SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Date of Report (Date of earliest event reported)..July 16, 1996
INSO CORPORATION
(exact name of registrant as specified in its charter)
Delaware 0-23384 04-321643
(State or other (Commission File (IRS Employer
jurisdiction or Number) Identification No.)
incorporation)
31 St. James Avenue, 11th Floor
Boston, Massachusetts 02116-4101
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code..(617) 753-6000
<PAGE>
Item 2. Acquisition or Disposition of Assets
(a) On July 16, 1996, INSO Corporation, a Delaware
corporation (the "Company") purchased privately held
Electronic Book Technologies, Inc., a Delaware corporation
("EBT"). The acquisition was in the form of a merger of
a subsidiary of the Company into EBT.
The Company paid an aggregate of approximately $27,800,000 in
cash at the closing from the Company's cash on hand. In
addition, certain stock options of EBT survived the closing and
if exercised, the Company has the right and obligation to purchase
shares issuable upon the exercises, for an additional aggregate amount of
approximately $10,400,000, which is also expected to be paid from
the Company's cash on hand. The transaction will be accounted
for as a purchase and provides for additional payments of
approximately $1,500,000 to the principal stockholder of EBT eighteen
months after the closing date and contingent payments up to an
additional $5,300,000 in the event that certain EBT financial and
operating goals are met.
The acquisition includes certain technology under research and
development, which is to be written-off with a one-time charge,
estimated between $30,000,000 to $35,000,000, to the Company's
consolidated 1996 third quarter earnings.
(b) EBT is a leading international provider of integrated
CD-ROM/web publishing solutions for serious corporate and
commercial publishers. EBT markets its products to original
equipment manufacturers of computer software and to major
corporations and government entities.
The Company presently intends to continue the operations of EBT.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
It is impractical to provide the required financial
statements with this report. Such required financial
statements will be filed in an amendment to this report not
later than September 30, 1996.
(b) Pro forma financial information.
It is impractical to provide the required pro forma
financial information with this report. Such pro forma
financial information will be filed in an amendment to this
report not later than September 30, 1996.
(c) Exhibits.
2.1 Merger Agreement dated July 1, 1996, by and among
INSO Corporation, CIP Acquisition Corporation, and
Electronic Book Technologies, Inc.
20.1 Press release, dated July 1, 1996.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly
authorized.
INSO CORPORATION
(Registrant)
By /s/ Bruce G. Hill
Vice President,
General Counsel and Secretary
Date: July 31, 1996
Exhibit 2.1
MERGER AGREEMENT
AMONG
INSO CORPORATION, CIP ACQUISITION CORPORATION,
AND
ELECTRONIC BOOK TECHNOLOGIES, INC.
AND CERTAIN STOCKHOLDERS THEREOF
JULY 1, 1996
TABLE OF CONTENTS
Page
ARTICLE I - THE MERGER
1.1 The Merger
1.2 The Closing
1.3 Actions at the Closing
1.4 Additional Action
1.5 Conversion of Securities
1.6 Dissenting Shares
1.7 Options and Warrants
1.8 Payments
1.9 Escrow
1.10 Net Worth and Cash Adjustment
1.11 Certificate of Incorporation
1.12 By-laws
1.13 Directors and Officers
1.14 No Further Rights
1.15 Closing of Transfer Books
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND PRINCIPAL STOCKHOLDERS
2.1 Organization, Qualification and Corporate Power
2.2 Capitalization
2.3 Authority
2.4 Noncontravention
2.5 Subsidiaries
2.6 Financial Statements
2.7 Absence of Certain Changes
2.8 Undisclosed Liabilities
2.9 Tax Matters
2.10 Assets
2.11 Real Property
2.12 Intellectual Property
2.13 Inventory
2.14 Real Property Leases
2.15 Contracts
2.16 Accounts Receivable
2.17 Powers of Attorney
2.18 Insurance
2.19 Litigation
2.20 Product Warranty
2.21 Employees
2.22 Employee Benefits
2.23 Environmental Matters
2.24 Legal Compliance
2.25 Permits
2.26 Certain Business Relationships With Affiliates
2.27 Brokers' Fees
2.28 Books and Records
2.29 Customers and Suppliers
2.30 Disclosure
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY
3.1 Organization
3.2 Authorization of Transaction
3.3 Noncontravention
3.4 Broker's Fees
ARTICLE IV - COVENANTS
4.1 Best Efforts
4.2 Notices and Consents
4.3 Consent in Lieu of Meeting
4.4 Operation of Business
4.5 Full Access
4.6 Notice of Breaches
4.7 Exclusivity
4.8 Stock Options
4.9 Consulting Arrangement
4.10 Severance
4.11 Bonus Pools
ARTICLE V - CONDITIONS TO CONSUMMATION OF MERGER
5.1 Conditions to Obligations of the Buyerand the Transitory Subsidiary
5.2 Conditions to Obligations of the Company
ARTICLE VI - INDEMNIFICATION
6.1 Indemnification
6.2 Method of Asserting Claims
6.3 Treatment of Indemnity Payments
6.4 Survival
6.5 Limitations
ARTICLE VII - TERMINATION
7.1 Termination of Agreement
7.2 Effect of Termination
ARTICLE VIII - DEFINITIONS
ARTICLE IX - MISCELLANEOUS
9.1 Press Releases and Announcements
9.2 No Third Party Beneficiaries
9.3 Entire Agreement
9.4 Succession and Assignment
9.5 Counterparts
9.6 Headings
9.7 Notices
9.8 Governing Law
9.9 Amendments and Waivers
9.10 Severability
9.11 Expenses
9.12 Specific Performance
9.13 Construction
9.14 Incorporation of Exhibits and Schedules
Exhibit A- Escrow Agreement
Exhibit B - Amendment No. 1 to Option Agreement for Surviving Options
Exhibit C - Affidavit of Lost Stock Certificate
Exhibit D - Consulting Agreement
Exhibit E. Agreement to Purchase/Sell Shares
Exhibit F-1 - Form of Two-Year Non-Compete and Non-Solicitation Agreement
Exhibit F-2 - Form of One-Year Non-Compete and Non-Solicitation Agreement
Schedule I List of Surviving Options
Schedule 4.4(a) Options to be accelerated
Schedule 4.4(b) Dividend payments
Schedule 4.4(d) Bonus payments
Schedule 5.1(i) Additional parties to two-year non-compete and
non-solicitation agreement
Disclosure Schedule
MERGER AGREEMENT
Agreement entered into as of July 1, 1996 by and among INSO
Corporation, a Delaware corporation (the "Buyer"), CIP Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of
the Buyer (the "Transitory Subsidiary"), Electronic Book
Technologies, Inc. a Delaware corporation (the "Company"), and
the stockholders and optionholders of the Company set forth on
the signature page hereof (the "Principal Stockholders").
The Buyer, the Transitory Subsidiary, the Company and the
Principal Stockholders are referred to collectively herein as the
"Parties." For purposes of this Agreement, the stockholders
of record of the Company as of the date hereof, and the holders of
Non-Surviving Stock Options, Surviving Stock Options and/or Warrants
(each as defined below) (other than Non-Surviving Options which are
cancelled immediately prior to the Effective Time and for which no
consideration is paid on account of the Merger) are referred to as
the "Company Stockholders".
This Agreement contemplates a merger of the Transitory
Subsidiary into the Company. In such merger, the
stockholders of the Company will receive cash in exchange
for their capital stock of the Company.
Now, therefore, in consideration of the representations,
warranties and covenants herein contained, the Parties agree
as follows.
ARTICLE I
THE MERGER
1.1 The Merger. Upon and subject to the terms and
conditions of this Agreement, the Transitory Subsidiary
shall merge with and into the Company (with such merger
referred to herein as the "Merger") at the Effective Time
(as defined below). From and after the Effective Time, the
separate corporate existence of the Transitory Subsidiary
shall cease and the Company shall continue as the surviving
corporation in the Merger (the "Surviving Corporation").
The "Effective Time" shall be the time at which the Company
and the Transitory Subsidiary file the certificate of merger
or other appropriate documents prepared and executed in
accordance with the relevant provisions of the Delaware
General Corporation Law (the "Certificate of Merger") with
the Secretary of State of the State of Delaware.
1.2 The Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take
place at the offices of Hale and Dorr in Boston,
Massachusetts, commencing at 9:00 a.m. local time on July
16, 1996, or, if all of the conditions to the obligations of
the Parties to consummate the transactions contemplated
hereby have not been satisfied or waived by such date and
this Agreement has not been terminated in accordance with
Article VII, on such mutually agreeable later date as soon
as practicable after the satisfaction or waiver of all
conditions to the obligations of the Parties to consummate
the transactions contemplated hereby (the "Closing Date").
1.3 Actions at the Closing. At the Closing, (a) the
Company and the Principal Stockholders shall deliver to the
Buyer and the Transitory Subsidiary the various
certificates, instruments and documents referred to in
Section 5.1, (b) the Buyer and the Transitory Subsidiary
shall deliver to the Company the various certificates,
instruments and documents referred to in Section 5.2, (c)
the Company and the Transitory Subsidiary shall file with
the Secretary of State of the State of Delaware the
Certificate of Merger, (d) the Buyer or the Surviving
Corporation shall pay (by check or by wire transfer) to each
Company Stockholder who delivers to the Buyer for
cancellation the certificate(s) representing his/her Common
Shares in accordance with Section 1.5, an amount, for each
Common Share (as defined in Section 1.5) so delivered, equal
to the quotient of (A) the Merger Consideration Per Share
(as defined in Section 1.5(a) below) times the aggregate
number of Common Shares which are not Dissenting Shares
(whether or not such Common Shares are being delivered at
the Closing), less the Initial Escrow Amount (as defined
below), divided by (B) the aggregate number of Common Shares
which are not Dissenting Shares (such quotient being
referred to as the "Closing Per Share Payment"), (e) the
Buyer or the Transitory Subsidiary shall deliver funds to a
bank trust company or other entity reasonably satisfactory
to the Company appointed by the Buyer to act as the
disbursing agent (the "Disbursing Agent") in accordance with
Section 1.8, and to the Escrow Agent pursuant to Section
1.9, and (f) the Buyer, Louis R. Reynolds and Richard L.
Piccolo (the "Indemnification Representatives") and the
Escrow Agent shall execute and deliver the Escrow Agreement
attached hereto as Exhibit A (the "Escrow Agreement"). The
term "Initial Escrow Amount" shall mean $3,000,000
multiplied by a fraction of which the numerator shall equal
the total number of Common Shares issued and outstanding
immediately prior to the Effective Time (including Common
Shares issued or issuable upon exercise of the Non-Surviving
Options and the Warrants immediately prior to the Effective
Time), and the denominator shall equal the sum of the
numerator of such fraction plus the total number of Common
Shares issuable upon the exercise of the Surviving Options
(as defined in Section 1.7(a)).
1.4 Additional Action. The Surviving Corporation may, at
any time after the Effective Time, take any action,
including executing and delivering any document, in the name
and on behalf of either the Company or the Transitory
Subsidiary, in order to consummate the transactions
contemplated by this Agreement.
1.5 Conversion of Securities.
(a) At the Effective Time, by virtue of the Merger and
without any action on the part of any Party, each share of
common stock, $.01 par value per share, of the Company (a
"Common Share") issued and outstanding immediately prior to
the Effective Time (other than Dissenting Shares (as defined
in Section 1.6(a)) shall be converted into and represent the
right to receive (subject to the provisions of Section 1.9),
in cash, an amount per share equal to $38,200,000, less (i)
the amount (the "Redemption Price") payable in redemption of
outstanding shares of the Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock of the
Company (collectively, the "Preferred Shares"), divided by
the sum of (A) the total number of Common Shares issued and
outstanding immediately prior to the Effective Time
(including Common Shares issued upon exercise of the Non-
Surviving Options and the Warrants immediately prior to the
Effective Time), plus (B) the total number of Common Shares
of the Surviving Corporation issuable upon the exercise of
the Surviving Options (as defined below) (the "Merger
Consideration Per Share").
(b) Each Common Share and Preferred Share (together,
"Shares") held in the Company's treasury immediately prior
to the Effective Time shall be cancelled and retired without
payment of any consideration therefor.
(c) Each share of common stock, $.01 par value per share,
of the Transitory Subsidiary issued and outstanding
immediately prior to the Effective Time shall be converted
into and thereafter evidence one share of common stock, $.01
par value per share, of the Surviving Corporation.
1.6 Dissenting Shares.
(a) For purposes of this Agreement, "Dissenting Shares"
means Shares held as of the Effective Time by a Company
Stockholder who has not voted such Shares in favor of (or
consented to) the adoption of this Agreement and the Merger.
Dissenting Shares shall not be converted into or represent
the right to receive the payment which the Company
Stockholders are entitled to receive pursuant to Section
1.5(a), unless such Company Stockholder shall have forfeited
his right to appraisal under the Delaware General
Corporation Law or withdrawn his demand for appraisal. If
such Company Stockholder has so forfeited or withdrawn his
right to appraisal of Dissenting Shares, then, (i) as of the
occurrence of such event, such holder's Dissenting Shares
shall cease to be Dissenting Shares and shall be converted
into and represent the right to receive the Merger
Consideration Per Share payable in respect of such Shares
pursuant to Section 1.5, and (ii) promptly following the
occurrence of such event, the Buyer or the Surviving
Corporation shall deliver to the Disbursing Agent a payment
representing the Merger Consideration Per Share to which
such holder is entitled pursuant to Section 1.5.
(b) The Company shall give the Buyer (i) prompt notice of
any written demands for appraisal of any Shares, withdrawals
of such demands, and any other instruments that relate to
such demands received by the Company and (ii) the
opportunity to direct all negotiations and proceedings with
respect to demands for appraisal under the Delaware General
Corporation Law. The Company shall not, except with the
prior written consent of the Buyer, make any payment with
respect to any demands for appraisal of Shares or offer to
settle or settle any such demands.
1.7 Options and Warrants.
(a) Prior to the Effective Time, the Company shall take all
necessary action so that, as of the Effective Time, all
previously outstanding stock options for the purchase of
Shares and all outstanding warrants (the "Warrants") other
than the Surviving Options (collectively, "Non-Surviving
Options"), shall have been either exercised or cancelled
and, accordingly, no Non-Surviving Options or Warrants shall
be outstanding as of the Effective Time. Prior to the
Effective Time, the Company shall take all necessary action
so that, as of the Effective Time, all options described on
Schedule I hereto (the "Surviving Options") shall have been
amended in the form of Exhibit B so as to be exercisable for
Common Shares of the Surviving Corporation on the terms set
forth in the Surviving Options, as so amended. The Buyer
acknowledges that the Board of Directors of the Company has
accelerated the vesting of certain Non-Surviving Options and
certain Surviving Options, as set forth on Schedule 4.4(a)
hereto.
(b) The Company shall terminate all stock option plans and
other stock or equity-related plans of the Company (the
"Stock Plans") immediately prior to the Effective Time,
except to the extent necessary to permit the exercise of the
Surviving Options, as amended, after the Effective Time.
(c) All vested and non-vested Non-Surviving Options not
exercised prior to the Effective Time shall be cancelled as
of the Effective Time. On or prior to the Closing, the
Company shall obtain from each holder of a Non-Surviving
Option the written consent to the cancellation of such Non-
Surviving Option (unless such consent is not required under
the terms of the Option Plan or the Non-Surviving Option).
1.8 Payments.
(a) Prior to the Effective Time, the Buyer shall appoint
the Disbursing Agent to effect (i) the exchange for the
Merger Consideration Per Share of certificates that,
immediately prior to the Effective Time, represented Common
Shares entitled to payment pursuant to Section 1.5
("Certificates") and which were not delivered to the Buyer
for cancellation at the Closing. On the Closing Date, the
Buyer or the Transitory Subsidiary shall deposit with the
Disbursing Agent, in trust for the benefit of holders of
Certificates, immediately available funds in an amount equal
to the product of (A) the Closing Per Share Payment times
(B) the number of Common Shares which were not delivered to
the Buyer for cancellation at the Closing. As soon as
practicable after the Effective Time, the Buyer shall cause
the Disbursing Agent to send a notice and a transmittal form
to each holder of a Certificate (other than those
surrendered and paid for at the Closing) advising such
holder of the effectiveness of the Merger and the procedure
for surrendering to the Disbursing Agent such Certificate in
exchange for the consideration to be paid pursuant to this
Article I. Each holder of a Certificate, upon proper
surrender thereof to the Disbursing Agent in accordance with
the instruments in such notice, shall be entitled to receive
in exchange therefor (subject to any taxes required to be
withheld) the consideration to be paid pursuant to this
Article I. Until properly surrendered, each such
Certificate shall be deemed for all purposes to evidence
only the right to receive the consideration to be paid
pursuant to this Article I. Holders of Certificates shall
not be entitled to payment of the consideration to which
they would otherwise be entitled until such Certificates are
properly surrendered. No interest shall be paid or accrued
on the cash payable upon the surrender of a Certificate.
(b) If the consideration to be paid pursuant to this
Article I (or any portion thereof) is to be delivered to a
person other than the person in whose name the Certificate
surrendered in exchange therefor is registered, it shall be
a condition to the payment of such consideration that (i)
the Certificate so surrendered shall be transferable, shall
be properly assigned, endorsed or accompanied by appropriate
stock powers duly endorsed, (ii) such transfer shall
otherwise be proper and (iii) the person requesting such
transfer shall pay to the Disbursing Agent any transfer or
other taxes payable by reason of the foregoing or establish
to the satisfaction of the Disbursing Agent that such taxes
have been paid or are not required to be paid.
Notwithstanding the foregoing, neither the Disbursing Agent
nor any Party shall be liable to a holder of Common Shares
for any consideration payable pursuant to this Article I
delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(c) In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that
fact in the form of Exhibit C hereto by the person claiming
such Certificate to be lost, stolen or destroyed, the
Surviving Corporation shall issue in exchange for such lost,
stolen or destroyed Certificate the consideration payable in
exchange therefor pursuant to this Article I.
(d) Notwithstanding anything in this Article I to the
contrary, the Buyer shall have the right to pay to the
Company, or to instruct the Disbursing Agent to pay to the
Company, from proceeds otherwise due to Company Stockholders
hereunder, the amount of any option exercise price owed by
such Company Stockholder to the Company and any withholding
taxes which may be due on account of the exercise of options
by such Company Stockholder, and the amount due to such
Company Stockholder shall be reduced by the amount so paid
to the Company.
(e) Promptly following the date which is six months after
the Closing Date, the Disbursing Agent shall return to the
Surviving Corporation all funds in its possession that were
deposited by the Buyer or the Transitory Subsidiary pursuant
to Section 1.8(a) (including any interest earned thereon),
and the Disbursing Agent's duties shall terminate.
Thereafter, each holder of a Certificate may surrender such
Certificate to the Surviving Corporation and, subject to
applicable abandoned property, escheat and similar laws,
receive in exchange therefor the consideration payable
pursuant to this Article I without any interest thereon.
1.9 Escrow.
(a) On the Closing Date, the Buyer or the Transitory
Subsidiary shall deposit with the Escrow Agent the Initial
Escrow Amount (which, together with such amounts as may
subsequently be deposited into escrow following the exercise
of the Surviving Options, is hereinafter referred to as the
"Escrow Fund"), for the purpose of securing the
indemnification obligations of the Company Stockholders, the
Principal Stockholders and Louis Reynolds set forth in this
Agreement. The Escrow Fund shall be held by the Escrow
Agent under the Escrow Agreement pursuant to the terms
thereof. The Escrow Fund shall not be subject to any lien,
attachment, trustee process or any other judicial process of
any creditor of any party, and shall be held and disbursed
solely for the purposes and in accordance with the terms of
the Escrow Agreement.
(b) The adoption of this Agreement and the approval of the
Merger by the Company Stockholders shall constitute approval
of the Escrow Agreement and of all of the arrangements
relating thereto, including without limitation the placement
in escrow of the Escrow Fund and the appointment of the
Indemnification Representatives.
1.10 Net Worth and Cash Adjustment. The Merger
Consideration set forth in Section 1.5 hereof shall be
subject to adjustment after the date of the Closing (the
"Closing Date") as follows:
(a) As promptly as possible following the Closing Date, the
Buyer shall cause Ernst & Young LLP, independent public
accountants (the "Closing Auditors"), to conduct an audit of
the books and records of the Company as of June 30, 1996.
Not later than 45 days after the Closing Date, the Buyer
shall cause the Closing Auditors to deliver a balance sheet,
footnotes and opinion with respect to the Company as of June
30, 1996 (as corrected pursuant to this Section 1.10, the
"Closing Balance Sheet") to the Buyer and the
Indemnification Representatives. The Closing Balance Sheet
shall be prepared in accordance with generally accepted
accounting principles, applied consistently with the
Company's past practices and methods (to the extent
applicable under generally accepted accounting principles).
(b) The Indemnification Representatives and one firm of
independent public accountants acting on behalf of the
Indemnification Representatives (the "Stockholders'
Advisors") shall have the right to review the work papers of
the Closing Auditors utilized in preparing the Closing
Balance Sheet, and shall have full access to the books,
records, properties and personnel of the Company (and
Buyer's personnel participating in the audit) for purposes
of verifying the accuracy and fairness of the presentation
of the Closing Balance Sheet. The Principal Stockholders
shall work in good faith and cooperate with the Buyer and
the Closing Auditors in the preparation of the Closing
Balance Sheet and the resolution of any dispute in
connection therewith pursuant to paragraph (c) below.
(c) The values or amounts for each item reflected on the
Closing Balance Sheet shall be binding upon the Buyer, the
Company Stockholders and the Indemnification Representatives, unless
the Indemnification Representatives give written notice within
30 calendar days after their receipt of the Closing Balance Sheet,
of disagreement with any of the values or amounts shown on the
Closing Balance Sheet, specifying, as to each such item in reasonable
detail, the nature and extent of such disagreement (the
"Dispute Notice"). If the Buyer and the Indemnification
Representatives are unable to resolve any such disagreement
within 30 days after the date of the Dispute Notice, the
disagreement shall be submitted to arbitration in accordance
with the provisions of the Escrow Agreement. If as a result
of the resolution of any disputes by agreement pursuant to
this Section 1.10 or by arbitration, any amount shown on the
Closing Balance Sheet is determined to be erroneous, such
erroneous amount shall be deleted from the Closing Balance
Sheet and the correct amount shall be inserted in lieu
thereof. The Closing Balance Sheet, as so corrected, shall
constitute the Closing Balance Sheet for purposes of this
Agreement.
(d) The Buyer shall pay the fees and disbursements of the
Closing Auditors. The fees and disbursements of the
Stockholders' Advisors incurred in the review of the Closing
Balance Sheet shall be paid by the Company and shall be
deemed to be liabilities of the Company as of June 30, 1996
for purposes of the Closing Balance Sheet. The Buyer shall
under no circumstances be liable for any fees or
disbursements of the Stockholders' Advisors nor shall the
Principal Stockholders be responsible for the fees or
disbursements of the Closing Auditors.
(e) Immediately upon the expiration of the 30 calendar day
period following the Indemnification Representatives'
receipt of the Closing Balance Sheet, if no Dispute Notice
is given by the end of such period, or immediately upon the
resolution of disputes, if any, pursuant to this Section
1.10, the Merger Consideration Per Share shall be adjusted
as follows, based upon the Closing Balance Sheet (as so
adjusted, the "Final Merger Consideration"):
(i) If the net worth of the Company as shown on the Closing
Balance Sheet is less than $450,000 (a "Balance Sheet
Shortfall"), and/or if the sum of the Company's cash,
collectible receivables and net realizable deferred tax
assets (collectively, the "Liquid Assets") does not exceed
total liabilities (other than deferred revenue) as shown on
the Closing Balance Sheet (a "Cash Shortfall"), the Buyer
shall submit written notice of the amount of such deficiency
or deficiencies to the Escrow Agent, which shall disburse
such amount to the Buyer from the Escrow Fund (provided,
that if there exists both a Balance Sheet Shortfall and a
Cash Shortfall, the Escrow Agent shall disburse the greater
of such amounts and not the aggregate thereof).
(ii) If such net worth exceeds $450,000 ("Excess Net Worth")
and if Liquid Assets exceed total liabilities (other than
deferred revenue) ("Excess Liquid Assets") as shown on the
Closing Balance Sheet, Buyer shall pay an amount equal to
the lesser of (A) such Excess Net Worth, or (B) such Excess
Liquid Assets, up to an aggregate of $100,000, to the
Company Stockholders, by check, in proportion to their
respective ownership of Shares immediately prior to the
Effective Time.
Notwithstanding anything to the contrary herein, for
purposes of calculating the net worth of the Company for
purposes of this Section 1.10(e), any increase in any
intangible assets (including goodwill, intellectual property
rights, deferred tax assets, capitalized software, covenants
not to compete, customer lists or similar intangible assets
or rights) reflected on the Closing Balance Sheet over the
intangible assets on the Company's December 31, 1995 Audited
Balance Sheet shall be excluded.
For purposes of calculating the net worth and the cash
balances of the Company as of June 30, 1996: (A) all
expenses of the Company and its Subsidiaries, to the extent
they are to be paid by the Company and not by the Company
Stockholders pursuant to Sections 1.10(d) or 9.11 hereof,
and to the extent they have not been accrued by the Company
as of June 30, 1996, shall be deemed to be liabilities of
the Company as of June 30, 1996 for purposes of the Closing
Balance Sheet; (B) all bonuses paid or payable to employees
of the Company on or after June 30, 1996, to the extent they
have not been accrued as of June 30, 1996, shall be deemed
to be liabilities of the Company as of June 30, 1996; and
(C) the sum of (i) the aggregate exercise price of all Non-
Surviving Options which are exercised by check, cash or
delivery of a promissory note prior to the Effective Time;
(ii) the aggregate exercise price of all Warrants which are
exercised prior to the Effective Time in accordance with
their terms; and (iii) the aggregate exercise price of all
Surviving Options (net, in the case of clauses (i), (ii) and
(iii), of withholding taxes paid in connection with such
exercises), shall be deemed to be cash assets of the Company
as of June 30, 1996 for purposes of the Closing Balance
Sheet.
1.11 Additional Merger Consideration. The Buyer shall make
additional payments to the Company Stockholders on account
of the Merger, consisting of an additional $3,800,000 in
cash and/or common stock of the Buyer ("Buyer Common Stock")
which will be registered for immediate resale upon the
issuance thereof having a value at the time of issuance
based upon the last reported sale price of such shares on
the Nasdaq National Market (or other exchange on which such
shares are then traded) on the business day prior to the
date of issuance, of which:
(i) the amount of $1,458,892 shall, without condition, be
paid to Louis Reynolds and his charitable remainder trust on
the date which is 18 months after the Closing Date;
(ii) the remaining $2,341,108 will be contingently allocated
to the remaining Company Stockholders, in proportion to
their holdings of Common Shares and vested Options
(including Surviving Options and Non-Surviving Options) at
the Effective Time, and shall be paid as follows:
$0.307 shall be paid for each revenue dollar over $20
million and less than or equal to $22 million recognized by
the Surviving Corporation during the 1997 calendar year;
$0.614 shall be paid for each revenue dollar over $22
million and less than or equal to $23 million recognized by
the Surviving Corporation during the 1997 calendar year; and
$1.113 shall be paid for each revenue dollar over $23
million and less than $24 million recognized by the
Surviving Corporation during the 1997 calendar year, until
the aggregate amount payable hereunder has been paid.
The Indemnification Representatives and the Stockholders'
Advisors shall have the right to review the Company's
calculation of such revenue and the work papers of the
Surviving Corporation's auditors utilized in auditing the
same. Revenue shall be calculated in accordance with
generally accepted accounting principles. Any amounts due
pursuant to clause (ii) above shall be paid within 20 days
after the release of the Buyer's consolidated financial
statements for the 1997 calendar year.
1.12 Certificate of Incorporation. The Certificate of
Incorporation of the Surviving Corporation shall be the same
as the Certificate of Incorporation of the Transitory
Subsidiary immediately prior to the Effective Time, except
that the name of the corporation set forth therein shall be
changed to INSO Providence Corporation.
1.13 By-laws. The By-laws of the Surviving Corporation
shall be the same as the By-laws of the Transitory
Subsidiary immediately prior to the Effective Time, except
that the name of the corporation set forth therein shall be
changed to INSO Providence Corporation.
1.14 Directors and Officers. The directors of the
Transitory Subsidiary shall become the directors of the
Surviving Corporation as of the Effective Time. The
officers of the Company shall remain as officers of the
Surviving Corporation after the Effective Time, retaining
their respective positions, except as specified by the Buyer
pursuant to Section 5.1(h).
1.15 No Further Rights. From and after the Effective Time,
no Shares shall be deemed to be outstanding, and holders of
certificates formerly representing Shares shall cease to
have any rights with respect thereto except as provided
herein or by law.
1.16 Closing of Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed and no
transfer of Shares shall thereafter be made, except to the
extent necessary to permit the exercise of the Surviving
Options and the transfer of the shares issuable upon the
exercise thereof in accordance with the Agreement to
Purchase/Sell Shares in the form of Exhibit E hereto. If,
after the Effective Time, certificates formerly representing
Shares are presented to the Surviving Corporation, they
shall be cancelled and exchanged for the Merger
Consideration in accordance with Section 1.5, subject to
Section 1.9 and to applicable law in the case of Dissenting
Shares.
1.17 Redemption of Preferred Shares. At the Effective Time,
the Buyer or the Transitory Subsidiary shall pay the
aggregate Redemption Price to the Company, and the Company
shall pay to the holders of the Preferred Shares the
Redemption Price in redemption of all of the Preferred
Shares.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND PRINCIPAL STOCKHOLDERS
The Company and the Principal Stockholders represent and
warrant to Buyer that the statements contained in this
Article II are true and correct, except as set forth in the
disclosure schedule attached hereto (the "Disclosure
Schedule"). The Disclosure Schedule shall be initialed by
the Buyer and Seller and shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs
contained in this Article II.
2.1 Organization, Qualification and Corporate Power. The
Company is a corporation duly organized, validly existing
and in corporate and tax good standing under the laws of the
state of its incorporation. The Company is duly qualified
to conduct business and is in corporate and tax good
standing under the laws of each jurisdiction in which the
nature of its businesses or the ownership or leasing of its
properties requires such qualification, except where the
failure to be so qualified would not have a material adverse
effect on the assets, results of operations, financial
condition, business or prospects of the Company (a "Material
Adverse Effect"). The Company has all requisite corporate
power and authority to carry on the businesses in which it
is engaged and to own and use the properties owned and used
by it. The Company has furnished to the Buyer true and
complete copies of its Certificate of Incorporation and By-
laws, each as amended and as in effect on the date hereof.
The Company is not in default under or in violation of any
provision of its Certificate of Incorporation or By-laws.
2.2 Capitalization. The authorized capital stock of the
Company consists of 6,000,000 Common Shares and 4,500
Preferred Shares, of which 2,739,406 Common Shares, 750
Series A Preferred Shares and 2,500 Series B Preferred
Shares are issued and outstanding and 124,380 shares are
held in the treasury of the Company. The Disclosure
Schedule sets forth a complete and accurate list of (i) all
stockholders of the Company, indicating the number of Shares
held by each stockholder, (ii) all holders of Surviving
Options and Non-Surviving Options (collectively, "Options"),
including the number of Shares subject to each Option, and
all holders of Warrants, including the number of Shares
subject to each Warrant and (iii) all of the Stock Plans.
All of the issued and outstanding Shares are, and all Shares
that may be issued upon exercise of Options and Warrants
will be, duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights. There are
no outstanding or authorized options, warrants, rights,
agreements or commitments to which the Company is a party or
which are binding upon the Company providing for the
issuance, disposition or acquisition of any of its capital
stock, other than the Options and Warrants listed in Section
2.2 of the Disclosure Schedule. There are no outstanding or
authorized stock appreciation, phantom stock or similar
rights with respect to the Company. There are no
agreements, voting trusts, proxies or understandings with
respect to the voting, or registration under the Securities
Act of 1933, of any Shares or any other securities of the
Company or any of its Subsidiaries. All of the issued and
outstanding Shares were issued in compliance with applicable
federal and state securities laws.
2.3 Authority. The Company has all requisite power and
authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution and
delivery of this Agreement and the performance by the
Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate
action on the part of the Company. This Agreement has been
duly and validly executed and delivered by the Company and
the Principal Stockholders and constitutes a valid and
binding obligation of the Company and the Principal
Stockholders, enforceable against all such persons in
accordance with its terms.
2.4 Noncontravention. Subject to the filing of the
Certificate of Merger as required by the Delaware General
Corporation Law, neither the execution and delivery of this
Agreement by the Company and the Principal Stockholders, nor
the consummation by the Company and the Principal
Stockholders of the transactions contemplated hereby, will
(a) conflict with or violate any provision of the charter or
By-laws of the Company, (b) require on the part of the
Company or any corporation with respect to which the
Company, directly or indirectly, has the power to vote or
direct the voting of sufficient securities to elect a
majority of the directors (a "Subsidiary") or any Principal
Stockholder any filing with, or any permit, authorization,
consent or approval of, any court, arbitrational tribunal,
administrative agency or commission or other governmental or
regulatory authority or agency (a "Governmental Entity"),
(c) conflict with, result in a breach of, constitute (with
or without due notice or lapse of time or both) a default
under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel, or
require any notice, consent or waiver under, any contract,
lease, sublease, license, sublicense, franchise, permit,
indenture, agreement or mortgage for borrowed money,
instrument of indebtedness, Security Interest (as defined
below) or other arrangement to which the Company or any
Subsidiary or any Principal Stockholder is a party or by
which the Company or any Subsidiary or any Principal
Stockholder is bound or to which any of their assets is
subject, (d) result in the imposition of any Security
Interest upon any assets of the Company or any Subsidiary or
any Principal Stockholder or (e) violate any order, writ,
injunction, decree, statute, rule or regulation applicable
to the Company, any Subsidiary, any Principal Stockholder or
any of their properties or assets. For purposes of this
Agreement, "Security Interest" means any mortgage, pledge,
security interest, encumbrance, charge, or other lien
(whether arising by contract or by operation of law), other
than (i) mechanic's, materialmen's, and similar liens, (ii)
liens arising under worker's compensation, unemployment
insurance, social security, retirement, and similar
legislation, and (iii) liens on goods in transit incurred
pursuant to documentary letters of credit, in each case
arising in the ordinary course of business consistent with
past custom and practice ("Ordinary Course of Business") of
the Company and not material to the Company.
2.5 Subsidiaries. Section 2.5 of the Disclosure Schedule
sets forth for each Subsidiary (a) its name and jurisdiction
of organization, (b) the number of shares of authorized
capital stock of each class of its capital stock, (c) the
number of issued and outstanding shares of each class of its
capital stock, the names of the holders thereof and the
number of shares held by each such holder, (d) the number of
shares of its capital stock held in treasury, and (e) its
directors and officers. Each Subsidiary is an entity with
limited liability duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
organization. Each Subsidiary is duly qualified to conduct
business and is in corporate and tax good standing under the
laws of each jurisdiction in which the nature of its
businesses or the ownership or leasing of its properties
requires such qualification, except where the failure to be
so qualified would not have a Material Adverse Effect on the
business or prospects of such Subsidiary. Each Subsidiary
has all requisite corporate power and authority to carry on
the businesses in which it is engaged and to own and use the
properties owned and used by it. The Company has delivered
or made available to the Buyer correct and complete copies
of the charter and By-laws (or equivalent documents) of each
Subsidiary, as amended to date. No Subsidiary is in default
under or in violation of any provision of its charter or By-
laws. All of the issued and outstanding shares of capital
stock of each Subsidiary are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive
rights. All shares of each Subsidiary that are held of
record or owned beneficially by either the Company or any
Subsidiary are held or owned free and clear of any
restrictions on transfer (other than restrictions under
federal, state and foreign securities laws), claims,
Security Interests, options, warrants, rights, contracts,
calls, commitments, equities and demands. There are no
outstanding or authorized options, warrants, rights,
agreements or commitments to which the Company or any
Subsidiary is a party or which are binding on any of them
providing for the issuance, disposition or acquisition of
any capital stock of any Subsidiary. There are no
outstanding stock appreciation, phantom stock or similar
rights with respect to any Subsidiary. There are no voting
trusts, proxies, or other agreements or understandings with
respect to the voting of any capital stock of any
Subsidiary. The Company does not control directly or
indirectly or have any direct or indirect equity
participation in any corporation, partnership, trust, or
other business association which is not a Subsidiary.
2.6 Financial Statements. The Company has provided to the
Buyer (a) the audited consolidated balance sheets and
statements of income, changes in stockholders' equity and
cash flows for each of the last three fiscal years for the
Company and the Subsidiaries; and (b) the unaudited
consolidated balance sheet and statements of income, changes
in stockholders' equity and cash flows as of and for the
four months ended as of April 30, 1996 (the "Most Recent
Fiscal Period End"). Such financial statements
(collectively, the "Financial Statements") have been
prepared in accordance with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis
throughout the periods covered thereby, fairly present the
financial condition, results of operations and cash flows of
the Company and the Subsidiaries as of the respective dates
thereof and for the periods referred to therein and are
consistent with the books and records of the Company and the
Subsidiaries; provided, however, that the Financial
Statements referred to in clause (b) above are subject to
normal recurring year-end adjustments (which will not be
material) and do not include footnotes.
2.7 Absence of Certain Changes. Since the Most Recent
Fiscal Period End, (a) there has not been any material
adverse change in the assets, business, financial condition
or results of operations of the Company and the Subsidiaries
taken as a whole, nor has there occurred any event or
development which could reasonably be foreseen to result in
such a material adverse change in the future, and (b)
neither the Company nor any Subsidiary has taken any of the
actions set forth in paragraphs (a) through (n) of Section
4.4.
2.8 Undisclosed Liabilities. None of the Company and its
Subsidiaries has any liability (whether known or unknown,
whether absolute or contingent, whether liquidated or
unliquidated and whether due or to become due), except for
(a) liabilities shown on the balance sheet referred to in
clause (b) of Section 2.6 (the "Most Recent Balance Sheet"),
(b) liabilities which have arisen since the Most Recent
Fiscal Period End in the Ordinary Course of Business and
which are similar in nature to the liabilities which arose
during the comparable period of time in the immediately
preceding fiscal period and (c) contractual liabilities
incurred in the Ordinary Course of Business which are not
required by GAAP to be reflected on a balance sheet and are
not individually material.
2.9 Tax Matters.
(a) Each of the Company and the Subsidiaries has filed all
Tax Returns (as defined below) that it was required to file
and all such Tax Returns were correct and complete in all
material respects. Each of the Company and the Subsidiaries
has paid all Taxes (as defined below) that are shown to be
due on any such Tax Returns. The unpaid Taxes of the
Company and the Subsidiaries for tax periods through the
date of the Most Recent Balance Sheet do not exceed by any
material amount the accruals and reserves for Taxes set
forth on the Most Recent Balance Sheet. Neither the Company
nor any Subsidiary has any liability for any Tax obligation
of any taxpayer (including without limitation any affiliated
group of corporations or other entities that included the
Company or any Subsidiary during a prior period) other than
the Company and the Subsidiaries. All Taxes that the
Company or any Subsidiary is or was required by law to
withhold or collect have been duly withheld or collected
and, to the extent required, have been paid to the proper
Governmental Entity. For purposes of this Agreement,
"Taxes" means all taxes, charges, fees, levies or other
similar assessments or liabilities, including without
limitation income, gross receipts, ad valorem, premium,
value-added, excise, real property, personal property,
sales, use, transfer, withholding, employment, payroll and
franchise taxes imposed by the United States of America or
any state, local or foreign government, or any agency
thereof, or other political subdivision of the United States
or any such government or foreign country, and any interest,
fines, penalties, assessments or additions to tax resulting
from, attributable to or incurred in connection with any tax
or any contest or dispute thereof. For purposes of this
Agreement, "Tax Returns" means all reports, returns,
declarations, statements or other information required to be
supplied to a taxing authority in connection with Taxes.
(b) The Company has delivered or made available to the
Buyer correct and complete copies of all federal income Tax
Returns, examination reports and statements of deficiencies
assessed against or agreed to by any of the Company or any
Subsidiary since January 1, 1992. The federal income Tax
Returns of the Company have been audited by the Internal
Revenue Service or are closed by the applicable statute of
limitations for all taxable years through 1991. To the
knowledge of the Company, no examination or audit of any Tax
Returns of the Company or any Subsidiary by any Governmental
Entity is currently in progress or threatened or
contemplated. Neither the Company nor any Subsidiary has
waived any statute of limitations with respect to Taxes or
agreed to an extension of time with respect to a Tax
assessment or deficiency.
(c) Neither the Company nor any Subsidiary is a "consenting
corporation" within the meaning of Section 341(f) of the
Internal Revenue Code of 1986, as amended (the "Code"), and
none of the assets of the Company or the Subsidiaries are
subject to an election under Section 341(f) of the Code.
Neither the Company nor any Subsidiary has been a United
States real property holding corporation within the meaning
of Section 897(c)(2) of the Code during the applicable
period specified in Section 897(c)(l)(A)(ii) of the Code.
Neither the Company nor any Subsidiary is a party to any Tax
allocation or sharing agreement.
(d) Neither the Company nor any Subsidiary is or has ever
been a member of an "affiliated group" of corporations
(within the meaning of Section 1504 of the Code), other than
a group of which only the Company and some or all of the
Subsidiaries are members. Neither the Company nor any
Subsidiary has made an election under Treasury Reg. Section
1.1502-20(g).
2.10 Assets. Each of the Company and the Subsidiaries owns
or leases all tangible assets necessary for the conduct of
its businesses as presently conducted and as presently
proposed to be conducted. Each such tangible asset is free
from material defects, has been maintained in accordance
with normal industry practice, is in good operating
condition and repair (subject to normal wear and tear) and
is suitable for the purposes for which it presently is used.
No asset of the Company (tangible or intangible) is subject
to any Security Interest.
2.11 Real Property. The Company and its Subsidiaries own no
real property.
2.12 Intellectual Property.
(a) Section 2.12(a) of the Disclosure Schedule sets forth a
complete list (organized by product name) of the types of
products sold or licensed by the Company during the twelve
months ended December 31, 1995 and for the five months ended
May 31, 1996 and the aggregate revenues for each product.
The Company owns or has the right to use all Intellectual
Property (as defined below) used in the operation of its
business or necessary for the operation of its business as
presently conducted. Each item of Intellectual Property
owned by or used in the operation of the business of the
Company will be owned or available for use by the Company on
substantially identical terms and conditions immediately
following the Closing. Each item of Intellectual Property
included in the Company's software products is owned by the
Company or licensed to the Company under a perpetual,
irrevocable royalty-free license, free and clear of any
royalty, encumbrance or right of others, other than the
applicable licensor, or the Company otherwise has the
royalty-free right to use such Intellectual Property. The
Company has taken all reasonable measures to protect the
proprietary nature of each material item of Intellectual
Property, and to maintain in confidence all material trade
secrets and confidential information, that it owns or uses
in the development of, or that is included in, its software
products. To the knowledge of the Company, no other person
or entity (other than the licensor) has any rights to any of
the Intellectual Property owned or used by the Company under
exclusive licenses, and, to the best knowledge of the
Company, no other person or entity is infringing, violating
or misappropriating any of the Company's rights to the
Intellectual Property that the Company owns or uses. For
purposes of this Agreement, "Intellectual Property" means
all (i) patents, patent applications, patent disclosures and
all related continuation, continuation-in-part, divisional,
reissue, reexamination, utility, model, certificate of
invention and design patents, patent applications,
registrations and applications for registrations, (ii)
trademarks, service marks, trade dress, logos, trade names
and corporate names and registrations and applications for
registration thereof, (iii) copyrights, whether or not
registered, and registrations and applications for
registration thereof, (iv) computer software, data and
documentation, (v) trade secrets and confidential business
information, whether patentable or unpatentable and whether
or not reduced to practice, know-how, manufacturing and
production processes and techniques, research and
development information, copyrightable works, financial,
marketing and business data, pricing and cost information,
business and marketing plans and customer and supplier lists
and information, (vi) other proprietary rights relating to
any of the foregoing and (vii) copies and tangible
embodiments thereof.
(b) To the knowledge of the Company, none of the activities
or business presently conducted by the Company, or conducted
by the Company at any time within the six years prior to the
date of this Agreement, infringes or violates, or
constitutes a misappropriation of, any Intellectual Property
rights of any other person or entity. The Company has not
received any complaint, claim or notice alleging such
infringement, violation or misappropriation.
(c) The Company has no registered patents or applications
therefor. Section 2.12(c) of the Disclosure Schedule
identifies each license or other agreement pursuant to which
the Company has granted any rights to any third party with
respect to any of its Intellectual Property (other than end-
user licenses for the use of the Company's products entered
into in the Ordinary Course of Business). The Company has
made available to the Buyer correct and complete copies of
all such licenses and agreements (as amended to date) and
has made available to the Buyer correct and complete copies
of all other written documentation evidencing ownership of,
and any claims or disputes relating to, each such item.
With respect to each item of Intellectual Property that the
Company owns:
(i) the Company possesses all right, title and
interest in and to such item;
(ii) such item is not subject to any outstanding
judgment, order, decree, stipulation or injunction; and
(iii) the Company has not agreed to indemnify any
person or entity for or against any infringement,
misappropriation or other conflict with respect to such
item, except pursuant to license agreements involving the
licensing of the Company's software products entered into in
the Ordinary Course of Business.
(d) Section 2.12(d) of the Disclosure Schedule identifies
each license or other agreement under which the Company
obtains the right to use items of Intellectual Property used
in the operation of the business of the Company (other than
commercially available "shrink wrap" software) that are
owned by a party other than the Company. The Company has
delivered or made available to the Buyer correct and
complete copies of all such licenses, sublicenses or other
agreements (as amended to date) pursuant to which the
Company uses such Intellectual Property, all of which are
listed on Section 2.12(d) of the Disclosure Schedule. With
respect to each material item of Intellectual Property used
by the Company in its business:
(i) the license, sublicense or other agreement, if
any, covering such item is legal, valid, binding,
enforceable and in full force and effect;
(ii) such license, sublicense or other agreement will
be legal, valid, binding, enforceable and in full force and
effect immediately following the Closing in accordance with
the terms thereof as in effect prior to the Closing;
(iii) neither the Company nor, to the Company's
knowledge, any other party to such license, sublicense or
other agreement is in breach or default thereof, and no
event has occurred which with notice or lapse of time would
constitute a breach or default by the Company or permit
termination, modification or acceleration by the other party
thereunder;
(iv) to the Company's knowledge, the underlying item of
Intellectual Property is not subject to any outstanding
judgment, order, decree, stipulation or injunction; and
(v) the Company has not agreed to indemnify any person
or entity for or against any interference, infringement,
misappropriation or other conflict with respect to such
item, except as set forth in the applicable licenses for
such Intellectual Property.
For purposes of this Section 2.12, references to the
"Company" shall include the Company and its Subsidiaries.
2.13 Inventory. All inventory of the Company and the
Subsidiaries, whether or not reflected on the Most Recent
Balance Sheet, consists of a quality and quantity usable and
saleable in the Ordinary Course of Business, except for
obsolete items and items of below-standard quality, all of
which have been written-off or written-down to net
realizable value on the Most Recent Balance Sheet.
2.14 Real Property Leases. Section 2.14 of the Disclosure
Schedule lists all real property leased or subleased to the
Company or any Subsidiary and lists the term of such lease,
and the rent payable thereunder. The Company has delivered
or made available to the Buyer correct and complete copies
of the leases and subleases (as amended to date) listed in
Section 2.14 of the Disclosure Schedule. With respect to
each lease and sublease listed in Section 2.14 of the
Disclosure Schedule:
(a) the lease or sublease is legal, valid, binding,
enforceable and in full force and effect;
(b) the lease or sublease will continue to be legal, valid,
binding, enforceable and in full force and effect
immediately following the Closing in accordance with the
terms thereof as in effect prior to the Closing; and
(c) to the knowledge of the Company, no party to the lease
or sublease is in breach or default, and no event has
occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination,
modification, or acceleration thereunder.
2.15 Contracts. Section 2.15 of the Disclosure Schedule
lists the following agreements to which the Company or any
Subsidiary is a party:
(a) any agreement (or group of related agreements) for the
lease of personal property from or to third parties
providing for lease payments in excess of $20,000 per annum;
(b) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies,
products or other personal property or for the furnishing or
receipt of services (i) which calls for performance over a
period of more than one year, (ii) which involves more than
the sum of $50,000, or (iii) in which the Company or any
Subsidiary has granted manufacturing rights, "most favored
nation" pricing provisions or exclusive marketing or
distribution rights relating to any products or territory or
has agreed to purchase a minimum quantity of goods or
services or has agreed to purchase goods or services
exclusively from a certain party;
(c) any agreement establishing a partnership or joint
venture;
(d) any agreement (or group of related written
arrangements) under which it has created, incurred, assumed,
or guaranteed (or may create, incur, assume, or guarantee)
indebtedness (including capitalized lease obligations)
involving more than $50,000 or under which it has imposed
(or may impose) a Security Interest on any of its assets,
tangible or intangible;
(e) any agreement concerning noncompetition;
(f) any agreement involving any of the Company Stockholders
or their affiliates, as defined in Rule 12b-2 under the
Securities Exchange Act of 1934 ("Affiliates");
(g) any agreement under which the consequences of a default
or termination could have a material adverse effect on the
assets, business, financial condition, results of operations
or future prospects of the Company and its Subsidiaries,
taken as a whole; and
(h) any other agreement (or group of related agreements)
either involving more than $50,000 or not entered into in
the Ordinary Course of Business.
The Company has delivered or made available to the Buyer a
correct and complete copy of each agreement (as amended to
date) listed in Section 2.15 of the Disclosure Schedule.
With respect to each agreement so listed: (i) the agreement
is legal, valid, binding and enforceable and in full force
and effect; (ii) the agreement will continue to be legal,
valid, binding and enforceable and in full force and effect
immediately following the Closing in accordance with the
terms thereof as in effect prior to the Closing; and (iii)
the Company is not, and to its knowledge the other party to
such agreement is not, in breach or default, and no event
has occurred which with notice or lapse of time would
constitute a breach or default or permit termination,
modification, or acceleration, under the written
arrangement. Neither the Company nor any Subsidiary is a
party to any oral contract, agreement or other arrangement
which, if reduced to written form, would be required to be
listed in Section 2.15 of the Disclosure Schedule under the
terms of this Section 2.15. Neither the Company nor, to its
knowledge, any other party, is in breach of any agreement to
which the Company is a party relating to obligations of the
Company and/or a third party to keep confidential the
information of any other person.
2.16 Accounts Receivable. Except as set forth on Section
2.16 of the Disclosure Schedule, all accounts receivable of
the Company and the Subsidiaries reflected on the Most
Recent Balance Sheet are valid receivables subject to no
setoffs or counterclaims and are current and collectible
(within 90 days after the date on which it first became due
and payable), net of the applicable reserve for bad debts on
the Most Recent Balance Sheet. All accounts receivable
reflected in the financial or accounting records of the
Company that have arisen since the Most Recent Fiscal Period
End are valid receivables subject to no setoffs or
counterclaims and are collectible, net of a reserve for bad
debts in an amount proportionate to the reserve shown on the
Most Recent Balance Sheet.
2.17 Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of the Company or any
Subsidiary.
2.18 Insurance. Section 2.18 of the Disclosure Schedule
sets forth all policies or binders of the insurance held by
or on behalf of the Company (specifying the insurer, amount
of the coverage, type of insurance, expiration date of each
policy, risks insured and any pending claims thereunder).
There has not been any failure to give any notice or present
any claim under any such policy or binder in a timely
fashion or in the manner or detail required by the policy or
binder. There are no outstanding past due premiums or
claims, and there are no provisions for retroactive or
retrospective premium adjustments. No notice of
cancellation or nonrenewal with respect to, or disallowance
of any claims under, any such policy or binder has been
received by the Company. Section 2.18 of the Disclosure
Schedule also sets forth a description of all outstanding
bonds and other surety arrangements issued or entered into
in connection with the businesses of the Company.
2.19 Litigation. Section 2.19 of the Disclosure Schedule
identifies (a) any unsatisfied judgment, order, decree,
stipulation or injunction and (b) any claim, complaint,
action, suit, proceeding, hearing or investigation of or in
any Governmental Entity or before any arbitrator to which
the Company or any Subsidiary is a party or, to the
knowledge of the Company and the Subsidiaries, is threatened
to be made a party. None of the complaints, actions, suits,
proceedings, hearings, and investigations set forth in
Section 2.19 of the Disclosure Schedule could have a
material adverse effect on the assets, business, financial
condition, results of operations or future prospects of the
Company or any Subsidiary.
2.20 Product Warranty. No product manufactured, sold,
leased, licensed or delivered by the Company or any
Subsidiary is subject to any guaranty, warranty, right of
return or other indemnity which is materially beyond those
set forth in the applicable standard terms and conditions of
sale or lease, which are set forth in Section 2.20 of the
Disclosure Schedule.
2.21 Employees. Section 2.21 of the Disclosure Schedule
contains a list of all employees of the Company and each
Subsidiary, along with the position and the annual rate of
compensation of each such person. Each such employee has
entered into a confidentiality and assignment of inventions
agreement with the Company or a Subsidiary, a copy of which
has previously been made available to the Buyer. To the
knowledge of the Company and its Subsidiaries, no key
employee or group of employees has any plans to terminate
employment with the Company or any Subsidiary. Neither the
Company nor any Subsidiary is a party to or bound by any
collective bargaining agreement, nor has any of them
experienced any strikes, grievances, claims of unfair labor
practices or other collective bargaining disputes. The
Company and the Subsidiaries have no knowledge of any
organizational effort being made or threatened, either
currently or within the past two years, by or on behalf of
any labor union with respect to employees of the Company or
any Subsidiary.
2.22 Employee Benefits.
(a) Section 2.22(a) of the Disclosure Schedule contains a
complete and accurate list of all Employee Benefit Plans (as
defined below) maintained, or contributed to, by the
Company, any Subsidiary organized under the laws of one of
the states in the United States, or any ERISA Affiliate (as
defined below). For purposes of this Agreement, "Employee
Benefit Plan" means any "employee pension benefit plan" (as
defined in Section 2(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), any "employee
welfare benefit plan" (as defined in Section 2(1) of ERISA),
and any other written or oral plan, agreement or arrangement
involving direct or indirect compensation, including without
limitation insurance coverage, severance benefits,
disability benefits, deferred compensation, bonuses, stock
options, stock purchase, phantom stock, stock appreciation
or other forms of incentive compensation or post-retirement
compensation. For purposes of this Agreement, "ERISA
Affiliate" means any entity which is a member of (i) a
controlled group of corporations (as defined in Section
414(b) of the Code), (ii) a group of trades or businesses
under common control (as defined in Section 414(c) of the
Code), or (iii) an affiliated service group (as defined
under Section 414(m) of the Code or the regulations under
Section 414(o) of the Code), any of which includes the
Company or a Subsidiary. Complete and accurate copies of
(i) all Employee Benefit Plans which have been reduced to
writing, (ii) written summaries of all unwritten Employee
Benefit Plans, (iii) all related trust agreements, insurance
contracts and summary plan descriptions, and (iv) all annual
reports filed on IRS Form 5500, 5500C or 5500R for the last
five plan years for each Employee Benefit Plan, have been
delivered or made available to the Buyer. Each Employee
Benefit Plan has been administered in all material respects
in accordance with its terms and each of the Company, the
Subsidiaries and the ERISA Affiliates has in all material
respects met its obligations with respect to such Employee
Benefit Plan and has made all required contributions
thereto. The Company and all Employee Benefit Plans are in
compliance in all material respects with the currently
applicable provisions of ERISA and the Code and the
regulations thereunder.
(b) There are no investigations by any Governmental Entity,
termination proceedings or other claims (except claims for
benefits payable in the normal operation of the Employee
Benefit Plans and proceedings with respect to qualified
domestic relations orders), suits or proceedings against or
involving any Employee Benefit Plan or asserting any rights
or claims to benefits under any Employee Benefit Plan that
could give rise to any material liability.
(c) All the Employee Benefit Plans that are intended to be
qualified under Section 401(a) of the Code have received
determination letters from the Internal Revenue Service to
the effect that such Employee Benefit Plans are qualified
and the plans and the trusts related thereto are exempt from
federal income taxes under Sections 401(a) and 501(a),
respectively, of the Code, no such determination letter has
been revoked and revocation has not been threatened, and no
such Employee Benefit Plan has been amended since the date
of its most recent determination letter or application
therefor in any respect, and no act or omission has
occurred, that would adversely affect its qualification or
materially increase its cost.
(d) Neither the Company, any Subsidiary, nor any ERISA
Affiliate has ever maintained an Employee Benefit Plan
subject to Section 412 of the Code or Title IV of ERISA.
(e) At no time has the Company, any Subsidiary or any ERISA
Affiliate been obligated to contribute to any "multi-
employer plan" (as defined in Section 4001(a)(3) of ERISA).
(f) There are no unfunded obligations under any Employee
Benefit Plan providing benefits after termination of
employment to any employee of the Company or any Subsidiary
(or to any beneficiary of any such employee), including but
not limited to retiree health coverage and deferred
compensation, but excluding continuation of health coverage
required to be continued under Section 4980B of the Code and
insurance conversion privileges under state law.
(g) No act or omission has occurred and no condition exists
with respect to any Employee Benefit Plan maintained by the
Company, any of its Affiliates or any ERISA Affiliate that
would subject the Company, any Subsidiary or any ERISA
Affiliate to any material fine, penalty, tax or liability of
any kind imposed under ERISA or the Code.
(h) No Employee Benefit Plan is funded by, associated with,
or related to a "voluntary employee's beneficiary
association" within the meaning of Section 501(c)(9) of the
Code.
(i) No Employee Benefit Plan, plan documentation or
agreement, summary plan description or other written
communication distributed generally to employees by its
terms prohibits the Company from amending or terminating any
such Employee Benefit Plan.
(j) Section 2.22(j) of the Disclosure Schedule discloses
each: (i) agreement with any director, executive officer or
other key employee of the Company or any Subsidiary (A) the
benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction
involving the Company or any Subsidiary of the nature of any
of the transactions contemplated by this Agreement, (B)
providing any term of employment or compensation guarantee
or (C) providing severance benefits or other benefits after
the termination of employment of such director, executive
officer or key employee; (ii) agreement, plan or arrangement
under which any person may receive payments from the Company
or any Subsidiary that may be subject to the tax imposed by
Section 4999 of the Code or included in the determination of
such person's "parachute payment" under Section 280G of the
Code; and (iii) agreement or plan binding the Company or any
Subsidiary, including without limitation any stock option
plan, stock appreciation right plan, restricted stock plan,
stock purchase plan, severance benefit plan, or any Employee
Benefit Plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
(k) The amount that the Company pays on behalf of its
employees for life and medical insurance and other benefits
is set forth on Section 2.22 of the Disclosure Schedule.
(l) All written or oral plans, agreements or arrangements
involving direct or indirect compensation, including without
limitation insurance coverage, severance benefits,
disability benefits, deferred compensation, bonuses, stock
options, stock purchase, phantom stock, stock appreciation
or other forms of incentive compensation or post-retirement
compensation of any Subsidiary organized under the laws of
any foreign (non-United States) country, or any political
subdivision thereof, are in compliance with all applicable
laws and the terms of any such plan, agreement or
arrangement.
2.23 Environmental Matters.
(a) Each of the Company and the Subsidiaries has complied
with all applicable Environmental Laws (as defined below).
There is no pending or, to the knowledge of the Company and
the Subsidiaries, threatened civil or criminal litigation,
written notice of violation, formal administrative
proceeding, or investigation, inquiry or information request
by any Governmental Entity, relating to any Environmental
Law involving the Company or any Subsidiary. For purposes
of this Agreement, "Environmental Law" means any federal,
state or local law, statute, rule or regulation or the
common law relating to the environment or occupational
health and safety, including without limitation any statute,
regulation or order pertaining to (i) treatment, storage,
disposal, generation and transportation of industrial, toxic
or hazardous substances or solid or hazardous waste; (ii)
air, water and noise pollution; (iii) groundwater and soil
contamination; (iv) the release or threatened release into
the environment of industrial, toxic or hazardous
substances, or solid or hazardous waste, including without
limitation emissions, discharges, injections, spills,
escapes or dumping of pollutants, contaminants or chemicals;
(v) the protection of wild life, marine sanctuaries and
wetlands, including without limitation all endangered and
threatened species; (vi) storage tanks, vessels and
containers; (vii) underground and other storage tanks or
vessels, abandoned, disposed or discarded barrels,
containers and other closed receptacles; (viii) health and
safety of employees and other persons; and (ix) manufacture,
processing, use, distribution, treatment, storage, disposal,
transportation or handling of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or
oil or petroleum products or solid or hazardous waste. As
used above, the terms "release" and "environment" shall have
the meaning set forth in the federal Comprehensive
Environmental Compensation, Liability and Response Act of
1980 ("CERCLA").
(b) There have been no releases of any Materials of
Environmental Concern (as defined below) into the
environment at any parcel of real property or any facility
formerly or currently owned, operated or controlled by the
Company or a Subsidiary. With respect to any such releases
of Materials of Environmental Concern, the Company or such
Subsidiary has given all required notices to Governmental
Entities (copies of which have been provided to the Buyer).
Neither the Company nor any Subsidiary is aware of any
releases of Materials of Environmental Concern at parcels of
real property or facilities other than those owned, operated
or controlled by the Company or a Subsidiary that could
reasonably be expected to have an impact on the real
property or facilities owned, operated or controlled by the
Company or a Subsidiary. For purposes of this Agreement,
"Materials of Environmental Concern" means any chemicals,
pollutants or contaminants, hazardous substances (as such
term is defined under CERCLA), solid wastes and hazardous
wastes (as such terms are defined under the federal
Resources Conservation and Recovery Act), toxic materials,
oil or petroleum and petroleum products.
(c) Set forth in Section 2.23(c) of the Disclosure Schedule
is a list of all environmental reports, investigations and
audits known to the Company relating to premises currently
or previously owned or operated by the Company or a
Subsidiary (whether conducted by or on behalf of the Company
or a Subsidiary or a third party, and whether done at the
initiative of the Company or a Subsidiary or directed by a
Governmental Entity or other third party) which the Company
has possession of or access to. Complete and accurate
copies of each such report, or the results of each such
investigation or audit, have been provided to the Buyer.
2.24 Legal Compliance. Each of the Company and the
Subsidiaries, and the conduct and operations of their
respective businesses, are in compliance with each law
(including rules and regulations thereunder) of any federal,
state, local or foreign government, or any Governmental
Entity, which (a) affects or relates to this Agreement or
the transactions contemplated hereby or (b) is applicable to
the Company or such Subsidiary or business, except for
violations of or defaults under a law referred to in this
clause (b) which reasonably may be expected not to have,
individually or in the aggregate, a Material Adverse Effect
on the assets, business, financial condition, results of
operations or prospects of the Company and its Subsidiaries
taken as a whole.
2.25 Permits. Section 2.25 of the Disclosure Schedule sets
forth a list of all material permits, licenses,
registrations, certificates, orders or approvals from any
Governmental Entity (including without limitation those
issued or required under Environmental Laws and those
relating to the occupancy or use of owned or leased real
property) ("Permits") issued to or held by the Company or
any Subsidiary. Such listed Permits are the only Permits
that are required for the Company and the Subsidiaries to
conduct their respective businesses as presently conducted
or as proposed to be conducted, except for those the absence
of which would not have any Material Adverse Effect on the
assets, business, financial condition, results of operations
or future prospects of the Company and the Subsidiaries
taken as a whole. Each such Permit is in full force and
effect and, to the best of the knowledge of the Company or
any Subsidiary, no suspension or cancellation of such Permit
is threatened and there is no basis for believing that such
Permit will not be renewable upon expiration. Each such
Permit will continue in full force and effect following the
Closing.
2.26 Certain Business Relationships With Affiliates. No
Affiliate of the Company or of any Subsidiary (a) owns any
property or right, tangible or intangible, which is used in
the business of the Company or any Subsidiary, (b) has any
claim or cause of action against the Company or any
Subsidiary, or (c) owes any money to the Company or any
Subsidiary. Section 2.26 of the Disclosure Schedule
describes any transactions or relationships between the
Company and any Affiliate thereof which are reflected in the
statements of financial condition or operations of the
Company included in the Financial Statements. For purposes
of this Section 2.26, "Affiliate" shall not mean the Company
or any Subsidiary.
2.27 Brokers' Fees. Neither the Company nor any Subsidiary
has any liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to
the transactions contemplated by this Agreement. The fees
and expenses due to Broadview Associates, L.P., which are in
an amount calculated in the manner described in Section 2.27
of the Disclosure Schedule, are the obligation of the
Company Stockholders and not the Company.
2.28 Books and Records. The minute books and other similar
records of the Company and each Subsidiary contain true and
complete records of all actions taken at any meetings of the
Company's or such Subsidiary's stockholders, Board of
Directors or any committee thereof and of all written
consents executed in lieu of the holding of any such
meeting. The books and records of the Company and each
Subsidiary accurately reflect in all material respects the
assets, liabilities, business, financial condition and
results of operations of the Company or such Subsidiary and
have been maintained in accordance with good business and
bookkeeping practices.
2.29 Customers and Suppliers. Section 2.29 of the
Disclosure Schedule sets forth a list of (a) each customer
that accounted for more than 5% of the consolidated revenues
of the Company during the last full fiscal year or the
interim period through the Most Recent Fiscal Period End and
the amount of revenues accounted for by such customer during
each such period and (b) each supplier that is the sole
supplier of any significant product to the Company or a
Subsidiary.
2.30 Disclosure. No representation or warranty by the
Company contained in this Agreement, and no statement
contained in the Disclosure Schedule or any other document,
certificate or other instrument delivered to or to be
delivered by or on behalf of the Company pursuant to this
Agreement, contains or will contain any untrue statement of
a material fact or omits or will omit to state any material
fact necessary, in light of the circumstances under which it
was or will be made, in order to make the statements herein
or therein not misleading. The Company has disclosed to the
Buyer all information relating to the business of the
Company or any Subsidiary which is material to the business
of the Company and its Subsidiaries, taken as a whole, or
the transactions contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY
Each of the Buyer and the Transitory Subsidiary represents
and warrants to the Company as follows:
3.1 Organization. Each of the Buyer and the Transitory
Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the state of its
incorporation.
3.2 Authorization of Transaction. Each of the Buyer and
the Transitory Subsidiary has all requisite power and
authority to execute and deliver this Agreement and (in the
case of the Buyer) the Escrow Agreement and to perform its
obligations hereunder and thereunder. The execution and
delivery of this Agreement and (in the case of the Buyer)
the Escrow Agreement by the Buyer and the Transitory
Subsidiary and the performance of this Agreement (in the
case of the Buyer) the Escrow Agreement and the consummation
of the transactions contemplated hereby and thereby by the
Buyer and the Transitory Subsidiary have been duly and
validly authorized by all necessary corporate action on the
part of the Buyer and Transitory Subsidiary. This Agreement
has been duly and validly executed and delivered by the
Buyer and the Transitory Subsidiary and constitutes a valid
and binding obligation of the Buyer and the Transitory
Subsidiary, enforceable against them in accordance with its
terms.
3.3 Noncontravention. Except for the filing of the
Certificate of Merger as required by the Delaware General
Corporation Law, neither the execution and delivery of this
Agreement or (in the case of the Buyer) the Escrow Agreement
by the Buyer or the Transitory Subsidiary, nor the
consummation by the Buyer or the Transitory Subsidiary of
the transactions contemplated hereby or thereby, will (a)
conflict or violate any provision of the charter or By-laws
of the Buyer or the Transitory Subsidiary, (b) require on
the part of the Buyer or the Transitory Subsidiary any
filing with, or permit, authorization, consent or approval
of, any Governmental Entity, (c) conflict with, result in
breach of, constitute (with or without due notice or lapse
of time or both) a default under, result in the acceleration
of, create in any party any right to accelerate, terminate,
modify or cancel, or require any notice, consent or waiver
under, any contract, lease, sublease, license, sublicense,
franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, Security
Interest or other arrangement to which the Buyer or
Transitory Subsidiary is a party or by which either is bound
or to which any of their assets are subject, or (d) violate
any order, writ, injunction, decree, statute, rule or
regulation applicable to the Buyer or the Transitory
Subsidiary or any of their properties or assets.
3.4 Broker's Fees. Neither the Buyer nor the Transitory
Subsidiary has any liability or obligation to pay any fees
or commissions to any broker, finder or agent with respect
to the transactions contemplated by this Agreement.
ARTICLE IV
COVENANTS
4.1 Reasonable Efforts. Each of the Parties shall use its
reasonable efforts to take all actions and to do all things
necessary, proper or advisable to consummate the
transactions contemplated by this Agreement.
4.2 Notices and Consents. The Company shall use its best
efforts to obtain, at its expense, all such waivers,
permits, consents, approvals or other authorizations from
third parties and Governmental Entities, and to effect all
such registrations, filings and notices with or to third
parties and Governmental Entities, as may be required by or
with respect to the Company in connection with the
transactions contemplated by this Agreement (including
without limitation those listed in Section 2.4 or Section
2.25 of the Disclosure Schedule).
4.3 Consent in Lieu of Meeting. On or prior to the Closing
(after having the opportunity to review this Agreement in
final form and having received notice of their rights under
Section 262 of the Delaware General Corporation Law and
copies of said Section 262), the holders of Common Shares
representing more than 90% of the Common Shares outstanding
and entitled to vote on the Merger shall have consented to
the Merger by written consent in lieu of a meeting under
Section 228 of the Delaware General Corporation Law.
4.4 Operation of Business. Except as contemplated by this
Agreement, during the period from the date of this Agreement
to the Effective Time, the Company shall (and shall cause
each Subsidiary to) conduct its operations in the Ordinary
Course of Business and in compliance with all applicable
laws and regulations and, to the extent consistent
therewith, use all reasonable efforts to preserve intact its
current business organization, keep its physical assets in
good working condition, keep available the services of its
current officers and employees and preserve its
relationships with customers, suppliers and others having
business dealings with it to the end that its goodwill and
ongoing business shall not be impaired in any material
respect. Without limiting the generality of the foregoing,
prior to the Effective Time, neither the Company nor any
Subsidiary shall, without the prior written consent of the
Buyer (not to be unreasonably withheld):
(a) except as set forth on Schedule 4.4(a), issue, sell,
deliver or agree or commit to issue, sell or deliver
(whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or
otherwise) or authorize the issuance, sale or delivery of,
or redeem or repurchase, any stock of any class or any other
securities or any rights, warrants or options to acquire any
such stock or other securities (except pursuant to the
conversion or exercise of convertible securities or Options
outstanding on the date hereof), or, except as expressly
contemplated by this Agreement, amend any of the terms of
any such convertible securities or Options;
(b) split, combine or reclassify any shares of its capital
stock; except as set forth on Schedule 4.4(b), declare, set
aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in
respect of its capital stock;
(c) except as set forth on Schedule 4.4(c), create, incur
or assume any debt not currently outstanding (including
obligations in respect of capital leases); assume,
guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the
obligations of any other person or entity; or make any
loans, advances or capital contributions to, or investments
in, any other person or entity;
(d) except as set forth on Schedule 4.4(d), enter into,
adopt or amend any Employee Benefit Plan or any employment
or severance agreement or arrangement of the type described
in Section 2.22(j) or (except for normal increases in the
Ordinary Course of Business) increase in any manner the
compensation or fringe benefits of, or materially modify the
employment terms of, its directors, officers or employees,
generally or individually, or pay any benefit not required
by the terms in effect on the date hereof of any existing
Employee Benefit Plan;
(e) except as set forth in paragraph (j) below, acquire,
sell, lease, encumber or dispose of any assets or property
(including without limitation any shares or other equity
interests in or securities of any Subsidiary or any
corporation, partnership, association or other business
organization or division thereof), other than purchases and
sales of assets in the Ordinary Course of Business in
amounts less than $10,000 individually and $50,000 in the
aggregate;
(f) amend its charter or By-laws (or similar organizational
documents);
(g) change in any material respect its accounting methods,
principles or practices, except insofar as may be required
by a generally applicable change in GAAP;
(h) discharge or satisfy any Security Interest or pay any
obligation or liability other than where (i) such discharge
or satisfaction is in the Ordinary Course of Business and
(ii) in amounts less than $10,000 individually and $50,000
in the aggregate;
(i) mortgage or pledge any of its property or assets or
subject any such assets to any Security Interest;
(j) sell, assign, transfer or license any Intellectual
Property, other than where (i) such sale, assignment,
transfer or license is in the Ordinary Course of Business,
(ii) the total amount to be received by the Company is less
than $50,000 individually and $250,000 in the aggregate and
(iii) does not require the Company to provide development or
other custom services more than one year following its date;
(k) enter into, amend, terminate, take or omit to take any
action that would constitute a violation of or default
under, or waive any rights under, any material contract or
agreement;
(l) make or commit to make any capital expenditure in
excess of $10,000 per item and $50,000 in the aggregate;
(m) take any action or fail to take any action that would
result in (i) any of the representations and warranties of
the Company set forth in this Agreement becoming untrue or
(ii) any of the conditions to the Merger set forth in
Article V not being satisfied; or
(n) agree in writing or otherwise to take any of the
foregoing actions.
4.5 Full Access. The Company shall (and shall cause each
Subsidiary to) permit representatives of the Buyer to have
full access (at all reasonable times, and in a manner so as
not to interfere with the normal business operations of the
Company and the Subsidiaries) to all premises, properties,
financial and accounting records, contracts, other records
and documents, and personnel, of or pertaining to the
Company and each Subsidiary. Each of the Buyer, the
Transitory Subsidiary and the Company agree to continue to
be bound by the terms of the Mutual Agreement of
Confidentiality between the Buyer and the Company dated May
28, 1996 (the "Confidentiality Agreement").
4.6 Notice of Breaches. The Company shall promptly deliver
to the Buyer written notice of any event or development that
would (a) render any statement, representation or warranty
of the Company in this Agreement (including the Disclosure
Schedule) inaccurate or incomplete in any material respect,
or (b) constitute or result in a breach by the Company of,
or a failure by the Company to comply with, any agreement or
covenant in this Agreement applicable to such party. The
Buyer or the Transitory Subsidiary shall promptly deliver to
the Company written notice of any event or development that
would (i) render any statement, representation or warranty
of the Buyer or the Transitory Subsidiary in this Agreement
inaccurate or incomplete in any material respect, or (ii)
constitute or result in a breach by the Buyer or the
Transitory Subsidiary of, or a failure by the Buyer or the
Transitory Subsidiary to comply with, any agreement or
covenant in this Agreement applicable to such party. No
such disclosure shall be deemed to avoid or cure any such
misrepresentation or breach.
4.7 Exclusivity. The Company and each of the Principal
Stockholders shall not, and the Company shall use its best
efforts to cause its Affiliates and each of its officers,
directors, employees, representatives and agents not to,
directly or indirectly, (a) encourage, solicit, initiate,
engage or participate in discussions or negotiations with
any person or entity (other than the Buyer) concerning any
merger, consolidation, sale of material assets, tender
offer, recapitalization, accumulation of Shares, proxy
solicitation or other business combination involving the
Company, any Subsidiary or any division of the Company or
any Subsidiary (an "Alternative Transaction") or (b) provide
any non-public information concerning the business,
properties or assets of the Company or any Subsidiary to any
person or entity (other than the Buyer and other than in the
Ordinary Course of Business). The Company shall immediately
notify the Buyer of, and shall disclose to the Buyer all
details of, any inquiries relating to any Alternative
Transaction.
4.8 Stock Options.
(a) On the Closing Date, Buyer shall grant stock options
for the purchase of 75,000 shares of Buyer Common Stock,
under its employee stock incentive plans, to each of Steve
DeRose and Jeff Vogel, with an exercise price equal to the
last reported sales price of the Buyer Common Stock on the
Nasdaq National Market on the Closing Date, such options to
vest 20% after one year of employment, 20% after two years,
20% after three years, 20% after four years and 20% after
five years, depending solely on continued employment.
(b) Within thirty days after the Closing Date, Buyer shall
grant stock options for the purchase of an aggregate of
500,000 shares of Buyer Common Stock to employees of the
Company (other than Steve DeRose and Jeff Vogel) under its
employee stock incentive plans. Such options shall be
allocated based upon recommendations of the Company's
management, according to position, seniority, individual
performance and impact on the Company's operating results.
Such options shall have an exercise price determined in
accordance with Section 4.8(a) and shall vest in the manner
set forth in Section 4.8(a).
4.9 Consulting Arrangement. Upon the Closing, Buyer and
Mr. Louis Reynolds will sign a consulting agreement in the
form attached hereto as Exhibit D.
4.10 Severance. If any employee of the Company is
involuntarily terminated by Buyer or the Surviving
Corporation within one year after the Closing Date, Buyer or
the Surviving Corporation will pay to such employee two
weeks' severance pay for each full year of service or a
minimum of three months' pay, whichever is greater. In
addition, Buyer or the Surviving Corporation will continue
to pay the employer portion of his or her life, medical and
similar benefits for a period of up to six months after
termination.
4.11 Bonus Pool. The Buyer shall establish a bonus pool
consisting of $3,000,000 in cash and/or stock which will be
registered for immediate resale upon the issuance thereof
having a value at the time of issuance based upon the last
reported sale price of such shares on the Nasdaq National
Market (or other exchange on which such shares are then
traded) on the business day prior to the date of issuance,
for contingent allocation to approximately 25 employees of
the Company within the three-month period following the
Closing. This bonus will become payable to such employees
based on the achievement of business or project objectives
established by the Buyer covering a period of not more than
30 months after the Closing and will be payable not later
than 60 days after the end of such 30-month period;
provided, however, that at least 75% of such bonus will be
based on the achievement of business or project objectives
established by the Buyer covering a period of not more than
18 months after the Closing and will be payable not later
than 60 days after the end of such 18-month period.
4.12 Option Agreements. Prior to the Closing, each of the
holders of the Surviving Options will enter into the
amendments to the option agreements for the Surviving
Options in the form of Exhibit B hereto (the "Option
Amendments") and the Agreements to Purchase/Sell Shares in
the form of Exhibit E hereto. No Surviving Option shall be
exercised prior to the date specified in the Option
Amendments.
4.13 Buyer to Provide Cash. To the extent that the cash
available to the Surviving Corporation is insufficient to
pay to the Company Stockholders the dividend described in
Schedule 4.4(b) hereto, the difference shall be provided by
the Buyer.
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 Conditions to Obligations of the Buyer and the
Transitory Subsidiary. The obligation of each of the Buyer
and the Transitory Subsidiary to consummate the Merger is
subject to the satisfaction of the following conditions:
(a) the holders of more than 90% of the Shares outstanding
and entitled to vote on the Merger (the "Requisite
Stockholder Approval") shall have consented to the Merger by
written consent in lieu of a meeting under Section 228 of
the Delaware General Corporation Law;
(b) the Company and the Subsidiaries shall have obtained
all of the waivers, permits, consents, approvals or other
authorizations, and effected all of the registrations,
filings and notices, referred to in Section 4.2;
(c) the representations and warranties of the Company set
forth in Article II shall be true and correct in all
material respects when made on the date hereof and shall be
true and correct as of the Effective Time as if made as of
the Effective Time, except for representations and
warranties made as of a specific date, which shall be true
and correct as of such date, provided, however, that for
purposes of this Section 5.1(c), any materiality or material
adverse effect qualification set forth in any individual
representation and warranty shall be disregarded;
(d) the Company and each of the Principal Stockholders
shall have performed or complied with its and their
agreements and covenants required to be performed or
complied with under this Agreement as of or prior to the
Effective Time;
(e) no action, suit or proceeding shall be pending or
threatened by or before any Governmental Entity wherein an
unfavorable judgment, order, decree, stipulation or
injunction would (i) prevent consummation of any of the
transactions contemplated by this Agreement, (ii) cause any
of the transactions contemplated by this Agreement to be
rescinded following consummation or (iii) affect adversely
the right of the Buyer to own, operate or control any of the
assets or operations of the Surviving Corporation or the
Subsidiaries, and no such judgment, order, decree,
stipulation or injunction shall be in effect;
(f) the Company shall have delivered to the Buyer and the
Transitory Subsidiary a certificate (without qualification
as to knowledge or materiality or otherwise) to the effect
that each of the conditions specified in clauses (a) through
(e) of this Section 5.1 is satisfied in all respects;
(g) the Buyer and the Transitory Subsidiary shall have
received from counsel to the Company an opinion in form and
substance satisfactory to Buyer and its counsel, addressed
to the Buyer and the Transitory Subsidiary and dated as of
the Closing Date;
(h) the Buyer and the Transitory Subsidiary shall have
received the resignations, effective as of the Effective
Time, of each director and officer of the Company and the
Subsidiaries specified by the Buyer in writing at least five
business days prior to the Closing;
(i) all employees who may receive at least $1,000,000 of
consideration under this Agreement and the Agreements to
Purchase/Sell Shares, and any other persons listed on
Schedule 5.1(i), shall have executed and delivered a two-
year Non-Compete and Non-Solicitation Agreement in the form
attached hereto as Exhibit F-1, and all employees who may
receive at least $500,000 but less than $1,000,000 of
consideration under this Agreement and the Agreements to
Purchase/Sell Shares shall have executed and delivered a
one-year Non-Compete and Non-Solicitation Agreement in the
form attached hereto as Exhibit F-2;
(j) all actions to be taken by the Company in connection
with the consummation of the transactions contemplated
hereby and all certificates, opinions, instruments and other
documents required to effect the transactions contemplated
hereby shall be reasonably satisfactory in form and
substance to the Buyer and the Transitory Subsidiary;
(k) the Company shall have delivered to the Buyer and the
Transitory Subsidiary duly executed and delivered Option
Amendments in the form of Exhibit B hereto and duly executed
and delivered Agreements to Purchase/Sell Shares in the form
of Exhibit E hereto, from each of the holders of Surviving
Options. No Surviving Options shall have been exercised;
and
(l) all of the Preferred Shares shall be subject to
redemption simultaneously with the Closing at the Redemption
Price.
5.2 Conditions to Obligations of the Company. The
obligation of the Company to consummate the Merger is
subject to the satisfaction of the following conditions:
(a) the representations and warranties of the Buyer and the
Transitory Subsidiary set forth in Article III shall be true
and correct in all material respects when made on the date
hereof and as of the Effective Time as if made as of the
Effective Time, except for representations and warranties
made as of a specific date, which shall be true and correct
as of such date;
(b) each of the Buyer and the Transitory Subsidiary shall
have performed or complied with its agreements and covenants
required to be performed or complied with under this
Agreement as of or prior to the Effective Time;
(c) each of the Buyer and the Transitory Subsidiary shall
have delivered to the Company a certificate (without
qualification as to knowledge or materiality or otherwise)
to the effect that each of the conditions specified in
clauses (a) and (b) of this Section 5.2 is satisfied in all
respects;
(d) the Company shall have received from counsel to the
Buyer and the Transitory Subsidiary an opinion satisfactory
in form and substance to the Company and its counsel hereto,
addressed to the Company and dated as of the Closing Date;
(e) all actions to be taken by the Buyer and the Transitory
Subsidiary in connection with the consummation of the
transactions contemplated hereby and all certificates,
opinions, instruments and other documents required to effect
the transactions contemplated hereby shall be reasonably
satisfactory in form and substance to the Company; and
(f) no action, suit or proceeding shall be pending by or
before any Governmental Entity wherein an unfavorable
judgment, order, decree, stipulation or injunction would
prevent the Company Stockholders from receiving the
consideration bargained for hereunder.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification. The Company (prior to the Effective
Time), the Company Stockholders (during the term of the
Escrow Agreement), jointly and severally, and the Principal
Stockholders (after the expiration of the Escrow Agreement),
jointly and severally, shall indemnify the Surviving
Corporation and the Buyer (the "Indemnified Persons") in
respect of, and hold the Indemnified Persons harmless
against, any and all debts, obligations and other
liabilities (whether absolute, accrued, contingent, fixed or
otherwise, or whether known or unknown, or due or to become
due or otherwise), monetary damages, fines, fees, penalties,
interest obligations, deficiencies, losses and expenses
(including without limitation amounts paid in settlement,
interest, court costs, costs of investigators, reasonable
fees and expenses of attorneys, accountants, financial
advisors and other experts, and other expenses of
litigation) incurred or suffered by the Indemnified Persons
or any Affiliate thereof ("Damages"):
(a) resulting from or constituting any misrepresentation,
breach of warranty or failure to perform any covenant or
agreement of the Company or Principal Stockholders contained
in this Agreement;
(b) resulting from any failure of any Company Stockholder
to have good, valid and marketable title to the issued and
outstanding Shares held by such Company Stockholders, free
and clear of all liens, claims, pledges, options, adverse
claims or charges of any nature whatsoever (provided,
however, that to the extent the Buyer and the Surviving
Corporation have contractual rights enforceable by them
directly against the Company Stockholder whose failure to
have such good, valid and marketable title gave rise to such
Damages, claims under this paragraph (b) shall be made only
against the Escrow Fund and the Company Stockholder whose
failure gave rise to such Damages, and not against any other
person);
(c) any amounts due to Broadview Associates, L.P. on
account of the transactions contemplated by this Agreement;
or
(d) any tax liabilities or obligations of the Company or
any Subsidiary not reflected on the Closing Balance Sheet
arising on account of any period prior to the Effective
Time, or any claims against, or liabilities or obligations
of, the Company or any Subsidiary not reflected on the
Closing Balance Sheet with respect to obligations under
Employee Benefit Plans of the Company or any Subsidiary
arising prior to the Effective Time.
6.1A Indemnification by Louis Reynolds. Louis Reynolds
shall indemnify the Indemnified Persons in respect of, and
hold the Indemnified Persons harmless against, any and all
Damages resulting from the actions or inactions, or alleged
actions or inactions, of Louis Reynolds towards any
stockholder or optionholder of the Company prior to the
Effective Time; provided, however, that, other than with
respect to claims arising out of an alleged breach by Louis
Reynolds of his fiduciary duty as a director, officer or
controlling stockholder of the Company, (i) the Company
shall bear the costs of defending Louis Reynolds against any
such claim, pursuant to applicable provisions of the
Certificate of Incorporation and by-laws of the Company and
the Surviving Corporation, and (ii) the indemnification by
Louis Reynolds provided for in this Section 6.1A shall only
apply if and to the extent that he is adjudicated by a court
of competent jurisdiction to be liable, in which event such
indemnification shall include reimbursement to the Company
for the costs of his defense.
6.2 Method of Asserting Claims.
(a) All claims for indemnification by an Indemnified Person
pursuant to this Article VI arising under paragraph 6.1(a)
or (d) above (other than claims based on a breach of Section
2.27), during the term of the Escrow Agreement and to the
extent that the Escrow Fund is sufficient to satisfy such
claim, shall be made in accordance with the provisions of
the Escrow Agreement, and shall be made against the Escrow
Fund before any such claim is made against any Company
Stockholder. All claims for indemnification by an
Indemnified Person pursuant to this Article VI arising under
paragraph 6.1(b) or (c) or under Section 6.1A, or based on a
breach of Section 2.27, during the term of the Escrow
Agreement, may, but need not, be made against the Escrow
Fund (provided, however, that claims against the Escrow Fund
arising under Section 6.1A shall be limited to $1,200,000).
(b) If a third party asserts that an Indemnified Person is
liable to such third party for a monetary or other
obligation which may constitute or result in Damages for
which such Indemnified Person may be entitled to
indemnification pursuant to this Article VI, and such
Indemnified Person reasonably determines that it has a valid
business reason to fulfill such obligation, then (i) such
Indemnified Person shall be entitled to satisfy such
obligation, with prior notice to but without requiring
consent from the Indemnification Representatives, during the
term of the Escrow Agreement, or the Principal Stockholders,
after the expiration of the Escrow Agreement, (ii) such
Indemnified Person may make a claim for indemnification
pursuant to this Article VI, and (iii) such Indemnified
Person shall be reimbursed for any such Damages for which it
is entitled to indemnification pursuant to this Article VI
(subject to the right of the Indemnification
Representatives, during the term of the Escrow Agreement, or
Principal Stockholders, after the expiration of the term of
the Escrow Agreement, to dispute the Indemnified Person's
entitlement to indemnification). Nothing in this paragraph
(b) shall preclude the Indemnification Representatives from
asserting that any amount paid by the Indemnified Person
under this paragraph (b) does not constitute Damages for
which the Indemnified Person is entitled to indemnification
pursuant to this Article VI.
(c) The Indemnified Person shall give prompt written
notification to the Indemnification Representatives (prior
to the expiration of the Escrow Agreement) and the Principal
Stockholders (after the expiration of the Escrow Agreement)
of the commencement of any action, suit or proceeding
relating to a third party claim for which indemnification
pursuant to this Article VI may be sought; provided,
however, that no delay on the part of the Indemnified Person
in providing such notice shall relieve the Company
Stockholders of any liability or obligation hereunder except
to the extent of any damage or liability caused by or
arising out of such failure. Within 20 days after delivery
of such notification, the Indemnification Representatives
(prior to the expiration of the Escrow Agreement) and the
Principal Stockholders (after the expiration of the Escrow
Agreement) may, upon written notice thereof to the
Indemnified Person, assume control of the defense of such
action, suit or proceeding with counsel reasonably
satisfactory to the Indemnified Person, provided the
Indemnification Representatives (prior to the expiration of
the Escrow Agreement) and the Principal Stockholders (after
the expiration of the Escrow Agreement) acknowledge in
writing to the Indemnified Person that any damages, fines,
costs or other liabilities that may be assessed against the
Indemnified Person in connection with such action, suit or
proceeding constitute Damages for which the Indemnified
Person shall be entitled to indemnification pursuant to this
Article VI. If the Indemnification Representatives (prior
to the expiration of the Escrow Agreement) and the Principal
Stockholders (after the expiration of the Escrow Agreement)
do not so assume control of such defense, the Indemnified
Person shall control such defense. The party not
controlling such defense may participate therein at its own
expense; provided that if the Indemnification
Representatives assume control of such defense and the
Indemnified Person reasonably concludes that the
indemnifying parties and the Indemnified Person have
conflicting interests or different defenses available with
respect to such action, suit or proceeding, the reasonable
fees and expenses of counsel to the Indemnified Person shall
be considered "Damages" for purposes of this Agreement. The
party controlling such defense shall keep the other party
advised of the status of such action, suit or proceeding and
the defense thereof and shall consider in good faith
recommendations made by the other party with respect
thereto. The Indemnified Person shall not agree to any
settlement of such action, suit or proceeding without the
prior written consent of the Indemnification Representatives
(prior to the expiration of the Escrow Agreement) and the
Principal Stockholders (after the expiration of the Escrow
Agreement), which shall not be unreasonably withheld. The
Indemnification Representatives (prior to the expiration of
the Escrow Agreement) and the Principal Stockholders (after
the expiration of the Escrow Agreement) shall not agree to
any settlement of such action, suit or proceeding without
the prior written consent of the Indemnified Person, which
shall not be unreasonably withheld.
6.3 Treatment of Indemnity Payments. Any payment made to
an Indemnified Person pursuant to this Article VI or the
Escrow Agreement shall be treated as a reduction in the
Merger Consideration.
6.4. Survival. The representations and warranties of the
Company and Principal Stockholders set forth in this
Agreement shall survive the Closing and the consummation of
the transactions contemplated hereby and continue until 18
months after the Closing Date and shall not be affected by
any examination made for or on behalf of the Buyer or the
knowledge of any of the Buyer's officers, directors,
stockholders, employees or agents. Notwithstanding the
foregoing, the representations and warranties contained in
Sections 2.1, 2.2, 2.3 and 2.9 shall survive the Closing and
the consummation of the transactions contemplated thereby
and continue until the expiration of the applicable statute
of limitations.
6.5 Limitations. Notwithstanding anything to the contrary
herein, if the Closing occurs, (a) the aggregate liability
of each Company Stockholder for Damages under this Article
VI (other than Section 2.27) shall be limited to the
aggregate gross consideration received by such Company
Stockholder on account of the Merger and on account of the
sale of Common Shares by such Company Stockholder pursuant
to the Agreement to Purchase/Sell Shares in the form of
Exhibit E hereto; (b) the aggregate liability of the Company
Stockholders for Damages under this Article VI for breaches
of representations and warranties in Article II of this
Agreement (other than those contained in Sections 2.1, 2.2,
2.3, 2.9 and 2.27) shall be limited to $8,000,000 (including
the Escrow Fund) and (c) the Company Stockholders shall not
be liable under this Article VI as a result of a claim for
indemnification arising under Section 6.1(a) or (d) (other
than with respect to a breach of Section 2.27) unless and
until the aggregate Damages under Article VI exceed
$250,000, in which case the Company Stockholders shall be
liable for every dollar of Damages (subject to the
limitations in clauses (a) and (b) of this Section 6.5),
including the first $250,000 thereof. The rights of the
Indemnified Persons under this Article VI shall be the
exclusive remedy of the Indemnified Persons with respect to
claims resulting from or relating to any misrepresentation,
breach of warranty or failure to perform any covenant or
agreement of the Company contained in this Agreement (other
than with respect to a breach of Section 2.27). No Company
Stockholder shall have any right of contribution against the
Company with respect to any breach by the Company of any of
its representations, warranties, covenants or agreements.
ARTICLE VII
TERMINATION
7.1 Termination of Agreement. The Parties may terminate
this Agreement prior to the Effective Time (whether before
or after Requisite Stockholder Approval), as provided below:
(a) the Parties may terminate this Agreement by mutual
written consent;
(b) the Buyer may terminate this Agreement by giving
written notice to the Company in the event the Company is in
breach, and the Company may terminate this Agreement by
giving written notice to the Buyer and the Transitory
Subsidiary in the event the Buyer or the Transitory
Subsidiary is in breach, of any material representation,
warranty, or covenant contained in this Agreement, and such
breach is not remedied within 10 days of delivery of written
notice thereof;
(c) the Buyer may terminate this Agreement by giving
written notice to the Company if the Closing shall not have
occurred on or before July 16, 1996 by reason of the failure
of any condition precedent under Section 5.1 hereof (unless
the failure results primarily from a breach by the Buyer or
the Transitory Subsidiary of any representation, warranty or
covenant contained in this Agreement); or
(d) the Company may terminate this Agreement by giving
written notice to the Buyer and the Transitory Subsidiary if
the Closing shall not have occurred on or before July 16,
1996 by reason of the failure of any condition precedent
under Section 5.2 hereof (unless the failure results
primarily from a breach by the Company of any
representation, warranty or covenant contained in this
Agreement).
7.2 Effect of Termination. If any Party terminates this
Agreement pursuant to Section 7.1, all obligations of the
Parties hereunder shall terminate without any liability of
any Party to any other Party (except for any liability of
any Party for breaches of this Agreement); provided,
however, that the confidentiality provisions contained in
Section 4.5 shall survive any such termination in accordance
with the terms of the Confidentiality Agreement.
ARTICLE VIII
DEFINITIONS
For purposes of this Agreement, each of the following
defined terms is defined in the Section of this Agreement
indicated below.
Defined Term Section
Affiliate 2.15(f)
Buyer Introduction
CERCLA 2.23(a)
Certificate of Merger 1.1
Closing 1.2
Closing Date 1.2
Closing Balance Sheet 1.9
Code 2.9(c)
Company Introduction
Company Stockholder Introduction
Confidential Information 4.6
Damages 6.1
Disclosure Schedule Article II
Dissenting Shares 1.6(a)
Effective Time 1.1
Employee Benefit Plan 2.22(a)
Environmental Law 2.23(a)
ERISA 2.22(a)
ERISA Affiliate 2.22(a)
Escrow Agreement 1.3
Escrow Agent 1.3
Escrow Fund 1.8(a)
Financial Statements 2.6
Final Merger Consideration 1.9(e)
GAAP 2.6
Governmental Entity 2.4
Indemnification Representatives 1.3
Indemnified Persons 6.1
Intellectual Property 2.12(a)
Intended Uses 2.11(a)
Materials of
Environmental Concern 2.23(b)
Merger 1.1
Merger Consideration 1.5(a)
Most Recent Balance Sheet 2.8
Most Recent Fiscal Quarter End 2.6
Options 1.7(a)
Ordinary Course of Business 2.4
Party Introduction
Permit 2.25
Principal Stockholders Introduction
Proxy Statement 4.3(a)
Requisite Stockholder Approval 5.1(a)
Security Interest 2.4
Share 1.5(a)
Special Meeting 4.3(a)
Stock Plans 1.7(b)
Subsidiary 2.4
Surviving Corporation 1.1
Taxes 2.9(a)
Tax Returns 2.9(a)
Third Party Intellectual
Property Rights 2.12(a)
Transitory Subsidiary Introduction
ARTICLE IX
MISCELLANEOUS
9.1 Press Releases and Announcements. Prior to the
Closing, neither the Buyer nor the Company shall issue any
press release or public disclosure relating to the subject
matter of this Agreement without the prior written approval
of the other; provided, however, that Buyer may make any
public disclosure it believes in good faith is required by
law or regulation (in which case it shall advise the Company
and provide it with a copy of the proposed disclosure prior
to making the disclosure).
9.2 No Third Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any person other than the
Parties and their respective successors and permitted
assigns.
9.3 Entire Agreement. This Agreement (including the
documents referred to herein), together with the
Confidentiality Agreement and the other agreements and
instruments referred to herein, constitute the entire
agreement among the Parties and supersede any prior
understandings, agreements, or representations by or among
the Parties, written or oral, with respect to the subject
matter hereof.
9.4 Succession and Assignment. This Agreement shall be
binding upon and inure to the benefit of the Parties named
herein and their respective successors and permitted
assigns. No Party may assign either this Agreement or any
of its rights, interests, or obligations hereunder without
the prior written approval of the other Parties; provided
that the Transitory Subsidiary may assign its rights,
interests and obligations hereunder to an Affiliate of the
Buyer.
9.5 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same
instrument.
9.6 Headings. The section headings contained in this
Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this
Agreement.
9.7 Notices. All notices, requests, demands, claims, and
other communications hereunder shall be in writing. Any
notice, request, demand, claim, or other communication
hereunder shall be deemed duly delivered two business days
after it is sent by registered or certified mail, return
receipt requested, postage prepaid, or one business day
after it is sent via a reputable nationwide overnight
courier service, in each case to the intended recipient as
set forth below:
If to the Company:
Copy to: Electronic Book Technologies, Inc. Edward N. Gadsby
One Richmond Square Foley, Hoag & Eliot LLP
Providence, RI One Post Office Square
Attn: Louis Reynolds Boston, MA 02109
If to the Buyer:
Copy to: INSO Corporation Mark G. Borden, Esq.
31 St. James Avenue Hale and Dorr
Boston, MA 02116 60 State Street
Attn: Bruce G. Hill, Esq. Boston, MA 02109
If to the Transitory Subsidiary:
Copy to:
c/o INSO Corporation Mark G. Borden, Esq.
31 St. James Avenue Hale and Dorr
Boston, MA 02116 60 State Street
Attn: Bruce G. Hill, Esq. Boston, MA 02109
Any Party may give any notice, request, demand, claim, or
other communication hereunder using any other means
(including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic
mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless
and until it actually is received by the party for whom it
is intended. Any Party may change the address to which
notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
9.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the
law of conflicts) of the State of Delaware.
9.9 Amendments and Waivers. The Parties may mutually amend
any provision of this Agreement at any time prior to the
Effective Time; provided, however, that any amendment
effected subsequent to the Requisite Stockholder Approval
shall be subject to the restrictions contained in the
Delaware General Corporation Law. No amendment of any
provision of this Agreement shall be valid unless the same
shall be in writing and signed by all of the Parties. No
waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior
or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any
rights arising by virtue of any prior or subsequent such
occurrence.
9.10 Severability. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any
jurisdiction shall not affect the validity or enforceability
of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any
other situation or in any other jurisdiction. If the final
judgment of a court of competent jurisdiction declares that
any term or provision hereof is invalid or unenforceable,
the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to
reduce the scope, duration, or area of the term or
provision, to delete specific words or phrases, or to
replace any invalid or unenforceable term or provision with
a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time
within which the judgment may be appealed.
9.11 Expenses. Except as set forth in the Escrow Agreement,
each of the Parties shall bear its own costs and expenses
(including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated
hereby; provided that any such costs and expenses of the
Company and its Subsidiaries (which shall include the fees
and expenses of Foley, Hoag & Eliot LLP incurred in
connection with this Agreement and the transactions
contemplated hereby) paid or payable after, and not
reflected on, the Closing Balance Sheet shall be treated,
for purposes of Section 1.10 above, as liabilities of the
Company as of June 30, 1996. Notwithstanding the foregoing,
the Principal Stockholders and not the Company shall be
liable for any expenses of the Company and its Subsidiaries
incurred in connection with this Agreement and the
transactions contemplated hereby for which invoices are not
received by the Company prior to the completion of the
Closing Balance Sheet.
9.12 Specific Performance. Each of the Parties acknowledges
and agrees that one or more of the other Parties would be
damaged irreparably in the event any of the provisions of
this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each
of the Parties agrees that the other Parties shall be
entitled to an injunction or injunctions to prevent breaches
of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions
hereof in any action instituted in any court of the United
States or any state thereof having jurisdiction over the
Parties and the matter, in addition to any other remedy to
which it may be entitled, at law or in equity.
9.13 Construction. The language used in this Agreement
shall be deemed to be the language chosen by the Parties
hereto to express their mutual intent, and no rule of strict
construction shall be applied against any Party. Any
reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context
requires otherwise.
9.14 Incorporation of Exhibits and Schedules. The Exhibits
and Schedules identified in this Agreement are incorporated
herein by reference and made a part hereof.
9.15 Limitation on Dealing with Trustees. Each person
dealing with a Principal Stockholder which is a trust agrees
that no trustee shall have any personal liability in his
capacity as trustee. The Company and the Principal
Stockholders agree that the trustee of the Jeffrey Vogel
1996 Charitable Remainder Unitrust Agreement, as trustee,
shall become fully obligated as a Principal Stockholder
under this Agreement no later than 5:00 p.m. on July 3,
1996.
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first above written.
INSO CORPORATION
By: /s/ Steven R. Vana-Paxhia
Title: President
CIP ACQUISITION CORPORATION
By: /s/ Bruce Hill
Title: Secretary
ELECTRONIC BOOK TECHNOLOGIES, INC.
By: /s/ Louis R. Reynolds
Title: President/CEO
PRINCIPAL STOCKHOLDERS:
/s/ Louis R. Reynolds
Louis R. Reynolds
/s/ Steven J. DeRose
Steven J. DeRose
/s/ Jeffrey Vogel
Jeffrey Vogel
/s/ Richard L. Piccolo
Richard L. Piccolo
/s/Edward N. Gadsby, Jr.
Edward N. Gadsby, Jr. as trustee of the Louis R.
Reynolds 1996 Charitable Remainder Unitrust
Agreement, as trustee and not individually
/s/ Mark A. Vogel
Mark A. Vogel, as trustee of the
Steven J. DeRose 1996 Charitable
Remainder Unitrust Agreement, as
trustee and not individually
Exhibit 20.1
CONTACT Betty J. Savage For Immediate Release
Vice President & CFO
July 1, 1996
Tel: (617) 753-6539
Email: [email protected]
INSO CORPORATION ANNOUNCES AGREEMENT TO ACQUIRE
ELECTRONIC BOOK TECHNOLOGIES
Boston, MA -- INSO Corporation (Nasdaq: INSO) today
announced that it has entered a definitive agreement to
purchase privately held Electronic Book Technologies (EBT)
of Providence, Rhode Island, for $39.8 million in cash.
INSO expects to close the transaction in July. Established
in 1989, EBT is a leading international provider of
integrated CD-ROM/web publishing solutions, including
DynaText(R) and DynaWeb(TM), for serious corporate and
commercial publishers. EBT recently announced a new world-
wide web site management system named DynaBase(TM) for
use by professional corporate webmasters.
EBT will soon release DynaText 3.0, which represents a
substantial revision to its flagship product. EBT and INSO
are confident that DynaText customers will benefit from the
merger. INSO is committed to supporting EBT in advancing
the DynaText series which will include revisions to
DynaTag(TM), DynaWeb, and the delivery of a client server
version of DynaText 3.0. Equally important, many of INSO's
component technologies, grouped within the categories of
proofing tools, information products, and information
management tools, are candidates to be incorporated in point
releases of DynaText 3.0, potentially yielding further
advancements in many aspects of DynaText electronic book
production and use.
EBT and INSO believe that the merger affords substantial
opportunities in the web site management environment.
Together, the companies possess the abilities and
componentry to create a highly attractive and clearly
differentiated web site management solution for
corporations, enabling them to easily and effectively to
manage large and diverse sets of web content.
Steven R. Vana-Paxhia, INSO's President and Chief Executive
Officer, said, "For the last three years, INSO has been
striving to offer our customers an increasing range of
information management solutions. Therefore, I am delighted
that we will now be able to add the outstanding technology
of EBT to the INSO arsenal of world-class information
products. We believe that the combination of EBT with
INSO's existing businesses will allow us to create the
ultimate information publishing environment across
media, from paper to the Internet."
Speaking on behalf of Dr. Steven J. DeRose, Dr. Andries van
Dam, and Jeffrey L. Vogel, EBT's other founders, Louis R.
Reynolds, EBT's President and CEO said, "We firmly believe
the combination with INSO will serve to advance EBT's long
term commitment to providing best-of-breed enterprise-grade
digital information publishing technologies and will create
a potent force in the marketplace. We are extremely pleased
to have found such a high quality partner with a shared
vision and believe that our employees, partners, customers,
and the market in general will all benefit from this union."
EBT has approximately 150 employees worldwide. Going
forward, Mr. Reynolds, EBT's President and CEO, will be
available as an advisor to INSO. Kirby A. Mansfield, INSO's
Vice President of Business Development, will head the new
subsidiary of INSO, which will continue to be based in
Providence, Rhode Island. Dr. Steven J. DeRose, Senior
Systems Architect, and Jeffrey L. Vogel, Director of
Engineering, will continue in their present
capacities at the new INSO subsidiary.
Mr. Mansfield said, "INSO has long been impressed with EBT's
rich technical substance. We believe that the significant
investments that have been made in research and development
at EBT in recent years will realize their full potential in
the combined company. We are looking forward to working
with the EBT team and to effectively leveraging the talents
of the combined companies."
The transaction will be accounted for as a purchase and
provides for contingent payments up to an additional $5.2
million in the event that certain EBT financial and
operating goals are met. The acquisition includes certain
technology under research and development, which is to be
written-off with a one-time charge, estimated between $30
and $35 million, to INSO's consolidated 1996 third quarter
earnings. EBT's revenues for calendar year 1995 were
approximately $13.8 million with a slight net profit.
The acquisition is expected to be income-neutral to INSO's
1996 consolidated results and to be accretive in 1997.
INSO Corporation is the leading provider of multilingual
software products that help people enhance the quality of
their written communications, provide them with access to
information from authoritative sources, and make it easier
for them to publish, locate, retrieve, and view information
regardless of format or structure. INSO's products are sold
worldwide to software developers, leading corporations, and
consumers across all industries. INSO's address on the
world-wide web is www.inso.com.
INSO is a trademark of INSO Corporation
