<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 25, 1997
ENGINEERING ANIMATION, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 000-27670 42-1323712
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
2321 North Loop Drive
Ames, Iowa 50010
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (515) 296-9908
None
____________________________________________________________________
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
ACQUISITION OF CIMTECH, INC.
On November 26, 1997, Engineering Animation, Inc. (the "Company")
completed the acquisition of Cimtech, Inc. ("Cimtech"), a privately held
developer of factory layout software for approximately $6,000,000 in newly
issued common stock of the Company, $0.01 per share par value ("Common
Stock"). The Company acquired Cimtech pursuant to a merger of COHO, Inc.
("COHO"), a wholly-owned subsidiary of the Company, with and into Cimtech.
Pursuant to the terms of the Amended and Restated Agreement and Plan of
Merger among the Company, Cimtech and COHO, the shareholders of Cimtech
received approximately 0.12937 of a share of Common Stock for each share of
Cimtech common stock held at the consummation of the transaction. In
addition, each holder of an option to acquire common stock of Cimtech agreed
to exchange such Cimtech option for an option to acquire the same number of
shares of Common Stock as the shares underlying such Cimtech option would
have been exchangeable for had such Cimtech option been exercised in full
immediately prior to the consummation of the acquisition. The acquisition of
Cimtech by the Company will be treated as a pooling of interests for
accounting and financial reporting purposes. The Company expects to continue
to operate the business previously operated by Cimtech.
ACQUISITION OF TECHNOLOGY COMPANY VENTURES, L.L.C. AND ROSETTA
TECHNOLOGIES, INC.
On November 25, 1997, Engineering Animation, Inc. (the "Company")
completed the acquisition of Rosetta Technologies, Inc. ("Rosetta"), a
privately held provider of interactive product data access and viewing
solutions, for approximately $25,550,000 in Common Stock. The Company
acquired Rosetta through two separate transactions. In the first
transaction, Technology Company Ventures, L.L.C., an Oregon limited liability
company and the holder of approximately 69% of the outstanding common stock
of Rosetta ("Ventures"), merged with and into Shell Beaver, L.L.C., a wholly
owned subsidiary of the Company ("Shell Beaver"). Pursuant to the terms of
the Amended and Restated Agreement and Plan of Merger among the Company,
Ventures and Shell Beaver, the members of Ventures received in exchange for
their Ventures membership interests approximately 0.06215 of a share of
Common Stock for each share of Rosetta common stock held by Ventures at the
consummation of the transaction. Miken, Inc. and JFJ Ventures, L.L.C. were
the only members of Ventures at the time of the consummation of the
acquisition. The acquisition of Ventures by the Company will be treated as a
pooling of interests for accounting and financial reporting purposes. The
sole asset of Ventures was common stock of Rosetta.
In the second transaction, Transitory Beaver, Inc., a wholly-owned
subsidiary of Shell Beaver ("Transitory Beaver"), merged with and into
Rosetta, as a result of which Rosetta became an indirect, wholly-owned
subsidiary of the Company. Pursuant to the terms of the Amended and Restated
Agreement and Plan of Merger among the Company, Rosetta and Transitory
Beaver, the holders of Rosetta common stock (other than Shell Beaver)
received approximately 0.06215 of a share of Common Stock for each share of
Rosetta common stock held at the consummation of the transaction. In
addition, each option to acquire common stock of Rosetta was converted into
an option to acquire the same number of shares of Common Stock as the shares
underlying such Rosetta option would have been exchangeable for had such
1
<PAGE>
Rosetta option been exercised in full immediately prior to the consummation
of the acquisition. The acquisition of Rosetta will be treated as a purchase
for accounting and financial reporting purposes. The Company expects to
continue to operate the business previously operated by Rosetta.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Index to Financial Statements and Exhibits.
<TABLE>
<CAPTION>
<S> <C>
(i) Unaudited Pro Forma Condensed Combined Financial Statements
Introduction F - 1
Unaudited Pro Forma Condensed Combined Balance Sheet at September 30, 1997 F - 2
Unaudited Pro Forma Condensed Combined Statement of Operations For the Year
Ended December 31, 1996 F - 3
Unaudited Pro Forma Condensed Combined Statement of Operations For the Year
Ended December 31, 1995 F - 4
Unaudited Pro Forma Condensed Combined Statement of Operations For the Year
Ended December 31, 1994 F - 5
Unaudited Pro Forma Condensed Combined Statement of Operations For the Nine
Months Ended September 30, 1997 F - 6
Notes to Unaudited Pro Forma Condensed Combined Financial Statements F - 7
(ii) Cimtech, Inc. Financial Statements
Report of Independent Auditors F - 8
Balance Sheets at December 31, 1996 and 1995 (1995 is unaudited) and at
September 30, 1997 (unaudited) F - 9
Statements of Operations -- Years ended December 31, 1996, 1995 and 1994 (1995
and 1994 are unaudited) and the nine months ended September 30, 1997
(unaudited) and 1996 (unaudited) F - 11
Statement of Stockholders' Equity -- Years ended December 31, 1996, 1995 and
1994 (1995 and 1994 are unaudited) and the nine months ended September 30,
1997 (unaudited) F - 12
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Statements of Cash Flows -- Years ended December 31, 1996, 1995 and 1994 (1995
and 1994 are unaudited) and the nine months ended September 30, 1997
(unaudited) and 1996 (unaudited) F - 13
Notes to Financial Statements F - 14
(iii) Technology Company Ventures, L.L.C. Financial Statements
Report of Independent Public Accountants F - 21
Consolidated Balance Sheets -- December 31, 1995 (unaudited) and 1996 and
September 30, 1997 (unaudited) F - 22
Consolidated Statements of Operations -- Year ended December 31, 1994
(unaudited), January 1, 1995 through November 30, 1995 (unaudited),
December 1, 1995 through December 31, 1995 (unaudited) and Year ended
December 31, 1996 and Nine Months ended September 30, 1996 (unaudited) and
1997 (unaudited) F - 23
Consolidated Statements of Predecessor and Member's Equity -- December 31, 1993
(unaudited) and 1994 (unaudited), November 30, 1995 (unaudited), and
December 31, 1995 (unaudited) and 1996 and September 30, 1997 (unaudited) F - 24
Consolidated Statements of Cash Flows -- Years ended December 31, 1994
(unaudited), January 1, 1995 through November 30, 1995 (unaudited),
December 1, 1995 through December 31, 1995 (unaudited) and Year ended
December 31, 1996 and Nine Months ended September 30, 1996 (unaudited) and
1997 (unaudited) F - 25
Notes to Consolidated Financial Statements F - 26
(iv) Rosetta Technologies, Inc. Financial Statements
Report of Independent Public Accountants F - 33
Balance Sheets -- December 31, 1995 and 1996 and September 30, 1997 (unaudited) F - 34
Statements of Operations -- Years ended December 31, 1994, 1995 and 1996 (1994
unaudited) and Nine Months ended September 30, 1996 (unaudited) and 1997
(unaudited) F - 35
Statements of Shareholders' Equity -- December 31, 1993, 1994, 1995 and 1996
(1993 and 1994 unaudited) and September 30, 1997 (unaudited) F - 36
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Statements of Cash Flows -- Years ended December 31, 1994, 1995 and 1996 (1994
unaudited) and Nine Months ended September 30, 1996 (unaudited) and 1997
(unaudited) F - 37
Notes to Financial Statements for the Years ended December 31, 1995 and 1996 F - 38
</TABLE>
(b) Exhibits.
The exhibits listed in the accompanying Exhibit Index are filed as
part of this Current Report on Form 8-K.
4
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
present the effects of the merger of COHO with and into Cimtech (the
"Cimtech Merger") and Ventures with and into Shell Beaver (the "Ventures
Merger") as poolings of interests for accounting purposes and the merger of
Transitory Beaver with and into Rosetta (the "Rosetta Merger") as a purchase
for accounting purposes. The $7.1 million purchase price of the Rosetta
Merger was allocated as follows: $5.4 million to estimated preliminary
in-process research and development, $636,000 to the elimination of the
Rosetta minority interest and $1.1 million to goodwill. The unaudited pro
forma condensed combined financial statements are based upon the respective
historical financial statements and notes thereto of the companies.
The unaudited pro forma condensed combined financial statements are presented
for illustrative purposes only and are not necessarily indicative of the
operating results or financial position that would have occurred if the
Cimtech Merger, the Ventures Merger and the Rosetta Merger had each been
consummated on the date indicated, nor are the unaudited pro forma condensed
combined financial statements necessarily indicative of future operating
results or financial position.
F-1
<PAGE>
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
EAI VENTURES CIMTECH ADJUSTMENTS COMBINED
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $4,842 $1,806 $857 $7,505
Short-term investments 33,105 33,105
Accounts receivable 17,818 1,761 294 19,873
Prepaid expense and other assets 1,540 32 76 250 (d) 1,898
---------------------------------------------------------------------
Total current assets 57,305 3,599 1,227 62,381
PROPERTY AND EQUIPMENT, NET 9,896 283 160 10,339
OTHER ASSETS:
Note receivable 1,408 1,408
Software development costs, net 1,400 1,400
Goodwill 203 1,125 (a) 1,328
Other 762 762
---------------------------------------------------------------------
Total assets $70,771 $4,085 $1,387 $77,618
=====================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,795 $171 $82 $1,900 (e) $3,948
Accrued compensation and other 1,889 213 92 2,194
Other current liabilities 1,192 1,015 190 2,397
---------------------------------------------------------------------
Total Current Liabilities 4,876 1,399 364 8,539
Long-term debt due after one year 593 351 680 (351)(f) 1,273
Obligations under capital leases due
after one year
Deferred income taxes 1,171 1,171
Minority interest 636 (636)(b)
STOCKHOLDERS' EQUITY 64,131 1,699 343 1,125 (a) 66,635
636 (b)
250 (d)
(1,900)(e)
351 (f)
---------------------------------------------------------------------
Total liabilities and stockholders' equity $70,771 $4,085 $1,387 $77,618
=====================================================================
</TABLE>
F-2
<PAGE>
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
EAI VENTURES CIMTECH ADJUSTMENTS COMBINED
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $20,413 $5,292 $1,484 27,189
Cost of revenues 6,443 465 370 7,278
---------------------------------------------------------------------
Gross profit 13,970 4,827 1,114 19,911
Operating expenses:
Sales and marketing 7,428 1,810 561 9,799
General and administrative 2,360 394 287 225 (a) 3,266
Research and development 2,123 1,111 204 3,438
Write-off of in-process research
& development 5,360 (c) 5,360
---------------------------------------------------------------------
Operating income (loss) 2,059 1,512 62 (1,952)
Other income (expense) 1,028 (20) (20) 988
---------------------------------------------------------------------
Income (loss) before income taxes 3,087 1,492 42 0 (964)
Income tax expense (benefit) 1,236 508 (40)(c) 1,704
---------------------------------------------------------------------
Income (loss) before minority interest 1,851 984 42 (2,668)
Minority Interest (310) 310 (b)
---------------------------------------------------------------------
Net income (loss) $1,851 $674 $42 ($2,668)
=====================================================================
Earnings (loss) per share of common stock $0.36 $1.45 $0.05 ($0.51)
Weighted average shares outstanding 5,157 466 876 5,223
</TABLE>
F-3
<PAGE>
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
VENTURES
VENTURES PREDECESSOR PRO FORMA
EAI 1 MONTH 11 MONTHS CIMTECH ADJUSTMENTS COMBINED
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $10,415 $764 $1,909 $1,070 $14,158
Cost of revenues 2,759 69 81 272 3,181
Gross profit 7,656 695 1,828 798 10,977
Operating expenses:
Sales and marketing 3,093 96 825 384 4,398
General and administrative 1,986 33 238 256 2,513
Research and development 1,712 61 687 219 1,992
Write-off of in-process research &
development 2,520 3,207
-----------------------------------------------------------------------------------
Operating income (loss) 865 (2,015) 78 (61) (1,133)
Other income (expense) (137) (3) (30) (18) (188)
-----------------------------------------------------------------------------------
Income (loss) before income taxes 728 (2,018) 48 (79) (1,321)
Income tax expense (benefit) 297 95 9 (29)(d) 372
-----------------------------------------------------------------------------------
Income (loss) before minority interest 431 (2,113) 39 (79) 29 (1,693)
Minority Interest (128) (12) (140)
-----------------------------------------------------------------------------------
Net income (loss) $431 ($2,241) $27 ($79) $29 ($1,833)
====================================================================================
Earnings per share of common stock $0.12 ($5.14) $0.06 ($0.10) ($0.50)
Weighted average shares outstanding 3,702 436 466 820 3,635
</TABLE>
F-4
<PAGE>
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
VENTURES PRO FORMA PRO FORMA
EAI PREDECESSOR CIMTECH ADJUSTMENTS COMBINED
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $5,456 $1,547 $868 $7,871
Cost of revenues 1,557 192 254 2,003
-------------------------------------------------------------------
Gross profit 3,899 1,355 614 5,868
Operating expenses:
Sales and marketing 1,801 498 280 2,579
General and administrative 955 262 194 1,411
Research and development 869 684 147 1,700
-------------------------------------------------------------------
Operating income (loss) 274 (89) (7) 178
Other income (expense) (68) (10) (4) (82)
-------------------------------------------------------------------
Income (loss) before income taxes 206 (99) (11) 96
Income tax expense (benefit) 92 (3)(d) 89
-------------------------------------------------------------------
Income (loss) before minority interest 114 (99) (11) 3 7
Minority interest 31 31
-------------------------------------------------------------------
Net income (loss) $114 ($68) ($11) $38
===================================================================
Earnings per share of common stock $0.03 ($0.18) ($0.02) $0.01
Weighted average shares outstanding 3,695 382 654 4,190
</TABLE>
F-5
<PAGE>
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
EAI VENTURES CIMTECH ADJUSTMENTS COMBINED
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $27,564 $4,622 $2,167 34,353
Cost of revenues 8,362 211 429 9,002
---------------------------------------------------------------------
Gross profit 19,202 4,411 1,738 25,351
Operating expenses:
Sales and marketing 8,224 1,983 847 11,054
General and administrative 2,968 512 323 169 (a) 3,972
Research and development 3,361 1,323 333 5,017
---------------------------------------------------------------------
Operating income 4,649 593 235 (169) 5,308
Other income (expense) 1,154 (31) (15) 1,108
---------------------------------------------------------------------
Income (loss) before income taxes 5,803 562 220 (169) 6,416
Income tax expense (benefit) 2,288 183 2,471
---------------------------------------------------------------------
Income (loss) before minority interest 3,515 379 220 (169) 3,945
Minority interest (119) 119 (b)
---------------------------------------------------------------------
Net income (loss) $3,515 $260 $220 ($50) $3,945
=====================================================================
Earnings per share of common stock $0.59 $0.53 $0.24 $0.58
Weighted average shares outstanding 5,950 486 905 6,790
</TABLE>
F-6
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a) To reflect the recording of estimated preliminary goodwill and the
resulting amortization over a five year period. The purchase accounting
is subject to final appraisals being received.
(b) To reflect the acquisition of the Rosetta minority interest.
(c) To reflect the estimated write off of in-process research and development
in connection with the acquisition of the Rosetta minority interest and the
resulting income tax expense adjustment to reflect the combined tax
position.
(d) To reflect the combined tax position as if the Cimtech Merger had occurred
at the beginning of the earliest period presented. This adjustment is
based on the evaluation of a variety of factors including the combined
companies' statutory and state tax rates, and the elimination of the
valuation allowance for deferred tax assets of Cimtech.
(e) To adjust the pro forma condensed combined balance sheet to reflect one-
time merger-related charges which will be expensed at the time the
Ventures Merger and the Cimtech Merger are consummated as required under
the pooling-of-interests accounting method. These charges are presently
estimated to be approximately $1.2 million related to the Ventures Merger
and $700,000 related to the Cimtech Merger. Direct merger expenses include
financial advisor fees, outside legal fees and accounting, and various
other costs and filing fees.
(f) To reflect the conversion of a $351,000 convertible note into Rosetta
common stock.
F-7
<PAGE>
Report of Independent Auditors
Board of Directors
Cimtech, Inc.
We have audited the accompanying balance sheet of Cimtech, Inc. as of
December 31, 1996 and the related statements of operations, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cimtech, Inc. at December
31, 1996 and the results of its operations and its cash flows for the year
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Minneapolis, Minnesota
October 10, 1997
F-8
<PAGE>
Cimtech, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30,
1996 1995 1997
------------------------ --------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $367,978 $ 32,958 $ 856,890
Accounts receivable, less allowance of $15,000 224,927 163,377 294,797
Prepaid expenses 33,155 15,741 76,215
----------------------------------------
Total current assets 626,060 212,076 1,227,902
Fixed assets:
Equipment 217,205 173,764 297,291
Furniture and fixtures 16,874 16,482 28,354
Vehicles 5,384 - 5,384
----------------------------------------
239,463 190,246 331,029
Less accumulated depreciation 158,927 133,370 171,302
----------------------------------------
80,536 56,876 159,727
Other assets:
Loan origination fees, net - 2,249 -
----------------------------------------
Total assets $706,596 $271,201 $1,387,629
----------------------------------------
----------------------------------------
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30,
1996 1995 1997
------------------------ --------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 59,265 $ 10,036 $ 81,691
Accrued expenses 17,233 9,879 34,962
Accrued payroll and sales taxes - 1,730 692
Deferred revenue 59,376 31,300 187,856
Accrued salaries and wages 8,058 40,441 28,473
Accrued interest 4,736 - 28,195
Current obligation under capital lease - 619 -
Current maturities of long-term debt 6,860 18,235 2,326
----------------------------------------
Total current liabilities 155,528 112,240 364,195
Long-term debt, less current maturities 430,902 120,786 680,000
Stockholders' equity:
Common stock, $1.00 par value:
Authorized shares--50,000,000
Issued and outstanding shares--
884,689, 834,689 and 914,689, respectively 884,689 834,689 914,689
Additional paid-in-capital 86,104 95,893 59,104
Accumulated deficit (850,627) (892,407) (630,359)
----------------------------------------
Total stockholders' equity 120,166 38,175 343,434
----------------------------------------
Total liabilities and stockholders' equity $706,596 $271,201 $1,387,629
----------------------------------------
----------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-10
<PAGE>
Cimtech, Inc.
Statements of Operations
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECENBER 31 SEPTEMBER 30
1996 1995 1994 1997 1996
---------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues $1,484,202 $1,070,069 $867,624 $2,167,402 $972,340
Cost of revenues 369,542 272,496 253,566 428,541 264,463
---------------------------------------- -------------------------
Gross profit 1,114,660 797,573 614,058 1,738,861 707,877
Operating expenses:
Sales and marketing 560,867 383,492 279,716 847,066 356,489
General and administrative 287,332 255,936 194,017 322,659 199,972
Research and development 204,274 219,270 146,740 333,403 128,788
---------------------------------------- -------------------------
Total operating expenses 1,052,473 858,698 620,473 1,503,128 685,249
---------------------------------------- -------------------------
Income (loss) from operations 62,187 (61,125) (6,415) 235,733 22,628
Other income (expense):
Interest income 1,071 7 26 8,569 463
Interest expense (21,478) (18,207) (4,388) (24,034) (13,768)
---------------------------------------- -------------------------
Net income (loss) $ 41,780 $ (79,325) $ (10,777) $ 220,268 $ 9,323
---------------------------------------- -------------------------
---------------------------------------- -------------------------
Earnings (loss) per share of common stock $0.05 $(0.10) $(0.02) $0.24 $0.01
---------------------------------------- -------------------------
---------------------------------------- -------------------------
Weighted average number of common shares outstanding 876,355 819,653 654,261 904,689 873,578
---------------------------------------- -------------------------
---------------------------------------- -------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-11
<PAGE>
Cimtech, Inc.
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------ PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 (unaudited) 654,261 $654,261 $246,079 $(802,305) $ 98,035
Net loss - - - (10,777) (10,777)
---------------------------------------------------------------------
Balance at December 31, 1994 (unaudited) 654,261 654,261 246,079 (813,082) 87,258
Issuance of common stock for equipment contributed 5,532 5,532 (2,766) - 2,766
Conversion of accrued salaries into common stock 109,896 109,896 (82,421) - 27,475
Exercise of stock options 65,000 65,000 (64,999) - 1
Net loss - - - (79,325) (79,325)
---------------------------------------------------------------------
Balance at December 31, 1995 (unaudited) 834,689 834,689 95,893 (892,407) 38,175
Conversion of accrued salaries into common stock 50,000 50,000 (9,789) - 40,211
Net income - - - 41,780 41,780
---------------------------------------------------------------------
Balance at December 31, 1996 884,689 884,689 86,104 (850,627) 120,166
Exercise of stock option 30,000 30,000 (27,000) - 3,000
Net income - - - 220,268 220,268
---------------------------------------------------------------------
Balance at September 30, 1997
(unaudited) 914,689 $914,689 $ 59,104 $(630,359) $343,434
---------------------------------------------------------------------
---------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-12
<PAGE>
Cimtech, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
1996 1995 1994 1997 1996
--------------------------------------- --------------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 41,780 $(79,325) $ (10,777) $220,268 $ 9,323
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 27,806 16,449 12,303 12,375 12,375
Common stock issued for services 40,211 27,475 - - 40,211
(Increase) decrease in accounts receivable (61,550) 76,457 (94,803) (69,870) (55,081)
(Increase) decrease in prepaid expenses (17,414) 3,653 (16,350) (43,060) (5,359)
Increase in accounts payable 49,229 (14,848) 11,942 22,426 72,494
Increase in deferred revenue 28,076 11,508 4,515 128,480 (9,213)
(Increase) decrease in accrued expenses (22,023) 13,014 (9,210) 62,295 (17,272)
--------------------------------------- --------------------------
Net cash provided by (used in) operating activities 86,115 54,383 (102,380) 332,914 47,478
INVESTING ACTIVITIES
Purchases of fixed assets (49,217) (3,887) (33,623) (91,566) (39,467)
--------------------------------------- --------------------------
Net cash used in investing activities (49,217) (3,887) (33,623) (91,566) (39,467)
FINANCING ACTIVITIES
Payment of loan costs - - (2,700) - -
Proceeds from issuance of common stock and exercise
of stock options - 1 - 3,000 -
Proceeds from debt 495,000 55,000 175,000 250,000 65,000
Payments on debt (196,259) (67,233) (32,746) (5,436) (14,695)
Principal payments under capital lease obligations (619) (5,306) (3,551) - (619)
--------------------------------------- --------------------------
Net cash provided by (used in) financing activities 298,122 (17,538) 136,003 247,564 49,686
--------------------------------------- --------------------------
Net increase in cash and cash equivalents 335,020 32,958 - 488,912 57,697
Cash and cash equivalents at beginning of period 32,958 - - 367,978 32,958
--------------------------------------- --------------------------
Cash and cash equivalents at end of period $367,978 $ 32,958 $ - $856,890 $90,655
--------------------------------------- --------------------------
--------------------------------------- --------------------------
NONCASH INVESTING AND FINANCING ACTIVITIES
Fixed assets purchased through capital lease
obligations and debt $ - $ 9,000 $ 7,004 $ - $ -
Common stock issued for fixed assets - 2,766 - - -
</TABLE>
SEE ACCOMPANYING NOTES.
F-13
<PAGE>
Cimtech, Inc.
Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND ORGANIZATION
Cimtech, Inc. (the "Company") develops, produces and sells factory layout
software for the CAD/CAM markets.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less when purchased to
be cash equivalents. Cash equivalents are carried at cost, which approximates
market.
REVENUE RECOGNITION
Revenue from the sale of software is recognized at the time of shipment.
Revenue is recognized from consulting contracts based upon labor and other
costs incurred and progress to completion on contracts. Revenue from customer
support services is deferred and recognized ratably over the period the
customer support services are provided.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost. Depreciation and amortization of
property and equipment is provided over the estimated useful lives of the
assets, which range from five to seven years, on the straight-line method.
RESEARCH AND DEVELOPMENT COSTS
The Company capitalizes software development costs in accordance with
Statement of Financial Accounting Standards No. 86, ACCOUNTING FOR THE COSTS
OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED. The
capitalization of these costs begins when a product's technological
feasibility has been established and ends when the product is available for
general release to customers. Costs incurred by the Company between reaching
technological feasibility and the point at which the product is ready for
general release have been insignificant. All research and development costs
have been expensed.
F-14
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes using the liability method. Deferred
income taxes are provided for temporary differences between the financial
reporting and tax basis of assets and liabilities.
EARNINGS PER SHARE
Per share earnings are based on the weighted average number of shares of
common stock and common stock equivalents outstanding. The dilutive effect of
outstanding stock options was determined based upon the treasury stock method.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, EARNINGS PER SHARE, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating basic earnings per share,
the dilutive effect of stock options will be excluded. The impact of adopting
Statement No. 128 is not expected to be material.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, but applies Accounting Principles Board Opinion No. 25 (APB 25)
and related interpretations in accounting for its plans. Under APB 25, when
the exercise price of employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
F-15
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNAUDITED FINANCIAL INFORMATION
The accompanying financial statements as of December 31, 1995, June 30, 1997,
and for the years ended December 31, 1995 and 1994, and the nine-month
periods ended September 30, 1997 and 1996 are unaudited. In the opinion of
the management of the Company, these financial statements reflect all
adjustments, consisting only of normal and recurring adjustments necessary
for a fair presentation of the financial statements. The results of
operations for the nine-month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the full year
ending December 31, 1997.
2. ROYALTY COMMITMENTS
The Company has received a total of $125,000 under a grant entered into in
May 1988, and amended in June 1993, with the Iowa Product Development
Corporation (the "IPDC"). Under terms of the grant, the Company is obligated
to make royalty payments to the IPDC of 5% of all net revenues of sponsored
prepackaged software and related services such as training, installation and
maintenance for sponsored standard prepackaged software, royalty payments of
25% of any license fees paid by any licensee to the Company with respect to
any license of sponsored standard prepackaged software, plus an additional 5%
royalty on any net sales of the sponsored standard prepackaged software by
the licensee. The Company is obligated to repay the IPDC a total of $375,000
as reimbursement for the amount received under the grant. At December 31,
1996, the Company is obligated for $231,500 of additional royalty payments
under this agreement.
In addition, during 1993 the Company granted the IPDC a warrant to purchase
37,500 shares of the Company's common stock at $.15 per share. The warrant
expires on December 31, 1998.
For the years ended December 31, 1996, 1995 and 1994, the Company incurred
royalty expense of $46,750, $31,936 and $17,372, respectively.
F-16
<PAGE>
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Note payable to bank, repaid with proceeds from Autodesk, Inc. $ - $130,362
Note payable to Autodesk, Inc., principal due in two equal
annual payments commencing October 1998, with interest at a
rate of 6% due in equal quarterly installments, adjusted for
principal prepayments, commencing October 1997, and continuing
until maturity. The Company may also borrow up to an additional
$250,000 under the agreement. The note is collateralized by
substantially all of the Company's assets. 430,000 -
Note payable to a bank, payable in monthly installments of $419
including interest at 10-1/4%, final payment due November
1997, collateralized by equipment. 4,322 8,659
Note payable to a bank, payable in monthly installments of
$230 including interest at 9.99%, final payment due
April 1998, collateralized by a vehicle. 3,440 -
-----------------------
437,762 139,021
Less current portion (6,860) (18,235)
-----------------------
Long-term debt $430,902 $120,786
-----------------------
-----------------------
</TABLE>
Future maturities of long-term debt are as follows:
1997 $ 6,860
1998 215,902
1999 215,000
--------
$437,762
--------
--------
The Company paid interest of $16,742, $18,207 and $4,388 in 1996, 1995 and
1994, respectively.
At December 31, 1996, the Company has a $60,000 line of credit that expires
April 15, 1997. There is no balance outstanding under this line of credit at
December 31, 1996.
F-17
<PAGE>
4. STOCK OPTIONS
At December 31, 1996, the Company had outstanding stock options to purchase
40,000 shares of common stock at exercise prices of $.10 to $1.00. The
options expire during 1997 and 2007. At December 31, 1996, options to
purchase 30,000 shares of common stock were exercisable at an exercise price
of $.10 per share.
Pro forma information regarding net income is required by Statement No. 123,
and has been determined as if the Company had accounted for its stock options
under the fair value method of that Statement. The fair value of these
options was estimated at the date of grant using the minimum value option
pricing model with the following weighted-average assumptions for 1996:
risk-free interest rate of 6.5% and a weighted average expected life of the
option of five years.
The minimum value option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions.
The effect of applying Statement 123's fair value method to the Company's
stock-based awards results in net income that is not materially different
than the amount reported for the year ended December 31, 1996.
During the initial phase-in period, the effects of applying Statement 123 for
recognizing compensation cost may not be representative of the effects on
reported net income or loss for future years because the options vest over
several years and additional awards will be made in the future.
5. INCOME TAXES
At December 31, 1996, the Company had a net operating loss carryforward (NOL)
of approximately $850,000 which is available to offset taxable income through
2011. For financial reporting purposes, a valuation allowance has been
recorded to offset deferred tax assets that may not be realized.
F-18
<PAGE>
5. INCOME TAXES (CONTINUED)
Income tax expense consists of :
1996 1995 1994
--------------------------------------
Current tax expense $8,900 $ - $ -
Deferred tax benefit (8,900) - -
--------------------------------------
$ - $ - $ -
--------------------------------------
--------------------------------------
Significant components of the Company's net deferred tax assets are as
follows:
DECEMBER 31
1996 1995
-----------------------
Deferred tax assets:
Allowance for uncollectible accounts $ 5,700 $ 5,700
Net operating loss carryforward 323,000 339,000
-----------------------
Total deferred tax assets 328,700 344,700
Less valuation allowance (328,700) (344,700)
-----------------------
Net deferred tax assets $ - $ -
-----------------------
-----------------------
A reconciliation of statutory federal income taxes to the income tax expense
(benefit) recorded is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
Income taxes at statutory rate $ 6,300 $(11,900) $(1,600)
State taxes, net of federal benefit 2,600 (4,500) (600)
Change in valuation allowance - 16,400 2,200
Use of net operating loss carryforwards (8,900) - -
-------------------------------------
$ - $ - $ -
-------------------------------------
-------------------------------------
</TABLE>
The net operating loss carryforwards may be subject to the limitations under
Section 382 of the Internal Revenue Code if significant changes in the equity
ownership of the Company have occurred. There can be no assurance that
certain of the Company's NOL will be available for use in the future.
F-19
<PAGE>
6. LEASE COMMITMENTS
The Company leases office equipment and office space under noncancelable
operating lease agreements that expire at various times through 2001. Future
minimum rental payments under these operating lease agreements are as follows:
1998 $43,678
1999 15,876
2000 15,876
2001 15,876
-------
$91,306
-------
-------
Rent expense amounted to $84,262, $82,827 and $57,518 for the years ended
December 31, 1996, 1995 and 1994, respectively.
7. MAJOR CUSTOMER
One major customer accounted for 22%, 10% and 17% of revenues for the years
ended December 31, 1996, 1995 and 1994, respectively. Another customer
accounted for 10% and 24% of revenues for the years ended December 31, 1995
and 1994, respectively.
F-20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Managers and Members of
Technology Company Ventures, L.L.C.:
We have audited the accompanying consolidated balance sheet of Technology
Company Ventures, L.L.C. (an Oregon limited liability company) as of
December 31, 1996, and the related consolidated statements of operations,
member's equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Technology Company
Ventures, L.L.C. as of December 31, 1996, and the results of its operations and
its cash flows for the year then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Portland, Oregon,
October 14, 1997
F-21
<PAGE>
TECHNOLOGY COMPANY VENTURES, L.L.C.
(An Oregon Limited Liability Company)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------- September 30,
1995 1996 1997
---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 299,000 $1,068,000 $1,806,000
Accounts receivable, net of allowance of
$0, $18,000 and $55,000 for
December 31, 1995 (unaudited) and 1996
and September 30, 1997 (unaudited),
respectively 1,022,000 2,204,000 1,761,000
Prepaid expenses and other current assets 27,000 24,000 32,000
---------- ---------- ----------
Total current assets 1,348,000 3,296,000 3,599,000
PROPERTY AND EQUIPMENT, net 61,000 90,000 283,000
GOODWILL, net 312,000 250,000 203,000
---------- ---------- ----------
Total assets $1,721,000 $3,636,000 $4,085,000
========== ========== ==========
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 59,000 $ 241,000 $ 171,000
Accrued expenses 66,000 197,000 213,000
Deferred revenues 148,000 624,000 954,000
Other current liabilities 40,000 40,000 -
Income taxes payable 93,000 234,000 61,000
---------- ---------- ----------
Total current liabilities 406,000 1,336,000 1,399,000
CONVERTIBLE NOTE PAYABLE- RELATED PARTY 351,000 351,000 351,000
MINORITY INTEREST 205,000 515,000 636,000
MEMBER'S EQUITY 759,000 1,434,000 1,699,000
---------- ---------- ----------
Total liabilities and member's
equity $1,721,000 $3,636,000 $4,085,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
F-22
<PAGE>
TECHNOLOGY COMPANY VENTURES, L.L.C.
(An Oregon Limited Liability Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Predecessor
--------------
Year Ended January 1, 1995
December 31, Through
1994 November 30, 1995
---------- -----------------
(Unaudited)
<S> <C> <C>
REVENUE:
Software license fees $1,424,000 $1,599,000
Maintenance and support 123,000 310,000
---------- ----------
Total revenue 1,547,000 1,909,000
COST OF REVENUE 192,000 81,000
---------- ----------
Gross profit 1,355,000 1,828,000
---------- ----------
OPERATING EXPENSES:
Sales and marketing 498,000 825,000
Research, development and engineering expenses 684,000 687,000
General and administrative expenses 262,000 238,000
Nonrecurring RTI acquisition costs - -
---------- ----------
Total operating expenses 1,444,000 1,750,000
INCOME (LOSS) FROM OPERATIONS (89,000) 78,000
OTHER EXPENSE, net:
Interest expense 38,000 29,000
Interest income (1,000) -
Other, net (27,000) 1,000
---------- ----------
Total other expense 10,000 30,000
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
AND MINORITY INTEREST (99,000) 48,000
PROVISION FOR INCOME TAXES - 9,000
---------- ----------
INCOME (LOSS) BEFORE MINORITY INTEREST (99,000) 39,000
MINORITY INTEREST 31,000 (12,000)
---------- ----------
NET INCOME (LOSS) $ (68,000) $ 27,000
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Technology Company Ventures, L.L.C.
-----------------------------------
Nine Months Ended
December 1, 1995 Year Ended September 30,
Through December 31, -------------------
December 31, 1995 1996 1996 1997
----------------- ----- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUE:
Software license fees $ 737,000 $4,838,000 $2,761,000 $3,841,000
Maintenance and support 27,000 454,000 305,000 781,000
----------- ---------- ---------- ----------
Total revenue 764,000 5,292,000 3,066,000 4,622,000
COST OF REVENUE 69,000 465,000 273,000 211,000
----------- ---------- ---------- ----------
Gross profit 695,000 4,827,000 2,793,000 4,411,000
----------- ---------- ---------- ----------
OPERATING EXPENSES:
Sales and marketing 96,000 1,810,000 1,140,000 1,983,000
Research, development and engineering expenses 61,000 1,111,000 740,000 1,323,000
General and administrative expenses 33,000 394,000 221,000 512,000
Nonrecurring RTI acquisition costs 2,520,000 - - -
----------- ---------- ---------- ----------
Total operating expenses 2,710,000 3,315,000 2,101,000 3,818,000
INCOME (LOSS) FROM OPERATIONS (2,015,000) 1,512,000 692,000 593,000
OTHER EXPENSE, net:
Interest expense 3,000 36,000 26,000 26,000
Interest income - (32,000) (19,000) (60,000)
Other, net - 16,000 23,000 65,000
----------- ---------- ---------- ----------
Total other expense 3,000 20,000 30,000 31,000
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
AND MINORITY INTEREST (2,018,000) 1,492,000 662,000 562,000
PROVISION FOR INCOME TAXES 95,000 508,000 232,000 183,000
----------- ---------- ---------- ----------
INCOME (LOSS) BEFORE MINORITY INTEREST (2,113,000) 984,000 430,000 379,000
MINORITY INTEREST (128,000) (310,000) (135,000) (119,000)
----------- ---------- ---------- ----------
NET INCOME (LOSS) $(2,241,000) $ 674,000 $ 295,000 $ 260,000
=========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-23
<PAGE>
TECHNOLOGY COMPANY VENTURES, L.L.C.
(An Oregon Limited Liability Company)
CONSOLIDATED STATEMENTS OF PREDECESSOR AND MEMBER'S EQUITY
<TABLE>
<CAPTION>
Technology Company
Predecessor Ventures, L.L.C.
----------- ----------------
<S> <C> <C>
DECEMBER 31, 1993 (unaudited) $(338,000) $ -
Contributed capital to RTI 418,000 -
Conversion of RTI debt to RTI equity 129,000 -
Net loss (68,000) -
--------- -----------
DECEMBER 31, 1994 (unaudited) 141,000 -
Net income 27,000 -
--------- -----------
NOVEMBER 30, 1995 (unaudited) $ 168,000
=========
Formation of Technology Company Ventures, L.L.C.
and acquisition of predecessor interest 2,250,000
Contribution of services for member's interest 750,000
Net loss (2,241,000)
-----------
DECEMBER 31, 1995 (unaudited) 759,000
Exercise of RTI stock options 1,000
Net income 674,000
-----------
DECEMBER 31, 1996 1,434,000
Issuance of RTI stock for services 5,000
Net income 260,000
-----------
SEPTEMBER 30, 1997 (unaudited) $1,699,000
===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-24
<PAGE>
TECHNOLOGY COMPANY VENTURES, L.L.C.
(An Oregon Limited Liability Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Predecessor
-----------------------------------
January 1, 1995
Year Ended Through
December 31, 1994 November 30, 1995
----------------- -----------------
<S> <C> <C>
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (68,000) $ 27,000
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities-
Depreciation and amortization 18,000 33,000
Nonrecurring RTI acquisition costs - -
Minority interest in (income) loss (31,000) 12,000
Issuance of stock for services - -
(Increase) decrease in assets:
Accounts receivable (556,000) 399,000
Prepaid expenses and other current assets (8,000) (17,000)
Increase (decrease) in liabilities:
Accounts payable (61,000) 5,000
Accrued expenses and other current liabilities (2,000) 32,000
Deferred revenues 217,000 (88,000)
Income taxes payable (11,000) (2,000)
--------- --------
Net cash (used in) provided by operating activities (502,000) 401,000
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (74,000) (21,000)
--------- --------
Net cash used in investing activities (74,000) (21,000)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issuances and exercise
of stock options 610,000 -
--------- --------
Net cash provided by financing activities 610,000 -
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 34,000 380,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 50,000 84,000
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 84,000 $464,000
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 36,000 $ 32,000
Cash paid for income taxes - 10,000
NONCASH TRANSACTION:
Conversion of debt to equity (189,000) -
</TABLE>
<TABLE>
<CAPTION>
Technology Company Ventures, L.L.C.
----------------------------------
Nine Months Ended
December 1, 1995 September 30,
Through Year Ended --------------------
December 31, 1995 December 31, 1996 1996 1997
----------------- ----------------- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(2,241,000) $ 674,000 $ 295,000 $ 260,000
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities-
Depreciation and amortization 3,000 129,000 81,000 82,000
Nonrecurring RTI acquisition costs 2,520,000 - - -
Minority interest in (income) loss 128,000 310,000 135,000 119,000
Issuance of stock for services - - - 7,000
(Increase) decrease in assets:
Accounts receivable (654,000) (1,182,000) 367,000 443,000
Prepaid expenses and other current assets - 3,000 (3,000) (8,000)
Increase (decrease) in liabilities:
Accounts payable 11,000 182,000 133,000 (70,000)
Accrued expenses and other current liabilities - 131,000 (11,000) (24,000)
Deferred revenues (21,000) 476,000 152,000 330,000
Income taxes payable 95,000 141,000 (21,000) (173,000)
----------- ----------- ---------- ----------
Net cash (used in) provided by operating activities (159,000) 864,000 1,128,000 966,000
----------- ----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (6,000) (96,000) (46,000) (228,000)
----------- ----------- ---------- ----------
Net cash used in investing activities (6,000) (96,000) (46,000) (228,000)
----------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issuances and exercise of stock options - 1,000 1,000 -
----------- ----------- ---------- ----------
Net cash provided by financing activities - 1,000 1,000 -
----------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (165,000) 769,000 1,083,000 738,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 464,000 299,000 299,000 1,068,000
----------- ----------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 299,000 $ 1,068,000 $1,382,000 $1,806,000
=========== =========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ - $ 36,000 $ 26,000 $ 26,000
Cash paid for income taxes - 186,000 186,000 289,000
NONCASH TRANSACTION:
Conversion of debt to equity - - - -
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-25
<PAGE>
TECHNOLOGY COMPANY VENTURES, L.L.C.
(An Oregon Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
FORMATION OF TECHNOLOGY COMPANY VENTURES, L.L.C. AND BASIS OF PRESENTATION
On November 14, 1995, Technology Company Ventures, L.L.C. (TCV) was formed for
the purpose of acquiring a 68.5% interest in Rosetta Technologies, Inc. (RTI).
Since inception, TCV has had no other significant activities other than its
investment in RTI. The accompanying financial statements represent the
consolidated financial statements of TCV and RTI, collectively, the Company.
The financial statements prior to the TCV acquisition are referred to as those
of the "predecessor."
TCV's initial capitalization included $2,249,000 of capital from JFJ Ventures,
L.L.C. (JFJ) and $1,000 from Miken, Inc. (Miken). By virtue of the TCV
Operating Agreement, control over TCV is vested equally in JFJ and Miken. JFJ
received a 75% liquidation and profits interest in TCV and Miken received a 25%
profits only member's interest in TCV for their capital contributions. The
cash from this initial capitalization was utilized to purchase the 68.5%
interest in RTI. As there was insignificant operating activity between
November 15, 1995 and November 30, 1995, the acquisition has been reflected in
the accompanying consolidated financial statements as if it occurred on
November 30, 1995. The allocation of the purchase price was recorded as
follows:
Cash paid $ 2,250,000
Less: Acquired in-process research and development (1,770,000)
Fair value of net tangible assets acquired (168,000)
-----------
Goodwill $ 312,000
===========
The Miken profits' interest, which consists of key executives of RTI, was
principally received for services rendered in connection with the acquisition
of the 68.5% interest in RTI. Because there are no vesting provisions related
to the Miken member's interest, the $750,000 estimated value of the Miken
interest was recorded as a nonrecurring acquisition expense with a
corresponding increase to member's equity in the accompanying financial
statements.
Also in connection with this transaction, the Company recorded approximately
$1,770,000 of acquired in-process research and development and $312,000 of
goodwill which is being amortized ratably over a five-year period. The amount
of the acquired in-process research and development was based on analysis of
the fair value of intangible assets acquired which indicated that a substantial
portion of the acquired intangible assets consisted of research and development
projects in-process. The development of these projects had not reached
technological feasibility and the technology has no alternative future use. In
accordance with generally accepted accounting principles, the acquired in-
process research and development was charged to expense and is included in the
accompanying consolidated statements of operations for the one-month ended
December 31, 1995. The minority interest was carried forward in the purchase
price allocation at its underlying book value.
Unaudited pro forma net income for the twelve months ended December 31, 1995,
assuming the RTI acquisition had occurred on January 1, 1995, would have been
approximately $400,000, excluding the nonrecurring acquisition expenses.
Pro forma revenues were unchanged from historical revenues.
NATURE OF RTI BUSINESS
RTI was established in 1986 in Beaverton, Oregon, to develop, sell and service
software used in the manufacturing and engineering environment. The Company's
software acts as an interactive data viewer that relays valuable information,
such as describing how products are engineered, manufactured, and supported
throughout a product's life cycle. The Company's products are sold both
domestically and internationally. During the years ended December 31, 1995
(unaudited) and 1996, 84% and 77% of revenues were from domestic customers and
16% and 23% from international customers, respectively.
F-26
<PAGE>
Also, during the year ended December 31, 1994 (unaudited), three of the
Company's customers accounted for 28%, 18% and 12% of total revenues. During
the year ended December 31, 1995(unaudited), one of the Company's customers
accounted for 15% of total revenues. There were no individual customers
accounting for more than 10% of total revenues during the year ended December
31, 1996.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein have been prepared, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although the management of the Company believes that the
disclosures are adequate to make the information presented not misleading.
Interim financial statements are by necessity somewhat tentative; judgments
are used to estimate interim amounts for items that are normally determinable
only on an annual basis.
The interim period information included herein reflects all adjustments which
are, in the opinion of the management of the Company, necessary for a fair
statement of the results of the respective interim periods. Results of
operations for interim periods are not necessarily indicative of results to
be expected for an entire year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and short-term investments with
original maturity dates of three months or less at the time of purchase.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost; depreciation is computed on a
double declining basis over the estimated useful lives of the individual
assets, which are five years for computers and equipment and seven years for
furniture and fixtures. When property and equipment is retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from
the accounts and the resulting gain or loss is reflected in income.
SOFTWARE
The costs of internally developed software which meet the criteria in
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs
of Computer Software to be Sold, Leased or Otherwise Marketed," (SFAS 86) are
periodically evaluated for capitalization purposes. To date, the Company has
not considered qualifying costs under the strict guidelines prescribed by
SFAS 86 to be significant. Accordingly, no such costs have been reflected on
the accompanying balance sheet.
REVENUE RECOGNITION
License revenues with no future obligations on the part of the Company are
recognized upon shipment to the customer. Licenses which include significant
amounts of tailoring and, occasionally, customization are recognized upon
completion of contract obligations. Revenues for consulting, custom
programming and training, where separately contracted for, are recognized as
the related services are performed. Amounts received in advance for
maintenance and support contracts are deferred and recognized ratably over
the agreement period, generally 12 months.
F-27
<PAGE>
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs included in
sales and marketing expenses in the accompanying statements of operations
were as follows:
For the year ended December 31, 1994 (unaudited) $ 53,000
For the year ended December 31, 1995, predecessor and TCV
combined (unaudited) 69,000
For the year ended December 31, 1996 137,000
2. PROPERTY AND EQUIPMENT:
The major categories of property and equipment for the years ended December 31
are summarized as follows:
As of As of
December 31, December 31,
1995 1996
-------- --------
(Unaudited)
Computer and equipment $143,000 $232,000
Furniture and fixtures 21,000 27,000
-------- --------
164,000 259,000
Less- Accumulated depreciation 103,000 169,000
-------- --------
$ 61,000 $ 90,000
======== ========
3. EMPLOYEE BENEFIT PLANS:
The Company has a tax deferred retirement plan (the Plan) under the provisions
of Section 401(k) of the Internal Revenue Code. Employer contributions to the
Plan are made at the discretion of the Board of Directors. Contributions to
the Plan were as follows:
For the year ended December 31, 1994 (unaudited) $ -
For the year ended December 31, 1995, predecessor and TCV
combined (unaudited)
-
For the year ended December 31, 1996 38,000
4. LINE OF CREDIT:
In 1996, the Company obtained a $500,000 operating line of credit with a bank
at an interest rate of prime plus .5%. All advances are payable upon demand
and are collateralized by accounts receivable and equipment. The agreement
contains covenants which require the Company to maintain certain financial
ratios. The Company is in compliance with these covenants as of December 31,
1996. There were no borrowings on the line at December 31, 1996.
5. CONVERTIBLE NOTE PAYABLE - RELATED PARTY:
The Company has a promissory note with a corporation controlled by one of RTI's
minority shareholders. This note is convertible into common stock at the
option of the holder at any time prior to full payment of the note by the
Company. The conversion rate is $1.875 per share. The note is due in full on
November 15, 1998 and bears interest at the rate of 10%. Interest only
payments are due monthly.
F-28
<PAGE>
6. OPERATING LEASES:
The Company leases its facility and certain computer equipment under operating
leases, with terms of three years, payable in monthly installments. Total
operating lease expense were as follows:
For the year ended December 31, 1994 (unaudited) $ 52,000
For the year ended December 31, 1995, predecessor
and TCVcombined (unaudited) 103,000
For the year ended December 31, 1996 117,000
Subsequent to December 31, 1996, the Company signed a lease for a new office
facility to be ready in November 1997. The lease is a five-year lease for
20,000 square feet, with an option to extend the lease term for an additional
two years. Lease payments are payable in monthly installments and have been
included in the future minimum lease payment schedule.
Future minimum lease payments for the years ending December 31 are as follows:
1997 $ 123,000
1998 269,000
1999 275,000
2000 279,000
2001 288,000
Thereafter 236,000
----------
$1,470,000
==========
7. INCOME TAXES:
TCV is a limited liability company (L.L.C.) and, accordingly, is not liable for
federal or state income taxes since the L.L.C.'s income or loss is reported on
the separate tax returns of the members. For all periods presented, however,
there was no significant revenues, expenses or other transaction activity by
TCV.
RTI accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting For Income Taxes" (SFAS 109). This
pronouncement requires deferred tax assets and liabilities to be valued using
the enacted tax rates expected to be in effect when the temporary differences
are recovered or settled.
The reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate (1995 represents predecessor and TCV combined),
excluding one-time nondeductible acquisition expenses of $2,520,000, is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1995 1996
------ ---- ----
(Unaudited)
<S> <C> <C> <C>
Federal statutory rate (34.0%) 34.0% 34.0%
State income taxes net of federal benefit (4.4) 4.4 4.4
Research and development credits - - (2.0)
Foreign sales corporation benefit - - (0.8)
Change in valuation allowance 38.4 (19.5) (4.8)
Nondeductible goodwill - - 1.3
Other - - 1.9
------ ------ -----
0.0% 18.9% 34.0%
===== ====== =====
</TABLE>
F-29
<PAGE>
In accordance with SFAS 109, RTI has recorded the following deferred taxes as
of December 31:
1995 1996
-------------- --------------
(Unaudited)
Net operating loss carryforwards $ 1,163,000 $ 1,090,000
Deferred revenue 57,000 48,000
Bad debt reserve - 7,000
-------------- --------------
Total deferred tax assets 1,220,000 1,145,000
Valuation allowance (1,220,000) (1,145,000)
-------------- --------------
Net deferred tax asset $ - $ -
============== ==============
RTI has no significant deferred tax liabilities as of December 31, 1996. No
benefit for deferred tax assets has been reflected in the accompanying
financial statements as they do not satisfy the recognition criteria set forth
in SFAS 109.
The increase (decrease) in the valuation allowance is as follows:
Year Ended December 31,
--------------------------------------
1994 1995 1996
---- ---- ----
(Unaudited)
Increase (decrease) in:
Valuation allowance $38,000 $(107,000) $(75,000)
RTI's net operating loss carryforwards expire through 2011. The Tax Reform Act
of 1986 contains provisions which limit the net operating loss carryovers
available to be used in any given year in the event of certain circumstances
including significant changes in ownership interests. As a result of prior
ownership changes, the Company is limited to using approximately $190,000 of
net operating loss carryovers in any one year.
8. STOCK OPTIONS:
RTI has an incentive stock option plan. Under the plan, options vest ratably
over four years and expire 10 years from the date of grant or 30 days after
employment termination. The exercise price for the incentive stock options
granted under the plan is set at the fair market value at the grant date.
In addition, RTI has granted 60,000 nonqualified stock options to a director.
These options vest over four years and expire ten years from date of grant. As
of December 31, 1996, none of these options have vested.
During 1995, the Financial Accounting Standards Board issued Statement No. 123
(SFAS 123), "Accounting for Stock-Based Compensation," which establishes a fair
value-based method of accounting for stock-based compensation plans and
requires additional disclosures for those companies that elect not to adopt the
new method of accounting.
F-30
<PAGE>
The Company has elected to account for its stock-based compensation plan under
APB 25. However, the Company has computed, for pro forma disclosure purposes,
the value of all options granted during 1995 and 1996 using the Black-Scholes
option-pricing model as prescribed by SFAS 123. The following assumptions were
used for grants in fiscal 1995 and 1996:
Risk-free interest rate 5.26%
Expected dividend yield 0%
Expected life 7 years
Expected volatility 40%
The total value of options granted during fiscal 1995 and 1996 will be
amortized on a pro forma basis over the vesting period of the options. Options
generally vest equally over four years. If the Company had accounted for these
plans in accordance with SFAS 123, the Company's net income (loss) would have
changed as reflected in the following pro forma amounts:
December 31, December 31,
1995 (combined) 1996
--------------- ------------
(Unaudited)
Net income (loss):
As reported $(2,241,000) $674,000
Pro forma (2,242,000) 660,000
The Company has not and does not currently have any plans to issue equity
instruments other than options to purchase Common Stock of RTI. A summary of
the status of the RTI's stock option plans and changes for the years ended
December 31, 1995 and 1996 are presented in the following table:
<TABLE>
<CAPTION>
1995 1996
-------------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- -------- ------- --------
<S> <C> <C> <C> <C>
Options outstanding at beginning of year 679,032 $0.14 712,032 $0.14
Granted 60,000 0.20 200,999 0.49
Exercised - - (3,416) 0.19
Canceled (27,000) 0.24 (5,917) 0.15
------- ----- ------- -----
Options outstanding at end of year 712,032 $0.14 903,698 $0.22
======= ===== ======= =====
Exercisable at end of year 470,906 $0.12 548,281 $0.13
======= ===== ======= =====
Weighted average fair value of
options granted $0.10 $0.25
</TABLE>
F-31
<PAGE>
The following table sets forth the exercise price, number of shares
outstanding, weighted average remaining contractual life and number of
exercisable options at December 31, 1996, based upon grant price:
Options Outstanding
-------------------
Weighted
Outstanding Average
Shares at Remaining
Exercise December 31, Contractual Exercisable
Price 1996 Life (Years) Options
- - -------- ------------ ------------ ------------
$0.10 543,864 8.50 460,114
0.24 113,835 8.00 56,917
0.33 40,000 9.25 12,500
0.40 20,000 5.00 18,750
0.50 185,999 9.50 -
F-32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Rosetta Technologies, Inc.:
We have audited the accompanying balance sheets of Rosetta Technologies,
Inc. (an Oregon corporation) as of December 31, 1995 and 1996, and the
related statements of operations, shareholders' equity and cash flows for
the years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rosetta Technologies,
Inc. as of December 31, 1995 and 1996, and the results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Portland, Oregon,
October 14, 1997
F - 33
<PAGE>
ROSETTA TECHNOLOGIES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------
September 30,
1995 1996 1997
__________ ____________ ___________
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 299,000 $ 1,068,000 $ 1,806,000
Accounts receivable, net of allowance of
$0, $18,000 and $55,000 for
December 31, 1995 and 1996 and
September 30, 1997 (unaudited), respectively 1,022,000 2,204,000 1,761,000
Prepaid expenses and other current assets 27,000 24,000 32,000
----------- ----------- -----------
Total current assets 1,348,000 3,296,000 3,599,000
PROPERTY AND EQUIPMENT, net 61,000 90,000 283,000
----------- ----------- -----------
Total assets $ 1,409,000 $ 3,386,000 $ 3,882,000
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 59,000 $ 241,000 $ 171,000
Accrued expenses 66,000 197,000 213,000
Deferred revenues 148,000 624,000 954,000
Other current liabilities 40,000 40,000 -
Income taxes payable 93,000 234,000 61,000
----------- ----------- -----------
Total current liabilities 406,000 1,336,000 1,399,000
CONVERTIBLE NOTE PAYABLE- RELATED PARTY 351,000 351,000 351,000
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value, 20,000,000 shares
authorized and 9,846,680, 9,862,475 and
9,874,975 shares issued and outstanding at
December 31, 1995 and 1996 and September 30,
1997 (unaudited), respectively 10,000 10,000 10,000
Additional paid-in capital 3,699,000 3,700,000 3,707,000
Accumulated deficit (3,057,000) (2,011,000) (1,585,000)
----------- ----------- -----------
Total shareholders' equity 652,000 1,699,000 2,132,000
----------- ----------- -----------
Total liabilities and
shareholders' equity $ 1,409,000 $ 3,386,000 $ 3,882,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-34
<PAGE>
ROSETTA TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
----------------------- -----------------
1994 1995 1996 1996 1997
___________ __________ __________ ___________ ___________
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUE:
Software license fees $1,424,000 $2,336,000 $4,838,000 $2,761,000 $3,841,000
Maintenance and support 123,000 337,000 454,000 305,000 781,000
---------- ---------- ---------- ---------- ----------
Total revenue 1,547,000 2,673,000 5,292,000 3,066,000 4,622,000
COST OF REVENUE 192,000 150,000 465,000 273,000 211,000
---------- ---------- ---------- ---------- ----------
Gross profit 1,355,000 2,523,000 4,827,000 2,793,000 4,411,000
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Sales and marketing 498,000 921,000 1,810,000 1,140,000 1,983,000
Research, development and
engineering expenses 684,000 748,000 1,111,000 740,000 1,323,000
General and administrative expenses 262,000 271,000 332,000 174,000 465,000
---------- ---------- ---------- ---------- ----------
Total operating expenses 1,444,000 1,940,000 3,253,000 2,054,000 3,771,000
Income (loss) from operations (89,000) 583,000 1,574,000 739,000 640,000
OTHER EXPENSE, net:
Interest expense 38,000 32,000 36,000 26,000 26,000
Interest income (1,000) - (32,000) (19,000) (60,000)
Other, net (27,000) 1,000 16,000 23,000 65,000
---------- ---------- ---------- ---------- ----------
Total other expense 10,000 33,000 20,000 30,000 31,000
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES (99,000) 550,000 1,554,000 709,000 609,000
PROVISION FOR INCOME TAXES - 104,000 508,000 232,000 183,000
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (99,000) $ 446,000 $1,046,000 $ 477,000 $ 426,000
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F - 35
<PAGE>
ROSETTA TECHNOLOGIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
----------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1993
(unaudited) 4,763,159 $ 5,000 $2,905,000 $(3,404,000) $ (494,000)
Contributed capital 2,977,395 3,000 607,000 - 610,000
Conversion of debt to equity 2,106,126 2,000 187,000 - 189,000
Net loss - - - (99,000) (99,000)
--------- ------- ---------- ----------- ----------
DECEMBER 31, 1994
(unaudited) 9,846,680 10,000 3,699,000 (3,503,000) 206,000
Net income - - - 446,000 446,000
--------- ------- ---------- ----------- ----------
DECEMBER 31, 1995 9,846,680 10,000 3,699,000 (3,057,000) 652,000
Exercise of stock options 15,795 - 1,000 - 1,000
Net income - - - 1,046,000 1,046,000
--------- ------- ---------- ----------- ----------
DECEMBER 31, 1996 9,862,475 10,000 3,700,000 (2,011,000) 1,699,000
Issuance of stock for services 12,500 - 7,000 - 7,000
Net income - - - 426,000 426,000
--------- ------- ---------- ----------- ----------
SEPTEMBER 30, 1997
(unaudited) 9,874,975 $10,000 $3,707,000 $(1,585,000) $2,132,000
========= ======= ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F - 36
<PAGE>
ROSETTA TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
---------------------- ------------------
1994 1995 1996 1996 1997
-------- -------- -------- ------ ------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(99,000) $446,000 $1,046,000 $477,000 $426,000
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities-
Depreciation and amortization 18,000 36,000 67,000 34,000 35,000
Issuance of stock for services - - - - 7,000
(Increase) decrease in assets:
Accounts receivable (556,000) (255,000) (1,182,000) 367,000 443,000
Prepaid expenses and other current assets (8,000) (17,000) 3,000 (3,000) (8,000)
Increase (decrease) in liabilities:
Accounts payable (61,000) 16,000 182,000 133,000 (70,000)
Accrued expenses and other
current liabilities (2,000) 32,000 131,000 (11,000) (24,000)
Deferred revenues 217,000 (109,000) 476,000 152,000 330,000
Income taxes payable (11,000) 93,000 141,000 (21,000) (173,000)
--------- --------- ----------- ---------- ----------
Net cash (used in) provided by
operating activities (502,000) 242,000 864,000 1,128,000 966,000
--------- --------- ----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (74,000) (27,000) (96,000) (46,000) (228,000)
--------- --------- ----------- ---------- ----------
Net cash used in investing activities (74,000) (27,000) (96,000) (46,000) (228,000)
--------- --------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issuances and
exercise of stock options 610,000 - 1,000 1,000 -
--------- --------- ----------- ---------- ----------
Net cash provided by financing activities 610,000 - 1,000 1,000 -
--------- --------- ----------- ---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 34,000 215,000 769,000 1,083,000 738,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 50,000 84,000 299,000 299,000 1,068,000
--------- --------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 84,000 $ 299,000 $ 1,068,000 $ 1,382,000 $ 1,806,000
========= ========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 36,000 $ 32,000 $ 36,000 $ 26,000 $ 26,000
Cash paid for income taxes - 10,000 186,000 186,000 289,000
NONCASH TRANSACTION:
Conversion of debt to equity (189,000) - - - -
</TABLE>
The accompanying notes are an integral part of these statements.
F - 37
<PAGE>
ROSETTA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS
Rosetta Technologies, Inc. (the Company) was established in 1986 in Beaverton,
Oregon, to develop, sell and service software used in the manufacturing and
engineering environment. The Company's software acts as an interactive data
viewer that relays valuable information, such as describing how products are
engineered, manufactured, and supported throughout a product's life cycle. The
Company's products are sold both domestically and internationally. During the
years ended December 31, 1995 and 1996, 84% and 77% of revenues were from
domestic customers and 16% and 23% from international customers, respectively.
Also, during the year ended December 31, 1994 (unaudited), three of the
Company's customers accounted for 28%, 18% and 12% of total revenues. During
the year ended December 31, 1995, one of the Company's customers accounted for
15% of total revenues. There were no individual customers accounting for more
than 10% of total revenues during the year ended December 31, 1996.
INTERIM FINANCIAL INFORMATION
The interim financial statements included herein have been prepared, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the management of the Company believes that the
disclosures are adequate to make the information presented not misleading.
Interim financial statements are by necessity somewhat tentative; judgments are
used to estimate interim amounts for items that are normally determinable only
on an annual basis.
The interim period information included herein reflects all adjustments which
are, in the opinion of the management of the Company, necessary for a fair
statement of the results of the respective interim periods. Results of
operations for interim periods are not necessarily indicative of results to be
expected for an entire year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and short-term investments with original
maturity dates of three months or less at the time of purchase.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost; depreciation is computed on a double
declining basis over the estimated useful lives of the individual assets, which
are five years for computers and equipment and seven years for furniture and
fixtures. When property and equipment is retired or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts and the
resulting gain or loss is reflected in income.
F - 38
<PAGE>
SOFTWARE
The costs of internally developed software which meet the criteria in Statement
of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed," (SFAS 86) are periodically
evaluated for capitalization purposes. To date, the Company has not considered
qualifying costs under the strict guidelines prescribed by SFAS 86 to be
significant. Accordingly, no such costs have been reflected on the
accompanying balance sheet.
REVENUE RECOGNITION
License revenues with no future obligations on the part of the Company are
recognized upon shipment to the customer. Licenses which include significant
amounts of tailoring and, occasionally, customization are recognized upon
completion of contract obligations. Revenues for consulting, custom
programming and training, where separately contracted for, are recognized as
the related services are performed. Amounts received in advance for
maintenance and support contracts are deferred and recognized ratably over the
agreement period, generally 12 months.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs included in
sales and marketing expenses in the accompanying statements of operations were
$53,000, $69,000 and $137,000 for the years ended December 31, 1994
(unaudited), 1995 and 1996, respectively.
2. PROPERTY AND EQUIPMENT:
The major categories of property and equipment for the years ended December 31
are summarized as follows:
1995 1996
-------- --------
Computer and equipment $143,000 $232,000
Furniture and fixtures 21,000 27,000
-------- --------
164,000 259,000
Less- Accumulated depreciation 103,000 169,000
-------- --------
$ 61,000 $ 90,000
======== ========
3. EMPLOYEE BENEFIT PLANS:
The Company has a tax deferred retirement plan (the Plan) under the provisions
of Section 401(k) of the Internal Revenue Code. Employer contributions to the
Plan are made at the discretion of the Board of Directors. Contributions for
the years ended December 31, 1994 (unaudited), 1995 and 1996 were $0, $0 and
$38,000, respectively.
F - 39
<PAGE>
4. LINE OF CREDIT:
In 1996, the Company obtained a $500,000 operating line of credit with a bank
at an interest rate of prime plus .5%. All advances are payable upon demand
and are collateralized by accounts receivable and equipment. The agreement
contains covenants which require the Company to maintain certain financial
ratios. The Company is in compliance with these covenants as of December 31,
1996. There were no borrowings on the line at December 31, 1996.
5. CONVERTIBLE NOTE PAYABLE - RELATED PARTY:
The Company has a promissory note with a corporation controlled by one of the
Company's shareholders. This note is convertible into common stock at the
option of the holder at any time prior to full payment of the note by the
Company. The conversion rate is $1.875 per share. The note is due in full on
November 15, 1998 and bears interest at the rate of 10%. Interest only
payments are due monthly.
6. OPERATING LEASES:
The Company leases its facility and certain computer equipment under operating
leases, with terms of three years, payable in monthly installments. Total
operating lease expense for the years ended December 31, 1994 (unaudited), 1995
and 1996 was $52,000, $103,000 and $117,000, respectively.
Subsequent to December 31, 1996, the Company signed a lease for a new office
facility to be ready in November 1997. The lease is a five-year lease for
20,000 square feet, with an option to extend the lease term for an additional
two years. Lease payments are payable in monthly installments and have been
included in the future minimum lease payment schedule.
Future minimum lease payments for the years ending December 31 are as follows:
1997 $ 123,000
1998 269,000
1999 275,000
2000 279,000
2001 288,000
Thereafter 236,000
----------
$1,470,000
==========
7. INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting For Income Taxes" (SFAS 109). This
pronouncement requires deferred tax assets and liabilities to be valued using
the enacted tax rates expected to be in effect when the temporary differences
are recovered or settled.
F - 40
<PAGE>
The reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1994 1995 1996
------ ------ ------
(Unaudited)
<S> <C> <C> <C>
Federal statutory rate (34.0%) 34.0% 34.0%
State income taxes net of
federal benefit (4.4) 4.4 4.4
Research and development credits - - (2.0)
Foreign sales corporation benefit - - (0.8)
Change in valuation allowance 38.4 (19.5) (4.8)
Other - - 1.9
------ ------ ------
0.0% 18.9% 32.7%
====== ====== ======
</TABLE>
In accordance with SFAS 109, the Company has recorded the following deferred
taxes as of December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Net operating loss carryforwards $ 1,163,000 $ 1,090,000
Deferred revenue 57,000 48,000
Bad debt reserve - 7,000
----------- -----------
Total deferred tax assets 1,220,000 1,145,000
Valuation allowance (1,220,000) (1,145,000)
----------- -----------
Net deferred tax asset $ - $ -
=========== ===========
</TABLE>
The Company has no significant deferred tax liabilities as of December 31, 1995
and 1996. No benefit for deferred tax assets has been reflected in the
accompanying financial statements as they do not satisfy the recognition
criteria set forth in SFAS 109.
The increase (decrease) in the valuation allowance is as follows:
Year Ended December 31,
----------------------------
1994 1995 1996
-------- -------- -------
(Unaudited)
Increase (decrease) in:
Valuation allowance $38,000 $(107,000) $(75,000)
The net operating loss carryforwards expire through 2011. The Tax Reform Act
of 1986 contains provisions which limit the net operating loss carryovers
available to be used in any given year in the event of certain circumstances
including significant changes in ownership interests. As a result of prior
ownership changes, the Company is limited to using approximately $190,000 of
net operating loss carryovers in any one year.
F - 41
<PAGE>
8. STOCK OPTIONS:
The Company has an incentive stock option plan. Under the plan, options vest
ratably over four years and expire 10 years from the date of grant or 30 days
after employment termination. The exercise price for the incentive stock
options granted under the plan is set at the fair market value at the grant
date.
In addition, the Company has granted 60,000 nonqualified stock options to a
director. These options vest over four years and expire ten years from date of
grant. As of December 31, 1996, none of these options have vested.
During 1995, the Financial Accounting Standards Board issued Statement No. 123
(SFAS 123), "Accounting for Stock-Based Compensation," which establishes a fair
value-based method of accounting for stock-based compensation plans and
requires additional disclosures for those companies that elect not to adopt the
new method of accounting.
The Company has elected to account for its stock-based compensation plan under
APB 25. However, the Company has computed, for pro forma disclosure purposes,
the value of all options granted during 1995 and 1996 using the Black-Scholes
option-pricing model as prescribed by SFAS 123. The following assumptions were
used for grants in fiscal 1995 and 1996:
Risk-free interest rate 5.26%
Expected dividend yield 0%
Expected life 7 years
Expected volatility 40%
The total value of options granted during fiscal 1995 and 1996 will be
amortized on a pro forma basis over the vesting period of the options. Options
generally vest equally over four years. If the Company had accounted for these
plans in accordance with SFAS 123, the Company's net income would have
decreased as reflected in the following pro forma amounts:
Year Ended December 31,
--------------------
1995 1996
-------- -----------
Net income:
As reported $446,000 $1,046,000
Pro forma 445,000 1,032,000
F - 42
<PAGE>
The Company has not and does not currently have any plans to issue equity
instruments other than options to purchase Common Stock of the Company. A
summary of the status of the Company's stock option plans and changes are
presented in the following table:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1995 1996
---------- -----------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Options outstanding at beginning
of year 679,032 $0.14 712,032 $0.14
Granted 60,000 0.20 200,999 0.49
Exercised - - (3,416) 0.19
Canceled (27,000) 0.24 (5,917) 0.15
------- ----- ------- -----
Options outstanding at end of year 712,032 $0.14 903,698 $0.22
======= ===== ======= =====
Exercisable at end of year 470,906 $0.12 548,281 $0.13
======= ===== ======= =====
Weighted average fair value of
options granted $0.10 $0.25
</TABLE>
The following table sets forth the exercise price, number of shares
outstanding, weighted average remaining contractual life and number of
exercisable options at December 31, 1996, based upon grant price:
Options Outstanding
-----------------------------
Weighted
Outstanding Average
Shares at Remaining
Exercise December 31, Contractual Exercisable
Price 1996 Life (Years) Options
-------- ------------ ------------ -----------
$0.10 543,864 8.50 460,114
0.24 113,835 8.00 56,917
0.33 40,000 9.25 12,500
0.40 20,000 5.00 18,750
0.50 185,999 9.50 -
F - 43
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ENGINEERING ANIMATION, INC.
Date: December 9, 1997 By: /s/ Jamie A. Wade
------------------------------
Jamie A. Wade
Vice President of
Administration and
General Counsel
S-1
<PAGE>
ENGINEERING ANIMATION, INC.
EXHIBIT INDEX TO FORM 8-K REPORT
Exhibit Description
2.1 Amended and Restated Agreement and Plan of Merger among the Company,
COHO, Inc. and Cimtech, Inc.*
2.2 Amended and Restated Agreement and Plan of Merger among the Company,
Shell Beaver L.L.C. and Technology Company Ventures, L.L.C.*
2.3 Amended and Restated Agreement and Plan of Merger among the Company,
Transitory Beaver, Inc. and Rosetta Technologies*
10.26 Form of Registration Rights Agreement entered into in connection with
the Company's acquisition of Cimtech, Inc.*
10.27 Form of Registration Rights Agreement entered into in connection with
the Company's acquisition of Rosetta Technologies, Inc. and
Technology Company Ventures, L.L.C.*
23.1 Consent of Ernst & Young LLP
23.2 Consent of Arthur Andersen LLP
____________
* The schedules and exhibits to these documents are not being filed herewith.
The registrant agrees to furnish supplementally a copy of any such schedule
or exhibit to the Securities and Exchange Commission upon request.
<PAGE>
EXHIBIT 2.1
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
among
ENGINEERING ANIMATION, INC.,
COHO, INC.
and
CIMTECH, INC.
_________________
Dated as of October 30, 1997
_________________
<PAGE>
TABLE OF CONTENTS
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
ARTICLE I. THE MERGER................................................1
1.1. THE MERGER.....................................................1
1.2. CLOSING........................................................1
1.3. EFFECTIVE TIME.................................................1
1.4. EFFECTS OF THE MERGER..........................................2
1.5. CERTIFICATE OF INCORPORATION AND BY-LAWS.......................2
1.6. DIRECTORS AND OFFICERS.........................................2
1.7. SUB COMMON STOCK...............................................2
1.8. TAX AND ACCOUNTING CONSEQUENCES................................2
ARTICLE II. CONVERSION AND EXCHANGE OF SHARES.........................2
2.1. CONVERSION OF CIMTECH COMMON STOCK.............................2
2.2. EXCHANGE OF SHARES.............................................3
2.3. OPTIONS TO ACQUIRE CIMTECH COMMON STOCK........................4
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF CIMTECH.................5
3.1. CORPORATE ORGANIZATION........................................5
3.2. CAPITALIZATION................................................5
3.3. AUTHORITY; NO VIOLATION.......................................6
3.4. CONSENTS AND APPROVALS........................................6
3.5. REPORTS.......................................................6
3.6. COMPLIANCE WITH APPLICABLE LAW................................6
3.7. FINANCIAL STATEMENTS..........................................7
3.8. ABSENCE OF CERTAIN CHANGES OR EVENTS..........................7
3.9. LEGAL PROCEEDINGS AND RESTRICTIONS............................7
3.10. TAXES AND TAX RETURNS.........................................8
3.11. EMPLOYEE BENEFITS.............................................10
3.12. EMPLOYMENT AND LABOR RELATIONS................................12
3.13. CONTRACTS.....................................................12
3.14. UNDISCLOSED LIABILITIES.......................................13
3.15. ENVIRONMENTAL LIABILITY.......................................13
3.16. TANGIBLE ASSETS...............................................14
3.17. REAL PROPERTY.................................................14
3.18. INTELLECTUAL PROPERTY.........................................15
3.19. INVENTORY.....................................................16
3.20. NOTES AND ACCOUNTS RECEIVABLE.................................16
3.21. BANK ACCOUNTS AND POWERS OF ATTORNEY..........................16
3.22. GUARANTIES....................................................16
i
<PAGE>
3.23. INSURANCE.....................................................16
3.24. SERVICE CONTRACTS AND WARRANTIES..............................16
3.25. CERTAIN RELATIONSHIPS.........................................16
3.26. PPM/PROXY STATEMENT INFORMATION...............................17
3.27. BROKER'S FEES.................................................17
3.28. CERTAIN CUSTOMER RELATIONSHIPS................................17
3.29. DISCLOSURE....................................................17
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF EAI.....................17
4.1. CORPORATE ORGANIZATION.........................................17
4.2. CAPITALIZATION.................................................18
4.3. AUTHORITY; NO VIOLATION........................................18
4.4. CONSENTS AND APPROVALS.........................................18
4.5. SEC REPORTS....................................................19
4.6. PPM/PROXY STATEMENT INFORMATION................................19
4.7. OWNERSHIP OF SUB; NO PRIOR ACTIVITIES..........................19
4.8. BROKER'S FEE...................................................19
4.9. DISCLOSURE.....................................................20
ARTICLE V. COVENANTS RELATING TO CONDUCT OF BUSINESS.................20
5.1. CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME................20
5.2. CIMTECH FORBEARANCES...........................................20
ARTICLE VI. ADDITIONAL AGREEMENTS.....................................21
6.1. REGULATORY AND OTHER MATTERS...................................21
6.2. ACCESS TO INFORMATION..........................................22
6.3. SHAREHOLDERS' APPROVAL.........................................22
6.4. NNM LISTING....................................................22
6.5. AFFILIATES.....................................................22
6.6. ADDITIONAL AGREEMENTS..........................................22
6.7. ADVICE OF CHANGES..............................................22
6.8. TAKEOVER PROPOSALS.............................................22
6.9. TAX MATTERS....................................................23
ARTICLE VII. CONDITIONS PRECEDENT......................................24
7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.....24
7.2. CONDITIONS TO OBLIGATIONS OF EAI AND SUB.......................25
7.3. CONDITIONS TO OBLIGATIONS OF CIMTECH...........................27
ii
<PAGE>
ARTICLE VIII. TERMINATION AND AMENDMENT.................................27
8.1. TERMINATION....................................................27
8.2. EFFECT OF TERMINATION..........................................28
8.3. AMENDMENT; EXTENSION; WAIVER...................................29
ARTICLE IX. GENERAL PROVISIONS........................................29
9.1. EXPENSES......................................................29
9.2. NOTICES.......................................................29
9.3. INTERPRETATION................................................30
9.4. COUNTERPARTS..................................................30
9.5. ENTIRE AGREEMENT..............................................30
9.6. GOVERNING LAW.................................................30
9.7. SEVERABILITY..................................................31
9.8. PUBLICITY.....................................................31
9.9. ASSIGNMENT; THIRD PARTY BENEFICIARIES.........................31
9.10. KNOWLEDGE AND AWARENESS.......................................31
9.11. CONSTRUCTION..................................................31
9.12. POOLING OF INTERESTS ACCOUNTING; TAX FREE REORGANIZATION......31
EXHIBITS
A - Articles of Merger
B - Affiliates Agreement
C Registration Rights Agreement
D - Employment Agreement
E - Snell & Wilmer, LLP Legal Opinion
F - Cimtech Certificate
G - EAI General Counsel Legal Opinion
iii
<PAGE>
INDEX OF DEFINED TERMS
Agreement..........................................................Recitals
Articles of Merger..............................................Section 1.3
Cimtech............................................................Recitals
Cimtech Options..............................................Section 2.1(a)
Cimtech Plans...............................................Section 3.11(a)
Cimtech Common Stock.........................................Section 2.1(a)
Cimtech Contract...............................................Section 3.13
Cimtech Financial Statements....................................Section 3.7
Closing.........................................................Section 1.2
Closing Date....................................................Section 1.2
Code............................................................Section 1.8
Common Certificate...........................................Section 2.1(b)
Consents........................................................Section 3.4
Disclosure Schedule................................................Art. III
EAI................................................................Recitals
EAI Common Stock..............................................Section 2.1(a)
EAI Stock Value.......................................................2.1(a)
Effective Time...................................................Section 1.3
Environmental Laws...........................................Section 3.15(e)
ERISA........................................................Section 3.11(a)
ERISA Affiliates.............................................Section 3.11(f)
Exchange Act.....................................................Section 4.5
Exchange Ratio................................................Section 2.1(a)
GAAP.............................................................Section 3.7
Governmental Authority...........................................Section 3.4
Hazardous Material...........................................Section 3.15(e)
IBCA.............................................................Section 1.1
Intellectual Property...........................................Section 3.18
Interim Financial Statements.....................................Section 3.7
Iowa Secretary...................................................Section 1.3
IRS..........................................................Section 3.11(b)
Liens.........................................................Section 3.3(b)
Material Adverse Effect..........................................Section 3.6
Merger..............................................................Recitals
1996 Balance Sheet..............................................Section 3.14
NNM...........................................................Section 2.1(a)
Person........................................................Section 5.2(a)
PPM/Proxy Statement..............................................Section 3.4
Primary Customers...............................................Section 3.29
Requisite Regulatory Approvals................................Section 7.1(a)
Returns......................................................Section 3.10(c)
Sub.................................................................Recitals
iv
<PAGE>
Surviving Corporation...........................................Section 1.1
Takeover Proposal............................................Section 6.8(d)
Taxes.......................................................Section 3.10(c)
v
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of October 30,
1997 (the "Agreement"), by and among ENGINEERING ANIMATION, INC., a Delaware
corporation ("EAI"), COHO, INC., an Iowa corporation and a wholly-owned
subsidiary of EAI ("Sub"), and CIMTECH, INC., an Iowa corporation ("Cimtech").
WHEREAS, the Boards of Directors of EAI and Cimtech have determined that it
is in the best interests of their respective companies and stockholders to
consummate the business combination provided for in this Agreement in which Sub,
subject to the terms and conditions set forth herein, shall merge with and into
Cimtech (the "Merger") and as a result Cimtech shall become a wholly-owned
subsidiary of EAI;
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and to establish certain conditions to
the Merger.
WHEREAS, the parties entered into an Agreement and Plan of Merger dated
October 29, 1997, which they now wish to amend and restate to provide that the
stock of EAI to be received by the shareholders of Cimtech in connection with
the Merger will be issued pursuant to a private placement and to provide
registration rights in connection therewith.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, the parties agree as follows:
ARTICLE I.
THE MERGER
1.1. THE MERGER. Subject to the terms and conditions of this Agreement,
in accordance with the Iowa Business Corporation Act (the "IBCA"), at the
Effective Time (as hereinafter defined), Sub shall merge with and into
Cimtech. Cimtech shall be the surviving corporation in the Merger
(hereinafter sometimes referred to as the "Surviving Corporation"), and shall
continue its corporate existence under the laws of the State of Iowa as a
wholly-owned subsidiary of EAI. Upon consummation of the Merger, the
separate corporate existence of Sub shall terminate.
1.2. CLOSING. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") will take place at 10:00 a.m., at the
offices of Gardner, Carton & Douglas, 321 North Clark Street, Chicago,
Illinois, not later than five business days after the satisfaction or waiver
of the latest to occur of the conditions set forth in Article VII, unless
extended by mutual agreement of the parties (the "Closing Date").
1.3. EFFECTIVE TIME. The Merger shall become effective as set forth in
articles of merger substantially in the form attached as EXHIBIT A (the
"Articles of Merger"), which shall be filed with the Secretary of State of
the State of Iowa (the "Iowa Secretary") on the Closing Date.
<PAGE>
The term "Effective Time" shall be the date and time when the Merger becomes
effective, as set forth in the Articles of Merger.
1.4. EFFECTS OF THE MERGER. At and after the Effective Time, the Merger
shall have the effects set forth in the IBCA.
1.5. CERTIFICATE OF INCORPORATION AND BY-LAWS. Subject to the terms and
conditions of this Agreement, at the Effective Time, the Articles of
Incorporation and By-Laws of Cimtech shall be the Articles of Incorporation and
By-Laws of the Surviving Corporation until thereafter amended in accordance with
applicable law.
1.6. DIRECTORS AND OFFICERS. The directors and officers of Sub immediately
prior to the Effective Time shall continue as the directors and officers of the
Surviving Corporation, unless and until thereafter changed in accordance with
the IBCA and the Surviving Corporation's Articles of Incorporation and By-Laws.
1.7. SUB COMMON STOCK. At the Effective Time, each share of Sub Common
Stock issued and outstanding immediately prior thereto shall be converted into
one share of common stock, $1.00 par value, of the Surviving Corporation.
1.8. TAX AND ACCOUNTING CONSEQUENCES. EAI and Cimtech intend that the
Merger shall constitute a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and that this
Agreement shall constitute a "plan of reorganization" for the purposes of
Section 368 of the Code. EAI and Cimtech also intend that the Merger be
accounted for as a pooling of interests pursuant to Opinion No. 16 of the
Accounting Principles Board.
ARTICLE II.
CONVERSION AND EXCHANGE OF SHARES
2.1. CONVERSION OF CIMTECH COMMON STOCK. At the Effective Time, by virtue
of the Merger and without any action on the part of EAI, Sub, Cimtech or any
shareholder of Cimtech:
(a) Each share of the common stock, par value $1.00 per share, of
Cimtech (the "Cimtech Common Stock") issued and outstanding immediately prior
to the Effective Time shall be converted into the right to receive shares of
the common stock, par value $.01 per share, of EAI (the "EAI Common Stock")
at an exchange ratio (the "Exchange Ratio") determined as follows: each
share of Cimtech Common Stock shall be exchanged for that number of shares of
EAI Common Stock equal to the quotient of (x) the number obtained by dividing
$6,000,000 by the total of the number of shares of Cimtech Common Stock
outstanding immediately prior to the Effective Time plus the number of shares
of Cimtech Common Stock issuable upon the exercise of all outstanding options
to purchase Cimtech Common Stock (the "Cimtech Options"), divided by (y) the
average of the high and low per share sale price of the EAI Common Stock, as
reported on the Nasdaq Stock Market National Market (the "NNM") for each of
the ten trading days immediately preceding and including the second trading
day prior to the Closing, as reported in the NNM listings published in THE
WALL STREET JOURNAL (the "EAI Stock Value");
2
<PAGE>
provided, however, in determining the Exchange Ratio and for all other
purposes under this Agreement, the EAI Stock Value shall in no event be less
than $32.00 or more than $48.00. No fractional shares of EAI Common Stock
shall be issued, and in lieu thereof, EAI shall pay to each former
shareholder of Cimtech who otherwise would be entitled to receive such
fractional share an amount in cash determined by multiplying (i) the EAI
Stock Value by (ii) the fraction of a share (rounded to the nearest
thousandth when expressed as an Arabic number) of EAI Common Stock to which
such holder would otherwise be entitled to receive pursuant to this Section
2.1.
(b) All of the shares of Cimtech Common Stock converted into EAI Common
Stock pursuant to this Article shall no longer be outstanding and shall
automatically be canceled and cease to exist at the Effective Time, and each
certificate previously representing any such shares of Cimtech Common Stock
(a "Common Certificate") shall thereafter represent the right to receive (i)
a certificate representing the number of whole shares of EAI Common Stock and
(ii) cash in lieu of fractional shares into which the shares of Cimtech
Common Stock represented by such Common Certificate have been converted. If,
prior to the Effective Time, the outstanding shares of EAI Common Stock or
Cimtech Common Stock shall have been increased, decreased, changed into or
exchanged for a different number or kind of shares or securities as a result
of a reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split, or other similar change in capitalization,
then an appropriate and proportionate adjustment shall be made to the
Exchange Ratio.
(c) At the Effective Time, all shares of Cimtech Common Stock that are
owned by Cimtech as treasury stock and all shares of Cimtech Common Stock
that are owned, directly or indirectly, by Cimtech, EAI or any wholly-owned
subsidiary of EAI shall be canceled and shall cease to exist, and no stock of
EAI or other consideration shall be delivered in exchange therefor. All
shares of EAI Common Stock that are owned by Cimtech shall become treasury
stock of EAI.
(d) After the Effective Time, there shall be no transfers on Cimtech's
stock transfer books of shares of Cimtech Common Stock.
2.2. EXCHANGE OF SHARES. (a) At the Closing, each shareholder of Cimtech
shall have the right to deliver to EAI Common Certificates representing all
of the issued and outstanding shares of Cimtech Common Stock owned by such
shareholder, duly endorsed for transfer or accompanied by duly executed stock
powers, free and clear of all options, liens, claims, charges, restrictions
and other encumbrances of any nature whatsoever, other than federal and state
securities law restrictions. Upon proper surrender of a Common Certificate
for exchange and cancellation to EAI, and in accordance with and subject to
the other provisions of this Agreement, the holder of such Common Certificate
shall receive in exchange therefor (i) a certificate representing that number
of whole shares of EAI Common Stock to which such holder of Cimtech Common
Stock shall have become entitled, and (ii) a check representing the amount of
any cash in lieu of fractional shares which such holder has the right to
receive. The Common Certificate so surrendered shall forthwith be canceled.
No interest shall be paid or accrued on any cash in lieu of fractional shares
payable to holders of Common Certificates.
3
<PAGE>
(b) If any certificate representing shares of EAI Common Stock is to be
issued in a name other than that in which the Common Certificate surrendered
in exchange therefor is registered, it shall be a condition of the issuance
thereof that the Common Certificate shall be properly endorsed (or
accompanied by an appropriate instrument of transfer) and otherwise in proper
form for transfer, and that the person requesting such exchange shall pay to
EAI in advance any transfer or other taxes required by reason thereof, or
shall establish to the satisfaction of EAI that such tax has been paid or is
not payable.
(c) In the event any Common Certificate shall have been lost, stolen or
destroyed, the person so claiming shall make an affidavit of that fact and,
if required by EAI, post a bond in such amount as EAI may determine is
reasonably necessary as indemnity against any claim that may be made against
it with respect to such Common Certificate. Thereafter, EAI shall issue in
exchange for such lost, stolen or destroyed Common Certificate the shares of
EAI Common Stock and any cash in lieu of a fractional share deliverable in
respect thereof pursuant to this Agreement.
2.3. OPTIONS TO ACQUIRE CIMTECH COMMON STOCK.
(a) At the Effective Time, each outstanding Cimtech Option shall be
assumed by EAI. each such Cimtech Option shall thereafter be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such cimtech option, (i) the same number of shares of EAI
Common Stock as such Cimtech Option would have been exchangeable for had such
Cimtech Option been exercised in full immediately prior to the Merger and
(ii) at an exercise price per share (rounded up to the nearest whole cent)
equal to (A) the aggregate exercise price for the shares of Cimtech Common
Stock otherwise purchasable pursuant to such Cimtech Option divided by (B)
the number of whole shares of EAI Common Stock deemed to be purchasable under
such option to acquire EAI Common Stock; PROVIDED, HOWEVER, that the number
of shares of EAI Common Stock that may be purchased upon exercise of such
Cimtech Option shall not include any fractional share and, upon exercise of
such Cimtech Option, a cash payment shall be made for any fractional share
based upon the closing price of a share of EAI Common Stock as reported on
the NNM on the trading day immediately preceding the date of exercise. As a
condition to EAI's and Sub's obligations to consummate the Merger, each
holder of a Cimtech Option shall have consented to the above described
assumption pursuant to a written agreement or instrument signed by such
holder.
(b) As soon as practicable after the Effective Time, EAI shall deliver
to the holders of Cimtech Options appropriate notices setting forth such
holders' rights and the agreements evidencing the grants of such Cimtech
Options shall be deemed to be appropriately amended so that such Cimtech
Options shall represent rights to acquire EAI Common Stock on terms and
conditions as contained in the outstanding Cimtech Options (subject to the
adjustments required by this Section 2.3 after giving effect to the
assumption by EAI as set forth above).
(c) The amended Cimtech Options shall be issued under a non-qualified
stock option plan to be implemented by EAI prior to the Effective Time.
Prior to the Effective Time, EAI shall file a registration statement on Form
S-8 (or any successor or other appropriate form) with respect to the shares
of EAI Common Stock subject to such plan and shall use its reasonable
4
<PAGE>
efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus or
prospectuses referred to therein) for so long as such options remain
outstanding.
(d) At the Effective Time, all outstanding warrants, options, phantom
stock, convertible securities or any other rights to acquire shares of
Cimtech Common Stock other than the Cimtech Options and Warrant issued to the
Iowa Product Development Corporation (the "IPDC Warrant"), if any such rights
exist, shall be canceled and extinguished without any conversion thereof or
payment with respect thereto.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF CIMTECH
Except as disclosed by Cimtech in the disclosure schedule delivered
pursuant to this Agreement (the "Disclosure Schedule"), Cimtech represents
and warrants to EAI as follows:
3.1. CORPORATE ORGANIZATION. (a) Cimtech is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Iowa. Cimtech has the corporate power and authority to own or lease all of
its properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which the nature of the business conducted
by it or the character or location of the properties and assets owned or
leased by it makes such licensing or qualification necessary. Correct and
complete copies of the Articles of Incorporation and By-Laws of Cimtech, as
in effect on the date of this Agreement, have been made available to EAI by
Cimtech.
(b) Cimtech does not own of record or beneficially, directly or
indirectly, (i) any shares of outstanding capital stock or securities
convertible into capital stock of any other corporation or (ii) any
participating interest in any partnership, limited liability company, joint
venture or other non-corporate business.
(c) The minute books of Cimtech accurately reflect in all material
respects all actions taken by the boards of directors, including committees
thereof, and the shareholders of Cimtech.
3.2. CAPITALIZATION. The authorized capital stock of Cimtech consists of
50,000,000 shares of Cimtech Common Stock, of which 914,689 shares are issued
and outstanding. Each record holder of Cimtech Common Stock and the number
of shares owned by each, and each holder of a Cimtech Option and the number
of shares of Cimtech Common Stock which such holder may purchase, is set
forth in Section 3.2 of the Disclosure Schedule. No shares of Cimtech Common
Stock are held in Cimtech's treasury and no shares of Cimtech Common Stock
are reserved for issuance other than those shares reserved for issuance under
the Cimtech Options and the IPDC Warrant. All of the issued and outstanding
shares of Cimtech Common Stock have been duly authorized and validly issued
and are fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof. Other than the
Cimtech Options and the IPDC Warrant, as listed in Section 3.2 of the
Disclosure Schedule, Cimtech does not have and is not bound by any
outstanding subscriptions, options, convertible securities,
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warrants, calls, commitments or agreements of any character calling for the
purchase or issuance of any shares of its capital stock.
3.3. AUTHORITY; NO VIOLATION. (a) Cimtech has the corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly and validly approved by the Board of Directors of Cimtech. Except
for the adoption of this Agreement by the requisite vote of holders of the
issued and outstanding shares of Cimtech Common Stock, no other corporate
proceedings on the part of Cimtech are necessary to approve this Agreement or
to consummate the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by Cimtech and constitutes a valid
and binding obligation of Cimtech, enforceable against Cimtech in accordance
with its terms.
(b) The execution and delivery of this Agreement by Cimtech, the
consummation by Cimtech of the transactions contemplated hereby, and the
compliance by Cimtech with the terms or provisions hereof, shall not (i)
violate any provision of the Articles of Incorporation or By-Laws of Cimtech,
(ii) violate any law, statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to Cimtech or any of its
properties or assets, or (iii) violate, conflict with, breach any provision
of or result in the loss of any benefit or the increase in the amount of any
liability or obligation under, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result
in the termination of, accelerate the performance required by, or result in
the creation of any liens, pledges, charges, encumbrances or security
interests of any kind (collectively, "Liens") upon any of the properties or
assets of Cimtech under any note, bond, mortgage, indenture, deed of trust,
license, lease, contract, agreement or other instrument or obligation to
which Cimtech is a party, or by which it or any of its properties or assets
may be bound or affected.
3.4. CONSENTS AND APPROVALS. Except for (i) the filing of Articles of
Merger with the Iowa Secretary pursuant to the IBCA, and (ii) the approval of
this Agreement by the requisite vote of the holders of Cimtech Common Stock,
no consent, approval or authorization of, or withholding of objection on the
part of, or filing, registration or qualification with, or notice to
(collectively, the "Consents") any court, administrative agency, commission
or other governmental authority or instrumentality, whether Federal, state,
local or foreign (each a "Governmental Authority"), or with any third party
are necessary in connection with the execution and delivery by Cimtech of
this Agreement and the consummation by Cimtech of the Merger and the other
transactions contemplated by this Agreement.
3.5. REPORTS. Cimtech has timely filed all reports, registrations and
statements required to be filed since January 1, 1995 with any Governmental
Authority, and has paid all fees and assessments due and payable in
connection therewith. No Governmental Authority has initiated any proceeding
or, to the best knowledge of Cimtech, investigation into the business or
operations of Cimtech.
3.6. COMPLIANCE WITH APPLICABLE LAW. Cimtech holds all licenses,
franchises, permits and authorizations necessary for the lawful conduct of
its business and has complied with and is
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not in default under any law, statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction of any Governmental Authority
applicable to Cimtech, other than licenses, franchises, permits or
authorizations or failures to comply or defaults which, individually or in
the aggregate, could not have a material adverse effect on the business,
properties, profits, operations or financial condition (a "Material Adverse
Effect") of Cimtech.
3.7. FINANCIAL STATEMENTS. Cimtech has previously provided EAI with
correct and complete copies of the following (collectively, the "Cimtech
Financial Statements"): (a) the audited balance sheet of Cimtech as of
December 31, 1996 and the unaudited balance sheet of Cimtech as of December
31, 1995, and the related audited statements of income and retained earnings
and cash flows for the fiscal year ended December 31, 1996, and unaudited
statements of income and retained earnings and cash flows for the fiscal
years ended December 31, 1995 and 1994, and (b) the unaudited balance sheets
of Cimtech as of March 31, June 30 and September 30, 1997 and the related
unaudited consolidated statements of income for the periods then ended (the
"Interim Financial Statements"). The Cimtech Financial Statements fairly
present the financial position of Cimtech as of the dates thereof, and the
results of operations and cash flows of Cimtech for the respective fiscal
periods or as of the respective dates thereof. Each of the Cimtech Financial
Statements, including the notes thereto, has been, or shall be, prepared in
accordance with generally accepted accounting principles ("GAAP")
consistently applied during the periods involved. The books and records of
Cimtech have been, and are being, maintained in accordance with all
applicable legal and accounting requirements.
3.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. (a) Since December 31, 1996,
(i) Cimtech has not incurred any material liability that is not disclosed in
the Interim Financial Statements, (ii) no event has occurred which,
individually or in the aggregate, could have a Material Adverse Effect on
Cimtech, and (iii) Cimtech has carried on its business in the ordinary and
usual course.
(b) Except as set out in Section 3.8 of the Disclosure Schedule, since
December 31, 1996, Cimtech has not (i) increased the salaries, wages, or
other compensation, or pensions, fringe benefits or other perquisites payable
to any director, executive officer or employee, or (ii) granted any severance
or termination pay, or (iii) paid or accrued any bonuses or commissions, or
(iv) suffered any strike, work stoppage, slowdown, or other labor disturbance
which could, either individually or in the aggregate, result in a Material
Adverse Effect on Cimtech.
3.9. LEGAL PROCEEDINGS AND RESTRICTIONS. (a) There are no actions,
suits, proceedings, claims or investigations pending, or to the knowledge of
Cimtech, threatened against or affecting Cimtech at law or in equity or
before any Governmental Authority.
(b) There is no judgment, order, writ, decree, injunction or regulatory
restriction imposed upon Cimtech or its assets which has had, or could
reasonably be expected to have, a Material Adverse Effect on Cimtech.
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3.10. TAXES AND TAX RETURNS.
(a) (i) Cimtech (which term for purposes of this Section 3.10 shall
include former subsidiaries of Cimtech for periods during which they were
owned) has timely filed (when due or prior to the expiration of any
extension of the time to file) correct and complete Returns in respect of
Taxes required to be filed; all Taxes shown on such Returns or otherwise
known by Cimtech to be due or payable have been timely paid; no adjustment
relating to any such Return has been proposed in writing by any
Governmental Authority, except proposed adjustments that have been resolved
prior to the date hereof; and there are no outstanding summons, subpoenas
or written requests for information with respect to any such Returns or the
Taxes reflected thereon. To Cimtech's knowledge there is no basis for
imposing any additional Taxes on it other than the Taxes shown on such
Returns. There are no outstanding waivers or agreements extending the
statute of limitations for any period with respect to any Tax to which
Cimtech may be subject and Cimtech is not under audit by any Governmental
Authority for any Tax. There are no Tax liens on any assets of Cimtech
other than liens for Taxes not yet due or payable;
(ii) Cimtech has paid, on the basis of Cimtech's good faith estimate
of the required installments, all estimated Taxes required to be paid under
Section 6655 of the Code or any comparable provision of state, local or
foreign law; and all Taxes which shall be due and payable for any period or
portion thereof ending on or prior to the Closing Date shall have been paid
or shall be reflected on Cimtech's books as an accrued Tax liability,
either current or deferred. The amount of such Tax liabilities as of
September 30, 1997 shall be set forth in Section 3.10 of the Disclosure
Schedule. All Taxes required to be withheld, collected or deposited by
Cimtech during any taxable period for which the applicable statute of
limitations on assessment remains open have been timely withheld, collected
or deposited and, to the extent required, have been paid to the relevant
Governmental Authority;
(iii) For each taxable period for which the statute of limitations
on assessment remains open, Cimtech has not (A) been either a common parent
corporation or a member corporation of an affiliated group of corporations
filing a consolidated Federal income tax return, or (B) acquired any
corporation that filed a consolidated Federal income tax return with any
other corporation that was not also acquired by Cimtech; and no other
entity that was included in the filing of a Return with Cimtech on a
consolidated, combined, or unitary basis has left Cimtech's consolidated,
combined or unitary group in a taxable year for which the statute of
limitations on assessment remains open. Cimtech has not been at any time a
member of any partnership, limited liability company or joint venture or
the holder of a beneficial interest in any trust for any period for which
the statute of limitations for any Tax potentially applicable as a result
of such membership or holding has not expired;
(iv) No consent under Section 341(f) of the Code has been filed with
respect to Cimtech; and
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(v) There is no significant difference on the books of Cimtech
between the amounts of the book basis and the tax basis of assets (net of
liabilities) that is not accounted for by an accrual on the books for
Federal income tax purposes.
(b) Cimtech:
(i) Does not have any property that is or will be required to be
treated as being owned by another person under the provisions of
Section 168(f)(8) of the Code (as in effect prior to amendment by the Tax
Reform Act of 1986) or is "tax-exempt use property" within the meaning of
Section 168 of the Code;
(ii) Does not have any Tax sharing or allocation agreement or
arrangement (written or oral), does not owe any amount pursuant to any Tax
sharing or allocation agreement or arrangement, and will not have any
liability in respect to any Tax sharing or allocation agreement or
arrangement with respect to any entity that has been sold or disposed of;
(iii) Was not acquired in a qualified stock purchase under
Section 338(d)(3) of the Code and no elections under Section 338(g) of the
Code, protective carryover basis elections, offset prohibition elections or
other deemed or actual elections under Section 338 are applicable to
Cimtech;
(iv) Is not and has not been subject to the provisions of
Section 1503(d) of the Code related to "dual consolidated loss" rules;
(v) Is not a party to any agreement, contract or arrangement that
would result, individually or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the Code
by reason of the Merger;
(vi) Does not have any income reportable for a period ending after the
Closing Date but attributable to an installment sale occurring in or a
change in accounting method made for a period ending on or prior to the
Closing Date which resulted in a deferred reporting of income from such
transaction or from such change in accounting method (other than a deferred
intercompany transaction), or deferred gain or loss arising out of any
deferred intercompany transaction;
(vii) Does not have any unused net operating loss, unused net
capital loss, unused tax credit, or excess charitable contribution for
Federal income tax purposes;
(viii) Is not a United States real property holding corporation as
defined in Section 897 of the Code; and
(ix) No withholding of Taxes by EAI or Sub will be required in this
transaction under Sections 3406 or 1445 of the Code or any other provision
of the Code or state, local or foreign law and Cimtech will provide any
required certificates to avoid any such withholding.
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(c) For purposes of this Agreement:
(i) "Returns" means any and all returns, reports, information returns
and information statements with respect to Taxes required to be filed with
any Governmental Authority, including consolidated, combined and unitary
tax returns.
(ii) "Tax" or "Taxes" means any and all taxes, charges, fees, levies,
and other governmental assessments and impositions of any kind, payable to
any Governmental Authority, including income, franchise, net worth,
profits, gross receipts, minimum alternative, estimated, ad valorem, value
added, sales, use, service, real or personal property, capital stock,
license, payroll, withholding, disability, employment, social security,
Medicare, workers' compensation, unemployment compensation, utility,
severance, production, excise, stamp, occupation, premiums, windfall
profits, transfer and gains taxes, customs duties, imposts, charges, levies
or other similar assessments of any kind, and interest, penalties and
additions to tax imposed with respect thereto.
3.11. EMPLOYEE BENEFITS.
(a) Cimtech (which for purposes of this Section 3.11 shall include any
ERISA Affiliate (as hereinafter defined)) has not at any time within the past
three years, maintained, administered or contributed to any pension,
profit-sharing, thrift or 401(k), disability, medical, dental, health, life
(including any individual life insurance policy), death benefit, group
insurance or any other welfare plan, bonus, incentive, deferred compensation,
stock purchase, stock option, severance plan, salary continuation, vacation,
holiday, sick leave, fringe benefit, personnel policy, or similar plan,
trust, program, policy, commitment or arrangement whether or not covered by
Employee Retirement and Income Security Act of 1974, as amended ("ERISA") and
whether or not funded or insured and whether written or oral (hereinafter
referred to as the "Cimtech Plans"), which could result in EAI or Cimtech
having any liabilities, whether direct or indirect.
(b) Cimtech has made available to EAI correct and complete copies of (i)
each Cimtech Plan document, amendments thereto and board resolutions adopting
such plans and amendments, (ii) each current summary plan description, (iii)
any and all agreements, insurance policies and other documents related to any
Cimtech Plan, including written descriptions of any unwritten Cimtech Plans,
(iv) the most recent determination letter from the Internal Revenue Service
(the "IRS") for each Cimtech Plan (as applicable), and (v) the three most
recent Annual Reports - Form 5500 (including accompanying schedules) and
summary annual reports for each Cimtech Plan.
(c) (i) Each Cimtech Plan (and any related agreements and documents)
and Cimtech have at all times complied in all material respects with the
applicable requirements of ERISA, the Code and any other applicable law
(including regulations and rulings thereunder), and the Cimtech Plans have at
all times been properly administered in all material respects in accordance
with all such laws and with the terms of each applicable plan document, (ii)
each of the Cimtech Plans intended to be "qualified" within the meaning of
Code Section 401(a) is so qualified and no facts exist that could reasonably
be expected to affect adversely such "qualified"
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status, (iii) no Cimtech Plan provides benefits, including, without
limitation, death or medical benefits (whether or not insured), for current
or former employees following their retirement or other termination of
service, other than coverage mandated by applicable statutes or death
benefits or retirement benefits under any "employee pension plan" (as such
term is defined in ERISA Section 3(2)), (iv) there has not occurred nor, to
the knowledge of Cimtech, is any person contractually bound to enter into any
non-exempt "prohibited transaction" within the meaning of Code Section 4975
or ERISA Section 406, (v) Cimtech has not engaged in a transaction which
could subject it to either a civil penalty under ERISA Section 409 or a tax
under Code Section 4976, (vi) there are no pending, threatened or anticipated
claims (other than routine claims for benefits) by, on behalf of or against
Cimtech, any of the Cimtech Plans or any trusts related thereto, (vii)
Cimtech has made or caused to be made on a timely basis any and all
contributions, premiums and other amounts due and owing under the terms of
any Cimtech Plan or as otherwise required by applicable law, (viii) Cimtech
has in all respects complied with Code Section 4980B and other applicable
laws concerning the continuation of employer-provided health benefits
following a termination of employment or any other event that would otherwise
terminate such coverage, (ix) Cimtech has not at any time maintained,
administered or contributed to any plan subject to ERISA Title IV, and (x)
Cimtech has not at any time participated in, made contributions to or had any
other liability with respect to a "multiemployer plan" under ERISA Section
4001, a "multiple employer plan" under Code Section 413(c), or a "multiple
employer welfare arrangement" under ERISA Section 3(40).
(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute or otherwise) becoming due to any director, officer or
employee of Cimtech, (ii) increase any benefits otherwise payable under any
Cimtech Plan, (iii) result in any acceleration of the time of payment or
vesting of any such benefits other than the acceleration of vesting of the
Cimtech Options, or (iv) impair the rights of Cimtech under any Cimtech Plan.
(e) There are no actions, claims, investigations or audits pending or,
to Cimtech's knowledge, threatened with respect to any Cimtech Plan (other
than claims for benefits in the ordinary course) that will create any
liability or obligation for the Surviving Corporation with respect to any
Cimtech Plan participant, beneficiary, alternate payee or other claimant, or
with respect to any Governmental Authority, including, but not limited to,
the IRS, the Department of Labor and the Pension Benefit Guaranty Corporation.
(f) For purposes of this Agreement, "ERISA Affiliate" means Cimtech and
(i) any corporation that is a member of a controlled group of corporations
within the meaning of Section 414(b) of the Code of which Cimtech is a
member, (ii) any trade or business (whether or not incorporated) which is a
member of a group of trades or businesses under common control within the
meaning of Section 414(c) of the Code of which Cimtech is a member; and (iii)
any member of an affiliated service group within the meaning of Section
414(m) or (o) of the Code of which Cimtech, any corporation described in
clause (i) above or any trade or business described in clause (ii) above is a
member.
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3.12. EMPLOYMENT AND LABOR RELATIONS. To the knowledge of Cimtech,
no executive, key employee or group of employees has any plans to terminate
its or their employment with Cimtech. There are no charges, complaints,
investigations or litigation currently pending, or to the knowledge of
Cimtech threatened (and to the knowledge of Cimtech there is no basis
therefor), against Cimtech, relating to alleged employment discrimination,
unfair labor practices, equal pay discrimination, affirmative action
noncompliance, occupational safety and health, breach of employment contract,
employee benefit matters, wrongful discharge or other employment-related
matters. There are no outstanding orders or charges against Cimtech under
any applicable occupational safety and health laws in any jurisdiction in
which Cimtech conducts business. All levies, assessments and penalties made
against Cimtech pursuant to any applicable workers' compensation legislation
in any jurisdiction in which Cimtech conducts business have been paid by
Cimtech. Cimtech is not a party to any contracts with any labor union or
employee association nor has Cimtech made commitments to or conducted
negotiations with any labor union or employee association with respect to any
future contracts. Cimtech is not aware of any current attempts to organize
or establish any labor union or employee association with respect to any
employees of Cimtech, and there is no existing or pending certification of
any such union with regard to a bargaining unit.
3.13. CONTRACTS. Section 3.13 of the Disclosure Schedule lists or
describes the following contracts, agreements, licenses, permits,
arrangements, commitments or understandings (whether written or oral) which
are currently in effect or which will, without any further action on the part
of Cimtech become effective in the future, to which Cimtech is a party
(collectively, the "Cimtech Contracts"):
(a) any agreement for the lease of personal property or real property
to or from any person or entity that individually involves an expenditure by
the lessee of in excess of $10,000 in any one year;
(b) any agreement for the purchase, sale or distribution of products,
materials, commodities, supplies or other personal property, or for the
furnishing or receipt of services, the performance of which will extend over
a period of more than one year or involve consideration payable by any party
in excess of $10,000 in any one year;
(c) any agreement creating, governing or providing for an investment or
participation in a partnership, limited liability company or joint venture;
(d) any agreement under which Cimtech has created, incurred, assumed or
guaranteed any indebtedness for borrowed money, or any capitalized lease
obligation, or under which Cimtech has imposed a Lien on any of its assets;
(e) any agreement concerning confidentiality or noncompetition;
(f) any agreement with any director, officer, employee or shareholder of
Cimtech or any of their affiliates;
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(g) any pension, profit sharing, thrift or 401(k), bonus, incentive,
deferred compensation, stock purchase, stock option, severance, salary
continuation or other plan or arrangement for the benefit of current or
former directors, officers or employees;
(h) any agreement for the employment of any individual on a full-time,
part-time, consulting or other basis;
(i) any agreement relating to any Intellectual Property (as that term is
defined in Section 3.18) used by Cimtech in the conduct of its business, or
that is licensed by Cimtech for use by others;
(j) any agreement under which the consequences of a default,
termination, non-renewal or acceleration could have a Material Adverse Effect
on Cimtech; or
(k) any other agreement the performance of which involves consideration
payable by any party in excess of $10,000 in any one year.
Cimtech has made available to EAI a correct and complete copy of each
Cimtech Contract. Except as set forth in Section 3.13 of the Disclosure
Schedule, (i) each Cimtech Contract is legal, valid, binding, enforceable and
in full force and effect, (ii) the consummation of the Merger will not cause
a breach or termination of any Cimtech Contract nor effect a change in any of
the terms of any Cimtech Contract, (iii) Cimtech is not, and, to Cimtech's
knowledge, no other party is, in breach or default of any Cimtech Contract
and no event has occurred which with notice or lapse of time, or both, would
constitute a breach or default that would result in or permit termination,
modification or acceleration under any Cimtech Contract, and (iv) Cimtech has
not, and, to Cimtech's knowledge, no other party has, repudiated any
provision of any Cimtech Contract.
3.14. UNDISCLOSED LIABILITIES. Except for liabilities (i) that are
fully reflected or reserved against on the December 31, 1996 balance sheet of
Cimtech (the "1996 Balance Sheet") or (ii) that were incurred in the ordinary
course of business consistent with past practice since December 31, 1996, or
(iii) that are fully reflected or reserved against in the Interim Financial
Statements, Cimtech has not incurred any liability of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or to
become due).
3.15. ENVIRONMENTAL LIABILITY.
(a) Cimtech has not received any notice, and does not otherwise have
knowledge, of any claim, and no proceeding has been instituted raising any
claim, against Cimtech or any of the real properties now or formerly owned,
leased or operated by Cimtech or other assets of Cimtech, alleging any damage
to the environment or violation of any Environmental Laws;
(b) Cimtech does not have knowledge of any facts which would give rise
to any claim, public or private, of violation of Environmental Laws or damage
to the environment emanating from, occurring on or in any way related to real
properties now or formerly owned, leased or operated by Cimtech or to other
assets of Cimtech or their use;
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(c) Cimtech has not stored or released any Hazardous Materials on real
properties now or formerly owned, leased or operated by it or disposed of any
Hazardous Materials, in each case in a manner contrary to any Environmental
Laws; and
(d) All buildings on all real properties now owned, leased or operated
by Cimtech are in compliance with applicable Environmental Laws, except where
the failure to comply could not reasonably be expected to result in a
Material Adverse Effect on Cimtech.
(e) For purposes of this Agreement,
(i) "Environmental Laws" means any and all Federal, state, county,
local and foreign laws, statutes, codes, ordinances, rules, regulations,
judgments, orders, decrees, permits, concessions, grants, franchises,
licenses, agreements or governmental restrictions relating to pollution and
the protection of the environment or the release of any materials into the
environment, including but not limited to those related to hazardous
substances or wastes, air emissions and discharges to waste or public
systems; and
(ii) "Hazardous Material" means any and all pollutants, toxic or
hazardous wastes or any other substances that might pose a hazard to health
or safety, the removal of which may be required or the generation,
manufacture, refining, production, processing, treatment, storage,
handling, transportation, transfer, use, disposal, release, discharge,
spillage, seepage, or filtration of which is or shall be restricted,
prohibited or penalized by any applicable law (including asbestos, urea
formaldehyde foam insulation and polychlorinated biphenyls).
3.16. TANGIBLE ASSETS. Cimtech has good and marketable title to, or
a valid leasehold interest in, the properties and assets used by it, located
on its premises, shown on the 1996 Balance Sheet or acquired after the date
thereof, except for properties and assets disposed of in the ordinary course
of business, free and clear of all liens. Cimtech owns or leases pursuant to
a Cimtech Contract all buildings, machinery, equipment and other tangible
assets material to the conduct of its business as presently conducted. Each
such tangible asset is free from defects (patent and latent) other than
defects that do not individually or in the aggregate materially impair its
value or intended use, has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal wear
and tear) and is suitable for the purposes for which it presently is used.
Section 3.16 of the Disclosure Schedule contains a schedule of such tangible
assets owned or leased by Cimtech that have a value in excess of $10,000.
3.17. REAL PROPERTY. Cimtech does not own any real property. Section
3.17 of the Disclosure Schedule lists and describes briefly all real property
leased or subleased to Cimtech. Cimtech has made available to EAI correct
and complete copies of each such lease and sublease. Except as set forth in
Section 3.17 of the Disclosure Schedule:
(a) each such lease or sublease is legal, valid, binding, enforceable
and in full force and effect;
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(b) the consummation of the transactions contemplated hereby will neither
cause the termination of each such lease or sublease nor effect a change in any
of its terms;
(c) Cimtech is not, and, to the knowledge of Cimtech, no other party to
such lease or sublease is, in breach or default, and no event has occurred
which, with notice or lapse of time, or both, would constitute a breach or
default that would permit termination, modification or acceleration thereunder;
(d) neither Cimtech nor, to the knowledge of Cimtech, any other party to
each such lease or sublease has repudiated or disputed any provision thereof;
(e) there are no oral agreements in effect as to each such lease or
sublease;
(f) to the knowledge of Cimtech, the representations and warranties set
forth in clauses (a) through (e) above are true and correct with respect to the
lease underlying each such sublease; and
(g) Cimtech has not assigned, transferred, conveyed, mortgaged, deeded in
trust or encumbered any interest in any leasehold or subleasehold.
3.18. INTELLECTUAL PROPERTY. (a) Section 3.18 of the Disclosure
Schedule identifies each patent, trademark, service mark, trade name, assumed
name, copyright, trade secret, license to or from third parties with respect to
any of the foregoing, applications to register or registrations of any of the
foregoing or other intellectual property rights which are owned or used by or
have been issued to Cimtech (collectively the "Intellectual Property"). Cimtech
has made available correct and complete copies of all patents, trademarks,
copyrights, registrations, licenses, permits, agreements and applications
related to the Intellectual Property to EAI and correct and complete copies of
all other written documentation evidencing ownership of or the right to use each
such item. Except as set forth in Section 3.18 of the Disclosure Schedule:
(i) Cimtech possesses all right, title and interest in and to the
Intellectual Property, free and clear of any Lien or other restriction;
(ii) the legality, validity, enforceability, ownership or use of the
Intellectual Property is not currently being challenged, nor to the
knowledge of Cimtech is it subject to any such challenge;
(iii) Cimtech has taken all necessary action to maintain and
protect the Intellectual Property and will continue to maintain those
rights prior to the Closing so as not to affect materially the validity or
enforcement of the rights set forth in Section 3.18 of the Disclosure
Schedule; and
(iv) the Intellectual Property will be owned or available for use by
Cimtech on identical terms and conditions immediately subsequent to the
Closing and the transactions contemplated by this agreement will have no
Material Adverse Effect on Cimtech's rights, title and interest in and to
any of the rights set forth in Section 3.18 of the Disclosure Schedule.
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(b) To the knowledge of Cimtech, (i) Cimtech has not interfered with,
infringed upon, misappropriated or otherwise come into conflict with any
intellectual property rights of third parties, nor is Cimtech currently
interfering with, infringing upon, misappropriating or otherwise coming into
conflict with any intellectual property rights of third parties, and (ii) no
third party has, in the past three years, interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual Property
rights of Cimtech that could result in a Material Adverse Effect on Cimtech, nor
is any third party currently interfering with, infringing upon, misappropriating
or otherwise coming into conflict with any Intellectual Property rights of
Cimtech.
3.19. INVENTORY. No material portion of the inventory of Cimtech is
unfit for the purpose for which it was procured, or is obsolete, expired,
damaged or defective. Substantially all of the inventory of Cimtech consists of
items of a quantity and quality which are usable and salable in the ordinary
course of business.
3.20. NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable
of Cimtech are reflected properly on Cimtech's books and records, are not
subject to any setoff or counterclaim, are current and collectible, subject only
to the reserve for bad debts, if any, established in accordance with the past
practice of Cimtech.
3.21. BANK ACCOUNTS AND POWERS OF ATTORNEY. Section 3.21 of the
Disclosure Schedule sets forth a list of all accounts, borrowing resolutions and
deposit boxes maintained by Cimtech at any bank or other financial institution
and the names of the persons authorized to effect transactions in such accounts
and pursuant to such resolutions and with access to such boxes. There are no
outstanding powers of attorney executed on behalf of Cimtech.
3.22. GUARANTIES. Cimtech is not a guarantor or otherwise is liable
for any indebtedness, liability or other obligation of any other person or
entity.
3.23. INSURANCE. Section 3.23 of the Disclosure Schedule lists each
insurance policy and self-insurance arrangement to which Cimtech is a party, a
named insured or otherwise the beneficiary of, specifying the insurer, type of
insurance, policy number and pending claims thereunder with respect to Cimtech.
The coverage provided by each of such policies is in an amount, and of a type
sufficient for the business presently conducted and proposed to be conducted by
Cimtech. Cimtech is in substantial compliance with all conditions contained in
such policies.
3.24. SERVICE CONTRACTS AND WARRANTIES. Except as set out in
Section 3.24 of the Disclosure Schedule, Cimtech is not a party to any service
contract pursuant to which services are provided by Cimtech to a third party.
Section 3.24 of the Disclosure Schedule includes copies of the standard terms
and conditions of all product warranties and service or maintenance contracts
granted or entered into by Cimtech.
3.25. CERTAIN RELATIONSHIPS. No shareholder, director, officer or, to
Cimtech's knowledge, employee of Cimtech (i) is, or controls, or is an employee
of any competitor, supplier, customer or lessor or lessee of Cimtech, or (ii) is
indebted to Cimtech in
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an amount in excess of $1,000 in any individual case, or (iii) owns any
asset, tangible or intangible, which is used in the business of Cimtech,
other than assets that are immaterial in value; and Cimtech has not entered
into any transaction (including the furnishing of goods or services) with any
shareholder, director, officer, employer or other affiliate, except on terms
and conditions no less favorable to Cimtech than would be obtained in a
comparable arm's-length transaction with a third party.
3.26. PPM/PROXY STATEMENT INFORMATION. None of the written information
to be supplied by Cimtech for inclusion in the private placement memorandum and
proxy statement contemplated by this Agreement (the "PPM/Proxy Statement") will,
at the time the PPM/Proxy Statement is mailed to the Cimtech shareholders, at
any time it is amended or supplemented, or at the Closing Date, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
3.27. BROKER'S FEES. Except for the amounts set forth in the letter
agreement dated March 25, 1997, between Cimtech and K.N. Bender and Associates,
LLC ("Bender"), neither Cimtech nor any of its directors, officers or employees
has employed any person or entity as a broker, finder or agent or incurred any
liability for any broker's fees, finder's fees or other commission in connection
with the Merger or the related transactions contemplated by this Agreement.
3.28. CERTAIN CUSTOMER RELATIONSHIPS. Section 3.28 of the Disclosure
Schedule contains an accurate list of Cimtech's ten largest customers on a
cumulative basis (the "Primary Customers"), together with the total dollar
amount of all products purchased by such Primary Customers from Cimtech since
Cimtech's inception. Cimtech has good relationships with each of the Primary
Customers and Cimtech has not received any notice or otherwise has knowledge
that any Primary Customer intends to reduce the volume or dollar amount of the
products it purchases from Cimtech.
3.29. DISCLOSURE. No representation or warranty by Cimtech contained
in this Agreement (including the Disclosure Schedule and the Exhibits
referred to herein), or in any certificate furnished or to be furnished by
Cimtech to EAI in connection with the transactions contemplated hereby
contains or will contain any untrue statement of a material fact, or omits or
will omit to state any material fact required to make the statements herein
or therein not misleading, or necessary in order to provide a prospective
purchaser of Cimtech with adequate information as to Cimtech and its
business, properties, profits, operations, liabilities or condition
(financial and otherwise).
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF EAI
EAI represents and warrants to Cimtech as follows:
4.1. CORPORATE ORGANIZATION. EAI is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. EAI has
the corporate power and authority to own or lease all of its properties and
assets and to carry on its business as it is now
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being conducted, and is duly licensed or qualified to do business and is in
good standing in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and assets
owned or leased by it makes such licensing or qualification necessary, except
where the failure to be so licensed or qualified could not have a Material
Adverse Effect on EAI and its subsidiaries, taken as a whole. Correct and
complete copies of the Certificate of Incorporation and By-Laws of EAI, as in
effect as of the date of this Agreement, have been made available to Cimtech
by EAI.
4.2. CAPITALIZATION. The authorized capital stock of EAI consists of
20,000,000 shares of EAI Common Stock, of which as of September 30, 1997,
5,759,234 shares were issued and outstanding, and 20,000,000 shares of
preferred stock, $.01 par value per share, none of which is issued and
outstanding. All of the issued and outstanding shares of EAI Common Stock
have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. The shares of EAI Common Stock to be
issued pursuant to the Merger will be duly authorized and validly issued and,
at the Effective Time, all such shares will be fully paid, nonassessable and
free of preemptive rights, with no personal liability attaching to the
ownership thereof.
4.3. AUTHORITY; NO VIOLATION. (a) EAI has the corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly and validly approved by the Board of Directors of EAI. No other
corporate proceedings on the part of EAI are necessary to approve this
Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by EAI and
constitutes a valid and binding obligation of EAI, enforceable against EAI in
accordance with its terms.
(b) The execution and delivery of this Agreement by EAI, the
consummation by EAI of the transactions contemplated hereby, and the
compliance by EAI with the terms or provisions hereof, will not (i) violate
any provision of the Certificate of Incorporation or By-Laws of EAI, (ii)
violate any law, statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to EAI or any of its properties or
assets, or (iii) violate, conflict with, breach any provision of or result in
the loss of any benefit under, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result
in the termination of, accelerate the performance required by, or result in
the creation of any Lien upon any of the properties or assets of EAI under
any note, bond, mortgage, indenture, deed of trust, license, lease, contract,
agreement or other instrument or obligation to which EAI is a party, or by
which it or any of its properties or assets may be bound or affected.
4.4. CONSENTS AND APPROVALS. Except for (i) the filing of Articles of
Merger with the Iowa Secretary pursuant to the IBCA, (ii) such filings and
approvals as are required to be made or obtained under the securities or
"Blue Sky" laws of various states in connection with the issuance of the
shares of EAI Common Stock pursuant to this Agreement, and (iii) the filings
and authorizations necessary to list the shares of EAI Common Stock issued
pursuant to this Agreement on the NNM, no Consents from any Governmental
Authority or any third party are necessary in connection with the execution
and delivery by EAI or Sub of this Agreement and
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the consummation by EAI and Sub of the Merger and the other transactions
contemplated by this Agreement.
4.5. SEC REPORTS. The annual report on form 10-k of EAI for the fiscal
year ended December 31, 1996, as filed under the Securities Exchange Act of
1934 ("Exchange Act"), and all other reports and proxy statements filed or
required to be filed by EAI subsequent to such report, have been duly and
timely filed by EAI, complied as to form with all requirements under the
Exchange Act, were true and correct in all material respects as of the dates
at which the information was furnished, and contained no untrue statement of
a material fact or omitted to state a material fact necessary in order to
make the statements made, in the light of the circumstances under which they
were made, not misleading.
4.6. PPM/PROXY STATEMENT INFORMATION. None of the information that EAI
will include or incorporate by reference in the PPM/Proxy Statement will, at
the time the PPM/Proxy Statement is mailed to the Cimtech shareholders, at
any time it is amended or supplemented, or at the Closing Date, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading. Notwithstanding the foregoing, EAI makes no representation or
warranty with respect to statements made in the PPM/Proxy Statement based on
written information supplied by Cimtech specifically for inclusion therein.
4.7. OWNERSHIP OF SUB; NO PRIOR ACTIVITIES.
(a) Sub was formed for the purpose of engaging in the transactions
contemplated by this Agreement.
(b) As of the Effective Time, all of the outstanding capital stock of Sub
will be owned directly by EAI. As of the Effective Time, there will be no
options, warrants or other rights (including registration rights), agreements,
arrangements or commitments to which Sub is a party of any character relating to
the issued or unissued capital stock of, or other equity interests in, Sub or
obligating Sub to grant, issue or sell any shares of the capital stock of, or
other equity interests in, Sub, by sale, lease, license or otherwise. There are
no obligations, contingent or otherwise, of Sub to repurchase, redeem or
otherwise acquire any shares of the capital stock of Sub.
(c) As of the date hereof and the Effective Time, except for obligations
or liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement, Sub has not and will not have
incurred, directly or indirectly, through any affiliate, any obligations or
liabilities or engaged in any business activities of any type or kind whatsoever
or entered into any agreements or arrangements with any person.
4.8. BROKER'S FEES. Neither EAI nor any of its directors, officers or
employees has employed any person or entity as a broker, finder or agent or
incurred any liability for any broker's fees, finder's fees or other commission
in connection with the Merger or the related transactions contemplated by this
Agreement, other than EAI's commitment to pay Bender's fee owed by Cimtech upon
the Closing.
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4.9. DISCLOSURE. No representation or warranty by EAI contained in this
Agreement, or in any financial statement, certificate or other document
furnished or to be furnished by EAI to Cimtech or its representatives in
connection herewith contains or will contain any untrue statement of a material
fact, or omits or will omit to state any material fact required to make the
statements herein or therein not misleading.
ARTICLE V.
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1. CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME. During the period
from the date of this Agreement to the Effective Time, except as expressly
contemplated or permitted by this Agreement, Cimtech shall (i) conduct its
business in the usual, regular and ordinary course consistent with past
practice, (ii) use its reasonable efforts to maintain and preserve intact its
business organization and advantageous business relationships and retain the
services of its key officers and employees and (iii) take no action which
would adversely affect or delay the ability of Cimtech, Sub or EAI to obtain
any necessary approvals of any Governmental Authority required for the
transactions contemplated hereby or to perform its covenants and agreements
under this Agreement.
5.2. CIMTECH FORBEARANCES. During the period from the date of this
Agreement to the Effective Time, except as expressly contemplated or
permitted by this Agreement, Cimtech shall not, without the prior written
consent of EAI:
(a) incur any indebtedness for borrowed money (except pursuant to
existing funded debt agreements described in Section 3.13 of the Disclosure
Schedule), assume, guarantee, endorse or otherwise as an accommodation,
become responsible for the obligations of any other individual, partnership,
limited liability company, corporation or other entity (collectively,
"Person"), or make any loan or advance;
(b) (i) adjust, split, combine or reclassify any capital stock; (ii)
make, declare or pay any dividend, or make any other distribution on, or
directly or indirectly redeem, purchase or otherwise acquire, any shares of
its capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock, (iii) grant any Person any
right to acquire any shares of its capital stock, or (iv) issue any
additional shares of capital stock;
(c) sell, transfer, mortgage, encumber or otherwise dispose of any of
its properties or assets to any Person, or cancel or release any indebtedness
or claims owed to or held by Cimtech or by any Person, except in the ordinary
course of business consistent with past practice;
(d) make any investment in any Person by purchase of securities,
contributions to capital, property transfers, or purchase of any property or
assets of any other Person;
(e) except for transactions in the ordinary course of business
consistent with past practice, enter into or terminate any Cimtech Contract,
or change any terms in any Cimtech Contract, other than renewals or changes
in immaterial terms thereof;
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(f) increase in any manner the compensation or fringe benefits of any of
its directors, officers or employees other than in the ordinary course of
business consistent with past practice, pay any pension or retirement
allowance not required by any existing plan or agreement to any of the
foregoing, or become a party to, amend or commit itself to, any pension,
retirement, profit-sharing or welfare benefit plan or agreement or employment
agreement with or for the benefit of any of the foregoing;
(g) settle any claim, action or proceeding involving money damages,
except in the ordinary course of business consistent with past practice;
(h) take any action that would prevent or impede the Merger from
qualifying (i) for "pooling of interests" accounting treatment, or (ii) as a
reorganization within the meaning of Section 368 of the Code;
(i) amend its Articles of Incorporation or By-Laws; or
(j) take any action that is intended or may reasonably be expected to
result in (i) any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect, or (ii) any of
the conditions to the Merger set forth in Article VII not being satisfied or
(iii) any violation of any provision of this Agreement, except, in each case,
as may be required by applicable law.
ARTICLE VI.
ADDITIONAL AGREEMENTS
6.1. REGULATORY AND OTHER MATTERS. (a) EAI, with the cooperation of
Cimtech, shall promptly prepare the PPM/Proxy Statement. Cimtech shall, upon
request, furnish EAI with all information or documents concerning Cimtech and
its directors, officers and shareholders and such other matters as may be
reasonably necessary or advisable in connection with the PPM/Proxy Statement.
EAI shall also use its reasonable efforts to obtain all necessary state
securities law or "Blue Sky" qualifications, permits and approvals required
to carry out the transactions contemplated by this Agreement, and Cimtech
shall furnish all information concerning Cimtech and the holders of Cimtech
Common Stock as may be reasonably requested by EAI in connection with such
qualifications, permits and approvals.
(b) The parties shall cooperate with each other and use their best
efforts to prepare and file promptly all necessary documentation to effect
all applications, notices, petitions and filings and to obtain as promptly as
practicable all Consents of Governmental Authorities and third parties which
are necessary or advisable to consummate the Merger and the other
transactions contemplated by this Agreement, and the parties shall keep each
other apprised of the status of matters relating to completion of the
transactions contemplated herein.
6.2. ACCESS TO INFORMATION. Upon reasonable notice, Cimtech shall afford
to the officers, employees, accountants, counsel and other representatives of
EAI access during normal business hours during the period prior to the
Effective Time to all of Cimtech's books and
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records, properties and contracts, and, during such period, Cimtech shall
make available to EAI all information concerning its business, assets and
personnel as EAI may reasonably request.
6.3. SHAREHOLDERS' APPROVAL. Cimtech shall call a meeting of its
shareholders for the purpose of voting upon this Agreement and the Merger,
which meeting shall be held as soon as reasonably practicable after the
PPM/Proxy Statement is mailed to the Cimtech shareholders.
6.4. NNM LISTING. EAI shall cause the shares of EAI Common Stock to be
issued in the Merger to be approved for listing on the NNM, subject to
official notice of issuance, prior to the Effective Time.
6.5. AFFILIATES. Prior to the Effective Time, Cimtech shall obtain from
each of the shareholders and each of the optionholders listed in Section 6.5
of the Disclosure Schedule as being "affiliates" of Cimtech a written
agreement substantially in the form attached as EXHIBIT B.
6.6. ADDITIONAL AGREEMENTS. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of
this Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of any of
the parties to the Merger, the proper officers and directors of each party to
this Agreement shall take all such necessary or advisable action.
6.7. ADVICE OF CHANGES. Cimtech shall promptly advise EAI of any change
or event which is likely to have a Material Adverse Effect on Cimtech or
which Cimtech believes would or would be reasonably likely to cause or
constitute a material breach of any of its representations, warranties or
covenants contained herein.
6.8. TAKEOVER PROPOSALS. (a) Cimtech agrees that from and after its
execution of this agreement through the Effective Time, it shall not and it
shall use its best efforts to cause the directors, officers, employees and
shareholders, and all investment bankers, attorneys or other advisors or
representatives retained by Cimtech not to, (i) solicit or encourage the
submission of any Takeover Proposal (as hereinafter defined), (ii)
participate in any discussions or negotiations regarding, or furnish to any
third party any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, a
Takeover Proposal, (iii) make or authorize any statement or recommendation in
support of any Takeover Proposal, or (iv) enter into any agreement with
respect to any Takeover Proposal.
(b) Notwithstanding the foregoing paragraph (a), nothing contained in
this Section 6.8 shall prohibit the Board of Directors, executive officers or
shareholders of Cimtech, or the investment bankers, attorneys, or other
advisors or representatives retained by Cimtech from participating in any
discussions or negotiations with, or furnishing any information to, any third
party that makes a Takeover Proposal if all of the following events shall
have occurred: (i) EAI has been notified in writing of such Takeover Proposal
within 24 hours of Cimtech's receipt thereof, including the identity of the
party making the Takeover Proposal and the specific terms and conditions
thereof, and has been given copies of such Takeover Proposal; (ii) such third
party has made a written Takeover Proposal to the Board of Directors of
Cimtech, which Takeover Proposal identifies a price or range of values to be
paid and based on the advice of
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Cimtech's investment bankers, the Board of Directors of Cimtech has
determined that such Takeover Proposal is financially more favorable to the
shareholders of Cimtech than the terms of the Merger; (iii) Cimtech's Board
of Directors has determined, based on the advice of Cimtech's investment
bankers, that such third party is financially capable of consummating the
transactions specified in the Takeover Proposal; and (iv) the Board of
Directors of Cimtech has determined, after consultation with its outside
legal counsel, that its fiduciary duties require it to furnish information to
and negotiate with such third party. Notwithstanding the foregoing, Cimtech
shall not provide any non-public information to such third party unless (x)
prior to the date thereof Cimtech has provided such information to EAI; (y)
Cimtech has notified EAI in advance of any such proposed disclosure of
non-public information and has provided EAI with a description of the
information Cimtech intends to disclose; and (z) Cimtech provides such
non-public information pursuant to a nondisclosure agreement in a form
satisfactory to EAI.
(c) In addition to the foregoing requirements, Cimtech shall not accept
or enter into any agreement concerning a Takeover Proposal until at least 48
hours after EAI's receipt of a copy of such Takeover Proposal. Upon
compliance with the requirements in the foregoing paragraph (b) and this
paragraph (c), Cimtech shall be entitled to terminate this Agreement in
accordance with the provisions of Section 8.1(d).
(d) For purposes of this Agreement, "Takeover Proposal" means any proposal
or offer for a merger, consolidation or other business combination involving
Cimtech or any proposal or offer to acquire a material equity interest in, or a
substantial portion of the assets of, Cimtech other than by EAI as contemplated
by this Agreement.
(e) Cimtech shall be entitled to furnish a copy of this Section 6.8 to any
third party who expresses an interest in making a Takeover Proposal after the
execution of this Agreement.
6.9. TAX MATTERS. Cimtech and EAI agree as follows:
(a) Cimtech and EAI will not file any tax return, make any disclosure or
otherwise take any position or any action that is inconsistent with the Merger
qualifying as a reorganization under Section 368(a)(1)(A) of the Code or would
alone or in conjunction with any other action cause the merger to not qualify as
a reorganization under Section 368(a)(1)(A) of the Code. Cimtech and EAI will,
and Cimtech will use its best efforts to cause its shareholders to, file all
Returns and take such other actions as may be required for the Merger to qualify
as a reorganization under Section 368(a)(1)(A) of the Code and to comply with
the regulations under Section 368 of the Code as they apply to the Merger.
(b) EAI will use its best efforts to cause the historic business of
Cimtech to be continued or will use its best efforts to cause a significant
portion of the historic business assets of Cimtech to be used in a trade or
business, in a manner sufficient to comply with the continuity of business
enterprise requirements set forth in Treasury Regulation 1.368-1(d) under
Section 368 of the Code.
(c) Cimtech will use its best efforts to provide EAI with information as
to the adjusted tax basis of its shareholders in their Cimtech Common Stock.
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ARTICLE VII.
CONDITIONS PRECEDENT
7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) APPROVALS AND CONSENTS. All regulatory approvals required to
consummate the transactions contemplated hereby shall have been obtained and
shall remain in full force and effect and all statutory waiting periods in
respect thereof shall have expired (all such approvals and the expiration of all
such waiting periods being referred to herein as the "Requisite Regulatory
Approvals"), and all consents necessary to transfer all of Cimtech's rights,
title and interest to its facilities located on North Loop Drive in Ames, Iowa
shall have been obtained in accordance with the lease thereof, and shall remain
in full force and effect.
(b) NNM LISTING. The shares of EAI Common Stock which shall be issued to
the shareholders of Cimtech upon consummation of the Merger shall have been
authorized for listing on the NNM, subject to official notice of issuance.
(c) BLUE SKY. EAI shall have received all state securities or "Blue Sky"
permits and other authorizations necessary to issue the shares of EAI Common
Stock pursuant to this Agreement and the Merger.
(d) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No order, injunction or
decree issued by any Governmental Authority or other legal restraint or
prohibition preventing the consummation of the Merger or any of the other
transactions contemplated by this Agreement shall be in effect. No law,
statute, rule, regulation, order, injunction or decree shall have been enacted,
entered, promulgated or enforced by any Governmental Authority which prohibits,
materially restricts or makes illegal the consummation of the Merger or the
other transactions contemplated by this Agreement.
(e) REGISTRATION RIGHTS AGREEMENT. EAI and each shareholder of Cimtech
shall have entered into a Registration Rights Agreement in the form of EXHIBIT C
hereto.
(f) CIMTECH SHAREHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved by the requisite holders of the
issued and outstanding shares of Cimtech Common Stock.
(g) FEDERAL TAX OPINION. Cimtech and the shareholders of Cimtech shall
have received an opinion of Snell & Wilmer, LLP, in form and substance
reasonably satisfactory to them on the Closing Date, substantially to the effect
that:
(i) The Merger will constitute a tax free reorganization under
Section 368(a)(1)(A) of the Code and Cimtech and EAI will each be a party
to the reorganization;
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(ii) No gain or loss will be recognized by the shareholders of Cimtech
who exchange their Cimtech Common Stock for EAI Common Stock pursuant to
the Merger (except with respect to cash received in lieu of a fractional
share interest in EAI Common Stock);
(iii) The tax basis of the EAI Common Stock received by
shareholders who exchange all of their Cimtech Common Stock for EAI Common
Stock in the Merger will be the same as the tax basis of the Cimtech Common
Stock surrendered in exchange therefor (reduced by any amount allocable to
a fractional share interest for which cash is received);
(iv) The holding period for capital gains purposes of EAI Common Stock
received by shareholders of Cimtech in the Merger will include the period
during which the shares of Cimtech Common Stock surrendered in exchange
therefor were held, PROVIDED such Cimtech Common Stock was held as a
capital asset by the holder of such Cimtech Common Stock at the Effective
Time; and
(v) The discussion in the PPM/Proxy Statement under the caption "The
Merger -- Certain Federal Income Tax Consequences" insofar as it relates to
matters of federal income tax law is a fair and accurate summary of such
matters.
In rendering such opinion, counsel may require and rely upon assumptions and
representations contained in certificates of officers of Cimtech, shareholders
of Cimtech, EAI and others.
7.2. CONDITIONS TO OBLIGATIONS OF EAI AND SUB. The obligation of EAI and
Sub to effect the Merger is also subject to the satisfaction or waiver by EAI at
or prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Cimtech set forth in this Agreement that are qualified with reference to a
Material Adverse Effect or materiality shall be true and correct, and the
representations and warranties of Cimtech that are not so qualified shall be
true and correct in all material respects, in each case as of the date of this
Agreement and (except to the extent such representations and warranties speak as
of an earlier date) as of the Closing Date as though made on and as of the
Closing Date. EAI shall have received a certificate signed on behalf of Cimtech
by the Chairman of the Board and the President, to the foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF CIMTECH. Cimtech shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and EAI shall have received a
certificate signed on behalf of Cimtech by the Chairman of the Board and the
President to such effect.
(c) DISSENTERS RIGHTS. Holders of not more than ten percent (10%) of the
outstanding Cimtech Common Stock shall have validly exercised their "dissenters
rights" pursuant to the IBCA.
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(d) AFFILIATES AGREEMENTS. EAI shall have received executed letter
agreements substantially in the form attached as EXHIBIT B, from each
shareholder and each optionholder of Cimtech listed in Section 6.5 of the
Disclosure Schedule as an "affiliate" of Cimtech.
(e) PROPRIETARY INFORMATION AGREEMENTS. Cimtech shall have in its
personnel files an executed copy of Cimtech's proprietary information agreement
from each employee of Cimtech.
(f) EMPLOYMENT AGREEMENT. David P. Sly shall have executed and delivered
to EAI an employment agreement substantially in the form attached as EXHIBIT D.
(g) CIMTECH OPTIONS AND IPDC WARRANT. Each holder of a Cimtech Option
shall have consented to the assumption by EAI of such Cimtech Option as
contemplated by Section 2.3 pursuant to a written agreement or instrument signed
by such holder and the IPDC Warrant shall have been exercised prior to the
Effective Time.
(h) AGREEMENT WITH AMES SEED CAPITAL FUND, INC. The Agreement between
Ames Seed Capital Fund, Inc. and Cimtech dated April 12, 1988 shall have been
terminated.
(i) POOLING OF INTERESTS LETTER. EAI shall have received from Ernst &
Young, LLP a letter dated on or about the date that is two business days prior
to the date the PPM/Proxy Statement is first mailed to shareholders of Cimtech,
in form and substance acceptable to EAI, to the effect that the business
combination to be effected by the Merger will qualify for accounting as a
"pooling of interests" by EAI for purposes of its consolidated financial
statements under GAAP and applicable rules and regulations of the Securities and
Exchange Commission, and such letter shall not have been withdrawn or modified
in any material respect on the Closing Date. No action shall have been taken or
proposed by any Governmental Authority, and no statute, rule, regulation or
order shall have been enacted, promulgated, issued or proposed by any
Governmental Authority that would prevent EAI from accounting for the business
combination to be effected by the Merger as a pooling of interests.
(j) LEGAL OPINION; CLOSING CERTIFICATES. EAI shall have received from
Snell & Wilmer, LLP, counsel to Cimtech, an opinion substantially in the form
attached as EXHIBIT E, together with such customary closing documents and
certificates as EAI or its counsel shall reasonably request.
(k) CERTIFICATIONS. EAI shall have received a certificate from Cimtech
substantially in the form attached as EXHIBIT F.
(l) ACKNOWLEDGMENT BY SHAREHOLDERS. Each holder of Cimtech Common Stock
shall have entered into a written acknowledgment of the capitalization of
Cimtech, in a form satisfactory to EAI and its counsel.
(m) MATERIAL ADVERSE CHANGE. There shall not have occurred any change
which would constitute a Material Adverse Effect on Cimtech.
(n) PRIVATE PLACEMENT. EAI shall have received from the holders of
Cimtech Common Stock documentation establishing to the reasonable satisfaction
of EAI and its counsel
26
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that: (i) there were, as of the date hereof and as of the date of the
meeting of Cimtech shareholders to approve the Merger, not more than 34
holders of Cimtech Common Stock who were not, on each such date, "accredited
investors" as defined in Rule 501(a) of Regulation D promulgated under the
Securities Act of 1933, as amended, and (ii) each Cimtech shareholder who is
not an "accredited investor" as so defined, either alone or with his or her
purchaser representative(s) has such knowledge and experience in financial
and business matters that he or she is capable of evaluating the merits and
risks of the Merger.
7.3. CONDITIONS TO OBLIGATIONS OF CIMTECH. The obligation of Cimtech to
effect the Merger is also subject to the satisfaction or waiver by Cimtech at or
prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
EAI set forth in this Agreement that are qualified with a reference to
materiality shall be true and correct, and the representations and warranties of
EAI that are not so qualified shall be true and correct in all material
respects, in each case, as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as of
the Closing Date as though made on and as of the Closing Date. Cimtech shall
have received a certificate signed on behalf of EAI by the Chief Executive
Officer or the Chief Financial Officer of EAI to the foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF EAI. EAI shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and Cimtech shall have received a
certificate signed on behalf of EAI by the Chief Executive Officer or the Chief
Financial Officer of EAI to such effect.
(c) LEGAL OPINION; CLOSING CERTIFICATES. Cimtech shall have received from
Jamie A. Wade, General Counsel of EAI, an opinion substantially in the form
attached as EXHIBIT G together with such customary closing documents and
certificates as Cimtech or its counsel shall reasonably request.
(d) MATERIAL ADVERSE CHANGE. There shall not have occurred any change
which would constitute a Material Adverse Effect on EAI and its subsidiaries,
taken as a whole.
(e) BENDER FEE. EAI shall have paid Bender $280,000 less a retainer of
$20,000 previously paid by Cimtech in payment of Bender's fee as broker for
Cimtech in the Merger.
ARTICLE VIII.
TERMINATION AND AMENDMENT
8.1. TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the Merger by the
shareholders of Cimtech:
(a) by mutual consent of Cimtech and EAI in a written instrument, if the
Board of Directors of each so determines by a vote of a majority of the members
of its entire Board;
27
<PAGE>
(b) by either the Board of Directors of Cimtech or the Board of Directors
of EAI if any Governmental Authority which must grant a Requisite Regulatory
Approval has denied approval of the Merger, or any Governmental Authority of
competent jurisdiction shall have issued an order permanently enjoining or
otherwise prohibiting the consummation of the transactions contemplated by this
Agreement;
(c) by either the Board of Directors of Cimtech or the Board of Directors
of EAI (PROVIDED that the terminating party is not then in material breach of
any representation, warranty, covenant or other agreement contained herein) if
(x) there shall have been a material breach of any of the representations or
warranties or any of the covenants or agreements set forth in this Agreement on
the part of the other party, which breach is not cured within 30 days following
written notice to the party committing such breach, or which breach, by its
nature or timing, cannot be cured prior to December 31, 1997, (y) the Closing
shall not have occurred on or before December 31, 1997; PROVIDED, HOWEVER, that
neither Board of Directors shall be entitled to terminate the Agreement pursuant
to this clause (y) if the reason the Closing has not occurred by such date is
because any Governmental Authority which must grant a Requisite Regulatory
Approval has failed to act, the Cimtech shareholder meeting shall not have
occurred in accordance with the requirements of the IBCA or some similar event
beyond the control of both parties shall not have occurred by such date, or
(z) the Closing shall not have occurred on or before March 31, 1998; or
(d) by the Board of Directors of Cimtech (after consulting with its
legal counsel), if such action is required for the Board of Directors to
comply with its fiduciary duties to Cimtech and its shareholders as
contemplated in Section 6.8 hereof; PROVIDED, HOWEVER, if such action is
taken by Cimtech, then (i) within 2 days of such termination Cimtech shall
reimburse EAI for its out-of-pocket expenses incurred in connection with the
transactions contemplated by this Agreement; and (ii) if Cimtech shall
consummate any transaction pursuant to a Takeover Proposal (x) within 12
months following the date of this Agreement, or (y) pursuant to a definitive
agreement executed by Cimtech during such 12-month period, Cimtech shall also
promptly pay to EAI $500,000 upon the occurrence of such transaction;
PROVIDED, HOWEVER, if the Cimtech shareholder meeting shall have occurred and
the Cimtech shareholders shall have voted with respect to approval of the
Merger and the requisite vote necessary to approve the Merger shall not have
been received, then this Agreement shall automatically be terminated as of
the date of such Cimtech shareholder meeting without further action of any of
the parties hereto and within 2 days of such termination Cimtech pay to EAI
$75,000 as reimbursement for EAI's out-of-pocket expenses incurred in
connection with the transactions contemplated by this Agreement (for which
EAI shall not be required to account).
8.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Cimtech or EAI as provided in Section 8.1, this Agreement
shall forthwith become void and have no effect, and none of Cimtech, EAI, Sub
or any of their directors or officers shall have any liability of any nature
whatsoever hereunder, or in connection with the transactions contemplated
hereby, except that (i) Sections 8.1(d) and 9.1, the final proviso clause of
Section 8.1 and this Section 8.2 shall survive any termination of this
Agreement, and (ii) notwithstanding anything to the contrary contained in
this Agreement, neither Cimtech nor EAI shall be relieved or released
28
<PAGE>
from any liabilities or damages arising out of its willful breach of any
provision of this Agreement.
8.3. AMENDMENT; EXTENSION; WAIVER. At any time prior to the Effective
Time, the parties hereto, by action taken or authorized by their respective
Board of Directors, may, to the extent legally allowed, (i) amend any term or
provision of this Agreement, (ii) extend the time for the performance of any of
the obligations or other acts of the parties hereto, (iii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iv) waive compliance with any of the
agreements or conditions contained herein; PROVIDED, HOWEVER, that after any
approval of the transactions contemplated by this Agreement by the shareholders
of Cimtech, there may not be, without further approval of such shareholders, any
amendment, extension or waiver of this Agreement which reduces the amount or
changes the form of the consideration to be delivered to the holders of Cimtech
Common Stock hereunder other than as contemplated by this Agreement. Any
agreement on the part of a party hereto to any such amendment, extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party, but such amendment, extension or waiver or failure to insist on
strict compliance with any obligation, covenant, agreement or condition in this
Agreement shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
ARTICLE IX.
GENERAL PROVISIONS
9.1. EXPENSES. Except as set forth in Section 7.3(e) and Section 8.1(d)
or the final proviso clause of Section 8.1, all costs and expenses incurred
in connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such expense.
9.2. NOTICES. All notices and other required communications hereunder
shall be in writing and shall be deemed given: if delivered personally, when
so delivered; if telecopied, on the date telecopied (PROVIDED there is
written confirmation of receipt and a confirming notice or communication is
delivered in the manner set forth herein); if mailed by registered or
certified mail (postage prepaid and return receipt requested), on the date
five days after deposit in the mail; or if delivered by overnight courier
(with written confirmation of delivery to such courier), on the next business
after such delivery, in each case to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
(a) if to EAI, to:
Engineering Animation, Inc.
2321 North Loop Drive
Ames, Iowa 50010
Attention: Jamie A. Wade
Vice President of Administration, General Counsel and Secretary
Fax: (515) 296-6941
29
<PAGE>
with a copy to:
Gardner, Carton & Douglas
321 North Clark Street, Suite 3400
Chicago, Illinois 60610
Attention: Nancy M. Borders
Fax: (312) 644-3381
and
(b) if to Cimtech, to:
Cimtech, Inc.
2501 North Loop Drive
Suite 700
Ames, Iowa 50010
Attention: David P. Sly, President
Fax: (515) 296-9914
with a copy to:
Snell & Wilmer, LLP
One Arizona Center
Phoenix, Arizona 85004-0001
Attention: Jon S. Cohen
Fax: (602) 382-6070
9.3. INTERPRETATION. When a reference is made in this Agreement to
Sections, Schedules or Exhibits, such reference shall be to a Section of or
Schedule or Exhibit to this Agreement unless otherwise indicated. The table of
contents 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. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." No provision of this Agreement shall be construed to require EAI,
Sub, Cimtech or any of their respective affiliates to take any action which
would violate any applicable law, rule or regulation.
9.4. COUNTERPARTS. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement.
9.5. ENTIRE AGREEMENT. This Agreement (including the Disclosure Schedule,
Exhibits, documents and instruments referred to herein) constitutes the entire
agreement of the parties and supersedes all prior agreements and understandings,
both written and oral, between the parties with respect to the subject matter
hereof.
9.6. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without regard to any
applicable conflicts of law which would result in the application of any other
law.
30
<PAGE>
9.7. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
9.8. PUBLICITY. Except as otherwise required by applicable law or the
rules of the NNM, neither Cimtech nor EAI shall, or shall permit any of their
respective affiliates to, issue or cause the publication of any press release
or other public announcement with respect to, or otherwise make any public
statement concerning, the transactions contemplated by this Agreement without
the prior consent of the other party, which consent shall not be unreasonably
withheld.
9.9. ASSIGNMENT; THIRD PARTY BENEFICIARIES. Neither this Agreement nor
any of the rights, interests or obligations set forth herein shall be
assigned by either of the parties (whether by operation of law or otherwise)
without the prior written consent of the other party. Subject to the
preceding sentence, this Agreement shall be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective
successors and assigns. This Agreement (including the Disclosure Schedule,
Exhibits, documents and instruments referred to herein) is not intended to
confer upon any person other than the parties hereto any rights or remedies
hereunder.
9.10. KNOWLEDGE AND AWARENESS. As used in this Agreement,
"knowledge" or "awareness" of any entity means the actual knowledge or
awareness of such entity's officers and other persons exercising supervisory
authority, and such knowledge or awareness as such entity's officers and
other persons exercising supervisory authority should have had after
reasonable investigation. Whenever the term "knowledge" or "awareness" is
used to refer to the "knowledge" or "awareness" of Cimtech, such term shall
include the "knowledge" or "awareness" of the directors, officers and other
persons exercising supervisory authority over Cimtech and the shareholders of
Cimtech who are active in the business of Cimtech.
9.11. CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the parties and no presumptions or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
Federal, state, county, local or foreign law or statute shall be deemed also
to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise.
9.12. POOLING OF INTERESTS ACCOUNTING; TAX FREE REORGANIZATION. In
the event that either EAI or Cimtech becomes aware of any provisions of this
Agreement which would prevent the Merger from being accounted for as a
pooling of interests or qualifying as a reorganization within the meaning of
Section 368 of the Code, such parties shall negotiate in good faith with a
31
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view toward amending this Agreement in a manner which would permit the Merger
to be accounted for as a pooling of interests or qualified as such a
reorganization, as applicable.
32
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IN WITNESS WHEREOF, EAI, Sub and Cimtech have caused this AMENDED AND
RESTATED AGREEMENT AND PLAN OF MERGER to be executed by their respective
officers thereunto duly authorized as of the date first above written.
ENGINEERING ANIMATION, INC.
By: /s/ MATTHEW M. RIZAI
-------------------------------
Matthew M. Rizai
Chief Executive Officer, President and Treasurer
COHO, INC.
By: /s/ MATTHEW M. RIZAI
-------------------------------
Matthew M. Rizai
Chief Executive Officer, President and Treasurer
CIMTECH, INC.
By: /s/ DAVID P. SLY
-------------------------------
David P. Sly
President
33
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EXHIBIT 2.2
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
among
ENGINEERING ANIMATION, INC.,
TRANSITORY BEAVER, INC.,
and
ROSETTA TECHNOLOGIES, INC.
_____________________
Dated as of November 14, 1997
_____________________
<PAGE>
TABLE OF CONTENTS
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
ARTICLE I. THE MERGER..............................................1
1.1. THE MERGER.................................................1
1.2. CLOSING....................................................2
1.3. EFFECTIVE TIMES............................................2
1.4. EFFECTS OF THE MERGER......................................2
1.5. ARTICLES OF INCORPORATION AND BY-LAWS......................2
1.6. DIRECTORS AND OFFICERS.....................................2
1.7. SUB COMMON STOCK...........................................2
ARTICLE II. CONVERSION AND EXCHANGE OF SHARES.......................2
2.1. CONVERSION OF RTI COMMON STOCK.............................2
2.2. EXCHANGE OF RTI SHARES.....................................3
2.3. OPTIONS TO ACQUIRE RTI COMMON STOCK........................4
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF RTI...................5
3.1. CORPORATE ORGANIZATION.....................................5
3.2. CAPITALIZATION.............................................5
3.3. AUTHORITY; NO VIOLATION....................................6
3.4. CONSENTS AND APPROVALS.....................................6
3.5. REPORTS....................................................7
3.6. COMPLIANCE WITH APPLICABLE LAW.............................7
3.7. FINANCIAL STATEMENTS.......................................7
3.8. ABSENCE OF CERTAIN CHANGES OR EVENTS.......................7
3.9. LEGAL PROCEEDINGS AND RESTRICTIONS.........................8
3.10. TAXES AND TAX RETURNS......................................8
3.11. EMPLOYEE BENEFITS..........................................10
3.12. EMPLOYMENT AND LABOR RELATIONS.............................12
3.13. CONTRACTS..................................................12
3.14. UNDISCLOSED LIABILITIES....................................13
3.15. ENVIRONMENTAL LIABILITY....................................13
3.16. TANGIBLE ASSETS............................................14
3.17. REAL PROPERTY..............................................14
3.18. INTELLECTUAL PROPERTY......................................15
3.19. INVENTORY..................................................16
3.20. NOTES AND ACCOUNTS RECEIVABLE..............................16
3.21. BANK ACCOUNTS AND POWERS OF ATTORNEY.......................16
3.22. GUARANTIES.................................................16
i
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3.23. INSURANCE..................................................16
3.24. SERVICE CONTRACTS AND WARRANTIES...........................16
3.25. CERTAIN RELATIONSHIPS......................................17
3.26. PPM/PROXY STATEMENT INFORMATION............................17
3.27. BROKER'S FEES..............................................17
3.28. CERTAIN CUSTOMER RELATIONSHIPS.............................17
3.29. DISCLOSURE.................................................17
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF EAI...................17
4.1. CORPORATE ORGANIZATION.....................................17
4.2. CAPITALIZATION.............................................18
4.3. AUTHORITY; NO VIOLATION....................................18
4.4. CONSENTS AND APPROVALS.....................................18
4.5. SEC REPORTS................................................19
4.6. COMPLIANCE WITH APPLICABLE LAW.............................19
4.7. FINANCIAL STATEMENTS.......................................19
4.8. ABSENCE OF CERTAIN CHANGES OR EVENTS.......................19
4.9. PPM/PROXY STATEMENT INFORMATION............................19
4.10. OWNERSHIP OF SUB; NO PRIOR ACTIVITIES......................20
4.11. BROKER'S FEES..............................................20
4.12. DISCLOSURE.................................................20
ARTICLE V. COVENANTS RELATING TO CONDUCT OF BUSINESS...............20
5.1. CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME............20
5.2. RTI FORBEARANCES...........................................21
ARTICLE VI. ADDITIONAL AGREEMENTS...................................22
6.1. REGULATORY AND OTHER MATTERS...............................22
6.2. ACCESS TO INFORMATION......................................22
6.3. SHAREHOLDERS' APPROVAL.....................................22
6.4. NNM LISTING................................................22
6.5. ADDITIONAL AGREEMENTS......................................22
6.6. ADVICE OF CHANGES..........................................22
6.7. TAKEOVER PROPOSALS.........................................23
6.8. TAX MATTERS................................................24
ARTICLE VII. CONDITIONS PRECEDENT....................................24
7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE MERGER................................................24
7.2. CONDITIONS TO OBLIGATIONS OF EAI AND SUB TO EFFECT
THE MERGER................................................25
7.3. CONDITIONS TO OBLIGATIONS OF RTI...........................26
ii
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ARTICLE VIII. TERMINATION AND AMENDMENT...............................26
8.1. TERMINATION................................................26
8.2. EFFECT OF TERMINATION......................................27
8.3. AMENDMENT; EXTENSION; WAIVER...............................27
ARTICLE IX. GENERAL PROVISIONS......................................28
9.1. EXPENSES...................................................28
9.2. NOTICES....................................................28
9.3. INTERPRETATION.............................................29
9.4. COUNTERPARTS...............................................29
9.5. ENTIRE AGREEMENT...........................................29
9.6. GOVERNING LAW..............................................29
9.7. SEVERABILITY...............................................30
9.8. PUBLICITY..................................................30
9.9. ASSIGNMENT; THIRD PARTY BENEFICIARIES......................30
9.10. KNOWLEDGE AND AWARENESS....................................30
9.11. CONSTRUCTION...............................................30
EXHIBITS
A - Registration Rights Agreement
B - Employee Proprietary Information Agreement
iii
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INDEX OF DEFINED TERMS
Agreement.......................................................Recitals
Articles of Merger..............................................Section 1.3
Beaver..........................................................Recitals
Certificates of Merger..........................................Section 1.3
Closing.........................................................Section 1.2
Closing Date....................................................Section 1.2
Code............................................................Recitals
Common Certificate..............................................Section 2.1(b)
Consents........................................................Section 3.4
Delaware Secretary..............................................Section 1.3
DGCL............................................................Section 1.1
Disclosure Schedule.............................................Art. III
EAI.............................................................Recitals
EAI Common Stock................................................Section 2.1(a)
EAI Stock Value.................................................Section 2.1(a)
Effective Time..................................................Section 1.3
Environmental Laws..............................................Section 3.15(e)
ERISA...........................................................Section 3.11(a)
ERISA Affiliate.................................................Section 3.11(f)
Exchange Act....................................................Section 4.5
Exchange Ratio..................................................Section 2.1(a)
GAAP............................................................Section 3.7
Governmental Authority..........................................Section 3.4
Hazardous Material..............................................Section 3.15(e)
HSR Filing......................................................Section 3.4
Inconsistent Action.............................................Section 6.8
Indemnifying Person.............................................Section 9.2
Intellectual Property...........................................Section 3.18
Interim Financial Statements....................................Section 3.7
IRS.............................................................Section 3.11(b)
Liens...........................................................Section 3.3(b)
Losses..........................................................Section 9.1
Material Adverse Effect.........................................Section 3.1(a)
Merger..........................................................Recitals
1997 Balance Sheet..............................................Section 3.14
NNM.............................................................Section 2.1(a)
Note............................................................Section 5.2(b)
OBCA............................................................Section 1.1
Oregon Secretary................................................Section 1.3
Person..........................................................Section 5.2(a)
PPM/Proxy Statement.............................................Section 3.26
Primary Customers...............................................Section 3.28
Requisite Regulatory Approvals..................................Section 7.1(b)
Returns.........................................................Section 3.10(c)
RTI.............................................................Recitals
iv
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RTI Common Stock................................................Section 2.1(a)
RTI Contracts...................................................Section 3.13
RTI Financial Statements........................................Section 3.7
RTI Options.....................................................Section 2.1(a)
RTI Plans.......................................................Section 3.11(a)
SEC Reports.....................................................Section 4.5
Sub.............................................................Recitals
Subsidiaries....................................................Section 3.1(a)
Takeover Proposal...............................................Section 6.7(c)
Taxes...........................................................Section 3.10(c)
Ventures........................................................Recitals
Ventures Merger.................................................Recitals
v
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of November
14, 1997 (the "Agreement"), by and among ENGINEERING ANIMATION, INC., a
Delaware corporation ("EAI"), TRANSITORY BEAVER, INC., a Delaware corporation
and an indirect wholly-owned subsidiary of EAI ("Sub"), and ROSETTA
TECHNOLOGIES, INC., an Oregon corporation ("RTI").
WHEREAS, EAI, Shell Beaver L.L.C., a Delaware limited liability company,
the sole member of which is EAI ("Beaver"), and Technology Company Ventures,
L.L.C., an Oregon limited liability company and majority shareholder of RTI
("Ventures"), have entered into that certain Agreement and Plan of Merger,
dated October 29, 1997, pursuant to which Ventures will merge with and into
Beaver (the "Ventures Merger") and the membership interests in Ventures shall
be converted solely into voting stock of EAI;
WHEREAS, EAI desires to acquire all outstanding shares of stock of RTI
not held by Ventures solely in exchange for voting stock of EAI;
WHEREAS, the Boards of Directors of EAI, Sub and RTI have determined
that it is in the best interests of their respective companies and
stockholders to consummate the business combination provided for in this
Agreement in which, subject to the terms and conditions set forth herein, Sub
shall merge with and into RTI (the "Merger") and as a result RTI shall become
a wholly-owned subsidiary of Beaver;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as part of a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, the parties desire to make certain representations, warranties
and agreements in connection with the Merger and to establish certain
conditions to the Merger;
WHEREAS, the parties entered into an Agreement and Plan of Merger dated
October 29, 1997, which they now wish to amend and restate to modify the
registration rights of RTI shareholders who will receive stock of EAI
pursuant to the Merger; and
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, the parties
agree as follows:
ARTICLE I.
THE MERGER
1.1. THE MERGER. Subject to the terms and conditions of this Agreement,
in accordance with the Oregon Business Corporation Act (the "OBCA") and the
Delaware General Corporate Law (the "DGCL"), at the Effective Time (as
hereinafter defined) of the Merger, Sub shall merge with and into RTI and RTI
shall be the surviving corporation in the Merger and shall continue its
corporate existence under the laws of the State of Oregon as a wholly-owned
<PAGE>
subsidiary of Beaver. Upon consummation of the Merger, the separate corporate
existence of Sub shall terminate.
1.2. CLOSING. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") will take place at 10:00 a.m., at the
offices of Gardner, Carton & Douglas, 321 North Clark Street, Chicago,
Illinois, not later than five business days after the satisfaction or waiver
of the latest to occur of the conditions set forth in Article VII, unless
extended by mutual agreement of the parties (the "Closing Date").
1.3. EFFECTIVE TIMES. The Merger shall become effective as set forth in
the articles of merger (the "Articles of Merger") and the certificate of
merger (the "Certificate of Merger"), which shall be filed with the Secretary
of State of the State of Oregon (the "Oregon Secretary") and the Secretary of
State of the State of Delaware (the "Delaware Secretary") on the Closing Date
pursuant to the OBCA and the DGCL. The term "Effective Time" shall be the
date and time when the Merger become effective, as set forth in the
Certificate of Merger and Articles of Merger.
1.4. EFFECTS OF THE MERGER. At and after the Effective Time, the Merger
shall have the effects set forth in the OBCA and the DGCL, as the case may be.
1.5. ARTICLES OF INCORPORATION AND BY-LAWS. Subject to the terms and
conditions of this Agreement, at the Effective Time of the Merger, the
Articles of Incorporation and By-Laws of RTI shall be the Articles of
Incorporation and By-Laws of RTI as the surviving corporation in the Merger
until thereafter amended in accordance with applicable law.
1.6. DIRECTORS AND OFFICERS. The directors and officers of Sub
immediately prior to the Effective Time of the Merger shall continue as the
directors and officers of RTI as the surviving corporation in the Merger,
unless and until thereafter changed in accordance with the OBCA and RTI's
Articles of Incorporation and By-Laws.
1.7. SUB COMMON STOCK. At the Effective Time of the Merger, each share
of Sub Common Stock issued and outstanding immediately prior thereto shall be
canceled.
ARTICLE II.
CONVERSION AND EXCHANGE OF SHARES
2.1. CONVERSION OF RTI COMMON STOCK. At the Effective Time of the
Merger, by virtue of the Merger and without any action on the part of EAI,
Sub, RTI or any shareholder of RTI:
(a) Each share of common stock, par value $.001 per share, of RTI (the
"RTI Common Stock") issued and outstanding immediately prior to the Effective
Time of the Merger, other than shares which remain outstanding pursuant to
Section 2.1(c), shall be converted into the right to receive shares of the
common stock, par value $.01 per share, of EAI (the "EAI Common Stock") at an
exchange ratio (the "Exchange Ratio") determined as follows: each share of RTI
Common Stock shall be exchanged for that number of shares of EAI Common Stock
equal to the quotient obtained by dividing (i) $25,550,000 divided by the
average of the high and low per
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share sale price of the EAI Common Stock, as reported on the Nasdaq Stock
Market National Market ("NNM") for each of the date hereof and the two
immediately preceding trading days, as reported in the NNM listings published
in THE WALL STREET JOURNAL (the "EAI Stock Value"), BY (ii) the sum of the
total number of shares of RTI Common Stock outstanding immediately prior to
the Effective Time plus the number of shares of RTI Common Stock issuable
upon the exercise of all outstanding options to purchase RTI Common Stock
(the "RTI Options") outstanding immediately prior to the Effective Time. No
fractional shares of EAI Common Stock shall be issued, and in lieu thereof,
EAI shall pay to each former shareholder of RTI who otherwise would be
entitled to receive such fractional share an amount in cash determined by
multiplying (i) the EAI Stock Value BY (ii) the fraction of a share (rounded
to the nearest thousandth when expressed as an Arabic number) of EAI Common
Stock to which such holder would otherwise be entitled to receive pursuant to
this Section 2.1.
(b) All of the shares of RTI Common Stock converted into EAI Common
Stock pursuant to this Article shall no longer be outstanding and shall
automatically be canceled and cease to exist at the Effective Time of the
Merger. Each certificate previously representing any such shares of RTI
Common Stock (a "Common Certificate") shall thereafter represent the right to
receive (i) a certificate representing the number of whole shares of EAI
Common Stock and (ii) cash in lieu of fractional shares into which the shares
of RTI Common Stock represented by such Common Certificate have been
converted. If, prior to the Effective Time, the outstanding shares of EAI
Common Stock or RTI Common Stock shall have been increased, decreased,
changed into or exchanged for a different number or kind of shares or
securities as a result of a reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split, or other
similar change in capitalization, then an appropriate and proportionate
adjustment shall be made to the Exchange Ratio.
(c) At the Effective Time of the Merger, all shares of RTI Common Stock
that are owned by RTI as treasury stock shall be canceled and all shares of
RTI Common Stock that are owned, directly or indirectly, by Beaver or any
other entity wholly-owned by EAI shall remain outstanding, and no stock of
EAI or other consideration shall be delivered in exchange therefor. At the
Effective Time of the Merger, all shares of EAI Common Stock that are owned
by RTI, if any, shall become treasury stock of EAI.
(d) After the Effective Time of the Merger, there shall be no transfers
on RTI's stock transfer books of shares of RTI Common Stock.
2.2. EXCHANGE OF RTI SHARES.
(a) At the Effective Time of the Merger, each shareholder of RTI shall
have the right to deliver to EAI Common Certificates representing all of the
issued and outstanding shares of RTI Common Stock owned by such shareholder,
duly endorsed for transfer or accompanied by duly executed stock powers, free
and clear of all options, liens, claims, charges, restrictions and other
encumbrances of any nature whatsoever, other than federal and state
securities law restrictions. Upon proper surrender of a Common Certificate
for exchange and cancellation to EAI, and in accordance with and subject to
the other provisions of this Agreement, the holder of such Common Certificate
shall receive in exchange therefor (i) a certificate representing that
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number of whole shares of EAI Common Stock to which such holder of RTI Common
Stock shall have become entitled, and (ii) a check representing the amount of
any cash in lieu of fractional shares which such holder has the right to
receive. The Common Certificate so surrendered shall forthwith be canceled.
No interest shall be paid or accrued on any cash in lieu of fractional shares
payable to holders of Common Certificates.
(b) If any certificate representing shares of EAI Common Stock is to be
issued in a name other than that in which the Common Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance thereof
that such Common Certificate shall be properly endorsed (or accompanied by an
appropriate instrument of transfer) and otherwise in proper form for transfer,
and that the person requesting such exchange shall pay to EAI in advance any
transfer or other taxes required by reason thereof, or shall establish to the
satisfaction of EAI that such tax has been paid or is not payable.
(c) In the event any Common Certificate shall have been lost, stolen or
destroyed, the person so claiming shall make an affidavit of that fact and, if
required by EAI, post a bond in such amount as EAI may determine is reasonably
necessary as indemnity against any claim that may be made against it with
respect to such Common Certificate. Thereafter, EAI shall issue in exchange for
such lost, stolen or destroyed Common Certificate the shares of EAI Common Stock
and any cash in lieu of a fractional share deliverable in respect thereof
pursuant to this Agreement.
2.3. OPTIONS TO ACQUIRE RTI COMMON STOCK.
(a) At the Effective Time of the Merger, each outstanding RTI Option,
whether vested or unvested, shall be assumed by EAI. Each such RTI Option
shall thereafter be deemed to constitute an option to acquire, on the same
terms and conditions as were applicable under such RTI Option and the plan
related thereto, (i) the same number of shares of EAI Common Stock as such
RTI Option would have been exchangeable for had such RTI Option been
exercised in full immediately prior to the merger and (ii) at an exercise
price per share (rounded up to the nearest whole cent) equal to (A) the
aggregate exercise price for the shares of RTI Common Stock otherwise
purchasable pursuant to such RTI Option divided by (B) the number of whole
shares of EAI Common Stock deemed to be purchasable under such option to
acquire EAI Common Stock; PROVIDED, HOWEVER, that the number of shares of EAI
Common Stock that may be purchased upon exercise of such RTI Option shall not
include any fractional share and, upon exercise of such RTI Option, a cash
payment shall be made for any fractional share based upon the closing price
of a share of EAI Common Stock as reported on the NNM on the trading day
immediately preceding the date of exercise.
(b) As soon as practicable after the Effective Time of the Merger, EAI
shall deliver to the holders of RTI Options appropriate notices setting forth
such holders' rights and the agreements evidencing the grants of such RTI
Options shall be deemed to be appropriately amended so that such RTI Options
shall represent rights to acquire EAI Common Stock on terms and conditions as
contained in the outstanding RTI Options (subject to the adjustments required
by this Section 2.3 after giving effect to the assumption by EAI as set forth
above).
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(c) The amended RTI Options shall be issued under EAI's employee stock
option plan as incentive stock options. EAI has filed a registration statement
on Form S-8 with respect to the shares of EAI Common Stock subject to such plan
and shall use all reasonable efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses referred to therein) for so long as
such options remain outstanding. The shares of EAI Common Stock subject to such
plan have been approved for listing on the NNM.
(d) At the Effective Time of the Merger, all outstanding warrants,
options, phantom stock, convertible securities or any other rights to acquire
shares of RTI Common Stock other than the RTI Options, if any such rights exist,
shall be canceled and extinguished without any conversion thereof or payment
with respect thereto.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF RTI
Except as disclosed by RTI in the disclosure schedule delivered pursuant
to this Agreement (the "Disclosure Schedule"), RTI represents and warrants to
EAI as follows:
3.1. CORPORATE ORGANIZATION. (a) RTI and the entities listed in Section
3.1(b) of the Disclosure Schedule which are designated as subsidiaries in
such Section ("Subsidiaries") are each a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, which is set forth in Section 3.1(b) of the Disclosure
Schedule. RTI and each Subsidiary have the corporate power and authority to
own or lease all of their respective properties and assets and to carry on
their respective business as it is now being conducted, and are duly licensed
or qualified to do business and are in good standing in each jurisdiction in
which the nature of the business conducted by them or the character or
location of the properties and assets owned or leased by them makes such
licensing or qualification necessary, except where the failure to be so
licensed or qualified would not have a material adverse effect on the
business, properties, profits, operations or financial condition (a "Material
Adverse Effect") of RTI. Correct and complete copies of the Articles of
Incorporation and By-Laws of RTI and the charter documents and by-laws of
each Subsidiary, as in effect on the date of this Agreement, have been made
available to EAI by RTI. For the purposes of this Article III and Article
VI, each reference to RTI shall also include each Subsidiary, unless the
context requires otherwise.
(b) Except as set forth in Section 3.1(b) of the Disclosure Schedule,
RTI does not own of record or beneficially, directly or indirectly, (i) any
shares of outstanding capital stock or securities convertible into capital
stock of any other corporation or (ii) any participating interest in any
partnership, limited liability company, joint venture or other non-corporate
business.
(c) The minute books of RTI accurately reflect in all material respects
all actions taken by the boards of directors, including committees thereof,
and the shareholders of RTI.
3.2. CAPITALIZATION. The authorized capital stock of RTI consists of
25,000,000 shares of RTI Common Stock, of which 9,874,975 shares are issued and
outstanding. The name and address of record of each record holder of RTI Common
Stock and the number of shares owned
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by each, and the name and address of record of each holder of an RTI Option
and the number of shares of RTI Common Stock which such holder may purchase,
are set forth in Section 3.2 of the Disclosure Schedule. No shares of RTI
Common Stock are held in RTI's treasury and no shares of RTI Common Stock are
reserved for issuance other than those shares reserved for issuance under the
RTI Options. All of the issued and outstanding shares of RTI Common Stock
have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights. Other than the RTI Options
listed in Section 3.2 of the Disclosure Schedule, RTI does not have and is
not bound by any outstanding subscriptions, options, convertible securities,
warrants, calls, commitments or agreements of any character calling for the
purchase or issuance of any shares of its capital stock.
3.3. AUTHORITY; NO VIOLATION. (a) RTI has the corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly and validly approved by the Board of Directors of RTI. Except for
the adoption of this Agreement by the requisite vote of holders of the issued
and outstanding shares of RTI Common Stock, no other corporate proceedings on
the part of RTI are necessary to approve this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by RTI and, assuming due authorization and execution
by EAI and Sub, constitutes a valid and binding obligation of RTI,
enforceable against RTI in accordance with its terms.
(b) The execution and delivery of this Agreement by RTI, the
consummation by RTI of the transactions contemplated hereby, and the
compliance by RTI with the terms or provisions hereof, shall not (i) violate
any provision of the Articles of Incorporation or By-Laws of RTI, (ii)
violate any law, statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to RTI or any of its properties or
assets, or (iii) violate, conflict with, breach any provision of or result in
the loss of any benefit or the increase in the amount of any liability or
obligation under, constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, result in the
termination of, accelerate the performance required by, or result in the
creation of any liens, pledges, charges, encumbrances or security interests
of any kind (collectively, "Liens") upon any of the properties or assets of
RTI under any note, bond, mortgage, indenture, deed of trust, license, lease,
contract, agreement or other instrument or obligation to which RTI is a
party, or by which it or any of its properties or assets may be bound or
affected, except where such violation, conflict, breach, loss, increase,
default, termination, acceleration or Lien which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect
on RTI.
3.4. CONSENTS AND APPROVALS. Except for (i) the filing of the Notification
and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the "HSR Filing") and the expiration of the waiting period thereunder, (ii) the
filing of Articles of Merger with the Oregon Secretary pursuant to the OBCA,
(iii) the filing of the Certificate of Merger with the Delaware Secretary
pursuant to the DGCL, and (iv) the approval of this Agreement by the requisite
vote of the holders of RTI Common Stock, no consent, approval or authorization
of, or withholding of objection on the part of, or filing, registration or
qualification with, or notice to (collectively, the "Consents") any court,
administrative agency, commission or other
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governmental authority or instrumentality, whether Federal, state, local or
foreign (each a "Governmental Authority"), or with any third party are
necessary in connection with the execution and delivery by RTI of this
Agreement and the consummation by RTI of the Merger and the other
transactions contemplated by this Agreement.
3.5. REPORTS. RTI has timely filed all reports, registrations and
statements required to be filed since January 1, 1995 with any Governmental
Authority, and has paid all fees and assessments due and payable in connection
therewith, except where failure to so file or pay, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
RTI. No Governmental Authority has initiated any proceeding or, to the
knowledge of RTI, investigation into the business or operations of RTI.
3.6. COMPLIANCE WITH APPLICABLE LAW. RTI holds all licenses, franchises,
permits and authorizations necessary for the lawful conduct of its business and
has complied with and is not in default under any law, statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction of any
Governmental Authority applicable to RTI, except where failure to so hold or
such default, individually or in the aggregate, would not reasonably be expected
to have a Material Adverse Effect on RTI.
3.7. FINANCIAL STATEMENTS. RTI has previously provided EAI with correct
and complete copies of the following (collectively, the "RTI Financial
Statements"): (a) the balance sheets of RTI as of June 30, 1997 and 1996, and
the related statements of income and retained earnings and cash flows for the
fiscal years ended June 30, 1997 and 1996, in each case accompanied by the audit
report of Arthur Andersen LLP, independent public accountants with respect to
RTI, and (b) the unaudited balance sheets of RTI as of September 30, 1997 and
the related unaudited statements of income for the period then ended (the
"Interim Financial Statements"). The RTI Financial Statements fairly present
(subject, in the case of the unaudited statements, to recurring audit
adjustments customary in nature and amount), the financial position of RTI as of
the dates thereof, and the results of operations and cash flows of RTI for the
respective fiscal periods or as of the respective dates thereof. Each of the
RTI Financial Statements, including the notes thereto, has been, or will be,
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied during the periods involved. The books and records of RTI
have been, and are being, maintained in accordance with all applicable legal and
accounting requirements.
3.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. (a) Since June 30, 1997,
(i) RTI has not incurred any material liability that is not disclosed in the
INTERIM FINANCIAL STATEMENTS, (ii) no event has occurred which, individually
or in the aggregate, would reasonably be expected to have a Material Adverse
Effect on RTI, and (iii) RTI has carried on its business in the ordinary and
usual course.
(b) Except as set out in Section 3.8 of the Disclosure Schedule, since
June 30, 1997, RTI has not (i) increased the salaries, wages, or other
compensation, or pensions, fringe benefits or other perquisites payable to
any director, executive officer or employee, or (ii) granted any severance or
termination pay, or (iii) paid or accrued any bonuses or commissions, or
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(iv) suffered any strike, work stoppage, slowdown, or other labor disturbance
which would, either individually or in the aggregate, result in a Material
Adverse Effect on RTI.
3.9. LEGAL PROCEEDINGS AND RESTRICTIONS (a) There are no actions, suits,
proceedings, claims or investigations pending, or to the knowledge of RTI,
threatened against or directly and materially affecting RTI at law or in equity
or before any Governmental Authority.
(b) There is no judgment, order, writ, decree, injunction or regulatory
restriction imposed upon RTI or its assets which has had, or would reasonably be
expected to have, a Material Adverse Effect on RTI.
3.10. TAXES AND TAX RETURNS.
(a) (i) RTI (which term for purposes of this Section 3.10 shall include
former subsidiaries of RTI for periods during which they were owned) has
timely filed (when due or prior to the expiration of any extension of the
time to file) correct and complete Returns in respect of Taxes required to
be filed; all Taxes shown on such Returns or otherwise known by RTI to be
due or payable have been timely paid; no adjustment relating to any such
Return has been proposed in writing by any Governmental Authority, except
proposed adjustments that have been resolved prior to the date hereof; and
there are no outstanding summons, subpoenas or written requests for
information with respect to any such Returns or the Taxes reflected
thereon. To RTI's knowledge there is no basis for imposing any additional
Taxes on it other than the Taxes shown on such Returns. There are no
outstanding waivers or agreements extending the statute of limitations for
any period with respect to any Tax to which RTI may be subject and RTI is
not under audit by any Governmental Authority for any Tax. There are no
Tax liens on any assets of RTI other than liens for Taxes not yet due or
payable;
(ii) RTI has paid, on the basis of RTI's good faith estimate of the
required installments, all estimated Taxes required to be paid under
Section 6655 of the Code or any comparable provision of state, local or
foreign law; and all Taxes which shall be due and payable for any period or
portion thereof ending on or prior to the Closing Date shall have been paid
or shall be reflected on RTI's books as an accrued Tax liability, either
current or deferred. The amount of such Tax liabilities as of September 30,
1997 shall be set forth in Section 3.10 of the Disclosure Schedule. All
Taxes required to be withheld, collected or deposited by RTI during any
taxable period for which the applicable statute of limitations on
assessment remains open have been timely withheld, collected or deposited
and, to the extent required, have been paid to the relevant Governmental
Authority;
(iii) For each taxable period for which the statute of limitations
on assessment or collection remains open, RTI has not (A) been either a
common parent corporation or a member corporation of an affiliated group of
corporations filing a consolidated Federal income tax return, or
(B) acquired any corporation that filed a consolidated Federal income tax
return with any other corporation that was not also acquired by RTI; and no
other entity that was included in the filing of a Return with RTI on a
consolidated,
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combined, or unitary basis has left RTI's consolidated, combined or
unitary group in a taxable year for which the statute of limitations
on assessment remains open. RTI has not been at any time a member of
any partnership, limited liability company or joint venture or the
holder of a beneficial interest in any trust for any period for which
the statute of limitations for any Tax potentially applicable as a result
of such membership or holding has not expired;
(iv) No consent under Section 341(f) of the Code has been filed with
respect to RTI; and
(v) There is no significant difference on the books of RTI between
the amounts of the book basis and the tax basis of assets (net of
liabilities) that is not accounted for by an accrual on the books for
Federal income tax purposes.
(b) RTI:
(i) Does not have any property that is or will be required to be
treated as being owned by another person under the provisions of
Section 168(f)(8) of the Code (as in effect prior to amendment by the Tax
Reform Act of 1986) or is "tax-exempt use property" within the meaning of
Section 168 of the Code;
(ii) Does not have any Tax sharing or allocation agreement or
arrangement (written or oral), does not owe any amount pursuant to any Tax
sharing or allocation agreement or arrangement, and will not have any
liability in respect to any Tax sharing or allocation agreement or
arrangement with respect to any entity that has been sold or disposed of;
(iii) Was not acquired in a qualified stock purchase under
Section 338(d)(3) of the Code and no elections under Section 338(g) of the
Code, protective carryover basis elections, offset prohibition elections or
other deemed or actual elections under Section 338 are applicable to RTI;
(iv) Is not and has not been subject to the provisions of
Section 1503(d) of the Code related to "dual consolidated loss" rules;
(v) Is not a party to any agreement, contract or arrangement that
would result, individually or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the Code
by reason of the Merger;
(vi) Does not have any income reportable for a period ending after the
Closing Date but attributable to an installment sale occurring in or a
change in accounting method made for a period ending on or prior to the
Closing Date which resulted in a deferred reporting of income from such
transaction or from such change in accounting method (other than a deferred
intercompany transaction), or deferred gain or loss arising out of any
deferred intercompany transaction;
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(vii) Does not have any unused net operating loss, unused net
capital loss, unused tax credit, or excess charitable contribution for
Federal income tax purposes, except as set out in the Disclosure Schedule;
(viii) Is not a United States real property holding corporation as
defined in Section 897 of the Code; and
(ix) No withholding of Taxes by EAI or Sub will be required in this
transaction under Sections 3406 or 1445 of the Code or any other provision
of the Code or state, local or foreign law and RTI will provide any
required certificates to avoid any such withholding.
(c) For purposes of this Agreement:
(i) "Returns" means any and all returns, reports, information
returns and information statements with respect to Taxes required to be
filed with any Governmental Authority, including consolidated, combined
and unitary tax returns.
(ii) "Tax" or "Taxes" means any and all taxes, charges, fees, levies,
and other governmental assessments and impositions of any kind, payable to
any Governmental Authority, including income, franchise, net worth,
profits, gross receipts, minimum alternative, estimated, ad valorem, value
added, sales, use, service, real or personal property, capital stock,
license, payroll, withholding, disability, employment, social security,
Medicare, workers' compensation, unemployment compensation, utility,
severance, production, excise, stamp, occupation, premiums, windfall
profits, transfer and gains taxes, customs duties, imposts, charges, levies
or other similar assessments of any kind, and interest, penalties and
additions to tax imposed with respect thereto.
3.11. EMPLOYEE BENEFITS.
(a) Section 3.11 of the Disclosure Schedule sets forth a list of each
pension, profit-sharing, thrift or 401(k), disability, medical, dental, health,
life (including any individual life insurance policy), death benefit, group
insurance or any other welfare plan, bonus, incentive, deferred compensation,
stock purchase, stock option, severance plan, salary continuation, vacation,
holiday, sick leave, fringe benefit, personnel policy, or similar plan, trust,
program, policy, commitment or arrangement whether or not covered by Employee
Retirement and Income Security Act of 1974, as amended ("ERISA") and whether or
not funded or insured and whether written or oral maintained or contributed to
by RTI or any ERISA Affiliate (as hereinafter defined) during the past three
years and pursuant to which RTI has or could have any on-going liability
(hereinafter referred to as the "RTI Plans").
(b) RTI has made available to EAI, to the extent applicable to the
particular RTI Plan, correct and complete copies of (i) each RTI Plan document,
amendments thereto and board resolutions adopting such plans and amendments,
(ii) each current summary plan description, (iii) any and all material
agreements, insurance policies and other documents related to any RTI Plan,
(iv) the most recent determination letter from the Internal Revenue Service (the
"IRS") for
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each RTI Plan, and (v) the three most recent Annual Reports - Form 5500
(including accompanying schedules) and summary annual reports for each RTI
Plan.
(c) (i) Except as disclosed in Section 3.11 of the Disclosure Schedule,
each RTI Plan and RTI have at all times complied in all material respects with
the applicable requirements of ERISA, the Code and any other applicable law
(including regulations and rulings thereunder), and the RTI Plans have at all
times been properly administered in all material respects in accordance with all
such laws and with their terms, (ii) each of the RTI Plans intended to be
"qualified" within the meaning of Code Section 401(a) is so qualified and, to
the knowledge of RTI, no facts exist that could reasonably be expected to affect
adversely such "qualified" status (other than the failure to adopt amendments
required to maintain an Employee Plan's tax-qualified status but for which the
remedial amendment period of Code Section 401(b) has not expired as of the
Closing Date), (iii) no RTI Plan provides benefits, including, without
limitation, death or medical benefits (whether or not insured), for current or
former employees following their retirement or other termination of service,
other than coverage mandated by applicable law, including, but not limited to,
Code Section 4980B(f) and ERISA Sections 601 through 609, (iv) there has not
occurred nor, to the knowledge of RTI, is any person contractually bound to
enter into any non-exempt "prohibited transaction" within the meaning of Code
Section 4975 or ERISA Section 406 that could result in any civil penalty under
ERISA Section 502(i) or a tax under Code Section 4975, (v) RTI has not engaged
in a transaction which could subject it to either a civil penalty under ERISA
Section 409 or a tax under Code Section 4976, (vi) there are no pending or, to
the knowledge of RTI, threatened claims (other than routine claims for benefits)
with respect to any RTI Plan by, on behalf of or against RTI, any of the RTI
Plans or any trusts related thereto, (vii) RTI has made or caused to be made on
a timely basis any and all contributions, premiums and other amounts due and
owing under the terms of any RTI Plan or as otherwise required by applicable
law, (viii) RTI has in all material respects complied with Code Section 4980B
and other applicable laws concerning the continuation of employer-provided
health benefits following a termination of employment or any other event that
would otherwise terminate such coverage, (ix) neither RTI nor any ERISA
Affiliate has at any time maintained, administered or contributed to any plan
subject to ERISA Title IV, and (x) neither RTI nor any ERISA Affiliate has at
any time participated in, made contributions to or had any other liability with
respect to a "multiemployer plan" under ERISA Section 4001(a)(3), a "multiple
employer plan" under Code Section 413(c), or a "multiple employer welfare
arrangement" under ERISA Section 3(40).
(d) Except as disclosed in Section 3.11 of the Disclosure Schedule,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including,
without limitation, severance, unemployment compensation, golden parachute or
otherwise) becoming due to any director, officer or employee of RTI,
(ii) increase any benefits otherwise payable under any RTI Plan, (iii) result in
any acceleration of the time of payment or vesting of any such benefits other
than the acceleration of vesting of the RTI Options, or (iv) impair the rights
of RTI under any RTI Plan.
(e) There are no actions, claims, investigations or audits pending or, to
RTI's knowledge, threatened with respect to any RTI Plan (other than claims for
benefits in the ordinary course) that will create any liability or obligation
for RTI as the surviving corporation in
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the Merger with respect to any RTI Plan participant, beneficiary, alternate
payee or other claimant, or with respect to any Governmental Authority,
including, but not limited to, the IRS, the Department of Labor and the
Pension Benefit Guaranty Corporation.
(f) For purposes of this Agreement, "ERISA Affiliate" means RTI and
(i) any corporation that is a member of a controlled group of corporations
within the meaning of Section 414(b) of the Code of which RTI is a member,
(ii) any trade or business (whether or not incorporated) which is a member of
a group of trades or businesses under common control within the meaning of
Section 414(c) of the Code of which RTI is a member; and (iii) any member of
an affiliated service group within the meaning of Section 414(m) or (o) of
the Code of which RTI, any corporation described in clause (i) above or any
trade or business described in clause (ii) above is a member.
3.12. EMPLOYMENT AND LABOR RELATIONS. to the knowledge of RTI, no
executive, key employee or group of employees has any plans to terminate its or
their employment with RTI. There are no charges, complaints, investigations or
litigation currently pending, or to the knowledge of RTI threatened (and to the
knowledge of RTI there is no basis therefor which would be reasonably expected
to have a Material Adverse Effect on RTI), against RTI, relating to alleged
employment discrimination, unfair labor practices, equal pay discrimination,
affirmative action noncompliance, occupational safety and health, breach of
employment contract, employee benefit matters, wrongful discharge or other
employment-related matters. There are no outstanding orders or charges against
RTI under any applicable occupational safety and health laws in any jurisdiction
in which RTI conducts business, other than routine actions which, individually
or in the aggregate, are not material to RTI. All levies, assessments and
penalties made against RTI pursuant to any applicable workers' compensation
legislation in any jurisdiction in which RTI conducts business have been paid by
RTI, other than such levies, assessments and penalties which, individually or in
the aggregate, are not material to RTI. RTI is not a party to any contracts
with any labor union or employee association nor has RTI made commitments to or
conducted negotiations with any labor union or employee association with respect
to any future contracts. RTI is not aware of any current attempts to organize
or establish any labor union or employee association with respect to any
employees of RTI, and there is no existing or pending certification of any such
union with regard to a bargaining unit.
3.13. CONTRACTS. Section 3.13 of the Disclosure Schedule lists or
describes the following contracts, agreements, licenses, permits,
arrangements, commitments or understandings (whether written or oral) which
are currently in effect or which will, without any further action on the part
of RTI become effective in the future, to which RTI is a party (collectively,
the "RTI Contracts"):
(a) any agreement for the lease of personal property or real property
to or from any person or entity that individually involves an expenditure by
the lessee of in excess of $10,000 in any one year;
(b) any agreement for the purchase, sale or distribution of products,
materials, commodities, supplies or other personal property, or for the
furnishing or receipt of services, the
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performance of which will extend over a period of more than one year or
involve consideration payable by any party in excess of $10,000 in any one
year;
(c) any agreement creating, governing or providing for an investment or
participation in a partnership, limited liability company or joint venture;
(d) any agreement under which RTI has created, incurred, assumed or
guaranteed any indebtedness for borrowed money, or any capitalized lease
obligation, or under which RTI has imposed a Lien on any of its assets;
(e) any agreement concerning confidentiality or noncompetition;
(f) any agreement with any director, officer, employee or shareholder of
RTI or any of their affiliates;
(g) any pension, profit sharing, thrift or 401(k), bonus, incentive,
deferred compensation, stock purchase, stock option, severance, salary
continuation or other plan or arrangement for the benefit of current or former
directors, officers or employees;
(h) any agreement for the employment of any individual on a full-time,
part-time, consulting or other basis;
(i) any agreement relating to any Intellectual Property (as that term is
defined in Section 3.18) used by RTI in the conduct of its business, or that is
licensed by RTI for use by others;
(j) any agreement under which the consequences of a default, termination,
non-renewal or acceleration would have a Material Adverse Effect on RTI; or
(k) any other agreement the performance of which involves consideration
payable by any party in excess of $10,000 in any one year.
RTI has made available to EAI a correct and complete copy of each RTI
Contract. Except as set forth in Section 3.13 of the Disclosure Schedule,
(i) each RTI Contract is legal, valid, binding, enforceable and in full force
and effect, (ii) the consummation of the Merger will not cause a breach or
termination of any RTI Contract nor effect a change in any of the terms of any
RTI Contract, (iii) RTI is not, and, to RTI's knowledge, no other party is, in
breach or default of any RTI Contract and no event has occurred which with
notice or lapse of time, or both, would constitute a breach or default that
would result in or permit termination, modification or acceleration under any
RTI Contract, and (iv) RTI has not, and, to RTI's knowledge, no other party has,
repudiated any provision of any RTI Contract.
3.14. UNDISCLOSED LIABILITIES. Except for liabilities (i) that are
fully reflected or reserved against on the June 30, 1997 balance sheet of RTI
(the "1997 Balance Sheet") or (ii) that were incurred in the ordinary course of
business consistent with past practice since June 30, 1997, or (iii) that are
fully reflected or reserved against in the Interim Financial
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Statements, RTI has not incurred any liability of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or to
become due).
3.15. ENVIRONMENTAL LIABILITY.
(a) RTI has not received any notice, and does not otherwise have
knowledge, of any claim, and no proceeding has been instituted raising any
claim, against RTI or any of the real properties now or formerly owned, leased
or operated by RTI or other assets of RTI, alleging any damage to the
environment or violation of any Environmental Laws;
(b) RTI does not have knowledge of any facts which would give rise to any
claim, public or private, of violation of Environmental Laws or damage to the
environment emanating from, occurring on or in any way related to real
properties now or formerly owned, leased or operated by RTI or to other assets
of RTI or their use;
(c) RTI has not stored or released any Hazardous Materials on real
properties now or formerly owned, leased or operated by it or disposed of any
Hazardous Materials, in each case in a manner contrary to any Environmental
Laws; and
(d) All buildings on all real properties now owned, leased or operated by
RTI are in compliance with applicable Environmental Laws, except where the
failure to comply would not reasonably be expected to result in a Material
Adverse Effect on RTI.
(e) For purposes of this Agreement,
(i) "Environmental Laws" means any and all Federal, state, county,
local and foreign laws, statutes, codes, ordinances, rules, regulations,
judgments, orders, decrees, permits, concessions, grants, franchises,
licenses, agreements or governmental restrictions relating to pollution and
the protection of the environment or the release of any materials into the
environment, including but not limited to those related to hazardous
substances or wastes, air emissions and discharges to waste or public
systems; and
(ii) "Hazardous Material" means any and all pollutants, toxic or
hazardous wastes or any other substances, the removal of which, as of the
date hereof, may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation,
transfer, use, disposal, release, discharge, spillage, seepage, or
filtration of which is restricted or prohibited by any Environmental Law
(including asbestos, urea formaldehyde foam insulation and polychlorinated
biphenyls).
3.16. TANGIBLE ASSETS. RTI has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by it, located on
its premises, shown on the 1997 Balance Sheet or acquired after the date
thereof, except for properties and assets disposed of in the ordinary course of
business, free and clear of all Liens. RTI owns or leases pursuant to a RTI
Contract all buildings, machinery, equipment and other tangible assets material
to the conduct of its business as presently conducted. Each such tangible asset
is free from defects (patent and latent) other than defects that do not
individually or in the aggregate materially impair its value or intended use,
has been maintained in accordance with normal industry practice, is in good
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operating condition and repair (subject to normal wear and tear) and is suitable
for the purposes for which it presently is used. Section 3.16 of the Disclosure
Schedule contains a schedule of such tangible assets owned or leased by RTI that
have a value in excess of $10,000.
3.17. REAL PROPERTY. RTI does not own any real property. Section 3.17
of the Disclosure Schedule lists and describes briefly all real property leased
or subleased to RTI. RTI has made available to EAI correct and complete copies
of each such lease and sublease. except as set forth in section 3.17 of the
Disclosure Schedule:
(a) each such lease or sublease is legal, valid, binding, enforceable and
in full force and effect;
(b) the consummation of the transactions contemplated hereby will neither
cause the termination of each such lease or sublease nor effect a change in any
of its terms;
(c) RTI is not, and, to the knowledge of RTI, no other party to such lease
or sublease is, in breach or default, and no event has occurred which, with
notice or lapse of time, or both, would constitute a breach or default that
would permit termination, modification or acceleration thereunder;
(d) neither RTI nor, to the knowledge of RTI, any other party to each such
lease or sublease has repudiated or disputed any provision thereof;
(e) there are no oral agreements in effect as to each such lease or
sublease;
(f) to the knowledge of RTI, the representations and warranties set forth
in clauses (a) through (e) above are true and correct with respect to the lease
underlying each such sublease; and
(g) RTI has not assigned, transferred, conveyed, mortgaged, deeded in
trust or encumbered any interest in any leasehold or subleasehold.
3.18. INTELLECTUAL PROPERTY. (a) Section 3.18 of the Disclosure
Schedule identifies each patent, trademark, service mark, trade name, assumed
name, copyright, trade secret, license to or from third parties with respect to
any of the foregoing, applications to register or registrations of any of the
foregoing or other intellectual property rights which are owned or used by or
have been issued to RTI (collectively the "Intellectual Property"). RTI has
made available correct and complete copies of all patents, trademarks,
copyrights, registrations, licenses, permits, agreements and applications
related to the Intellectual Property to EAI and correct and complete copies of
all other written documentation evidencing ownership of or the right to use each
such item. Except as set forth in Section 3.18 of the Disclosure Schedule:
(i) RTI possesses all right, title and interest in and to the
Intellectual Property, free and clear of any Lien or other restriction;
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(ii) the legality, validity, enforceability, ownership or use of the
Intellectual Property is not currently being challenged, nor to the
knowledge of RTI is it subject to any such challenge;
(iii) RTI has taken all necessary action to maintain and protect
the Intellectual Property and will continue to maintain those rights prior
to the Closing so as not to affect materially the validity or enforcement
of the rights set forth in Section 3.18 of the Disclosure Schedule; and
(iv) the Intellectual Property will be owned or available for use by
RTI on identical terms and conditions immediately subsequent to the Closing
and the transactions contemplated by this Agreement will have no Material
Adverse Effect on RTI's rights, title and interest in and to any of the
rights set forth in Section 3.18 of the Disclosure Schedule.
(b) To the knowledge of RTI, (i) RTI has not interfered with, infringed
upon or misappropriated any intellectual property rights of third parties, nor
is RTI currently interfering with, infringing upon, misappropriating or
otherwise coming into conflict with any intellectual property rights of third
parties, and (ii) no third party has, in the past three years, interfered with,
infringed upon or misappropriated any Intellectual Property rights of RTI that
would result in a Material Adverse Effect on RTI, nor is any third party
currently interfering with, infringing upon, misappropriating or otherwise
coming into conflict with any Intellectual Property rights of RTI.
3.19. INVENTORY. No material portion of the inventory of RTI is unfit
for the purpose for which it was procured, or is obsolete, expired, damaged or
defective. Substantially all of the inventory of RTI consists of items of a
quantity and quality which are usable and salable in the ordinary course of
business.
3.20. NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable
of RTI are reflected properly on RTI's books and records, are not subject to any
setoff or counterclaim, are current and collectible, subject only to the reserve
for bad debts established in accordance with the past practice of RTI.
3.21. BANK ACCOUNTS AND POWERS OF ATTORNEY. Section 3.21 of the
Disclosure Schedule sets forth a list of all accounts, borrowing resolutions and
deposit boxes maintained by RTI at any bank or other financial institution and
the names of the persons authorized to effect transactions in such accounts and
pursuant to such resolutions and with access to such boxes. There are no
outstanding powers of attorney executed on behalf of RTI.
3.22. GUARANTIES. RTI is not a guarantor or otherwise is liable for
any indebtedness, liability or other obligation of any other person or entity.
3.23. INSURANCE. Section 3.23 of the Disclosure Schedule lists each
insurance policy and self-insurance arrangement to which RTI is a party, a named
insured or otherwise the beneficiary of, specifying the insurer, type of
insurance, policy number and pending claims thereunder with respect to RTI. The
coverage provided by each of such policies is in an amount,
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and of a type sufficient for the business presently conducted and proposed to
be conducted by RTI. RTI is in substantial compliance with all conditions
contained in such policies.
3.24. SERVICE CONTRACTS AND WARRANTIES. Except as set out in
Section 3.24 of the Disclosure Schedule, RTI is not a party to any service
contract pursuant to which services are provided by RTI to a third party.
Section 3.24 of the Disclosure Schedule includes copies of the standard terms
and conditions of all product warranties and service or maintenance contracts
granted or entered into by RTI.
3.25. CERTAIN RELATIONSHIPS. No shareholder, director, officer or, to
rti's knowledge, employee of RTI (i) is, or controls, or is an employee of any
competitor, supplier, customer or lessor or lessee of RTI, or (ii) is indebted
to rti in an amount in excess of $1,000 in any individual case, or (iii) owns
any asset, tangible or intangible, which is used in the business of RTI, other
than assets that are immaterial in value; and RTI has not entered into any
transaction (including the furnishing of goods or services) with any
shareholder, director, officer, employer or other affiliate, except on terms and
conditions no less favorable to RTI than would be obtained in a comparable
arm's-length transaction with a third party.
3.26. PPM/PROXY STATEMENT INFORMATION. None of the written information
to be supplied by RTI for inclusion in the private placement memorandum and
information statement contemplated by this Agreement (the "PPM/Proxy
Statement") will, at the time the PPM/Proxy Statement is mailed to RTI
shareholders, at any time it is amended or supplemented, or at the Closing
Date, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading.
3.27. BROKER'S FEES. Neither RTI nor, to the knowledge of RTI, any of
its directors, officers or employees has employed any person or entity as a
broker, finder or agent or incurred any liability for any broker's fees,
finder's fees or other commission in connection with the Merger or the
related transactions contemplated by this Agreement.
3.28. CERTAIN CUSTOMER RELATIONSHIPS. Section 3.28 of the Disclosure
Schedule contains an accurate list of RTI's ten largest customers for the
fifteen month period ending September 30, 1997 (the "Primary Customers"),
together with the total dollar amount of all products purchased by such
Primary Customers from RTI during such period. RTI has not received any
notice and does not otherwise have knowledge that any Primary Customer
intends to reduce the volume or dollar amount of the products it purchases
from RTI.
3.29. DISCLOSURE. No representation or warranty by RTI contained in
this agreement (including the Disclosure schedule and the exhibits referred to
herein), or in any certificate furnished or to be furnished by RTI to EAI in
connection with the transactions contemplated hereby contains or will contain
any untrue statement of a material fact, or omits or will omit to state any
material fact required to make the statements herein or therein not misleading.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF EAI
EAI represents and warrants to RTI as follows:
4.1. CORPORATE ORGANIZATION. EAI is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware. EAI has the corporate power and authority to own or lease all of
its properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which the nature of the business conducted
by it or the character or location of the properties and assets owned or
leased by it makes such licensing or qualification necessary, except where
the failure to be so licensed or qualified would not have a Material Adverse
Effect on EAI and its subsidiaries, taken as a whole. Correct and complete
copies of the Certificate of Incorporation and By-Laws of EAI, as in effect
as of the date of this Agreement, have been made available to RTI by EAI.
4.2. CAPITALIZATION. The authorized capital stock of EAI consists of
20,000,000 shares of EAI Common Stock, of which as of September 30, 1997,
5,759,234 shares were issued and outstanding, and 20,000,000 shares of
preferred stock, $.01 par value per share, none of which is issued and
outstanding. As of September 30, 1997, no shares of EAI Common Stock were
held in EAI's treasury. As of September 30, 1997, there were 2,099,522 shares
of EAI Common Stock reserved for issuance under EAI stock options, including
1,352,477 shares of EAI Common Stock reserved for issuance under options
outstanding as of September 30, 1997. All of the issued and outstanding
shares of EAI Common Stock have been duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights. The shares of
EAI Common Stock to be issued pursuant to the Merger will be duly authorized
and validly issued and, at the Effective Time, all such shares will be fully
paid, nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof.
4.3. AUTHORITY; NO VIOLATION. (a) EAI has the corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly and validly approved by the Board of Directors of EAI. No other
corporate proceedings on the part of EAI are necessary to approve this
Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by EAI and,
assuming due authorization and execution by RTI, constitutes a valid and
binding obligation of EAI, enforceable against EAI in accordance with its
terms.
(b) The execution and delivery of this Agreement by EAI, the
consummation by EAI of the transactions contemplated hereby, and the
compliance by EAI with the terms or provisions hereof, will not (i) violate
any provision of the Certificate of Incorporation or By-Laws of EAI, (ii)
violate any law, statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to EAI or any of its properties or
assets, or (iii) violate, conflict with, breach any provision of or result in
the loss of any benefit under, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result
in the
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termination of, accelerate the performance required by, or result in
the creation of any Lien upon any of the properties or assets of EAI under
any note, bond, mortgage, indenture, deed of trust, license, lease, contract,
agreement or other instrument or obligation to which EAI is a party, or by
which it or any of its properties or assets may be bound or affected.
4.4. CONSENTS AND APPROVALS. Except for (i) the HSR Filing and the
expiration of the waiting period thereunder, (ii) the filing of Certificate of
Merger with the Delaware Secretary pursuant to the DGCL and the Articles of
Merger with the Oregon Secretary pursuant to the OBCA, (iii) such filings and
approvals as are required to be made or obtained under the securities or ''Blue
Sky'' laws of various states in connection with the issuance of the shares of
EAI Common Stock pursuant to this Agreement, and (iv) the filings and
authorizations necessary to list the shares of EAI Common Stock issued pursuant
to this Agreement on the NNM, no Consents from any Governmental Authority or
any third party are necessary in connection with the execution and delivery by
EAI or Sub of this Agreement and the consummation by EAI and Sub of the Merger
and the other transactions contemplated by this Agreement.
4.5. SEC REPORTS. The annual report on form 10-K of EAI for the fiscal
year ended December 31, 1996, as filed under the Securities Exchange Act of 1934
("Exchange Act"), and all other reports and proxy statements filed or required
to be filed by EAI subsequent to such report (the "SEC Reports"), have been duly
and timely filed by EAI, complied as to form with all requirements under the
Exchange Act, were true and correct in all material respects as of the dates at
which the information was furnished, and contained no untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements made, in the light of the circumstances under which they were made,
not misleading.
4.6. COMPLIANCE WITH APPLICABLE LAW. EAI holds all licenses, franchises,
permits and authorizations necessary for the lawful conduct of its business and
has complied with and is not in default under any law, statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction of any
Governmental Authority applicable to EAI, except where failure to so hold or
such default, individually or in the aggregate, would not reasonably be expected
to have a Material Adverse Effect on EAI.
4.7. FINANCIAL STATEMENTS. The EAI financial statements set forth in the
SEC Reports fairly present (subject, in the case of the unaudited statements, to
recurring audit adjustments customary in nature and amount), the financial
position of EAI as of the dates thereof, and the results of operations and cash
flows of EAI for the respective fiscal periods or as of the respective dates
thereof. Each of the EAI financial statements set forth in the SEC Reports,
including the notes thereto, has been, or will be, prepared in accordance with
GAAP consistently applied during the periods involved.
4.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in a report
filed under the Exchange Act or set forth on the Disclosure Schedule, since
December 31, 1997, (i) EAI has not incurred any material liability that is not
disclosed in the EAI financial statements and (ii) no event has occurred which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on EAI.
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4.9. PPM/PROXY STATEMENT INFORMATION. None of the information that EAI
will include or incorporate by reference in the PPM/Proxy Statement will, at the
time the PPM/Proxy Statement is mailed to the RTI shareholders, at any time it
is amended or supplemented, or at the Closing Date, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
Notwithstanding the foregoing, EAI makes no representation or warranty with
respect to statements made in the PPM/Proxy Statement based on written
information supplied by Ventures or RTI specifically for inclusion therein.
4.10. OWNERSHIP OF SUB; NO PRIOR ACTIVITIES.
(a) Sub was formed for the purpose of engaging in the transactions
contemplated by this Agreement; is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware; and has
the corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby.
(b) As of the Effective Time of the Merger, all of the outstanding capital
stock of Sub will be owned directly by Beaver. As of such Effective Time, there
will be no options, warrants or other rights (including registration rights),
agreements, arrangements or commitments to which Sub is a party of any character
relating to the issued or unissued capital stock of, or other equity interests
in, Sub or obligating Sub to grant, issue or sell any shares of the capital
stock of, or other equity interests in, Sub, by sale, lease, license or
otherwise. There are no obligations, contingent or otherwise, of Sub to
repurchase, redeem or otherwise acquire any shares of the capital stock of Sub.
(c) As of the date hereof and the Effective Time of the Merger, except for
obligations or liabilities incurred in connection with its incorporation or
organization and the transactions contemplated by this Agreement, Sub has not
and will not have incurred, directly or indirectly, through any affiliate, any
obligations or liabilities or engaged in any business activities of any type or
kind whatsoever or entered into any agreements or arrangements with any
person.
4.11. BROKER'S FEES. Neither EAI nor, to the knowledge of EAI, any of
its directors, officers or employees has employed any person or entity as a
broker, finder or agent or incurred any liability for any broker's fees,
finder's fees or other commission in connection with the Merger or the related
transactions contemplated by this Agreement.
4.12. DISCLOSURE. No representation or warranty by EAI contained in
this Agreement (including the Disclosure Schedule and the Exhibits referred to
herein), or in any certificate furnished or to be furnished by EAI to RTI in
connection with the transactions contemplated hereby contains or will contain
any untrue statement of a material fact, or omits or will omit to state any
material fact required to make the statements herein or therein not misleading.
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ARTICLE V.
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1. CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME. During the period
from the date of this Agreement to the Effective Time of the Merger, except as
expressly contemplated or permitted by this Agreement, RTI shall (i) conduct its
business in the usual, regular and ordinary course consistent with past
practice, (ii) use its reasonable efforts to maintain and preserve intact its
business organization and advantageous business relationships and retain the
services of its key officers and employees and (iii) not knowingly take any
action which would adversely affect or delay the ability of RTI, Sub or EAI to
obtain any necessary approvals of any Governmental Authority required for the
transactions contemplated hereby or to perform its covenants and agreements
under this Agreement.
5.2. RTI FORBEARANCES. During the period from the date of this Agreement
to the Effective Time of the Merger, except as expressly contemplated or
permitted by this Agreement, RTI shall not, without the prior written consent of
EAI:
(a) incur any indebtedness for borrowed money (except pursuant to existing
funded debt agreements described in Section 3.13 of the Disclosure Schedule),
assume, guarantee, endorse or otherwise as an accommodation, become responsible
for the obligations of any other individual, partnership, limited liability
company, corporation or other entity (collectively, "Person"), or make any loan
or advance;
(b) (i) adjust, split, combine or reclassify any capital stock; (ii) make,
declare or pay any dividend, or make any other distribution on, or directly or
indirectly redeem, purchase or otherwise acquire, any shares of its capital
stock or any securities or obligations convertible into or exchangeable for any
shares of its capital stock, (iii) grant any Person any right to acquire any
shares of its capital stock, or (iv) issue any additional shares of capital
stock, except upon the exercise of vested RTI Options or upon the conversion of
the Promissory Note, dated May 15, 1993, payable to the order of Cronus, Inc.
(the "Note");
(c) sell, transfer, mortgage, encumber or otherwise dispose of any of its
properties or assets to any Person, or cancel or release any indebtedness or
claims owed to or held by RTI or by any Person, except in the ordinary course of
business consistent with past practice;
(d) make any investment in any Person by purchase of securities,
contributions to capital, property transfers, or purchase of any property or
assets of any other Person;
(e) except for transactions in the ordinary course of business consistent
with past practice, enter into or terminate any RTI Contract, or change any
terms in any RTI Contract, other than renewals or changes in immaterial terms
thereof;
(f) increase in any manner the compensation or fringe benefits of any of
its directors, officers or employees other than in the ordinary course of
business consistent with past practice, pay any pension or retirement allowance
not required by any existing plan or agreement to any of the foregoing, or
become a party to, amend or commit itself to, any pension, retirement,
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profit-sharing or welfare benefit plan or agreement or employment agreement with
or for the benefit of any of the foregoing;
(g) settle any claim, action or proceeding involving money damages, except
in the ordinary course of business consistent with past practice;
(h) knowingly take any action that would prevent or impede the Merger from
qualifying as part of a reorganization within the meaning of Section 368(a) of
the Code;
(i) amend its Articles of Incorporation or By-Laws; or
(j) take any action that is intended or may reasonably be expected to
result in (i) any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect, or (ii) any of the
conditions to the Merger set forth in Article VII not being satisfied or
(iii) any violation of any provision of this Agreement, except, in each case, as
may be required by applicable law.
ARTICLE VI.
ADDITIONAL AGREEMENTS
6.1. REGULATORY AND OTHER MATTERS (a) EAI, with the cooperation of RTI,
shall promptly prepare the PPM/Proxy Statement. RTI shall, upon request,
furnish EAI with all information or documents concerning RTI and its directors,
officers and shareholders and such other matters as may be reasonably necessary
or advisable in connection with the PPM/Proxy Statement. EAI shall also use its
reasonable efforts to obtain all necessary state securities law or "Blue Sky"
qualifications, permits and approvals required to carry out the transactions
contemplated by this agreement, and RTI shall furnish all information concerning
RTI and the holders of RTI common stock as may be reasonably requested by EAI in
connection with such qualifications, permits and approvals.
(b) The parties shall cooperate with each other and use their best efforts
to prepare and file promptly all necessary documentation to effect all
applications, notices, petitions and filings, including the HSR Filing, and to
obtain as promptly as practicable all Consents of Governmental Authorities and
third parties which are necessary or advisable to consummate the Merger and the
other transactions contemplated by this Agreement, and the parties shall keep
each other apprised of the status of matters relating to completion of the
transactions contemplated herein.
6.2. ACCESS TO INFORMATION. Upon reasonable notice, RTI shall afford to
the officers, employees, accountants, counsel and other representatives of EAI
reasonable access during normal business hours during the period prior to the
Effective Time of the Merger to all of RTI's books and records, properties and
contracts, and, during such period, RTI shall make available to EAI all
information concerning its business, assets and personnel as EAI may reasonably
request.
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6.3. SHAREHOLDERS' APPROVAL. RTI shall call a meeting of its shareholders
for the purpose of voting upon this Agreement and the Merger, which meeting
shall be held as soon as reasonably practicable after the PPM/Proxy Statement is
mailed.
6.4. NNM LISTING. EAI shall cause the shares of EAI Common Stock to be
issued in the Merger to be approved for listing on the NNM, subject to official
notice of issuance, prior to the Effective Time of the Merger.
6.5. ADDITIONAL AGREEMENTS. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement or to vest RTI with full title to all properties, assets, rights,
approvals, immunities and franchises of any of the parties to the Merger, the
proper officers and directors of each party to this Agreement shall take all
such necessary or advisable action.
6.6. ADVICE OF CHANGES. RTI shall promptly advise EAI of any change or
event which is likely to have a Material Adverse Effect on RTI or which RTI
believes would or would be reasonably likely to cause or constitute a material
breach of any of its representations, warranties or covenants contained herein.
EAI shall promptly advise RTI of any change or event which is likely to have a
Material Adverse Effect on EAI or which EAI believes would or would be
reasonably likely to cause or constitute a material breach of any of its
representations, warranties or covenants contained herein.
6.7. TAKEOVER PROPOSALS. (a) RTI agrees that from and after its execution
of this Agreement through the Effective Time of the Merger, it shall not, and it
shall instruct its directors and officers and all investment bankers, attorneys
or other advisors or representatives retained by it not to, (i) solicit or
encourage the submission of any Takeover Proposal (as hereinafter defined),
(ii) participate in any discussions or negotiations regarding, or furnish to any
third party any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, a
Takeover Proposal, (iii) make or authorize any statement or recommendation in
support of any Takeover Proposal, or (iv) enter into any agreement with respect
to any Takeover Proposal.
(b) Notwithstanding the foregoing paragraph (a), nothing contained in this
Section 6.7 shall prohibit the Board of Directors, executive officers or
shareholders of RTI, or the investment bankers, attorneys, or other advisors or
representatives retained by RTI from participating in any discussions or
negotiations with, or furnishing any information to, any third party that makes
a Takeover Proposal to RTI if all of the following events shall have occurred:
(i) EAI has been notified in writing of such Takeover Proposal within 24 hours
of RTI's receipt thereof, including the identity of the party making the
Takeover Proposal and the specific terms and conditions thereof, and has been
given copies of such Takeover Proposal; (ii) such third party has made a written
Takeover Proposal to the Board of Directors of RTI, which takeover proposal
identifies a price or range of values to be paid, and the Board of Directors of
RTI has determined that such Takeover Proposal is financially more favorable to
the shareholders of RTI than the terms of the Merger; (iii) RTI's Board of
Directors has determined that such third party is financially capable of
consummating the transactions specified in the Takeover Proposal; and (iv) the
Board of Directors of RTI has determined, after consultation with its outside
legal
23
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counsel, that its fiduciary duties require it to furnish information to
and negotiate with such third party. Notwithstanding the foregoing, RTI shall
not provide any non-public information to such third party unless (x) prior to
the date thereof RTI has provided such information to EAI; (y) RTi has notified
EAI in advance of any such proposed disclosure of non-public information and has
provided EAI with a description of the information RTI intends to disclose; and
(z) RTI provides such non-public information pursuant to a nondisclosure
agreement in a form substantially similar to that entered into between EAI and
RTI. In addition to the foregoing requirements, RTI shall not accept or enter
into any agreement concerning a Takeover Proposal until at least 48 hours after
EAI's receipt of a copy of such Takeover Proposal. Upon compliance with the
requirements in this paragraph (b), RTI shall be entitled to terminate this
Agreement in accordance with the provisions of Section 8.1(d).
(c) For purposes of this Agreement, "Takeover Proposal" means any
proposal or offer for a merger, consolidation or other business combination
involving RTI or any proposal or offer to acquire a material equity interest
in, or a substantial portion of the assets of, RTI other than by EAI as
contemplated by this Agreement.
(d) RTI shall be entitled to furnish a copy of this Section 6.7 to any
third party who expresses an interest in making a Takeover Proposal after the
execution of this Agreement.
6.8. TAX MATTERS. RTI will use its best efforts to provide EAI information
as to the adjusted tax basis of the RTI shareholders in their RTI Common Stock.
ARTICLE VII.
CONDITIONS PRECEDENT
7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) VENTURES MERGER CONSUMMATED. The Ventures Merger shall have been
consummated as contemplated by EAI.
(b) APPROVALS AND CONSENTS. All regulatory approvals required to
consummate the transactions contemplated hereby shall have been obtained and
shall remain in full force and effect and all statutory waiting periods in
respect thereof shall have expired (all such approvals and the expiration of all
such waiting periods being referred to herein as the "Requisite Regulatory
Approvals").
(c) NNM LISTING. The shares of EAI Common Stock which shall be issued to
the shareholders of RTI upon consummation of the Merger or exercise of the RTI
Options, as the case may be, shall have been authorized for listing on the NNM,
subject to official notice of issuance.
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(d) BLUE SKY. EAI shall have received all state securities or "Blue Sky"
permits and other authorizations necessary to issue the shares of EAI Common
Stock pursuant to this Agreement and the Merger.
(e) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No order, injunction or
decree issued by any Governmental Authority or other legal restraint or
prohibition preventing, or material legal action relating to, the consummation
of the Merger or any of the other transactions contemplated by this Agreement
shall be in effect. No law, statute, rule, regulation, order, injunction or
decree shall have been enacted, entered, promulgated or enforced by any
Governmental Authority which prohibits, materially restricts or makes illegal
the consummation of the Merger or the other transactions contemplated by this
Agreement.
(f) FEDERAL TAX OPINION. RTI and the shareholders of RTI shall have
received an opinion of Arthur Andersen LLP in form and substance reasonably
satisfactory to them on or about the date that is two business days prior to the
date the PPM/Proxy StatemenT is first mailed to shareholders of RTI,
substantially to the effect that the discussion in the PPM/Proxy Statement under
the caption "The Merger--Certain Federal Income Tax Consequences" insofar as it
relates to matters of federal income tax law is a fair and accurate summary of
such matters, and such opinion shall not have been withdrawn or modified in any
material respect on the Closing Date. In rendering such opinion, Arthur
Andersen LLP may require and rely upon representations contained in certificates
of officers or shareholders of RTI, EAI and others, which certificates shall
have been executed and delivered to Arthur Andersen LLP at such times as
reasonably requested in connection with its delivery of an opinion with respect
to the Merger.
(g) REGISTRATION RIGHTS AGREEMENT. EAI and each shareholder of RTI shall
have entered into a Registration Rights Agreement substantially in the form of
EXHIBIT A hereto.
(h) RTI SHAREHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved by the requisite holders of the
issued and outstanding shares of RTI Common Stock.
(i) EMPLOYMENT AGREEMENTS. Michael N. Barry, Ken Vartanian, James Ryan
and Guido Persch shall have each executed and delivered to EAI an employment
agreement in a form reasonably satisfactory to EAI.
7.2. CONDITIONS TO OBLIGATIONS OF EAI AND SUB TO EFFECT THE MERGER. The
obligation of EAI and Sub to effect the Merger is also subject to the
satisfaction or waiver by EAI at or prior to the Effective Time of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
RTI set forth in this Agreement that are qualified with reference to a Material
Adverse Effect or materiality shall be true and correct, and the representations
and warranties of RTI that are not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement and (except to
the extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date. EAI shall
have received a certificate signed on behalf of RTI by its principal officers to
the foregoing effect.
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(b) PERFORMANCE OF OBLIGATIONS OF RTI. RTI shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and EAI shall have received a
certificate signed on behalf of RTI by its principal officers to such effect.
(c) EMPLOYEE PROPRIETARY INFORMATION AGREEMENTS. Each employee of RTI
shall have executed and delivered to EAI an employee proprietary information
agreement substantially in the form attached as EXHIBIT B.
(d) LEGAL OPINION; CLOSING CERTIFICATES. EAI shall have received from
Venture Counsel P.C. or Perkins Coie, counsel to RTI, an opinion reasonably
acceptable to EAI and its counsel, together with such customary closing
documents and certificates as EAI or its counsel shall reasonably request.
(e) PRIVATE PLACEMENT. EAI shall have received from the holders of RTI
Common Stock documentation establishing to the reasonable satisfaction of EAI
and its counsel that: (i) there were, as of the date hereof and as of the date
of the meeting of RTI shareholders to approve the Merger, not more than
34 holders of RTI Common Stock who were not, on each such date, "accredited
investors" as defined in Rule 501(a) of Regulation D promulgated under the
Securities Act of 1933, as amended, and (ii) each RTI shareholder who is not an
"accredited investor" as so defined, either alone or with his or her purchaser
representative(s) has such knowledge and experience in financial and business
matters that he or she is capable of evaluating the merits and risks of the
Merger.
(f) MATERIAL ADVERSE CHANGE. There shall not have occurred any change
which would constitute a Material Adverse Effect on RTI.
(g) NOTE. RTI shall have prepaid the Note in full or the holder of the
Note shall have converted the Note into RTI Common Stock, prior to the Effective
Time.
7.3. CONDITIONS TO OBLIGATIONS OF RTI. The obligation of RTI to effect the
Merger is also subject to the satisfaction or waiver by RTI at or prior to the
Effective Time of the Merger of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
EAI set forth in this Agreement that are qualified with a reference to
materiality shall be true and correct, and the representations and warranties of
EAI that are not so qualified shall be true and correct in all material
respects, in each case, as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as of
the Closing Date as though made on and as of the Closing Date. RTI shall have
received a certificate signed on behalf of EAI by the Chief Executive Officer or
the Chief Financial Officer of EAI to the foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF EAI. EAI shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and RTI shall have received a
certificate signed on behalf of EAI by the Chief Executive Officer or the Chief
Financial Officer of EAI to such effect.
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(c) LEGAL OPINION; CLOSING CERTIFICATES. RTI shall have received from
Gardner, Carton & Douglas, special counsel to EAI, an opinion reasonably
acceptable to RTI and its counsel, together with such customary closing
documents and certificates as RTI or its counsel shall reasonably request.
(d) MATERIAL ADVERSE CHANGE. There shall not have occurred any change
which would constitute a Material Adverse Effect on EAI and its subsidiaries,
taken as a whole.
ARTICLE VIII.
TERMINATION AND AMENDMENT
8.1. TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the Merger by the
shareholders of RTI:
(a) by mutual consent of RTI and EAI in a written instrument, if the Board
of Directors of each so determines by a vote of a majority of the members of its
entire Board;
(b) by either the Board of Directors of RTI or the Board of Directors of
EAI, if any Governmental Authority which must grant a Requisite Regulatory
Approval has denied approval of the Merger, or any Governmental Authority of
competent jurisdiction shall have issued an order permanently enjoining or
otherwise prohibiting the consummation of the transactions contemplated by this
Agreement;
(c) by the Board of Directors of RTI or the Board of Directors of EAI
(PROVIDED that the terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained herein), if
(x) there shall have been a material breach of any of the representations or
warranties or any of the covenants or agreements set forth in this Agreement on
the part of the other party, which breach is not cured within 30 days following
written notice to the party committing such breach, or which breach, by its
nature or timing, cannot be cured prior to December 31, 1997, (y) the Closing
shall not have occurred on or before December 31, 1997; PROVIDED, HOWEVER, that
neither Board of Directors shall be entitled to terminate the Agreement pursuant
to this clause (y) if the reason the Closing has not occurred by such date is
because any Governmental Authority which must grant a Requisite Regulatory
Approval has failed to act, the RTI shareholder meeting shall not have occurred
in accordance with the requirements of the OBCA or some similar event beyond the
control of both parties shall not have occurred by such date, or (z) the Closing
shall not have occurred on or before March 31, 1998; or
(d) by the Board of Directors of RTI (after consulting with its legal
counsel), if such action is required for the Board of Directors to comply with
its fiduciary duties to RTI and its shareholders, as contemplated by
Section 6.7; PROVIDED, HOWEVER, if such action is taken by RTI, then (i) within
two days of such termination RTI shall pay to EAI $250,000 as reimbursement for
EAI's out-of-pocket expenses incurred in connection with the transactions
contemplated by this Agreement (for which EAI shall not be required to account);
and (ii) if RTI shall consummate any transaction pursuant to a Takeover Proposal
(x) within 12 months following the date of this
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Agreement, or (y) pursuant to a definitive agreement executed by RTI during
such 12-month period, RTI shall also promptly pay to EAI $1,500,000 upon the
occurrence of such transactions.
8.2. EFFECT OF TERMINATION. In the event of termination of this Agreement
by either RTI or EAI as provided in Section 8.1, this Agreement shall forthwith
become void and have no effect, and none of RTI, EAI, Sub or any of their
directors or officers shall have any liability of any nature whatsoever
hereunder, or in connection with the transactions contemplated hereby, except
that (i) Sections 8.1(d) and 9.1 and this Section 8.2 shall survive any
termination of this Agreement, and (ii) notwithstanding anything to the contrary
contained in this Agreement, neither RTI or EAI shall be relieved or released
from any liabilities or damages arising out of its willful breach of any
provision of this Agreement.
8.3. AMENDMENT; EXTENSION; WAIVER. At any time prior to the Effective Time
of the Merger, the parties hereto, by action taken or authorized by their
respective Board of Directors, may, to the extent legally allowed, (i) amend any
term or provision of this Agreement, (ii) extend the time for the performance of
any of the obligations or other acts of the parties hereto, (iii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iv) waive compliance with any of the
agreements or conditions contained herein; PROVIDED, HOWEVER, that after any
approval of the transactions contemplated by this Agreement by the shareholders
of RTI, there may not be, without further approval of such shareholders, any
amendment, extension or waiver of this Agreement which reduces the amount or
changes the form of the consideration to be delivered to such holders of RTI
Common Stock hereunder other than as contemplated by this Agreement. Any
agreement on the part of a party hereto to any such amendment, extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party, but such amendment, extension or waiver or failure to insist on
strict compliance with any obligation, covenant, agreement or condition in this
Agreement shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
ARTICLE IX.
GENERAL PROVISIONS
9.1. EXPENSES. Except as set forth in Section 8.1(d), all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expense.
9.2. NOTICES. All notices and other required communications hereunder
shall be in writing and shall be deemed given: if delivered personally, when so
delivered; if telecopied, on the date telecopied (PROVIDED there is written
confirmation of receipt and a confirming notice or communication is delivered in
the manner set forth herein); if mailed by registered or certified mail (postage
prepaid and return receipt requested), on the date five days after deposit in
the mail; or if delivered by overnight courier (with written confirmation of
delivery to such courier), on the next business after such delivery, in each
case to the parties at the following addresses (or at such other address for a
party as shall be specified by like notice):
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(a) if to EAI, to:
Engineering Animation, Inc.
2321 North Loop Drive
Ames, Oregon Iowa 50010
Attention: Jamie A. Wade
Vice President of Administration, General Counsel and Secretary
Fax: (515) 296-6941
with a copy to:
Gardner, Carton & Douglas
321 North Clark Street, Suite 3400
Chicago, Illinois 60610
Attention: Nancy M. Borders
Fax: (312) 644-3381
and
(b) if to RTI, to:
Rosetta Technologies, Inc.
15220 N.W. Greenbriar Parkway
Beaverton, Oregon 97006
Attention: Michael N. Barry, President
Fax: (503) 531-0401
with copies to:
Venture Counsel P.C.
1230 S.W. First Avenue, Suite 250
Portland, Oregon 97204
Attention: David R. Clarke
Fax: (503) 225-0799
and
Perkins Coie
1211 S.W. Fifth Avenue
Portland, Oregon 97204
Attention: Cynthia Clarfield-Hess
Fax: (503) 727-2222
9.3. INTERPRETATION. When a reference is made in this Agreement to
Sections, Schedules or Exhibits, such reference shall be to a Section of or
Schedule or Exhibit to this Agreement unless otherwise indicated. The table of
contents and headings contained in this
29
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Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation." No provision of this
Agreement shall be construed to require EAI, Sub, RTI or any of their
respective affiliates to take any action which would violate any applicable
law, rule or regulation.
9.4. COUNTERPARTS. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement.
9.5. ENTIRE AGREEMENT. This Agreement (including the Disclosure Schedule,
Exhibits, documents and instruments referred to herein) constitutes the entire
agreement of the parties and supersedes all prior agreements and understandings,
both written and oral, between the parties with respect to the subject matter
hereof.
9.6. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without regard to any
applicable conflicts of law which would result in the application of any other
law.
9.7. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
9.8. PUBLICITY. Except as otherwise required by applicable law or the
rules of the NNM, neither RTI or EAI, shall nor shall they permit any of their
respective affiliates to, issue or cause the publication of any press release or
other public announcement with respect to, or otherwise make any public
statement concerning, the transactions contemplated by this agreement without
the prior consent of the other party, which consent shall not be unreasonably
withheld.
9.9. ASSIGNMENT; THIRD PARTY BENEFICIARIES. Neither this Agreement nor any
of the rights, interests or obligations set forth herein shall be assigned by
either of the parties (whether by operation of law or otherwise) without the
prior written consent of the other party. Subject to the preceding sentence,
this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns. This
Agreement (including the Disclosure Schedule, Exhibits, documents and
instruments referred to herein) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
9.10. KNOWLEDGE AND AWARENESS. As used in this Agreement, "knowledge"
or "awareness" of any entity means the actual knowledge or awareness of such
entity's directors, managers, officers, shareholders or members who are active
in the business of the entity and other persons exercising supervisory
authority.
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9.11. CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumptions or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of any
of the provisions of this Agreement. Any reference to any Federal, state,
county, local or foreign law or statute shall be deemed also to refer to all
rules and regulations promulgated thereunder, unless the context requires
otherwise.
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IN WITNESS WHEREOF, EAI, Sub and RTI have caused this AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER to be executed by their respective officers
thereunto duly authorized as of the date first above written.
ENGINEERING ANIMATION, INC.
By: /s/ MATTHEW M. RIZAI
-----------------------------------
Matthew M. Rizai
Chief Executive Officer, President and Treasurer
TRANSITORY BEAVER, INC.
By: /s/ MATTHEW M. RIZAI
-----------------------------------
Matthew M. Rizai
Chief Executive Officer, President and Treasurer
ROSETTA TECHNOLOGIES, INC.
By: /s/ MICHAEL N. BARRY
-----------------------------------
Michael N. Barry
President
32
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EXHIBIT 2.3
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
among
ENGINEERING ANIMATION, INC.,
SHELL BEAVER L.L.C.,
and
TECHNOLOGY COMPANY VENTURES, L.L.C.
_____________________
Dated as of November 12, 1997
_____________________
<PAGE>
TABLE OF CONTENTS
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
ARTICLE I. THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.3. EFFECTIVE TIME . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.4. EFFECTS OF THE MERGER. . . . . . . . . . . . . . . . . . . . . . .2
1.5. CERTIFICATE OF FORMATION AND OPERATING AGREEMENT . . . . . . . . .2
1.6. MANAGERS AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . .2
1.7. SUB MEMBERSHIP INTEREST. . . . . . . . . . . . . . . . . . . . . .2
1.8. ACCOUNTING CONSEQUENCES. . . . . . . . . . . . . . . . . . . . . .2
ARTICLE II. CONVERSION AND EXCHANGE OF MEMBER INTERESTS . . . . . . . . . .2
2.1. CONVERSION OF VENTURES MEMBERSHIP INTERESTS. . . . . . . . . . . .2
2.2. EXCHANGE OF VENTURES MEMBERSHIP INTERESTS. . . . . . . . . . . . .3
ARTICLE III. REPRESENTATIONS AND WARRANTIES REGARDING RTI. . . . . . . . . .4
3.1. CORPORATE ORGANIZATION . . . . . . . . . . . . . . . . . . . . . .4
3.2. CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . .4
3.3. REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
3.4. COMPLIANCE WITH APPLICABLE LAW . . . . . . . . . . . . . . . . . .5
3.5. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . .5
3.6. ABSENCE OF CERTAIN CHANGES OR EVENTS . . . . . . . . . . . . . . .5
3.7. LEGAL PROCEEDINGS AND RESTRICTIONS . . . . . . . . . . . . . . . .5
3.8. TAXES AND TAX RETURNS. . . . . . . . . . . . . . . . . . . . . . .6
3.9. EMPLOYEE BENEFITS. . . . . . . . . . . . . . . . . . . . . . . . .8
3.10. EMPLOYMENT AND LABOR RELATIONS . . . . . . . . . . . . . . . . . .10
3.11. CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
3.12. UNDISCLOSED LIABILITIES. . . . . . . . . . . . . . . . . . . . . .11
3.13. ENVIRONMENTAL LIABILITY. . . . . . . . . . . . . . . . . . . . . .11
3.14. TANGIBLE ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . .12
3.15. REAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . .12
3.16. INTELLECTUAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . .13
3.17. INVENTORY. . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
3.18. NOTES AND ACCOUNTS RECEIVABLE. . . . . . . . . . . . . . . . . . .14
3.19. BANK ACCOUNTS AND POWERS OF ATTORNEY . . . . . . . . . . . . . . .14
3.20. GUARANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
3.21. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
3.22. SERVICE CONTRACTS AND WARRANTIES . . . . . . . . . . . . . . . . .14
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3.23. CERTAIN RELATIONSHIPS. . . . . . . . . . . . . . . . . . . . . . .15
3.24. PPM/INFORMATION STATEMENT INFORMATION. . . . . . . . . . . . . . .15
3.25. CERTAIN CUSTOMER RELATIONSHIPS . . . . . . . . . . . . . . . . . .15
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF VENTURES. . . . . . . . . . .15
4.1. ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . .15
4.2. OWNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
4.3. AUTHORITY; NO VIOLATION. . . . . . . . . . . . . . . . . . . . . .16
4.4. CONSENTS AND APPROVALS . . . . . . . . . . . . . . . . . . . . . .16
4.5. REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
4.6. COMPLIANCE WITH APPLICABLE LAW . . . . . . . . . . . . . . . . . .17
4.7. LEGAL PROCEEDINGS AND RESTRICTIONS . . . . . . . . . . . . . . . .17
4.8. UNDISCLOSED LIABILITIES. . . . . . . . . . . . . . . . . . . . . .17
4.9. PPM/INFORMATION STATEMENT INFORMATION. . . . . . . . . . . . . . .17
4.10. BROKER'S FEES. . . . . . . . . . . . . . . . . . . . . . . . . . .17
4.11. NO ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . . . . . .17
4.12. TAXES AND RETURNS. . . . . . . . . . . . . . . . . . . . . . . . .18
4.13. NO DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . .19
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF EAI . . . . . . . . . . . . .19
5.1. CORPORATE ORGANIZATION . . . . . . . . . . . . . . . . . . . . . .19
5.2. CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . .19
5.3. AUTHORITY; NO VIOLATION. . . . . . . . . . . . . . . . . . . . . .20
5.4. CONSENTS AND APPROVALS . . . . . . . . . . . . . . . . . . . . . .20
5.5. SEC REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . . . .20
5.6. COMPLIANCE WITH APPLICABLE LAW . . . . . . . . . . . . . . . . . .21
5.7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . .21
5.8. ABSENCE OF CERTAIN CHANGES OR EVENTS . . . . . . . . . . . . . . .21
5.9. PPM/INFORMATION STATEMENT INFORMATION. . . . . . . . . . . . . . .21
5.10. OWNERSHIP OF SUB; NO PRIOR ACTIVITIES. . . . . . . . . . . . . . .21
5.11. BROKER'S FEES. . . . . . . . . . . . . . . . . . . . . . . . . . .22
5.12. DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
ARTICLE VI. COVENANTS RELATING TO CONDUCT OF BUSINESS . . . . . . . . . . .22
6.1. CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME. . . . . . . . . .22
6.2. VENTURES FORBEARANCES. . . . . . . . . . . . . . . . . . . . . . .22
ARTICLE VII ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . .23
7.1. REGULATORY AND OTHER MATTERS . . . . . . . . . . . . . . . . . . .23
7.2. ACCESS TO INFORMATION. . . . . . . . . . . . . . . . . . . . . . .23
7.3. MEMBERS' APPROVAL. . . . . . . . . . . . . . . . . . . . . . . . .24
7.4. NNM LISTING. . . . . . . . . . . . . . . . . . . . . . . . . . . .24
7.5. AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
ii
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7.6. ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . .24
7.7. ADVICE OF CHANGES. . . . . . . . . . . . . . . . . . . . . . . . .24
7.8. TAKEOVER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . .24
7.9. TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . .25
ARTICLE VIII. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . .25
8.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER . . . .25
8.2. CONDITIONS TO OBLIGATIONS OF EAI AND SUB TO EFFECT THE MERGER. . .26
8.3. CONDITIONS TO OBLIGATIONS OF VENTURES. . . . . . . . . . . . . . .27
ARTICLE IX. TERMINATION AND AMENDMENT . . . . . . . . . . . . . . . . . . .28
9.1. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .28
9.2. EFFECT OF TERMINATION. . . . . . . . . . . . . . . . . . . . . . .28
9.3. AMENDMENT; EXTENSION; WAIVER . . . . . . . . . . . . . . . . . . .29
ARTICLE X. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . .29
10.1. EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
10.2. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
10.3. INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . .30
10.4. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . .30
10.5. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . .31
10.6. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . .31
10.7. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . .31
10.8. PUBLICITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
10.9. ASSIGNMENT; THIRD PARTY BENEFICIARIES. . . . . . . . . . . . . . .31
10.10. KNOWLEDGE AND AWARENESS. . . . . . . . . . . . . . . . . . . . . .31
10.11. CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . .31
10.12. POOLING OF INTERESTS ACCOUNTING. . . . . . . . . . . . . . . . . .32
EXHIBITS
A - Registration Rights Agreement
B - Affiliates Letter
iii
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INDEX OF DEFINED TERMS
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Articles of Merger . . . . . . . . . . . . . . . . . . . . . . . Section 1.3
Certificate of Merger . . . . . . . . . . . . . . . . . . . . . Section 1.3
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.2
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.4
Delaware Secretary . . . . . . . . . . . . . . . . . . . . . . . Section 1.3
Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . Art. III
DLLCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.1
EAI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
EAI Common Stock . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1(a)
EAI Stock Value . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1(a)
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.3
Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . Section 3.13(e)
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.9(a)
ERISA Affiliates . . . . . . . . . . . . . . . . . . . . . . . . Section 3.9(f)
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.5
Exchange Consideration . . . . . . . . . . . . . . . . . . . . . Section 2.1(a)
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.5
Governmental Authority . . . . . . . . . . . . . . . . . . . . . Section 4.4
Hazardous Material . . . . . . . . . . . . . . . . . . . . . . . Section 3.13(e)
HSR Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.4
Indemnifying Person. . . . . . . . . . . . . . . . . . . . . . . Section 9.2
Intellectual Property . . . . . . . . . . . . . . . . . . . . . Section 3.16
Interim Financial Statements . . . . . . . . . . . . . . . . . . Section 3.5
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.9(b)
Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.11(d)
Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.1
Material Adverse Effect . . . . . . . . . . . . . . . . . . . . Section 3.1(a)
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
1997 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . Section 3.12
NNM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1(a)
OLLCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.1
Oregon Secretary . . . . . . . . . . . . . . . . . . . . . . . . Section 1.3
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.2(a)
PPM/Information Statement . . . . . . . . . . . . . . . . . . . Section 3.24
Primary Customers . . . . . . . . . . . . . . . . . . . . . . . Section 3.25
Requisite Regulatory Approvals . . . . . . . . . . . . . . . . . Section 8.1(a)
Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.8(c)
RTI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
RTI Common Stock . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1(b)
RTI Contracts . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.11
RTI Financial Statements . . . . . . . . . . . . . . . . . . . . Section 3.5
RTI Options . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1(a)
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RTI Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.9(a)
SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.5
Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.1(a)
Takeover Proposal . . . . . . . . . . . . . . . . . . . . . . . Section 7.8(b)
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.8(c)
Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Ventures Membership Interests. . . . . . . . . . . . . . . . . . Section 2.1(a)
v
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of November 12,
1997 (the "Agreement"), by and among ENGINEERING ANIMATION, INC., a Delaware
corporation ("EAI"), SHELL BEAVER L.L.C., a Delaware limited liability company
whose sole member is EAI ("Sub"), and TECHNOLOGY COMPANY VENTURES, L.L.C., an
Oregon limited liability company ("Ventures").
WHEREAS, Ventures is the majority shareholder of Rosetta Technologies,
Inc., an Oregon corporation ("RTI");
WHEREAS, EAI desires to acquire all of the outstanding shares of stock of
RTI held by Ventures solely in exchange for voting stock of EAI;
WHEREAS, the Board of Directors of EAI and the Boards of Managers of Sub
and Ventures have determined that it is in the best interests of their
respective companies and members and stockholders to consummate the business
combination provided for in this Agreement in which, subject to the terms and
conditions set forth herein, Ventures shall merge with and into Sub (the
"Merger");
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as part of a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and to establish certain conditions to
the Merger;
WHEREAS, the parties entered into an Agreement and Plan of Merger dated
October 29, 1997, which they now wish to amend and restate to modify the
registration rights of Ventures members who will receive stock of EAI pursuant
to the Merger; and
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, the parties agree as follows:
ARTICLE I.
THE MERGER
1.1. THE MERGER. Subject to the terms and conditions of this Agreement, in
accordance with the Oregon Limited Liability Company Act (the "OLLCA") and
Delaware Limited Liability Company Act (the "DLLCA"), at the Effective Time (as
hereinafter defined) of the Merger, Ventures shall merge with and into Sub and
Sub shall be the surviving limited liability company in the Merger. Upon
consummation of the Merger, the separate existence of Ventures shall terminate.
Pursuant to Treasury Regulations Section 301.7701-3(b)(ii), Sub shall be
disregarded as an entity separate from EAI, and the parties shall, pursuant to
Section 84-111, 1984-2 C.B. 88, treat the Merger as (a) a transfer by Ventures
to Sub of all of its assets consisting of shares of RTI common stock in exchange
for EAI common stock, followed by (b) a
<PAGE>
liquidating distribution from Ventures to its members of all of the EAI
common stock received by Ventures pursuant to the Merger.
1.2. CLOSING. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") will take place at 10:00 a.m., at the
offices of Gardner, Carton & Douglas, 321 North Clark Street, Chicago, Illinois,
not later than five business days after the satisfaction or waiver of the latest
to occur of the conditions set forth in Article VIII, unless extended by mutual
agreement of the parties (the "Closing Date").
1.3. EFFECTIVE TIME. The Merger shall become effective as set forth in the
articles of merger (the "Articles of Merger") and the certificate of merger (the
"Certificate of Merger"), which shall be filed with the Secretary of State of
the State of Oregon (the "Oregon Secretary") and the Secretary of State of the
State of Delaware (the "Delaware Secretary") on the Closing Date pursuant to the
OLLCA and the DLLCA. The term "Effective Time" shall be the date and time when
the Merger becomes effective, as set forth in the Articles of Merger and the
Certificate of Merger.
1.4. EFFECTS OF THE MERGER. At and after the Effective Time, the Merger
shall have the effects set forth in the OLLCA and the DLLCA, as the case may be.
1.5. CERTIFICATE OF FORMATION AND OPERATING AGREEMENT. Subject to the
terms and conditions of this Agreement, at the Effective Time of the Merger, the
certificate of formation and Operating Agreement of Sub shall be the certificate
of formation and Operating Agreement of Sub as the surviving limited liability
company in the Merger until thereafter amended in accordance with applicable
law.
1.6. MANAGERS AND OFFICERS. The managers and officers of Sub immediately
prior to the Effective Time of the Merger shall continue as the managers and
officers of Sub as the surviving limited liability company in the Merger, unless
and until thereafter changed in accordance with the DLLCA and Sub's certificate
of formation and Operating Agreement.
1.7. SUB MEMBERSHIP INTEREST. At the Effective Time of the Merger, EAI's
membership interest in Sub shall remain outstanding and shall not be affected by
the Merger.
1.8. ACCOUNTING CONSEQUENCES. EAI, Sub and Ventures intend that the Merger
be accounted for as a pooling of interests pursuant to Opinion No. 16 of the
Accounting Principles Board.
ARTICLE II.
CONVERSION AND EXCHANGE OF MEMBER INTERESTS
2.1. CONVERSION OF VENTURES MEMBERSHIP INTERESTS. At the Effective Time of
the Merger, by virtue of the Merger and without any action on the part of EAI,
Sub, Ventures or any member of Ventures:
2
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(a) The membership interests in Ventures (the "Ventures Membership
Interests") shall be converted into the right to receive an aggregate number of
whole shares of the common stock, par value $.01 per share, of EAI (the "EAI
Common Stock") (the "Exchange Consideration") determined as follows: the
membership interests shall be exchanged for that number of shares of EAI Common
Stock equal to the product obtained by multiplying (i) $25,550,000 divided by
the average of the high and low per share sale price of the EAI Common Stock, as
reported on the Nasdaq Stock Market National Market ("NNM") for each of the date
hereof and the two immediately preceding trading days, as reported in the NNM
listings published in THE WALL STREET JOURNAL (the "EAI Stock Value"), BY
(ii) 6,753,166 (or such other number of shares of common stock, par value $.001
per share, of RTI (the "RTI Common Stock") owned by Ventures immediately prior
to the Effective Time of the Merger) divided by the sum of the total number of
shares of RTI Common Stock outstanding immediately prior to the Effective Time
plus the number of shares of RTI Common Stock issuable upon the exercise of all
outstanding options to purchase RTI Common Stock (the "RTI Options") outstanding
immediately prior to the Effective Time. EAI will allocate the Exchange
Consideration among the members of Ventures in accordance with the liquidation
provisions of the Ventures' Operating Agreement as instructed by Ventures. No
fractional shares of EAI Common Stock shall be issued, and in lieu thereof, each
holder of a Ventures membership interest who otherwise would be entitled to
receive a fractional share of EAI Common Stock will instead receive one
additional whole share of EAI Common Stock.
(b) The Ventures Membership Interests converted into EAI Common Stock
pursuant to this Article shall no longer be outstanding and shall automatically
be canceled and cease to exist at the Effective Time of the Merger. If, prior
to the Effective Time, the outstanding shares of EAI Common Stock or RTI Common
Stock shall have been increased, decreased, changed into or exchanged for a
different number or kind of shares or securities as a result of a
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split, or other similar change in capitalization, then an
appropriate and proportionate adjustment shall be made to the Exchange
Consideration.
2.2. EXCHANGE OF VENTURES MEMBERSHIP INTERESTS. (a) At the Effective Time
of the Merger, in accordance with and subject to other provisions of this
Agreement, each member of Ventures shall receive, automatically and without any
further action on such member's part, in exchange for such member's Ventures
Membership Interest a certificate representing that number of whole shares of
EAI Common Stock to which such member shall have become entitled. Upon such
exchange, the Ventures Membership Interest shall forthwith be canceled.
(b) If any certificate representing shares of EAI Common Stock is to be
issued in a name other than that of the Ventures member, it shall be a condition
of the issuance thereof that the person requesting such exchange shall pay to
EAI in advance any transfer or other taxes required by reason thereof, or shall
establish to the satisfaction of EAI that such tax has been paid or is not
payable.
3
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES REGARDING RTI
Except as disclosed by Ventures in the disclosure schedule delivered pursuant to
this Agreement (the "Disclosure Schedule"), Ventures represents and warrants to
EAI as follows:
3.1. CORPORATE ORGANIZATION. (a) RTI and the entities listed in
Section 3.1(b) of the Disclosure Schedule which are designated as subsidiaries
in such Section ("Subsidiaries") are each a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, which is set forth in Section 3.1(b) of the Disclosure Schedule.
RTI and each Subsidiary have the corporate power and authority to own or lease
all of their respective properties and assets and to carry on their respective
business as it is now being conducted, and are duly licensed or qualified to do
business and are in good standing in each jurisdiction in which the nature of
the business conducted by them or the character or location of the properties
and assets owned or leased by them makes such licensing or qualification
necessary, except where the failure to be so licensed or qualified would not
have a material adverse effect on the business, properties, profits, operations
or financial condition (a "Material Adverse Effect") of RTI. Correct and
complete copies of the Articles of Incorporation and By-Laws of RTI and the
charter documents and by-laws of each Subsidiary, as in effect on the date of
this Agreement, have been made available to EAI by RTI. For the purposes of
this Article III, each reference to RTI shall also include each Subsidiary,
unless the context requires otherwise.
(b) Except as set forth in Section 3.1(b) of the Disclosure Schedule, RTI
does not own of record or beneficially, directly or indirectly, (i) any shares
of outstanding capital stock or securities convertible into capital stock of any
other corporation or (ii) any participating interest in any partnership, limited
liability company, joint venture or other non-corporate business.
(c) The minute books of RTI accurately reflect in all material respects
all actions taken by the boards of directors, including committees thereof, and
the shareholders of RTI.
3.2. CAPITALIZATION. The authorized capital stock of RTI consists of
25,000,000 shares of RTI Common Stock, of which 9,874,975 shares are issued and
outstanding. The name and address of record of each record holder of RTI Common
Stock and the number of shares owned by each, and the name and address of record
of each holder of an RTI Option and the number of shares of RTI Common Stock
which such holder may purchase, are set forth in Section 3.2 of the Disclosure
Schedule. No shares of RTI Common Stock are held in RTI's treasury and no
shares of RTI Common Stock are reserved for issuance other than those shares
reserved for issuance under the RTI Options. All of the issued and outstanding
shares of RTI Common Stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights. Other than the RTI
Options listed in Section 3.2 of the Disclosure Schedule, RTI does not have and
is not bound by any outstanding subscriptions, options, convertible securities,
warrants, calls, commitments or agreements of any character calling for the
purchase or issuance of any shares of its capital stock.
3.3. REPORTS. RTI has timely filed all reports, registrations and
statements required to be filed since January 1, 1995 with any Governmental
Authority, and has paid all fees and
4
<PAGE>
assessments due and payable in connection therewith, except where failure to
so file or pay, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on RTI. No Governmental Authority
has initiated any proceeding or, to the knowledge of Ventures, investigation
into the business or operations of RTI.
3.4. COMPLIANCE WITH APPLICABLE LAW. RTI holds all licenses, franchises,
permits and authorizations necessary for the lawful conduct of its business and
has complied with and is not in default under any law, statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction of any
Governmental Authority applicable to RTI, except where failure to so hold or
such default, individually or in the aggregate, would not reasonably be expected
to have a Material Adverse Effect on RTI.
3.5. FINANCIAL STATEMENTS. RTI has previously provided EAI with correct
and complete copies of the following (collectively, the "RTI Financial
Statements"): (a) the balance sheets of RTI as of June 30, 1997 and 1996, and
the related statements of income and retained earnings and cash flows for the
fiscal years ended June 30, 1997 and 1996, in each case accompanied by the audit
report of Arthur Andersen LLP, independent public accountants with respect to
RTI, and (b) the unaudited balance sheets of RTI as of September 30, 1997 and
the related unaudited statements of income for the period then ended (the
"Interim Financial Statements"). The RTI Financial Statements fairly present
(subject, in the case of the unaudited statements, to recurring audit
adjustments customary in nature and amount), the financial position of RTI as of
the dates thereof, and the results of operations and cash flows of RTI for the
respective fiscal periods or as of the respective dates thereof. Each of the
RTI Financial Statements, including the notes thereto, has been, or will be,
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied during the periods involved. The books and records of RTI
have been, and are being, maintained in accordance with all applicable legal and
accounting requirements.
3.6. ABSENCE OF CERTAIN CHANGES OR EVENTS. (a) Since June 30, 1997, (i)
RTI has not incurred any material liability that is not disclosed in the
Interim Financial Statements, (ii) no event has occurred which, individually
or in the aggregate, would reasonably be expected to have a Material Adverse
Effect on RTI, and (iii) RTI has carried on its business in the ordinary and
usual course.
(b) Except as set out in Section 3.6 of the Disclosure Schedule, since
June 30, 1997, RTI has not (i) increased the salaries, wages, or other
compensation, or pensions, fringe benefits or other perquisites payable to any
director, executive officer or employee, or (ii) granted any severance or
termination pay, or (iii) paid or accrued any bonuses or commissions, or
(iv) suffered any strike, work stoppage, slowdown, or other labor disturbance
which could, either individually or in the aggregate, result in a Material
Adverse Effect on RTI.
3.7. LEGAL PROCEEDINGS AND RESTRICTIONS (a) There are no actions, suits,
proceedings, claims or investigations pending, or to the knowledge of Ventures,
threatened against or directly and materially affecting RTI at law or in equity
or before any Governmental Authority.
5
<PAGE>
(b) There is no judgment, order, writ, decree, injunction or regulatory
restriction imposed upon RTI or its assets which has had, or would reasonably be
expected to have, a Material Adverse Effect on RTI.
3.8. TAXES AND TAX RETURNS.
(a) (i) RTI (which term for purposes of this Section 3.8 shall include
former subsidiaries of RTI for periods during which they were owned) has
timely filed (when due or prior to the expiration of any extension of the
time to file) correct and complete Returns in respect of Taxes required to
be filed; all Taxes shown on such Returns or otherwise known by RTI to be
due or payable have been timely paid; no adjustment relating to any such
Return has been proposed in writing by any Governmental Authority, except
proposed adjustments that have been resolved prior to the date hereof; and
there are no outstanding summons, subpoenas or written requests for
information with respect to any such Returns or the Taxes reflected
thereon. To Ventures' knowledge there is no basis for imposing any
additional Taxes on RTI other than the Taxes shown on such Returns. There
are no outstanding waivers or agreements extending the statute of
limitations for any period with respect to any Tax to which RTI may be
subject and RTI is not under audit by any Governmental Authority for any
Tax. There are no Tax liens on any assets of RTI other than liens for
Taxes not yet due or payable;
(ii) RTI has paid, on the basis of RTI's good faith estimate of the
required installments, all estimated Taxes required to be paid under
Section 6655 of the Code or any comparable provision of state, local or
foreign law; and all Taxes which shall be due and payable for any period or
portion thereof ending on or prior to the Closing Date shall have been paid
or shall be reflected on RTI's books as an accrued Tax liability, either
current or deferred. The amount of such Tax liabilities as of September 30,
1997 shall be set forth in Section 3.8 of the Disclosure Schedule. All
Taxes required to be withheld, collected or deposited by RTI during any
taxable period for which the applicable statute of limitations on
assessment remains open have been timely withheld, collected or deposited
and, to the extent required, have been paid to the relevant Governmental
Authority;
(iii) For each taxable period for which the statute of limitations
on assessment or collection remains open, RTI has not (A) been either a
common parent corporation or a member corporation of an affiliated group of
corporations filing a consolidated Federal income tax return, or
(B) acquired any corporation that filed a consolidated Federal income tax
return with any other corporation that was not also acquired by RTI; and no
other entity that was included in the filing of a Return with RTI on a
consolidated, combined, or unitary basis has left RTI's consolidated,
combined or unitary group in a taxable year for which the statute of
limitations on assessment remains open. RTI has not been at any time a
member of any partnership, limited liability company or joint venture or
the holder of a beneficial interest in any trust for any period for which
the statute of limitations for any Tax potentially applicable as a result
of such membership or holding has not expired;
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(iv) No consent under Section 341(f) of the Code has been filed with
respect to RTI; and
(v) There is no significant difference on the books of RTI between
the amounts of the book basis and the tax basis of assets (net of
liabilities) that is not accounted for by an accrual on the books for
Federal income tax purposes.
(b) RTI:
(i) Does not have any property that is or will be required to be
treated as being owned by another person under the provisions of
Section 168(f)(8) of the Code (as in effect prior to amendment by the Tax
Reform Act of 1986) or is "tax-exempt use property" within the meaning of
Section 168 of the Code;
(ii) Does not have any Tax sharing or allocation agreement or
arrangement (written or oral), does not owe any amount pursuant to any Tax
sharing or allocation agreement or arrangement, and will not have any
liability in respect to any Tax sharing or allocation agreement or
arrangement with respect to any entity that has been sold or disposed of;
(iii) Was not acquired in a qualified stock purchase under
Section 338(d)(3) of the Code and no elections under Section 338(g) of the
Code, protective carryover basis elections, offset prohibition elections or
other deemed or actual elections under Section 338 are applicable to RTI;
(iv) Is not and has not been subject to the provisions of
Section 1503(d) of the Code related to "dual consolidated loss" rules;
(v) Is not a party to any agreement, contract or arrangement that
would result, individually or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the Code
by reason of the Merger;
(vi) Does not have any income reportable for a period ending after the
Closing Date but attributable to an installment sale occurring in or a
change in accounting method made for a period ending on or prior to the
Closing Date which resulted in a deferred reporting of income from such
transaction or from such change in accounting method (other than a deferred
intercompany transaction), or deferred gain or loss arising out of any
deferred intercompany transaction;
(vii) Does not have any unused net operating loss, unused net
capital loss, unused tax credit, or excess charitable contribution for
Federal income tax purposes, except as set out in the Disclosure Schedule;
(viii) Is not a United States real property holding corporation as
defined in Section 897 of the Code; and
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(ix) No withholding of Taxes by EAI or Sub will be required in this
transaction under Sections 3406 or 1445 of the Code or any other provision
of the Code or state, local or foreign law.
(c) For purposes of this Agreement:
(i) "Returns" means any and all returns, reports, information returns
and information statements with respect to Taxes required to be filed with
any Governmental Authority, including consolidated, combined and unitary
tax returns.
(ii) "Tax" or "Taxes" means any and all taxes, charges, fees, levies,
and other governmental assessments and impositions of any kind, payable to
any Governmental Authority, including income, franchise, net worth,
profits, gross receipts, minimum alternative, estimated, ad valorem, value
added, sales, use, service, real or personal property, capital stock,
license, payroll, withholding, disability, employment, social security,
Medicare, workers' compensation, unemployment compensation, utility,
severance, production, excise, stamp, occupation, premiums, windfall
profits, transfer and gains taxes, customs duties, imposts, charges, levies
or other similar assessments of any kind, and interest, penalties and
additions to tax imposed with respect thereto.
3.9. EMPLOYEE BENEFITS.
(a) Section 3.9 of the Disclosure Schedule sets forth a list of each
pension, profit-sharing, thrift or 401(k), disability, medical, dental, health,
life (including any individual life insurance policy), death benefit, group
insurance or any other welfare plan, bonus, incentive, deferred compensation,
stock purchase, stock option, severance plan, salary continuation, vacation,
holiday, sick leave, fringe benefit, personnel policy, or similar plan, trust,
program, policy, commitment or arrangement whether or not covered by Employee
Retirement and Income Security Act of 1974, as amended ("ERISA") and whether or
not funded or insured and whether written or oral maintained or contributed to
by RTI or any ERISA Affiliate (as hereinafter defined) during the past three
years and pursuant to which RTI has or could have any on-going liability
(hereinafter referred to as the "RTI Plans").
(b) RTI has made available to EAI, to the extent applicable to the
particular RTI Plan, correct and complete copies of (i) each RTI Plan document,
amendments thereto and board resolutions adopting such plans and amendments,
(ii) each current summary plan description, (iii) any and all material
agreements, insurance policies and other documents related to any RTI Plan,
(iv) the most recent determination letter from the Internal Revenue Service (the
"IRS") for each RTI Plan, and (v) the three most recent Annual Reports -
Form 5500 (including accompanying schedules) and summary annual reports for each
RTI Plan.
(c) (i) Except as disclosed in Section 3.9 of the Disclosure Schedule,
each RTI Plan and RTI have at all times complied in all material respects with
the applicable requirements of ERISA, the Code and any other applicable law
(including regulations and rulings thereunder), and the RTI Plans have at all
times been properly administered in all material respects in accordance with all
such laws and with their terms, (ii) each of the RTI Plans intended to be
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"qualified" within the meaning of Code Section 401(a) is so qualified and, to
the knowledge of Ventures, no facts exist that could reasonably be expected to
affect adversely such "qualified" status (other than the failure to adopt
amendments required to maintain an Employee Plan's tax-qualified status but for
which the remedial amendment period of Code Section 401(b) has not expired as of
the Closing Date), (iii) no RTI Plan provides benefits, including, without
limitation, death or medical benefits (whether or not insured), for current or
former employees following their retirement or other termination of service,
other than coverage mandated by applicable law, including, but not limited to,
Code Section 4980B(f) and ERISA Sections 601 through 609, (iv) there has not
occurred nor, to the knowledge of Ventures, is any person contractually bound to
enter into any non-exempt "prohibited transaction" within the meaning of Code
Section 4975 or ERISA Section 406 that could result in any civil penalty under
ERISA Section 502(i) or a tax under Code Section 4975, (v) RTI has not engaged
in a transaction which could subject it to either a civil penalty under ERISA
Section 409 or a tax under Code Section 4976, (vi) there are no pending or, to
the knowledge of Ventures, threatened claims (other than routine claims for
benefits) with respect to any RTI Plan by, on behalf of or against RTI, any of
the RTI Plans or any trusts related thereto, (vii) RTI has made or caused to be
made on a timely basis any and all contributions, premiums and other amounts due
and owing under the terms of any RTI Plan or as otherwise required by applicable
law, (viii) RTI has in all material respects complied with Code Section 4980B
and other applicable laws concerning the continuation of employer-provided
health benefits following a termination of employment or any other event that
would otherwise terminate such coverage, (ix) neither RTI nor any ERISA
Affiliate has at any time maintained, administered or contributed to any plan
subject to ERISA Title IV, and (x) neither RTI nor any ERISA Affiliate has at
any time participated in, made contributions to or had any other liability with
respect to a "multiemployer plan" under ERISA Section 4001(a)(3), a "multiple
employer plan" under Code Section 413(c), or a "multiple employer welfare
arrangement" under ERISA Section 3(40).
(d) Except as disclosed in Section 3.9 of the Disclosure Schedule, neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including,
without limitation, severance, unemployment compensation, golden parachute or
otherwise) becoming due to any director, officer or employee of RTI,
(ii) increase any benefits otherwise payable under any RTI Plan, (iii) result in
any acceleration of the time of payment or vesting of any such benefits other
than the acceleration of vesting of the RTI Options, or (iv) impair the rights
of RTI under any RTI Plan.
(e) There are no actions, claims, investigations or audits pending or, to
Ventures' knowledge, threatened with respect to any RTI Plan (other than claims
for benefits in the ordinary course) that will create any liability or
obligation for Sub as the surviving limited liability company in the Merger with
respect to any RTI Plan participant, beneficiary, alternate payee or other
claimant, or with respect to any Governmental Authority, including, but not
limited to, the IRS, the Department of Labor and the Pension Benefit Guaranty
Corporation.
(f) For purposes of this Agreement, "ERISA Affiliate" means RTI and
(i) any corporation that is a member of a controlled group of corporations
within the meaning of Section 414(b) of the Code of which RTI is a member,
(ii) any trade or business (whether or not incorporated) which is a member of a
group of trades or businesses under common control within
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the meaning of Section 414(c) of the Code of which RTI is a member; and (iii)
any member of an affiliated service group within the meaning of Section
414(m) or (o) of the Code of which RTI, any corporation described in clause
(i) above or any trade or business described in clause (ii) above is a member.
3.10. EMPLOYMENT AND LABOR RELATIONS. To the knowledge of Ventures, no
executive, key employee or group of employees has any plans to terminate its or
their employment with RTI. There are no charges, complaints, investigations or
litigation currently pending, or to the knowledge of Ventures threatened (and to
the knowledge of Ventures there is no basis therefor which could be reasonably
expected to have a Material Adverse Effect on RTI), against RTI, relating to
alleged employment discrimination, unfair labor practices, equal pay
discrimination, affirmative action noncompliance, occupational safety and
health, breach of employment contract, employee benefit matters, wrongful
discharge or other employment-related matters. There are no outstanding orders
or charges against RTI under any applicable occupational safety and health laws
in any jurisdiction in which RTI conducts business, other than routine actions
which, individually or in the aggregate, are not material to RTI. All levies,
assessments and penalties made against RTI pursuant to any applicable workers'
compensation legislation in any jurisdiction in which RTI conducts business have
been paid by RTI, other than such levies, assessments and penalties which,
individually or in the aggregate, are not material to RTI. RTI is not a party
to any contracts with any labor union or employee association nor has RTI made
commitments to or conducted negotiations with any labor union or employee
association with respect to any future contracts. Ventures is not aware of any
current attempts to organize or establish any labor union or employee
association with respect to any employees of RTI, and there is no existing or
pending certification of any such union with regard to a bargaining unit.
3.11. CONTRACTS. Section 3.11 of the Disclosure Schedule lists or
describes the following contracts, agreements, licenses, permits, arrangements,
commitments or understandings (whether written or oral) which are currently in
effect or which will, without any further action on the part of RTI become
effective in the future, to which RTI is a party (collectively, the "RTI
Contracts"):
(a) any agreement for the lease of personal property or real property to
or from any person or entity that individually involves an expenditure by the
lessee of in excess of $10,000 in any one year;
(b) any agreement for the purchase, sale or distribution of products,
materials, commodities, supplies or other personal property, or for the
furnishing or receipt of services, the performance of which will extend over a
period of more than one year or involve consideration payable by any party in
excess of $10,000 in any one year;
(c) any agreement creating, governing or providing for an investment or
participation in a partnership, limited liability company or joint venture;
(d) any agreement under which RTI has created, incurred, assumed or
guaranteed any indebtedness for borrowed money, or any capitalized lease
obligation, or under which RTI has
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imposed any liens, pledges, charges, encumbrances or security interests of
any kind (collectively, "Liens") on any of its assets;
(e) any agreement concerning confidentiality or noncompetition;
(f) any agreement with any director, officer, employee or shareholder of
RTI or any of their affiliates;
(g) any pension, profit sharing, thrift or 401(k), bonus, incentive,
deferred compensation, stock purchase, stock option, severance, salary
continuation or other plan or arrangement for the benefit of current or former
directors, officers or employees;
(h) any agreement for the employment of any individual on a full-time,
part-time, consulting or other basis;
(i) any agreement relating to any Intellectual Property (as that term is
defined in Section 3.16) used by RTI in the conduct of its business, or that is
licensed by RTI for use by others;
(j) any agreement under which the consequences of a default, termination,
non-renewal or acceleration would have a Material Adverse Effect on RTI; or
(k) any other agreement the performance of which involves consideration
payable by any party in excess of $10,000 in any one year.
RTI has made available to EAI a correct and complete copy of each RTI
Contract. Except as set forth in Section 3.11 of the Disclosure Schedule,
(i) each RTI Contract is legal, valid, binding, enforceable and in full force
and effect, (ii) the consummation of the Merger will not cause a breach or
termination of any RTI Contract nor effect a change in any of the terms of any
RTI Contract, (iii) RTI is not, and, to Ventures' knowledge, no other party is,
in breach or default of any RTI Contract and no event has occurred which with
notice or lapse of time, or both, would constitute a breach or default that
would result in or permit termination, modification or acceleration under any
RTI Contract, and (iv) RTI has not, and, to Ventures' knowledge, no other party
has, repudiated any provision of any RTI Contract.
3.12. UNDISCLOSED LIABILITIES. Except for liabilities (i) that are
fully reflected or reserved against on the June 30, 1997 balance sheet of RTI
(the "1997 Balance Sheet") or (ii) that were incurred in the ordinary course of
business consistent with past practice since June 30, 1997, or (iii) that are
fully reflected or reserved against in the Interim Financial Statements, RTI has
not incurred any liability of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether due or to become due).
3.13. ENVIRONMENTAL LIABILITY.
(a) RTI has not received any notice, and Ventures does not otherwise have
knowledge, of any claim, and no proceeding has been instituted raising any
claim, against RTI or
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any of the real properties now or formerly owned, leased or operated by RTI
or other assets of RTI, alleging any damage to the environment or violation
of any Environmental Laws;
(b) Ventures does not have knowledge of any facts which would give rise to
any claim, public or private, of violation of Environmental Laws or damage to
the environment emanating from, occurring on or in any way related to real
properties now or formerly owned, leased or operated by RTI or to other assets
of RTI or their use;
(c) RTI has not stored or released any Hazardous Materials on real
properties now or formerly owned, leased or operated by it or disposed of any
Hazardous Materials, in each case in a manner contrary to any Environmental
Laws; and
(d) All buildings on all real properties now owned, leased or operated by
RTI are in compliance with applicable Environmental Laws, except where the
failure to comply would not reasonably be expected to result in a Material
Adverse Effect on RTI.
(e) For purposes of this Agreement,
(i) "Environmental Laws" means any and all Federal, state, county,
local and foreign laws, statutes, codes, ordinances, rules, regulations,
judgments, orders, decrees, permits, concessions, grants, franchises,
licenses, agreements or governmental restrictions relating to pollution and
the protection of the environment or the release of any materials into the
environment, including but not limited to those related to hazardous
substances or wastes, air emissions and discharges to waste or public
systems; and
(ii) "Hazardous Material" means any and all pollutants, toxic or
hazardous wastes or any other substances, the removal of which, as of the
date hereof, may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation,
transfer, use, disposal, release, discharge, spillage, seepage, or
filtration of which is restricted or prohibited by any Environmental Law
(including asbestos, urea formaldehyde foam insulation and polychlorinated
biphenyls).
3.14. TANGIBLE ASSETS. RTI has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by it, located on
its premises, shown on the 1997 Balance Sheet or acquired after the date
thereof, except for properties and assets disposed of in the ordinary course of
business, free and clear of all Liens. RTI owns or leases pursuant to a RTI
Contract all buildings, machinery, equipment and other tangible assets material
to the conduct of its business as presently conducted. Each such tangible asset
is free from defects (patent and latent) other than defects that do not
individually or in the aggregate materially impair its value or intended use,
has been maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear) and is suitable
for the purposes for which it presently is used. Section 3.14 of the Disclosure
Schedule contains a schedule of such tangible assets owned or leased by RTI that
have a value in excess of $10,000.
3.15. REAL PROPERTY. RTI does not own any real property. Section 3.15
of the Disclosure Schedule lists and describes briefly all real property leased
or subleased to RTI. RTI
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has made available to EAI correct and complete copies of each such lease and
sublease. Except as set forth in Section 3.15 of the Disclosure Schedule:
(a) each such lease or sublease is legal, valid, binding, enforceable and
in full force and effect;
(b) the consummation of the transactions contemplated hereby will neither
cause the termination of each such lease or sublease nor effect a change in any
of its terms;
(c) RTI is not, and, to the knowledge of Ventures, no other party to such
lease or sublease is, in breach or default, and no event has occurred which,
with notice or lapse of time, or both, would constitute a breach or default that
would permit termination, modification or acceleration thereunder;
(d) neither RTI nor, to the knowledge of Ventures, any other party to each
such lease or sublease has repudiated or disputed any provision thereof;
(e) there are no oral agreements in effect as to each such lease or
sublease;
(f) to the knowledge of Ventures, the representations and warranties set
forth in clauses (a) through (e) above are true and correct with respect to the
lease underlying each such sublease; and
(g) RTI has not assigned, transferred, conveyed, mortgaged, deeded in
trust or encumbered any interest in any leasehold or subleasehold.
3.16. INTELLECTUAL PROPERTY. (a) Section 3.16 of the Disclosure
Schedule identifies each patent, trademark, service mark, trade name, assumed
name, copyright, trade secret, license to or from third parties with respect to
any of the foregoing, applications to register or registrations of any of the
foregoing or other intellectual property rights which are owned or used by or
have been issued to RTI (collectively the "Intellectual Property"). RTI has
made available correct and complete copies of all patents, trademarks,
copyrights, registrations, licenses, permits, agreements and applications
related to the Intellectual Property to EAI and correct and complete copies of
all other written documentation evidencing ownership of or the right to use each
such item. Except as set forth in Section 3.16 of the Disclosure Schedule:
(i) RTI possesses all right, title and interest in and to the
Intellectual Property, free and clear of any Lien or other restriction;
(ii) the legality, validity, enforceability, ownership or use of the
Intellectual Property is not currently being challenged, nor to the
knowledge of Ventures is RTI subject to any such challenge;
(iii) RTI has taken all necessary action to maintain and protect
the Intellectual Property and will continue to maintain those rights prior
to the Closing so as not to affect materially the validity or enforcement
of the rights set forth in Section 3.16 of the Disclosure Schedule; and
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(iv) the Intellectual Property will be owned or available for use by
RTI on identical terms and conditions immediately subsequent to the Closing
and the transactions contemplated by this Agreement will have no Material
Adverse Effect on RTI's rights, title and interest in and to any of the
rights set forth in Section 3.16 of the Disclosure Schedule.
(b) To the knowledge of Ventures, (i) RTI has not interfered with,
infringed upon or misappropriated any intellectual property rights of third
parties, nor is RTI currently interfering with, infringing upon,
misappropriating or otherwise coming into conflict with any intellectual
property rights of third parties, and (ii) no third party has, in the past three
years, interfered with, infringed upon or misappropriated any Intellectual
Property rights of RTI that would result in a Material Adverse Effect on RTI,
nor is any third party currently interfering with, infringing upon,
misappropriating or otherwise coming into conflict with any Intellectual
Property rights of RTI.
3.17. INVENTORY. No material portion of the inventory of RTI is unfit
for the purpose for which it was procured, or is obsolete, expired, damaged or
defective. Substantially all of the inventory of RTI consists of items of a
quantity and quality which are usable and salable in the ordinary course of
business.
3.18. NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable
of RTI are reflected properly on RTI's books and records, are not subject to any
setoff or counterclaim, are current and collectible, subject only to the reserve
for bad debts established in accordance with the past practice of RTI.
3.19. BANK ACCOUNTS AND POWERS OF ATTORNEY. Section 3.19 of the
Disclosure Schedule sets forth a list of all accounts, borrowing resolutions and
deposit boxes maintained by RTI at any bank or other financial institution and
the names of the persons authorized to effect transactions in such accounts and
pursuant to such resolutions and with access to such boxes. There are no
outstanding powers of attorney executed on behalf of RTI.
3.20. GUARANTIES. RTI is not a guarantor or otherwise is liable for
any indebtedness, liability or other obligation of any other person or entity.
3.21. INSURANCE. Section 3.21 of the Disclosure Schedule lists each
insurance policy and self-insurance arrangement to which RTI is a party, a named
insured or otherwise the beneficiary of, specifying the insurer, type of
insurance, policy number and pending claims thereunder with respect to RTI. The
coverage provided by each of such policies is in an amount, and of a type
sufficient for the business presently conducted and proposed to be conducted by
RTI. RTI is in substantial compliance with all conditions contained in such
policies.
3.22. SERVICE CONTRACTS AND WARRANTIES. Except as set out in
Section 3.22 of the Disclosure Schedule, RTI is not a party to any service
contract pursuant to which services are provided by RTI to a third party.
Section 3.22 of the Disclosure Schedule includes copies of the standard terms
and conditions of all product warranties and service or maintenance contracts
granted or entered into by RTI.
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3.23. CERTAIN RELATIONSHIPS. No shareholder, director, officer or, to
Ventures' knowledge, employee of RTI (i) is, or controls, or is an employee of
any competitor, supplier, customer or lessor or lessee of RTI, or (ii) is
indebted to RTI in an amount in excess of $1,000 in any individual case, or
(iii) owns any asset, tangible or intangible, which is used in the business of
RTI, other than assets that are immaterial in value; and RTI has not entered
into any transaction (including the furnishing of goods or services) with any
shareholder, director, officer, employer or other affiliate, except on terms and
conditions no less favorable to RTI than would be obtained in a comparable
arm's-length transaction with a third party.
3.24. PPM/INFORMATION STATEMENT INFORMATION. None of the written
information to be supplied by RTI for inclusion in the private placement
memorandum and information statement contemplated by this Agreement (the
"PPM/Information Statement") will, at the time the PPM/Information Statement is
mailed to Ventures members, at any time it is amended or supplemented, or at the
Closing Date, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading.
3.25. CERTAIN CUSTOMER RELATIONSHIPS. Section 3.25 of the Disclosure
Schedule contains an accurate list of RTI's ten largest customers for the
fifteen month period ending September 30, 1997 (the "Primary Customers"),
together with the total dollar amount of all products purchased by such Primary
Customers from RTI during such period. RTI has not received any notice and does
not otherwise have knowledge that any Primary Customer intends to reduce the
volume or dollar amount of the products it purchases from RTI.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF VENTURES
Except as disclosed by Ventures in the Disclosure Schedule, Ventures
represents and warrants to EAI as follows:
4.1. ORGANIZATION. (a) Ventures is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Oregon and shall become a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware. Ventures
has the power and authority to own its assets and to carry on its business as
now conducted and is, and will be on the Closing Date, in good standing in each
jurisdiction in which the nature of the business conducted by it or the
character of its assets makes such licensing or qualification necessary, except
where the failure to be so licensed or qualified would not have a Material
Adverse Effect on Ventures. Correct and complete copies of the certificate of
formation, the Operating Agreement and other governing documents of Ventures, as
in effect on the date of this Agreement, have been made available to EAI by
Ventures.
(b) Other than the 6,753,166 shares of RTI Common Stock owned by Ventures,
Ventures does not own of record or beneficially, directly or indirectly, (i) any
shares of capital stock or securities convertible into capital stock of any
corporation or (ii) any participating
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interest in any partnership, limited liability company, joint venture or
other non-corporate business.
4.2. OWNERS. The name, the address of record and the total dollar amount
of the capital account of each Ventures member is set forth in Section 4.2 of
the Disclosure Schedule. Ventures does not have and is not bound by any
outstanding subscriptions, options, convertible securities, warrants, calls,
commitments or agreements of any character calling for the purchase or issuing
of any Ventures Membership Interest.
4.3. AUTHORITY; NO VIOLATION. (a) Ventures has the power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
approved by the Board of Managers of Ventures. Except for the adoption of this
Agreement by the members of Ventures, no other proceedings on the part of
Ventures are necessary to approve this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Ventures and, assuming due authorization and execution
by EAI and Sub, constitutes a valid and binding obligation of Ventures,
enforceable against Ventures in accordance with its terms.
(b) The execution and delivery of this Agreement by Ventures, the
consummation by Ventures of the transactions contemplated hereby, and the
compliance by Ventures with the terms or provisions hereof, shall not
(i) violate any provision of the certificate of formation or the Operating
Agreement of Ventures, (ii) violate any law, statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to Ventures
or any of its properties or assets, or (iii) violate, conflict with, breach any
provision of or result in the loss of any benefit or the increase in the amount
of any liability or obligation under, constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default) under, result
in the termination of, accelerate the performance required by, or result in the
creation of any Liens upon any of the properties or assets of Ventures under any
note, bond, mortgage, indenture, deed of trust, license, lease, contract,
agreement or other instrument or obligation to which Ventures is a party, or by
which it or any of its properties or assets may be bound or affected, except
where such violation, conflict, breach, loss, increase, default, termination,
acceleration or Lien which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on Ventures.
4.4. CONSENTS AND APPROVALS. Except for (i) the Notification and Report
Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Filing") and the expiration of the waiting period thereunder, (ii) the filing of
the Articles of Merger and the Certificate of Merger with the Oregon Secretary
and the Delaware Secretary, respectively, pursuant to the OLLCA and the DLLCA,
and (iii) the approval of this Agreement by the members of Ventures, no consent,
approval or authorization of, or withholding of objection on the part of, or
filing, registration or qualification with, or notice to (collectively, the
"Consents") any court, administrative agency, commission or other governmental
authority or instrumentality, whether Federal, state, local or foreign (each a
"Governmental Authority"), or any third party are necessary in connection with
the execution and delivery by Ventures of this Agreement and the
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consummation by Ventures of the Merger and the other transactions
contemplated by this Agreement.
4.5. REPORTS. Ventures has timely filed all reports, registrations and
statements required to be filed since January 1, 1995 with any Governmental
Authority, and has paid all fees and assessments due and payable in connection
therewith, except where failure to so file or pay, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect on
Ventures. No Governmental Authority has initiated any proceeding or, to the
knowledge of Ventures, investigation into the business or operations of
Ventures.
4.6. COMPLIANCE WITH APPLICABLE LAW. Ventures holds all licenses,
franchises, permits and authorizations necessary for the lawful conduct of its
business and has complied with and is not in default under any law, statute,
code, ordinance, rule, regulation, judgment, order, writ, decree or injunction
of any Governmental Authority applicable to Ventures, except where failure to so
hold or such default, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on Ventures.
4.7. LEGAL PROCEEDINGS AND RESTRICTIONS. (a) There are no actions, suits,
proceedings, claims or investigations pending, or to the knowledge of Ventures,
threatened against or directly and materially affecting Ventures at law or in
equity or before any Governmental Authority.
(b) There is no judgment, order, writ, decree, injunction or regulatory
restriction imposed upon Ventures or its assets which has had, or could
reasonably be expected to have, a Material Adverse Effect on Ventures.
4.8. UNDISCLOSED LIABILITIES. Ventures has no liability of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether due
or to become due).
4.9. PPM/INFORMATION STATEMENT INFORMATION. None of the written
information to be supplied by Ventures for inclusion in the PPM/Information
Statement will, at the time the PPM/Information Statement is mailed to the
members of Ventures, at any time it is amended or supplemented, or at the
Closing Date, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading.
4.10. BROKER'S FEES. Neither Ventures nor, to the knowledge of
Ventures, any of its managers, officers, employees or affiliate or any other
person has employed any person or entity as a broker, finder or agent or
incurred any liability for any broker's fees, finder's fees or other commission
in connection with the Merger or the related transactions contemplated by this
Agreement.
4.11. NO ACTIVITIES. Ventures was formed for the sole purpose of
acquiring and holding RTI Common Stock. As of the date hereof and the Effective
Time of the Merger, Ventures has not and will not have incurred, directly or
indirectly, through any affiliate, any obligations or liabilities or engaged in
any business activities of any type or kind whatsoever or entered into any
agreement or arrangement with any person, except for this Agreement and the
transactions contemplated hereby, and owns no assets other than RTI Common
Stock.
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4.12. TAXES AND RETURNS.
(a) (i) Ventures (which term for purposes of this Section 4.12 shall
include any former subsidiaries of Ventures for periods during which they
were owned) has timely filed (when due or prior to the expiration of any
extension of the time to file) correct and complete Returns in respect of
Taxes required to be filed; all Taxes shown on such Returns or otherwise
known by Ventures to be due or payable have been timely paid; no adjustment
relating to any such Return has been proposed in writing by any
Governmental Authority, except proposed adjustments that have been resolved
prior to the date hereof; and there are no outstanding summons, subpoenas
or written requests for information with respect to any such Returns or the
Taxes reflected thereon. To Ventures' knowledge there is no basis for
imposing any additional Taxes on it other than the Taxes shown on such
Returns. There are no outstanding waivers or agreements extending the
statute of limitations for any period with respect to any Tax to which
Ventures may be subject and Ventures is not under audit by any Governmental
Authority for any Tax. There are no Tax liens on any assets of Ventures
other than liens for Taxes not yet due or payable;
(ii) Ventures has paid, on the basis of Ventures' good faith estimate
of the required installments, all estimated Taxes required to be paid under
Section 6655 of the Code or any comparable provision of state, local or
foreign law; and all Taxes which shall be due and payable for any period or
portion thereof ending on or prior to the Closing Date shall have been paid
or shall be reflected on Ventures' books as an accrued Tax liability,
either current or deferred. The amount of such Tax liabilities as of
September 30, 1997 shall be set forth in Section 4.12 of the Disclosure
Schedule. All Taxes required to be withheld, collected or deposited by
Ventures during any taxable period for which the applicable statute of
limitations on assessment remains open have been timely withheld, collected
or deposited and, to the extent required, have been paid to the relevant
Governmental Authority;
(iii) Since its formation, Ventures has been properly classified
as a partnership for federal, state and local income tax purposes and has
filed its income tax returns as a partnership. Ventures has not been at
any time a member of any partnership, limited liability company or joint
venture or the holder of a beneficial interest in any trust for any period
for which the statute of limitations for any Tax potentially applicable as
a result of such membership or holding has not expired;
(iv) There is no significant difference on the books of Ventures
between the amounts of the book basis and the tax basis of assets (net of
liabilities) that is not accounted for by an accrual on the books for
Federal income tax purposes.
(b) Ventures:
(i) Does not have any Tax sharing or allocation agreement or
arrangement (written or oral), does not owe any amount pursuant to any Tax
sharing or allocation agreement or arrangement, and will not have any
liability in respect to any Tax sharing or
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allocation agreement or arrangement with respect to any entity that has
been sold or disposed of;
(ii) Is not a party to any agreement, contract or arrangement that
would result, individually or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the Code
by reason of the Merger;
(iii) Will not owe any federal, state or local taxes as a result
of the merger into Sub; and
(iv) No withholding of Taxes by EAI or Sub will be required in this
transaction under Sections 3406 or 1445 of the Code or any other provision
of the Code or state, local or foreign law and Ventures will provide any
required certificates to avoid any such withholding.
4.13. NO DISCLOSURE. No representation or warranty by Ventures
contained in this Agreement (including the Representations and Warranties
relating to RTI set forth in Article III hereof, the Disclosure Schedule and the
Exhibits referred to herein), or in any certificate furnished or to be furnished
by Ventures to EAI in connection with the transactions contemplated hereby
contains or will contain any untrue statement of a material fact, or omits or
will omit to state any material fact required to make the statements herein or
therein not misleading.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF EAI
EAI represents and warrants to Ventures as follows:
5.1. CORPORATE ORGANIZATION. EAI is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. EAI has
the corporate power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted, and is duly
licensed or qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on EAI and its
subsidiaries, taken as a whole. Correct and complete copies of the Certificate
of Incorporation and By-Laws of EAI, as in effect as of the date of this
Agreement, have been made available to Ventures by EAI.
5.2. CAPITALIZATION. The authorized capital stock of EAI consists of
20,000,000 shares of EAI Common Stock, of which as of September 30, 1997,
5,759,234 shares were issued and outstanding, and 20,000,000 shares of preferred
stock, $.01 par value per share, none of which is issued and outstanding. As of
September 30, 1997, no shares of EAI Common Stock were held in EAI's treasury.
As of September 30, 1997, there were 2,099,522 shares of EAI Common Stock
reserved for issuance under EAI stock options, including 1,352,477 shares of EAI
Common Stock reserved for issuance under options outstanding as of September 30,
1997. All of the issued and outstanding shares of EAI Common Stock have been
duly authorized and
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validly issued and are fully paid, nonassessable and free of preemptive
rights. The shares of EAI Common Stock to be issued pursuant to the Merger
will be duly authorized and validly issued and, at the Effective Time, all
such shares will be fully paid, nonassessable and free of preemptive rights,
with no personal liability attaching to the ownership thereof.
5.3. AUTHORITY; NO VIOLATION. (a) EAI has the corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of EAI. No other corporate
proceedings on the part of EAI are necessary to approve this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by EAI and, assuming due authorization and
execution by Ventures, constitutes a valid and binding obligation of EAI,
enforceable against EAI in accordance with its terms.
(b) The execution and delivery of this Agreement by EAI, the consummation
by EAI of the transactions contemplated hereby, and the compliance by EAI with
the terms or provisions hereof, will not (i) violate any provision of the
Certificate of Incorporation or By-Laws of EAI, (ii) violate any law, statute,
code, ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to EAI or any of its properties or assets, or (iii) violate, conflict
with, breach any provision of or result in the loss of any benefit under,
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of, accelerate the
performance required by, or result in the creation of any Lien upon any of the
properties or assets of EAI under any note, bond, mortgage, indenture, deed of
trust, license, lease, contract, agreement or other instrument or obligation to
which EAI is a party, or by which it or any of its properties or assets may be
bound or affected.
5.4. CONSENTS AND APPROVALS. Except for (i) the HSR Filing and the
expiration of the waiting period thereunder, (ii) the filing of the Articles of
Merger and the Certificate of Merger with the Oregon Secretary and Delaware
Secretary, respectively, pursuant to the OLLCA and the DLLCA, (iii) such filings
and approvals as are required to be made or obtained under the securities or
"Blue Sky" laws of various states in connection with the issuance of the
shares of EAI Common Stock pursuant to this Agreement, and (iv) the filings and
authorizations necessary to list the shares of EAI Common Stock issued pursuant
to this Agreement on the NNM, no Consents from any Governmental Authority or
any third party are necessary in connection with the execution and delivery by
EAI or Sub of this Agreement and the consummation by EAI and Sub of the Merger
and the other transactions contemplated by this Agreement.
5.5. SEC REPORTS. The annual report on Form 10-K of EAI for the fiscal
year ended December 31, 1996, as filed under the Securities Exchange Act of 1934
("Exchange Act"), and all other reports and proxy statements filed or required
to be filed by EAI subsequent to such report (the "SEC Reports"), have been duly
and timely filed by EAI, complied as to form with all requirements under the
Exchange Act, were true and correct in all material respects as of the dates at
which the information was furnished, and contained no untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements made, in the light of the circumstances under which they were made,
not misleading.
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5.6. COMPLIANCE WITH APPLICABLE LAW. EAI holds all licenses, franchises,
permits and authorizations necessary for the lawful conduct of its business and
has complied with and is not in default under any law, statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction of any
Governmental Authority applicable to EAI, except where failure to so hold or
such default, individually or in the aggregate, would not reasonably be expected
to have a Material Adverse Effect on EAI.
5.7. FINANCIAL STATEMENTS. The EAI financial statements set forth in the
SEC Reports fairly present (subject, in the case of the unaudited statements, to
recurring audit adjustments customary in nature and amount), the financial
position of EAI as of the dates thereof, and the results of operations and cash
flows of EAI for the respective fiscal periods or as of the respective dates
thereof. Each of the EAI financial statements set forth in the SEC Reports,
including the notes thereto, has been, or will be, prepared in accordance with
GAAP consistently applied during the periods involved.
5.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in a report
filed under the Exchange Act or as set forth on the Disclosure Schedule, since
December 31, 1996, (i) EAI has not incurred any material liability that is not
disclosed in the EAI financial statements and (ii) no event has occurred which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on EAI.
5.9. PPM/INFORMATION STATEMENT INFORMATION. None of the information that
EAI will include or incorporate by reference in the PPM/Information Statement
will, at the time the PPM/Information Statement is mailed to the Ventures
members, at any time it is amended or supplemented, or at the Closing Date,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading. Notwithstanding the foregoing, EAI makes no representation or
warranty with respect to statements made in the PPM/Information Statement based
on written information supplied by Ventures or RTI specifically for inclusion
therein.
5.10. OWNERSHIP OF SUB; NO PRIOR ACTIVITIES.
(a) Sub was formed for the purpose of engaging in the transactions
contemplated by this Agreement; is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware;
and has the power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby.
(b) As of the Effective Time of the Merger, EAI will be the sole member of
Sub. As of such Effective Time, there will be no options, warrants or other
rights (including registration rights), agreements, arrangements or commitments
to which Sub is a party of any character relating to the membership interest in,
or other equity interests in, Sub or obligating Sub to grant, issue or sell any
membership interest in, or other equity interests in, Sub, by sale, lease,
license or otherwise. There are no obligations, contingent or otherwise, of Sub
to repurchase, redeem or otherwise acquire any membership interest in Sub.
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(c) As of the date hereof and the Effective Time of the Merger, except for
obligations or liabilities incurred in connection with its incorporation or
organization and the transactions contemplated by this Agreement or except as
disclosed to Ventures, Sub has not and will not have incurred, directly or
indirectly, through any affiliate, any obligations or liabilities or engaged in
any business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.n.
5.11. BROKER'S FEES. Neither EAI nor, to the knowledge of EAI, any of
its directors, officers or employees has employed any person or entity as a
broker, finder or agent or incurred any liability for any broker's fees,
finder's fees or other commission in connection with the Merger or the related
transactions contemplated by this Agreement.
5.12. DISCLOSURE. No representation or warranty by EAI contained in
this Agreement (including the Disclosure Schedule and the Exhibits referred to
herein), or in any certificate furnished or to be furnished by EAI to Ventures
in connection with the transactions contemplated hereby contains or will contain
any untrue statement of a material fact, or omits or will omit to state any
material fact required to make the statements herein or therein not misleading.
ARTICLE VI.
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1. CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME. During the period
from the date of this Agreement to the Effective Time of the Merger, except as
expressly contemplated or permitted by this Agreement, Ventures shall (i) not
conduct any business, incur any liability or otherwise operate other than to
hold the RTI Common Stock it owns, (ii) not knowingly take any action that would
prevent or impede the Merger for qualifying for "pooling of interests"
accounting treatment, or would prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368 of the Code, and (iii) not
knowingly take any action which would adversely affect or delay the ability of
Ventures, Sub or EAI to obtain any necessary approvals of any Governmental
Authority required for the transactions contemplated hereby or to perform its
covenants and agreements under this Agreement.
6.2. VENTURES FORBEARANCES. During the period from the date of this
Agreement to the Effective Time of the Merger, except as expressly contemplated
or permitted by this Agreement, Ventures shall not, without the prior written
consent of EAI:
(a) sell, transfer, mortgage, encumber or otherwise dispose of any of its
properties or assets to any other individual, partnership, limited liability
company, corporation or other entity (collectively, "Person"), or cancel or
release any indebtedness or claims owed to or held by Ventures or by any Person,
except in the ordinary course of business consistent with past practice;
(b) make any investment in any Person by purchase of securities,
contributions to capital, property transfers, or purchase of any property or
assets of any other Person;
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(c) except for transactions in the ordinary course of business consistent
with past practice, enter into or terminate any agreement, or change any terms
in any existing agreement, other than renewals or changes in immaterial terms
thereof;
(d) increase in any manner the compensation or fringe benefits of any of
its managers other than in the ordinary course of business consistent with past
practice, pay any pension or retirement allowance not required by any existing
plan or agreement to any of the foregoing, or become a party to, amend or commit
itself to, any pension, retirement, profit-sharing or welfare benefit plan or
agreement or employment agreement with or for the benefit of any of the
foregoing;
(e) settle any claim, action or proceeding involving money damages; or
(f) take any action that is intended or may reasonably be expected to
result in (i) any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect, or (ii) any of the
conditions to the Merger set forth in Article VIII not being satisfied or
(iii) any violation of any provision of this Agreement, except, in each case, as
may be required by applicable law.
ARTICLE VII.
ADDITIONAL AGREEMENTS
7.1. REGULATORY AND OTHER MATTERS (a) EAI, with the cooperation of
Ventures and RTI, shall promptly prepare the PPM/Information Statement.
Ventures shall, and shall cause RTI to, upon request, furnish EAI with all
information or documents concerning Ventures and RTI and their respective
directors, managers, officers, members and shareholders and such other matters
as may be reasonably necessary or advisable in connection with the
PPM/Information Statement. EAI shall also use its reasonable efforts to obtain
all necessary state securities law or "Blue Sky" qualifications, permits and
approvals required to carry out the transactions contemplated by this Agreement,
and Ventures shall, and shall cause RTI to, furnish all information concerning
Ventures and RTI and the members of Ventures and the holders of RTI Common Stock
as may be reasonably requested by EAI in connection with such qualifications,
permits and approvals.
(b) The parties shall cooperate with each other and use their best efforts
to prepare and file promptly all necessary documentation to effect all
applications, notices, petitions and filings, including the HSR Filing, and to
obtain as promptly as practicable all Consents of Governmental Authorities and
third parties which are necessary or advisable to consummate the Merger and the
other transactions contemplated by this Agreement, and the parties shall keep
each other apprised of the status of matters relating to completion of the
transactions contemplated herein.
7.2. ACCESS TO INFORMATION. Upon reasonable notice, Ventures shall cause
RTI to afford to the officers, employees, accountants, counsel and other
representatives of EAI reasonable access during normal business hours during the
period prior to the Effective Time of the Merger to all of RTI's books and
records, properties and contracts, and, during such period,
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Ventures shall cause RTI to make available to EAI all information concerning
its business, assets and personnel as EAI may reasonably request.
7.3. MEMBERS' APPROVAL. Ventures shall seek the necessary approval from
its members of this Agreement and the Merger as required by its certificate of
formation, its Operating Agreement and OLLCA, as soon as reasonably practicable
after the PPM/Information Statement is mailed.
7.4. NNM LISTING. EAI shall cause the shares of EAI Common Stock to be
issued in the Merger to be approved for listing on the NNM, subject to official
notice of issuance, prior to the Effective Time of the Merger.
7.5. AFFILIATES. Prior to the Effective Time of the Merger, Ventures shall
obtain from each member a written agreement substantially in the form attached
as EXHIBIT B.
7.6. ADDITIONAL AGREEMENTS. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement or to vest Sub with full title to all properties, assets, rights,
approvals, immunities and franchises of any of the parties to the Merger, the
proper officers, managers and directors of each party to this Agreement shall
take all such necessary or advisable action.
7.7. ADVICE OF CHANGES. Ventures shall promptly advise EAI of any change
or event which is likely to have a Material Adverse Effect on Ventures or RTI,
as the case may be, or which Ventures believes would or would be reasonably
likely to cause or constitute a material breach of any of its representations,
warranties or covenants contained herein. EAI shall promptly advise Ventures of
any change or event which is likely to have a Material Adverse Effect on EAI or
which EAI believes would or would be reasonably likely to cause or constitute a
material breach of any of its representations, warranties or covenants contained
herein.
7.8. TAKEOVER PROPOSALS. (a) Ventures agrees that from and after its
execution of this Agreement through the Effective Time of the Merger, it shall
not, and it shall instruct its managers and officers and all investment bankers,
attorneys or other advisors or representatives retained by it not to,
(i) solicit or encourage the submission of any Takeover Proposal (as hereinafter
defined), (ii) participate in any discussions or negotiations regarding, or
furnish to any third party any information with respect to, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes, a Takeover Proposal, (iii) make or authorize any statement or
recommendation in support of any Takeover Proposal, or (iv) enter into any
agreement with respect to any Takeover Proposal.
(b) For purposes of this Agreement, "Takeover Proposal" means any proposal
or offer for a merger, consolidation or other business combination involving
Ventures or any proposal or offer to acquire a material equity interest in, or a
substantial portion of the assets of, Ventures, other than by EAI as
contemplated by this Agreement.
(c) Ventures shall be entitled to furnish a copy of this Section 7.8 to
any third party who expresses an interest in making a Takeover Proposal after
the execution of this Agreement.
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(d) Ventures agrees that it shall not vote its shares of RTI Common Stock
in favor of any transaction between RTI and any third party other than EAI or
one of its subsidiaries or affiliates that constitutes (i) a merger,
consolidation or other business combination involving RTI, or (ii) the
acquisition by such a third party of a material equity interest in, or a
substantial portion of the assets of, RTI.
7.9. TAX MATTERS. (a) Ventures will use its best efforts to provide EAI
information as to the adjusted tax basis of the RTI Common Stock it owns.
(b) The members of Ventures shall be responsible for and shall pay any
Taxes due from them or Ventures (or any successor) as a result of the Merger.
The members of Ventures shall be responsible for filing any required Returns for
Ventures for all periods ending on or before the Closing Date.
ARTICLE VIII.
CONDITIONS PRECEDENT
8.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) APPROVALS AND CONSENTS. All regulatory approvals required to
consummate the transactions contemplated hereby shall have been obtained and
shall remain in full force and effect and all statutory waiting periods in
respect thereof shall have expired (all such approvals and the expiration of all
such waiting periods being referred to herein as the "Requisite Regulatory
Approvals").
(b) NNM LISTING. The shares of EAI Common Stock which shall be issued to
the members of Ventures upon consummation of the Merger shall have been
authorized for listing on the NNM, subject to official notice of issuance.
(c) BLUE SKY. EAI shall have received all state securities or "Blue Sky"
permits and other authorizations necessary to issue the shares of EAI Common
Stock pursuant to this Agreement and the Merger.
(d) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No order, injunction or
decree issued by any Governmental Authority or other legal restraint or
prohibition preventing, or material legal action relating to, the consummation
of the Merger or any of the other transactions contemplated by this Agreement
shall be in effect. No law, statute, rule, regulation, order, injunction or
decree shall have been enacted, entered, promulgated or enforced by any
Governmental Authority which prohibits, materially restricts or makes illegal
the consummation of the Merger or the other transactions contemplated by this
Agreement.
(e) FEDERAL TAX OPINION. Ventures and its members shall have received an
opinion of Arthur Andersen LLP in form and substance reasonably satisfactory to
them on or about the date that is two business days prior to the date the
PPM/Information Statement is first mailed to
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members of Ventures, substantially to the effect that the discussion in the
PPM/Information Statement under the caption "The Merger--Certain Federal
Income Tax Consequences" insofar as it relates to matters of federal income
tax law is a fair and accurate summary of such matters and such opinion shall
not have been withdrawn or modified in any material respect on the Closing
Date. In rendering such opinion, Arthur Andersen LLP may require and rely
upon representations contained in certificates of officers, managers, members
or shareholders of EAI, Sub and Ventures, which certificates shall have been
executed and delivered to Arthur Andersen LLP at such times as reasonably
requested in connection with its delivery of an opinion with respect to the
Merger.
(f) REGISTRATION RIGHTS AGREEMENT. EAI and each member of Ventures shall
have entered into a Registration Rights Agreement substantially in the form of
EXHIBIT A hereto.
(g) VENTURES MEMBER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been unanimously approved by the members of
Ventures.
8.2. CONDITIONS TO OBLIGATIONS OF EAI AND SUB TO EFFECT THE MERGER. The
obligation of EAI and Sub to effect the Merger is also subject to the
satisfaction or waiver by EAI at or prior to the Effective Time of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Ventures set forth in this Agreement that are qualified with reference to a
Material Adverse Effect or materiality shall be true and correct, and the
representations and warranties of Ventures that are not so qualified shall be
true and correct in all material respects, in each case as of the date of this
Agreement and (except to the extent such representations and warranties speak as
of an earlier date) as of the Closing Date as though made on and as of the
Closing Date. EAI shall have received a certificate signed on behalf of
Ventures by its principal officers to the foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF VENTURES. Ventures shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and EAI shall have received a
certificate signed on behalf of Ventures by its principal officers to such
effect.
(c) AFFILIATES AGREEMENTS. EAI shall have received executed letter
agreements substantially in the form attached as EXHIBIT B from each member of
Ventures.
(d) POOLING OF INTERESTS LETTERS. EAI shall have received (i) from
Ernst & Young, LLP a letter dated on or about the date that is two business days
prior to the date the PPM/Information Statement is first mailed to members of
Ventures, in form and substance acceptable to EAI, to the effect that the
business combination to be effected by the Merger will qualify for accounting as
a "pooling of interests" by EAI for purposes of its consolidated financial
statements under GAAP and applicable rules and regulations of the Securities and
Exchange Commission, and (ii) from Arthur Andersen LLP a letter dated on or
about the date that is two business days prior to the date the PPM/Information
Statement is first mailed to members of Ventures, in form and substance
acceptable to EAI, to the effect that Ventures may be a party to a business
combination that will qualify for accounting as a "pooling of interests"
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by EAI for purposes of its consolidated financial statements under GAAP and
applicable rules and regulations of the Securities and Exchange Commission,
and such letters shall not have been withdrawn or modified in any material
respect on the Closing Date. No action shall have been taken or proposed by
any Governmental Authority, and no statute, rule, regulation or order shall
have been enacted, promulgated, issued or proposed by any Governmental
Authority that would prevent EAI from accounting for the business combination
to be effected by the Merger as a pooling of interests.
(e) LEGAL OPINION; CLOSING CERTIFICATES. EAI shall have received from
Venture Counsel P.C. or Perkins Coie, counsel to Ventures, an opinion reasonably
acceptable to EAI and its counsel, together with such customary closing
documents and certificates as EAI or its counsel shall reasonably request.
(f) MATERIAL ADVERSE CHANGE. There shall not have occurred any change
which would constitute a Material Adverse Effect on Ventures or RTI.
8.3. CONDITIONS TO OBLIGATIONS OF VENTURES. The obligation of Ventures to
effect the Merger is also subject to the satisfaction or waiver by Ventures at
or prior to the Effective Date of the Merger of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
EAI set forth in this Agreement that are qualified with a reference to
materiality shall be true and correct, and the representations and warranties of
EAI that are not so qualified shall be true and correct in all material
respects, in each case, as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as of
the Closing Date as though made on and as of the Closing Date. Ventures shall
have received a certificate signed on behalf of EAI by the Chief Executive
Officer or the Chief Financial Officer of EAI to the foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF EAI. EAI shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and Ventures shall have received a
certificate signed on behalf of EAI by the Chief Executive Officer or the Chief
Financial Officer of EAI to such effect.
(c) LEGAL OPINION; CLOSING CERTIFICATES. Ventures shall have received
from Gardner, Carton & Douglas, special counsel to EAI, an opinion reasonably
acceptable to Ventures and its counsel, together with such customary closing
documents and certificates as Ventures or its counsel shall reasonably request.
(d) MATERIAL ADVERSE CHANGE. There shall not have occurred any change
which would constitute a Material Adverse Effect on EAI and its subsidiaries,
taken as a whole.
ARTICLE IX.
TERMINATION AND AMENDMENT
9.1. TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the Merger by the
members of Ventures:
27
<PAGE>
(a) by mutual consent of Ventures and EAI in a written instrument, if the
Board of Directors or Managers of each so determines by a vote of a majority of
the members of its entire Board;
(b) by either the Board of Managers of Ventures or the Board of Directors
of EAI, if any Governmental Authority which must grant a Requisite Regulatory
Approval has denied approval of the Merger, or any Governmental Authority of
competent jurisdiction shall have issued an order permanently enjoining or
otherwise prohibiting the consummation of the transactions contemplated by this
Agreement;
(c) by either the Board of Managers of Ventures or the Board of Directors
of EAI (PROVIDED that the terminating party is not then in material breach of
any representation, warranty, covenant or other agreement contained herein), if
(x) there shall have been a material breach of any of the representations or
warranties or any of the covenants or agreements set forth in this Agreement on
the part of the other party, which breach is not cured within 30 days following
written notice to the party committing such breach, or which breach, by its
nature or timing, cannot be cured prior to December 31, 1997, (y) the Closing
shall not have occurred on or before December 31, 1997; PROVIDED, HOWEVER, that
neither the Board of Managers nor the Board of Directors shall be entitled to
terminate the Agreement pursuant to this clause (y) if the reason the Closing
has not occurred by such date is because any Governmental Authority which must
grant a Requisite Regulatory Approval has failed to act or some similar event
beyond the control of both parties shall not have occurred by such date, or
(z) the Closing shall not have occurred on or before March 31, 1998;
PROVIDED, HOWEVER, if the members of Ventures shall have refused to approve the
Merger, then this Agreement shall automatically be terminated as of the date of
such failure to approve without further action of any of the parties hereto and,
within two days of such termination, Ventures shall pay to EAI $250,000 as
reimbursement for EAI's out-of-pocket expenses incurred in connection with the
transactions contemplated by this Agreement (for which EAI shall not be required
to account), unless EAI is otherwise reimbursed.
9.2. EFFECT OF TERMINATION. In the event of termination of this Agreement
by either Ventures or EAI as provided in Section 9.1, this Agreement shall
forthwith become void and have no effect, and none of Ventures, EAI, Sub or any
of their directors, managers or officers shall have any liability of any nature
whatsoever hereunder, or in connection with the transactions contemplated
hereby, except that (i) Sections 10.1, the final proviso clause of Section 9.1
and this Section 9.2 shall survive any termination of this Agreement, and
(ii) notwithstanding anything to the contrary contained in this Agreement,
neither Ventures nor EAI shall be relieved or released from any liabilities or
damages arising out of its willful breach of any provision of this Agreement.
9.3. AMENDMENT; EXTENSION; WAIVER. At any time prior to the Effective Time
of the Merger, the parties hereto, by action taken or authorized by their
respective Board of Directors or Managers, may, to the extent legally allowed,
(i) amend any term or provision of this Agreement, (ii) extend the time for the
performance of any of the obligations or other acts of the parties hereto,
(iii) waive any inaccuracies in the representations and warranties contained
herein or in
28
<PAGE>
any document delivered pursuant hereto and (iv) waive compliance with any of
the agreements or conditions contained herein; PROVIDED, HOWEVER, that after
any approval of the transactions contemplated by this Agreement by the
members of Ventures, there may not be, without further approval of such
members, any amendment, extension or waiver of this Agreement which reduces
the amount or changes the form of the consideration to be delivered to such
members hereunder other than as contemplated by this Agreement. Any
agreement on the part of a party hereto to any such amendment, extension or
waiver shall be valid only if set forth in a written instrument signed on
behalf of such party, but such amendment, extension or waiver or failure to
insist on strict compliance with any obligation, covenant, agreement or
condition in this Agreement shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.
ARTICLE X.
GENERAL PROVISIONS
10.1. EXPENSES. Except as set forth in the final proviso clause of
Section 9.1, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expense.
10.2. NOTICES. All notices and other required communications hereunder
shall be in writing and shall be deemed given: if delivered personally, when so
delivered; if telecopied, on the date telecopied (PROVIDED there is written
confirmation of receipt and a confirming notice or communication is delivered in
the manner set forth herein); if mailed by registered or certified mail (postage
prepaid and return receipt requested), on the date five days after deposit in
the mail; or if delivered by overnight courier (with written confirmation of
delivery to such courier), on the next business after such delivery, in each
case to the parties at the following addresses (or at such other address for a
party as shall be specified by like notice):
(a) if to EAI, to:
Engineering Animation, Inc.
2321 North Loop Drive
Ames, Oregon Iowa 50010
Attention: Jamie A. Wade
Vice President of Administration, General Counsel and Secretary
Fax: (515) 296-6941
with a copy to:
Gardner, Carton & Douglas
321 North Clark Street, Suite 3400
Chicago, Illinois 60610
Attention: Nancy M. Borders
Fax: (312) 644-3381
29
<PAGE>
and
(b) if to Ventures, to:
Technology Company Ventures, L.L.C.
c/o Rosetta Technologies, Inc.
15220 N.W. Greenbriar Parkway
Beaverton, Oregon 97006
Attention: Michael N. Barry, President
Fax: (503) 531-0401
with copies to:
Venture Counsel P.C.
1230 S.W. First Avenue, Suite 250
Portland, Oregon 97204
Attention: David R. Clarke
Fax: (503) 225-0799
and
Perkins Coie
1211 S.W. Fifth Avenue
Portland, Oregon 97204
Attention: Cynthia Clarfield-Hess
Fax: (503) 727-2222
10.3. INTERPRETATION. When a reference is made in this Agreement to
Sections, Schedules or Exhibits, such reference shall be to a Section of or
Schedule or Exhibit to this Agreement unless otherwise indicated. The table of
contents 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. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." No provision of this Agreement shall be construed to require EAI,
Sub, Ventures or any of their respective affiliates to take any action which
would violate any applicable law, rule or regulation.
10.4. COUNTERPARTS. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement.
10.5. ENTIRE AGREEMENT. This Agreement (including the Disclosure
Schedule, Exhibits, documents and instruments referred to herein) constitutes
the entire agreement of the parties and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
30
<PAGE>
10.6. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without regard to any
applicable conflicts of law which would result in the application of any other
law.
10.7. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
10.8. PUBLICITY. Except as otherwise required by applicable law or the
rules of the NNM, neither Ventures nor EAI shall, nor shall they permit any of
their respective affiliates to, issue or cause the publication of any press
release or other public announcement with respect to, or otherwise make any
public statement concerning, the transactions contemplated by this Agreement
without the prior consent of the other party, which consent shall not be
unreasonably withheld.
10.9. ASSIGNMENT; THIRD PARTY BENEFICIARIES. Neither this Agreement
nor any of the rights, interests or obligations set forth herein shall be
assigned by either of the parties (whether by operation of law or otherwise)
without the prior written consent of the other party. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns. This
Agreement (including the Disclosure Schedule, Exhibits, documents and
instruments referred to herein) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
10.10. KNOWLEDGE AND AWARENESS. As used in this Agreement, "knowledge"
or "awareness" of any entity means the actual knowledge or awareness of such
entity's directors, managers, officers, shareholders or members who are active
in the business of the entity and other persons exercising supervisory
authority.
10.11. CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumptions or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of any
of the provisions of this Agreement. Any reference to any Federal, state,
county, local or foreign law or statute shall be deemed also to refer to all
rules and regulations promulgated thereunder, unless the context requires
otherwise.
10.12. POOLING OF INTERESTS ACCOUNTING. In the event that EAI or
Ventures becomes aware of any provisions of this Agreement which would prevent
the Merger from being accounted for as a pooling of interests, such parties
shall negotiate in good faith with a view toward amending this Agreement in a
manner which would permit the Merger to be accounted for as a pooling of
interests.
31
<PAGE>
IN WITNESS WHEREOF, EAI, Sub and Ventures have caused this AMENDED AND
RESTATED AGREEMENT AND PLAN OF MERGER to be executed by their respective
officers thereunto duly authorized as of the date first above written.
ENGINEERING ANIMATION, INC.
By: /s/ Matthew M. Rizai
--------------------------------
Matthew M. Rizai
Chief Executive Officer, President and Treasurer
SHELL BEAVER L.L.C.
By: /s/ Matthew M. Rizai
--------------------------------
Matthew M. Rizai
Chief Executive Officer, President and Treasurer
TECHNOLOGY COMPANY VENTURES, L.L.C.
By: /s/ John P. Crowe
--------------------------------
John P. Crowe
Manager
AGREED TO WITH RESPECT TO SECTION 7.9:
JFJ VENTURES, L.L.C.
By: /s/ John P. Crowe
--------------------------------
John P. Crowe
Co-Manager
MIKEN, INC.
By: /s/ Michael N. Barry
--------------------------------
Michael N. Barry
President
32
<PAGE>
EXHIBIT 10.26
FORM OF
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT") is made and entered
into as of ____________ ___, 1997 by and among Engineering Animation, Inc., a
corporation organized under the laws of the State of Delaware (the "COMPANY"),
and the holders of the Company's Common Stock, par value $.01 per share ("COMMON
STOCK") listed on EXHIBIT A hereto, (individually, a "HOLDER," and collectively,
the "HOLDERS").
WITNESSETH:
WHEREAS, the Company has entered into an Amended and Restated Agreement and
Plan of Merger dated as of October 30, 1997, with COHO, Inc., an Iowa
corporation and a wholly-owned subsidiary of the Company ("Sub"), and Cimtech,
Inc., an Iowa corporation ("Cimtech"), providing for the merger of Sub into
Cimtech (the "Merger Agreement");
WHEREAS, pursuant to the Merger Agreement, the Holders will receive shares
of Common Stock in exchange for their shares of stock of Cimtech (the "MERGER
COMMON STOCK");
WHEREAS, as an inducement to enter into the Merger Agreement, the Company
has agreed to enter into this Agreement with the Holders; and
WHEREAS, in connection with the acquisition by the Company of Rosetta
Technologies, Inc., an Oregon corporation ("Rosetta"), the Company has or will
issue shares of Common Stock to the shareholders of Rosetta and to the members
of one of Rosetta's shareholders (collectively, the "Rosetta Holders") and will
enter into a Registration Rights Agreement with the Rosetta Holders pursuant to
which the Rosetta Holders will receive demand and "piggy-back" registration
rights.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth below, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
have the meaning ascribed to them:
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in New York City are closed.
"COMMISSION" means the U.S. Securities and Exchange Commission, or any
other U.S. federal agency at the time administering the Securities Act.
"EFFECTIVE DATE" means the date a Registration Statement becomes effective.
<PAGE>
"EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934, as amended,
or any other similar U.S. federal statute, and the rules and regulations of the
Commission thereunder, as may be in effect from time to time.
"PROSPECTUS" means the prospectus included in any Registration Statement,
as amended or supplemented by any prospectus supplement (including, without
limitation, any prospectus supplement with respect to the terms of the offering
of any portion of the Registrable Securities covered by such Registration
Statement), and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.
"REGISTRABLE SECURITIES" means the Merger Common Stock issued to and
received by the Holders pursuant to the Merger Agreement and held continuously
from the Closing Date by such Holders and any securities that may be issued by
the Company or any successor to the Company from time to time with respect to,
in exchange for, or in replacement of such Merger Common Stock, including,
without limitation, securities issued as a stock dividend on or pursuant to a
stock split or similar recapitalization of such shares; PROVIDED, HOWEVER, that
those shares as to which the following apply shall cease to be Registrable
Securities if: (a) a Registration Statement with respect to the sale of such
Registrable Securities shall have become effective under the Securities Act and
such Registrable Securities shall have been disposed of under such Registration
Statement; (b) such Registrable Securities shall have become transferable, and
have been so transferred, in accordance with the resale provisions of Rule 144
or any successor rule or provision, under the Securities Act; (c) such
Registrable Securities shall have been transferred in a transaction in which the
Holder's rights and obligations under this Agreement were not assignable in
accordance with this Agreement; or (d) such Registrable Securities shall have
ceased to be outstanding.
"SECURITIES ACT" means the U.S. Securities Act of 1933, as amended, or any
similar U.S. federal statue, and the rules and regulations of the Commission
thereunder, as may be in effect from time to time.
"SHELF REGISTRATION" means a registration effected pursuant to a shelf
registration statement of the Company, on an appropriate form under Rule 415
under the Securities Act, or any similar rule that may be adopted by the
Commission, all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein. A registration statement relating to a Shelf Registration
shall be referred to herein as the "REGISTRATION STATEMENT." The Registration
Statement shall be effected on Form S-3 or any successor form prescribed by the
Commission.
2. SHELF REGISTRATION.
(a) Subject to the limitations set forth in Sections 4, 5 and 7 hereof, as
soon as practicable following the later to occur of (i) the filing by the
Company with the Commission of its annual report on Form 10-K for the year
ending December 31, 1997, and (ii) the date on which the Company has made
available to the public financial statements reflecting a minimum
<PAGE>
of 30 days of combined operations of the Company and Cimtech, the Company
shall notify in writing the Holders that the Company shall use its reasonable
best efforts to promptly effect qualification and registration of the
Registrable Securities under the Securities Act on a Form S-3 Registration
Statement (the "REGISTRATION") if Holders constituting at least 15% of the
total Registrable Securities then outstanding (the "SELLING HOLDERS") shall
elect in writing within 15 Business Days to include such shares in the
Registration. Such election shall specify the name and address (including
telephone and facsimile numbers) of each Holder requesting inclusion and the
number of shares for which each such Holder is requesting to be included in
the Registration (the "REGISTRATION NOTICE"). If Holders of at least 15% of
the total Registrable Securities do not elect to include such shares in the
Registration, the Company shall not be obligated to effect the Registration.
(b) If required hereunder, the Company shall use its reasonable best
efforts to proceed with and complete the filing of a Registration Statement in
respect of the Registrable Securities as expeditiously as possible and in doing
so shall carry out the following actions:
(i) prepare the Registration Statement;
(ii) file the Registration Statement with the Commission and use its
reasonable best efforts to cause the Registration Statement to become
effective as soon as practicable following the 15 Business Day period in
which Holders may elect to include their Registrable Securities in the
Registration, and to keep such Registration Statement continuously
effective until the earlier of (A) midnight on the sixtieth (60th) day
following the Effective Date of the Registration, or at such later time as
may be established pursuant to Sections 4(d), 5(b) or 7(a) or (B) the date
on which no Registrable Securities for which the Registration has been
initiated remain unsold (each a "DISTRIBUTION PERIOD");
(iii) prepare and file as expeditiously as possible with the
Commission such amendments and supplements to the Registration Statement,
and the Prospectus, as may be necessary to keep the Registration Statement
effective during a Distribution Period;
(iv) furnish to each Selling Holder such number of copies of the
Registration Statement and the Prospectus (including each preliminary
prospectus) and any amendments or supplements thereto as such Selling
Holder may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Securities;
(v) use its reasonable best efforts to register or qualify the
Registrable Securities under the state securities or "blue sky" laws of
such jurisdictions as each Selling Holder shall reasonably request and to
maintain such qualification throughout the Distribution Period, except that
the Company shall not be required for the purpose of such qualification to
qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or, except as to matters relating
to the offer and sale of the Registrable Securities, consent to general
service of process in any such jurisdiction;
<PAGE>
(vi) immediately notify each Selling Holder who elected to include
Registrable Securities in the Registration Statement (A) of the Effective
Date and the date when any post-effective amendment to the Registration
Statement becomes effective, (B) of any stop order or notification from the
Commission or any other jurisdiction as to the suspension of the
effectiveness of the Registration Statement, and (C) of the happening of
any event of which the Company has knowledge that would result in the
Prospectus contained in the Registration Statement, as then in effect,
including an untrue statement of a material fact or omitting to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing;
(vii) timely file with the Commission all documents required to be
filed by the Company pursuant to subsections 13(a), 13(c), 15(d), and
Section 14 of the Exchange Act, and otherwise maintain its qualification to
file a Registration Statement; and
(viii) if the holders of a majority of the Registrable Securities to
be registered on the Registration Statement so request on their notices to
the Company requesting inclusion in the Registration, the Company shall use
its reasonable best efforts to secure an investment banking firm of the
Company's choice to act as underwriter, subject to the approval of the
holders of a majority of the Registrable Securities to be registered on the
Registration Statement, which approval shall not be unreasonably withheld,
to retain one or more underwriters (on either a "firm commitment" or "best
efforts" basis); provided that, if the Company is unable to secure a
commitment from such an underwriter within 30 days following receipt of the
Registration Notice, the Selling Holders may select one or more nationally
recognized underwriters (on either a "firm commitment" or "best efforts"
basis), subject to the approval of the Company, which approval shall not be
unreasonably withheld;
(ix) if the Selling Holders request an underwriter pursuant to
paragraph above, the Company shall take all reasonable actions as are
necessary or advisable to expedite and facilitate the disposition of the
Registrable Securities in the manner contemplated by the Registration
Statement, to the same extent as if the Registrable Securities then being
offered were for the account of the Company, including, without limitation,
(A) entering into such customary agreements (including underwriting
agreements in customary form) as the underwriters may reasonably request,
and (B) using its best efforts to furnish: (1) an opinion of counsel
representing the Company for the purposes of such registration, dated the
date the Registrable Securities are delivered to the underwriters for sale
and addressed to the underwriters and the Selling Holders, (x) stating that
the Registration Statement has become effective under the Securities Act,
and that to the best knowledge of such counsel, no stop order suspending
its effectiveness has been issued and no proceeding for that purpose has
been instituted or is pending or contemplated under the Securities Act, (y)
stating that the Registration Statement and each amendment or supplement
thereto, comply as to form in all material respects with the requirements
of the Securities Act (except that such counsel need not express any
opinion as to financial statements contained therein) and (z) to such other
effects as reasonably may be requested
<PAGE>
by counsel for the underwriters, (2) letters dated the date of execution
of the underwriting agreement and the date of delivery of the
Registrable Securities (if so requested by the underwriters) and
addressed to the underwriters and the Selling Holders, from the
independent public accountants retained by the Company stating that they
are independent public accountants within the meaning of the Securities
Act that, in the opinion of those accountants, the financial statements
of the Company included in the Registration Statement, and any amendment
or supplement thereto, comply as to form in all material respects with
the applicable accounting requirements of the Securities Act, and
covering such other financial matters (including information as to the
period ending no more than five (5) business days prior to the date of
the letter) with respect to the registration as the underwriters
reasonably may request, and (3) for inspection by any underwriter
participating in any distribution pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by any
underwriter, all pertinent financial and other records, pertinent
corporate documents and properties of the Company, and causing the
Company' officers, directors and employees to supply all information
reasonably requested by any underwriter, attorney, and accountant or
agent in connection with the Registration Statement, on the condition
that each of the foregoing have entered into confidentiality agreements
with the Company in respect of the information contained in such records
or documents.
(c) The Company shall not be required to effect more than one (1)
registration pursuant to the provisions of this Section 2. In addition, the
Company may effect qualification and registration of the Registrable Securities
pursuant to this Section 2 pursuant to an existing shelf registration statement
or pursuant to an underwritten offering in accordance with the provisions of
Section 5 hereof.
(d) With a view toward making available to Holders the benefits of Rule
144 promulgated under the Securities Act and any other rule or regulation of the
Commission that may at any time permit a Holder to sell Registrable Securities
without registration or pursuant to a registration statement on Form S-3, the
Company agrees to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144 promulgated under the Securities Act, at
all times;
(ii) take such reasonable action as is necessary to maintain the
ability of the Holders to utilize Form S-3 for the sale of their
Registrable Securities;
(iii) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(iv) furnish to any Holder forthwith upon request, so long as the
Holder owns any Registrable Securities, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144
promulgated under the Securities Act, the Securities Act and the Exchange
Act, or that it qualifies as a registrant whose securities may be resold
pursuant to a registration statement on Form S-3, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents
<PAGE>
filed by the Company pursuant to the Securities Act or the
Exchange Act, and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the
Commission that permits the selling of any Registrable Securities without
registration or pursuant to a registration statement on Form S-3.
3. SHAREHOLDER OBLIGATIONS. In connection with the filing of the
Registration Statement, each Holder will furnish to the Company as expeditiously
as possible, such documents or information with respect to itself and the
proposed sale or distribution of the Registrable Securities, as is reasonably
necessary in order to assure compliance of U.S. federal and applicable state
securities laws. In addition, as a condition to any proposed sale or
distribution of the Registrable Securities, each Holder agrees that, in
connection with any proposed sale or distribution of Registrable Securities,
such Holder will comply with applicable prospectus delivery requirements, and
that such shares of Registrable Securities will be sold or distributed in
accordance with the method of sale set forth in the Registration Statement.
4. DELAYS IN REGISTRATION.
(a) The obligations of the Company with respect to the Registration
Statement (as set out in Section 2 hereof) and the rights of the Holders to
distribute the Registrable Securities pursuant to this Agreement and any
Registration Statement, may be suspended by the Company on the occurrence of any
of the following events:
(i) the Company has made an initial determination to conduct a
primary, secondary or combined primary and secondary public offering
pursuant to which Holders shall have the right to include therein
Registrable Securities in accordance with Section 4(e) hereof;
(ii) the Company is about to make a normal course disclosure
containing information of a material nature; or
(iii) the Company is engaged in any activity at any time that, in the
good faith determination of its management or Board of Directors, would
have a material effect on the Company and would be adversely affected by
the continued compliance with this Agreement or the continued distribution
of the Registrable Securities by the Holders (each a "MATERIAL ACTIVITY").
(b) In the event of a suspension pursuant to paragraph (a) of this
Section 4, the Company shall use its best efforts to limit the length of
such suspension to:
(i) under paragraph 4(a)(i), a period from the date of such
determination until the earlier of (a) the decision by the Company not to
pursue the public offering or (b) for a period of one hundred and twenty
(120) days, more or less, from the effective date of the registration
statement relating to such public offering, provided that during such
suspension, the Company will proceed with reasonable best efforts to file
the appropriate documentation in respect of, and otherwise complete, such
public offering as expeditiously as practicable;
<PAGE>
(ii) under paragraph 4(a)(ii), to a period of five (5) Business
Days, more or less; and
(iii) under paragraph 4(a)(iii), in the case of each Material
Activity, for a period of sixty (60) days, more or less, and in any event
to end not later than the termination of the Material Activity giving rise
to the suspension.
(c) The Company shall promptly give the Holders' notice of both the
beginning and end of any suspension under subsection 4(a).
(d) To the extent that any suspension under paragraph 4(b)(i) or (iii)
occurs following the commencement of the Distribution Period, the Distribution
Period shall be extended by the length of such suspension.
(e) If the Company at any time prior to the second anniversary of the
date of this Agreement proposes to conduct a public offering pursuant to Section
4(a)(i) hereof or proposes to file a Registration Statement on behalf of any
selling stockholder of the Company (except, in each case, with respect to
registration statements on Forms S-4, S-8 or another form not available for
registering the Registrable Securities for sale to the public), each such time
it will give written notice to all Holders of outstanding Registrable Securities
of its intention to do so at least fifteen (15) days prior to filing a
registration statement for such an offering. Upon the written request of any
such Holder, received by the Company within 15 Business Days after the giving of
any such notice by the Company, to register any of its Registrable Securities,
the Company will use reasonable best efforts to cause the Registrable Securities
as to which registration shall have been so requested to be included in the
securities to be covered by the registration statement proposed to be filed by
the Company. If the Company is advised in writing in good faith by any managing
underwriter of the Common Stock being offered in such public offering that the
number of Common Stock proposed to be offered is greater than the amount which
can be offered without adversely affecting the offering, the Company may, at its
sole discretion, reduce the number of Registrable Securities included in the
offering, provided that the securities to be included in such an offering shall
first be allocated to the Company, then pro rata among the Holders and the
Rosetta Holders as a group, then to any other person seeking to include
securities in such offering. Notwithstanding the foregoing provisions, the
Company may withdraw any registration statement referred to in this Section 4(e)
without thereby incurring any liability to the holders of Registrable
Securities.
5. UNDERWRITTEN OFFERINGS.
(a) If, in connection with any proposed distribution by the Holders under
Section 2 hereof, the Selling Holders shall request an underwriter pursuant to
Section 2(b)(viii) or if a Selling Holder wishes to include securities in an
underwritten offering pursuant to Section 4(e), then the right of any Selling
Holder to participate in such distribution shall be subject to the following
conditions:
<PAGE>
(i) the Selling Holder shall enter into, and perform its
obligations under, an underwriting agreement in customary form with the
managing underwriter selected for the underwriting;
(ii) during the course of such public offering, the Selling Holder
shall cooperate with the Company and take such actions as are customarily
required by underwriters in such circumstances;
(iii) during the period that any registration statement in respect of
such public offering is effective, the Selling Holder shall make no other
distribution of Registrable Securities; and
(iv) if the underwriters for the public offering of securities of
the Company so request in writing of the Selling Holders and certain
officers and directors of the Company, each Selling Holder shall agree not
to sell publicly any or any other Common Stock of the Company (other than
Registrable Securities or other Common Stock of the Company being
registered in such offering), without the consent of such underwriters, for
a period of not more than the lesser of (i) 180 days following the
effective date of the registration statement relating to such offering, and
(ii) the period during which the requested officers of the Company agree
not to effect such sales.
(b) If the Company is advised in writing in good faith by any managing
underwriter of the Common Stock being offered in such public offering that the
number of shares of Common Stock proposed to be offered is greater than the
amount which can be offered without adversely affecting the offering, the
Company may, at its sole discretion, reduce the number of Registrable Securities
included in the offering, provided that the securities to be included in such an
offering shall first be allocated to the Company, then pro rata among the
Holders and the Rosetta Holders as a group, then to any other person seeking to
include securities in such offering. If the Company is advised to decline to
include all or part of the Registrable Securities in such public offering, the
Distribution Period shall be extended by the aggregate of the suspension
initiated pursuant to Section 4(b)(i) hereof in respect of such public offering
and the period that the registration statement in respect of such public
offering is effective.
6. EXPENSES.
(a) The Company will pay all expenses in connection with the registration
of Registrable Securities effected by the Company pursuant to Section 2 or
Section 4(e) hereof (including, without limitation an underwritten offering made
pursuant to the provisions of Section 5 hereof) other than Selling Expenses.
Holders of Registrable Securities registered pursuant to this Agreement shall
pay all Selling Expenses associated with such registration, with each Holder
bearing a pro rata portion of the Selling Expenses based upon the number of
Registrable Securities registered by each Holder. The term "SELLING EXPENSE"
means all underwriting discounts and selling commissions and stock transfer fees
and taxes applicable to the sale of the Registrable Securities.
<PAGE>
(b) The expenses in connection with the registration of Registrable
Securities effected by the Company pursuant to Section 2 hereof include, without
limitation, all expenses incurred by the Company in complying with Section 2
hereof (including, without limitation an underwritten offering made pursuant to
the provisions of Section 5 hereof), including all registration and filing fees,
printing expenses, fees in connection with the listing of the Registrable
Securities with any securities exchange, fees and disbursements of counsel to
the Company and independent public accountants for the Company, fees and
expenses (including counsel fees) incurred in connection with complying with
state securities or "blue sky" laws, fees of the National Association of
Securities Dealers, Inc., transfer taxes, fees of transfer agents and
registrars; PROVIDED HOWEVER, that expenses payable by the Company with respect
to counsel for the Selling Holders shall be limited to not more than $15,000 in
fees (plus reasonable out of pocket expenses) of one special counsel for the
Selling Holders, who shall be reasonably acceptable to the Company. The terms
of this Section 6 shall not require either party to pay any charges or amounts
for routine internal costs incurred by the other party in carrying out the
transfers contemplated in this Agreement.
7. SALE OF REGISTRABLE SECURITIES DURING THE DISTRIBUTION PERIOD.
(a) In order to assure compliance with the Securities Act, during any
Distribution Period the Company shall comply with either (i) or (ii) below:
(i) Except in the event that paragraph (ii) below applies, the
Company shall (A) when and if deemed necessary by the Company, prepare and
file with the Commission a post-effective amendment to the Registration
Statement or a supplement to the related Prospectus or a supplement or
amendment to any document incorporated therein by reference or file any
other required document so that such Registration Statement will not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and so that, as thereafter delivered to purchasers
of the Registrable Securities being sold thereunder, such Prospectus will
not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; (B) provide the Holders of Registrable Securities
included in such Registration Statement copies of any documents filed
pursuant to Section 7(a)(i)(A); and (C) if the Company has filed a post-
effective amendment to the Registration Statement which has not yet been
declared effective, the Company will notify each such Holder to that
effect, and shall use its reasonable best efforts to secure the
effectiveness of such post-effective amendment and shall immediately notify
each such Holder when the amendment has become effective.
(ii) In the event of (A) any request by the Commission or any other
federal or state governmental authority during the period of effectiveness
of the Registration Statement for amendments or supplements to the
Registration Statement or related Prospectus or for additional information;
(B) the issuance by the Commission or any
<PAGE>
other federal or state governmental authority of any stop order suspending
the effectiveness of the Registration Statement or the written threat or
initiation of any proceedings for that purpose; (C) the receipt by the
Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose; (D) any event or circumstance which
necessitates the making of any changes in the Registration Statement or
Prospectus, or any document incorporated or deemed to be incorporated
therein by reference, so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact
or any omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in
the case of the Prospectus, it will not contain any untrue statement of
a material fact or any omission to state a material fact required to be
stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; (E)
that, in accordance with Section 4(a)(i) hereof, the Company has made an
initial determination to conduct a public offering; (F) that, in
accordance with Section 4(a)(ii) hereof, the Company is in possession of
material information that it deems advisable not to disclose in a
Registration Statement or (G) that, in the good faith judgment of the
Company's Board of Directors, in accordance with the provision of
Section 4(a)(iii) hereof, it is advisable to suspend use of the
Prospectus for a period of time; then, subject to and in accordance with
Section 4 hereof, the Company shall deliver written notice to the
Holders to the effect of the foregoing and, upon receipt of such notice,
each such Holder's Distribution Period will not commence until such
Holder receives copies of the supplemented or amended Prospectus
provided for in Section 7(a)(i) hereof, or until it is advised in
writing by the Company, pursuant to Section 4(c) hereof, that the
Prospectus may be used, and has received copies of any additional or
supplemental filings that are incorporated or deemed incorporated by
reference in such Prospectus.
(iii) In the event any of the events or circumstances listed in the
foregoing paragraph (ii) occur or exist after a Distribution Period has
commenced, subject to Section 4 hereof, the Company shall have the same
right to suspend such Distribution Period by delivery of written notice as
the Company would have had if the Distribution Period had not yet
commenced, and any such suspension of a Distribution Period shall be deemed
included within the meaning of the term "suspension" for all purposes under
this Agreement.
(b) The Holders selling securities pursuant to a Registration Statement
hereunder shall notify the Company in writing within three (3) Business Days
following each such sale and such notice shall include the number of shares
sold, the price of the sale and, if known to the Holder, the identity of the
purchaser.
(c) Each Holder who following the consummation of the transactions
contemplated by the Purchase Agreement will be an employee of the Company will
sell Registrable Securities only in accordance with the terms of the Company's
policy on insider trading.
<PAGE>
(d) The Holders will advise any broker or dealer acting on its behalf in
respect of the sale of the Registrable Securities, and any prospective
purchasers of the Registrable Securities, of the constraints set out in this
Section 7.
8. INDEMNIFICATION.
(a) The Company, will indemnify and hold harmless each Holder, the
officers, directors, partners, agents and employees of each Holder, any
underwriter and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several (collectively "CLAIMS"), to which they may become
subject under the Securities Act, the Exchange Act or other federal or state law
(excepting Claims related to or arising from a breach by such Holder of its
obligations under Sections 4(a), 5(a)(iii), or 7(b)), in so far as the Claims
(or actions in respect thereof) arise out of or are based on any of the
following (collectively, a "VIOLATION"): (i) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement or
any amendment or supplement thereto, or the omission or alleged omission to
state in those documents a material fact required to be stated therein, or
necessary to make the statements therein, not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or the omission or alleged omission to state in those documents a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; and (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law; and reimburse each such Holder,
officer, director, partner, agent, employee, underwriter or controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any Claims; PROVIDED HOWEVER, that the indemnity
agreement contained in this Section 8(a) shall not apply to amounts paid in
settlement of any such Claims, if such settlement is effected without the
consent of the Company, which consent shall not be unreasonably withheld,
conditioned or delayed. This indemnity shall not apply to any Claims that arise
out of, or are based upon, an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
information provided by any such Holder in writing specifically for the purposes
of filing or maintaining the effectiveness of the Registration Statement.
(b) Each Holder will indemnify and hold harmless the Company, each of its
officers, directors, partners, agents or employees, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter
and any other Holder or any of its directors, officers, partners, agents or
employees or any person who controls such Holder, against any Claims to which
the Company or any such director, officer, partner, agent, employee, controlling
person or underwriter, or other such Holder or director, officer, partner,
agent, employee or controlling person may become subject, under the Securities
Act, the Exchange Act or other federal or state law, insofar as such Claims
arise out of or are based upon (i) any Violation, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for use
in connection with such registration, or (ii) the failure of such Holder to (A)
comply with applicable prospectus
<PAGE>
delivery requirements, or (B) effect each sale by such Holder of Registrable
Securities included in the Registration Statement in accordance with the
method of sale set forth in the Registration Statement. In addition, each
such Holder will reimburse any reasonable legal or other expenses reasonably
incurred by the Company or any such director, officer, partner, agent,
employee, controlling person or underwriter, other Holder, officer, director,
partner, agent, employee or controlling person in connection with
investigating or defending any such Claims. Notwithstanding anything
contained in this Agreement to the contrary, the indemnity agreement
contained in this Section 8(b) shall not apply to amounts paid in settlement
of any such Claims if such settlement is effected without the consent of the
Holder, which consent shall not be unreasonably withheld, conditioned or
delayed; PROVIDED FURTHER, that the aggregate liability of each Holder in
connection with any sale of Registrable Securities pursuant to a Registration
Statement in which a Violation occurred shall be limited to the net proceeds
received by such Holder from such sale.
(c) As soon as it becomes aware of the commencement of an action
respecting a Claim, the indemnified party shall promptly notify the indemnifying
party, although failure to notify shall not relieve the indemnifying party from
any liability to indemnify the indemnified party. Following receipt of that
notice, the indemnifying party may participate in and, to the extent it wishes
and upon giving notice to the indemnified party, assume and undertake the
defense of the action using counsel satisfactory to it; provided that, if the
indemnified party includes more than one Holder, such counsel shall be satisfy
to the Holders of a majority of the Registrable Securities held by all such
indemnified Holders. In that event, the indemnifying party will not be liable
to the indemnified party for any legal expenses subsequently incurred by the
indemnified party in connection with the defense of the action, other than
reasonable costs of investigation and of liaison with the indemnifying party's
counsel. Notwithstanding the foregoing, an indemnified party shall have the
right to retain its own counsel, with reasonable fees and expenses to be paid by
the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding.
(d) If the indemnification provided for above is held by a court of
competent jurisdiction to be unavailable, then the indemnifying party, in lieu
of such indemnification, shall contribute to the amount paid or payable by the
indemnified party in such proportion as is appropriate to reflect the relative
fault of the indemnifying party on the one hand and the indemnified party on the
other hand in connection with the statements or omissions that resulted in the
Claims, as well as other equitable considerations. The relative fault of the
parties shall be determined by reference to, among other things, whether the
alleged untrue statement of a material fact or omission to state a material fact
relates to information supplied by the indemnifying party or the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(e) The indemnity agreements of the Company and the Holders set forth in
this Section 8 are subject to the condition that, insofar as they relate to any
Violation made in a preliminary Prospectus but eliminated or remedied in the
amended Prospectus on file with the
<PAGE>
Commission at the time the Registration Statement in question becomes
effective or the amended Prospectus filed with the Commission pursuant to
Commission Rule 424(b) (the "Final Prospectus"), such indemnity agreement
shall not inure to the benefit of any person if a copy of the Final
Prospectus was furnished to the indemnified party and was not furnished to
the person asserting the Claim at or prior to the time such action is
required by the Securities Act.
(f) The provisions of this Section 8 shall survive the expiration or
termination of this Agreement and shall expire at the end of any applicable
limitation period.
9. EXPIRATION OF REGISTRATION RIGHTS.
The obligations of the Company under Section 2 of this Agreement to register
the Registrable Securities shall expire and terminate upon the earlier of (i)
the second anniversary of the date of this Agreement; or (ii) at such time when
the Holders have sold the last of the Registrable Securities; provided, however,
that such obligations shall be extended until the last day of the Distribution
Period, if the Distribution Period has commenced on or prior to, and is
suspended on or has not expired by, the date on which such obligations would
otherwise expire.
10. RESTRICTIONS ON TRANSFERS OF COMMON SHARES.
The Holders agree and understand that the issuance of the Registrable
Securities has not been, and, except as contemplated in this Agreement, the sale
or other disposition thereof by the Holders will not be, registered under the
Securities Act or the securities laws of any state and that such shares may be
sold or disposed of only in one or more transactions registered under the
Securities Act and, where applicable, such state laws or as to which an
exemption from the registration requirements of the Securities Act and, where
applicable, such state laws is available. The Holders acknowledge that, except
as expressly set forth in this Agreement, the Holders have no right to require
the Company to cause the registration of any Registrable Securities. The
Holders understand and agree that each certificate representing any Registrable
Securities (each, a "CERTIFICATE") shall be subject to stop transfer
instructions and shall bear the following legend:
"THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT
BE SOLD OR DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH STATE LAWS."
The Company hereby agrees that it will, upon the request of the Holders,
eliminate any stop transfer instructions and any restrictive legend on any
certificates representing the Registrable Securities if (i) in the opinion of
counsel, including in-house counsel with demonstrated expertise in matters
relating to federal securities laws, which counsel and opinion
<PAGE>
(in form, scope and substance) shall be reasonably satisfactory to the
Company, the Holders are entitled to sell or dispose of the Registrable
Securities represented by such Certificate without registration; (ii) such
shares are being disposed of by the Holders under a Registration Statement
pursuant to Section 2 herein and in compliance with the Securities Act and
applicable state and securities laws; or (iii) the Holder has held the
Registrable Securities for at least two years and has not been an affiliate
of the Company for at least three months and represents to the Company in
writing that the Holder is, therefore, eligible to resell such Registrable
Securities pursuant to Rule 144(k) under the Securities Act.
11. BINDING ON SUCCESSORS. This Agreement is binding upon and shall
inure to the benefit of the respective successors and assigns of the parties,
whether so expressed or not.
12. NO ASSIGNMENT. No Holder may assign this Agreement or any of the
rights or obligations hereunder without the express written consent of the
Company; provided, however, that this Agreement and the rights and
obligations of the Holders may be assigned with the prior written consent of
the Company, which shall not be unreasonably withheld, (i) if the Holder is
an individual, to an immediate family member, (ii) if the Holder is a limited
partnership, to its limited partners, (iii) if the Holder is a corporation,
to its stockholders, and (iv) if the Holder is a limited liability company,
to its members, and on condition that such transferee pursuant to clauses
(i), (ii), (iii) or (iv) agrees in writing to be bound by the terms of this
Agreement.
13. NOTICE. All notices, requests, consents or other communications
required pursuant to this Agreement shall be in writing and shall be delivered
personally, mailed by certified or registered mail (return receipt requested),
or sent by facsimile addressed as follows:
if to the Company:
Engineering Animation, Inc.
2321 North Loop Drive
Ames, Iowa 50010
Fax: (515) 296-6941
Attention: Secretary
with a copy to:
Gardner, Carton & Douglas
321 North Clark Street
Suite 3400
Chicago, Illinois 60610
Fax: (312) 644-3381
Attention: Nancy M. Borders
if to any Holder, at the address set forth on EXHIBIT A hereto,
or, to such other address as may be given pursuant to this Section 13.
<PAGE>
14. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware (irrespective of its choice of
law principles).
15. AMENDMENT. This Agreement may not be amended without the written
consent of the Company and the Holders of a majority of the Registrable
Securities then outstanding. The failure of a party to enforce any right set
forth in this Agreement, or granted at law or in equity, shall in no way be
construed to be a waiver of such right, or affect the validity of this Agreement
or any part thereof, or the right thereafter to enforce each and every provision
of this Agreement.
16. UNENFORCEABLE PROVISION. If any provision of this Agreement is held
to be illegal, invalid, or unenforceable, such provision shall be severed from
this Agreement and shall not in any manner affect or render illegal, invalid or
unenforceable any other provision of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
THE COMPANY
ENGINEERING ANIMATION, INC.
By:____________________________
Title:_________________________
THE HOLDERS
______________________________
Print Name:___________________
<PAGE>
EXHIBIT 10.27
FORM OF
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT") is made and entered
into as of ____________ ___, 1997 by and among Engineering Animation, Inc., a
corporation organized under the laws of the State of Delaware (the
"COMPANY"), and the holders of the Company's Common Stock, par value $.01 per
share ("COMMON STOCK") listed on EXHIBIT A hereto, (individually, a "HOLDER,"
and collectively, the "HOLDERS").
WITNESSETH:
WHEREAS, the Company will acquire Technology Company Ventures, L.L.C., a
Delaware limited liability company ("TCV"), and all of the outstanding shares
of Rosetta Technologies, Inc., an Oregon corporation ("RTI"), not held by
TCV, pursuant to two Agreements and Plans of Merger dated October 29, 1997,
as amended and restated as of November 14, 1997 (the "MERGER AGREEMENTS");
WHEREAS, pursuant to the Merger Agreements, the Holders will receive
shares of Common Stock in exchange for their membership interests in TCV
and/or their stock in RTI (the "MERGER COMMON STOCK");
WHEREAS, as an inducement to enter into the Merger Agreements, the
Company has agreed to enter into this Agreement with the Holders; and
WHEREAS, in connection with the acquisition by the Company of Cimtech,
Inc., an Iowa corporation ("Cimtech"), the Company has or will issue shares
of Common Stock to the shareholders of Cimtech (the "Cimtech Holders") and
will enter into a Registration Rights Agreement with the Cimtech Holders
pursuant to which the Cimtech Holders will receive demand and "piggy-back"
registration rights.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth below, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms have the meaning ascribed to them:
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in New York City are
closed.
"COMMISSION" means the U.S. Securities and Exchange Commission, or any
other U.S. federal agency at the time administering the Securities Act.
"EFFECTIVE DATE" means the date a Registration Statement becomes effective.
<PAGE>
"EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934, as
amended, or any other similar U.S. federal statute, and the rules and
regulations of the Commission thereunder, as may be in effect from time to
time.
"PROSPECTUS" means the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement
(including, without limitation, any prospectus supplement with respect to the
terms of the offering of any portion of the Registrable Securities covered by
such Registration Statement), and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference in such
Prospectus.
"REGISTRABLE SECURITIES" means the Merger Common Stock issued to and
received by the Holders pursuant to the Merger Agreements and held
continuously from the Closing Date by such Holders and any securities that
may be issued by the Company or any successor to the Company from time to
time with respect to, in exchange for, or in replacement of such Merger
Common Stock, including, without limitation, securities issued as a stock
dividend on or pursuant to a stock split or similar recapitalization of such
shares; PROVIDED, HOWEVER, that those shares as to which the following apply
shall cease to be Registrable Securities if: (a) a Registration Statement
with respect to the sale of such Registrable Securities shall have become
effective under the Securities Act and such Registrable Securities shall have
been disposed of under such Registration Statement; (b) such Registrable
Securities shall have become transferable, and have been so transferred, in
accordance with the resale provisions of Rule 144 or any successor rule or
provision, under the Securities Act; (c) such Registrable Securities shall
have been transferred in a transaction in which the Holder's rights and
obligations under this Agreement were not assignable in accordance with this
Agreement; or (d) such Registrable Securities shall have ceased to be
outstanding.
"SECURITIES ACT" means the U.S. Securities Act of 1933, as amended, or
any similar U.S. federal statue, and the rules and regulations of the
Commission thereunder, as may be in effect from time to time.
"SHELF REGISTRATION" means a registration effected pursuant to a shelf
registration statement of the Company, on an appropriate form under Rule 415
under the Securities Act, or any similar rule that may be adopted by the
Commission, all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein. A registration statement relating to a Shelf Registration
shall be referred to herein as the "REGISTRATION STATEMENT." The Registration
Statement shall be effected on Form S-3 or any successor form prescribed by
the Commission.
2. SHELF REGISTRATION.
(a) Subject to the limitations set forth in Sections 4, 5 and 7 hereof,
on and after the later to occur of (i) the filing by the Company with the
Commission of its annual report on Form 10-K for the year ending December 31,
1997, and (ii) the date on which the Company has made available to the public
financial statements reflecting a minimum of 30 days of combined
2
<PAGE>
operations of the Company and TCV, Holders constituting at least 25% of the
total Registrable Securities then outstanding (the "INITIATING HOLDERS")
shall have the right to request that the Company use its reasonable best
efforts to promptly effect qualification and registration of the Registrable
Securities under the Securities Act on a Form S-3 Registration Statement (the
"REGISTRATION"). Such request shall specify the name and address (including
telephone and facsimile numbers) of each Holder requesting registration and
the number of shares for which each such Holder is requesting registration
(the "REGISTRATION NOTICE") and shall be sent by the Initiating Holders to
the Company. Within ten (10) Business Days following receipt of the
Registration Notice, the Company shall notify each Holder who is not an
Initiating Holder (the "NON-INITIATING HOLDERS") of the request for
registration (the "COMPANY NOTICE") and shall use reasonable best efforts to
register the number of shares of Registrable Securities specified in the
Registration Notice and in all notices received by the Company from the
Non-Initiating Holders within 15 Business Days after delivery of the Company
Notice by the Company to the Non-Initiating Holders. Initiating Holders and
Non-Initiating Holders who elect to include Registrable Securities in a
Registration Statement pursuant to this Section 2 are referred to herein
collectively as "SELLING HOLDERS".
(b) The Company shall use its reasonable best efforts to proceed with
and complete the filing of a Registration Statement in respect of the
Registrable Securities as expeditiously as possible and in doing so shall
carry out the following actions:
(i) prepare the Registration Statement;
(ii) file the Registration Statement with the Commission and use its
reasonable best efforts to cause the Registration Statement to become
effective as soon as practicable following the receipt of a request by the
Initiating Holders, and to keep such Registration Statement continuously
effective until the earlier of (A) midnight on the sixtieth (60th) day
following the Effective Date of the Registration, or at such later time as
may be established pursuant to Sections 4(d), 5(b) or 7(a) or (B) the date
on which no Registrable Securities for which the Registration has been
initiated remain unsold (each a "DISTRIBUTION PERIOD");
(iii) prepare and file as expeditiously as possible with the
Commission such amendments and supplements to the Registration Statement,
and the Prospectus, as may be necessary to keep the Registration Statement
effective during a Distribution Period;
(iv) furnish to each Selling Holder such number of copies of the
Registration Statement and the Prospectus (including each preliminary
prospectus) and any amendments or supplements thereto as such Selling
Holder may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Securities;
(v) use its reasonable best efforts to register or qualify the
Registrable Securities under the state securities or "blue sky" laws of
such jurisdictions as each Selling Holder shall reasonably request and to
maintain such qualification throughout the Distribution Period, except that
the Company shall not be required for the purpose of such qualification to
qualify generally to transact business as a foreign corporation in any
3
<PAGE>
jurisdiction where it is not so qualified or, except as to matters relating
to the offer and sale of the Registrable Securities, consent to general
service of process in any such jurisdiction;
(vi) immediately notify each Selling Holder who elected to include
Registrable Securities in the Registration Statement (A) of the Effective
Date and the date when any post-effective amendment to the Registration
Statement becomes effective, (B) of any stop order or notification from the
Commission or any other jurisdiction as to the suspension of the
effectiveness of the Registration Statement, and (C) of the happening of
any event of which the Company has knowledge that would result in the
Prospectus contained in the Registration Statement, as then in effect,
including an untrue statement of a material fact or omitting to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing;
(vii) timely file with the Commission all documents required to be
filed by the Company pursuant to subsections 13(a), 13(c), 15(d), and
Section 14 of the Exchange Act, and otherwise maintain its qualification to
file a Registration Statement; and
(viii) if the holders of a majority of the Registrable Securities to
be registered on the Registration Statement so request on their notices to
the Company requesting registration, the Company shall use its reasonable
best efforts to secure an investment banking firm of the Company's choice
to act as underwriter, subject to the approval of the holders of a majority
of the Registrable Securities to be registered on the Registration
Statement, which approval shall not be unreasonably withheld, to retain one
or more underwriters (on either a "firm commitment" or "best efforts"
basis); provided that, if the Company is unable to secure a commitment from
such an underwriter within 30 days following receipt of the Registration
Notice, the Selling Holders may select one or more nationally recognized
underwriters (on either a "firm commitment" or "best efforts" basis),
subject to the approval of the Company, which approval shall not be
unreasonably withheld;
(ix) if the Selling Holders request an underwriter pursuant to
paragraph above, the Company shall take all reasonable actions as are
necessary or advisable to expedite and facilitate the disposition of the
Registrable Securities in the manner contemplated by the Registration
Statement, to the same extent as if the Registrable Securities then being
offered were for the account of the Company, including, without limitation,
(A) entering into such customary agreements (including underwriting
agreements in customary form) as the underwriters may reasonably request,
and (B) using its best efforts to furnish: (1) an opinion of counsel
representing the Company for the purposes of such registration, dated the
date the Registrable Securities are delivered to the underwriters for sale
and addressed to the underwriters and the Selling Holders, (x) stating that
the Registration Statement has become effective under the Securities Act,
and that to the best knowledge of such counsel, no stop order suspending
its effectiveness has been issued and no proceeding for that purpose has
been instituted or is pending or contemplated under the Securities Act, (y)
stating that the Registration Statement and each amendment or
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supplement thereto, comply as to form in all material respects with the
requirements of the Securities Act (except that such counsel need not
express any opinion as to financial statements contained therein) and
(z) to such other effects as reasonably may be requested by counsel for
the underwriters, (2) letters dated the date of execution of the
underwriting agreement and the date of delivery of the Registrable
Securities (if so requested by the underwriters) and addressed to the
underwriters and the Selling Holders, from the independent public
accountants retained by the Company stating that they are independent
public accountants within the meaning of the Securities Act that, in the
opinion of those accountants, the financial statements of the Company
included in the Registration Statement, and any amendment or supplement
thereto, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and covering such other
financial matters (including information as to the period ending no more
than five (5) business days prior to the date of the letter) with
respect to the registration as the underwriters reasonably may request,
and (3) for inspection by any underwriter participating in any
distribution pursuant to the Registration Statement, and any attorney,
accountant or other agent retained by any underwriter, all pertinent
financial and other records, pertinent corporate documents and
properties of the Company, and causing the Company' officers, directors
and employees to supply all information reasonably requested by any
underwriter, attorney, and accountant or agent in connection with the
Registration Statement, on the condition that each of the foregoing have
entered into confidentiality agreements with the Company in respect of
the information contained in such records or documents.
(c) Except as provided in paragraph (d) below, the Company shall not be
required to effect more than one (1) registration pursuant to the provisions of
this Section 2. In addition, the Company may effect qualification and
registration of the Registrable Securities pursuant to this Section 2 pursuant
to an existing shelf registration statement or pursuant to an underwritten
offering in accordance with the provisions of Section 5 hereof.
(d) If (i) as a result of a material adverse change in the business,
financial results or operations of the Company occurring after a request for
registration pursuant to this Section 2, the Registration Statement is either
not made effective or withdrawn, at the request of the Selling Holders or
otherwise, before all of the Registrable Securities included thereunder have
been sold, or (ii) the number of shares of Registrable Securities to be included
in an offering pursuant to this Section 2 is reduced by more than 25% pursuant
to Section 5(b), then the Selling Holders shall have the right to request that
the Company effect one (1) additional registration pursuant to and in accordance
with the terms of this Section 2.
(e) With a view toward making available to Holders the benefits of Rule
144 promulgated under the Securities Act and any other rule or regulation of the
Commission that may at any time permit a Holder to sell Registrable Securities
without registration or pursuant to a registration statement on Form S-3, the
Company agrees to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144 promulgated under the Securities Act, at
all times;
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<PAGE>
(ii) take such reasonable action as is necessary to maintain the
ability of the Holders to utilize Form S-3 for the sale of their
Registrable Securities;
(iii) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(iv) furnish to any Holder forthwith upon request, so long as the
Holder owns any Registrable Securities, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144
promulgated under the Securities Act, the Securities Act and the Exchange
Act, or that it qualifies as a registrant whose securities may be resold
pursuant to a registration statement on Form S-3, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents filed by the Company pursuant to the Securities Act or the
Exchange Act, and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the
Commission that permits the selling of any Registrable Securities without
registration or pursuant to a registration statement on Form S-3.
3. SHAREHOLDER OBLIGATIONS. In connection with the filing of the
Registration Statement, each Holder will furnish to the Company as expeditiously
as possible, such documents or information with respect to itself and the
proposed sale or distribution of the Registrable Securities, as is reasonably
necessary in order to assure compliance of U.S. federal and applicable state
securities laws. In addition, as a condition to any proposed sale or
distribution of the Registrable Securities, each Holder agrees that, in
connection with any proposed sale or distribution of Registrable Securities,
such Holder will comply with applicable prospectus delivery requirements, and
that such shares of Registrable Securities will be sold or distributed in
accordance with the method of sale set forth in the Registration Statement.
4. DELAYS IN REGISTRATION.
(a) The obligations of the Company with respect to the Registration
Statement (as set out in Section 2 hereof) and the rights of the Holders to
distribute the Registrable Securities pursuant to this Agreement and any
Registration Statement, may be suspended by the Company on the occurrence of any
of the following events:
(i) the Company has made an initial determination to conduct a
primary, secondary or combined primary and secondary public offering
pursuant to which Holders shall have the right to include therein
Registrable Securities in accordance with Section 4(e) hereof;
(ii) the Company is about to make a normal course disclosure
containing information of a material nature; or
(iii) the Company is engaged in any activity at any time that, in the
good faith determination of its management or Board of Directors, would
have a material effect on the Company and would be adversely affected by
the continued compliance with this Agreement or the continued distribution
of the Registrable Securities by the Holders (each a "MATERIAL ACTIVITY").
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<PAGE>
(b) In the event of a suspension pursuant to paragraph (a) of this Section
4, the Company shall use its best efforts to limit the length of such suspension
to:
(i) under paragraph 4(a)(i), a period from the date of such
determination until the earlier of (a) the decision by the Company not to
pursue the public offering or (b) for a period of one hundred and twenty
(120) days, more or less, from the effective date of the registration
statement relating to such public offering, provided that during such
suspension, the Company will proceed with reasonable best efforts to file
the appropriate documentation in respect of, and otherwise complete, such
public offering as expeditiously as practicable;
(ii) under paragraph 4(a)(ii), to a period of five (5) Business
Days, more or less; and
(iii) under paragraph 4(a)(iii), in the case of each Material
Activity, for a period of sixty (60) days, more or less, and in any event
to end not later than the termination of the Material Activity giving rise
to the suspension.
(c) The Company shall promptly give the Holders' notice of both the
beginning and end of any suspension under subsection 4(a).
(d) To the extent that any suspension under paragraph 4(b)(i) or (iii)
occurs following the commencement of the Distribution Period, the Distribution
Period shall be extended by the length of such suspension.
(e) If the Company at any time prior to the second anniversary of the
date of this Agreement proposes to conduct a public offering pursuant to
Section 4(a)(i) hereof or proposes to file a Registration Statement on behalf
of any selling stockholder of the Company (except, in each case, with respect
to registration statements on Forms S-4, S-8 or another form not available
for registering the Registrable Securities for sale to the public), each such
time it will give written notice to all Holders of outstanding Registrable
Securities of its intention to do so at least fifteen (15) days prior to
filing a registration statement for such an offering. Upon the written
request of any such Holder, received by the Company within 15 Business Days
after the giving of any such notice by the Company, to register any of its
Registrable Securities, the Company will use reasonable best efforts to cause
the Registrable Securities as to which registration shall have been so
requested to be included in the securities to be covered by the registration
statement proposed to be filed by the Company. If the Company is advised in
writing in good faith by any managing underwriter of the Common Stock being
offered in such public offering that the number of Common Stock proposed to
be offered is greater than the amount which can be offered without adversely
affecting the offering, the Company may, at its sole discretion, reduce the
number of Registrable Securities included in the offering, provided that the
securities to be included in such an offering shall first be allocated to the
Company, then pro rata among the Holders and the Cimtech Holders as a group,
then to any other person seeking to include securities in such offering.
Notwithstanding the foregoing provisions, the Company may withdraw any
registration statement referred to in this Section 4(e) without thereby
incurring any liability to the holders of Registrable Securities.
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<PAGE>
5. UNDERWRITTEN OFFERINGS.
(a) If, in connection with any proposed distribution by the Holders under
Section 2 hereof, the Selling Holders shall request an underwriter pursuant to
Section 2(b)(viii) or if a Selling Holder wishes to include securities in an
underwritten offering pursuant to Section 4(e), then the right of any Selling
Holder to participate in such distribution shall be subject to the following
conditions:
(i) the Selling Holder shall enter into, and perform its
obligations under, an underwriting agreement in customary form with the
managing underwriter selected for the underwriting;
(ii) during the course of such public offering, the Selling Holder
shall cooperate with the Company and take such actions as are customarily
required by underwriters in such circumstances;
(iii) during the period that any registration statement in respect of
such public offering is effective, the Selling Holder shall make no other
distribution of Registrable Securities; and
(iv) if the underwriters for the public offering of securities of
the Company so request in writing of the Selling Holders and certain
officers and directors of the Company, each Selling Holder shall agree not
to sell publicly any or any other Common Stock of the Company (other than
Registrable Securities or other Common Stock of the Company being
registered in such offering), without the consent of such underwriters, for
a period of not more than the lesser of (i) 180 days following the
effective date of the registration statement relating to such offering, and
(ii) the period during which the requested officers of the Company agree
not to effect such sales.
(b) If the Company is advised in writing in good faith by any managing
underwriter of the Common Stock being offered in such public offering that the
number of shares of Common Stock proposed to be offered is greater than the
amount which can be offered without adversely affecting the offering, the
Company may, at its sole discretion, reduce the number of Registrable Securities
included in the offering, provided that the securities to be included in such an
offering shall first be allocated to the Company, then pro rata among the
Holders and the Cimtech Holders as a group, then to any other person seeking to
include securities in such offering. If the Company is advised to decline to
include all or part of the Registrable Securities in such public offering, the
Distribution Period shall be extended by the aggregate of the suspension
initiated pursuant to Section 4(b)(i) hereof in respect of such public offering
and the period that the registration statement in respect of such public
offering is effective.
6. EXPENSES.
(a) The Company will pay all expenses in connection with the registration
of Registrable Securities effected by the Company pursuant to Section 2 or
Section 4(e) hereof (including, without limitation an underwritten offering made
pursuant to the provisions of Section 5 hereof) other than Selling Expenses.
Holders of Registrable Securities registered
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<PAGE>
pursuant to this Agreement shall pay all Selling Expenses associated with
such registration, with each Holder bearing a pro rata portion of the Selling
Expenses based upon the number of Registrable Securities registered by each
Holder. The term "SELLING EXPENSE" means all underwriting discounts and
selling commissions and stock transfer fees and taxes applicable to the sale
of the Registrable Securities.
(b) The expenses in connection with the registration of Registrable
Securities effected by the Company pursuant to Section 2 hereof include,
without limitation, all expenses incurred by the Company in complying with
Section 2 hereof (including, without limitation an underwritten offering made
pursuant to the provisions of Section 5 hereof), including all registration
and filing fees, printing expenses, fees in connection with the listing of
the Registrable Securities with any securities exchange, fees and
disbursements of counsel to the Company and independent public accountants
for the Company, fees and expenses (including counsel fees) incurred in
connection with complying with state securities or "blue sky" laws, fees of
the National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars; PROVIDED HOWEVER, that expenses payable by
the Company with respect to counsel for the Selling Holders shall be limited
to not more than $15,000 in fees (plus reasonable out of pocket expenses) of
one special counsel for the Selling Holders, who shall be reasonably
acceptable to the Company. The terms of this Section 6 shall not require
either party to pay any charges or amounts for routine internal costs
incurred by the other party in carrying out the transfers contemplated in
this Agreement.
7. SALE OF REGISTRABLE SECURITIES DURING THE DISTRIBUTION PERIOD.
(a) In order to assure compliance with the Securities Act, during any
Distribution Period the Company shall comply with either (i) or (ii) below:
(i) Except in the event that paragraph (ii) below applies, the
Company shall (A) when and if deemed necessary by the Company, prepare and
file with the Commission a post-effective amendment to the Registration
Statement or a supplement to the related Prospectus or a supplement or
amendment to any document incorporated therein by reference or file any
other required document so that such Registration Statement will not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and so that, as thereafter delivered to purchasers
of the Registrable Securities being sold thereunder, such Prospectus will
not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; (B) provide the Holders of Registrable Securities
included in such Registration Statement copies of any documents filed
pursuant to Section 7(a)(i)(A); and (C) if the Company has filed a post-
effective amendment to the Registration Statement which has not yet been
declared effective, the Company will notify each such Holder to that
effect, and shall use its reasonable best efforts to secure the
effectiveness of such post-effective amendment and shall immediately notify
each such Holder when the amendment has become effective.
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<PAGE>
(ii) In the event of (A) any request by the Commission or any other
federal or state governmental authority during the period of effectiveness
of the Registration Statement for amendments or supplements to the
Registration Statement or related Prospectus or for additional information;
(B) the issuance by the Commission or any other federal or state
governmental authority of any stop order suspending the effectiveness of
the Registration Statement or the written threat or initiation of any
proceedings for that purpose; (C) the receipt by the Company of any
notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale
in any jurisdiction or the initiation or threatening of any proceeding for
such purpose; (D) any event or circumstance which necessitates the making
of any changes in the Registration Statement or Prospectus, or any document
incorporated or deemed to be incorporated therein by reference, so that, in
the case of the Registration Statement, it will not contain any untrue
statement of a material fact or any omission to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the Prospectus, it will not contain
any untrue statement of a material fact or any omission to state a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; (E) that, in accordance with Section 4(a)(i) hereof, the
Company has made an initial determination to conduct a public offering; (F)
that, in accordance with Section 4(a)(ii) hereof, the Company is in
possession of material information that it deems advisable not to disclose
in a Registration Statement or (G) that, in the good faith judgment of the
Company's Board of Directors, in accordance with the provision of Section
4(a)(iii) hereof, it is advisable to suspend use of the Prospectus for a
period of time; then, subject to and in accordance with Section 4 hereof,
the Company shall deliver written notice to the Holders to the effect of
the foregoing and, upon receipt of such notice, each such Holder's
Distribution Period will not commence until such Holder receives copies of
the supplemented or amended Prospectus provided for in Section 7(a)(i)
hereof, or until it is advised in writing by the Company, pursuant to
Section 4(c) hereof, that the Prospectus may be used, and has received
copies of any additional or supplemental filings that are incorporated or
deemed incorporated by reference in such Prospectus.
(iii) In the event any of the events or circumstances listed in
the foregoing paragraph (ii) occur or exist after a Distribution Period has
commenced, subject to Section 4 hereof, the Company shall have the same
right to suspend such Distribution Period by delivery of written notice as
the Company would have had if the Distribution Period had not yet
commenced, and any such suspension of a Distribution Period shall be deemed
included within the meaning of the term "suspension" for all purposes under
this Agreement.
(b) The Holders selling securities pursuant to a Registration Statement
hereunder shall notify the Company in writing within three (3) Business Days
following each such sale and such notice shall include the number of shares
sold, the price of the sale and, if known to the Holder, the identity of the
purchaser.
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(c) Each Holder who following the consummation of the transactions
contemplated by the Purchase Agreement will be an employee of the Company
will sell Registrable Securities only in accordance with the terms of the
Company's policy on insider trading.
(d) The Holders will advise any broker or dealer acting on its behalf in
respect of the sale of the Registrable Securities, and any prospective
purchasers of the Registrable Securities, of the constraints set out in this
Section 7.
8. INDEMNIFICATION.
(a) The Company, will indemnify and hold harmless each Holder, the
officers, directors, partners, agents and employees of each Holder, any
underwriter and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act, against all losses, claims, damages
or liabilities, joint or several (collectively "CLAIMS"), to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law (excepting Claims related to or arising from a breach by such
Holder of its obligations under Sections 4(a), 5(a)(iii), or 7(b)), in so far
as the Claims (or actions in respect thereof) arise out of or are based on
any of the following (collectively, a "VIOLATION"): (i) any untrue statement
or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment or supplement thereto, or the
omission or alleged omission to state in those documents a material fact
required to be stated therein, or necessary to make the statements therein,
not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary Prospectus or the Prospectus or
any amendment or supplement thereto, or the omission or alleged omission to
state in those documents a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and (iii) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any
state securities law; and reimburse each such Holder, officer, director,
partner, agent, employee, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating
or defending any Claims; PROVIDED HOWEVER, that the indemnity agreement
contained in this Section 8(a) shall not apply to amounts paid in settlement
of any such Claims, if such settlement is effected without the consent of the
Company, which consent shall not be unreasonably withheld, conditioned or
delayed. This indemnity shall not apply to any Claims that arise out of, or
are based upon, an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with information
provided by any such Holder in writing specifically for the purposes of
filing or maintaining the effectiveness of the Registration Statement.
(b) Each Holder will indemnify and hold harmless the Company, each of its
officers, directors, partners, agents or employees, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter
and any other Holder or any of its directors, officers, partners, agents or
employees or any person who controls such Holder, against any Claims to which
the Company or any such director, officer, partner, agent, employee, controlling
person or underwriter, or other such Holder or director, officer, partner,
agent, employee or controlling person may become subject, under the Securities
Act, the Exchange Act or other federal or state law, insofar as such Claims
arise out of or are based upon (i) any Violation, in
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each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration, or (ii) the
failure of such Holder to (A) comply with applicable prospectus delivery
requirements, or (B) effect each sale by such Holder of Registrable
Securities included in the Registration Statement in accordance with the
method of sale set forth in the Registration Statement. In addition, each
such Holder will reimburse any reasonable legal or other expenses reasonably
incurred by the Company or any such director, officer, partner, agent,
employee, controlling person or underwriter, other Holder, officer, director,
partner, agent, employee or controlling person in connection with
investigating or defending any such Claims. Notwithstanding anything
contained in this Agreement to the contrary, the indemnity agreement
contained in this Section 8(b) shall not apply to amounts paid in settlement
of any such Claims if such settlement is effected without the consent of the
Holder, which consent shall not be unreasonably withheld, conditioned or
delayed; PROVIDED FURTHER, that the aggregate liability of each Holder in
connection with any sale of Registrable Securities pursuant to a Registration
Statement in which a Violation occurred shall be limited to the net proceeds
received by such Holder from such sale.
(c) As soon as it becomes aware of the commencement of an action
respecting a Claim, the indemnified party shall promptly notify the
indemnifying party, although failure to notify shall not relieve the
indemnifying party from any liability to indemnify the indemnified party.
Following receipt of that notice, the indemnifying party may participate in
and, to the extent it wishes and upon giving notice to the indemnified party,
assume and undertake the defense of the action using counsel satisfactory to
it; provided that, if the indemnified party includes more than one Holder,
such counsel shall be satisfy to the Holders of a majority of the Registrable
Securities held by all such indemnified Holders. In that event, the
indemnifying party will not be liable to the indemnified party for any legal
expenses subsequently incurred by the indemnified party in connection with
the defense of the action, other than reasonable costs of investigation and
of liaison with the indemnifying party's counsel. Notwithstanding the
foregoing, an indemnified party shall have the right to retain its own
counsel, with reasonable fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding.
(d) If the indemnification provided for above is held by a court of
competent jurisdiction to be unavailable, then the indemnifying party, in
lieu of such indemnification, shall contribute to the amount paid or payable
by the indemnified party in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and the indemnified
party on the other hand in connection with the statements or omissions that
resulted in the Claims, as well as other equitable considerations. The
relative fault of the parties shall be determined by reference to, among
other things, whether the alleged untrue statement of a material fact or
omission to state a material fact relates to information supplied by the
indemnifying party or the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
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(e) The indemnity agreements of the Company and the Holders set forth
in this Section 8 are subject to the condition that, insofar as they relate
to any Violation made in a preliminary Prospectus but eliminated or remedied
in the amended Prospectus on file with the Commission at the time the
Registration Statement in question becomes effective or the amended
Prospectus filed with the Commission pursuant to Commission Rule 424(b) (the
"Final Prospectus"), such indemnity agreement shall not inure to the benefit
of any person if a copy of the Final Prospectus was furnished to the
indemnified party and was not furnished to the person asserting the Claim at
or prior to the time such action is required by the Securities Act.
(f) The provisions of this Section 8 shall survive the expiration or
termination of this Agreement and shall expire at the end of any applicable
limitation period.
9. EXPIRATION OF REGISTRATION RIGHTS.
The obligations of the Company under Section 2 of this Agreement to
register the Registrable Securities shall expire and terminate upon the
earlier of (i) the second anniversary of the date of this Agreement; or (ii)
at such time when the Holders have sold the last of the Registrable
Securities; provided, however, that such obligations shall be extended until
the last day of the Distribution Period, if the Distribution Period has
commenced on or prior to, and is suspended on or has not expired by, the date
on which such obligations would otherwise expire.
10. RESTRICTIONS ON TRANSFERS OF COMMON SHARES.
The Holders agree and understand that the issuance of the Registrable
Securities has not been, and, except as contemplated in this Agreement, the
sale or other disposition thereof by the Holders will not be, registered
under the Securities Act or the securities laws of any state and that such
shares may be sold or disposed of only in one or more transactions registered
under the Securities Act and, where applicable, such state laws or as to
which an exemption from the registration requirements of the Securities Act
and, where applicable, such state laws is available. The Holders acknowledge
that, except as expressly set forth in this Agreement, the Holders have no
right to require the Company to cause the registration of any Registrable
Securities. The Holders understand and agree that each certificate
representing any Registrable Securities (each, a "CERTIFICATE") shall be
subject to stop transfer instructions and shall bear the following legend:
"THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD OR DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH STATE LAWS."
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The Company hereby agrees that it will, upon the request of the Holders,
eliminate any stop transfer instructions and any restrictive legend on any
certificates representing the Registrable Securities if (i) in the opinion of
counsel, including in-house counsel with demonstrated expertise in matters
relating to federal securities laws, which counsel and opinion (in form,
scope and substance) shall be reasonably satisfactory to the Company, the
Holders are entitled to sell or dispose of the Registrable Securities
represented by such Certificate without registration; (ii) such shares are
being disposed of by the Holders under a Registration Statement pursuant to
Section 2 herein and in compliance with the Securities Act and applicable
state and securities laws; or (iii) the Holder has held the Registrable
Securities for at least two years and has not been an affiliate of the
Company for at least three months and represents to the Company in writing
that the Holder is, therefore, eligible to resell such Registrable Securities
pursuant to Rule 144(k) under the Securities Act.
11. BINDING ON SUCCESSORS. This Agreement is binding upon and shall
inure to the benefit of the respective successors and assigns of the parties,
whether so expressed or not.
12. NO ASSIGNMENT. No Holder may assign this Agreement or any of the
rights or obligations hereunder without the express written consent of the
Company; provided, however, that this Agreement and the rights and
obligations of the Holders may be assigned with the prior written consent of
the Company, which shall not be unreasonably withheld, (i) if the Holder is
an individual, to an immediate family member, (ii) if the Holder is a limited
partnership, to its limited partners, (iii) if the Holder is a corporation,
to its stockholders, and (iv) if the Holder is a limited liability company,
to its members, and on condition that such transferee pursuant to clauses
(i), (ii), (iii) or (iv) agrees in writing to be bound by the terms of this
Agreement.
13. NOTICE. All notices, requests, consents or other communications
required pursuant to this Agreement shall be in writing and shall be
delivered personally, mailed by certified or registered mail (return receipt
requested), or sent by facsimile addressed as follows:
if to the Company:
Engineering Animation, Inc.
2321 North Loop Drive
Ames, Iowa 50010
Fax: (515) 296-6941
Attention: Secretary
14
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with a copy to:
Gardner, Carton & Douglas
321 North Clark Street
Suite 3400
Chicago, Illinois 60610
Fax: (312) 644-3381
Attention: Nancy M. Borders
if to any Holder, at the address set forth on EXHIBIT A hereto,
or, to such other address as may be given pursuant to this Section 13.
14. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware (irrespective of its choice
of law principles).
15. AMENDMENT. This Agreement may not be amended without the written
consent of the Company and the Holders of a majority of the Registrable
Securities then outstanding. The failure of a party to enforce any right set
forth in this Agreement, or granted at law or in equity, shall in no way be
construed to be a waiver of such right, or affect the validity of this
Agreement or any part thereof, or the right thereafter to enforce each and
every provision of this Agreement.
16. UNENFORCEABLE PROVISION. If any provision of this Agreement is
held to be illegal, invalid, or unenforceable, such provision shall be
severed from this Agreement and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of
which together shall constitute one and the same instrument.
15
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IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
THE COMPANY
ENGINEERING ANIMATION, INC.
By:______________________________
Title:___________________________
THE HOLDERS
_________________________________
Print Name: _____________________
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (Nos. 333-17393, 333-40823 and 333-40825) pertaining to the Amended
and Restated 1994 Stock Option Plan, the 1995 Executive Bonus and Stock Option
Plan, the Non-Employee Directors Option Plan, the Original Directors Option
Plan and the 1997 Non-Qualified Stock Option Plan of Engineering Animation,
Inc. of our report dated October 10, 1997 with respect to the financial
statements of Cimtech, Inc. for the year ended December 31, 1996 included in
Engineering Animation, Inc.'s Current Report on Form 8-K dated December 9,
1997, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Des Moines, Iowa
December 9, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated October 14,
1997 included in this Form 8-K into Engineering Animation, Inc.'s previously
filed registration statements on Form S-8, File No. 333-17393, 333-40823 and
333-40825.
/s/ ARTHUR ANDERSEN LLP
Portland, Oregon
December 8, 1997
