UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number: 33-93464
DICTAPHONE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-3506655
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3191 Broadbridge Avenue
Stratford, CT 06614
(203) 381-7000
(Address of principal executive offices, including zip code,
and telephone number, including area code)
---------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- -----
Number of shares of Common Stock, par value $.01 per share, outstanding as of
May 12, 2000: 1,000 The Common Stock of the registrant is not publicly traded.
<PAGE>
DICTAPHONE CORPORATION
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1999 and March 31, 2000
(Unaudited) 2
Condensed Consolidated Balance Sheets as of December 31,
1999 and March 31, 2000 (Unaudited) 3
Unaudited Condensed Consolidated Statements of
Cash Flow for the Three Months Ended March 31, 1999
and March 31, 2000 4
Notes to Unaudited Consolidated Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 20
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 21
ITEM 5. Other Information 21
ITEM 6. Exhibits and Reports on Form 8-K 21
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DICTAPHONE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 2000
-------------- --------------
<S> <C> <C>
Revenues:
Product sales and rentals $ 48,228 $ 44,245
Contract manufacturing sales 10,348 9,154
Support services 24,035 27,859
---------- ----------
Total revenue 82,611 81,258
---------- ----------
Costs and expenses:
Cost of sales, rentals and support services 43,450 54,190
Selling and administrative 26,955 26,148
Amortization of intangibles 3,239 2,209
Research and development 2,438 1,777
---------- ----------
Operating profit (loss) 6,529 (3,066)
Interest expense 10,139 10,494
Other expense (income) - net 331 (210)
---------- ----------
Loss before income taxes (3,941) (13,350)
Income tax expense 225 5
---------- ----------
Net loss (4,166) (13,355)
Stock dividends on PIK Preferred Stock 1,231 1,649
---------- ----------
Net loss applicable to Common Stock $ (5,397) $ (15,004)
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
DICTAPHONE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,190 $ 5,002
Accounts receivable, less allowances of $1,801 and $1,851, respectively 100,834 100,242
Inventories 49,759 39,470
Other current assets 6,152 6,321
---------- ----------
Total current assets 162,935 151,035
Property, plant and equipment, net 37,489 38,888
Deferred financing costs, net of accumulated amortization of $16,145
and $16,749, respectively 8,141 7,538
Intangibles, net of accumulated amortization of $133,964 and $136,173 respectively 194,865 192,489
Deferred tax asset 39,934 40,220
Other assets 17,774 18,359
---------- ----------
Total assets $ 461,138 $ 448,529
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,755 $ 11,251
Interest payable 9,965 4,165
Accrued liabilities 30,928 20,419
Advance billings 49,100 56,625
Current portion of long-term debt 790 788
---------- ----------
Total current liabilities 102,538 93,248
Long-term debt 353,443 363,965
Accrued pension liability 9,953 9,914
Other liabilities 12,806 12,462
---------- ----------
Total liabilities 478,740 479,589
---------- ----------
Contingencies and concentrations of risk (Note 5)
Stockholders' equity:
Preferred stock ($.01 par value; 7,500,000 shares authorized; 2,742,400 and
2,840,400 shares of 14% PIK perpetual preferred stock issued and
outstanding, liquidation values of $27,424 and $28,404
at December 31, 1999 and March 31, 2000, respectively) 27,424 28,404
Preferred stock ($.01 par value; 10,000,000 shares authorized;
2,000,000 shares of 12% Convertible PIK preferred stock issued and
outstanding, liquidation value of $22,975 at March 31, 2000) 22,306 22,975
Common stock ($.01 par value; 30,000,000 shares authorized;
12,934,000 shares outstanding at December 31, 1999 and March 31, 2000) 130 130
Notes receivable from stockholders (741) (741)
Additional paid-in capital 115,140 113,491
Treasury stock, at cost (66,000 shares at December 31, 1999 and
March 31, 2000, respectively) (660) (660)
Accumulated deficit (179,360) (192,715)
Accumulated other comprehensive loss (1,841) (1,944)
---------- ----------
Total stockholders' equity (deficit) (17,602) (31,060)
---------- ----------
Total liabilities and stockholders' equity $ 461,138 $ 448,529
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
DICTAPHONE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 2000
-------------- --------------
<S> <C> <C>
Operating activities:
Net loss $ (4,166) $ (13,355)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,140 7,215
Provision for deferred income taxes 25 (314)
Non-cash provision for inventory obsolescence (Note 2) --- 9,206
Changes in assets and liabilities:
Accounts receivable (12,023) 575
Inventories 4,443 1,070
Other current assets 1,803 (206)
Accounts payable and accrued liabilities (13,887) (16,708)
Advance billings 4,825 7,524
Other assets and other (3,036) (3,119)
---------- ----------
Net cash used in operating activities (15,876) (8,112)
---------- ----------
Investing activities:
Net investment in fixed assets (3,733) (3,360)
---------- ----------
Net cash used in investing activities (3,733) (3,360)
---------- ----------
Financing activities:
Sale of preferred stock 20,000 ---
Borrowings under revolving credit facility 12,500 13,000
Repayments under revolving credit facility (19,500) (2,000)
Repayments under term loans --- (439)
Other (316) (278)
---------- ----------
Net cash provided by financing activities 12,684 10,283
---------- ----------
Effect of exchange rate changes on cash (42) 1
---------- ----------
Decrease in cash (6,967) (1,188)
Cash and cash equivalents, beginning of period 11,727 6,190
---------- ----------
Cash and cash equivalents, end of period $ 4,760 $ 5,002
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 15,817 $ 15,559
========== ==========
Income taxes paid $ 15 $ 1,063
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
DICTAPHONE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands, or as otherwise indicated)
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
On March 7, 2000, the Company entered into definitive agreement to
be acquired by Lernout & Hauspie Speech Products, N.V. ("Lernout &
Hauspie"). On May 5, 2000 Lernout & Hauspie purchased all of the
outstanding stock of the Company for approximately 4.7 million shares of
L&H Common Stock. In connection with the acquisition, a portion of the
Company's approximately $430 million of debt and other obligations were
paid off or refinanced by Lernout & Hauspie.
The condensed consolidated financial statements of Dictaphone
Corporation (the "Company") are unaudited, as of and for the three month
periods ended March 31, 1999 and March 31, 2000, but in the opinion of
management contain all adjustments which are of a normal and recurring
nature necessary to present fairly the financial position and results of
operations and cash flows for the periods presented. These financial
statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1999.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Costs and expenses. Operating expenses of field sales and service
offices which represent the cost of support services revenue are included
in cost of sales.
Derivative Financial Instruments. The Company has only limited
involvement with derivative financial instruments and does not use them
for trading purposes. The Company enters into interest rate swap and cap
agreements to reduce its exposure to interest rate fluctuations. The net
gain or loss from exchange of interest payments is included in interest
expense in the condensed consolidated financial statements and interest
paid in the condensed consolidated statements of cash flow. The Company
is required to implement the Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Financial Instruments and Hedging
Activities" in the first quarter of 2001. The Company believes the impact
of the new pronouncement on the financial statements will be immaterial.
2. INVENTORIES
Inventories consist of the following:
December 31, March 31,
1999 2000
---------- ----------
Raw materials and work in process $ 23,376 $ 24,094
Supplies and service parts 11,083 3,979
Finished products 15,300 11,397
---------- ----------
Total inventories $ 49,759 $ 39,470
========== ==========
5
<PAGE>
2. INVENTORIES (Continued)
During the three months ended March 31, 2000, the Company recorded
a non-cash charge of $9.2 million associated with the provision for
excess field service parts and inventory primarily related to products
recently replaced by newly introduced products. With the production of
Freedom(TM) in the first quarter of 2000, the Company provided for excess
inventory associated with those products that the Freedom(TM) product
would replace, recording this charge as an inventory provision.
3. INTANGIBLES
The following summarizes intangible assets, net of accumulated
amortization and writedowns of $133,964 and $136,173 at December 31, 1999
and March 31, 2000, respectively. Amortization expense for the three
months ended March 31, 1999 was $3,239 and $2,209, respectively.
December 31, March 31,
1999 2000
---------- ----------
Goodwill $ 123,737 $ 122,700
Tradenames 69,318 68,831
Non-compete agreement 1,041 623
Patents 769 335
---------- ----------
$ 194,865 $ 192,489
========== ==========
4. INCOME TAXES
The income tax expense for the three months ended March 31, 2000 is
$5. The income tax expense relates to income attributable to the
Company's Non-U.S. Operations.
The Company has recorded a gross deferred tax asset of $109.8
million reflecting the benefit of net operating loss carryforwards and
various book tax temporary differences. The net operating loss
carryforward for federal income tax purposes as of March 31, 2000 is
$154.0 million, of which $13.7 million of the net operating loss
carryforward will expire in the year 2010, $33.2 million will expire in
the year 2011, $40.0 million will expire in the year 2012, $35.6 million
will expire in the year 2018, $24.2 million will expire in the year 2019,
and $7.3 million will expire in 2020. In order to fully realize the
deferred tax asset, the Company will need to generate future taxable
income prior to expiration of the net operating loss carryforwards. In
1997, the Company established a valuation allowance of $24.1 million
against the deferred tax asset. During 1998 and 1999, the Company
increased its valuation allowance by $20.8 and $3.9 million,
respectively. During the first three months of 2000, the Company
increased its valuation allowance by $5.1 million resulting in a deferred
tax asset of $55.9 million. Including a deferred tax liability of $15.7
million, the net deferred tax asset at March 31, 2000, totalled $40.2
million. Management believes, based upon the Company's history of prior
operating results, its current circumstances, and its expectations for
the future, that taxable income of the Company will more likely than not
be sufficient to fully utilize the deferred tax asset of $40.2 million
recorded at March 31, 2000, prior to expiration. The amount of the
deferred tax asset considered realizable, however, could be reduced if
estimates of future taxable income during the net operating loss
carryforward period are reduced.
6
<PAGE>
5. CONTINGENCIES AND CONCENTRATIONS OF RISK
Concentrations of Risks
A substantial portion of the Company's revenues are derived from
the sale of products manufactured at the Company's manufacturing facility
which is located in Melbourne, Florida. This manufacturing facility is
subject to the normal hazards of any such facility that could result in
damage to the facility. Any such damage to this facility or prolonged
delay in the operations of this facility for repairs or other reason
would have a materially adverse effect on the Company's financial
position and results of operations.
Contingencies
On February 14, 1995, Pitney Bowes, Inc. ("Pitney Bowes") filed a
complaint against Sudbury Systems, Inc. ("Sudbury") in the United States
District court for the District of Connecticut alleging intentional and
wrongful interference with Pitney Bowes's plans to sell the Company. The
complaint seeks damages and a declaratory judgment relating to the
validity of a patent owned by Sudbury entitled "Rapid Simultaneous
Multiple Access Information Storage and Retrieval System" and the alleged
infringement thereof by the Company. Sudbury responded by answering the
complaint and filing a third-party complaint against the Company alleging
patent infringement and seeking preliminary and permanent injunctive
relief and treble damages. Sudbury's patent expired in April 1998. As a
result, injunctive relief is no longer available to Sudbury. Pretrial
proceedings, including claim construction and dispositive motions are
continuing. A trial date in 2000 is likely.
Management believes the Company has meritorious defenses to the
claims against it. Consequently, the Company has not provided for any
loss exposure in connection with this complaint. Additionally, regardless
of the outcome of this litigation, Pitney Bowes has agreed to defend this
action and to indemnify the Company for any liabilities arising from such
litigation.
The Company is subject to federal, state and local laws and
regulations concerning the environment and is currently participating in
administrative proceedings as a participant in a group of potentially
responsible parties in connection with two third party disposal sites.
These proceedings are in the preliminary stage, and it is currently
impossible to reasonably estimate the potential costs of remediation, the
timing and extent of remedial actions which may be required by
governmental authorities, and the amount of the liability, if any, of the
Company alone or in relation to that of any other responsible parties.
When it is possible to make a reasonable estimate of the Company's
liability with respect to such a matter, a provision will be made as
appropriate. Additionally, the Company has settled and paid its liability
at three other third party disposal sites. At a fourth site, the Company
has paid approximately $11 thousand for its share of the costs of the
first phase of the clean up of the site and management believes that it
has no continuing material liability for any later phases of the cleanup.
Consequently, management believes that its future liability, if any, for
these four sites is not material. In addition, regardless of the outcome
of such matters, Pitney Bowes has agreed to indemnify the Company in
connection with retained environmental liabilities and for breaches of
the environmental representations and warranties in the Stock and Asset
Purchase Agreement, originally executed on April 25, 1995 and amended
August 11, 1995 between Dictaphone Acquisition Corporation and Pitney
Bowes subject to certain limitations.
The Company is a defendant in a number of additional lawsuits and
administrative proceedings, none of which will, in the opinion of
management, have a material adverse effect on the Company's consolidated
financial position or results of operations.
7
<PAGE>
5. CONTINGENCIES AND CONCENTRATIONS OF RISK (Continued)
Contingencies (cont.)
The Company does not believe that the ultimate resolution of the
litigation, administrative proceedings and environmental matters
described above in the aggregate will have a material adverse effect on
the Company's consolidated financial position or results of operations.
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION
The following consolidated financial statements include the Company
and all majority-owned subsidiaries as follows: Dictaphone Canada
Ltd/Ltee, Dictaphone Company Ltd., Dictaphone Deutschland GmbH and
Dictaphone International A.G. (together "Dictaphone Non-U.S.").
Dictaphone Corporation has fully and unconditionally guaranteed the
repayment of $200.0 million of 11-3/4% Senior Subordinated Notes Due 2005
(the "Notes") issued to finance the acquisition of the Company from
Pitney Bowes. The Notes are subordinate to financing of the Credit
Agreement, dated August 7, 1995, as amended by five amendments to the
Credit Agreement, dated June 28, 1996, June 27, 1997, July 21, 1997,
November 14, 1997 and December 31, 1998 (collectively, the "Credit
Agreement"), and other senior indebtedness as defined in the indenture
pursuant to which the Notes were issued (the "Note Indenture"). As of
March 31, 2000 the Credit Agreement consisted of a $75.0 million Tranche
B Term Loan due June 30, 2002 (the "Tranche B Loan"), a $62.75 million
Tranche C Term Loan due June 30, 2002 (the "Tranche C Loan" and together
with the Tranche B Loan, the "Term Loans") and a six-year revolving
credit facility of up to $40.0 million (the "Revolving Credit Facility").
The Company repaid the Term Loans and the Revolving Credit Facility with
an advance from Lernout & Hauspie immediately following the acquisition
of the Company by Lernout & Hauspie on May 5, 2000. Dictaphone Non-U.S.
is not a guarantor of the Notes. In January 1998, Dictaphone Corporation
was merged into Dictaphone Corporation (U.S.), whereupon the surviving
corporation changed its name to "Dictaphone Corporation".
8
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
The following are the supplemental consolidating statements of
operations for the three month periods ended March 31, 1999 and 2000, the
supplemental consolidating balance sheet information as of December 31,
1999 and March 31, 2000, and cash flow information for the three month
periods ended March 31, 1999 and 2000.
Dictaphone Corporation
Supplemental Condensed Consolidating Statement of Operations Information
Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue from:
Product sales and rentals $ 44,776 $ 5,722 $ (2,270) $ 48,228
Contract manufacturing sales 10,348 --- --- 10,348
Support services 21,931 2,104 --- 24,035
---------- ---------- ---------- ----------
Total revenues 77,055 7,826 (2,270) 82,611
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales, rentals and support services 41,312 4,426 (2,288) 43,450
Selling and administrative 27,956 2,238 --- 30,194
Research and development 2,438 --- --- 2,438
Interest expense - net and other 9,486 984 --- 10,470
---------- ---------- ---------- ----------
Total costs and expenses 81,192 7,648 (2,288) 86,552
---------- ---------- ---------- ----------
Equity earnings (loss) 605 --- (605) ---
---------- ---------- ---------- ----------
(Loss) income before income taxes (3,532) 178 (587) (3,941)
Income tax expense (22) (196) (7) (225)
---------- ---------- ---------- ----------
Net loss $ (3,554) $ (18) $ (594) $ (4,166)
========== ========== ========== ==========
</TABLE>
9
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
Dictaphone Corporation
Supplemental Condensed Consolidating Statement of Operations Information
Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue from:
Product sales and rentals $ 42,051 $ 6,138 $ (3,944) $ 44,245
Contract manufacturing sales 9,154 --- --- 9,154
Support services 25,891 1,968 --- 27,859
---------- ---------- ---------- ----------
Total revenues 77,096 8,106 (3,944) 81,258
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales, rentals and support services 51,889 6,083 (3,782) 54,190
Selling and administrative 26,487 1,870 --- 28,357
Research and development 1,777 --- --- 1,777
Interest expense - net and other 9,945 339 --- 10,284
---------- ---------- ---------- ----------
Total costs and expenses 90,098 8,292 (3,782) 94,608
---------- ---------- ---------- ----------
Equity earnings (loss) 404 --- (404) ---
---------- ---------- ---------- ----------
(Loss) income before income taxes (12,598) (186) (566) (13,350)
Income tax expense (benefit) 21 50 (66) 5
---------- ---------- ----------- ----------
Net loss $ (12,619) $ (236) $ (500) $ (13,355)
========== ========== ==========- ==========
</TABLE>
10
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
Dictaphone Corporation
Supplemental Condensed Consolidating Balance Sheet Information
December 31, 1999
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,595 $ 1,595 $ --- $ 6,190
Accounts receivable, less allowances 92,608 10,822 (2,596) 100,834
Inventories 47,765 2,199 (205) 49,759
Other current assets 3,351 2,718 83 6,152
---------- ---------- ---------- ----------
Total current assets 148,319 17,334 (2,718) 162,935
Investments in subsidiaries 30,883 --- (30,883) ---
Property, plant and equipment, net 34,444 3,045 --- 37,489
Deferred financing costs, net 8,141 --- --- 8,141
Intangibles, net 182,241 12,624 --- 194,865
Other assets 53,333 4,375 --- 57,708
---------- ---------- ---------- ----------
Total assets $ 457,361 $ 37,378 $ (33,601) $ 461,138
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable, interest payable
and accrued liabilities $ 43,915 $ 11,329 $ (2,596) $ 52,648
Advance billings 46,571 2,529 --- 49,100
Current portion of long-term debt 628 162 --- 790
---------- ---------- ---------- ----------
Total current liabilities 91,114 14,020 (2,596) 102,538
Long-term debt 353,317 17,117 (16,991) 353,443
Accrued pension liability 9,953 --- --- 9,953
Other liabilities 12,270 536 --- 12,806
Stockholders' equity (deficit) (9,293) 5,705 (14,014) (17,602)
---------- ---------- ---------- ----------
Total liabilities and stockholders' equity $ 457,361 $ 37,378 $ (33,601) $ 461,138
========== ========== ========== ==========
</TABLE>
11
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
Dictaphone Corporation
Supplemental Condensed Consolidating Balance Sheet Information
March 31, 2000
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,752 $ 2,250 $ --- $ 5,002
Accounts receivable, less allowances 94,404 10,839 (5,001) 100,242
Inventories 38,074 1,763 (367) 39,470
Other current assets 3,479 2,693 149 6,321
---------- ---------- ---------- ----------
Total current assets 138,709 17,545 (5,219) 151,035
Investments in subsidiaries 30,863 --- (30,863) ---
Property, plant and equipment, net 36,205 2,683 --- 38,888
Deferred financing costs, net 7,538 --- --- 7,538
Intangibles, net 180,117 12,372 --- 192,489
Other assets 53,872 4,707 --- 58,579
---------- ---------- ---------- ----------
Total assets $ 447,304 $ 37,307 $ (36,082) $ 448,529
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable, interest payable
and accrued liabilities $ 28,938 $ 11,974 $ (5,077) $ 35,835
Advance billings 53,889 2,736 --- 56,625
Current portion of long-term debt 628 160 --- 788
---------- ---------- ---------- ----------
Total current liabilities 83,455 14,870 (5,077) 93,248
Long-term debt 363,878 16,578 (16,491) 363,965
Accrued pension liability 9,914 --- --- 9,914
Other liabilities 11,969 493 --- 12,462
Stockholders' equity (deficit) (21,912) 5,366 (14,514) (31,060)
---------- ---------- ---------- ----------
Total liabilities and stockholders' equity $ 447,304 $ 37,307 $ (36,082) $ 448,529
========== ========== ========== ==========
</TABLE>
12
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
Dictaphone Corporation
Supplemental Condensed Consolidating Statement of Cash Flows Information
Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Operating activities:
Net loss $ (3,554) $ (18) $ (594) $ (4,166)
Adjustments to reconcile net loss
to net cash (used in) provided by
operating activities:
Depreciation and amortization 5,693 447 --- 6,140
Provision for deferred income taxes --- 25 --- 25
Change in assets and liabilities:
Accounts receivable (9,125) (1,731) (1,167) (12,023)
Inventories 3,816 645 (18) 4,443
Other current assets 1,755 41 7 1,803
Accounts payable and accrued
liabilities (14,942) 28 1,027 (13,887)
Advance billings 4,108 717 --- 4,825
Other assets and other (3,878) 97 745 (3,036)
---------- ---------- ---------- ----------
Net cash (used in) provided by operating
activities (16,127) 251 --- (15,876)
---------- ---------- ---------- ----------
Investing activities:
Net investment in fixed assets (3,467) (266) --- (3,733)
---------- ---------- ---------- ----------
Net cash used in investing activities (3,467) (266) --- (3,733)
---------- ---------- ---------- ----------
Financing activities:
Sale of preferred stock 20,000 --- --- 20,000
Borrowings from revolving credit facility 12,500 --- --- 12,500
Repayments under revolving credit facility (19,500) --- --- (19,500)
Other (347) 31 --- (316)
---------- ---------- ---------- ----------
Net cash provided by financing activities 12,653 31 --- 12,684
---------- ---------- ---------- ----------
Effect of exchange rate changes on cash --- (42) --- (42)
---------- ---------- ---------- ---------
Decrease in cash (6,941) (26) --- (6,967)
Cash and cash equivalents,
beginning of period 10,114 1,613 --- 11,727
---------- ---------- ---------- ---------
Cash and cash equivalents,
end of period $ 3,173 $ 1,587 $ --- $ 4,760
========== ========== ========== ==========
</TABLE>
13
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENT
INFORMATION (Continued)
Dictaphone Corporation
Supplemental Condensed Consolidating Statement of Cash Flows Information
Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
Dictaphone Dictaphone Consolidating
Corporation Non-U.S. Adjustments Consolidated
----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Operating activities:
Net loss $ (12,619) $ (236) $ (500) $ (13,355)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 6,829 386 --- 7,215
Provision for deferred income taxes --- (314) --- (314)
Non-cash provision for inventory
obsolescence (Note 2) 7,919 1,287 --- 9,206
Change in assets and liabilities:
Accounts receivable (1,796) (34) 2,405 575
Inventories 1,772 (864) 162 1,070
Other current assets (128) (12) (66) (206)
Accounts payable and accrued
liabilities (14,977) 750 (2,481) (16,708)
Advance billings 7,318 206 --- 7,524
Other assets and other (3,115) (484) 480 (3,119)
---------- ---------- ---------- ----------
Net cash (used in) provided by operating
activities (8,797) 685 --- (8,112)
---------- ---------- ---------- ----------
Investing activities:
Net investment in fixed assets (3,359) (1) --- (3,360)
---------- ---------- ---------- ----------
Net cash used in investing activities (3,359) (1) --- (3,360)
---------- ---------- ---------- ----------
Financing activities:
Sale of Preferred Stock --- --- --- ---
Borrowing from revolving credit facility 13,000 --- --- 13,000
Repayment under revolving credit facility (2,000) --- --- (2,000)
Repayment under term loan (439) --- --- (439)
Other (248) (30) --- (278)
---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities 10,313 (30) --- 10,283
---------- ---------- ---------- ----------
Effect of exchange rate changes on cash --- 1 --- 1
---------- ---------- ---------- ----------
(Decrease) increase in cash (1,843) 655 --- (1,188)
Cash and cash equivalents,
beginning of period 4,595 1,595 --- 6,190
---------- ---------- ---------- ----------
Cash and cash equivalents,
end of period $ 2,752 $ 2,250 $ --- $ 5,002
========== ========== ========== ==========
</TABLE>
14
<PAGE>
7. COMPREHENSIVE LOSS
The Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130") as of January 1, 1998.
SFAS 130 establishes standards for reporting and display of comprehensive
income and its components.
Total comprehensive loss for the three months ending March 31, 1999
and 2000 consists of the following:
Three Months Ended
March 31,
1999 2000
---- ----
Net loss $ (4,166) $(13,355)
Foreign currency translation
adjustments (114) (103)
--------- --------
Total comprehensive loss $ (4,280) $(13,458)
========= ========
8. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION
Dictaphone has two reportable segments: System Products and
Services, and Contract Manufacturing. The System Products and Services
segment consists of the sale and service of system-related products to
dictation and voice management and communications recording system
customers in selected vertical markets. The Contract Manufacturing
segment consists of the Manufacturing Operations of Dictaphone which
provides outside electronics manufacturing services to original
equipment manufacturers in the telecommunications, data management,
computer and electronics industries.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. Dictaphone
evaluates performance based on profit or loss from operations before
income taxes, including nonrecurring gains and losses and foreign
exchange gains and losses.
Dictaphone Corporation
Segment Profit and Loss
<TABLE>
<CAPTION>
System
Products & Contract
Services Manufacturing Total
-------- ------------- -----
<S> <C> <C> <C>
Revenue from external customers
Three months ended March 31, 2000 $ 72,104 $ 9,154 $ 81,258
Three months ended March 31, 1999 72,263 10,348 82,611
Intersegment revenues
Three months ended March 31, 2000 --- 7,678 7,678
Three months ended March 31, 1999 --- 10,527 10,527
Segment profit (loss)
Three months ended March 31, 2000 (13,481) 126 (13,355)
Three months ended March 31, 1999 (5,095) 1,154 (3,941)
Segment assets
As of March 31, 2000 400,646 47,883 448,529
As of December 31, 1999 $ 416,523 $ 44,615 $ 461,138
</TABLE>
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 2000
---- ----
(in millions)
(unaudited)
<S> <C> <C>
Total revenue $ 82.6 $ 81.3
Cost of sales, rentals and support services 43.5 54.2
Selling and administrative expense (1) 30.2 28.4
Research and development 2.4 1.8
-------- ---------
Operating profit (loss) 6.5 (3.1)
-------- ---------
Net interest expense and other 10.5 10.3
Income tax expense 0.2 ---
-------- ---------
Net loss $ (4.2) $ (13.4)
======== =========
Adjusted EBITDA (2) $ 12.0 $ 12.7
======== =========
</TABLE>
- ---------------------
(1) Includes amortization of intangibles.
(2) Adjusted EBITDA is defined as income before effect of changes
in accounting plus interest, income taxes, depreciation,
amortization and other significant non-cash, non-recurring
charges which for the three month periods ended March 31, 1999
and 2000 totalled $0.2 million and $8.9 million, respectively.
EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to incur and service debt.
However, EBITDA should not be considered in isolation or as a
substitute for net income or cash flow data prepared in
accordance with generally accepted accounting principles or as
a measure of a company's profitability or liquidity, and is
not necessarily comparable to similarly titled measures of
other companies.
16
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 2000
---- ----
(in millions)
(unaudited)
<S> <C> <C>
Revenue from:
Sales:
Integrated Voice Systems $ 7.2 $ 5.1
Integrated Health Systems 12.7 14.3
---------- ----------
Total U.S. Voice Systems 19.9 19.4
---------- ----------
Communication Recording Systems 14.3 11.6
Customer Service Parts 3.9 3.2
International and Dealer Operations 9.8 9.7
Rentals 0.3 0.3
---------- ----------
Product Sales and Rentals 48.2 44.2
========== ==========
Support Service:
Customer Service 20.8 24.1
Application & Training Specialists 1.1 1.8
International and Dealer Operations 2.1 2.0
---------- ----------
Total support service 24.0 27.9
---------- ----------
Total System Products and Services 72.2 72.1
Contract Manufacturing 10.4 9.2
---------- ----------
Total Revenue $ 82.6 $ 81.3
========== ==========
</TABLE>
Results of Operations - First Quarter 2000 vs. First Quarter 1999
Total revenue declined 1.6% to $81.3 million in the first quarter of
2000 from $82.6 million for the first quarter of 1999. This decline in revenue
is attributable to lower product sales revenue from Integrated Voice Systems
("I.V.S.") and Communications Recording Systems ("C.R.S."), lower revenue from
International and Dealer Operations, offset in part by increased product sales
revenue from Integrated Health Systems ("I.H.S.") and higher revenue from
Customer Service and Applications and Training Specialists ("A.T.S."). Contract
Manufacturing revenue declined 11.5% to $9.2 million from $10.4 million in the
first quarter of 1999.
I.V.S. revenue declined 29.2% to $5.1 million due to lower desktop and
portable, Enterprise Express(TM)and digital system revenue. I.V.S. orders in the
first quarter of 2000 declined 37.4% to $5.2 million from $8.4 million in the
first quarter of 1999. I.H.S. revenue increased 12.6% to $14.3 million from
$12.7 million due to the continued growth of Enterprise Express(TM)sales. I.H.S.
orders in the first quarter of 2000 declined 10.2% to $12.4 million from $13.8
million in the first quarter of 1999. I.H.S. order backlog declined by $2.1
million to $9.9 million during the first quarter of 2000. C.R.S. revenue
declined 18.9% to $11.6 million due to lower Prolog(TM)/Guardian(TM)revenue
partially offset by daVinci(TM)and Freedom(TM)revenue. C.R.S. orders in the
first quarter of 2000 declined 22.2% to $10.2 million from $13.1 million in the
first quarter of 1999. C.R.S. order backlog declined by $1.4 million to $8.4
million during the first quarter of 2000. Customer Service revenue (including
sale of parts) increased 10.2% to $27.3 million due to higher proprietary
product service contract, hourly and installation revenue. A.T.S. revenue
increased 63.3% to $1.8 million due to increased training provided in support of
system products. Sales and support service revenue from International and Dealer
Operations declined slightly as lower Canadian system and C.R.S. revenue was
partially offset by increased C.R.S. revenue in Europe. International and Dealer
Operations orders in the first quarter of 2000 increased 12.8% to $11.2 million
from $9.9 million in the first quarter of 1999.
17
<PAGE>
Cost of sales, rentals and support services increased 24.7% to $54.2
million (66.7% of revenue) in the first quarter of 2000 from $43.5 million
(52.6% of revenue) in the first quarter of 1999. The increase in cost of sales,
rentals and support services is due primarily to a non-cash charge of $9.2
million associated with the provision for excess field service parts and
inventory related to products recently replaced by newly introduced products.
With the production of Freedom(TM) in the first quarter of 2000, the Company
provided for excess inventory associated with those products that the
Freedom(TM) product would replace, recording this charge as an inventory
provision.
Selling and administrative expenses (including amortization of
intangibles) declined 6.1% to $28.4 million (34.9% of revenue) in the first
quarter of 2000 from $30.2 million (36.6% or revenue) in the first quarter of
1999. This decrease is attributable to lower amortization expense and lower
I.V.S. selling expenses and lower operating expenses for International and
Dealer Operations.
Research and development expenses of $1.8 million (4.0% of product sales
and rental revenue) declined 27.1% from $2.4 million (5.1% of product sales and
rental revenue), reflecting reduced staffing and compensation consistent with
major project development efforts.
The Company recorded an operating loss of $3.1 million (3.8% of revenue)
during the first quarter of 2000 compared to an operating profit of $6.5 million
(7.9% of revenue) during the first quarter of 1999. This decline in operating
profit is attributable to the impact of lower revenue and higher costs
associated with the charge for inventory obsolescence.
The Company has recorded a gross deferred tax asset of $109.8 million
reflecting the benefit of net operating loss carryforwards and various book tax
temporary differences. The net operating loss carryforward for federal income
tax purposes as of March 31, 2000 is $154.0 million, of which $13.7 million of
the net operating loss carryforward will expire in the year 2010, $33.2 million
will expire in the year 2011, $40.0 million will expire in the year 2012, $35.6
million will expire in the year 2018, $24.2 million will expire in the year 2019
and $7.3 million will expire in 2020. In order to fully realize the deferred tax
asset, the Company will need to generate future taxable income prior to
expiration of the net operating loss carryforwards. In 1997, the Company
established a valuation allowance of $24.1 million against the deferred tax
asset. During 1998 and 1999, the Company increased its valuation allowance by
$20.8 million and $3.9 million, respectively. During the first three months of
2000, the Company increased its valuation allowance by $5.1 million resulting in
a deferred tax asset of $55.9 million. Including a deferred tax liability of
$15.7 million, the net deferred tax asset at March 31, 2000 totalled $40.2
million. Management believes, based upon the Company's history of prior
operating results, its current circumstances, and its expectations for the
future, that taxable income of the Company will more likely than not be
sufficient to fully utilize the deferred tax asset of $40.2 million recorded at
March 31, 2000, prior to expiration. The amount of the deferred tax asset
considered realizable, however, could be reduced if estimates of future taxable
income during the net operating loss carryforward period are reduced.
Liquidity and Capital Resources
The Company's liquidity requirements consist primarily of scheduled
payments of principal and interest on its indebtedness, working capital needs
and capital expenditures. At March 31, 2000, the Company had outstanding Term
Loans of $130.5 million, a $34.0 million loan outstanding under the $40.0
million Revolving Credit Facility and the Notes. Availability under the
Revolving Credit Facility at March 31, 2000 was $6.0 million ($3.6 million after
deducting outstanding Letters of Credit). The Company repaid the Term Loans and
the Revolving Credit Facility with a loan from Lernout & Hauspie following the
acquisition of the Company by Lernout & Hauspie on May 5, 2000 (the "L&H Loan").
The proceeds of the L&H Loan, which is in the amount of $223 million, were used
to satisfy the Term Loans and the Revolving Credit Facility as well as certain
other obligations of the Company. The terms of the L&H Loan are still
18
<PAGE>
being determined by the Company and L&H, but will be no less favorable than
could be obtained from an independent third party. In connection with the
acquisition by Lernout & Hauspie, the Company established a $20 million line of
credit (the "Line of Credit") with Deutsche Bank.
In January 1999, the Company sold 2.0 million shares of its 12%
Convertible Pay-in-Kind Preferred Stock to Stonington Capital Appreciation 1994
Fund, L.P. ("Stonington") for $20 million. In February 1999, $11.75 million was
used for the semi-annual interest payment on the Notes. Proceeds from the sale
were also used to repay amounts outstanding under the Revolving Credit Facility.
In connection with the terms of the Credit Agreement, the Company entered
into interest rate swap agreements in November 1995, effective February 16,
1996, with an aggregate notional principal amount equivalent to $75.0 million
which matured on February 16, 1999. The swap effectively converted that portion
of the Term Loans to a fixed rate component of 5.8%; thus, reducing the impact
of changes in interest rates, converting the total effective interest rate on
fifty percent of the initial outstanding Term Loans to 9.55%. No funds under the
swap agreements were actually borrowed or were repaid. Amounts due to or from
the counterparties were reflected in interest expense in the periods in which
they accrued. On February 11, 1999, the Company entered into interest rate cap
agreements effective February 16, 1999, with an aggregate notional principal
amount equivalent to $66.0 million maturing on February 16, 2001. The cap limits
that portion of the Company's Term Loans to a fixed rate component of 5.5%; thus
reducing the impact of increases in interest rates, limiting the effective
interest rate on fifty percent of the currently outstanding Term Loans to 9.25%.
The Credit Agreement contained covenants that significantly limited or
prohibited, among other things, the ability of the Company to incur
indebtedness, make prepayments of certain indebtedness, pay dividends on common
stock, make investments, engage in transactions with stockholders and
affiliates, create liens, sell assets and engage in mergers and consolidations
and required that the Company maintain certain financial ratios.
The Company had $200.0 million of Notes outstanding as of March 31, 2000.
The Notes are subordinated to the Credit Agreement financings and other senior
indebtedness, as defined in the Note Indenture. The Notes contain covenants
similar to the Credit Agreement and provide for each noteholder to have the
right to require that the Company repurchase the Notes at 101% of the principal
amount upon a change of control (as defined in the Note Indenture). Bank
facilities which provided for the acquisition of Dictaphone Corporation by
Lernout & Hauspie will be used to fund the repurchase of the Notes. The Notes
bear interest of 11-3/4% per annum, payable semi-annually on each February 1 and
August 1. The Notes mature on August 1, 2005. At March 31, 2000, the fair value
of the Notes was favorable $2 million based on dealer quotes.
Capital expenditures for the first three months of 2000 totalled $3.4
million. The Company does not expect that the limitation on capital expenditures
contained in the Credit Agreement will limit, in any material respects, the
Company's ability to fund capital expenditures.
The Company's quarterly revenues and other operating results have been
and will continue to be affected by a wide variety of factors that could have a
material adverse effect on the Company's financial performance during any
particular quarter. Such factors include, but are not limited to, the level of
orders that are received and shipped by the Company in any given quarter, the
rescheduling and cancellation of orders by customers, availability and cost of
materials, the Company's ability to enhance its existing products and to
develop, manufacture and successfully introduce and market new products, new
product developments by the Company's competitors, market acceptance of products
of both the Company and its competitors, competitive pressures on prices, the
ability to attract and retain qualified technical personnel, significant damage
to or prolonged delay in operations at the Company's sole manufacturing
facility, and
19
<PAGE>
interest rate and foreign exchange fluctuations. The Company introduced a number
of new products in its target markets in 1997, 1998 and 1999 which are expected
to enhance future revenues and liquidity of the Company. However, there can be
no assurance that the Company will be able to implement its plans to introduce
such products in a timely fashion, or that such products will meet the
expectations of the Company for either revenues or profitability.
Notwithstanding the introduction of its new products, the 1999 sale of 12%
Convertible Pay-in-Kind Preferred Stock to Stonington and its availability under
the Line of Credit, the Company will continue to focus on cash flows from
operating activities. The Company has implemented new measures to improve
working capital in order to provide this improved cash flow, but there can be no
assurance, however, that the Company will be successful in such efforts.
The Company may, from time to time, provide estimates as to future
performance. Such estimates would be "forward-looking" statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Because such statements include risks and
uncertainties, actual results may differ materially from those estimates
provided. The Company undertakes no duty to update such forward looking
statements. Factors that could cause actual results to differ from these forward
looking statements include, but are not limited to, those previously discussed
herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Market risk represents the risk of loss that may impact the
consolidated financial position, results of operations or cash flows of the
Company. The Company is exposed to market risk associated with change in
interest rates and foreign currency exchange rates.
Interest Rates
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's debt obligations. The Company has no cash
flow exposure on the $200.0 million of 11.75% fixed interest rate Notes;
however, the Company does have cash flow exposure on the Term Loans and loans
outstanding under the Revolving Credit Facility associated with variable
interest rates, as adjusted by the impact of the interest rate cap agreements.
Accordingly, a percentage point change in variable interest rates would result
in annual interest expense fluctuation of approximately $0.9 million.
Foreign Exchange Risk
The Company is exposed to foreign exchange risk to the extent of
adverse fluctuations in the Canadian dollar, the British pound, the German mark
and the Japanese yen. The Company does not believe that reasonably possible near
term change in those currencies will results in a material effect on future
earnings, financial position or cash flows of the Company.
20
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 5 to the Company's Condensed Consolidated Statements of
Operations (Unaudited) which is incorporated herein by reference.
ITEM 5. OTHER INFORMATION
On March 7, 2000, the Company, Lernout & Hauspie, a Belgium corporation,
and Dark Acquisition Corp., a Delaware corporation and a direct wholly owned
subsidiary of Lernout & Hauspie (the "Merger Sub"), entered into an Agreement
and Plan of Merger (the "Merger Agreement"), providing for the merger of the
Company with and into the Merger Sub with the Merger Sub as the surviving
corporation. In connection with the Merger, the Merger Sub changed its name to
Dictaphone Corporation.
On May 5, 2000, the Merger was consummated and each share of common
stock, par value $.01 per share, of the Company issued and outstanding was
converted into the right to receive approximately 0.6 shares of common stock of
Lernout & Hauspie for an aggregate of up to 9,384,198 shares of common stock of
Lernout & Hauspie, taking into account the 2-for-1 stock split effected as of
May 12, 2000.
For further financial information regarding the Company's debt structure
following the Merger, see "Liquidity and Capital Resources" at Part I, Item 2 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
In addition, in connection with the acquisition, it is anticipated that
Deloitte & Touche LLP, the Company's certifying accountant will be replaced by
Klynveld Peat Marwick Goerdeler Bedrijfsrevisoren.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.12 -- Agreement and Plan of Merger by and among
Lernout & Hauspie Speech Products, N.V., Dark
Acquisition Corp. and Dictaphone Corporation,
dated March 7, 2000 (filed as Exhibit 2.12 to
the Company's Form 10-Q for the fiscal quarter
ended March 31, 2000, filed on May 15, 2000).
27 -- Financial Data Schedule.
Undertaking:
The undersigned, Dictaphone Corporation, hereby undertakes, pursuant to
Regulation S-K, Item 601(b), paragraph (4) (iii), to furnish to the Securities
and Exchange Commission upon request all constituent instruments defining the
rights of holders of long-term debt of Dictaphone Corporation and its
consolidated subsidiaries not filed herewith for the reason that the total
amount of securities authorized under any of such instruments does not exceed 10
percent of the total consolidated assets of Dictaphone Corporation and its
consolidated subsidiaries.
(b) Reports on Form 8-K
On March 10, 2000 the Company filed a Current Report on Form
8-K, reporting under Item 5 thereof, in respect of its
announcement that it had agreed to be acquired by Lernout &
Hauspie Speech Product, N.V.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 15, 2000 Dictaphone Corporation
-------------------------------------------
(Registrant)
By: /s/ John H. Duerden
------------------------------------------
Name: John H. Duerden
Title: Chairman, Chief Executive Officer
and President
(Principal Executive Officer)
By: /s/ Joseph D. Skrzypczak
-------------------------------------------
Name: Joseph D. Skrzypczak
Title: Chief Operating Officer and
Chief Financial Officer
(Principal Financial and Accounting Officer)
22
<PAGE>
EXHIBIT INDEX
Exhibits Description
-------- -----------
2.12 -- Agreement and Plan of Merger by and among Lernout &
Hauspie Speech Products, N.V., Dark Acquisition Corp. and
Dictaphone Corporation, dated March 7, 2000 (filed as Exhibit
2.12 to the Company's Form 10-Q for the fiscal quarter ended
March 31, 2000, filed on May 15, 2000).
27 -- Financial Data Schedule.
23
AGREEMENT AND PLAN OF MERGER
AMONG
LERNOUT & HAUSPIE SPEECH PRODUCTS, N.V.
DARK ACQUISITION CORP.
AND
DICTAPHONE CORPORATION
March 7, 2000
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
<PAGE>
TABLE OF CONTENTS
ARTICLE I. THE MERGER.....................................................1
SECTION 1.1 EFFECTIVE TIME OF THE MERGER...................................1
SECTION 1.2 CLOSING........................................................2
SECTION 1.3 EFFECTS OF THE MERGER..........................................2
SECTION 1.4 DIRECTORS AND OFFICERS.........................................2
SECTION 1.5 ACTIONS PRIOR TO CLOSING.......................................2
SECTION 1.6 ALTERNATIVE MERGER STRUCTURE...................................3
ARTICLE II. CONVERSION OF SECURITIES.......................................4
SECTION 2.1 CONVERSION OF CAPITAL STOCK....................................4
SECTION 2.2 EXCHANGE OF CERTIFICATES.......................................5
SECTION 2.3 OPTIONAL ADJUSTMENT TO MERGER SHARES FOR INDEBTEDNESS..........8
SECTION 2.4 STONINGTON'S MERGER SHARES.....................................9
SECTION 2.5 ESCROW SHARES.................................................10
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF COMPANY.....................10
SECTION 3.1 ORGANIZATION OF COMPANY.......................................10
SECTION 3.2 COMPANY CAPITAL STRUCTURE.....................................11
SECTION 3.3 AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.........12
SECTION 3.4 SEC FILINGS; FINANCIAL STATEMENTS.............................14
SECTION 3.5 NO UNDISCLOSED LIABILITIES....................................14
SECTION 3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS..........................15
SECTION 3.7 TAXES.........................................................15
SECTION 3.8 TITLE TO PROPERTIES...........................................17
SECTION 3.9 INTELLECTUAL PROPERTY.........................................17
SECTION 3.10 AGREEMENTS, CONTRACTS AND COMMITMENTS.........................19
SECTION 3.11 LITIGATION....................................................20
SECTION 3.12 ENVIRONMENTAL MATTERS.........................................20
SECTION 3.13 ERISA AND EMPLOYEE BENEFIT PLANS..............................22
SECTION 3.14 COMPLIANCE WITH LAWS..........................................25
SECTION 3.15 PERMITS.......................................................25
SECTION 3.16 LABOR MATTERS.................................................26
SECTION 3.17 INSURANCE.....................................................26
SECTION 3.18 GOVERNMENT CONTRACTS..........................................26
SECTION 3.19 YEAR 2000.....................................................27
SECTION 3.20 INVENTORY.....................................................27
SECTION 3.21 WARRANTY......................................................27
SECTION 3.22 CUSTOMERS AND SUPPLIERS.......................................27
SECTION 3.23 ACCOUNTS RECEIVABLE...........................................28
SECTION 3.24 SECTION 203 OF THE DGCL NOT APPLICABLE........................28
SECTION 3.25 TRANSACTIONS WITH INTERESTED PERSONS..........................28
SECTION 3.26 ABSENCE OF SENSITIVE PAYMENTS.................................28
SECTION 3.27 INDEBTEDNESS..................................................29
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
-ii-
<PAGE>
SECTION 3.28 CONSENT.......................................................29
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER AND SUB...............29
SECTION 4.1 ORGANIZATION OF BUYER AND SUB.................................29
SECTION 4.2 CAPITALIZATION................................................30
SECTION 4.3 AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.........30
SECTION 4.4 PUBLIC FILINGS; FINANCIAL STATEMENTS..........................32
SECTION 4.5 NO UNDISCLOSED LIABILITIES....................................32
SECTION 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS..........................33
SECTION 4.7 INTELLECTUAL PROPERTY.........................................33
ARTICLE V. CONDUCT OF BUSINESS...........................................34
SECTION 5.1 COVENANTS OF COMPANY..........................................34
SECTION 5.2 OPTIONS; WARRANTS.............................................37
SECTION 5.3 COVENANTS OF BUYER............................................37
SECTION 5.4 COOPERATION...................................................37
SECTION 5.5 CONFIDENTIALITY...............................................38
SECTION 5.6 INVESTIGATION.................................................38
ARTICLE VI. ADDITIONAL AGREEMENTS.........................................39
SECTION 6.1 EXCLUSIVITY...................................................39
SECTION 6.2 ACCESS TO INFORMATION.........................................39
SECTION 6.3 ENVIRONMENTAL REVIEW..........................................40
SECTION 6.4 LEGAL CONDITIONS TO MERGER....................................40
SECTION 6.5 EMPLOYEE BENEFIT PLANS........................................41
SECTION 6.6 PUBLIC DISCLOSURE.............................................42
SECTION 6.7 TAX-FREE REORGANIZATION.......................................42
SECTION 6.8 NASDAQ LISTING................................................42
SECTION 6.9 BROKERS OR FINDERS............................................42
SECTION 6.10 NOTIFICATION OF CERTAIN MATTERS...............................42
SECTION 6.11 SPECIAL STOCKHOLDERS MEETING OF THE COMPANY...................43
SECTION 6.12 SPECIAL BOARD MEETING OF THE BUYER............................43
SECTION 6.13 LIABILITY INSURANCE...........................................43
ARTICLE VII. CONDITIONS TO MERGER..........................................44
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER....44
SECTION 7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF BUYER AND SUB.........45
SECTION 7.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPANY...............47
ARTICLE VIII. TERMINATION AND AMENDMENT.....................................48
SECTION 8.1 TERMINATION...................................................48
SECTION 8.2 EFFECT OF TERMINATION.........................................49
SECTION 8.3 FEES AND EXPENSES.............................................49
SECTION 8.4 AMENDMENT.....................................................49
SECTION 8.5 EXTENSION; WAIVER.............................................49
ARTICLE IX. MISCELLANEOUS.................................................50
SECTION 9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS........50
SECTION 9.2 NOTICES.......................................................50
SECTION 9.3 INTERPRETATION; INCORPORATION BY REFERENCE....................52
SECTION 9.4 COUNTERPARTS..................................................52
SECTION 9.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES................52
SECTION 9.6 GOVERNING LAW AND VENUE.......................................52
SECTION 9.7 WAIVER OF JURY TRIAL..........................................53
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SECTION 9.8 ASSIGNMENT....................................................53
SECTION 9.9 SEVERABILITY..................................................53
SECTION 9.10 OTHER REMEDIES; SPECIFIC PERFORMANCE..........................53
List of Schedules...........................................................S-1
List of Exhibits:
Exhibit A Option Termination Agreements
Exhibit B Letter of Transmittal
Exhibit C Indemnity and Escrow Agreement
Exhibit D LLC Agreement
Exhibit E Registration Rights Agreement
Exhibit F Stockholders Agreement
Exhibit G Voting Agreement and Waiver
Exhibit H Legal Opinions
Exhibit I Note Termination Agreement
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TABLE OF DEFINED TERMS
CROSS REFERENCE
TERMS IN AGREEMENT
- ----- -----------------
12% Preferred Stock, 2
1999 Financial Statements, 14
Affiliate, 22
Agreement, 1
Alternative Transaction, 3
Bankruptcy and Equity Exception, 13
Buyer, 1
Buyer Common Stock, 4
CERCLA, 20
Certificate of Merger, 1
Certificates, 5
Closing, 2
Closing Date, 2
Code, 1
Company, 1
Company Ancillary Agreements,
12 Company Balance Sheet, 14
Company Common Stock, 2
Company Disclosure Schedule, 10
Company Material Adverse Effect, 10
Company Material Contracts, 19
Company Preferred Stock, 11
Company SEC Reports, 14
Company Stock Plans, 11
Credit Agreement, 8
DGCL, 1 Differential, 8
Dissenting Shares, 5
Effective Time, 2
Environmental Laws, 20
ERISA, 22
ERISA Benefit Plan, 23
Excess Differential, 9
Exchange Act, 14
Exchange Fund, 5
Governmental Entity, 13
Hazardous Materials, 20
HSR Act, 13
Indebtedness Statement, 8
Indebtedness Threshold, 8
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Independent Accounting Firm, 9
Leases, 17
Letters of Transmittal, 5
Merger, 1
Merger Shares, 4
Notes, 8
Option Termination Agreements, 3
Options, 3
PBGC, 24
Preferred Stock Put Price, 3
RCRA, 20
Retention Agreements, 3
SEC, 14
Site, 20
Stockholders, 5
Sub, 1
Subsidiary, 11
Surviving Corporation, 2
Tax Returns, 15
Taxes, 15
Term Loans, 8
Transfer Agent, 5
U.S. GAAP, 14
Warrants, 3
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of March 7,
2000, by and among Lernout & Hauspie Speech Products, N.V., a Belgium
corporation ("Buyer"), Dark Acquisition Corp., a Delaware corporation and a
direct, wholly owned subsidiary of Buyer ("Sub"), and Dictaphone Corporation, a
Delaware corporation ("Company").
WHEREAS, the Boards of Directors of Buyer and Company deem it advisable
and in the best interests of each corporation and its respective stockholders
that Buyer and Company combine in order to advance the long-term business
interests of Buyer and Company;
WHEREAS, the combination of Buyer and Company shall be effected by the
terms of this Agreement through a merger of Company into Sub, as a result of
which the stockholders of Company will become (directly or indirectly)
stockholders of Buyer (the "Merger");
WHEREAS, Stonington Capital Appreciation 1994 Fund, L.P.
("Stonington"), the holder of 12,653,000 shares or ____% of the common stock of
Company, has agreed with Buyer to vote such shares in favor of the Merger and
not to exercise its appraisal rights pursuant to Section 262 of the Delaware
General Corporation Law with respect to the Merger and to transfer the shares of
Buyer common stock that Stonington will receive pursuant to the Merger to a
newly formed limited liability company (the "LLC");
WHEREAS, for Federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code").
WHEREAS, simultaneously with the execution of this Agreement,
Stonington Financing IV LLC, a Delaware limited liability company and a wholly
owned subsidiary of Stonington, Buyer and Company have entered in a Note
Termination Agreement in the form of Exhibit I hereto.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I. THE MERGER
Section 1.1 Effective Time of the Merger.
Subject to the provisions of this Agreement, a certificate of merger in
such form as is required by the relevant provisions of the Delaware General
Corporation Law ("DGCL") (the "Certificate of Merger") shall be duly executed
and acknowledged by the
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Surviving Corporation (as defined in Section 1.3) and thereafter delivered to
the Secretary of State of the State of Delaware for filing, as soon as
practicable on the Closing Date (as defined in Section 1.2). The Merger shall
become effective upon the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware (the "Effective Time") or at such later time
as is established by Buyer and Company and set forth in the Certificate of
Merger.
Section 1.2 Closing.
The closing of the Merger (the "Closing") will take place at 10:00
a.m., E.S.T., on a date to be specified by Buyer and Company (the "Closing
Date"), which shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article VII (other than delivery of
items to be delivered at Closing), at the offices of Brown, Rudnick, Freed &
Gesmer, P.C., One Financial Center, Boston, Massachusetts, unless another date,
place or time is agreed to in writing by Buyer and Company.
Section 1.3 Effects of the Merger.
At the Effective Time (i) the separate existence of Company shall cease
and Company shall be merged with and into Sub (Sub following the Merger is
sometimes referred to below as the "Surviving Corporation"), and (ii) the
Certificate of Incorporation of Sub in effect immediately prior to the Closing
shall be the Certificate of Incorporation of the Surviving Corporation, and
(iii) the Bylaws of Sub in effect immediately prior to the Closing shall be the
Bylaws of the Surviving Corporation. The Merger shall have the effects set forth
in Section 251 of the DGCL.
Section 1.4 Directors and Officers.
The director of the Surviving Corporation as of the Effective Time
(which shall be subject to change at Buyer's discretion) shall be the individual
identified on Schedule 1.4 hereto, to hold office in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation. The
individuals identified on Schedule 1.4 hereto shall be the officers of the
Surviving Corporation as of the Effective Time, each to hold office until his
successor is duly elected or appointed.
Section 1.5 Actions Prior to Closing.
The following actions shall be effective as of the Closing Date:
(a) The holders of shares of the 12% Convertible Pay-In-Kind
Preferred Stock, $.01 par value per share (the "12% Preferred Stock"), shall
have converted such shares into shares of common stock, $.01 par value per
share, of Company (the "Company Common Stock") and all rights of such holders
with respect thereto shall cease upon such conversion; and
(b) The holder of shares of the 14% Pay-In-Kind Perpetual Preferred
Stock $.01 par value per share (the "14% Preferred Stock"), shall have put such
shares to
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AGREEMENT AND PLAN OF MERGER
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Company in accordance with the terms of the 14% Preferred Stock and Buyer shall
pay to such holders of 14% Preferred Stock, at the Closing, the put price
therefor (the "Preferred Stock Put Price"), and upon payment thereof, all rights
of such holders with respect thereto shall cease; and
(c) The holders of shares of all warrants to purchase shares of
Company Common Stock (each of whom is identified on Schedule 1.5(c) attached
hereto) shall have exercised such warrants and shall have paid to Company any
warrant exercise price related thereto (the "Warrants"); and
(d) The holders of all options to purchase shares of Company Common
Stock (each of whom is identified on Section 3.2(a) of the Company Disclosure
Schedule) (the "Options") shall have entered into either (i) option termination
agreements in the form of Exhibit A-1; or (ii) for those persons identified on
Schedule 1.5(d) hereto, (x) an option termination agreement in the form of
Exhibit A-2 (together with the form of agreement at Exhibit A-1, the "Option
Termination Agreements") or (y) a retention agreement between such holder and
Buyer (the "Retention Agreements") and a Letter Agreement between such holder
and Company (the "Letter Agreements") each entered into as of the date hereof.
The holders of the Options as of the Closing shall receive from the Company,
with funds provided by Buyer, in the aggregate, $27,000,000 in connection with
the execution of the Option Termination Agreements, the Retention Agreements and
the Letter Agreements, to be allocated on a pro rata basis in accordance with
the number of shares of Company Common Stock to be issued upon exercise of each
such holder's Options. Payment shall be made (i) in full at Closing to those
holders of Options that execute an Option Termination Agreement in the form of
Exhibit A-1, or (ii) for those persons identified on Schedule 1.5(d), 75% at
closing and the remaining 25% in accordance with such holder's Option
Termination Agreement, Retention Agreement or Letter Agreement.
As a result of the foregoing actions, at the time of Closing the issued
and outstanding capital stock of Company shall consist solely of shares of
Company Common Stock.
Section 1.6 Alternative Merger Structure.
While it is currently contemplated that the Merger shall be effected
through the merger of Company with and into Sub, Buyer shall have the option, in
its sole discretion, to cause the Merger to be effected through an alternative
transaction structure with Buyer or another Subsidiary of Buyer whereby Buyer,
such alternative Subsidiary or the Company may be the acquiror or the Surviving
Corporation (the "Alternative Transaction"), in which case the appropriate
technical provisions of this Agreement, the Company Ancillary Agreements (as
defined below) and the Buyer Ancillary Agreements (as defined below) shall be
deemed to be amended as necessary in order to effect the Alternative
Transaction. If Buyer desires to effect the Alternative Transaction, it shall
deliver a notice to Company of its election to do so. Notwithstanding the
foregoing, in the event that such alternative structure would adversely affect
the Merger consideration,
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or the tax free nature thereof, to be paid hereunder, the consent of the Company
will be required to effect the Merger other than as described in Section 1.3.
ARTICLE II .CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock.
As of the Effective Time, by virtue of the Merger and without any
action on the part of the holder of any shares of capital stock of Company or
capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock. All shares of Company Common
Stock that are owned by Company as treasury stock or by any wholly owned
Subsidiary (as defined in Section 3.1) of Company shall be canceled and retired
and shall cease to exist and no stock of Buyer or other consideration shall be
delivered in exchange therefor.
(c) Merger Shares. Subject to Section 2.2, each issued and
outstanding share of Company Common Stock (other than shares to be canceled in
accordance with Section 2.1(b)), shall be converted into the right to receive
0.310352941 shares of the Common Stock, BEF 21.54 fractional value per share, of
Buyer for an aggregate of 4,743,434 shares (subject to reduction to account for
fractional shares and further adjustment in accordance with Section 2.3) ("Buyer
Common Stock") (collectively, the "Merger Shares"). All such shares of Company
Common Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the Merger Shares of Buyer
Common Stock and any cash in lieu of fractional shares of Buyer Common Stock to
be issued or paid in consideration therefor upon the surrender of such
certificate in accordance with Section 2.2, without interest.
(d) Adjustments to Merger Shares. The number of Merger Shares to be
issued in the Merger shall be equitably adjusted (i) as set out in Section 2.3
and (ii) to reflect fully the effect of any stock split, reverse split,
reclassification, stock dividend (including any dividend or distribution of
securities convertible into Buyer Common Stock), reorganization,
recapitalization or other like change with respect to Buyer Common Stock
occurring after the date hereof and prior to the Effective Time.
(e) Dissenting Shares. Notwithstanding any provision of this
Agreement to the contrary, shares of Company Common Stock that are outstanding
immediately prior to the Effective Time and which are held by Stockholders (as
defined in Section 2.2(a)) who shall not have voted in favor of the Merger or
consented thereto in writing and who shall have demanded properly in writing
appraisal for such shares in
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AGREEMENT AND PLAN OF MERGER
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accordance with Section 262 of the DGCL (collectively, the "Dissenting Shares")
shall not be converted into or represent the right to receive Merger Shares.
Such Stockholders shall be entitled to receive payment of the appraised value of
such shares held by them in accordance with the provisions of such Section 262,
except that all Dissenting Shares held by Stockholders who shall have failed to
perfect or who effectively shall have withdrawn or lost their rights to
appraisal of such shares under such section 262 shall thereupon be deemed to
have been converted into and to have become exchangeable for, as of the
Effective Time, the right to receive Merger Shares, without any interest
thereon, upon surrender, in the manner provided in Section 2.2(b), of the
certificate or certificates that formerly evidenced such shares. Company shall
give Buyer (i) prompt notice of any demands for appraisal received by Company,
withdrawals of such demands, and any other instruments served pursuant to the
DGCL and received by Company and (ii) the opportunity to direct all negotiations
and proceedings with respect to demands for appraisal under the DGCL. Company
shall not, except with the prior written consent of Buyer, make any payment with
respect to any demands for appraisal or offer to settle or settle any such
demands.
Section 2.2 Exchange of Certificates.
The procedures for exchanging outstanding shares of Company Common
Stock for Buyer Common Stock pursuant to the Merger are as follows:
(a) Exchange Fund. As of the Effective Time, Buyer shall cause to be
delivered to all holders of Company Common Stock ("Stockholders"), who have not
exercised their dissenter's right under Section 262 of the DGCL, for exchange in
accordance with this Section 2.2 (i) certificates representing the shares of
Buyer Common Stock issuable pursuant to Section 2.1. (subject to the terms of
Section 2.5) in exchange for outstanding shares of Company Common Stock, and
(ii) cash in an amount sufficient to make payments required pursuant to Section
2.2(d) (such cash and shares of Buyer Common Stock together with any dividends
or other distributions thereon as described in Section 2.2(h) being hereinafter
referred to as the "Exchange Fund").
(b) Exchange Procedures. Each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock (the "Certificates") whose shares
were converted pursuant to Section 2.1 into the right to receive shares of Buyer
Common Stock shall deliver to Buyer or its designated agent at the Closing, a
letter of transmittal in the form of Exhibit B attached hereto (the "Letters of
Transmittal"), together with such Stockholder's Certificates and such other
documents as may be required pursuant to the Letter of Transmittal. Upon
surrender of a Certificate for cancellation to Buyer or to such agent as may be
appointed by Buyer, together with such Letter of Transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in exchange therefor,
and Buyer shall cause the transfer agent of its capital stock (the "Transfer
Agent") to issue in the name of such holder certificates representing that
number of whole shares of duly authorized, validly issued, fully paid and
nonassessable shares of Buyer Common Stock
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AGREEMENT AND PLAN OF MERGER
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<PAGE>
which such holder has the right to receive pursuant to the provisions of this
Article II and, subject to the terms of Section 2.5, to promptly deliver such
Certificates to such holders, together with cash in lieu of fractional shares
pursuant to Section 2.2(d) and any dividends or other distributions to which
such holder is entitled pursuant to Section 2.2(h), and the Certificate so
surrendered shall immediately be canceled. In the event a certificate for shares
of Buyer Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered in the transfer
records of Company, a certificate representing the proper number of shares of
Buyer Common Stock plus cash in lieu of fractional shares pursuant to Section
2.2(d) shall be issued to a transferee if the Letter of Transmittal so provides,
and the Certificate representing such Company Common Stock is presented to Buyer
or its designated agent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock transfer taxes
have been paid. Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the certificate representing
shares of Buyer Common Stock plus cash in lieu of fractional shares pursuant to
Section 2.2(d) and any dividends or other distributions to which such holder is
entitled pursuant to Section 2.2(h).
(c) No Further Ownership Rights in Company Common Stock. All shares
of Buyer Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms hereof (including any cash distributions paid pursuant
to subsections (d) or (h) of this Section 2.2) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of Company
Common Stock, and from and after the Effective Time there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Section 2.2.
(d) No Fractional Shares. No certificate or scrip representing
fractional shares of Buyer Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or to any other rights of a stockholder of Buyer.
Notwithstanding any other provision of this Agreement, each holder of shares of
Company Common Stock exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of Buyer Common Stock (after
taking into account all Certificates delivered by such holder) shall receive, in
lieu thereof, cash (without interest) in an amount equal to such fractional part
of a share of Buyer Common Stock multiplied by $99.
(e) No Liability. Promptly following the date which is twelve (12)
months after the Closing Date, Buyer shall instruct the Transfer Agent to return
all shares of Buyer Common Stock included in the Exchange Fund then in its
possession and not theretofore claimed by a holder of Company Common Stock to
the Belgium Caisse des depots et Consignations or any similar institution.
Thereafter, each holder of a Certificate
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AGREEMENT AND PLAN OF MERGER
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<PAGE>
may surrender such Certificate to Buyer and, subject to applicable abandoned
property, escheat and similar laws, receive in exchange therefore the Buyer
Common Stock, to be provided by the Belgium Caisse des depots et Consignations
or such other institution that holds such shares of Buyer Common Stock, without
interest with any cash in lieu of fractional shares of Buyer Common Stock to
which they are entitled pursuant to Section 2.2(d), and any dividends or other
distributions with respect to the Buyer Common Stock to which they are entitled
pursuant to Section 2.2(h), to be provided by Buyer.
(f) Withholding Rights. Each of Buyer and the Surviving Corporation
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock such amounts as it is required to deduct and withhold with respect to the
making of such payment under the Code, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by the Surviving
Corporation or Buyer, as the case may be, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the
shares of Company Common Stock in respect of which such deduction and
withholding was made by the Surviving Corporation or Buyer, as the case may be.
(g) Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, Buyer
will cause the Transfer Agent to issue in exchange for such lost, stolen or
destroyed Certificate the shares of Buyer Common Stock and any cash in lieu of
fractional shares of Buyer Common Stock deliverable in respect thereof pursuant
to this Agreement.
(h) Distributions with Respect to Unexchanged Buyer Common Stock. No
dividends or other distributions declared or made after the Effective Time with
respect to the Buyer Common Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate with respect to the
Buyer Common Stock represented thereby, and no cash payment in lieu of any
fractional shares of Buyer Common Stock shall be paid to any such holder
pursuant to Section 2.2(d), until the holder of such Certificate shall surrender
such Certificate as provided in Section 2.2(b). Subject to the effect of
escheat, tax or other applicable laws and Section 2.2(e), following surrender of
any such Certificate, there shall be paid to the holder of the certificates
representing whole shares of Buyer Common Stock issued in exchange therefor,
without interest, (i) within five (5) business days after such surrender, the
amount of any cash payable with respect to a fractional share of Buyer Common
Stock to which such holder is entitled pursuant to Section 2.2(d) and the amount
of dividends or other distributions with a record date after the Effective Time
and theretofore payable with respect to such whole shares of Buyer Common Stock,
and (ii) at the appropriate payment date, the amount of dividends or other
distributions, with a record date after the Effective Time but
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AGREEMENT AND PLAN OF MERGER
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<PAGE>
prior to surrender and a payment date occurring after surrender, payable with
respect to such whole shares of Buyer Common Stock.
Section 2.3 Optional Adjustment to Merger Shares for Indebtedness.
(a) At least five (5) business days prior to the scheduled Closing
Date, Company will deliver to Buyer a statement (the "Indebtedness Statement")
of the amount of the Indebtedness of Company and its Subsidiaries, as of the
Closing Date. For the purpose of this Agreement, "Indebtedness" shall mean all
interest bearing indebtedness of Company and its Subsidiaries (excluding capital
leases, and net of all cash in the bank accounts of the Company) including,
without limitation (i) the aggregate Preferred Stock Put Price in respect of all
outstanding 14% Preferred Stock, (ii) amounts outstanding pursuant to
obligations under the Tranche B Term Loan and Tranche C Term Loan (together, the
"Term Loans") under Company's credit facility with Bankers Trust Company and
NationsBanks N.A. (the "Credit Agreement"), (iii) amounts outstanding, exclusive
of the letter of credit obligations set forth on Section 2.3 of the Company
Disclosure Schedule and any subsequently issued letters of credit in replacement
or substitution thereof or issued for similar purposes, pursuant to obligations
under the Credit Agreement with respect to Company's revolving credit facility,
(iv) amounts outstanding under the Company's $10,000,000 Convertible Promissory
Note due June 26, 2000 to Bankers Trust Company (the "BT Note"), (v) obligations
of Company evidenced by the $200,000,000 senior subordinated notes due August 1,
2005 (the "Notes"), and (vi) the breakage costs, if any, associated with those
certain interest rate hedge/cap transactions, each in the amount of $33,000,000
between the Company, on the one hand, and The Bank of Tokyo-Mitsubishi, Ltd.
dated Feb. 17, 1999 and Nationsbank, N.A. dated Feb. 16, 1999, respectively, on
the other hand, inclusive of accrued interest, if any, on any of the foregoing.
Company will cooperate fully with Buyer and will afford full access to the
books, records and work papers of Company from the date of this Agreement to the
Closing Date to enable Buyer to review the preparation of the Indebtedness
Statement. The Indebtedness Statement shall be based on pay-off letters received
from the holders of the Indebtedness to the extent available.
(b) At the Closing, in the event that the amount of Indebtedness
reflected on the Indebtedness Statement exceeds $395,000,000 (the "Indebtedness
Threshold"), then, at Buyer's option, in its sole discretion, the number of
Merger Shares to be issued in the Merger shall be reduced by the number of
shares of Buyer Common Stock determined by dividing (A) the amount by which the
Indebtedness exceeds the Indebtedness Threshold (the "Differential"), by (B) $99
(subject to adjustment for fractional shares);
(c) Disputes
(i) Within ninety (90) days of the Closing Date, Buyer may notify
Stonington on behalf of the Stockholders (the "Stockholder Representative") of
any dispute of any amounts reflected or required to be reflected on the
Indebtedness Statement but only on the basis that such amounts were not arrived
at in conformity with
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the definition of Indebtedness; provided, however, such notification (the
"Revised Indebtedness Statement") shall be in writing, specifying the amount of
each disputed item and setting forth, in reasonable detail, the basis for such
dispute. Within ten business days of receipt of the Revised Indebtedness
Statement, the Stockholder Representative shall notify Buyer in writing of any
dispute of the items in the Revised Indebtedness Statement, setting out the
amounts thereof in reasonable detail and the basis for such dispute. In
connection therewith, following receipt of the Revised Indebtedness Statement,
the Stockholder Representative shall be afforded full access to the books,
records and work papers of Company and Surviving Corporation to enable the
Stockholders Representative to review the preparation of the Revised
Indebtedness Statement. In the event of such a dispute, Buyer and Stockholder
Representative shall attempt to reconcile their differences. If Buyer and
Stockholder Representative are unable to resolve any dispute of the Revised
Indebtedness Statement within five (5) business days of Stockholder
Representative's written notification to Buyer of any such disputed amounts,
Stockholder Representative and Buyer shall submit the items remaining in dispute
for resolution to an independent accounting firm of international reputation
mutually acceptable to Buyer and Stockholder Representative (such accounting
firm being referred to herein as the "Independent Accounting Firm"). Such
Independent Accounting Firm shall, within ten (10) business days after such
submission, determine and report to Buyer and Stockholder Representative upon
such remaining disputed items, which report shall be final, binding and
conclusive on Buyer and Stockholder Representative as to the Indebtedness of
Company at the Closing. The fees and disbursements of the Independent Accounting
Firm shall be allocated equally between Buyer and Company.
(ii) In acting under this Section 2.3, the Independent Accounting
Firm shall be entitled to the privileges and immunities of arbitrators.
(d) In the event that upon final determination of the Indebtedness
pursuant to Section 2.3 (c) the amount of the actual Differential is determined
to exceed the amount of the Differential calculated to exist at the time of the
Closing (such excess being the "Excess Differential"), Buyer shall have the
right to recover the Excess Differential and interest thereon as and from the
Closing Date, from the Escrow Fund in accordance with the procedure provided in
the Indemnity Escrow and Agreement (as defined in Section 2.5), except that the
full amount of the Excess Differential shall be recoverable without reduction on
account of the Stockholders' Deductible (as defined in the Indemnity and Escrow
Agreement).
Section 2.4 Stonington's Merger Shares.
Immediately following the Effective Time, in accordance with a stock
power to be executed by Stonington in connection with the execution of its
Letter of Transmittal, Stonington shall transfer to the LCC the Merger Shares
received by it pursuant to the Merger, such Merger Shares, subject to the terms
of Section 2.5, to be held by the LLC pursuant to the Limited Liability Company
Agreement in the form of Exhibit D ("LLC Agreement").
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AGREEMENT AND PLAN OF MERGER
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Section 2.5 Escrow Shares.
Each Stockholder shall in its Letter of Transmittal direct Buyer or
Transfer Agent to deliver to the Escrow Agent (as defined in the Indemnity and
Escrow Agreement) certificates representing that number of shares of Buyer
Common Stock set forth on Schedule 2.5 (collectively, the "Escrow Shares"), and
each Stockholder (or in the case of Stonington, the LLC) shall deliver to Buyer,
for delivery to the Escrow Agent, completed stock powers in favor of the Escrow
Agent in respect of such Stockholder's Escrow Shares. Pursuant to the terms of
the Indemnity and Escrow Agreement in the form of Exhibit C attached hereto (the
"Indemnity and Escrow Agreement"), such certificates and stock powers shall be
held by the Escrow Agent as security for the indemnification obligations of
Stockholders, or in the case of Stonington, the LLC, contained in Article I of
the Indemnity and Escrow Agreement (the "Escrow Fund").
ARTICLE III REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Buyer and Sub that the statements
contained in this Article III are true and correct, except as set forth herein
or in the disclosure schedule delivered by Company to Buyer on or before the
date of this Agreement (the "Company Disclosure Schedule"). The Company
Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article III and the
disclosure in any paragraph shall qualify other paragraphs in this Article III
only to the extent that it is readily apparent from a reading of such disclosure
that it also qualifies or applies to such other paragraphs.
Section 3.1 Organization of Company.
Each of Company and its Subsidiaries (as defined below) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, has all requisite corporate power to
own, lease and operate its property and to carry on its business as now being
conducted, and is duly qualified to do business and, to the extent such concept
applies, is in good standing as a foreign corporation in each jurisdiction
(which jurisdictions are listed in Section 3.1 of the Company Disclosure
Schedule) in which the failure to be so qualified would be reasonably likely to
have a material adverse effect on the business, properties, financial condition,
or results of operations of Company and its Subsidiaries, taken as a whole, or
to have a material adverse effect on the ability of Company to consummate the
transactions contemplated by this Agreement (a "Company Material Adverse
Effect"), provided that "Company Material Adverse Effect" shall not include any
change in or effect on the business, properties, financial condition or results
of operations of Company, to the extent that any of the foregoing are reasonably
demonstrated to be attributable to the announcement or pendency of the Merger.
Except as set forth in the Company SEC Reports (as defined in Section 3.4) filed
prior to the date hereof, neither Company nor any of its Subsidiaries directly
or indirectly owns any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any corporation,
partnership, joint venture or
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other business association or entity, excluding securities in any publicly
traded company held for investment by Company or any of its Subsidiaries and
comprising less than five percent (5%) of the outstanding stock of such company.
As used in this Agreement, the word "Subsidiary" means, with respect to a party,
any corporation or other organization, whether incorporated or unincorporated,
of which (i) such party or any other Subsidiary of such party is a general
partner (excluding partnerships, the general partnership interests of which held
by such party or any Subsidiary of such party do not have a majority of the
voting interest in such partnership) or (ii) at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and one or more of its Subsidiaries.
Section 3.2 Company Capital Structure.
(a) The authorized capital stock of Company consists of 30,000,000
shares of Company Common Stock and 25,000,000 shares of preferred stock, $.01
par value per share ("Company Preferred Stock"), of which 7,500,000 shares are
designated 14% Preferred Stock and 10,000,000 shares are designated 12%
Preferred Stock. As of the date of this Agreement, (i) 12,934,000 shares of
Company Common Stock are issued and outstanding, all of which are duly
authorized, validly issued, fully paid and nonassessable, (ii) 91,100 shares of
Company Common Stock are held in the treasury of Company or by Subsidiaries of
Company, (iii) 2,742,353.74 shares of 14% Preferred Stock are issued and
outstanding, all of which are duly authorized, validly issued, fully paid and
nonassessable, and (iv) 2,000,000 shares of 12% Preferred Stock are issued and
outstanding, all of which are duly authorized, validly issued, fully paid and
nonassessable, all of which are, on the date hereof, and will be on the Closing
Date after consummation of the transactions contemplated by Section 1.5, owned
beneficially and of record by the persons and in the amounts as set forth in
Section 3.2 of the Company Disclosure Schedule. The Options constitute all
options to purchase stock of Company which are outstanding as of the date of
this Agreement and which will be outstanding immediately before or on the
Closing Date under the plans under which such options were granted
(collectively, the "Company Stock Plans") and set forth on Section 3.2 of the
Company Disclosure Schedule is a complete and accurate list of all holders of
Options, indicating the number of shares of Company Common Stock subject to each
Option and the exercise price therefor. Section 3.2 of the Company Disclosure
Schedule also shows the number of shares of Company Common Stock reserved for
future issuance pursuant to the Warrants (which Warrants constitute all of the
warrants to purchase shares of Company's capital stock) and which will be
outstanding on the Closing Date and other outstanding rights to purchase shares
of Company Common Stock outstanding as of the date of this Agreement and which
will be outstanding immediately before or on the Closing Date and a description
of the agreement or other document under which such Warrants or other rights
were granted and sets forth a complete and accurate list of all holders of
Warrants or other rights indicating the number and type of shares of Company
Common Stock or Company Preferred Stock subject to Warrants or
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<PAGE>
other rights and the exercise price. All shares of Company Common Stock or
Company Preferred Stock subject to issuance as specified above are duly
authorized and reserved and the shares of Company Common Stock, upon issuance on
the terms and conditions specified in the instruments pursuant to which they are
issuable, shall be validly issued, fully paid and nonassessable. Except as set
forth in the Certificate of Incorporation of Company, there are no obligations,
contingent or otherwise, of Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of Company Common Stock or any other
capital stock of Company or any of its Subsidiaries or to provide funds to or
make any material investment (in the form of a loan, capital contribution or
otherwise) in any Subsidiary of Company or any other entity other than
guarantees of bank obligations of Subsidiaries of Company entered into in the
ordinary course of business. All of the outstanding shares of capital stock of
each of Company's Subsidiaries are duly authorized, validly issued, fully paid
and nonassessable and all such shares are owned by Company or another Subsidiary
of Company free and clear of all security interests, liens, claims, pledges,
agreements, limitations in Company's voting rights, charges or other
encumbrances of any nature.
(b) Except for the Company Stock Plans, the Warrants and shares of
capital stock of Company issuable pursuant to any of the foregoing, the BT Note
or the 12% Preferred Stock, (i) there are no equity securities of Company or any
of its Subsidiaries, or any security exchangeable into or exercisable for such
equity securities, issued, reserved for issuance or outstanding and (ii) there
are no other options, warrants, equity securities, calls, rights, commitments or
agreements of any character to which Company or any of its Subsidiaries is a
party or by which it or any of its Subsidiaries is bound obligating Company or
any of its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of Company or any of its
Subsidiaries or obligating Company or any of its Subsidiaries to grant, extend,
accelerate the vesting of, otherwise modify or amend or enter into any such
option, warrant, equity security, call, right, commitment or agreement. There
are no voting trusts, proxies or other voting agreements or understandings with
respect to the shares of capital stock of Company or any of its Subsidiaries.
Section 3.3 Authority; No Conflict; Required Filings and Consents.
(a) Company has all requisite corporate power and authority to enter
into this Agreement and each of the agreements and documents contemplated hereby
to which Company is a party (the "Company Ancillary Agreements") and to
consummate the transactions contemplated by this Agreement and the Company
Ancillary Agreements. The execution and delivery of this Agreement and the
Company Ancillary Agreements and the consummation of the transactions
contemplated by this Agreement and the Company Ancillary Agreements by Company
have been duly authorized by all necessary corporate action on the part of
Company other than with respect to the Merger: the approval and adoption of this
Agreement and the Merger by the affirmative vote of a majority of the voting
power of the then outstanding shares of Company Common Stock, and the filing of
the Certificate of Merger with the Secretary of State of Delaware as required by
the DGCL. This Agreement has been and each of the Company Ancillary
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<PAGE>
Agreements has been or will be duly executed and delivered by Company and
(assuming the due execution and delivery of such agreements by the other parties
thereto) constitutes or, with respect to the Company Ancillary Agreements,
constitutes or will constitute, the valid and binding obligations of Company,
enforceable in accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles (the "Bankruptcy and Equity Exception"). The Board of Directors of
Company has not taken any action to accelerate any options granted under the
Company Stock Plans or Warrants and has approved the treatment of the Options
and Warrants set forth in Section 1.5 of this Agreement. Company has delivered
or concurrently with the execution of this Agreement is delivering any required
notice under the Warrants to the holders thereof.
(b) The execution and delivery of this Agreement and each of the
Company Ancillary Agreements by Company does not, and the consummation of the
transactions contemplated by this Agreement and the Company Ancillary Agreements
will not, (i) conflict with, or result in any violation or breach of, any
provision of the Certificate of Incorporation or Bylaws of Company or the
charter, by-laws, or other organizational document of any Subsidiary of Company,
(ii) result in any violation or breach of, or constitute (with or without notice
or lapse of time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material benefit)
under, or require a consent or waiver under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, contract or other
agreement, instrument or obligation to which Company or any of its Subsidiaries
is a party or by which any of them or any of their properties or assets may be
bound, or (iii) except as provided in clauses (i), (ii), (iii) and (iv) in
paragraph (c) below, conflict with or violate any permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Company or any of its Subsidiaries or any of its or their
properties or assets, except in the case of (ii) and (iii) for any such
conflicts, violations, defaults, terminations, cancellations or accelerations
which are not, individually or in the aggregate, reasonably likely to have a
Company Material Adverse Effect.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any domestic or foreign, federal,
state, county or municipal government, or any department, agency, bureau,
commission or other similar type body obtaining authority therefrom, or created
pursuant to any law, (including without limitation, Environmental Laws, as
defined in Section 3.12) or any court or arbitration body ("Governmental
Entity"), is required by or with respect to Company or any of its Subsidiaries
in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby and thereby, except for (i)
the filing of the pre-merger notification report under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, ("HSR Act"), (ii) the filing of
the Certificate of Merger with the Delaware Secretary of State, (iii) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state securities laws and the laws
of any foreign country and (iv) such other consents,
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<PAGE>
authorizations, filings, approvals and registrations which, if not obtained or
made, would not be reasonably likely to have a Company Material Adverse Effect.
Section 3.4 SEC Filings; Financial Statements.
(a) Company has filed and made available to Buyer all forms, reports
and documents, and any amendments thereto, required to be filed by Company with
the Securities and Exchange Commission ("SEC") since January 1, 1997. All such
required forms, reports and documents (including those that Company may file
after the date hereof until the Closing) are referred to herein as the "Company
SEC Reports" The Company SEC Reports (i) were prepared in compliance in all
material respects with the applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Company SEC Reports, and
(ii) except to the extent that information contained in the Company SEC Reports
has been amended or superseded by a later filed Company SEC Report, did not at
the time they were filed contain any untrue statement of a material fact or omit
to state a material fact required to be stated in such Company SEC Reports or
necessary in order to make the statements in such Company SEC Reports, in the
light of the circumstances under which they were made, not misleading. None of
Company's Subsidiaries is required to file any forms, reports or other documents
with the SEC.
(b) Company has also provided Buyer with unaudited consolidated
financial statements as of, and for the year ended December 31, 1999 (the "1999
Financial Statements"). The unaudited balance sheet of Company as of December
31, 1999 is referred to herein as the "Company Balance Sheet." Each of the
consolidated financial statements (including, in each case, any related notes or
schedules) contained in the Company SEC Reports complied as to form in all
material respects with the applicable published rules and regulations of the SEC
with respect thereto. The Company SEC Reports and the 1999 Financial Statements
were prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP") applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited statements, as permitted by the SEC on Form 10-Q
under the Exchange Act) and fairly presented in all material respects the
consolidated financial position of Company and its Subsidiaries as of the dates
and the consolidated results of its operations and cash flows for the periods
indicated, consistent in all material respects with the books and records of
Company and its Subsidiaries, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments and
for the absence of complete footnotes which were not or are not expected to be
material in amount.
Section 3.5 No Undisclosed Liabilities.
Except as disclosed in the 1999 Financial Statements or the Company SEC
Reports filed prior to the date hereof, and except for normal or recurring
liabilities incurred since December 31, 1999 in the ordinary course of business
consistent with past
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<PAGE>
practices, Company and its Subsidiaries do not have any liabilities, either
accrued, contingent or otherwise (required to be reflected in financial
statements in accordance with U.S. GAAP or in the notes thereto), which
individually or in the aggregate are reasonably likely to have a Company
Material Adverse Effect.
Section 3.6 Absence of Certain Changes or Events.
Except as disclosed in the 1999 Financial Statements or Company SEC
Reports filed prior to the date hereof, since September 30, 1999, Company and
its Subsidiaries, have conducted their businesses only in the ordinary course
and in a manner consistent with past practice and, since such date, there has
not been (i) any change in the financial condition, results of operations,
business, or properties of Company and its Subsidiaries, taken as a whole, that
has had, or is reasonably likely to have, a Company Material Adverse Effect;
(ii) any damage, destruction or loss (whether or not covered by insurance) with
respect to Company or any of its Subsidiaries having a Company Material Adverse
Effect; (iii) any revaluation by Company of any of its assets having a Company
Material Adverse Effect; or (iv) any other action or event that would have
required the consent of Buyer pursuant to Section 5.1 of this Agreement had such
action or event occurred after the date of this Agreement.
Section 3.7 Taxes.
(a) Company and each of its Subsidiaries have filed all Tax Returns
(as defined below) that they were required to file, and all such Tax Returns
were correct and complete except for any failure to file, error or omission
that, individually or in the aggregate, is not reasonably likely to have a
Company Material Adverse Effect. Company and each of its Subsidiaries have paid
or made adequate provisions in accordance with US GAAP for the payment of all
Taxes (as defined below) that are shown to be due on any such Tax Returns. All
Taxes that Company or any of its Subsidiaries 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, except for any such
Taxes with respect to which the failure to withhold, collect or pay,
individually or in the aggregate, is not reasonably likely to have a Company
Material Adverse Effect. 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, services, 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, 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.
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AGREEMENT AND PLAN OF MERGER
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<PAGE>
(b) Company has delivered to 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 Company or any of its
Subsidiaries since December 31, 1996. Except as set forth in Section 3.7(b) of
the Company Disclosure Schedule, the federal income Tax Returns of Company and
each of its Subsidiaries have never been audited by the Internal Revenue
Service. Company has delivered or made available to Buyer correct and complete
copies of all other material Tax Returns of Company and its Subsidiaries
together with all related examination reports and statements of deficiency for
all periods from and after December 31, 1996. No examination or audit of any Tax
Return of Company or any of its Subsidiaries by any Governmental Entity is
currently in progress or, to the knowledge of Company and Stockholders,
threatened or contemplated. Neither Company nor any of its Subsidiaries has been
informed by any jurisdiction that the jurisdiction believes that Company or any
of its Subsidiaries was required to file any Tax Return that was not filed,
except for any Tax Return with respect to which the failure to file,
individually or in the aggregate, is not reasonably likely to have a Company
Material Adverse Effect.
(c) Neither Company nor and of its Subsidiaries 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, which waiver or extension of
time remains currently in effect.
(d) Neither Company nor any of its Subsidiaries is a "consenting
corporation" within the meaning of Section 341(f) of the Code, and none of the
assets of Company or its Subsidiaries are subject to an election under Section
341(f) of the Code.
(e) Neither Company nor any of its Subsidiaries 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)(1)(A)(ii)
of the Code.
(f) Neither Company nor any of its Subsidiaries has made any
payment, is obligated to make any payment, or is a party to any agreement that
obligates it to make any payment that will be an "excess parachute payment"
under Section 280G of the Code.
(g) Neither Company nor any of its Subsidiaries has any actual or
potential liability for any Taxes of any person (other than Company and its
Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of federal, state, local, or foreign law), or as a transferee or
successor, by contract, or otherwise.
(h) Neither Company nor any of its Subsidiaries has undergone a
change in its method of accounting resulting in an adjustment to its taxable
income pursuant to Section 481(a) of the Code.
(i) Neither Company nor any of its Subsidiaries is or has ever been
a member of a group of corporations with which it has filed (or been required to
file)
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consolidated, combined or unitary Tax Returns, other than a group of which
only Company and its Subsidiaries are or were members.
Section 3.8 Title to Properties.
(a) Section 3.8 of the Company Disclosure Schedule sets forth a list
of all real property leased by Company or its Subsidiaries as of the date set
forth therein and the location of such premises. Company has made available to
Buyer true and complete copies of all real property leases ("Leases"). Neither
Company nor Subsidiary is in default, nor, to the knowledge of Company, is any
other party in default under any of the Leases, except where the existence of
such defaults, individually or in the aggregate, is not reasonably likely to
have a Company Material Adverse Effect.
(b) Except as specifically disclosed in Section 3.8 of the Company
Disclosure Schedule, Company or its Subsidiaries (as indicated in Section 3.8 of
the Company Disclosure Schedule) has good and marketable title in fee simple to
all of its real property. (c) None of the real or personal property owned or
used by Company or any Subsidiary is subject to any mortgage, pledge, deed of
trust, lien (other than for taxes not yet due and payable), conditional sale
agreement, security title, encumbrance, or other adverse claim or interest of
any kind.
Section 3.9 Intellectual Property.
(a) Company and the Subsidiaries own, or are licensed or otherwise
possess legally enforceable rights to use, all patents, trademarks, trade names,
domain names, service marks, copyrights and any applications therefor, trade
secrets, maskworks, know how, computer software programs or applications (in
both source code and object code form), and proprietary information that are
used by Company or any Subsidiary in and material to the business of Company or
any Subsidiary as currently conducted (the "Company Intellectual Property
Rights"). Except as would not have a Company Material Adverse Effect, where
appropriate, Company and the Subsidiaries have received executed assignments for
Company Intellectual Property Rights and have recorded such assignments with the
appropriate domestic or foreign filing offices. Except as would not have a
Company Material Adverse Effect, with respect to any licenses, sublicenses and
other agreements to which Company or any Subsidiary is a party, and pursuant to
which Company or any Subsidiary is authorized to use (i) any third party
patents, trademarks, trade secrets, mask works, or copyrights, including
software which are incorporated in, are, or are used to form a part of, any
Company product (the "Company Third Party Intellectual Property Rights"), or
(ii) any trade secret of a third party, such license, sublicense or other
agreement is valid and enforceable, is binding on all parties to such agreement,
and is in full force and effect.
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(b) Except as would not have a Company Material Adverse Effect,
neither Company nor any Subsidiary is, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
hereunder, in breach or violation of any license or sublicense of intellectual
property to which Company or a Subsidiary is a party. Except as set forth in
Schedule 3.9 of the Company Disclosure Schedule (which claims, if determined
adversely, are not reasonably likely to have a Company Material Adverse Effect),
no claims are being asserted or, to the knowledge of Company and the
Subsidiaries, no claims are threatened by any person, or, to the knowledge of
the Company, there are no grounds for any bona fide claims: (i) alleging that
the use of Company Intellectual Property Rights or Company Third Party
Intellectual Property Rights by Company or any Subsidiary infringes the
intellectual property of any third party (ii) alleging that the manufacture,
sale, licensing or use of any product as now used, sold offered for sale, or
licensed by Company or any Subsidiary infringes on any copyright, patent,
trademark, service mark or trade secret; (iii) challenging the ownership,
validity or enforceability of any of the Company Intellectual Property Rights;
or (iv) challenging Company's or any Subsidiary's license or legally enforceable
right to use, or the validity or enforceability of any Company Third Party
Intellectual Property Rights.
(c) All registrations owned by Company and included in the Company
Intellectual Property Rights are, to the knowledge of Company and the
Subsidiaries, valid and subsisting. Except as set forth in Schedule 3.9 of the
Company Disclosure Schedule, to the knowledge of Company and the Subsidiaries,
there has been and is no unauthorized use, disclosure, infringement or
misappropriation of any of the Company Intellectual Property Rights material to
Company or any Subsidiary. Except as set forth in Schedule 3.9 of the Company
Disclosure Schedule (which claims, if determined adversely, are not reasonably
likely to have a Company Material Adverse Effect) neither Company nor any
Subsidiary (i) is being sued as a defendant in any claim, suit, action or
proceeding for infringement of any patents, trademarks, service marks,
copyrights, misappropriation of any trade secret, or infringement of any
proprietary right of any third party; or (ii) is being threatened or charged in
writing with infringement of any patents, trademarks, service marks, copyrights
or misappropriation of trade secrets of any third party.
(d) No Company Intellectual Property Right is subject to any
outstanding order, judgment, decree, or stipulation restricting in any manner
the licensing thereof by Company. To the knowledge of Company and Subsidiaries,
no Company Third Party Intellectual Property Right is subject to any outstanding
order, judgment, decree, or stipulation restricting in any manner the use
thereof by Company or any Subsidiary. Except for contracts licensing Company's
or any Subsidiary's products executed in the ordinary course of business and in
accordance with Company's past practices, and except as would not have a Company
Material Adverse Effect, neither Company nor any Subsidiary has entered into any
agreement to indemnify any other person against any charge of infringement of
any Company Third Party Intellectual Property Right.
(e) Company and the Subsidiaries have taken reasonable measures in
accordance with normal industry practice to protect and preserve (i) the
validity and
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enforceability of trademarks included in the Company Intellectual Property
Rights, and (ii) the confidentiality and enforceability of its trade secrets and
other confidential information. Except as would not have a Company Material
Adverse Effect, Company and the Subsidiaries have taken reasonable measures in
accordance with normal industry practice (i) to protect its trade secrets and
other confidential information from disclosure to an unauthorized third party by
any employee, consultant or contractor; and (ii) to vest in Company or the
Subsidiaries exclusive ownership of intellectual property invented or developed
by any employee, consultant or contractor. To the knowledge of Company and the
Subsidiaries, no trade secret or confidential information material to the
business of Company or any Subsidiary as currently conducted has been
misappropriated. To the knowledge of Company and the Subsidiaries, no employee,
contractor, agent or consultant of Company or any Subsidiary has misappropriated
any trade secrets or other confidential information of any other person in the
course of their work for Company and any Subsidiaries. Except as would not have
a Company Material Adverse Effect, neither Company nor any Subsidiary has any
written agreements with employees, contractors or consultants granting any such
employee, contractor or consultant nonexclusive ownership rights to the portions
of Company's Intellectual Property Rights so created by such individual.
(f) To the knowledge of Company and the Subsidiaries, no employee,
contractor, agent or consultant of Company or any Subsidiary is in default or
breach of any term of any employment agreement, non-disclosure agreement,
assignment of invention agreement or similar agreement or contract relating in
any way to the protection, ownership, development, use or transfer of Company
Intellectual Property Rights. No director, officer or employee of Company or any
Subsidiary owns, in whole or in part, any Company Intellectual Property Right.
Section 3.10 Agreements, Contracts and Commitments.
(a) As of the date hereof, there are no contracts or agreements that
are material contracts (as defined in Item 601(b)(10) of Regulation S-K) with
respect to Company and its Subsidiaries ("Company Material Contracts"), other
than those Company Material Contracts identified on the exhibit indices of
Company's most recent annual report on Form 10-K, the Company SEC Reports filed
thereafter and prior to the date of this Agreement or set forth on Section 3.10
of the Disclosure Schedule. Each Company Material Contract has not expired by
its terms and is in full force and effect against Company and, to the knowledge
of Company, against the other party or parties thereto. Neither Company nor any
of its Subsidiaries, nor to the knowledge of Company, any other party thereto,
is in violation of or in default under (nor does there exist any condition
which, upon the passage of time the giving of notice or both, would cause such a
violation of or default under) any lease, permit, concession, franchise, license
or other contract or agreement to which it is a party or by which it or any of
its properties or assets is bound, except for violations or defaults that,
individually or in the aggregate, have not resulted in and are not reasonably
likely to result in a Company Material Adverse Effect.
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(b) Section 3.10 of the Company Disclosure Schedule sets forth a
complete list of each lease, permit, concession, franchise, license or other
contract or agreement to which Company or any of its Subsidiaries is a party or
bound (i) with any Affiliate of Company (other than any Subsidiary which is a
direct or indirect wholly owned subsidiary of Company), other than any
agreements which are or have been fully performed and under which neither
Company nor any Subsidiary of Company has any continuing rights, liability or
obligation, or (ii) that includes any non-competition or similar provision
imposing any restrictions or undertakings on Company or any Subsidiary of
Company, other than any agreements under which neither Company nor any
Subsidiary of Company has any continuing rights, liability or obligation or is
subject to any restriction or undertaking. Copies of all the agreements,
contracts and arrangements set forth in Section 3.10 of the Company Disclosure
Schedule have heretofore been made available to Buyer and such copies are
accurate and complete.
Section 3.11 Litigation.
Except as described in the Company SEC Reports filed prior to the date
hereof, there is no action, suit or proceeding, claim, arbitration or
investigation thereto, against Company or any of its Subsidiaries pending or as
to which Company or any of its Subsidiaries has received any written notice of
assertion, which, if determined adversely, individually or in the aggregate, is
reasonably likely to have a Company Material Adverse Effect.
Section 3.12 Environmental Matters.
Except as is not reasonably expected to have a Company Material Adverse
Effect:
(a) Any and all oil, petroleum products, chemicals, waste oil,
hazardous waste, hazardous substances, toxic substances or materials, PCBs,
asbestos, pollutants or contaminants, or hazardous materials, in each case
regulated by any Environmental Law as hereafter defined (hereafter, "Hazardous
Materials") used or generated by Company or any Subsidiary since August 11, 1995
have been generated, used, stored, treated and disposed on and at any of the
properties or facilities owned or leased by Company or any Subsidiary (for the
purposes of this Section, a "Site") in material compliance with all applicable
laws, court orders, and legally binding government authorizations related to the
protection of public health or worker safety as related to Hazardous Material,
the environment or the management of pollution or Hazardous Materials
(collectively "Environmental Laws") and Company and each Subsidiary is in
material compliance with all Environmental Laws. For purposes of this Agreement,
"Environmental Laws" include all then applicable federal, state and local laws,
statutes, ordinances, rules, regulations, orders, or legally binding
requirements of any Governmental Entity pertaining to health or safety as
related to Hazardous Material and protection of the environment, natural
resources, conservation, wildlife, waste management, Hazardous Materials
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), the Resource Conservation and
Recovery Act ("RCRA"), the Clean Air Act, the Solid Waste Disposal
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Act, the Water Pollution Control Act, the Clean Water Act, the Toxic Substances
Control Act, the Emergency Planning and Community Right-to-Know Act of 1986, the
Hazardous Materials Transportation Act, any corresponding state and local
statutes, ordinances and amendments or successor legislation to such acts, the
common law and any similar laws, rules, or regulations promulgated thereunder.
(b) Neither Company nor any Subsidiary has received or become
subject to any written correspondence, claim, notice, complaint, court order,
administrative order or request for information from any Governmental Entity or
private party (i) alleging violation or potential violation of, or asserting any
exceedence or noncompliance with any Environmental Law, (ii) asserting potential
liability under Environmental Law , or (iii) requesting investigation or
clean-up of any Site under any Environmental Law.
(c) No Hazardous Materials used or generated by Company or any
Subsidiary, are being, or are intended to be or, to the knowledge of Company,
are threatened with being spilled, released, discharged, disposed, placed,
leaked, or otherwise caused to become located in the air, soil or water in,
under or upon a Site or any land adjacent thereto except in material compliance
with Environmental Law. Company has made available to Buyer copies of all
material correspondence, notices or other documents filed or received since
August 11, 1995 pursuant to any Environmental Law.
(d) Neither Company nor any Subsidiary has received any written
notice that any sites, locations or facilities to which any Hazardous Materials
have been shipped or sent to by any of them are subject to or threatened to
become subject to any governmental investigation, response action or clean up
order. Company has provided Buyer with copies of all manifests, bills of lading
and other receipts or evidence documenting disposal or recycling of Hazardous
Materials offsite since August 11, 1995.
(e) Neither Company nor any Subsidiary has treated, stored for more
than ninety (90) days, disposed of or recycled any hazardous wastes regulated
pursuant to RCRA on any Site nor, to the knowledge of Company, has anyone else,
treated, stored for more than ninety (90) days, disposed of or recycled any of
the foregoing on any Site.
(f) There are no underground tanks and other storage facilities for
Hazardous Materials located at any Site and, to the knowledge of Company, no
other underground tanks for Hazardous Materials are or have been located on any
Site and copies of all notifications made to or received from any Governmental
Entity since August 11, 1995 pursuant to Environmental Laws relating to
underground storage tanks have been provided to Buyer. Any underground tanks or
storage facilities that have been removed and had their contents disposed of
have been removed and the contents disposed of in material compliance with all
Environmental Laws.
(g) Company and each of its Subsidiaries has: (i) all governmental
permits, authorizations, or approvals required under all Environmental Laws to
conduct the business operations of Company at any Site; (ii) Company and its
Subsidiaries are in
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compliance with all such permits, authorizations or approvals, and (iii) Company
and its Subsidiaries have provided copies of all such permits, authorizations or
approvals to Buyer.
(h) There are no asbestos-containing materials or capacitors,
transformers or other equipment or fixtures containing PCBs located at any Site
(i) There are no liens, under Environmental Laws on any Site or any
assets of Company or any Subsidiary and no, to the knowledge of Company,
government actions have been taken or are in process which could subject any
Site or any such assets to such liens, and Company is not required to place any
notice or restriction relating to Hazardous Materials at any Site in any deed to
such Site.
(j) Company has made available to Buyer all environmental reports,
audits, assessments or studies conducted since August 11, 1995, or provided to
Stonington in connection with its acquisition of the shares of capital stock of
the Company on or about that date, within the possession of Company, any
Subsidiary or Stonington with respect to Company's or any Subsidiary's
facilities or any Site or the environs of any Site and has provided to Buyer the
results of sampling and analysis conducted since August 11, 1995, or in
connection with Stonington's acquisition of the majority of shares of capital
stock of the Company on or about that date, of any asbestos, air, soil, or
water, including ground and surface water, undertaken with respect to its
facilities or any Site.
(k) Company and each Subsidiary is in compliance with all Federal
and state worker safety laws and requirements, including, but not limited to
requirements under the Occupational Safety and Health Act.
(l) Nothing has come to the attention of the Company since August
11, 1995 or in connection with Stonington's acquisition of the shares of capital
stock of the Company on or about that date to cause the Company to believe that
any representation or warranty set forth in this Section 3.12 which is limited
in time to such date or event, would not be true or correct in all material
respects prior to said date or event.
Section 3.13 ERISA and Employee Benefit Plans.
(a) Section 3.13 of the Company Disclosure Schedule lists every
material plan, arrangement or policy, written or oral, relating to current or
former employees of Company or of any member of a controlled group or affiliated
service group (as defined in Internal Revenue Code Section 414(b), (c), (m) and
(o)) which includes Company (an "Affiliate"), which is:
(i) an employee benefit plan within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"); or
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AGREEMENT AND PLAN OF MERGER
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(ii) a multiemployer plan within the meaning of Section 3(37) or
4001(a)(3) of ERISA; or
(iii) a compensation, stock purchase, stock option, stock bonus, stock
appreciation, VEBA (as defined in Code Section 501(c)(9)), severance, health,
welfare, life, disability or other benefit plan, fund, program, arrangement or
practice which is not covered by clause (i) or (ii) above (including policies
related to vacation pay, holiday time, moving expense reimbursement programs,
sick leave and salary reduction agreements, charge-in-control agreements, and
severance agreements); or
(iv) any statutory or non-statutory benefits, benefit plans or
arrangements offered to Company's non-US based workforce.
(Hereinafter, "ERISA Benefit Plan" refers to plans or arrangements under clauses
(i) and (ii) above and "Benefit Plan" refers to plans or arrangements under
clauses (i)-(iv) above).
(b) There are no agreements or commitments of Company or any
Affiliate, whether or not legally binding, to create any additional Benefit Plan
not listed on Section 3.13 of the Company Disclosure Schedule.
(c) With respect to each written Benefit Plan, Company has furnished
to Buyer complete and accurate copies of each Benefit Plan described in Section
3.13 of the Company Disclosure Schedule, including all amendments thereto. With
respect to each ERISA Benefit Plan, Company has also furnished the three most
recent Form 5500s and the most recent Internal Revenue Service determination
letter (if any), plan actuarial report, summary plan description, summary annual
report and employee manual, as well as summaries of material modifications,
material employee communications, and all reports of the Benefit Plan required
by ERISA and the regulations thereunder. For each health plan offered to current
or former employees, Company will furnish to Buyer a listing showing
participants, coverage type, COBRA participants, beneficiaries and claims
experience for the year ended December 31, 1999. Company has also furnished
Buyer copies of any insurance contracts or trust agreements through which any
ERISA Benefit Plan is funded, any custodial or investment contracts relating to
assets or benefits under the Benefit Plan, any contracts relating to record
keeping or administration for the Benefit Plan, and notice of any material
adverse change occurring with respect to any Benefit Plan since the date of the
most recently completed and filed annual report.
(d) Except as set forth on Section 3.13 of the Company Disclosure
Schedule, with respect to each ERISA Benefit Plan which is a pension plan within
the meaning of Section 3(2) of ERISA:
(i) as of the end of the most recent plan year, the value of the ERISA
Benefit Plan's assets equals or exceeds the total value of all vested and
unvested employee benefits under such Plan, whether determined on an ongoing
basis or termination basis;
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AGREEMENT AND PLAN OF MERGER
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(ii) there is no "accumulated funding deficiency" and, to the knowledge
of Company, no "prohibited transaction" has occurred (as such terms are defined
in ERISA), and the funding method and actuarial assumptions are reasonable and
acceptable under ERISA;
(iii) Company has incurred no liability to the Pension Benefit Guaranty
Corporation ("PBGC") with respect to the ERISA Benefit Plan (other than any
liability for premiums in the ordinary course);
(iv) to the knowledge of Company, any Plan meant to be a qualified plan
meets all applicable requirements of Section 401(a) of the Internal Revenue
Code;
(v) Company has properly and timely made all governmental filings with
respect to ERISA Benefit Plans except where any failure to make any such filing
would not reasonably be expected to have a Company Material Adverse Effect;
(vi) the Company Balance Sheet reflects all accrued but unpaid
liabilities with respect to such ERISA Benefit Plans in accordance with U.S.
GAAP;
(vii) there has been no termination or partial termination of any ERISA
Plan; there has been no filing with the PBGC of an intent to terminate any ERISA
Benefit Plan, nor has the PBGC instituted any proceedings to terminate any ERISA
Benefit Plan; and neither Company nor any Affiliate has received a notice of
deficiency or liability or a demand for payment from the PBGC; and
(viii) if such ERISA Benefit Plan is a multiemployer pension plan to
which Company or any Affiliate has made contributions, there would be no
withdrawal liability on or after the Closing Date under Title IV of ERISA if
Company or any Affiliate ceased to make contributions to the Plan on the day of
Closing, other than as set forth in Section 3.13 of the Disclosure Schedule;
(e) Except as set forth in Section 3.13 of the Disclosure Schedule,
with respect to each Benefit Plan:
(i) each Benefit Plan complies currently and has complied in the past,
as to form and operation, in all material respect with the provisions of all
applicable Federal and state laws, such as ERISA and the Internal Revenue Code;
and, to the knowledge of Company, no nonexempt "prohibited transaction" (as
defined in Section 4975 of the Code or enumerated in Section 406(a) or (b) of
ERISA) has occurred;
(ii) all required government filings, reports, and notices have been
properly and timely made, except where any failure to make any such filing would
not reasonably be expected to have a Company Material Adverse Effect;
(iii) to the knowledge of Company, no such Benefit Plan is currently
under audit or investigation by any governmental agency or body and no
correction procedures have been initiated or completed with the Internal Revenue
Service for any ERISA
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Benefit Plan meant to be qualified under Section 401 of the Code or with the
Department of Labor for any ERISA Benefit Plan;
(iv) there are no actions, suits or claims (other than routine claims
for benefits) pending or, to the knowledge of Company, threatened against any of
the Benefit Plans or against the assets of any Benefit Plan;
(v) all material premiums due in connection with the Benefit Plan,
including without limitation premiums due the PBGC and material premiums for
life and health insurance and annuity contracts, have been paid in full when due
and, except as specifically disclosed on Section 3.13 of the Company Disclosure
Schedule, there are no such premiums that are attributable to any period of time
before the Closing that will not have been paid or accrued for on or before the
Closing;
(vi) all reports and filings made by Company pursuant to ERISA,
including without limitation all Form 5500 and attachments, summary annual
reports, and participant reports, and any other documents reasonably necessary
to enable Buyer to perform its material responsibilities with respect to any
Benefit Plan subsequent to the Closing, are and shall be available at the
offices of Company on and immediately after the Closing;
(f) Except as set forth in Section 3.13 of the Company Disclosure
Schedule and as required by COBRA or the Family Medical Leave Act, no Benefit
Plan provides, and neither Company nor any Affiliate has made any promises or
incurred any obligation to provide any health or other welfare benefits to any
retirees, former employees, or their dependents;
Section 3.14 Compliance With Laws.
Company and each of its Subsidiaries has complied with, is not in
violation of, and has not received any written notice alleging any violation
with respect to, any foreign, federal, state or local statute, law or regulation
with respect to the conduct of its business, or the ownership or operation of
its properties or assets, except for failures to comply or violations which,
individually or in the aggregate, have not had and are not reasonably likely to
have a Company Material Adverse Effect.
Section 3.15 Permits.
Company and each of its Subsidiaries have all permits, licenses and
franchises from Governmental Entities required to conduct their businesses as
now being conducted (the "Company Permits"), except for such permits, licenses
and franchises the absence of which, individually or in the aggregate, have not
resulted in, and are not reasonably likely to result in, a Company Material
Adverse Effect. Company and its Subsidiaries are in compliance with the terms of
the Company Permits, except where the failure to so comply, individually or in
the aggregate, is not reasonably likely to have a Company Material Adverse
Effect.
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Section 3.16 Labor Matters.
Neither Company nor any of its Subsidiaries is a party to or otherwise
bound by any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization except as set out on
Schedule 3.16 of the Disclosure Schedule. Neither Company nor any of its
Subsidiaries is the subject of any proceeding asserting that Company or any of
its Subsidiaries has committed an unfair labor practice or is seeking to compel
it to bargain with any labor union or labor organization that, individually or
in the aggregate, is reasonably likely to have a Company Material Adverse
Effect, nor is there pending or, to the knowledge of Company, threatened, any
labor strike, dispute, walkout, work stoppage or lockout involving Company or
any of its Subsidiaries that, individually or in the aggregate, is reasonably
likely to have a Company Material Adverse Effect.
Section 3.17 Insurance.
Section 3.17 of the Disclosure Schedule sets forth a list (including
the name of the insurer, the name of the policyholder, the name of each insured,
the periods of coverage and the scope of coverage) of all policies of fire,
theft, casualty, liability, burglary, fidelity, workers compensation, business
interruption, environmental, product liability, fidelity, workers compensation,
product warranty, automobile and other forms of insurance of Company and any of
its Subsidiaries. All such insurance policies are with reputable insurance
carriers, provide customary coverage for all normal risks incident to the
business, of Company and its Subsidiaries and their respective properties and
assets, and are in character and amount at least equivalent to that carried by
persons engaged in similar businesses and subject to the same or similar perils
or hazards. None of such policies are subject to any retrospective adjustment.
Section 3.18 Government Contracts.
Neither Company nor any of its Subsidiaries is or has been suspended or
debarred (within the meaning of 48 C.F.R. Ch. 1, Section 52 or any similar
foreign law, statute or regulation) from bidding on contracts or subcontracts
with any Governmental Entity; no such suspension or debarment has been initiated
or threatened; and the consummation of the transactions contemplated by this
Agreement will not result in any such suspension or debarment that, individually
or in the aggregate, is reasonably likely to have a Company Material Adverse
Effect. Neither Company nor any of its Subsidiaries has since August 11, 1995
been audited or investigated or is now being audited or, to Company's knowledge,
investigated by the U.S. Government Accounting Office, the U.S. Department of
Defense or any of its agencies, the Defense Contract Audit Agency, the U.S.
Department of Justice, the Inspector General of any U.S. Governmental Entity,
any similar agencies or instrumentalities of any foreign Governmental Entity, or
any prime contractor with a Governmental Entity nor, to Company's knowledge, has
any such audit or investigation been threatened that is reasonably likely,
individually or in the aggregate, to have a Company Material Adverse Effect. To
Company's knowledge, there is no valid basis for (a) the suspension or debarment
of Company or any of its Subsidiaries from
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bidding on contracts or subcontracts with any Governmental Entity or (b) any
claim pursuant to an audit or investigation by any of the entities named in the
foregoing sentence that is reasonably likely, individually or in the aggregate,
to have a Company Material Adverse Effect. Neither Company nor any of its
Subsidiaries has any agreements, contracts or commitments which require it to
obtain or maintain a security clearance with any Governmental Entity.
Section 3.19 Year 2000.
Company is not aware of any failure of Company's or any Subsidiary's
computer hardware or software systems or products to be Year 2000 Compliant,
which failure, individually or in the aggregate, is reasonably likely to have a
Company Material Adverse Effect. For purposes of this Agreement, "Year 2000
Compliant" means, with respect to each system referred to in the prior sentence
that is intended to perform date-related functions, that such system, when used
properly in accordance with its documentation, is capable of receiving,
processing and providing date data on and between December 31, 1999 and January
1, 2000 with the same functionality as it received, processed and provided date
data on or before December 31, 1999; provided that all applications, hardware
and other systems used in conjunction with such system correctly exchange date
data with or provide data to such system.
Section 3.20 Inventory.
All inventories of Company and its Subsidiaries, whether or not
reflected on the Company Balance Sheet, consists of a quality and quantity
useable and saleable in the ordinary course of business of Company and its
Subsidiaries, except for obsolete items and items of below standard quality, all
of which have been written off and/or reserved for or written down to net
realizable value on the Company Balance Sheet. All inventories not written off
have been priced at the lower of cost or market on a first in, first out basis.
Except for inventories written off and/or reserved for or written down to net
realizable value on the Company Balance Sheet, the quantities of each type of
inventory, whether raw materials, work in process or finished goods, are not
materially in excess of the present needs of Company and its Subsidiaries.
Section 3.21 Warranty.
Section 3.21 of the Company Disclosure Schedule sets forth the general
warranty policies of Company and material deviations therefrom. The Company and
its Subsidiaries' experience with returns of products sold by Company and
Subsidiary for fiscal year 1999 or during the current year have not materially
and adversely deviated from the Company's prior experience.
Section 3.22 Customers and Suppliers.
Except as set forth in Section 3.22 of the Company Disclosure Schedule,
no customer of Company or any of its Subsidiaries that represented five percent
(5%) or
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<PAGE>
more of Company's consolidated revenues in the fiscal year ended December 31,
1999 (a "Material Customer"), has indicated to Company or any of its
Subsidiaries that it will stop, or decrease the rate of buying materials,
products or services from Company or such Subsidiary, which cessation or
decrease is reasonably likely, individually or in the aggregate, to have a
Company Material Adverse Effect. No material supplier of Company or any of its
Subsidiaries has indicated to Company or any of its Subsidiaries in writing or,
to Company's knowledge, orally, that it will stop, or decrease the rate of,
supplying materials, products or services to them, which cessation or decrease
is reasonably likely, individually or in the aggregate, to have a Company
Material Adverse Effect.
Section 3.23 Accounts Receivable.
All accounts receivable of Company reflected on the Company Balance
Sheet are valid receivables, arose from bona fide sales of goods and services in
the ordinary course of business, and are subject to no setoffs or counterclaims
other than the allowance for doubtful accounts set forth on the Company Balance
Sheet.
Section 3.24 Section 203 of the DGCL Not Applicable.
The Board of Directors of Company has taken all actions so that the
restrictions contained in Section 203 of the DGCL applicable to a "business
combination" (as defined in Section 203) will not apply to the execution,
delivery or performance of this Agreement, or the consummation of the Merger or
the other transactions contemplated by this Agreement.
Section 3.25 Transactions with Interested Persons.
No officer, director or 5% stockholder of Company or any Subsidiary, or
their respective spouses or children, (i) owns, directly or indirectly, on an
individual or joint basis, any material interest in, or serves as an officer or
director of, any customer, competitor or supplier of Company or any Subsidiary
or any organization which has a material contract or arrangement with Company or
any Subsidiary, or (ii) has any material contract or agreement with Company or
any Subsidiary other than as disclosed on a schedule hereto, and all such
agreements are, except as noted on such schedule, on arms-length terms.
Section 3.26 Absence of Sensitive Payments.
Neither Company, any Subsidiary, nor, to the knowledge of Company, any
of Company's or any Subsidiary's directors, officers, agents, stockholders or
employees, on behalf of Company or any Subsidiary:
(a) has made or has agreed to make any contributions, payments or gifts
of funds or property to any governmental official, employee or agent where
either the payment or the purpose of such contribution, payment or gift was or
is illegal under the
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laws of the United States, any state thereof, or any other jurisdiction (foreign
or domestic);
(b) has established or maintained any unrecorded fund or asset for any
purpose, or has made any false or artificial entries on any of its books or
records for any reason; or
(c) has made or has agreed to make any contribution or expenditure, or
has reimbursed any political gift or contribution or expenditure made by any
other person to candidates for public office, whether Federal, state or local
(foreign or domestic) where such contributions were a violation of applicable
law.
Section 3.27 Indebtedness.
Set forth in Section 3.27 of the Company Disclosure Schedule is a list
of all the Indebtedness specified in paragraphs (i) to (vi) of Section 2.3(a),
together with the outstanding principal balance and the accrued but unpaid
interest as of the date specified at such Schedule. Company has made available
to Buyer copies of all documentation related to such Indebtedness (the "Loan
Documents").
Section 3.28 Consent.
The Consent set forth at Section 3.28 of the Company Disclosure
Schedule has been duly adopted by Stonington as the holder of more than 75% of
the outstanding shares of Company Common Stock.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER AND SUB
Buyer and Sub represent and warrant to Company that the statements
contained in this Article IV are true and correct, except as set forth herein or
in the disclosure schedule delivered by Buyer to Company on or before the date
of this Agreement (the "Buyer Disclosure Schedule"). The Buyer Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article IV and the disclosure in any
paragraph shall qualify other paragraphs in this Article IV only to the extent
that it is readily apparent from a reading of such document that it also
qualifies or applies to such other paragraphs.
Section 4.1 Organization of Buyer and Sub.
Each of Buyer and Sub is a corporation duly organized, validly existing
and to the extent such concept applies, in good standing under the laws of the
jurisdiction of its incorporation, has all requisite corporate power to own,
lease and operate its property and to carry on its business as now being
conducted, and is duly qualified to do business and, to the extent such concept
applies, is in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would be reasonably likely to have a
material adverse
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<PAGE>
effect on the business, properties, financial condition, or results of
operations of Buyer and its Subsidiaries, taken as a whole, or to have a
material adverse effect on the ability of Buyer to consummate the transactions
contemplated by this Agreement (a "Buyer Material Adverse Effect"); provided
that "Buyer Material Adverse Effect" shall not include any change in or effect
on the business, properties, financial conditions or results of operations of
Company or any of its Subsidiaries to the extent that any of the foregoing are
demonstrated to be attributable to the announcement or pendency of the Merger.
Section 4.2 Capitalization.
(a) As of March 2, 2000, the issued capital of Buyer consists of
1,282,380,872 Belgian Francs, represented by (i) 58,626,737 shares of Buyer
Common Stock and (ii) 895,932 shares of automatically convertible stock (the
"Buyer Automatically Convertible Stock"), which are automatically convertible
into a maximum of 1,194,576 shares of Buyer Common Stock, all of which are
validly issued, fully paid and nonassessable. The board of directors of Buyer
was authorized on May 27, 1995 to increase the issued capital of Buyer with an
amount of 1,065,165,893 Belgian Francs. Except for options granted pursuant to
employee or director equity plans of Buyer or as set forth on Section 4.2 of the
Buyer Disclosure Schedule, there are no shares of Buyer Common Stock
suspensively issued for future issuance pursuant to options, warrants, equity
securities, calls, rights, commitments or agreements to which Buyer is a party
or bound as of the date of this Agreement. All shares of Buyer Common Stock
subject to issuance as specified above, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
shall be validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock of Sub are duly authorized, validly issued, fully paid
and nonassessable and all such shares are owned by Buyer free and clear of all
security interests, liens, claims, pledges, agreements, limitations in Buyer's
voting rights, charges or other encumbrances of any nature, except for security
interests granted in favor of Buyer's lenders as disclosed in Buyer's audited
financial statements for the year ended December 31, 1998.
(b) All of the Merger Shares will be, when issued in accordance with
this Agreement, duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive or similar rights created by statute, the
Memorandum and Articles of Association of Buyer or any agreement to which Buyer
is a party or is bound.
(c) Buyer owns beneficially and of record all of the shares of Sub,
all of which shares were duly authorized, validly issued and are fully paid and
nonassessable.
Section 4.3 Authority; No Conflict; Required Filings and Consents.
(a) Each of Buyer and Sub has all requisite corporate power and
authority to enter into this Agreement and each of the agreements and documents
contemplated hereby to which Buyer or Sub is a party (the "Buyer Ancillary
Agreements") and to consummate the transactions contemplated by this Agreement
and the Buyer Ancillary Agreements. The execution and delivery of this Agreement
and the
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Buyer Ancillary Agreements and the consummation of the transactions contemplated
by this Agreement and the Buyer Ancillary Agreements have been duly authorized
by all necessary corporate action on the part of each of Buyer and Sub
(including the approval of the Merger by Buyer as the sole stockholder of Sub)
other than with respect to the Merger, the filing of the Certificate of Merger
with the Secretary of State of Delaware as required by the DGCL. This Agreement
has been and the Buyer Ancillary Agreements have been or will be duly executed
and delivered by each of Buyer and Sub and (assuming the due authorization and
execution of such agreements by the other parties thereto) constitutes or will
constitute the valid and binding obligations of each of Buyer and Sub,
enforceable in accordance with their terms, subject to the Bankruptcy and Equity
Exception.
(b) Subject to approval by a notary public in Belgium as described
in paragraph (iii) of the memorandum set forth at Section 4.3(b) of the Buyer
Disclosure Schedule), the execution and delivery of this Agreement and each of
the Buyer Ancillary Agreements by each of Buyer and Sub does not, and the
consummation of the transactions contemplated by this Agreement and each of the
Buyer Ancillary Agreements will not, (i) conflict with, or result in any
violation or breach of, any provision of the Memorandum or Articles of
Association of Buyer or the Certificate of Incorporation or Bylaws of Sub, (ii)
result in any violation or breach of, or constitute (with or without notice or
lapse of time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material benefit)
under, or require a consent or waiver under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, contract or other
agreement, instrument or obligation to which Buyer or any of its Subsidiaries is
a party or by which any of them or any of their properties or assets may be
bound, or (iii) except as provided in clauses (i), (ii), (iii), (iv) and (v) in
paragraph (c) below, conflict with or violate any permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Buyer or any of its Subsidiaries or any of its or their respective
properties or assets, except in the case of (ii) and (iii) for any such
conflicts, violations, defaults, terminations, cancellations or accelerations
which are not, individually or in the aggregate, reasonably likely to have a
Buyer Material Adverse Effect.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to Buyer or any of its Subsidiaries in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the pre-merger notification
report under the HSR Act, and such notifications as may be required, if any,
under similar applicable laws of the European countries (ii) the filing of the
Certificate of Merger with the Delaware Secretary of State, (iii) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable state securities laws and the laws of any
foreign country, (iv) the approval by NASDAQ of the listing of the shares of
Buyer Common Stock to be issued in the Merger, and (v) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not be reasonably likely to have a Buyer Material Adverse Effect.
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Section 4.4 Public Filings; Financial Statements.
(a) Buyer has filed and made available to Company all forms, reports
and documents required to be filed with the SEC since January 1, 1997. Buyer's
Registration Statement on Form F-3 (File No. 333-11324), filed with the SEC on
January 7, 2000, together with all documents incorporated therein by reference,
as amended (the "Buyer Registration Statement"; said Buyer Registration
Statement and all reports now or hereafter incorporated therein by reference to
be referred to as the "Buyer SEC Reports") (i) was prepared in compliance in all
material respects with the applicable requirements of the Securities Act and the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Buyer Registration Statement, and (ii) does not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements, as amended
(including, in each case, any related notes or schedules), contained in the
Buyer Registration Statement were prepared in accordance with U.S. GAAP applied
on a consistent basis throughout the periods involved (except as may be
indicated in the notes to such financial statements or, in the case of unaudited
statements as permitted by the SEC on Form 6-K under the Exchange Act) and
fairly presented in all material respects the consolidated financial position of
Buyer and its Subsidiaries as of the dates and the consolidated results of its
operations for the periods indicated, consistent in all material respects with
the books and records of Company and its Subsidiaries; provided, however, that
interim financial statements may be in summary format, may be limited to
operating statement and balance sheet information, do not comply with the
footnote requirements of U.S. GAAP and may be subject to normal year end
adjustments.
(c) Since December 31, 1997, Buyer has timely filed all reports
required to be filed by it pursuant to the Exchange Act.
Section 4.5 No Undisclosed Liabilities.
Except as disclosed in the Buyer SEC Reports filed prior to the date
hereof or in Company press releases issued prior to the date hereof, and except
for (i) normal or recurring liabilities incurred since September 30, 1999 in the
ordinary course of business consistent with past practices, and (ii) liabilities
incurred or which may be incurred in connection with the matters disclosed at
Section 4.5 of the Buyer Disclosure Schedule, Buyer and its Subsidiaries do not
have any liabilities, either accrued, contingent or otherwise (whether or not
required to be reflected in financial statements in accordance with U.S. GAAP),
and whether due or to become due, which individually or in the aggregate are
reasonably likely to have a Buyer Material Adverse Effect.
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Section 4.6 Absence of Certain Changes or Events.
Except as expressly contemplated by this Agreement, as disclosed in the
Buyer SEC Reports or Company press releases filed or issued prior to the date
hereof, or in connection with the matters disclosed at Section 4.5 of the Buyer
Disclosure Schedule that Buyer has discussed with Company prior to the date
hereof, since September 30, 1999, there has not been (i) any change in the
financial condition, results of operations, business, or properties of Buyer and
its Subsidiaries, taken as a whole, that has had, or is reasonably likely to
have, a Buyer Material Adverse Effect; (ii) any damage, destruction or loss to
property (whether or not covered by insurance) with respect to Buyer or any of
its Subsidiaries having a Buyer Material Adverse Effect; (iii) any revaluation
by Buyer of its assets having a Buyer Material Adverse Effect, exclusive of any
revaluations (including write-downs or write-offs) of good will; or (iv) any
other action or event that would have required the consent of Company pursuant
to Section 5.3 of this Agreement had such action or event occurred after the
date of this Agreement.
Section 4.7 Intellectual Property.
For purposes of this Section 4.7, "Intellectual Property" means (i)
patents, patent applications and statutory invention registrations, (ii)
trademarks, service marks, trade dress, logos, trade names, corporate names, and
other source identifiers, and registrations and applications for registration
thereof (iii) copyrightable works, copyrights, and registrations and
applications for registration thereof, and (iv) confidential and proprietary
information, including trade secrets and know-how. Except as disclosed in the
Buyer SEC Reports filed prior to the date hereof:
(a) to the knowledge of the Buyer and except as would not have a
Buyer Material Adverse Effect, the conduct of the business of Buyer and the
Buyer Subsidiaries as currently conducted does not infringe or misappropriate
the Intellectual Property of any third party;
(b) except as would not have a Buyer Material Adverse Effect, no
claim has been asserted to Buyer that the conduct of the business of Buyer or
any Buyer Subsidiary as currently conducted infringes or may infringe or
misappropriate the Intellectual Property of any third party;
(c) with respect to each item of Intellectual Property owned by
Buyer and the Buyer Subsidiaries and material to the businesses of Buyer and the
Buyer Subsidiaries as currently conducted taken as a whole ("Buyer Owned
Intellectual Property"), Buyer or a Buyer Subsidiary is the owner of the entire
right, title and interest in and to the Buyer Owned Intellectual Property and is
entitled to use the Buyer Owned Intellectual Property in the continued operation
of its respective business;
(d) except as would not have a Buyer Material Adverse Effect, with
respect to each item of Intellectual Property licensed to Buyer or a Buyer
Subsidiary ("Buyer Licensed Intellectual Property"), Buyer or a Buyer Subsidiary
has the right to use
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such Buyer Licensed Intellectual Property in the continued operation of its
respective business in accordance with the terms of the license agreement
governing such Buyer Licensed Intellectual Property;
(e) to the knowledge of the Buyer and except as would not have a
Buyer Material Adverse Effect, the Buyer Owned Intellectual Property is valid
and enforceable, and has not been adjudged invalid or unenforceable in whole or
part;
(f) to the knowledge of Buyer and except as would not have a Buyer
Material Adverse Effect, no person is engaging in any activity that infringes
the Buyer Owned Intellectual Property;
(g) except as would not have a Buyer Material Adverse Effect, each
license of Buyer Licensed Intellectual Property is valid and enforceable, is
binding on all parties to such license, is in full force and effect, and no
party thereto is in breach thereof or default thereunder.
ARTICLE V. CONDUCT OF BUSINESS
Section 5.1 Covenants of Company.
Except as expressly contemplated hereby, during the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Closing Date, Company agrees as to itself and its
Subsidiaries (except to the extent that Buyer shall otherwise consent in
writing), to carry on its business in the ordinary course in substantially the
same manner as previously conducted, to pay its debts and Taxes and perform
other obligations when due, subject to good faith disputes over such debts,
Taxes or obligations, and use commercially reasonable efforts consistent with
past practices and policies to preserve intact its present business
organization, keep available the services of its present officers and key
employees and to preserve its relationships with customers, suppliers,
distributors, and others having business dealings with it. Except as expressly
contemplated by this Agreement or set forth in the Company Disclosure Schedule,
Company shall not (and shall not permit any of its Subsidiaries to), without the
written consent of Buyer:
(a) Accelerate, amend or change the period of exercisability of any
Warrant or any outstanding Option or restricted stock granted under any Company
Stock Plan or any other employee stock plan of Company or authorize cash
payments in exchange for any Warrant or any Option granted under any of such
plans except as contemplated by Section 1.5 of this Agreement;
(b) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock;
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<PAGE>
(c) Issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or securities convertible
into shares of its capital stock, or subscriptions, rights, warrants or options
to acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities, other than the issuance
of shares of Company Common Stock pursuant to the conversion of 12% Preferred
Stock and the exercise of the Warrants outstanding on the date of this
Agreement;
(d) Acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership
or other business organization or division, or otherwise acquire or agree to
acquire any assets (other than inventory, supplies and other items, in each
case, in the ordinary course of business consistent with past practice);
(e) Sell, lease, license or otherwise dispose of any of its
properties or assets having a value in excess of $250,000, except for sales of
inventory or products, in each case, in the ordinary course of business
consistent with past practice;
(f) (i) Increase or agree to increase the compensation (including
salary, bonus, benefits or other remuneration) payable or to become payable to
its officers or employees except for increases in accordance with existing
contractual commitments, all of which contracts are disclosed on the Company
Disclosure Schedule (ii) grant any severance or termination pay to, or enter
into or amend any employment or severance agreements with, any employees or
officers, other than (x) the payment of severance or termination pay in
accordance with any existing contractual commitments or the terms of any Benefit
Plan and (y) subject to subparagraph (t) below, entering into employment
agreements with new employees in the ordinary course of business consistent with
past practice, (iii) enter into any collective bargaining agreement, (iv)
establish, adopt, enter into or amend (except as may be required by law) any
bonus, profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination or severance
or other plan, trust, fund, policy or arrangement for the benefit of any
directors, officers or employees, or (v) forgive any indebtedness of any
employee to Company or any of its Subsidiaries;
(g) Amend or propose to amend its certificate of incorporation or
bylaws;
(h) Make any loans to any person or entity or guarantee any debt
securities of others (other than as a result of the endorsement of checks for
collection and for advances for employee reimbursable expenses, in each case in
the ordinary course of business consistent with past practice);
(i) Initiate, compromise, or settle any material litigation or
arbitration proceeding;
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(j) Modify, amend or terminate any Company Material Contract (other
than any immaterial modification or amendment to a purchase order in the
ordinary course of business consistent with past practice), or waive, release or
assign any material rights or claims, including any write-off or other
compromise of any accounts receivable of Company or any of its Subsidiaries;
(k) Make or rescind any Tax election, settle or compromise any
Material Tax liability or amend any Tax Return;
(l) Change its methods of accounting as in effect at December 31,
1999 except as required by US GAAP;
(m) Make or commit to make any capital expenditures that exceed the
capital budget furnished by Company to Buyer by more than $250,000;
(n) Enter into any new license for any intellectual property rights
to or from any third party other than in the ordinary course of business
consistent with past practice;
(o) Revalue any of the significant assets of Company or any of its
Subsidiaries, including the writing down of inventory other than in the ordinary
course of business consistent with past practice;
(p) Close any facility or office;
(q) Invest funds in debt securities or other instruments maturing
more than 90 days after the date of investment;
(r) Fail to pay accounts payable and other obligations in the
ordinary course of business in a manner consistent with Company's past practice
or accelerate the payment of any accounts receivable other than in the ordinary
course of business in a manner consistent with past practice, as such practices
are set forth on Schedule 5.1 (r) of the Company Disclosure Schedules;
(s) Mortgage or pledge any of its property or assets or subject any
such assets to any security interest, lien or other encumbrance, except liens
imposed by law in respect of obligations not yet due which are owed in respect
of taxes or which otherwise are owed to materialman, workmen, carriers,
warehousepersons or laborers not in excess of $100,000 in the aggregate;
(t) Hire any employees or retain any consultants other than
non-management or non-supervisory personnel in the ordinary course of business;
(u) Make any payment or other distribution to any Affiliate of
Company except for normal employment compensation consistent with past
practices; or
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(v) Take, or agree in writing or otherwise to take, any of the
actions described in paragraphs (a) through (u) above.
Section 5.2 Options; Warrants.
Company shall not take any action to permit any Options or Warrants to
purchase its capital stock (issued by Company pursuant to its Stock Option Plan
or otherwise) to become vested or exercisable (or to otherwise accelerate) as a
result of this Agreement or the consummation of the Merger, except as
contemplated by Section 1.5.
Section 5.3 Covenants of Buyer.
Except as expressly contemplated hereby, during the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, Buyer agrees as to itself and its
Subsidiaries (except to the extent that Company shall otherwise consent in
writing) not to do, or propose to do, any of the following:
(a) Declare or pay any dividends (other than stock dividends) on or
make any other distributions (other than in stock) in respect of its capital
stock;
(b) Amend or propose to amend its Memorandum or Articles of
Association in a manner reasonably likely to prevent the consummation of the
transactions contemplated hereby;
(c) Adopt a plan of complete or partial liquidation or dissolution
of Buyer; or
(d) Take, or agree in writing or otherwise to take, any of the
actions described in paragraphs (a) through (c) above.
Section 5.4 Cooperation.
Subject to compliance with applicable law, from the date hereof until
the Closing, each of Company and Buyer shall (and shall cause each of their
respective Subsidiaries to) make their respective officers available to confer
on a regular and frequent basis with one or more representatives of the other
party at reasonable times and upon reasonable advance notice to report on the
general status of ongoing operations and shall promptly provide each other or
its counsel with copies of all filings made by such party with any Governmental
Entity in connection with this Agreement, the Merger and the transactions
contemplated hereby and thereby. Company acknowledges that its obligation under
this Section shall include making its officers available to meet with those
financial institutions from which Buyer seeks the financing referred to in
Section 7.2 (j).
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Section 5.5 Confidentiality.
The parties acknowledge that Buyer and Company have previously executed
a Confidential Non-Disclosure Agreement, dated as of April 28, 1999 (the
"Confidentiality Agreement"), which Confidentiality Agreement will continue in
full force and effect in accordance with its terms, except as expressly modified
herein.
Section 5.6 Investigation.
(a) By Buyer. Buyer acknowledges and agrees that it (i) has made its
own inquiry and investigation into, and, based thereon, has formed an
independent judgment concerning, the Company, (ii) has been furnished with or
given adequate access to such information about the Company as it has requested
and (iii) will not assert any claim against any of its directors, officers,
employees, agents, Stockholders, affiliates, consultants, counsel, accountants,
or representatives, or hold any Person liable for any inaccuracies,
misstatements or omissions with respect to information (other than, with respect
to Company and Stockholders, the representations and warranties contained in
this Agreement, the Company Ancillary Agreements or in any Letter of
Transmittal) furnished by such Persons concerning the Company other than a claim
relating to Company's or any Stockholder's fraud.
(b) By Company. Company acknowledges and agrees that it (i) has made
its own inquiry and investigation into, and, based thereon, has formed an
independent judgment concerning, the Buyer, (ii) has been furnished with or
given adequate access to such information about the Buyer as it has requested
and (iii) will not assert any claim against any of its directors, officers,
employees, agents, stockholders, affiliates, consultants, counsel, accountants,
or representatives, or hold any Person liable for any inaccuracies,
misstatements or omissions with respect to information (other than, with respect
to Buyer, the representations and warranties contained in this Agreement and the
Buyer Ancillary Agreements furnished by such Persons concerning the Buyer, other
than a claim relating to Buyer's fraud.
(c) In connection with Buyer's investigation of the Company, Buyer
has received certain estimates, projections and other forecasts for the Company,
and certain plan and budget information. Buyer acknowledges that there are
uncertainties inherent in attempting to make such projections, forecasts, plans
and budgets, that Buyer is familiar with such uncertainties, that Buyer is
taking full responsibility for making its own evaluation of the adequacy and
accuracy of all estimates, projections, forecasts, plans and budgets so
furnished to it, and that Buyer will not assert any claim against any
Stockholder or any of its directors, officers, employees, agents, affiliates,
consultants, counsel, accountants, or representatives, or hold any such Persons
liable, with respect thereto, except relating to such Person's fraud.
Accordingly, neither the Company nor any Stockholder makes any representation or
warranty with respect to any estimates, projections, forecasts, plans or budgets
referred to in this Section 5.6(c).
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(d) In connection with Company's investigation of the Buyer, Company
has received certain estimates, projections and other forecasts for the Buyer,
and certain plan and budget information. Company acknowledges that there are
uncertainties inherent in attempting to make such projections, forecasts, plans
and budgets, that Company is familiar with such uncertainties, that Company is
taking full responsibility for making its own evaluation of the adequacy and
accuracy of all estimates, projections, forecasts, plans and budgets so
furnished to it, and that Company will not assert any claim against Buyer or any
of its directors, officers, employees, agents, affiliates, consultants, counsel,
accountants, or representatives, or hold any such Persons liable, with respect
thereto, except relating to such Person's fraud. Accordingly, Buyer makes no
representation or warranty with respect to any estimates, projections,
forecasts, plans or budgets referred to in this Section 5.6(d).
ARTICLE VI. ADDITIONAL AGREEMENTS
Section 6.1 Exclusivity.
Between the date of this Agreement and the Closing Date, neither
Company, any Subsidiary, nor any stockholders, agent, officer, director, trustee
or representative of any of the foregoing will, during the period commencing on
the date of this Agreement and ending with the earlier to occur of the Closing
Date or the termination of this Agreement in accordance with its terms, directly
or indirectly:
(i) solicit, encourage or initiate the submission of proposals or
offers from any person pertaining to, or
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Buyer or its
authorized agents relating to
any acquisition or purchase of all or a material amount of the assets, business
or operations of, or any equity interest in, Company or any Subsidiary of
Company or any merger, consolidation or other business combination involving
Company or any Subsidiary.
Section 6.2 Access to Information.
Upon reasonable notice, Company shall (and shall cause each of its
Subsidiaries to) afford to Buyer's officers, employees, accountants, counsel and
other representatives, reasonable access, during normal business hours during
the period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, and Company shall furnish
promptly to Buyer (and shall cause each its Subsidiaries to) furnish
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promptly to the other party a copy of each report, schedule, registration
statement and other document filed or received by it during such period pursuant
to the requirements of federal securities laws and Company shall furnish
promptly to Buyer all information concerning its business, properties and
personnel as the other party may reasonably request. Unless otherwise required
by law, each of Buyer and Company will and shall cause its stockholders,
officers, employees, accountants, counsel and other representatives or persons
who have access to such information to hold any such information which is
non-public in confidence in accordance with the Confidentiality Agreement. No
information or knowledge obtained in any investigation pursuant to this Section
6.2 or otherwise shall affect or be deemed to modify any representation or
warranty contained in this Agreement or the conditions to the obligations of the
parties to consummate the Merger.
Section 6.3 Environmental Review.
Buyer may conduct a "Phase II" study on certain property of the Company
in Melbourne, Florida ("Florida Property") in accordance with the Access
Agreement dated on or about February 24, 2000 between Company and Buyer. Buyer's
sole rights and remedies with respect to any remediation in respect of the
Florida Property identified in the "Phase II" study are set out in the Indemnity
and Escrow Agreement.
Section 6.4 Legal Conditions to Merger.
(a) Subject to the terms hereof, Company and Buyer shall use all
their respective reasonable efforts to (i) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary and proper
under applicable law to consummate and make effective the transactions
contemplated hereby as promptly as practicable, (ii) obtain from any
Governmental Entity or any other third party any consents, licenses, permits,
waivers, approvals, authorizations, or orders required to be obtained or made by
Company or Buyer or any of their Subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby including, without limitation, the Merger,
(iii) as promptly as practicable, make all necessary filings, and thereafter
make any other required submissions, with respect to this Agreement and the
Merger required under (A) the Securities Act and the Exchange Act, and any other
applicable federal or state securities laws, (B) the HSR Act and any related
governmental request thereunder, and (C) any other applicable law, (iv)
refinance the Indebtedness described in paragraphs (i) to (vi) of Section 2.3(a)
and (v) execute or deliver any additional instruments necessary to consummate
the transactions contemplated by, and to fully carry out the purposes of, this
Agreement. Company and Buyer shall cooperate with each other in connection with
the making of all such filings, including providing or making available copies
of all such documents to the non-filing party and its advisors (or, in
connection with information relating to filings under the HSR Act, to the
advisors of the non-filing party) prior to filing and, if requested, consider in
good faith all reasonable additions, deletions or changes suggested in
connection therewith. Company and Buyer shall use all their respective
reasonable efforts to furnish to each other all information required for any
application or other filing to be made by the other party pursuant to the rules
and regulations of any applicable law in connection with the transactions
contemplated by this Agreement. Buyer has received the letter set out in
Schedule 6.4 of Buyer's
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Disclosure Schedule with respect to the refinancing described in (iv) above (the
"Refinancing Letter"). Buyer agrees to use all reasonable efforts to obtain as
promptly as practicable the refinancing described in (iv) above on terms not
materially less favorable than those set out in the Refinancing Letter.
(b) Subject to the terms hereof, Buyer and Company agree, and shall
cause each of their respective Subsidiaries, to cooperate and to use all their
respective reasonable efforts to obtain any government clearances or approvals
required for Closing under the HSR Act, the Shearman Act, as amended, the
Clayton Act, as amended, the Federal Trade Commission Act, as amended, and any
other federal, state or foreign law or, regulation or decree designed to
prohibit, restrict or regulate actions for the purpose or effect of
monopolization or restraint of trade (collectively "Antitrust Laws").
(c) Each of Company and Buyer shall give (or shall cause their
respective Subsidiaries to give) any notices to third parties, and use, and
cause their respective Subsidiaries to use, all their reasonable efforts to
obtain any third party consents related to or required in connection with the
Merger that are (A) necessary to consummate the transactions contemplated
hereby, (B) disclosed or required to be disclosed in the Company Disclosure
Schedule or the Buyer Disclosure Schedule, as the case may be, or (C) required
to prevent a Company Material Adverse Effect or a Buyer Material Adverse Effect
from occurring prior to or after the Effective Time.
Section 6.5 Employee Benefit Plans.
(a) Buyer shall cause the Surviving Corporation to adopt and/or
continue all Employee Benefit Plans of the Company identified in Section 3.13 of
the Company Disclosure Schedule as of the Closing Date; provided, however,
Surviving Corporation shall retain the sole discretion to amend, restate, merge
or terminate any such Employee Benefit Plan at any time after the Closing;
further provided that if Buyer elects to amend, restate, merge or terminate any
or all of such Employee Benefit Plans it shall, at a minimum, continue to
provide employees of Company who become employees of any of Buyer's United
States subsidiaries or the Surviving Corporation after the Closing Date benefits
which in the aggregate are equivalent to those provided to similarly situated
employees of Buyer's United States subsidiaries or Surviving Corporation or a
combination of such benefits and those available under Company's United States
Subsidiaries' Employee Benefit Plans.
(b) For purposes of eligibility, vesting and, except with respect to
any pension benefit plan or retiree medical plan, calculation of benefits
(except to the extent crediting such service would result in the duplication of
benefits) under each of Buyer's or Surviving Corporation's employee benefit
plans, programs and arrangements in which an employee of Company who is employed
as of the Closing Date and who becomes an employee of Buyer or the Surviving
Corporation immediately following the Closing (each a "Continuing Employee")
participates, Buyer shall grant, or shall cause the Surviving Corporation to
grant, each Continuing Employee with credit for all service with Company to the
extent permitted by law.
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(c) It is expressly agreed that the provisions of this Section 6.5
are not intended to be for the benefit of or otherwise enforceable by any third
person including, without limitation, any employee of Company, or any collective
bargaining unit or employee organization.
Section 6.6 Public Disclosure.
Prior to the Effective Date, Buyer and Company shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to the Merger or this Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law. The initial press release relating to this Agreement
shall be in a form that was heretofore agreed by the parties.
Section 6.7 Tax-Free Reorganization.
Buyer and Company shall each use all reasonable efforts to cause the
Merger to be treated as a reorganization within the meaning of Section 368(a) of
the Code. The parties hereto hereby adopt this Agreement as a plan of
reorganization.
Section 6.8 Nasdaq Listing.
Buyer shall cause the shares of Buyer Common Stock to be issued in the
Merger to be listed on the Nasdaq National Market, subject to official notice of
issuance, on or prior to the Closing Date.
Section 6.9 Brokers or Finders.
Each of Buyer on the one hand, and Company represents, as to itself,
its Subsidiaries and its affiliates, that no agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any broker's
or finder's fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement, except, in the case of Buyer,
S.G. Cowen Securities, whose fees and expenses will be paid by Buyer in
accordance with Buyer's agreement with such firm and, in the case of Company,
Hambrecht & Quist, whose fees and expenses will be paid by Company in accordance
with Company's agreement with such firm (subject to the limitations on such
expenses to be paid by Company as provided in Section 7.2).
Section 6.10 Notification of Certain Matters.
Buyer will give prompt notice to Company, and Company will give prompt
notice to Buyer, of the occurrence, or failure to occur, of any event, which
occurrence or failure to occur would be reasonably likely to cause (a) any
representation or warranty of such party contained in this Agreement to be
untrue or inaccurate in any material respect at any time from the date of this
Agreement to the Effective Time, or (b) any material failure of Buyer and Sub or
Company, as the case may be, or of any officer, director, employee or agent
thereof, to comply with or satisfy any covenant, condition or
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agreement to be complied with or satisfied by it under this Agreement.
Notwithstanding the above, the delivery of any notice pursuant to this section
will not limit or otherwise affect the remedies available hereunder to the party
receiving such notice or the conditions to such party's obligation to consummate
the Merger.
Section 6.11 Special Stockholders Meeting of the Company.
The Company, acting through its Board of Directors, shall, in
accordance with applicable law and Company's certificate of incorporation and
bylaws, duly call, give notice of, convene and hold a special meeting of its
Stockholders (the "Special Stockholders Meeting") as soon as practicable
following the date of this Agreement for the purpose of approving the Merger and
this Agreement (the "Company Voting Proposal"). The Board of Directors of
Company shall (i) recommend approval and adoption of the Company Voting Proposal
by the Stockholders to Company; provided that so long as the Company complies
with Section 251(c) of the Delaware General Corporation Law and Section 6.1
hereof, nothing in this Section 6.11 shall prevent the Board of Directors of
Company from changing its recommendations to the extent the Company, after
consultation with its outside legal counsel, determines that it is required to
do so by its fiduciary duties under applicable law and (ii) take all reasonable
and lawful action to solicit and obtain such approval. Company shall provide to
the Stockholders, together with the applicable notice of the Special
Stockholders Meeting, Buyer's Registration Statement and any filings made by
Buyer with the SEC which are incorporated therein by reference, which materials
will be made available to Company by Buyer in sufficient quantities for such
distribution by Company.
Section 6.12 Special Board Meeting of the Buyer.
For the purpose of Belgian law, at the Effective Date, the Stockholders
shall be deemed to have transferred and delivered the shares of Company Common
Stock to the Buyer through (a) a contribution in kind in return for the Merger
Shares (which shall be issued as provided in Section 2.2 and (b) a sale of the
remaining number of shares of Company Common Stock corresponding to fractions of
shares of Buyer Common Stock which the Stockholders are entitled to receive
under this Agreement. The Buyer shall convene a board meeting to be held in
front of a notary public in Belgium which shall decide inter alia to (i)
increase the capital of the Buyer upon the contribution in kind by the
Stockholders of 15,284,000 shares of Company Common Stock subject to increase
pursuant to Section 2.1(d), (ii) issue the Merger Shares to the Stockholders and
(iii) pay an amount in cash to the Stockholders in respect of fractional shares
in accordance with this Agreement, followed by a replacement of the Shares of
Company Common Stock by shares of Sub, pursuant to the Merger.
Section 6.13 Liability Insurance.
(a) For a period of six years after the Effective Time, Buyer shall
cause the Surviving Corporation to maintain (to the extent available in the
market) in effect a directors' and officers' liability insurance policy covering
those persons who are
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AGREEMENT AND PLAN OF MERGER
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<PAGE>
currently covered by Company's directors' and officers' liability insurance
policy (a copy of which has been heretofore made available to Buyer) with
coverage in amount and scope at least as favorable to such persons as Company's
existing coverage; provided, that in no event shall Buyer or the Surviving
Corporation be required to make annual premium payments to the extent such
premiums exceed an amount equal to 175% of the annual premium paid by Company
for such coverage as of the date of this Agreement (the "Maximum Premium");
provided further, that if such premiums exceed the Maximum Premium the Surviving
Corporation shall purchase insurance policies in such amounts and with such
coverage as reasonably can be purchased for the Maximum Premium.
(b) Buyer agrees to be jointly and severally liable with the Company
and the Surviving Corporation for their indemnification obligations to the
Company's directors, and officers in all capacities in which such directors or
officers served the Company or its Subsidiaries while directors and officers
prior to the Effective Time, as set forth in the Company's Certificate of
Incorporation and to the extent such indemnification by the Company is permitted
under DGCL.
(c) In the event the Company or the Surviving Corporation or any of
their respective successors or assigns (i) consolidates with or merges into any
other person and shall not be the continuing or surviving corporation or entity
in such consolidation or merger or (ii) transfers all or substantially all of
its properties and assets to any person, then, and in each case, proper
provision shall be made so that the successors and assigns of the Company or the
Surviving Corporation, as the case may be, honor the indemnification obligations
set forth in this Section 6.13.
ARTICLE VII. CONDITIONS TO MERGER
Section 7.1 Conditions to Each Party's Obligation To Effect
the Merger.
The respective obligations of each party to this Agreement to effect
the Merger shall be subject to the satisfaction prior to the Closing Date of the
following conditions:
(a) HSR Act. The applicable waiting period under the HSR Act shall
have terminated or expired.
(b) Governmental Approvals. Each of the parties shall have obtained
or made, as applicable, or there shall have occurred authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any Governmental Entity, the failure of which to
file, obtain or occur is reasonably likely to have a Buyer Material Adverse
Effect or a Company Material Adverse Effect, as the case may be.
(c) No Injunctions. No Governmental Entity of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any order,
executive order, stay, decree, judgment or injunction (each an "Order") or
statute, rule or regulation which
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AGREEMENT AND PLAN OF MERGER
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<PAGE>
is in effect and which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger.
(d) Nasdaq Listing. The shares of Buyer Common Stock to be issued in
the Merger shall have been approved for listing on the Nasdaq National Market,
subject only to official notice of issuance.
(e) Company Stockholders Approval. Stonington, or Buyer as
Stonington's proxy, shall have voted all of Stonington's shares of Company
Common Stock in favor of the Company Voting Proposal as provided in the Voting
Agreement and Waiver.
Section 7.2 Additional Conditions to Obligations of Buyer and Sub.
The obligations of Buyer and Sub to effect the Merger are subject to
the satisfaction of each of the following conditions, any of which may be waived
in writing exclusively by Buyer and Sub:
(a) Representations and Warranties.
(i) The representations and warranties of Company set forth in this
Agreement that are not qualified as to Company Material Adverse Effect shall be
true and correct, except where failure be true and correct would not have a
Company Material Adverse Effect, as of the Closing Date, as though made at and
as of the Closing Date, except that those representations and warranties that
address matters only as of a particular date shall remain so true and correct as
of such date;
(ii) The representations and warranties of Company set forth in this
Agreement that are qualified as to Company Material Adverse Effect shall be true
and correct in all respects as of the Closing Date as though made at and as of
the Closing Date, except that those representations and warranties that address
matters only as of a particular date shall remain so true and correct in all
respects as of such date;
(iii) Buyer shall have received a certificate signed on behalf of
Company by the chief executive officer or the chief financial officer of Company
to the effect that each of the conditions specified in (x) paragraphs (i) and
(ii) of this paragraph (a) is satisfied in all respects and (y) paragraphs (b),
(c), (d), (e), (h), and (n) of this Section 7.2 is satisfied in all respects.
(b) Performance of Obligations of Company. Company and Stockholders
shall have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date.
(c) Consents of Preferred Stockholders.
(i) The actions described in Section 1.5(a) shall have occurred and
Company shall have obtained and delivered to Buyer and Sub copies of all
consents, conversion
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
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<PAGE>
notices or agreements from each holder of 12% Preferred Stock necessary to
convert 12% Preferred Stock into shares of Buyer Common Stock pursuant to
Section 1.5.
(ii) The actions described in Section 1.5(b) shall have occurred and
Company shall have obtained and delivered to Buyer and Subsidiary copies of all
consents, exercise notices or other agreements from each holder of 14% Preferred
Stock necessary to put the 14% Preferred Stock to Company pursuant to Section
1.5.
(d) Options; Warrants. The actions described in Section 1.5(c) and
(d) shall have occurred and Company shall have obtained and delivered to Buyer
and Sub copies of all Option Termination Agreements and Warrant exercise
notices, together with all other documentation necessary to accomplish the
provisions of Section 1.5(c) and (d).
(e) Consents. Company shall have obtained and delivered to Buyer and
Sub all material waivers, permits, consents, approvals or other authorizations
necessary to be obtained by it to consummate the Merger, and effected all
registrations, filings and notices necessary to be effected by it to consummate
the Merger except as would not have a Company Material Adverse Effect, but which
shall include, without limitation those agreements set forth at Section 7.2(e)
of the Company Disclosure Schedule, unless alternative arrangements to those
agreements which are reasonably satisfactory to Buyer are put in place by
Company.
(f) Stockholders Agreement. Stonington shall have executed and
delivered to Buyer the Stockholders Agreement in the form of Exhibit F hereto.
(g) Indemnity and Escrow Agreement. Each Stockholder shall have
executed and delivered to Buyer the Indemnity and Escrow Agreement.
(h) Indebtedness. The Indebtedness shall not be in excess of
$425,000,000.
(i) LLC Agreement. Stonington shall have executed and delivered to
Buyer the LLC Agreement.
(j) Financing. Buyer shall have obtained financing in an amount
sufficient to refinance and/or fund the following: (i) the Indebtedness
described in paragraph (i) through (vi) of Section 2.3(a); and (ii) the payments
due at Closing under the Option Termination Agreements and Retention Agreements.
(k) Letters of Transmittal. Each Stockholder shall have completed
and delivered to Buyer its Letter of Transmittal.
(l) Tax Opinion. Buyer shall have received the opinion of Brown,
Rudnick, Freed & Gesmer, to the effect that the Merger will be treated for
federal income tax purposes as a tax-free reorganization within the meaning of
Section 368(a) of the Code; (it being agreed that Buyer and Company shall each
provide reasonable
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AGREEMENT AND PLAN OF MERGER
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<PAGE>
cooperation, including making reasonable representations, to Brown, Rudnick,
Freed & Gesmer to enable it to render such opinion).
(m) Legal Opinion. Buyer shall have received the opinion of Shearman
& Sterling with respect to the matters set forth on Exhibit H attached hereto.
(n) Appraisal Rights. No stockholder of Company shall have exercised
its appraisal rights in connection with the Merger.
(o) Stonington Obligations. Stonington shall not be in breach of any
of its obligations under the Voting Agreement and Waiver executed as of the date
hereof, which is in the form of Exhibit G hereto including without limitation
the transfer of shares in violation of that agreement.
Section 7.3 Additional Conditions to Obligations of Company.
The obligation of Company to effect the Merger is subject to the
satisfaction of each of the following conditions, any of which may be waived, in
writing, exclusively by Company:
(a) Representations and Warranties.
(i) The representations and warranties of Buyer and Sub set forth in
this Agreement that are not qualified as to Material Adverse Effect shall be
true and correct, except where failure to be true and correct would not have a
Buyer Material Adverse Effect, as of the Closing Date, as though made at and as
of the Closing Date, except that those representations and warranties that
address matters only as of a particular date shall so remain true and correct as
of such date;
(ii) The representations and warranties of Buyer and Sub set forth in
this Agreement that are qualified as to Buyer Material Adverse Effect shall be
true and correct in all respects as of the Closing Date, as though made at and
as of the Closing Date, except that those representations and warranties that
address matters only as of a particular date shall remain so true and correct in
all respects as of such date;
(iii) Company shall have received a certificate signed on behalf of
Buyer by the chief executive officer or the chief financial officer of Buyer to
the effect that each of the conditions specified in (x) paragraphs (i) and (ii)
of this paragraph (a) is satisfied in all respects and (y) paragraphs (b) and
(e) of this Section 7.3 is satisfied in all respects.
(b) Performance of Obligations of Buyer and Sub. Buyer and Sub shall
have performed in all material respects all obligations required to be performed
by them under this Agreement at or prior to the Closing Date.
(c) Tax Opinion. Stockholders shall have received the opinion of
Shearman & Sterling, to the effect that the Merger will be treated for federal
income tax purposes as a tax-free reorganization within the meaning of Section
368(a) of the Code;
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AGREEMENT AND PLAN OF MERGER
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<PAGE>
(it being agreed that Buyer and Company shall each provide reasonable
cooperation, including making reasonable representations, to Shearman & Sterling
to enable it to render such opinion).
(d) Legal Opinion. Company shall have received the opinion of Loeff
Claeys Verbeke and Brown, Rudnick, Freed & Gesmer, P.C. with respect to the
matters set forth on Exhibit H attached hereto, as applicable. ---------
(e) Consents. Buyer and Sub shall have obtained and delivered to
Company all material waivers, permits, consents, approvals or other
authorizations necessary to be obtained by it to consummate the Merger, and
effected all material registrations, filings and notices necessary to be
affected by it to consummate the Merger.
(f) Registration Rights Agreement. Buyer shall have executed and
delivered to Stockholders the Registration Rights Agreement in the form to
Exhibit E attached hereto.
(g) Stockholders Agreement. Buyer shall have executed and delivered
to Stonington the Stockholders Agreement contemplated by Section 7.2(g).
(h) Indemnity and Escrow Agreement. Buyer shall have executed and
delivered to Stockholders the Indemnity and Escrow Agreement contemplated by
Section 7.2(h) and shall have funded the Escrow Fund created thereby as provided
herein.
ARTICLE VIII. TERMINATION AND AMENDMENT
Section 8.1 Termination.
This Agreement may be terminated at any time prior to the Closing Date
(with respect to Sections 8.1(b) through 8.1(d), by written notice by the
terminating party to the other party), whether before or after approval of the
Merger by the stockholders of Company:
(a) by mutual written consent of Buyer and Company; or
(b) by either Buyer or Company if the Merger shall not have been
consummated by April 30, 2000 (the "Outside Date"); provided, however, that
either Buyer or Company may extend such date to June 30, 2000, by giving written
notice to the other at any time prior to April 30, 2000 if, on the date of such
notice, either of the conditions set forth in Sections 7.1(a) and 7.1(c) has not
been satisfied; provided that Buyer also may exercise such extension privileges
if Buyer has not obtained financing in an amount sufficient to refinance the
Indebtedness and other obligations described at Section 7.2(l); and provided
further that the right to terminate this Agreement under this Section 8.1(b)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been a principal cause of or resulted in the failure of
the Merger to occur on or before such date; or
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AGREEMENT AND PLAN OF MERGER
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<PAGE>
(c) by either Buyer or Company if a Governmental Entity of competent
jurisdiction shall have issued a nonappealable final order, decree or ruling or
taken any other nonappealable final action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger; or
(d) by either Buyer or Company, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in this Agreement, which breach (i) causes the conditions set forth in
Section 7.2(a) or (b) (in the case of termination by Buyer) or 7.3(a) or (b) (in
the case of termination by Company) to be incapable of being satisfied.
Section 8.2 Effect of Termination.
In the event of termination of this Agreement as provided in Section
8.1, this Agreement shall immediately become void and there shall be no
liability or obligation on the part of Buyer, Company, Sub or their respective
officers, directors, stockholders or Affiliates, except as set forth in Sections
5.5, 6.9, 8.3 and Article IX; provided that any such termination shall not
relieve any party from liability for any willful breach of this Agreement (which
includes without limitation the making of any representation or warranty by a
party in this Agreement that the party knew was not true and accurate when made)
and the provisions of Sections 5.5, 6.9, 8.3, and Article IX of this Agreement
and the Confidentiality Agreement shall remain in full force and effect and
survive any termination of this Agreement.
Section 8.3 Fees and Expenses.
(a) Except as set forth in this Section 8.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, whether or not the
Merger is consummated provided that fees and expenses incurred by Company
(including any fees and expenses the Company has incurred on behalf of its
employees in connection with their negotiation and execution of the Retention
Agreements and Option Termination Agreements) in excess of $3,000,000 shall be
paid by Stockholders.
Section 8.4 Amendment.
This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
Section 8.5 Extension; Waiver.
At any time prior to the Effective Time, the parties hereto may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement
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AGREEMENT AND PLAN OF MERGER
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<PAGE>
on the part of a party hereto to any such extension or waiver shall be valid
only if set forth in a written instrument signed on behalf of such party.
ARTICLE IX. MISCELLANEOUS
Section 9.1 Survival of Representations, Warranties and Agreements.
All representations, warranties, agreements, covenants and obligations
herein or in any schedule, certificate or financial statement delivered by any
party to another party incident to the transactions contemplated hereby shall be
deemed to have been relied upon by the other party and shall survive the Closing
until one year following the Closing Date except that (a) Section 3.2 with
respect to title to capital stock of the Subsidiaries of Company, and (b)
Section 3.3 with respect to the authorization of the Merger, this Agreement and
the transactions contemplated hereby, shall be without limitation as to time.
Such representations, warranties, agreements, covenants and obligations shall be
further actionable subject to the limitations set forth in Article I of the
Escrow Agreement and shall not merge in the performance of any obligation by
either party hereto.
Section 9.2 Notices.
All notices, requests, demands, claims and other communications
hereunder shah be in writing. Any notice, request, demand, claim or other
communication hereunder shall be deemed duly delivered five business days after
it is sent by registered or certified mail, return receipt requested, postage
prepaid, or two business days after it is sent via a reputable nationwide
overnight courier service for next business day delivery, in each case to the
intended recipient as set forth below:
(a) if to Buyer or Sub, to
Lernout & Hauspie Speech Products, N.V.
Flanders Language Valley 50
B-8900 Ieper, Belgium
Attention: Legal Department and Chief Financial Officer
Telephone: 011 32 57 228 888
Facsimile: 011 32 57 208 489
with a copy to:
Lernout & Hauspie Speech Products, N.V.
c/o Lernout & Hauspie Speech Products USA, Inc.
52 Third Avenue
Burlington, MA 01803-4414
Attention: Legal Department and Chief Financial Officer
Telephone: (781) 203-5000
Facsimile: (781) 238-0986
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AGREEMENT AND PLAN OF MERGER
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<PAGE>
with a copy to:
Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, MA 02111
Attn: Philip J. Flink, Esq.
Tel: (617) 826-8200
Facsimile: (617) 856-8201
(b) if to Company, to
Dictaphone Corporation
3191 Broadbridge Avenue
Stratford, CT 06614
Telephone: (203) 381-7000
Facsimile: (203) 336-8566
Attn:
with a copy to:
Stonington Partners, Inc.
767 Fifth Avenue, 48th Floor
New York, New York 10153
Attn: Albert J. Fitzgibbons, III
Tel: (212) 339-8500
and:
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Telephone: (212) 848-4000
Facsimile: (212) 848-7179
Attn: Clare O'Brien, Esquire
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.
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
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<PAGE>
Section 9.3 Interpretation; Incorporation by Reference.
(a) When a reference is made in this Agreement to Articles or
Sections, such reference shall be to an Article or Section of this Agreement
unless otherwise indicated. The table of contents, table of defined terms and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. The
phrases "the date of this Agreement", "the date hereof," and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to March
7, 2000. The words "include," "includes" and "including" when used herein shall
be deemed in each case to be following by the words "without limitation."
(b) In the event of an ambiguity or a question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
(c) The Indemnification provision set forth in Article I of the
Escrow Agreement are incorporated herein by reference and the Company consents
to the provisions therein as of the date hereof.
Section 9.4 Counterparts.
This Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
when two or more counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
Section 9.5 Entire Agreement; No Third Party Beneficiaries.
This Agreement (including the documents and the instruments referred to
herein) (a) constitute the entire agreement and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) are not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder; provided that the
Confidentiality Agreement shall remain in full force and effect until the
Effective Time.
Section 9.6 Governing Law and Venue.
EXCEPT AS OTHERWISE REQUIRED UNDER BELGIUM LAW, THIS AGREEMENT SHALL BE
DEEMED TO BE MADE IN, AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND
GOVERNED BY AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE (OTHER THAN
CHOICE OF LAW PRINCIPLES THEREOF) APPLICABLE TO CONTRACTS TO BE PERFORMED WHOLLY
IN SUCH STATE. The parties hereby (a) irrevocably submit to the jurisdiction of
the Chancery Court of the State of Delaware and the federal courts of the United
States of America located in the State of Delaware solely in respect of the
interpretation and enforcement of the provisions of this Agreement and in
respect
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
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<PAGE>
of the transactions contemplated hereby and thereby and (b) waive, and agree not
to assert, as a defense in any action, suit or proceeding for the interpretation
or enforcement hereof, that it is not subject to such jurisdiction or that such
action, suit or proceeding may not be brought or is not maintainable in said
courts or that the venue thereof may not be appropriate or that this Agreement
may not be enforced in or by such courts, and the parties irrevocably agree that
all claims with respect to such action or proceeding shall be heard and
determined in such courts. The parties hereby consent to and grant any such
court's jurisdiction over the person of such parties and over the subject matter
of such dispute and agree that mailing of process or other papers in connection
with any such action or proceeding in the manner provided in Section 9.02, or in
such other manner as may be permitted by law, shall be valid and sufficient
service thereof.
Section 9.7 Waiver of Jury Trial.
EACH OF BUYER, SUB, COMPANY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
ACTIONS OF BUYER, SUB, COMPANY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE
AND ENFORCEMENT HEREOF OR THEREOF.
Section 9.8 Assignment.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other parties.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their respective successors
and assigns.
Section 9.9 Severability.
In the event that any provision of this Agreement or the application
thereof, becomes or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of this Agreement will continue in
full force and effect and the application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of
such void or unenforceable provision.
Section 9.10 Other Remedies; Specific Performance.
Except as otherwise provided herein or in Article I of the Escrow
Agreement, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such
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AGREEMENT AND PLAN OF MERGER
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<PAGE>
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
[Remainder of page intentionally blank]
<PAGE>
IN WITNESS WHEREOF, Buyer, Sub and Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
LERNOUT & HAUSPIE SPEECH
PRODUCTS N.V.
By: /s/ Pol Hauspie
Name: Pol Hauspie
Title: Managing Director
By: /s/ Nico Willaert
Name: Nico Willaert
Title: Managing Director
DARK ACQUISITION CORP.
By: /s/ Gaston Bastiaens
Name: Gaston Bastiaens
Title: President
DICTAPHONE CORPORATION
By: /s/ John H. Duerden
Name: John H. Duerden
Title: Chairman and CEO
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet of Dictaphone Corporation at March 31,
2000 and the condensed consolidated statement of operations for the three
months ended March 31, 2000 and is qualified in its entirety by reference
to such finan- cial statements.
</LEGEND>
<CIK> 0000946734
<NAME> DICTAPHONE CORPORATION
<MULTIPLIER> 1
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 3-mOS
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-01-2000
<PERIOD-END> Mar-31-2000
<EXCHANGE-RATE> 1
<CASH> 5,002
<SECURITIES> 0
<RECEIVABLES> 102,093
<ALLOWANCES> 1,851
<INVENTORY> 39,470
<CURRENT-ASSETS> 151,035
<PP&E> 80,872
<DEPRECIATION> 41,984
<TOTAL-ASSETS> 448,529
<CURRENT-LIABILITIES> 93,248
<BONDS> 363,965
51,379
0
<COMMON> 130
<OTHER-SE> (82,569)
<TOTAL-LIABILITY-AND-EQUITY> 448,529
<SALES> 53,399
<TOTAL-REVENUES> 81,258
<CGS> 54,190
<TOTAL-COSTS> 84,324
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,494
<INCOME-PRETAX> (13,350)
<INCOME-TAX> (5)
<INCOME-CONTINUING> (13,355)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,355)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
