to be
able to consolidate results on a going-forward basis in accordance with GAAP).
1.6 Tax Reporting and Refunds. Sellers shall cause to be prepared and filed on
behalf of the Company by the due date therefor a tax return for the taxable year
of the Company ended December 31, 1998. Sellers shall cause 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 terminating effective as of August 31, 1999
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 August
31, 1999 all taxes due for such short taxable year under federal, state and
local law, and Sellers shall receive any tax refunds Sellers may be entitled to
as of August 31, 1999 for such short taxable year under federal, state and local
law.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS
The Company and the Sellers hereby jointly and severally represent and
warrant to Buyer that the statements contained in this Article 2 are true and
correct, except as set forth in the Disclosure Schedule attached hereto.
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
Colorado, 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. The Company
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 200,000
shares of Common Stock, no par value, 69,300 of which are validly issued and
outstanding. The issuance of the Company 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.
- --------------------------------------------------------------------------------
Stock Purchase Agreement Page 3
<PAGE>
(b) 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) Encumbrances on the
transferability of the Company's capital stock, or (v) other agreements between
any 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.
(c) The record and beneficial owners of the Company Shares are as
follows:
55,000 Company Shares are owned by Steven Imke
7,150 Company Shares are owned by Dale J. Chavez
7,150 Company Shares are owned by Randy Welsch
(d) The Company Shares to be delivered by Sellers 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 Colorado or otherwise.
2.3 Other Investments. Other than 22,500 shares of stock in The Quartz Group
(QGRP), the Company does not own any securities issued by any other business
organization or governmental authority. At the Closing, the QGRP shares will be
sold by the Company to the Sellers for total consideration of $1.00; Buyer
hereby consents to such sale. The Company has no subsidiaries. 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 to perform its obligations hereunder
and thereunder, and to carry out the transactions contemplated hereby and
thereby. Each Seller has the unrestricted and absolute power, authority and
capacity to execute and deliver this Agreement and the Employment Agreement to
which he is a party and to perform his obligations hereunder and thereunder, and
to carry out the transactions contemplated hereby and thereby. All necessary
action, corporate or otherwise, has been taken by each Seller and the Company to
authorize the execution, delivery and performance of this Agreement and the
transactions contemplated hereby and thereby. The Agreement has been, and each
Employment Agreement will be at the Closing, duly executed and delivered by the
Company and each Seller and the Agreement and each Employment Agreement is, or
upon the Closing will be, the legal, valid and binding obligation of the Company
and each Seller a party thereto, enforceable against the Company and that Seller
in accordance with its terms.
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2.5 Present Compliance with Obligations and Laws. The Company is not: (a) in
violation of its Constituent Documents; (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 Order or Government Authorization applicable to
the Company 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.
2.6 No Conflict of Transaction With Obligations and Laws. 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) violate any provision of the Constituent Documents
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, including any Governmental Authority, and
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 any right; (iv) conflict with or 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)
violate any Court Order or Law, or give any Government Authority or 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) violate of any of the terms or
requirements of, or give any Governmental Authority the right to terminate or
modify, any Government Authorization.
2.7 Financial Statements.
(a) Attached as Schedule 2.7(a) hereto are the following financial
statements of the Company, all of which fairly present 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; such Financial Statements were prepared in a consistent manner
throughout the periods involved and prior periods: unaudited balance sheet as of
August 21, 1999 and unaudited income statements from the 12 month period ended
August 21, 1999. The balance sheet of the Company dated August 21, 1999 included
in such financial statements is referred to herein as the "Base Balance Sheet".
(b) To the best of Sellers' knowledge, 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.
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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 not in excess of $5,000 incurred since the Base Balance Sheet
Date in the ordinary course of business consistent with past practices. There is
no fact which does have, or may in the future (so far as can now be reasonably
foreseen), a Material Adverse Effect which has not been specifically disclosed
herein or on a schedule hereto.
2.9 Conduct of Business; Absence of Certain Changes. 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, has had or will
have a Material Adverse Effect.
2.10 Payment of Taxes.
(a) The Company has duly and timely filed all Tax Returns, and 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 fiscal years 1996 and 1997 have
been delivered to the Buyer. All Taxes shown to be due on such Tax Returns have
been paid. 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) To the best of Sellers' knowledge, the Tax Returns have not been
examined either by the Internal Revenue Service nor by the state of Colorado or
any other state. 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 any
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.
2.11 Title to Properties; Liens; Condition of Properties.
(a) The Company does not own any real property.
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(b) Set forth on Schedule 2.11(b) hereto is a listing of all leases
under which the Company leases real property, together with a description of
such property, the name of the landlord and a description of the significant
terms of each lease (the "Material Real Property").
(c) Set forth on Schedule 2.11(c) is a complete description of the
machinery, equipment and other tangible personal property (including leasehold
improvements) with an original cost in excess of $2,500 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
$2,500, together with a description of such property (collectively, the
"Material Personal Property").
(d) The Company has good and marketable title in fee simple to all of
its owned Material Personal Property. All leases, subleases, rental agreements,
contracts of sale, tenancies and licenses, together with all amendments,
modifications and renewals thereof, related to any of the Material Real Property
or Material Personal Property are valid 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 circumstance exists that (with or
without notice or the passage of time) would constitute a default under any such
agreements. The Company has neither given nor received notice of any alleged
default under any such agreement.
(e) None of the Material Real Property or the Material Personal
Property is subject to any Encumbrance other than for Taxes not yet due and
payable. 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 Material Real Property and Material Personal Property
are sufficient to conduct the Company's business as currently conducted.
(f) All Material Personal Property is in satisfactory condition, good
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 Laws. Neither the Company nor any
Seller knows of any pending or threatened change of any Law affecting Material
Real Property, and there is no pending or threatened condemnation of any such
property.
2.12 Collectibility of Receivables. All of the 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
and eighty (180) days of invoice date through normal means of collection, and
(d) subject to no set-off, defense or counterclaim.
2.13 Intellectual Property Rights.
(a) Set forth on Schedule 2.13 hereto is a true and complete list of
all Intellectual Property presently owned or held by the Company and any
material license of or right to any Intellectual Property. The Company owns or
possesses or can obtain by payment of royalties which will not materially
adversely affect the business of the Company all of the Intellectual
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Property reasonably necessary to the conduct of the business of the Company as
presently conducted or proposed to be conducted.
(b) The Company has adopted measures adequate to protect any
Intellectual Property. Copies of all forms of non-disclosure or confidentiality
agreements utilized by the Company to protect trade secrets have been provided
to Buyer. To the best of its knowledge, the business as presently conducted or
as proposed to be conducted does not and will not cause the Company to infringe
or violate any Intellectual Property rights of any other person. The Company has
the right to use, free and clear of claims or rights of others, all Trade
Secrets required for or incident to its products, and its is not using any
confidential information or Trade Secrets of any former employer of any of its
past or present employees.
2.14 Contracts and Commitments.
(a) Except for contracts, commitments, plans, agreements and licenses
described in Schedule 2.14(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 $5,000 each);
(ii) creating any obligations of the Company after the Base Balance
Sheet Date which call for payments of more than $5,000 during
any month for agreements without a fixed term or more than
$10,000 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 not less than thirty (30) 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;
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(x) with the United States government; or
(xi) which otherwise is material to the assets or business of the
Company.
(b) Each of the Material Contracts 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 Material Contract. No event has occurred or
circumstance exists that (with or without notice or the passage of time) would
constitute a default under such any Material 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 default
under any such Material Contract.
(c) Schedule 2.14(c) lists every Material Customer of the Company and
the amount of business with that customer. Since September 28, 1997, the Company
has not experienced any termination or material modification of any business
relationship with any Material Supplier or Material Customer, nor has any of the
Company or the Sellers received notice of or otherwise had knowledge that any
Material Customer or Material Supplier intends to 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.
(d) The total backlog of the Company (including all accepted and
unfulfilled sales orders) is not materially less than the amount set forth on
Schedule 2.14(d). All such sales and purchase commitments were made in the
ordinary course of business.
2.15 Labor and Employee Relations.
(a) The Company has not entered into any consulting or employment
agreements to which the Company is a party or of which the Company is a
beneficiary (including noncompetition covenants) and which are outside of the
ordinary course of its business. Shown on Schedule 2.15 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. There are no representation elections, arbitration
proceedings, labor strikes, 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 such matters during the five 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.
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(d) There are no complaints, proceedings, investigations or charges
against the Company pending or, to the knowledge of Sellers, threatened before
any Government Authority (including the National Labor Relations Board, Equal
Employment Opportunity Commission or any similar state or local agency), by or
on behalf of any employee or former employee of the Company.
(e) 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 (or made provision for payment) in full to its employees,
agents and independent contractors all wages, salaries, commissions, bonuses and
other direct compensation for all services 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 independent contractors. 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 Law.
(f) There has not been any citation, fine or penalty imposed or
asserted against the Company under any law relating to employment, immigration
or occupational safety matters.
2.16 Employee Benefits and ERISA.
(a) The Company has provided the Buyer with a complete list of all
employee benefits plans (as defined in Section 3(3) of ERISA) and all bonus,
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and all other similar employee benefit plans, written or
otherwise, for the benefit of, or relating to, any current or former employee of
the Company (collectively, the "Company Employee Plans").
(b) With respect to each Company Employee Plan, the Company has
furnished a true and accurate copy of (i) the most recent IRS determination
letter, (ii) the three most recent Form 5500s filed with the IRS, (iii) each
Company Employee Plan, (iv) each trust agreement and group annuity contract, if
any, relating to such Company Employee Plan.
(c) With respect to the Company Employee Plans, no event has occurred
and there exists no condition or set of circumstances in connection with which
Company or any of its ERISA Affiliates could be subject to any liability, loss,
damages, taxes or expense. Neither the Company nor any ERISA Affiliate know of
any failure of any party to comply with any laws with respect to the Company
Employee Plans.
(d) Neither Company nor any ERISA Affiliate has (i) ever maintained a
Company Employee Plan which was ever subject to Title IV of ERISA or Section 412
of the Code, or (ii) ever been obligated to contribute to a multiemployer plan
(as defined in Section 4001(a)(3) of ERISA).
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2.17 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
now, and will be after the Closing, valid and in full force and effect, and
Buyer shall have full benefit of the same. 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.
2.18 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.
2.19 Litigation. 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 thereby, or (b) will result in any
Material Adverse Effect on 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.
2.20 Borrowings and Guarantees. Except as disclosed on the Base Balance Sheet,
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.
2.21 Insurance. The Company has provided the Buyer with 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 information with respect to the premiums, coverages,
insurers, expiration dates, and deductibles in respect of such policies. 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.
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2.22 Minute Books. The minute books and stock records of the Company delivered
to Buyer 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.
2.23 Finder's Fee. Except for a success fee owed to Geneva Corporate Finance,
Inc., 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.
2.24 Transactions with Interested Persons. 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) has any contract or
agreement (written or oral) with the Company.
2.25 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.
2.26 Due Diligence Checklist. Attached as Schedule 2.26 is the Company's and the
Sellers' response to the Buyer's Due Diligence Checklist. To the best of
Sellers' knowledge, such responses are true, complete and correct as of the date
when made and as of the date hereof.
2.27 Disclosure of Material Information. Neither this Agreement nor 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
Buyer hereby represents and warrants to Seller as follows:
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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 Authorization of Interleaf Shares. Any Buyer 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.
3.3 Authorization of Transaction. Buyer has the full power and authority to
execute and deliver this Agreement and each Ancillary Agreement 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 Agreement
or any of the Ancillary Agreements, nor the performance of the transactions
contemplated hereby, will: (i) constitute a breach or violation of the Buyer's
Constituent Documents; (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) violate any Court Order
a Law 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 SEC 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, 1999, as filed with the SEC, (b) proxy statements relating to all
meetings of its stockholders (whether annual or special) since March 31, 1999,
and (c) all other reports filed with the SEC pursuant to the Exchange Act since
March 31, 1999 (such annual reports, proxy statements and other filings,
together with any amendments or supplements thereto, are collectively referred
to herein as the "Buyer Reports"). 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
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Buyer Reports (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.
3.6 Buyer's Reliance. Buyer acknowledges that it has inspected (but not audited)
the Company's books, records and assets and has been afforded the opportunity to
conduct such investigation and study on and of the Company as it deems necessary
for the purpose of acquiring the Company Shares. Buyer further acknowledges that
Company and Sellers have made no covenants, representations or warranties except
as set forth in this Agreement and the schedules and exhibits hereto, and in its
books and records. Buyer agrees that it is purchasing the Company Shares based
upon its investigation and the representations set forth herein and in said
books and records.
ARTICLE 4. 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 4 will have been accomplished.
4.1 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 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.
4.2 Employment and Non-Competition Agreements. The Sellers other than Randy
Welsch each shall have executed and delivered to Buyer an Employment and
Non-Competition Agreement having substantially the terms and conditions set
forth in Exhibit B attached hereto.
4.3 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 C hereto.
4.4 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 con summation of any material transaction contemplated hereby.
ARTICLE 5. CONDITIONS TO OBLIGATIONS OF THE SELLERS
The obligations of the Sellers 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 5 will have been accomplished.
5.1 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.
5.2 Employment Agreement and Non-Competition Payment. The Buyer shall have
executed and delivered to each of the Sellers an Employment Agreement and
Non-Competition Agreement in the Form of Exhibit B hereto.
ARTICLE 6. AGREEMENTS OF PARTIES
6.1 Termination of Letter Agreement. That certain binding letter agreement
between the parties dated September 7, 1999 is hereby superceded, terminated and
of no further force or effect. The parties each release, discharge and
acknowledge full performance and satisfaction of the other parties' obligations
under such agreement. Without limiting the foregoing, the Company and the
Sellers hereby unconditionally release, discharge and hold Buyer and Buyer's
Indemnified Persons harmless from and against any and all Losses that they have
or will incur as a result of or in connection with the Buyer's right to control
the Company's operations under, or the other provisions of, Section 5 of such
letter agreement.
6.2 Registration of Buyer Shares.
(a) Within 90 days after the Closing, Buyer will use reasonable efforts
to file a registration statement on Form S-3 (or any successor short form
registration) under the Securities Act with the SEC covering the Buyer Shares
delivered to Sellers pursuant to Section 1.1(a)(i). Buyer will use reasonable
efforts to cause the SEC to declare effective such registration statement as
soon as practicable after the filing thereof with the SEC.
(b) Within 90 days after issuance of the October Consideration (if paid
in the form of Buyer Shares), Buyer will use reasonable efforts to file a
registration statement on Form S-3 (or any successor short form registration)
under the '33 Act with the SEC covering such Shares. Buyer will use reasonable
efforts to cause the SEC to declare effective such
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registration statement on or before December 31, 2000, but shall not be in
breach if such registration has not been declared effective.
(c) .In the case of any registration under paragraph (a) or (b), the Buyer
shall bear all costs and expenses of each such registration, including, but not
limited to, printing, legal and accounting expenses, Securities and Exchange
Commission and National Association of Securities Dealers, Inc. filing fees and
expenses, and "blue sky" fees and expenses; provided, however, that the Buyer
shall have no obligation to pay or otherwise bear (i) the cost and expenses of
procuring underwriters' insurance in connection with the sale, (ii) any portion
of the fees or disbursements of more counsel to the selling holders of Buyer
Shares, (iii) any portion of the underwriters' commissions or discounts
attributable to the Buyer Shares being offered and sold by the Sellers, or (iv)
in the case of the registration under paragraph (b), any incremental costs and
expenses which exceed $5,000.
(d) The Sellers shall cooperate with Buyer in any registration process
registering Sellers' Buyer Shares under paragraph (a) or (b) above. Buyer shall
have sole and exclusive control over any registration statement and the
registration process. Buyer may amend, abandon or delay any registration
statement under paragraph (b) in its sole discretion.
(e) After such time as the SEC has declared effective a registration
statement covering any Shares delivered to Sellers hereunder (or if an exemption
from registration is available), the Company and the Sellers will not separately
or in the aggregate offer or attempt to sell during any given trading day any
Buyer Shares in excess of 25% of the average daily volume over the prior five
trading days. In addition, the Company, its stockholders, employees and agents
before the Closing, and the Sellers (and their agents and persons under their
control) both before and after Closing shall not at any time directly or
indirectly engage in any short sales, swaps, purchasing of puts, or other
hedging activities, that involve the direct or indirect use of Stock or
securities derivative from Buyer Shares, for any reason.
6.3 Guarantees. The Sellers shall be released from their personal guaranties of
Company obligations which are being assumed and/or discharged by the Buyer at
Closing, as follows: Bank One Term Loan and Line of Credit, Working Capital
Company factoring agreement, and Lease of the Company's primary business
premises.
6.4 Accounts Receivable. All of the Company's Receivables on the business day
prior to the Closing Date will be valid accounts receivable which, within 180
days after the invoice date, will be collected in full. Any such uncollected
accounts receivable shall be paid in cash to the Buyer by Sellers. For purposes
of determining whether the Receivables of a particular customer have been
collected, payments received from that customer shall be applied on a first in,
first out basis, except as to customers on cash on delivery terms or as
otherwise directed by the customer in the case of disputed accounts. Thereafter,
all uncollected accounts (in excess of the bad debt reserve set forth above)
shall be assigned to Sellers
ARTICLE 7. INDEMNIFICATION.
7.1 Indemnification by Sellers.
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(a) Subject to the limitations in paragraph (b) below, the Sellers,
jointly and severally, agree 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 resulting from or arising out of:
(i) any breach of any of the representations or warranties of
Article 2 hereof;
(ii) any litigation or similar matter required to be disclosed on
Schedule 2.19 hereto, except to the extent of reserves with
respect thereto on the Base Balance Sheet;
(iii) any breach of any covenant or agreement made by Sellers in
this Agreement, any Ancillary Agreement, or any agreement
contemplated hereby;
(iv) any Taxes owing by the Company or Sellers or Buyer, as
successor to the Company, (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;
(v) any Governmental Authority or other third party action for
damages, including fines or penalties;
(vi) any matter relating to any Company Employee Plan occurring
prior to the Closing;
(vii) any fraud or intentional misrepresentation by the Company or
any Seller contained herein or committed in respect of the
transactions contemplated hereby; or
(viii) any liability for which Sellers have expressly agreed to be
responsible.
(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 (A) two (2) years from the
Closing Date with respect to claims described in clause (i);
(B) the period of the applicable statute of limitations in the
case of claims described in clauses (iii) (iv) (v); and (C)
without limitation as to time with respect to claims described
in clauses (ii), (vii) or (viii); 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 shall be
payable by Sellers only if the aggregate amount of all Losses
thereunder by Buyer's Indemnified Persons shall exceed
$25,000, at which point Sellers jointly and severally shall be
responsible for all Losses, including the first $25,000 of
such Losses.
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7.2 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 resulting from or arising out of:
(i) any breach of any of the representations or warranties made by
Buyer, in or pursuant to this Agreement, or in any agreement,
document or instrument executed and delivered pursuant hereto
or thereto or in connection with the Closing;
(ii) any breach of any covenant or agreement made by Buyer in or
pursuant to this Agreement, any Ancillary Agreements, or in
any agreement or document contemplated hereby; or
(iii) fraud or intentional misrepresentation by Buyer contained
herein or committed in respect of the transactions
contemplated hereby.
(b) The right of indemnification under paragraph (a) above is subject
to the following limitations:
(i) The Buyer shall have no liability under paragraph (a) above
unless one or more of Sellers' Indemnified Persons gives
written notice to Buyer asserting a claim for Losses,
including reasonably detailed facts and circumstances
pertaining thereto, before the expiration of (A) two years
from the Closing Date with respect to claims described in
clause (i), the applicable statute of limitation with respect
to claims described in clause (ii), and (C) without limitation
as to time with respect to claims described under clause
(iii); and
(ii) Indemnification for claims under paragraph (a) above shall be
payable by Buyer only if the aggregate amount of all Losses
thereunder by Seller' Indemnified Persons shall exceed
$25,000, at which point Buyer shall be responsible for all
Losses, including the first $25,000 of such Losses.
7.3 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 7.
(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,
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<PAGE>
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 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 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.
7.4 Miscellaneous.
(a) Buyer's Indemnified Persons shall be entitled to indemnification
under Section 7.1(a) and Sellers' Indemnified Persons shall be entitled to
indemnification under Section 7.2(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 the
appropriate Disclosure Schedule hereto.
(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) The gross amount for which any Indemnifying Person may be liable
pursuant to this Article 7 shall be reduced by any insurance proceeds actually
recovered by or on behalf of the Indemnified Person on account of the
indemnifiable Loss.
(d) 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 10.2; 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.
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7.5 Payment of Indemnification. Claims for indemnification under this Article 7
shall be paid or otherwise satisfied by Indemnifying Persons within thirty days
after notice thereof is given by the Indemnified Person.
ARTICLE 8. TERMINATION OF AGREEMENT.
8.1 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 4 have not been
satisfied at or prior to the Closing, (d) by the Sellers if the conditions
stated in Article 5 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 October 15, 1999; provided that the right to terminate under this
Section 8.1 shall not be available to any parties whose breach has been the
cause of such failure to close.
8.2 Effect of Termination. In the event of termination or abandonment of this
Agreement in accordance with the provisions of this Article, no party to this
Agreement shall have any liability or further obligation to any other party,
except that nothing herein shall relieve any party from liability for any 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).
8.3 Right to Proceed. Anything in this Agreement to the contrary notwithstanding
(a) if any of the conditions specified in Article 4 hereof have not been
satisfied, Buyer shall have the right to proceed with the transactions
contemplated hereby without waiving its rights hereunder, (b) if any of the
conditions specified in Article 5 hereof have not been satisfied, Seller shall
have the right to proceed with the transactions contemplated hereby without
waiving its rights hereunder.
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ARTICLE 9. DEFINITIONS.
As used in this Agreement, the following terms have the indicated
meanings:
"Ancillary Agreements" means the Employment Agreements with each Seller in the
form of Exhibit B.
"Base Balance Sheet" has the meaning specified in Section 2.7.
"Base Balance Sheet Date" means August 21, 1999.
"Buyer Shares" means Common Stock, $.01 par value per share, of Buyer.
"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.
"Closing" means the closing of the purchase and sale provided for in this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Employee Plan" has the meaning specified in Section 2.17.
"Company Shares" means the shares of Common Stock, no par value, of the Company
issued and outstanding.
"Constituent Documents" means the Company's certificate or articles of
incorporation or organization, bylaws, or other corresponding documents, as
amended.
"Court Order" means any court order, judgment, administrative or judicial order,
writ, decree, stipulation, arbitration award or injunction.
"Employment Agreements" means the Employment Agreements to be entered into by
the Buyer with each of the Sellers in the form of Exhibit B.
"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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"Earnout Period" means from October 1, 1999 through September 30, 2000.
"Exchange Act" means the Securities Act of 1934, as amended.
"Fair Market Value" 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 consecutive trading days ending on the trading day preceding such date.
"GAAP" means generally accepted accounting principles.
"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.
"Indemnified Person" means any person entitled to be indemnified under Article
7.
"Indemnifying Person" means any person obligated to indemnify another person
under Article 7.
"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 (ii) all Trade Secrets, and (iii)
all industrial or intellectual property rights of every kind and description.
"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 Indemnified Person 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 Adverse Effect" means any change event or occurrence that has, or is
reasonable likely to have, individually or in the aggregate, a material adverse
impact upon the business, properties, operations, prospectus, assets, revenues,
condition (financial or otherwise) of the Company taken as a whole.
"Material Contracts" means those contracts required by Section 2.15(a) to be
listed on Schedule 2.15(a).
"Material Customer" means any customer that accounted for more than three
percent by value of the orders for goods or services provided by the Company
during any one of the last three fiscal years or the current fiscal year.
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"Material Personal Property" has the meaning specified in Section 2.11.
"Material Real Property" has the meaning specified in Section 2.11.
"Material Supplier" means any supplier that accounted for more than three
percent by value of the orders by the Company for purchase of all its raw
materials and other products essential to its business during any one of the
last three fiscal years or the current fiscal year.
"Purchase Price" has the meaning specified in Section 1.1.
"Qualified Net Assets" means Current Assets minus all Liabilities, all as shown
on the Base Balance Sheet.
"Receivables" means accounts receivable, trade accounts, notes receivable,
contract receivables, unbilled invoices and other receivables.
"Revenues" means revenue recognized by Buyer during the Earnout Period in
accordance with GAAP, applied consistently with Buyer's past practice, from all
of the following sources:
i) active clients of the Company as of the Closing;
ii) activities performed by Company personnel, including revenue from
customers that had not previously been serviced by the Company; and
iii)revenues generated by Company personnel or activities, but which are
satisfied by other divisions or personnel of the Buyer.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Sellers" means each of Steven Imke, Dale J. Chavez and Randy Welsch.
"Seller's Indemnified Persons" means each of the Sellers, their heirs and
assigns.
"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.
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"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 of products, including software, which either are
useful to the Company or provide a competitive advantage, and as to which the
Sellers have made reasonable efforts to maintain confidentiality.
ARTICLE 10. MISCELLANEOUS.
10.1 Survival of Warranties. All representations, warranties, agreements,
covenants and obligations herein or in any schedule, certificate or financial
statement delivered by any 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 7
and shall not merge in the performance of any obligation by either party hereto.
10.2 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 by reason of any claim by Buyer against Seller or the Company for
indemnification pursuant to Section 6.1 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.
10.3 Fees and Expenses. Buyer will bear its own expenses and the Sellers will
bear their and the Company's expenses (including all finder's or success fees)
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.
10.4 Notices. All notices, requests, demands and other communications required
or permitted to be given hereunder by any party hereto shall be in writing and
shall be deemed to have been duly given (i) 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 to the parties at the following addresses (or at such
other addresses as shall be specified by the parties):
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<PAGE>
If to the Sellers or, prior to
the Closing, to the Company, to: with a copy to:
Mr. Steven Imke Hendricks, Hendricks & Shakes, PC
395 Scrub Oak Circle 4055 Nonchalant Circle South
Monument, CO 80132 Colorado Springs, CO 80917
Tel: (719) 481-4075 Attn: Terry Hendricks
Tel: (719) 596-3326
Fax: (719) 596-7613
If to the Buyer, to: with a copy to:
Interleaf, Inc. Brown, Rudnick, Freed & Gesmer
62 Fourth Street One Financial Center
Waltham, MA 02154 Boston, Massachusetts 02111
Attn.: Craig Newfield, General Counsel Attn.: David Murphree, Esquire
Tel: 781-768-1086 Tel: 617-856-8200
Fax: 781-768-1145 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.
10.5 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 (ii)
the financial or other terms of this Agreement, unless such information becomes
public information through no fault of such party or is required to be disclosed
by applicable law, including applicable securities laws or stock exchange rules
or regulations. The obligations of this Section shall survive any termination of
this Agreement.
10.6 Publicity and Disclosures. Except as may be otherwise required for
compliance by Buyer with applicable stock market rules or securities laws,
neither Buyer nor the Company shall issue any public announcement concerning
this Agreement without the prior written approval of the other.
10.7 Assignability. This Agreement may not be assigned by either party without
the consent of the other, except that any or all rights of Buyer to receive
performance (but not the obligations of Buyer to Sellers hereunder) may be
assigned by Buyer to any direct or indirect subsidiary or other affiliate of
Buyer. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns.
10.8 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
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<PAGE>
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.
10.9 Governing Law; Jurisdiction; Venue.
(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 Sellers hereby submits to the jurisdiction of
each such court and agrees that service of process on him/her in any such
action, suit or proceeding may be effected by the means by which notices are to
be given under this Agreement.
10.10 Miscellaneous.
(a) This Agreement (including all exhibits or schedules appended to
this Agreement and all documents delivered pursuant to or referred to in this
Agreement, all of which are hereby incorporated herein by reference) constitutes
the entire agreement between the parties, and all promises, representations,
understandings, warranties and agreements with reference to the subject matter
hereof and inducements to the making of this Agreement relied upon by any party
hereto, have been expressed herein or in the documents incorporated herein by
reference.
(b) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
hereof.
(c) This Agreement may be amended only by a written agreement executed
all parties hereto.
(d) 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.
(e) 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.
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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 29, 1999, to be effective as of the date
first set forth above.
INTERLEAF, INC. HORIZON INTERACTIVE, INC.
By: By:
----------------------------- --------------------------
Name: Name:
----------------------------- --------------------------
Title: Title:
----------------------------- --------------------------
Date: Date:
----------------------------- --------------------------
SELLERS:
-------------------------------
Steven Imke
-------------------------------
Dale J. Chavez
-------------------------------
Randy Welsch
EXHIBITS
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Exhibit A: Form of Release
Exhibit B: Form of Employment and Non-Competition Agreement
Exhibit C: Opinion of Company's and Sellers' Counsel
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EXHIBIT 10.2
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STOCK PURCHASE AGREEMENT
BY AND AMONG
INTERLEAF, INC.
DOCU-NET, INC.
AND
DANIEL SCHWEITZER AND LARRY SCOTT
DATED: As of September 29, 1999
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Stock Purchase Agreement
<PAGE>
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
ARTICLE 1. PURCHASE AND SALE OF STOCK.........................................1
1.1 PURCHASE OF COMPANY SHARES...........................................1
1.2 TIME AND PLACE OF CLOSING............................................2
1.3 DELIVERY OF COMPANY SHARES...........................................2
1.4 FURTHER ASSURANCES...................................................3
1.5 TAX REPORTING........................................................3
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS..........3
2.1 ORGANIZATION AND QUALIFICATION OF COMPANY............................3
2.2 CAPITALIZATION OF COMPANY; TITLE TO STOCK............................3
2.3 OTHER INVESTMENTS....................................................4
2.4 AUTHORIZATION OF TRANSACTION.........................................4
2.5 PRESENT COMPLIANCE WITH OBLIGATIONS AND LAWS.........................5
2.6 NO CONFLICT OF TRANSACTION WITH OBLIGATIONS AND LAWS.................5
2.7 FINANCIAL STATEMENTS.................................................5
2.8 ABSENCE OF UNDISCLOSED LIABILITIES...................................5
2.9 CONDUCT OF BUSINESS; ABSENCE OF CERTAIN CHANGES......................6
2.10 PAYMENT OF TAXES..................................................6
2.11 TITLE TO PROPERTIES; LIENS; CONDITION OF PROPERTIES...............6
2.12 COLLECTIBILITY OF RECEIVABLES ....................................7
2.13 INTELLECTUAL PROPERTY RIGHTS......................................7
2.14 CONTRACTS AND COMMITMENTS.........................................8
2.15 LABOR AND EMPLOYEE RELATIONS......................................9
2.16 EMPLOYEE BENEFITS AND ERISA......................................10
2.17 GOVERNMENT AUTHORIZATIONS........................................10
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2.18 WARRANTY OR OTHER CLAIMS.........................................11
2.19 LITIGATION.......................................................11
2.20 BORROWINGS AND GUARANTEES........................................11
2.21 INSURANCE........................................................11
2.22 MINUTE BOOKS.....................................................11
2.23 FINDER'S FEE.....................................................12
2.24 TRANSACTIONS WITH INTERESTED PERSONS.............................12
2.25 ABSENCE OF SENSITIVE PAYMENTS....................................12
2.26 ENVIRONMENTAL MATTERS............................................12
2.27 DISCLOSURE OF MATERIAL INFORMATION...............................12
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF BUYER...........................12
3.1 ORGANIZATION OF BUYER...............................................12
3.2 AUTHORIZATION OF INTERLEAF SHARES...................................13
3.3 AUTHORIZATION OF TRANSACTION........................................13
3.4 NO CONFLICT OF TRANSACTION WITH OBLIGATIONS AND LAWS................13
3.5 REPORTS.............................................................13
ARTICLE 4. CONDITIONS TO OBLIGATIONS OF BUYER................................14
4.1 REPRESENTATIONS; WARRANTIES; COVENANTS..............................14
4.2 EMPLOYMENT AND NON-COMPETITION AGREEMENTS...........................14
4.3 OPINION OF SELLERS' COUNSEL.........................................14
4.4 ABSENCE OF CERTAIN LITIGATION.......................................14
ARTICLE 5. CONDITIONS TO OBLIGATIONS OF THE SELLERS..........................15
5.1 REPRESENTATIONS; WARRANTIES; COVENANTS..............................15
5.2 EMPLOYMENT AGREEMENT AND NON-COMPETITION PAYMENT....................15
ARTICLE 6. AGREEMENT OF PARTIES..............................................15
6.1 TERMINATION OF LETTER AGREEMENT.....................................15
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ARTICLE 7. INDEMNIFICATION...................................................17
7.1 INDEMNIFICATION BY SELLERS..........................................17
7.2 INDEMNIFICATION BY BUYER............................................19
7.3 DEFENSE OF THIRD PARTY ACTIONS......................................19
7.4 MISCELLANEOUS.......................................................20
7.5 PAYMENT OF INDEMNIFICATION..........................................21
ARTICLE 8. TERMINATION OF AGREEMENT..........................................21
8.1 TERMINATION.........................................................21
8.2 EFFECT OF TERMINATION...............................................21
8.3 RIGHT TO PROCEED....................................................21
ARTICLE 9. DEFINITIONS.......................................................21
ARTICLE 10. MISCELLANEOUS....................................................25
10.1 SURVIVAL OF WARRANTIES...........................................25
10.2 ARBITRATION......................................................25
10.3 FEES AND EXPENSES................................................26
10.4 NOTICES..........................................................26
10.5 CONFIDENTIALITY..................................................26
10.6 PUBLICITY AND DISCLOSURES........................................27
10.7 ASSIGNABILITY....................................................27
10.8 REMEDIES.........................................................27
10.9 GOVERNING LAW; JURISDICTION; VENUE...............................27
10.10 MISCELLANEOUS....................................................28
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STOCK PURCHASE AGREEMENT
------------------------
AGREEMENT entered into effective as of the 29th day of September, 1999,
among Interleaf, Inc., a Massachusetts corporation ("Buyer"), Docu-Net, Inc., a
Wisconsin corporation (the "Company"), and each of Daniel Schweitzer and Larry
Scott (the "Sellers").
RECITALS
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WHEREAS, the Sellers collectively own all of the outstanding shares of
capital stock of the Company (the "Company Shares"); and
WHEREAS, Buyer wishes to acquire all of the outstanding capital stock
of the Company;
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:
(Certain capitalized terms used herein and not otherwise defined are
defined in Article 9.)
ARTICLE 1. PURCHASE AND SALE OF STOCK.
1.1 Purchase of Company Shares.
(a) Subject to the provisions of this Agreement, the Sellers agree to
sell, and Buyer agrees to purchase, the Company Shares for the following amounts
(the "Purchase Price"):
(i) The amount of $70,000, payable at the Closing, in cash by
certified check or wire transfer of immediately available
funds or, at Buyer's option, in the form of Buyer's Shares
valued at Fair Market Value. The amount of this payment shall
be increased by the amount by which Qualified Current Assets
exceeds $84,000 on the Closing Date or decreased by the amount
by which $84,000 exceeds Qualified Current Assets on that
date.
(ii) Additional consideration determined based upon Revenues
recognized by Interleaf during the Earnout Period (the
"October Consideration") which shall be payable on or before
October 3, 2000 (such payment date may be delayed by Buyer in
good faith for a reasonable time not to exceed fifteen (15)
days in order for Buyer to complete its accounting of such
Revenues) in cash or, at Buyer's option, in Buyer Shares of
equal Fair Market Value as of October 3, 2000, as follows:
Amount of
Revenues October Consideration
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$900,000 or more or less than $1,000,000 $35,000
$1,000,000 or more but less than $1,100,000 35,000
$1,100,000 or more, but less than $1,200,000 40,000
$1,200,000 or more, but less than $1,300,000 50,000
$1,300,000 or more, but less than $1,400,000 50,000
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6,250 for each increment of
in excess of [$1,400,000] $25,000
The October Consideration will be pro-rated in increments of $25,000 in
Revenues; i.e., if Revenues are in excess of $924,999, but less than
$950,000, then the October Consideration will be $43,750 [$35,000 +
8,750]. The amounts stated above are cumulative.
(b) Buyer will advance an amount, payable on or before July 5, 2000 in
cash or, at Buyer's option, in Buyer Shares, equal to the portion of the October
Consideration which has been earned through June 30, 2000 in accordance with the
foregoing table, such advance to be credited against the October Consideration
otherwise payable, and/or against other obligations of the Buyer to Seller(s).
(c) In addition, at the Closing, Buyer will provide to the Company the
funds to pay, and cause the Company to pay, the following amounts:
(i) up to the first $160,000 owed by the Company to Park Bank, the
Sellers being responsible to pay at Closing any amount owed
Park Bank in excess of $160,000.
(ii) an amount not to exceed $75,000 which is owed by the Company
to Daniel Schweitzer, Mr. Schweitzer forgiving any additional
amount in excess of $75,000 owed by the Company to him.
1.2 Time and Place of Closing. The Closing shall be held at the offices of the
Buyer at Waltham, Massachusetts at 10:00 a.m. on September 29, 1999, 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 October 15, 1999.
1.3 Delivery of Company Shares. At the Closing, the Company and/or the Sellers
shall deliver or cause to be delivered to Buyer, among other things:
(a) certificates for all Sellers' 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 Sellers, free and clear of any and all Encumbrances
under Article 8 of the Uniform Commercial Code of the State of Wisconsin 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 substantially in the form of Exhibit A; and
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Stock Purchase Agreement Page 2
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(d) such other documents as may be required elsewhere in this Agreement
or may be reasonably requested by counsel to Buyer.
1.4 Other Agreements. The parties shall execute and deliver such documents, and
take such other actions, as are contemplated under Article 6 below.
1.5 Further Assurances. Company and the Sellers 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 1.3) and take such other action as
Buyer may reasonably require to more effectively transfer the Company Shares to
the Buyer, and to effect the transactions contemplated herein (including any
adjustments necessary to the financial statements necessary for the Buyer to be
able to consolidate results on a going-forward basis in accordance with GAAP).
1.6 Tax Reporting and Refunds. Sellers shall cause 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 terminating effective as of August 31, 1999 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 August 31,
1999 all Taxes due for such short taxable year under federal, state and local
law, and Sellers shall receive any tax refunds Sellers may be entitled to as of
August 31, 1999 for such short taxable year under federal, state and local law.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS
The Company and the Sellers hereby jointly and severally represent and
warrant to Buyer that the statements contained in this Article 2 are true and
correct, except as set forth in the disclosure schedules attached hereto.
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
Wisconsin, 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. The Company
is not required to be licensed or qualified to conduct its business or own its
property in any other jurisdiction; the Sellers will be responsible for
withdrawing as a Foreign Corporation from the State of Illinois as a
post-Closing matter..
2.2 Capitalization of Company; Title to Stock.
(a) The authorized capital stock of the Company consists of 2,800
shares of Common Stock, no par value, 200 of which are validly issued and
outstanding. The issuance of the Company 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.
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Stock Purchase Agreement Page 3
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(b) 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) Encumbrances on the
transferability of the Company's capital stock, or (v) other agreements between
any 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.
(c) The record and beneficial owners of the Company Shares are as
follows:
100 Company Shares are owned by Daniel Schweitzer
100 Company Shares are owned by Larry Scott
(d) The Company Shares to be delivered by Sellers 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 Wisconsin or otherwise.
2.3 Other Investments. The Company does not own any securities issued by any
other business organization or governmental authority. The Company has no
subsidiaries. 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 to perform its obligations hereunder
and thereunder, and to carry out the transactions contemplated hereby and
thereby. Each Seller has the unrestricted and absolute power, authority and
capacity to execute and deliver this Agreement and, if applicable, the
Employment Agreement to which he is a party and to perform his obligations
hereunder and thereunder, and to carry out the transactions contemplated hereby
and thereby. All necessary action, corporate or otherwise, has been taken by
each Seller and the Company to authorize the execution, delivery and performance
of this Agreement and the transactions contemplated hereby and thereby. The
Agreement has been, and, if applicable, the Employment Agreement will be at the
Closing, duly executed and delivered by the Company and each Seller and the
Agreement and, if applicable, the Employment Agreement is, or upon the Closing
will be, the legal, valid and binding obligation of the Company and each Seller
a party thereto, enforceable against the Company and that Seller in accordance
with its terms.
2.5 Present Compliance with Obligations and Laws. The Company is not: (a) in
violation of its Constituent Documents; (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
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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 part or by which it or its assets
are bound; or (d) in violation of any Court Order or Government Authorization
applicable to the Company 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.
2.6 No Conflict of Transaction With Obligations and Laws. 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) violate any provision of the Constituent Documents
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, including any Governmental Authority, and
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 any right; (iv) conflict with or 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)
violate any Court Order or Law, or give any Government Authority or 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) violate any of the terms or
requirements of, or give any Governmental Authority the right to terminate or
modify, any Government Authorization.
2.7 Financial Statements.
(a) Attached as Schedule 2.7(a) hereto are the following financial
statements of the Company, all of which fairly present 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; such Financial Statements were prepared in a consistent manner
throughout the periods involved and prior periods: unaudited balance sheet as of
August 27, 1999 (the "Base Balance Sheet"), and unaudited income statements for
the twelve month period ended August 27, 1999.
(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.
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 not in excess of $5,000 incurred since the Base Balance Sheet
Date in the ordinary course of business consistent with past practices. There is
no fact which does have, or
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may in the future (so far as can now be reasonably foreseen), a Material Adverse
Effect which has not been specifically disclosed herein or on a schedule hereto.
2.9 Conduct of Business; Absence of Certain Changes. 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, has had or will
have a Material Adverse Effect.
2.10 Payment of Taxes.
(a) The Company has duly and timely filed all Tax Returns, and 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 three fiscal years have
been delivered to the Buyer. All Taxes shown to be due on such Tax Returns have
been paid. 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 not been audited by the Internal Revenue
Service. 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 any 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.
2.11 Title to Properties; Liens; Condition of Properties.
(a) The Company does not own any real property.
(b) Set forth on Schedule 2.11(b) hereto is a listing of all leases
under which the Company leases real property, together with a description of
such property, the name of the landlord and a description of the significant
terms of each lease (the "Material Real Property").
(c) Set forth on Schedule 2.11(c) is a complete description of the
machinery, equipment and other tangible personal property (including leasehold
improvements) with an original cost in excess of $2,500 used or owned by the
Company and a listing of all leases under
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which the Company leases any personal property as of the Closing Date requiring
annual rental payments in excess of $2,500, together with a description of such
property (collectively, the "Material Personal Property").
(d) The Company has good and marketable title in fee simple to all of
its owned Material Personal Property. All leases, subleases, rental agreements,
contracts of sale, tenancies and licenses, together with all amendments,
modifications and renewals thereof, related to any of the Material Real Property
or Material Personal Property are valid 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 circumstance exists that (with or
without notice or the passage of time) would constitute a default under any such
agreements. The Company has neither given nor received notice of any alleged
default under any such agreement.
(e) None of the Material Real Property or the Material Personal
Property is subject to any Encumbrance other than for Taxes not yet due and
payable. 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 Material Real Property and Material Personal Property
are sufficient to conduct the Company's business as currently conducted.
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2.12 Intellectual Property Rights.
(a) Set forth on Schedule 2.12 hereto is a true and complete list of
all Intellectual Property presently owned or held by the Company and any
material license of or right to any Intellectual Property. The Company owns or
possesses or can obtain by payment of royalties which will not materially
adversely affect the business of the Company all of the Intellectual Property
reasonably necessary to the conduct of the business of the Company as presently
conducted or proposed to be conducted.
(b) The Company has adopted measures adequate to protect any
Intellectual Property. Copies of all forms of non-disclosure or confidentiality
agreements utilized by the Company to protect trade secrets have been provided
to Buyer. To the best of the Company's knowledge, the business as presently
conducted or as proposed to be conducted does not and will not cause the Company
to infringe or violate any Intellectual Property rights of any other person. The
Company has the right to use, free and clear of claims or rights of others, all
Trade Secrets required for or incident to its products, and its is not using any
confidential information or Trade Secrets of any former employer of any of its
past or present employees.
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2.13 Contracts and Commitments.
(a) Except for contracts, commitments, plans, agreements and licenses
described in Schedule 2.13(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 $5,000 each);
(ii) creating any obligations of the Company after the Base Balance
Sheet Date which call for payments of more than $5,000 during
any month for agreements without a fixed term or more than
$10,000 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 otherwise is material to the assets or business of the
Company.
(b) Each of the Material Contracts 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 Material Contract. No event has occurred or
circumstance exists that (with or without notice or the passage of time) would
constitute a default under such any Material 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 default
under any such Material Contract.
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(c) Schedule 2.13(c) lists every Material Customer of the Company and
the amount of business with that customer. Since January 1, 1997, the Company
has not experienced any termination or material modification of any business
relationship with any Material Supplier or Material Customer, nor has any of the
Company or the Sellers received notice of or otherwise had knowledge that any
Material Customer or Material Supplier intends to 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.
(d) The total backlog of the Company (including all accepted and
unfulfilled sales orders) is not materially less than the amount set forth on
Schedule 2.13(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 2.13(d). All such sales and purchase
commitments were made in the ordinary course of business.
2.14 Labor and Employee Relations.
(a) Except for standard consulting or employment agreements which have
been signed by all consultants and employees, as the case may be (copies of
which have been provided to the Buyer), there are no currently effective
consulting or employment agreements to which the Company is a party or of which
the Company is a beneficiary (including noncompetition covenants). Also shown on
Schedule 2.14 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. There are no representation elections, arbitration
proceedings, labor strikes, 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 such matters during the five 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 (including the National Labor Relations Board, Equal
Employment Opportunity Commission or any similar state or local agency), by or
on behalf of any employee or former employee of the Company.
(e) 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 (or
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made provision for payment) in full to its employees, agents and independent
contractors all wages, salaries, commissions, bonuses and other direct
compensation for all services performed by them. Except as set forth on the Base
Balance Sheet, and except for such expenses as have been incurred in the
ordinary course of business since such date, the Company has complied with and
has no liabilities whatsoever with respect to payroll, social security, and
other employment related taxes for independent contractors. 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, except for such liabilities as have been incurred in the
ordinary course of business since such date. 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 Law.
(f) There has not been any citation, fine or penalty imposed or
asserted against the Company under any law relating to employment, immigration
or occupational safety matters.
2.15 Employee Benefits and ERISA.
(a) The Company has provided the Buyer with a true and complete list of
all employee benefits plans (as defined in Section 3(3) of ERISA) and all bonus,
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and all other similar employee benefit plans, written or
otherwise, for the benefit of, or relating to, any current or former employee of
the Company (collectively, the "Company Employee Plans").
(b) With respect to each Company Employee Plan, the Company has
furnished a true and accurate copy of (i) the most recent IRS determination
letter, (ii) the three most recent Form 5500s filed with the IRS, (iii) each
Company Employee Plan, (iv) each trust agreement and group annuity contract, if
any, relating to such Company Employee Plan.
(c) With respect to the Company Employee Plans, no event has occurred
and there exists no condition or set of circumstances in connection with which
Company or any of its ERISA Affiliates could be subject to any liability, loss,
damages, taxes or expense. Neither the Company nor any ERISA Affiliate know of
any failure of any party to comply with any laws with respect to the Company
Employee Plans.
(d) Neither Company nor any ERISA Affiliate has (i) ever maintained a
Company Employee Plan which was ever subject to Title IV of ERISA or Section 412
of the Code, or (ii) ever been obligated to contribute to a multiemployer plan
(as defined in Section 4001(a)(3) of ERISA).
2.16 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 2.16 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. 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.
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2.17 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.
2.18 Litigation. 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 thereby, or (b) will result in any
Material Adverse Effect on the Company. Neither the Company nor any Seller has
any knowledge that any such action, suit, proceeding, investigation or
arbitration proceeding may be brought against the Company.
2.19 Borrowings and Guarantees. Except as disclosed on the Base Balance Sheet,
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.
2.20 Insurance. The Company has provided the Buyer with 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 information with respect to the premiums, coverages,
insurers, expiration dates, and deductibles in respect of such policies. There
are no claims pending under any of said policies, or disputes with insurers, and
all premiums due and payable thereunde have been paid, and all such policies are
in full force and effect in accordance with their respective terms.
2.21 Minute Books. The minute books and stock records of the Company delivered
to Buyer 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.
2.22 Finder's Fee. 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.
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2.23 Transactions with Interested Persons. 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) has any contract or
agreement (written or oral) with the Company.
2.24 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.
2.25 Due Diligence Checklist. Attached as Schedule 2.25 is the Company's and the
Sellers' response to the Buyer's Due Diligence Checklist. Such responses are
true, complete and correct as of the date when made and as of the date hereof.
2.26 Disclosure of Material Information. Neither this Agreement nor 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, to the knowledge of any Seller, 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
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.
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3.2 Authorization of Interleaf Shares. Any Buyer 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.
3.3 Authorization of Transaction. Buyer has the full power and authority to
execute and deliver this Agreement and each Ancillary Agreement 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 Agreement
or any of the Ancillary Agreements, nor the performance of the transactions
contemplated hereby, will: (i) constitute a breach or violation of the Buyer's
Constituent Documents; (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) violate any Court Order
a Law 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 SEC 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, 1999, as filed with the SEC, (b) proxy statements relating to all
meetings of its stockholders (whether annual or special) since March 31, 1999,
and (c) all other reports filed wit the SEC pursuant to the Exchange Act since
March 31, 1999 (such annual reports, proxy statements and other filings,
together with any amendments or supplements thereto, are collectively referred
to herein as the "Buyer Reports"). 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 (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
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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. CONDITIONS TO OBLIGATIONS OF BUYER h
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 4 will have been accomplished.
4.1 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 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.
4.2 Employment and Non-Competition Agreements. The Sellers each shall have
executed and delivered to Buyer a Non-Competition Agreement, and Daniel
Schweitzer shall have executed and delivered to Buyer an Employment Agreement,
having substantially the terms and conditions set forth in Exhibits B1 and B2,
respectively, attached hereto.
4.3 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 transactio 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, 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.
4.4 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 C hereto.
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ARTICLE 5. CONDITIONS TO OBLIGATIONS OF THE SELLERS
The obligations of the Sellers 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 5 will have been accomplished.
5.1 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.
5.2 Employment Agreement and Non-Competition Agreement. The Buyer shall have
executed and delivered to Mr. Daniel Schweitzer an Employment Agreement in the
Form of Exhibit B1 hereto.
ARTICLE 6. AGREEMENTS OF PARTIES
6.1 Termination of Letter Agreement. That certain binding letter agreement
between the parties dated September 3, 1999 is hereby superceded, terminated and
of no further force or effect. The parties each release, discharge and
acknowledge full performance and satisfaction of the other parties' obligations
under such agreement. Without limiting the foregoing, the Company and the
Sellers hereby unconditionally release, discharge and hold Buyer and Buyer's
Indemnified Persons harmless from and against an and all Losses that they have
or will incur as a result of or in connection with the Buyer's right to control
the Company's operations under, or the other provisions of, Section 5 of such
letter agreement.
6.2 Registration of Buyer Shares.
(a) If Buyer elects to make the payment under Section 1.1(a) (i) in the
form of Buyer Shares, then within 90 days after the Closing, Buyer will use
reasonable efforts to file a registration statement on Form S-3 (or any
successor short form registration) under the Securities Act with the SEC
covering those Buyer Shares. Buyer will use reasonable efforts to cause the SEC
to declare effective such registration statement as soon as practicable after
the filing thereof with the SEC.
(b) If Buyer elects to make the payment under Section 1.1(a)(ii) in the
form of Buyer Shares, then Buyer will use reasonable efforts to include such
Buyer Shares in any registration statement filed by Buyer with the SEC under the
Securities Act during the twelve month period following the issuance to such
Buyer Shares covering the re-sale by holders (other than the Sellers) of Buyer
Shares. However, Buyer shall have no obligation under this paragraph (b) to
include the Sellers' Buyer Shares in any registration statement filed with the
SEC in connection with a primary offering of Buyer Shares, or in connection with
a merger, acquisition, divestiture, reorganization, rights offering, exchange
offering, stock option or other benefit plan.
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(c) In the case of any registration under paragraph (a) or (b), the
Buyer shall bear all costs and expenses of each such registration, including,
but not limited to, printing, legal and accounting expenses, Securities and
Exchange Commission and National Association of Securities Dealers, Inc. filing
fees and expenses, and "blue sky" fees and expenses; provided, however, that the
Buyer shall have no obligation to pay or otherwise bear (i) the cost and
expenses of procuring underwriters' insuranc in connection with the sale, (ii)
any portion of the fees or disbursements of counsel to the selling holders of
Buyer Shares, (iii) any portion of the underwriters' commissions or discounts
attributable to the Buyer Shares being offered and sold by the Sellers, or (iv)
in the case of the registration under paragraph (b), any incremental costs and
expenses which exceed $5,000.
(d) In the case of any registration under paragraph (a) or (b), Buyer
will use reasonable efforts to effect such registration to permit the sale of
such Buyer Shares in accordance with the intended method or methods of
disposition thereof, and pursuant thereto it will:
(i) prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus
contained therein as may be necessary in Buyer's opinion to
keep such registration statement effective for at least one
year from the date it is declared effective by the SEC;
(ii) furnish to the holders participating in such registration such
reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other
documents as such holders may reasonably request in order to
facilitate the subsequent sale such securities;
(iii) notify the holders participating in such registration,
promptly after it shall receive notice thereof, of the time
when such registration statement has become effective or a
supplement to any prospectus forming a part of such
registration statement has been filed;
(iv) notify such holders promptly of any request by the SEC for the
amending or supplementing of such registration statement or
prospectus or for additional information; and where such
request requires information or action from the holders;
(v) advise such holders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by
the SEC suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding
for that purpose and promptly use its best efforts to prevent
the issuance of any stop order or to obtain its withdrawal if
such stop order should be issued.
(e) For purposes of this Section 6.2, "Buyer Shares" will include all
common stock or other securities issued in respect to the Buyer Shares issued to
the Sellers pursuant to this Agreement by way of a dividend or stock split or in
connection with a combination or subdivision of shares, recapitalization,
merger, consolidation, reorganization or similar transaction.
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(f) The Sellers shall cooperate with Buyer in any registration process
registering Sellers' Buyer Shares under paragraph (a) or (b) above, and shall
furnish to Buyer such information regarding itself as Buyer may reasonably
request and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement. Buyer shall have sole
and exclusive control over any registration statement and the registration
process. Buyer may amend, abandon or delay any registration statement under
paragraph (b) in its sole discretion.
(g) After such time as the SEC has declared effective a registration
statement covering any Shares delivered to Sellers hereunder (or if an exemption
from registration is available), the Company and the Sellers will not separately
or in the aggregate offer or attempt to sell during any given trading day any
Buyer Shares in excess of 25% of the average daily volume over the prior five
trading days. In addition, the Company, its stockholders, employees and agents
before the Closing, and the Sellers (and their agents and persons under their
control) both before and after Closing shall not at any time directly or
indirectly engage in any short sales, swaps, purchasing of puts, or other
hedging activities, that involve the direct or indirect use of Stock or
securities derivative from Buyer Shares, for any reason.
6.3 Accounts Receivable. All of the Company's Receivables on the business day
prior to the Closing Date will be valid accounts receivable which, within 120
days after the Closing Date, will be collected in full. Any such uncollected
accounts receivable shall be paid in cash to the Buyer by Sellers. For purposes
of determining whether the Receivables of a particular customer have been
collected, payments received from that customer shall be applied on a first in,
first out basis, except as to customers on cash on delivery terms or as
otherwise directed by the customer in the case of disputed accounts. Thereafter,
all uncollected accounts (in excess of the bad debt reserve set forth above)
shall be assigned to Sellers.
6.4 Illinois Qualification. The Company is currently not in good standing as a
foreign corporation in the State of Illinois, and the Company will be
responsible as a post-Closing matter for withdrawing as a foreign corporation in
the State of Illinois, and for paying all fees, taxes, fines, interest and other
charges and expenses incurred in connection therewith.
ARTICLE 7. INDEMNIFICATION.
7.1 Indemnification by Sellers.
(a) Subject to the limitations in paragraph (b) below, from and after
the Closing Date, the Sellers, jointly and severally, agree 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
resulting from or arising out of:
(i) any breach of any of the representations or warranties of
Article 2 hereof;
(ii) any litigation or similar matter referenced in Section 2.18
above, except to the extent of reserves with respect thereto
on the Base Balance Sheet;
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(iii) any breach of any covenant or agreement made by Sellers in
this Agreement, any Ancillary Agreement, or any agreement
contemplated hereby;
(iv) any Taxes owing by the Company or Sellers or Buyer, as
successor to the Company, (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 and
except to the extent Taxes have been paid;
(v) any matter which to the knowledge of the Company or any Seller
may have a Material Adverse Effect relating to any Company
Employee Plan occurring prior to the Closing;
(vi) any fraud or intentional misrepresentation by the Company or
any Seller contained herein or committed in respect of the
transactions contemplated hereby; or
(vii) any liability for which Sellers have expressly agreed to be
responsible as set forth in this Agreement or any Ancillary
Agreement.
(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 (A) eighteen months from the
Closing Date with respect to claims described in clause (i)
and (v); (B) the period of the applicable statute of
limitations in the case of claims described in clauses (iii)
and (iv); and (C without limitation as to time with respect to
claims described in clauses (ii), (vi) or (vii); 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 shall be
payable by Sellers only if the aggregate amount of all Losses
thereunder by Buyer's Indemnified Persons shall exceed
$25,000, at which point Sellers jointly and severally shall be
responsible for all Losses, including the first $25,000 of
such Losses; provided, however, that the Losses paid by
Sellers (A) with respect to claims described in paragraph (a)
clauses (i), (iii) or (v) shall not exceed the Purchase Price
which is required to be paid by Buyer to Sellers (including
amounts paid in discharge of company debt) under this
Agreement, and (B) shall not be limited with respect to claims
described in paragraph (a) clauses (ii), (iv), (vi) or (vii).
7.2 Indemnification by Buyer.
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(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 resulting from or arising out of:
(i) any breach of any of the representations or warranties made by
Buyer, in or pursuant to this Agreement, or in any agreement,
document or instrument executed and delivered pursuant hereto
or thereto or in connection with the Closing;
(ii) any breach of any covenant or agreement made by Buyer in or
pursuant to this Agreement, any Ancillary Agreements, or in
any agreement or document contemplated hereby; or
(iii) fraud or intentional misrepresentation by Buyer contained
herein or committed in respect of the transactions
contemplated hereby.
(b) The right of indemnification under paragraph (a) above is subject to
the following limitations:
(i) The Buyer shall have no liability under paragraph (a) above
unless one or more of Sellers' Indemnified Persons gives
written notice to Buyer asserting a claim for Losses,
including reasonably detailed facts and circumstances
pertaining thereto, before the expiration of (A) eighteen
months from the Closing Date with respect to claims described
in clause (i), the applicable statute of limitation with
respect to claims described in clause (ii), and (C) without
limitation as to time with respect to claims described under
clause (iii); and
(ii) Indemnification for claims under paragraph (a) above shall be
payable by Buyer only if the aggregate amount of all Losses
thereunder by Sellers' Indemnified Persons shall exceed
$25,000, at which point Buyer shall be responsible for all
Losses including the first $25,000; provided, however, that
under no circumstances shall any Losses paid by Buyer (A) with
respect to claims arising under paragraph (a) clause (i) or
(ii) shall not exceed the Purchase Price which is required to
by paid by Buyer to Sellers (including amounts paid in
discharge of company debt) under this Agreement, and (B) shall
not be limited with respect to claims described in paragraph
(a) clause (iii).
7.3 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 7.
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(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 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 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.
7.4 Miscellaneous.
(a) Buyer's Indemnified Persons shall be entitled to indemnification
under Section 7.1(a) and Sellers' Indemnified Persons shall be entitled to
indemnification under Section 7.2(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 the
appropriate Disclosure Schedule hereto.
(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) The gross amount for which any Indemnifying Person may be liable
pursuant to this Article 7 shall be reduced by any insurance proceeds actually
recovered by or on behalf of the Indemnified Person on account of the
indemnifiable Loss.
(d) 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 10.2; provided that Buyer shall not
be required to recover such claims in such manner
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and may proceed against the Indemnified Party at any time or times for recovery
of indemnification claims.
7.5 Payment of Indemnification. Claims for indemnification under this Article 7
shall be paid or otherwise satisfied by Indemnifying Persons within thirty days
after notice thereof is given by the Indemnified Person.
ARTICLE 8. TERMINATION OF AGREEMENT.
8.1 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 4 have not been
satisfied at or prior to the Closing, (d) by the Sellers if the conditions
stated in Article 5 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 October 15, 1999; provided that the right to terminate under this
Section 8.1 shall not be available to any parties whose breach has been the
cause of such failure to close.
8.2 Effect of Termination. In the event of termination or abandonment of this
Agreement in accordance with the provisions of this Article, no party to this
Agreement shall have any liability or further obligation to any other party,
except that nothing herein shall relieve any party from liability for any 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 eac other part (including any copies thereof made by
the first party).
8.3 Right to Proceed. Anything in this Agreement to the contrary notwithstanding
(a) if any of the conditions specified in Article 4 hereof have not been
satisfied, Buyer shall have the right to proceed with the transactions
contemplated hereby without waiving its rights hereunder, (b) if any of the
conditions specified in Article 5 hereof have not been satisfied, Seller shall
have the right to proceed with the transactions contemplated hereby without
waiving its rights hereunder.
ARTICLE 9. DEFINITIONS.
As used in this Agreement, the following terms have the indicated
meanings:
"Affiliate" means, with respect to a Person, any other Person which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, such Person.
"Ancillary Agreements" means the Employment Agreement with Daniel Schweitzer and
the Noncompetition Agreements with each Seller in the form of Exhibits B1 and
B2, respectively.
"Base Balance Sheet" has the meaning specified in Section 2.7.
"Base Balance Sheet Date" means August 27, 1999.
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"Buyer Shares" means Common Stock, $.01 par value per share, of Buyer.
"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.
"Closing" means the closing of the purchase and sale provided for in this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Employee Plan" has the meaning specified in Section 2.15.
"Company Shares" means the shares of Common Stock, no par value, of the Company
issued and outstanding.
"Constituent Documents" means the Company's certificate or articles of
incorporation or organization, bylaws, or other corresponding documents, as
amended.
"Court Order" means any court order, judgment, administrative or judicial order,
writ, decree, stipulation, arbitration award or injunction.
"Employment Agreement" means the Employment Agreement to be entered into by the
Buyer with Daniel Schweitzer in the form of Exhibit B1.
"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.
"Earnout Period" means from October 1, 1999 through September 30, 2000.
"Exchange Act" means the Securities Act of 1934, as amended.
"Fair Market Value" 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 consecutive trading days ending on the trading day preceding such date.
"GAAP" means generally accepted accounting principles.
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"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.
"Indemnified Person" means any person entitled to be indemnified under Article
7.
"Indemnifying Person" means any person obligated to indemnify another person
under Article 7.
"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 (ii) all Trade Secrets, and (iii)
all industrial or intellectual property rights of every kind and description.
"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 Indemnified Person 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 Adverse Effect" means any change event or occurrence that has, or is
reasonable likely to have, individually or in the aggregate, a material adverse
impact upon the business, properties, operations, prospectus, assets, revenues,
condition (financial or otherwise) of the Company taken as a whole.
"Material Contracts" means those contracts required by Section 2.13(a) to be
listed on Schedule 2.13(a).
"Material Customer" means any customer that accounted for more than three
percent by value of the orders for goods or services provided by the Company
during any one of the last three fiscal years or the current fiscal year.
"Material Personal Property" has the meaning specified in Section 2.11.
"Material Real Property" has the meaning specified in Section 2.11.
"Material Supplier" means any supplier that accounted for more than three
percent by value of the orders by the Company for purchase of all its raw
materials and other products essential to its business during any one of the
last three fiscal years or the current fiscal year.
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"Person" means any individual, partnership, limited liability company, joint
venture, corporation, trust or unincorporated organization or any other similar
entity.
"Purchase Price" has the meaning specified in Section 1.1.
"Qualified Current Assets" means cash plus Receivables.
"Receivables" means accounts receivable, trade accounts, notes receivable,
contract receivables, unbilled invoices and other receivables.
"Revenues" means revenue recognized by Buyer during the Earnout Period in
accordance with GAAP, applied consistently with Seller's past practice, from all
of the following sources:
i) persons who are active clients of the Company as of the
Closing;
ii) activities performed by Company personnel, including revenue
from customers that had not previously been serviced by the
Company.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Sellers" means each of Daniel Schweitzer and Larry Scott.
"Seller's Indemnified Persons" means each of the Sellers, their heirs and
assigns.
"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 of products, including software, which either are
useful to the Company or provide a competitive advantage, and as to which the
Sellers have made reasonable efforts to maintain confidentiality.
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ARTICLE 10. MISCELLANEOUS.
10.1 Survival of Warranties. All representations, warranties, agreements,
covenants and obligations herein or in any schedule, certificate or financial
statement delivered by any 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 7
and shall not merge in the performance of any obligation by either party hereto.
10.2 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 by reason of any claim by Buyer against Seller or the Company for
indemnification pursuant to Section 6.1 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.
10.3 Arbitration. All claims, disputes and other matters in question between the
parties to this Agreement arising out of or in any way relating to this
Agreement or the breach thereof shall be determined by arbitration in Waltham,
Massachusetts in accordance with the rules of the American Arbitration
Association then in effect unless the parties mutually agree in writing to waive
this provision. This agreement to arbitrate shall be specifically enforceable
under the prevailing arbitration law. Notice of the demand for arbitration shall
be filed in writing with the other party or parties to this Agreement and with
the American Arbitration Association in Boston, Massachusetts. The demand shall
be made within a reasonable time after the claim, dispute or other matter in
question has arisen. In no event shall the demand for arbitration be made after
the date when an institution of legal or equitable proceedings based upon such
claim, dispute or other matter in question would be barred by this Agreement or
the applicable statute of limitations. The arbitration shall be before a single
arbitrator who shall interpret this Agreement in accordance with the internal
laws of the Commonwealth of Massachusetts. The award rendered by the arbitrator,
which shall include any reasonable legal fees and costs incurred by the party
receiving the award, shall be final and any judgment may be entered upon it in
accordance with the applicable law in any court having jurisdiction thereof. In
no event shall any party be awarded consequential, incidental or punitive
damages.
10.4 Fees and Expenses. Buyer will bear its own expenses and the Sellers will
bear the Sellers' and the Company's 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.
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10.5 Notices. All notices, requests, demands and other communications required
or permitted to be given hereunder by any party hereto shall be in writing and
shall be deemed to have been duly given (i) 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 to the parties at the following addresses (or at such
other addresses as shall be specified by the parties):
If to the Sellers or, prior to
the Closing, to the Company, to: with a copy to:
Mr. Daniel Schweitzer Reinhart, Boerner, Van Deuren,
Docu-Net, Inc. Norris & Rieselbach
120 Bishops Way, Suite 165 1000 North Water Street
Brookfield, WI 53005 Milwaukee, WI 53202
Tel: (414) 782-0007 Attn: Lawrence J. Burnett, Esq.
Fax: (414) 782-7006 Tel: (414) 298-8150
Fax: (414) 298-8097
If to the Buyer, to: with a copy to:
Interleaf, Inc. Brown, Rudnick, Freed & Gesmer
62 Fourth Street One Financial Center
Waltham, MA 02154 Boston, Massachusetts 02111
Attn.: Craig Newfield, General Counsel Attn.: David Murphree, Esquire
Tel: 781-768-1086 Tel: 617-856-8200
Fax: 781-768-1145 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.
10.6 Confidentiality. The parties agree that they will keep confidential and not
disclose or divulge (i) 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 (ii) the financial or other terms of this Agreement, unless such
information becomes public information through no fault of such party or is
required to be disclosed by applicable law, including applicable securities laws
or stock exchange rules or regulations. The obligations of this Section shall
survive any termination of this Agreement.
10.7 Publicity and Disclosures. Except as may be otherwise required for
compliance by Buyer with applicable stock market rules or securities laws,
neither Buyer nor the Company shall issue any public announcement concerning
this Agreement without the prior written approval of the other.
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10.8 Assignability. This Agreement may not be assigned by either party without
the consent of the other, except that any or all rights of Buyer to receive
performance (but not the obligations of Buyer to Sellers hereunder) may be
assigned by Buyer to any direct or indirect subsidiary or other affiliate of
Buyer. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns.
10.9 Remedies. Subject to Section 10.3, 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.
10.10 Governing Law; Jurisdiction; Venue.
(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 Sellers hereby submits to the jurisdiction of
each such court and agrees that service of process on him/her in any such
action, suit or proceeding may be effected by the means by which notices are to
be given under this Agreement.
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10.11 Miscellaneous.
(a) This Agreement (including all exhibits or schedules appended to
this Agreement and all documents delivered pursuant to or referred to in this
Agreement, all of which are hereby incorporated herein by reference) constitutes
the entire agreement between the parties, and all promises, representations,
understandings, warranties and agreements with reference to the subject matter
hereof and inducements to the making of this Agreement relied upon by any party
hereto, have been expressed herei or in the documents incorporated herein by
reference.
(b) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
hereof.
(c) This Agreement may be amended only by a written agreement executed
all parties hereto.
(d) 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.
(e) 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 29, 1999, to be effective as of the date
first set forth above.
INTERLEAF, INC. DOCU-NET, INC.
By: By:
------------------------- -------------------------
Name: Name:
------------------------- -------------------------
Title: Title:
------------------------- -------------------------
Date: Date:
------------------------- -------------------------
SELLERS:
- ------------------------------- -------------------------------
Daniel Schweitzer Larry Scott
EXHIBITS
- --------
Exhibit A: Form of Release
Exhibit B1 & B2: Form of Employment and Non-Competition Agreement
Exhibit C: Form of Opinion of Sellers' Counsel
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated May 6, 1999 relating to the financial
statements and financial statement schedule, which appears in Interleaf, Inc.'s
Annual Report on Form 10-K for the year ended March 31, 1999. We also consent to
the reference to us under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
October 11, 1999
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related prospectus of Interleaf, Inc. for
the registration of 165,405 shares of its common stock and to the incorporation
by reference therein of our report dated May 13, 1998 with respect to the
consolidated financial statements and schedule of Interleaf, Inc. as of and for
the two years ended March 31, 1998 included in its Annual Report (Form 10-K) for
the year ended March 31, 1999, filed with the Securities and Exchange
Commission.
Ernst & Young LLP
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
October 13, 1999
