<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 22, 1998
ENGINEERING ANIMATION, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 000-27670 42-1323712
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Acquisition of Variation Systems Analysis, Inc.
On September 22, 1998, Engineering Animation, Inc. (the "Company")
completed the acquisition of Variation Systems Analysis, Inc. ("VSA"), a
privately held company dedicated to dimensional management consulting, software
development, and training and support. VSA develops, produces and sells a line
of products for 3D simulation of manufacturing and assembly variation in the
digital manufacturing environment. The Company acquired VSA pursuant to a merger
of VSA with and into a wholly-subsidiary of the Company. In connection with the
acquisition, the Company issued common stock, $0.01 per share par value ("Common
Stock") to VSA shareholders with a value of approximately $26,000,000, based on
the agreed Company stock price of $48.00 per share, as provided in the Amended
and Restated Agreement and Plan of Merger (the "Merger Agreement") between the
Company and VSA. The shareholders of VSA received approximately 7.372824 shares
of Common Stock for each share of VSA common stock held at the consummation of
the transaction. The acquisition of VSA by the Company will be treated as a
pooling-of-interests for accounting and financial reporting purposes.
Acquisition of Transom Technologies, Inc.
On September 22, 1998, Engineering Animation, Inc. (the "Company")
completed the acquisition of Transom Technologies, Inc. ("Transom"), a privately
held developer of human modeling and simulation software. The Company acquired
Transom pursuant to a merger of Transom with and into the Company (the "Transom
Merger"). In connection with the acquisition, the Company issued approximately
192,000 shares of common stock, $0.01 per share par value ("Common Stock") to
Transom shareholders, as provided in the Amended and Restated Agreement and Plan
of Merger (the "Merger Agreement") between the Company and Transom. The
shareholders of Transom received approximately 0.027757 of a share of Common
Stock for each share of Transom common stock held at the consummation of the
transaction. Immediately prior to the consummation of the Transom Merger, all
outstanding shares of Transom preferred stock and all outstanding Transom
warrants converted into shares of Transom Common Stock. Each outstanding option
to acquire common stock of Transom automatically converted into an option to
acquire the same number of shares of Common Stock as the shares underlying such
Transom option would have been exchangeable for had such Transom option been
exercised in full immediately prior to the consummation of the acquisition. The
aggregate number of shares of Common Stock issuable upon exercise of such
options is approximately 43,000. The acquisition of Transom by the Company will
be treated as a pooling-of-interests for accounting and financial reporting
purposes.
1
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Index to Financial Statements and Exhibits.
(i) Unaudited Pro Forma Condensed Combined Financial Statements
<TABLE>
<S> <C>
Introduction F - 1
Unaudited Pro Forma Combined Balance Sheet at June 30, 1998 F - 2
Unaudited Pro Forma Combined Statement of Operations For the Six
Months Ended June 30, 1998 F - 3
Unaudited Pro Forma Combined Statement of Operations For the
Year Ended December 31, 1997 F - 4
Unaudited Pro Forma Combined Statement of Operations For the
Year Ended December 31, 1996 F - 5
Unaudited Pro Forma Combined Statement of Operations For the
Year Ended December 31, 1995 F - 6
Notes to Unaudited Pro Forma Consolidated Condensed Combined
Financial Statements F - 7
(ii) Variation Systems Analysis, Inc. Financial Statements
Report of Independent Auditors F - 9
Balance Sheets at June 30, 1998 and 1997 F - 10
Statement of Operations -- Years ended June 30, 1998 and 1997 F - 11
Statement of Shareholders' Equity-- Years ended June 30, 1998 F - 12
and 1997
Statements of Cash Flows -- Years ended June 30, 1998 and 1997 F - 13
Notes to Financial Statements F - 14
</TABLE>
2
<PAGE> 4
<TABLE>
<S> <C>
(iii) Transom Technologies, Inc. Financial Statements
Report of Independent Accountants F - 19
Balance Sheets at March 31, 1997 and 1998 and at June 30, 1998
(unaudited) F - 20
Statements of Operations -- Period from inception (October 7,
1996) to March 31, 1997, the year ended March 31, 1998 and
the three months ended June 30, 1997 and 1998 (unaudited) F - 21
Statements of Shareholders' Equity-- Period from inception
(October 7, 1996) to March 31, 1997, the year ended
March 31, 1998 and the three months ended June 30, 1997 and
1998 (unaudited) F - 22
Statements of Cash Flows -- Period from inception (October 7,
1996) to March 31, 1997, the year ended March 31, 1998 and
the three months ended June 30, 1997 and 1998 (unaudited) F - 23
Notes to Financial Statements F - 24
</TABLE>
(b) Exhibits.
The exhibits listed in the accompanying Exhibit Index are filed as part
of this Current Report on Form 8-K.
3
<PAGE> 5
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Balance Sheet as of
June 30, 1998, and the related Unaudited Pro Forma Condensed Combined Statements
of Operations for the six months ended June 30, 1998 and each of the three years
in the period ended December 31, 1997, include the results of EAI's acquisition
of Sense8 Corporation on June 17, 1998, as if it had occurred as of the
beginning of 1997, the results of the VSA acquisition as if it had occurred on
the first day of the earliest period presented and the results of the Transom
acquisition as if it had occurred on October 7, 1996. The purchase of Sense8
was effective June 17, 1998. EAI signed a definitive agreement to acquire VSA
on July 29, 1998, which was amended and restated as of August 19, 1998, and the
transaction closed September 22, 1998. EAI signed a definitive agreement to
acquire Transom on July 29, 1998, which was amended and restated as of August
19, 1998, and the transaction closed September 22, 1998. The historical EAI
results include the results of Sense8 only from June 17, 1998. This pro forma
information has been prepared utilizing the historical consolidated financial
statements of EAI, VSA and Transom and should be read in conjunction with the
historical financial statements and notes thereto, which are incorporated by
reference herein for EAI and which are appearing elsewhere herein for VSA and
Transom. The fiscal year ends on June 30 for VSA and March 31 for Transom;
therefore, unaudited results for the six months ended June 30, 1998, the
calendar years ended December 31, 1997, 1996 and 1995 for VSA and the six
months ended June 30, 1998 and the calendar year ended December 31, 1997 and
the period from October 7, 1996 to December 31, 1996 for Transom have been
combined with Sense8's unaudited results for the period January 1, 1998 to June
16, 1998 and audited results for the year ended December 31, 1997 and EAI's
unaudited results for the six months ended June 30, 1998 and audited results
for the years ended December 31, 1997, 1996 and 1995. These 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 Sense8, VSA and Transom acquisitions
had been consummated as of the beginning of the periods presented or as of the
dates presented, nor are they necessarily indicative of future operating
results or financial position.
These Unaudited Pro Forma Condensed Combined Financial Statements are based
on the pooling-of-interests method of accounting for the VSA and Transom
acquisitions and the purchase method of accounting for the Sense8 acquisition.
The pro forma adjustments are described in the accompanying notes.
F-1
<PAGE> 6
UNAUDITED PRO FORMA
COMBINED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
---------------- HISTORICAL PRO FORMA PRO FORMA
EAI VSA TRANSOM ADJUSTMENTS COMBINED
--- --- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $14,393 $ 147 $1,594 $16,134
Short-term investments...................... 17,280 17,280
Accounts receivable, net:
Billed.................................... 17,051 4,170 679 21,900
Unbilled.................................. 11,504 691 12,195
Deferred income taxes....................... 701 701
Prepaid expenses and other assets........... 1,917 159 14 2,090
------- ------ ------ -------
Total current assets.................... 62,846 5,167 2,287 70,300
Property and equipment, net................... 14,571 641 675 15,887
Other assets:
Note receivable............................. 1,408 1,408
Software development costs, net............. 1,384 1,384
Deferred income taxes....................... 652 111 949(a) 1,712
Goodwill, net............................... 1,655 1,655
Other....................................... 1,624 74 68 1,766
------- ------ ------ ------- -------
Total assets............................ $84,140 $5,993 $3,030 $ 949 $94,112
======= ====== ====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 5,123 $ 131 $ 81 $ 5,335
Accrued compensation and other accrued
expenses.................................. 4,450 1,757 180 5,000(b) 11,387
Deferred revenue............................ 1,641 192 1,833
Current portion long-term debt and lease
obligations............................... 165 1,917 83 2,165
Income taxes payable........................ 1,368 352 1,720
------- ------ ------ ------- -------
Total current liabilities............... 12,747 4,157 536 5,000 22,440
Long-term debt and lease obligations due after
one year.................................... 1,517 543 141 2,201
Other liabilities............................. 417 417
Stockholders' equity.......................... 69,876 876 2,353 949(a) 69,054
(5,000)(b)
(4,853)(c)
4,853(c)
(1,143)(d)
1,143(d)
------- ------ ------ ------- -------
Total liabilities and stockholders'
equity................................ $84,140 $5,993 $3,030 $ 949 $94,112
======= ====== ====== ======= =======
</TABLE>
F-2
<PAGE> 7
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
----------------- PRO FORMA PRO FORMA HISTORICAL HISTORICAL
EAI SENSE8 ADJUSTMENTS COMBINED VSA TRANSOM
--- ------ ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues................... $33,711 $ 821 $(210)(e) $34,322 $9,749 $1,094
Cost of revenues............... 9,612 460 (210)(e) 9,862 5,938 10
------- ------- ----- ------- ------ ------
Gross profit 24,099 361 0 24,460 3,811 1,084
Operating expenses:
Sales and marketing............ 9,393 493 9,886 430 520
General and administrative..... 3,303 1,308 58(f) 4,669 841 464
Research and development....... 5,067 398 5,465 1,746 785
Acquisition and non-recurring
charges....................... 13,329 13,329
------- ------- ----- ------- ------ ------
Total operating expenses...... 31,092 2,199 58 33,349 3,017 1,769
------- ------- ----- ------- ------ ------
Operating income (loss)....... (6,993) (1,838) (58) (8,889) 794 (685)
Other income (expense)......... 1,109 (207) 902 (83) (3)
------- ------- ----- ------- ------ ------
Income (loss) before income
taxes....................... (5,884) (2,045) (58) (7,987) 711 (688)
Income tax expense............. 1,215 1,215 322
------- ------- ----- ------- ------ ------
Net income (loss) before
minority interest............. (7,099) (2,045) (58) (9,202) 389 (688)
Minority interest..............
------- ------- ----- ------- ------ ------
Net income (loss)............. $(7,099) $(2,045) $ (58) $(9,202) $ 389 $ (688)
======= ======= ===== ======= ====== ======
Earnings (loss) per share
Basic......................... $ (0.71) $ (0.90)
======= =======
Diluted....................... $ (0.71) $ (0.90)
======= =======
Weighted average shares
outstanding................... 10,066 10,211
======= =======
Weighted average shares
outstanding and assumed
conversion.................... 10,066 10,211
======= =======
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
----------- ---------
<S> <C> <C>
Net revenues................... $ (75)(e) $45,090
Cost of revenues............... (75)(e) 15,735
----- -------
Gross profit 0 29,355
Operating expenses:
Sales and marketing............ 10,836
General and administrative..... 5,974
Research and development....... 7,996
Acquisition and non-recurring
charges....................... 13,329
----- -------
Total operating expenses...... 38,135
----- -------
Operating income (loss)....... 0 (8,780)
Other income (expense)......... 816
----- -------
Income (loss) before income
taxes....................... 0 (7,964)
Income tax expense............. (261)(a) 1,276
----- -------
Net income (loss) before
minority interest............. 261 (9,240)
Minority interest..............
----- -------
Net income (loss)............. $ 261 $(9,240)
===== =======
Earnings (loss) per share
Basic......................... $ (0.84)
=======
Diluted....................... $ (0.84)
=======
Weighted average shares
outstanding................... 10,988
=======
Weighted average shares
outstanding and assumed
conversion.................... 10,988
=======
</TABLE>
F-3
<PAGE> 8
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA HISTORICAL HISTORICAL
EAI SENSE8 ADJUSTMENTS COMBINED VSA TRANSOM
--- ------ ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues................ $49,717 $ 3,988 $ (115)(e) $ 53,590 $17,015 $ 950
Cost of revenues............ 13,332 1,095 (3)(e) 14,424 11,797 20
------- ------- ------- -------- ------- -------
Gross profit............... 36,385 2,893 (112) 39,166 5,218 930
Operating expenses:
Sales and marketing......... 15,406 1,911 17,317 876 795
General and
administrative............. 5,478 1,366 115(f) 6,959 1,522 842
Research and development.... 7,068 1,118 (65)(e) 8,121 3,108 1,015
Acquisition and
non-recurring charges...... 8,831 9,080(g) 17,911
------- ------- ------- -------- ------- -------
Total operating expenses... 36,783 4,395 9,130 50,308 5,506 2,652
------- ------- ------- -------- ------- -------
Operating income (loss).... (398) (1,502) (9,242) (11,142) (288) (1,722)
Other income (expense)...... 1,522 (185) 1,337 (100) 46
------- ------- ------- -------- ------- -------
Income (loss) before income
taxes.................... 1,124 (1,687) (9,242) (9,805) (388) (1,676)
Income tax expense.......... 2,772 2,772 (175)
------- ------- ------- -------- ------- -------
Net income (loss) before
minority interest.......... (1,648) (1,687) (9,242) (12,577) (213) (1,676)
Minority interest........... (49) (49)
------- ------- ------- -------- ------- -------
Net income (loss).......... $(1,697) $(1,687) $(9,242) $(12,626) $ (213) $(1,676)
======= ======= ======= ======== ======= =======
Earnings (loss) per share
Basic...................... $ (0.19) $ (1.41)
======= ========
Diluted.................... $ (0.19) $ (1.41)
======= ========
Weighted average shares
outstanding................ 8,770 8,928
======= ========
Weighted average shares
outstanding and assumed
conversion................. 8,770 8,928
======= ========
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
----------- ---------
<S> <C> <C>
Net revenues................ $(148)(e) $ 71,407
Cost of revenues............ (148)(e) 26,093
----- --------
Gross profit............... 0 45,314
Operating expenses:
Sales and marketing......... 18,988
General and
administrative............. 9,323
Research and development.... 12,244
Acquisition and
non-recurring charges...... 17,911
----- --------
Total operating expenses... 58,466
----- --------
Operating income (loss).... 0 (13,152)
Other income (expense)...... 1,283
----- --------
Income (loss) before income
taxes.................... 0 (11,869)
Income tax expense.......... (637)(a) 1,960
----- --------
Net income (loss) before
minority interest.......... 637 (13,829)
Minority interest........... (49)
----- --------
Net income (loss).......... $ 637 $(13,878)
===== ========
Earnings (loss) per share
Basic...................... $ (1.43)
========
Diluted.................... $ (1.43)
========
Weighted average shares
outstanding................ 9,705
========
Weighted average shares
outstanding and assumed
conversion................. 9,705
========
</TABLE>
F-4
<PAGE> 9
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
FOR THE PERIOD
HISTORICAL OCTOBER 7, 1996 TO
----------------- DECEMBER 31, 1996 PRO FORMA PRO FORMA
EAI VSA TRANSOM ADJUSTMENTS COMBINED
--- --- ------------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues.......... $27,189 $16,887 $ 19 $44,095
Cost of revenues...... 7,277 11,417 13 18,707
------- ------- ----- -------
Gross profit..... 19,912 5,470 6 25,388
Operating expenses:
Sales and marketing... 9,799 850 38 10,687
General and
administrative...... 3,041 1,537 39 4,617
Research and
development......... 3,438 2,400 63 5,901
Acquisition and non-
recurring charges...
------- ------- ----- -------
Total operating
expenses......... 16,278 4,787 140 21,205
------- ------- ----- -------
Operating income
(loss)........... 3,634 683 (134) 4,183
Other income
(expense)........... 987 (102) (1) 884
------- ------- ----- -------
Income (loss) before
income taxes..... 4,621 581 (135) 5,067
Income tax expense.... 1,744 231 (51)(a) 1,924
------- ------- ----- ---- -------
Net income (loss)
before minority
interest............ 2,877 350 (135) 51 3,143
Minority interest..... (310) (310)
------- ------- ----- ---- -------
Net income (loss)... $ 2,567 $ 350 $(135) $ 51 $ 2,833
======= ======= ===== ==== =======
Earnings (loss) per
share Basic......... $ 0.35 $ 0.35
======= =======
Diluted............. $ 0.30 $ 0.30
======= =======
Weighted average
shares
outstanding......... 7,432 8,209
======= =======
Weighted average
shares outstanding
and assumed
conversion.......... 8,648 9,425
======= =======
</TABLE>
F-5
<PAGE> 10
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------- PRO FORMA PRO FORMA
EAI VSA ADJUSTMENTS COMBINED
--- --- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues........................................ $12,249 $12,618 $24,867
Cost of revenues.................................... 3,100 8,361 11,461
------- ------- -------
Gross profit...................................... 9,149 4,257 13,406
Operating expenses:
Sales and marketing................................. 3,573 663 4,236
General and administrative.......................... 2,276 1,088 3,364
Research and development............................ 1,992 1,807 3,799
Acquisition and non-recurring charges............... 2,520 2,520
------- ------- -------
Total operating expenses..................... 10,361 3,558 13,919
------- ------- -------
Operating income (loss)...................... (1,212) 699 (513)
Other income (expense).............................. (158) (40) (198)
------- ------- -------
Income (loss) before income taxes............ (1,370) 659 (711)
Income tax expense.................................. 392 392
------- ------- -------
Net income (loss) before minority interest.......... (1,762) 659 (1,103)
Minority interest................................... (128) (128)
------- ------- --- -------
Net income (loss)............................ $(1,890) $ 659 $-- $(1,231)
======= ======= === =======
Earnings (loss) per share
Basic............................................. $ (0.39) $ (0.23)
======= =======
Diluted........................................... $ (0.39) $ (0.23)
======= =======
Weighted average shares outstanding................. 4,805 5,347
======= =======
Weighted average shares outstanding and assumed
conversion........................................ 4,805 5,347
======= =======
</TABLE>
F-6
<PAGE> 11
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED COMBINED FINANCIAL STATEMENTS
(a) To reflect the income tax benefit that would be recognized if the
Transom Merger had occurred at the beginning of the earliest period presented.
The adjustment is based on the combined tax rate of the companies and the
elimination of the valuation allowance for deferred tax assets of Transom.
(b) To record estimated one-time merger-related charges for the VSA Merger
and the Transom Merger. These expenses include outside accounting and legal fees
and various other costs and filing fees. These charges will be recognized at the
time the VSA and Transom mergers are consummated as required under the
pooling-of-interests accounting method.
(c) To record the exchange of Transom common stock for EAI Common Stock.
(d) To record the exchange of VSA Common Stock for EAI Common Stock.
(e) To eliminate intercompany revenue, expense and cost of sales.
(f) To reflect the amortization of goodwill related to the Sense8
transaction.
(g) To reflect the write-off of in-process technology related to the Sense8
transaction.
F-7
<PAGE> 12
INDEX TO VSA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-9
Balance Sheets at June 30, 1998 and 1997.................... F-10
Statements of Operations -- Years ended June 30, 1998 and
1997...................................................... F-11
Statement of Stockholders' Equity -- Years ended June 30,
1998 and 1997............................................. F-12
Statements of Cash Flows -- Years ended June 30, 1998 and
1997...................................................... F-13
Notes to Financial Statements............................... F-14
</TABLE>
F-8
<PAGE> 13
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Variation Systems Analysis, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Variation
Systems Analysis, Inc. and Subsidiaries as of June 30, 1998 and 1997, and the
related consolidated statements of operations, stockholders' 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 consolidated financial position of Variation
Systems Analysis, Inc. and subsidiaries at June 30, 1998 and 1997, and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
August 6, 1998
F-9
<PAGE> 14
VARIATION SYSTEMS ANALYSIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 146,567 $ 238,159
Accounts receivable, trade................................ 4,169,679 2,986,952
Note receivable, related party............................ 116,244 116,244
Cost and estimated earnings in excess of billings on jobs
in process............................................. 691,414 269,660
Prepaid expenses and other current assets................. 43,586 112,352
Refundable federal income tax............................. -- 60,515
---------- ----------
Total current assets.............................. 5,167,490 3,783,882
Property and equipment:
Equipment................................................. 1,575,440 1,379,270
Furniture and fixtures.................................... 151,733 128,304
Transportation equipment.................................. 53,851 53,851
Leasehold improvements.................................... 23,044 25,571
---------- ----------
1,804,068 1,586,996
Less accumulated depreciation............................. 1,163,228 956,600
---------- ----------
Net property and equipment.................................. 640,840 630,396
Other assets:
Deferred tax asset........................................ 110,500 79,500
Other..................................................... 74,308 32,947
---------- ----------
Total other assets................................ 184,808 112,447
---------- ----------
Total assets...................................... $5,993,138 $4,526,725
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 130,760 $ 218,202
Customer deposits......................................... 78,953 139,159
Line of credit............................................ 1,916,824 530,118
Accrued compensation...................................... 1,466,829 1,135,550
Income taxes payable...................................... 351,791 184,165
Accrued other............................................. 211,740 126,475
---------- ----------
Total current liabilities......................... 4,156,897 2,333,669
Other liabilities:
Notes payable, officer.................................... 543,272 1,101,626
Deferred revenue.......................................... 416,640 272,131
---------- ----------
Total other liabilities........................... 959,912 1,373,757
Stockholders' equity:
Common stock, $1.00 par value:
Authorized -- 100,000 shares issued and outstanding --
68,832 shares in 1998 and 69,832 in 1997.............. 68,832 69,832
Additional paid-in capital................................ 1,073,770 1,114,140
Foreign currency translation adjustments.................. (46,735) (17,071)
Accumulated deficit....................................... (219,538) (347,602)
---------- ----------
Total stockholders' equity........................ 876,329 819,299
---------- ----------
Total liabilities and stockholders' equity........ $5,993,138 $4,526,725
========== ==========
</TABLE>
See accompanying notes.
F-10
<PAGE> 15
VARIATION SYSTEMS ANALYSIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Net sales................................................... $18,141,799 $16,936,358
Cost of sales............................................... 11,527,833 11,855,551
----------- -----------
Gross profit................................................ 6,613,966 5,081,207
Operating expenses:
Sales and marketing....................................... 890,695 736,824
General and administrative................................ 1,646,074 1,423,102
Research and development.................................. 3,441,556 2,637,911
----------- -----------
5,978,325 4,797,837
----------- -----------
Income from operations...................................... 635,641 283,370
Other expenses.............................................. (142,986) (103,278)
----------- -----------
Income before income taxes.................................. 492,655 180,092
Income taxes................................................ 216,776 127,916
----------- -----------
Net income.................................................. $ 275,879 $ 52,176
=========== ===========
</TABLE>
See accompanying notes.
F-11
<PAGE> 16
VARIATION SYSTEMS ANALYSIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN TRANSLATION ACCUMULATED
STOCK CAPITAL ADJUSTMENT DEFICIT TOTAL
------ ---------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1996................ $70,932 $1,240,643 $(14,120) $(327,147) $ 970,308
Net income for 1997.................... -- -- 52,176 52,176
Foreign currency translation loss...... -- -- (2,951) -- (2,951)
Shares redeemed........................ (1,100) (126,503) -- (72,631) (200,234)
------- ---------- -------- --------- ---------
Balance at June 30, 1997............... 69,832 1,114,140 (17,071) (347,602) 819,299
Net income............................. -- -- -- 275,879 275,879
Foreign currency translation loss...... -- -- (29,664) -- (29,664)
Shares issued in lieu of cash
compensation......................... 674 126,732 -- -- 127,406
Shares redeemed........................ (1,674) (167,102) -- (147,815) (316,591)
------- ---------- -------- --------- ---------
Balance at June 30, 1998............... $68,832 $1,073,770 $(46,735) $(219,538) $ 876,329
======= ========== ======== ========= =========
</TABLE>
See accompanying notes.
F-12
<PAGE> 17
VARIATION SYSTEMS ANALYSIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 275,879 $ 52,176
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.......................... 229,076 175,481
Gain on sale of fixed assets........................... 7,690 --
Change in assets and liabilities:
(Increase) decrease in accounts receivable........... (1,187,669) 439,127
(Increase) decrease in costs in excess of billings... (423,060) 94,286
(Increase) decrease in prepaid expenses and other
current assets...................................... 68,766 (24,307)
(Increase) in other assets........................... (45,633) (14,872)
Increase (decrease) in accounts payable.............. (87,442) 35,959
Increase (decrease) in customer deposits............. (60,206) --
Increase (decrease) in accrued expenses.............. 543,613 (224,332)
Increase (decrease) in income taxes payable.......... 228,141 (122,472)
Increase in deferred taxes........................... (31,000) (26,000)
(Increase) in deferred revenue....................... 144,509 117,084
----------- ---------
Net cash provided (used) by operating activities............ (337,336) 502,130
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment.......................... (242,938) (321,846)
----------- ---------
Net cash used in investing activities....................... (242,938) (321,846)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit................................ 1,386,706 530,118
Payments on officer note.................................... (558,354) (646,870)
Stock redemptions........................................... (316,591) (200,233)
Payments on loan to related party........................... -- 30,000
----------- ---------
Net cash provided (used) by financing activities............ 511,761 (286,985)
----------- ---------
Net decrease in cash and cash equivalents................... (68,513) (106,701)
Effect of exchange rates on cash............................ (23,079) (29,554)
Cash and cash equivalents at beginning of period............ 238,159 374,404
----------- ---------
Cash and cash equivalents at end of period.................. $ 146,567 $ 238,159
=========== =========
</TABLE>
See accompanying notes.
F-13
<PAGE> 18
VARIATION SYSTEMS ANALYSIS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Variation Systems Analysis, Inc. and subsidiaries (the "Company") provides
and sells dimensional management software technology and consulting services to
improve quality, reduce costs and reduce concept to market time of complex
assemblies.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Variation
Systems Analysis, Inc. and its foreign subsidiaries, Variation Systems Analysis,
Ltd. and Variation Systems Analysis GMBH. All significant intercompany
transactions and accounts have been eliminated in consolidation.
Variation Systems Analysis, Inc. owns 95% of Variation Systems Analysis
GMBH. The minority interest in this subsidiary is accounted for as a liability
in these financial statements. However inasmuch as the losses exceed the
minority interest capital (all contributed by VSA), these statements reflect
100% of the activity for the period of operations of this subsidiary included in
these financial statements.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying amount
of cash equivalents approximates fair value.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist principally of temporary cash investments and trade accounts
receivables.
Concentrations of credit risk with respect to trade receivables exist due
to the small number of customers comprising the Company's customer base and
their concentration in similar industries and geographic areas. As of June 30,
1998 and 1997, the Company had the following concentrations at risk:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Largest exposure to one customer............................ 28.0% 45.1%
Exposure to five largest customers.......................... 69.6% 66.9%
</TABLE>
REVENUE RECOGNITION
Revenue from sales of software products is recognized upon delivery of the
software product to the customer and satisfaction of significant related
obligations, if any. Revenue from consulting and product maintenance contracts
is deferred and recognized ratably over the period the services are provided.
Revenue is recognized based upon labor and other costs incurred and
progress to completion on contracts. Costs and estimated earnings in excess of
billings on jobs in process represent revenue earned but not yet billable based
on terms of the contract. Billings are made based on milestones or as otherwise
provided for in the contracts.
F-14
<PAGE> 19
VARIATION SYSTEMS ANALYSIS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed on the
straight line method and accelerated methods over the estimated useful lives as
indicated below:
<TABLE>
<S> <C>
Equipment................................................... 5-10 years
Furniture and fixtures...................................... 7-10 years
Transportation equipment.................................... 3-5 years
Leasehold improvements...................................... 5-10 years
</TABLE>
FOREIGN CURRENCY TRANSLATION
The functional currencies of the Company's foreign subsidiaries are
considered to be the respective subsidiary's local currency. The effect of the
cumulative translation has been disclosed as a separate component of
shareholder's equity in the Company's financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments generally consist of cash and cash
equivalents, accounts receivable, accounts payable and long-term debt. The
carrying amounts of financial instruments approximated their fair value at June
30, 1998 and 1997.
INCOME TAXES
The Company accounts for income taxes using the liability method. Under
this method, deferred income taxes are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred taxes are recorded based on enacted tax laws and tax rates.
Changes in enacted tax rates will be reflected in the tax provision as they
occur.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued No. 130, "Reporting Comprehensive Income."
Statement No. 130 is effective for fiscal years beginning after December 15,
1997. Statement No. 130 establishes standards for the reporting of comprehensive
income in a full set of general purpose financial statements. Management
believes the adoption of Statement No. 130 will not have a material effect on
the Company's financial statements.
Also in June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Statement No. 131 is
effective for years beginning after December 15, 1997. Statement No. 131
establishes standards for disclosures about operating segments, products and
services, geographic areas and major customers. Management believes the adoption
of Statement No. 131 will not have a material effect on the Company's financial
statements.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition."
This Statement establishes revenue recognition requirements for companies that
sell software for fiscal years beginning after December 15, 1997. Management is
currently evaluating the impact of SOP 97-2 and has not determined the result,
if any, on the Company's financial position, results of operations or cash
flows.
2. LINE OF CREDIT
The Company has a promissory note (revolving basis) with a local financial
institution with a maximum limit of $2,500,000, bearing interest at prime less
1/4%. Advances against this credit facility amounted to
F-15
<PAGE> 20
VARIATION SYSTEMS ANALYSIS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. LINE OF CREDIT -- (CONTINUED)
$1,916,824 and $530,118 at June 30, 1998 and 1997, respectively. Amounts
outstanding in excess of $2,000,000 are personally guaranteed by the majority
shareholder. The promissory note is due on demand and is secured by all of the
Company's assets.
3. NOTE RECEIVABLE, RELATED PARTY
The Company has a note receivable dated September 1994 from a related
company with 7 1/2% annual interest, payable on a monthly basis. Balance of the
note receivable was $116,244 as of June 30, 1998 and 1997. The note is payable
on demand.
4. PROVISION FOR TAXES
The components of income tax expense for the years ended June 30 are as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current tax expense:
Federal................................................ $161,816 $ 63,412
State.................................................. 20,537 15,504
Foreign................................................ 65,423 75,000
-------- --------
247,776 153,916
Deferred................................................. (31,000) (26,000)
-------- --------
$216,776 $127,916
======== ========
</TABLE>
A reconciliation of income tax computed at the U.S. statutory rate to the
effective income tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Tax at U.S. statutory rate............................... $167,503 $ 61,231
State income taxes, net of federal benefit............... 13,554 10,233
Benefit of foreign losses not recognized................. 14,838 50,227
Other.................................................... 20,881 6,225
-------- --------
$216,776 $127,916
======== ========
</TABLE>
Total deferred tax assets at June 30, 1998 and 1997 are $110,500 and
$79,500, respectively. The principal source of the deferred tax assets are
differences between book and tax depreciation methods.
The Company made income tax payments of $159,722 and $297,594,
respectively, for the years ended June 30, 1998 and 1997.
5. LEASE AGREEMENT
The Company leases office space at their corporate headquarters in St.
Clair Shores, Michigan. The Company entered into an operating lease in 1996 for
three years that requires the Company to pay monthly rent of $13,988 plus taxes,
insurance, maintenance and utilities. The Company also has operating leases for
additional office space and equipment, with various lease terms expiring through
2002.
F-16
<PAGE> 21
VARIATION SYSTEMS ANALYSIS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASE AGREEMENT -- (CONTINUED)
Future minimum lease payments at June 30, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $357,277
2000........................................................ 191,151
2001........................................................ 91,900
2002........................................................ 58,025
--------
$698,353
========
</TABLE>
Total rent expense (exclusive of taxes, insurance, maintenance and
utilities) for the years ended June 30, 1998 and 1997 was $274,415 and $226,917,
respectively.
6. STOCK PURCHASE PLAN
Upon achieving predetermined goals and profits all eligible employees,
those with one or more years of service will receive incentive letters
redeemable at the Company's year end for the Company's stock. For the years
ended June 30, 1998 and 1997, shares will be distributed to employees comprising
a dollar equivalent stock bonus of $175,000 and $189,913, respectively on a
pre-tax basis. The shares to be issued will be equivalent to the net after tax
pay.
7. EMPLOYEE STOCK OWNERSHIP PLAN
On July 1, 1991, the Company adopted an employee stock ownership plan
(ESOP) covering all full-time employees who have met certain service
requirements. The plan provides for discretionary contributions by the Company
as determined annually by the Board of Directors, up to the maximum amount
permitted under the Internal Revenue Code.
The Company made no discretionary contributions to the ESOP for the years
ended June 30, 1998 and 1997, respectively.
8. NOTE PAYABLE, OFFICER
The Company has outstanding a demand note due to its officer with a balance
of $543,272 and $1,101,626 at June 30, 1998 and 1997, respectively. The note
carries an interest rate of 10%.
9. SUBSEQUENT EVENT
In July 1998, the Company entered into a merger agreement with Engineering
Animation, Inc. ("EAI"). The merger agreement calls for the Company's
shareholders to receive shares of EAI common stock valued at $26 million.
F-17
<PAGE> 22
INDEX TO TRANSOM FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-19
Balance Sheets at March 31, 1997 and 1998 and at June 30,
1998 (unaudited).......................................... F-20
Statements of Operations -- Period from inception (October
7, 1996) to March 31, 1997, the year ended March 31, 1998
and the three months ended June 30, 1997 and 1998
(unaudited)............................................... F-21
Statements of Stockholders' Equity -- Period from inception
(October 7, 1996) to March 31, 1997, the year ended March
31, 1998 and the three months ended June 30, 1997 and 1998
(unaudited)............................................... F-22
Statements of Cash Flows -- Period from inception (October
7, 1996) to March 31, 1997, the year ended March 31, 1998
and the three months ended June 30, 1997 and 1998
(unaudited)............................................... F-23
Notes to Financial Statements............................... F-24
</TABLE>
F-18
<PAGE> 23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Transom Technologies, Inc.:
We have audited the accompanying balance sheets of TRANSOM TECHNOLOGIES,
INC. (a Delaware corporation) as of March 31, 1998 and 1997, and the related
statements of operations, stockholders' equity and cash flows for the year ended
March 31, 1998, and for the period from inception (October 7, 1996) to March 31,
1997. 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 audits 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 the Company as of March 31,
1998 and 1997, and the results of its operations and its cash flows for the year
ended March 31, 1998, and for the period from inception (October 7, 1996) to
March 31, 1997, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Ann Arbor, Michigan,
July 9, 1998
F-19
<PAGE> 24
TRANSOM TECHNOLOGIES, INC.
BALANCE SHEETS AS OF MARCH 31, 1997 AND 1998
AND UNAUDITED BALANCE SHEET AS OF JUNE 30, 1998
ASSETS
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF MARCH 31, AS OF JUNE 30,
1997 1998 1998
--------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................... $1,833,475 $ 1,599,340 $ 1,594,459
Certificate of deposit.................................. 500,000 -- --
Accounts receivable, less allowance for doubtful
accounts of $5,000, $5,000 and $25,000 at March 31,
1997, March 31, 1998 and June 30, 1998,
respectively.......................................... 50,380 498,405 678,737
Prepaid expenses and other.............................. 2,844 9,719 13,797
---------- ----------- -----------
Total current assets............................. 2,386,699 2,107,464 2,286,993
PROPERTY AND EQUIPMENT, net............................... 298,472 636,269 674,749
OTHER ASSETS, net......................................... 93,260 75,680 68,298
---------- ----------- -----------
$2,778,431 $ 2,819,413 $ 3,030,040
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital lease obligation............. $ -- $ 99,768 $ 83,162
Accounts payable........................................ 99,650 128,357 81,063
Accrued liabilities..................................... 48,171 175,812 179,793
Deferred service revenue................................ 12,739 169,667 191,667
---------- ----------- -----------
Total current liabilities........................ 160,560 573,604 535,685
---------- ----------- -----------
CAPITAL LEASE OBLIGATION, less current portion............ -- 144,269 141,202
---------- ----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock --
Preferred stock, $0.001 par value, 2,000,000,
1,122,000 and 372,000 shares authorized at March 31,
1997, March 31, 1998 and June 30, 1998,
respectively, no shares issued and outstanding...... -- -- --
Series A, nonvoting convertible preferred stock,
$0.001 par value, 1,000,000, 628,000 and 628,000
shares authorized at March 31, 1997, March 31, 1998
and June 30, 1998, respectively, 478,000 shares
issued and outstanding.............................. 478 478 478
Series B, voting convertible preferred stock, $0.001
par value, 3,000,000, 4,250,000 and 5,000,000 shares
authorized, 3,000,000, 4,250,000 and 4,650,000
shares issued and outstanding at March 31, 1997,
March 31, 1998 and June 30, 1998, respectively...... 3,000 4,250 4,650
Common stock, $0.001 par value, 10,000,000 shares
authorized, 1,625,000, 1,650,800 and 1,650,800 shares
issued and outstanding at March 31, 1997, March 31,
1998 and June 30, 1998, respectively.................. 1,625 1,651 1,651
Additional paid-in capital.............................. 3,055,455 4,293,377 4,846,049
Note receivable......................................... (1,500) -- --
Accumulated deficit..................................... (441,187) (2,198,216) (2,499,675)
---------- ----------- -----------
Total stockholders' equity....................... 2,617,871 2,101,540 2,353,153
---------- ----------- -----------
$2,778,431 $ 2,819,413 $ 3,030,040
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-20
<PAGE> 25
TRANSOM TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (OCTOBER 7, 1996) TO MARCH 31, 1997,
THE YEAR ENDED MARCH 31, 1998 AND
THE THREE MONTHS ENDED JUNE 30, 1997 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
INCEPTION TO YEAR ENDED ENDED ENDED
MARCH 31, MARCH 31, JUNE 30, JUNE 30,
1997 1998 1997 1998
------------ ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES................................... $ 93,900 $ 1,362,107 $ 178,164 $ 606,000
COST OF REVENUES........................... 5,489 20,430 24,196 16,660
--------- ----------- --------- ---------
Gross profit..................... 88,411 1,341,677 153,968 589,340
--------- ----------- --------- ---------
OPERATING EXPENSES:
Research, development and engineering.... 92,244 1,329,187 188,295 400,753
Sales and marketing...................... 89,202 984,249 157,388 242,018
General and administrative............... 355,392 818,940 222,031 247,396
--------- ----------- --------- ---------
Total operating expenses......... 536,838 3,132,376 567,714 890,167
--------- ----------- --------- ---------
Loss from operations............. (448,427) (1,790,699) (413,746) (300,827)
INTEREST INCOME............................ 9,506 38,390 8,959 1,368
INTEREST EXPENSE........................... (2,266) (4,720) -- (2,000)
--------- ----------- --------- ---------
NET LOSS................................... $(441,187) $(1,757,029) $(404,787) $(301,459)
========= =========== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-21
<PAGE> 26
TRANSOM TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (OCTOBER 7, 1996) TO MARCH 31, 1997,
THE YEAR ENDED MARCH 31, 1998 AND
THE THREE MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
SERIES A
NON-VOTING SERIES B
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
--------------- ---------------- ------------------ ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT INCEPTION (OCTOBER 7, 1996)... -- $ -- -- $ -- -- $ -- -- $ --
Issuance of common stock............... -- -- -- -- -- -- 1,025,000 1,025
Issuance of Series A preferred stock in
exchange for services................ -- -- 28,000 28 -- -- -- --
Issuance of Series A preferred stock
and common stock in exchange for
grant of technology license.......... -- -- 450,000 450 -- -- 600,000 600
Issuance of Series B preferred stock... -- -- -- -- 3,000,000 3,000 -- --
Repayment of notes receivable.......... -- -- -- -- -- -- -- --
Net loss for the period from inception
(October 7, 1996) to March 31,
1997................................. -- -- -- -- -- -- -- --
------ ------ ------- ---- --------- ------ --------- ------
BALANCE AT MARCH 31, 1997................ -- -- 478,000 478 3,000,000 3,000 1,625,000 1,625
Issuance of Series B preferred stock... -- -- -- -- 1,250,000 1,250 -- --
Repayment of notes receivable.......... -- -- -- -- -- -- -- --
Issuance of common stock............... -- -- -- -- -- -- 25,800 26
Net loss for the year.................. -- -- -- -- -- -- -- --
------ ------ ------- ---- --------- ------ --------- ------
BALANCE AT MARCH 31, 1998................ -- -- 478,000 478 4,250,000 4,250 1,650,800 1,651
Issuance of Series B preferred stock
(Unaudited).......................... -- -- -- -- 400,000 400 -- --
Net loss for the quarter (Unaudited)... -- -- -- -- -- -- -- --
------ ------ ------- ---- --------- ------ --------- ------
BALANCE AT JUNE 30, 1998 (UNAUDITED)..... -- $ -- 478,000 $478 4,650,000 $4,650 1,650,800 $1,651
====== ====== ======= ==== ========= ====== ========= ======
<CAPTION>
ADDITIONAL TOTAL
PAID-IN NOTES ACCUMULATED STOCKHOLDERS'
CAPITAL RECEIVABLE DEFICIT EQUITY
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE AT INCEPTION (OCTOBER 7, 1996)... $ -- $ -- $ -- $ --
Issuance of common stock............... 19,475 (10,500) -- 10,000
Issuance of Series A preferred stock in
exchange for services................ 1,372 -- -- 1,400
Issuance of Series A preferred stock
and common stock in exchange for
grant of technology license.......... 51,450 -- -- 52,500
Issuance of Series B preferred stock... 2,983,158 -- -- 2,986,158
Repayment of notes receivable.......... -- 9,000 -- 9,000
Net loss for the period from inception
(October 7, 1996) to March 31,
1997................................. -- -- (441,187) (441,187)
---------- -------- ----------- -----------
BALANCE AT MARCH 31, 1997................ 3,055,455 (1,500) (441,187) 2,617,871
Issuance of Series B preferred stock... 1,237,690 -- -- 1,238,940
Repayment of notes receivable.......... -- 1,500 -- 1,500
Issuance of common stock............... 232 -- -- 258
Net loss for the year.................. -- -- (1,757,029) (1,757,029)
---------- -------- ----------- -----------
BALANCE AT MARCH 31, 1998................ 4,293,377 -- (2,198,216) 2,101,540
Issuance of Series B preferred stock
(Unaudited).......................... 552,672 -- -- 553,072
Net loss for the quarter (Unaudited)... -- -- (301,459) (301,459)
---------- -------- ----------- -----------
BALANCE AT JUNE 30, 1998 (UNAUDITED)..... $4,846,049 $ -- $(2,499,675) $ 2,353,153
========== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-22
<PAGE> 27
TRANSOM TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (OCTOBER 7, 1996) TO MARCH 31, 1997,
THE YEAR ENDED MARCH 31, 1998 AND
THE THREE MONTHS ENDED JUNE 30, 1997 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
INCEPTION TO YEAR ENDED ENDED ENDED
MARCH 31, MARCH 31, JUNE 30, JUNE 30,
1997 1998 1997 1998
------------ ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................. $ (441,187) $(1,757,029) $ (404,787) $ (301,459)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation and amortization...................... 22,836 144,527 24,000 27,500
Provision for uncollectible accounts receivable.... -- -- -- 20,000
Series A preferred stock issued for services....... 1,400 -- -- --
Increase (decrease) in cash resulting from changes
in --
Accounts receivable.............................. (50,380) (448,025) (41,835) (200,332)
Prepaid expenses and other....................... (2,844) (6,875) (1,093) (4,078)
Other assets..................................... (49,484) (9,324) (6,629) 7,382
Accounts payable................................. 99,650 28,707 (66,623) (47,294)
Accrued liabilities.............................. 48,171 127,641 11,097 3,981
Deferred service revenue......................... 12,739 156,928 73,888 22,000
---------- ----------- ---------- ----------
Net cash used in operating activities......... (359,099) (1,763,450) (411,982) (472,300)
---------- ----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.................... (312,584) (193,339) (181,384) (65,980)
Redemption (purchase) of certificate of deposit....... (500,000) 500,000 500,000 --
Repayment of notes receivable for common stock........ 9,000 1,500 -- --
---------- ----------- ---------- ----------
Net cash provided by (used in) investing
activities.................................. (803,584) 308,161 318,616 (65,980)
---------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Series B preferred stock.... 2,986,158 1,238,940 -- 553,072
Proceeds from issuance of common stock................ 10,000 258 -- --
Repayments under capital lease obligation............. -- (18,044) -- (19,673)
Proceeds from borrowings from officers................ 170,000 -- -- --
Repayments of borrowings from officers................ (170,000) -- -- --
---------- ----------- ---------- ----------
Net cash provided by financing activities..... 2,996,158 1,221,154 -- 533,399
---------- ----------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 1,833,475 (234,135) (93,366) (4,881)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........ -- 1,833,475 1,833,475 1,599,340
---------- ----------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............. $1,833,475 $ 1,599,340 $1,740,109 $1,594,459
========== =========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION --
Cash paid for interest................................ $ 2,266 $ 4,720 $ -- $ 2,500
========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-23
<PAGE> 28
TRANSOM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) THE COMPANY
Transom Technologies, Inc. (the "Company") was formed on October 7, 1996,
for the purpose of commercializing leading-edge human modeling and simulation
software technology previously developed at the University of Pennsylvania. The
company develops, markets and supports human modeling and simulation software
and provides consulting, training and maintenance services to customers in both
domestic and international markets.
The Company is in the early phases of implementing its operating strategy.
The Company's future success is subject to several technical and business risks
including customer acceptance, availability and retention of key employees,
competition and technological changes.
(2) SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue consists primarily of license fees for the Company's software
products. Revenue is recognized only when a customer contract is fully executed,
the software is delivered and no significant remaining obligations to the
customer exist.
Revenue related to advance payments received under software maintenance
agreements is deferred and amortized over the terms of the respective
agreements. Revenue from other services is recognized upon performance of the
service.
COST OF REVENUE
Cost of revenue consists primarily of costs attributable to software
documentation and distribution.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses include payroll costs and overhead
expenses attributable to research and development activities.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of 90
days or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Additions to property and equipment are recorded at cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the
respective assets, which generally range from three to seven years.
OTHER ASSETS
Other assets consist primarily of a technology license (see Note 8) and
legal and other expenses related to establishing the Company and its operations
that have been capitalized and are being amortized over five years. As of March
31, 1998 and 1997, accumulated amortization of capitalized legal and other
expenses totaled $17,253 and $8,724, respectively.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation plan using the
intrinsic value method prescribed under Accounting Principles Board Opinion No.
25 (APB 25), "Accounting for Stock Issued to Employees."
F-24
<PAGE> 29
TRANSOM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair value of the Company's common stock at the date of the grant
over the amount the employee must pay to acquire the stock. As supplemental
information, the Company has provided pro forma disclosure of the fair value at
the date of grant of stock options granted during 1998 and 1997 in Note 6, in
accordance with the requirements of Statement of Financial Accounting Standards
No. 123 (SFAS 123), "Accounting for Stock-Based Compensation."
PRODUCT DEVELOPMENT
Under the criteria set forth in Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," capitalization of software development costs begins upon
the establishment of technological feasibility of the product. The establishment
of technological feasibility and the ongoing assessment of the recoverability of
these costs require considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future gross
product revenue, estimated economic product lives and changes in software and
hardware technology. Amounts that would have been capitalized under this
statement after consideration of the above factors were immaterial, and
therefore no software development costs have been capitalized by the Company.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1997, Statement of Position 97-2, "Software Revenue
Recognition," was issued. This pronouncement provides guidance on recognizing
revenue on software transactions. The Company will be required to adopt this new
standard for transactions entered into beginning April 1, 1998. The Company
believes that the implementation of this statement will not have an impact on
its financial statements or its current revenue recognition policies.
In July 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" and
Statement of Financial Accounting Standards No. 131, "Disclosures About Segments
of an Enterprise and Related Information". The Company will be required to adopt
these new standards for the year ending March 31, 1999. The Company believes
that the implementation of these statements will not have a material effect on
its financial statements or results of operations for the periods presented.
MANAGEMENT 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 and
disclosure of contingent 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.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 financial statements
to conform with the 1998 presentation.
F-25
<PAGE> 30
TRANSOM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY AND EQUIPMENT
As of March 31, property and equipment consisted of the following:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Computer equipment.......................................... $ 669,397 $258,965
Office furniture and equipment.............................. 94,595 49,217
Leasehold improvements...................................... 16,258 4,402
--------- --------
780,250 312,584
Less -- Accumulated depreciation and amortization........... (143,981) (14,112)
--------- --------
$ 636,269 $298,472
========= ========
</TABLE>
As of March 31, 1998, the cost of assets under capital leases included
above totaled $262,081. As of March 31, 1998, accumulated depreciation on these
assets totaled $ 27,013. There were no assets under capital leases in 1997.
(4) LINE OF CREDIT AND CAPITAL LEASE OBLIGATION
The Company has a line-of-credit agreement with a bank whereby the Company
may borrow up to $500,000. Outstanding borrowings bear interest at the bank's
prime rate (8.5% as of March 31, 1998). No borrowings were outstanding as of
March 31, 1998. The agreement expires on August 31, 1998.
In 1998, the Company entered into two capital leases for computer equipment
totaling $262,081. The leases are payable in monthly installments totaling
$8,314, including interest at a weighted average rate of 8.8%, through March
2001. The leases are collateralized by the related equipment. Scheduled future
maturities under these leases as of March 31, 1998, are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 99,768
2000........................................................ 99,768
2001........................................................ 77,004
--------
276,540
Less -- Interest............................................ 32,503
Less -- Current portion..................................... 99,768
--------
$144,269
========
</TABLE>
(5) INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Currently payable........................................... $ -- $ --
Deferred income tax credit.................................. (590,100) (148,900)
Increase in valuation allowance............................. 590,100 148,900
--------- ---------
$ -- $ --
========= =========
</TABLE>
The effective tax rate differs from the Federal statutory rate primarily
due to providing a valuation allowance on future tax benefits.
F-26
<PAGE> 31
TRANSOM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of the deferred income tax benefit as of March 31 are as
follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred income tax benefit --
Net operating loss carryforwards.......................... $ 695,600 $ 142,200
Accrued liabilities....................................... 33,500 10,200
Property and equipment and other assets................... 6,900 (3,500)
Capital lease obligation.................................. 3,000 --
--------- ---------
739,000 148,900
Less -- Valuation allowance............................... (739,000) (148,900)
--------- ---------
$ -- $ --
========= =========
</TABLE>
As of March 31, 1998 the Company has available net operating loss
carryforwards of approximately $2,050,000 which can be utilized to offset future
taxable income and expire in 2012 and 2013. The Company's ability to utilize
these loss carryforwards may be limited under Section 382 of the Internal
Revenue Code. This and other deferred income tax benefits are fully reserved by
a valuation allowance as realizability of these tax benefits is not assured.
(6) STOCKHOLDERS' EQUITY
COMMON STOCK
The Company and its founding stockholders (the Founders) have entered into
agreements generally providing the Company the right of first refusal to
repurchase any shares of common stock offered for sale by the Founders or upon
termination of a Founder's employment with the Company.
The Company has reserved for issuance such number of shares of its
authorized but unissued common stock necessary to effect conversion of all
outstanding shares of Series A convertible preferred stock and Series B
convertible preferred stock and exercise of all outstanding options and
warrants. The holder of each outstanding share of common stock is entitled to
one voting right per share.
In 1998, the Company issued a warrant to purchase 25,800 shares of common
stock at $0.01 per share. The warrant may be exercised upon the issuance of
stock by the Company. This warrant was exercised in 1998.
PREFERRED STOCK
In 1998, the Company decreased the authorized shares of preferred stock by
1,250,000 shares and increased the authorized shares of Series B convertible
preferred stock by 1,250,000 shares. In addition, the Company decreased the
authorized shares of Series A convertible preferred stock by 372,000 shares and
increased the authorized shares of preferred stock by 372,000 shares.
The preferred stock has not yet been designated or issued and, as such, it
has no rights, privileges or preferences associated with it.
The holders of Series A and Series B convertible preferred stock have
certain rights, privileges and preferences which include the following:
Dividends
The holders are entitled to receive dividends before any dividend is
declared or paid on shares of common stock. Such dividends shall be payable only
when declared by the Board of Directors and shall be noncumulative. In the event
the Company declares a distribution of equity securities, indebtedness issued by
F-27
<PAGE> 32
TRANSOM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Company, or options or rights to purchase securities, the holders of
convertible preferred stock are entitled to a proportionate share.
Conversion
At the holder's option, each share of convertible preferred stock is
convertible at any time into shares of common stock at the conversion rate, as
defined, which is initially equal to $1 per share. The shares shall
automatically convert into common stock upon the closing of an initial public
offering of the Company's common stock, as defined.
Voting Rights
The holder of each outstanding share of Series A convertible preferred
stock has no voting rights. The holder's consent is not required for the taking
of any corporate action.
The holder of each outstanding share of Series B convertible preferred
stock is entitled to the number of votes equal to the number of shares of common
stock into which each share of preferred stock could be converted and to the
same voting rights and powers as the holders of common stock.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Company,
either voluntarily or involuntarily, the holder of each share of convertible
preferred stock is entitled to receive, prior to and in preference to any
distributions to the holders of common stock, an amount equal to $1 per share,
subject to adjustment, plus any accrued but unpaid dividends on those shares.
Series A Non-Voting Convertible Preferred Stock Warrants
In 1997, the Company issued a warrant to purchase 150,000 shares of Series
A convertible preferred stock at $0.01 per share (see Note 8). The warrant may
be exercised upon the occurrence of any of the following events: (1)
consummation of an initial public offering, (2) sale of substantially all assets
of the Company, (3) merger of the Company whereby the Company is not the
surviving entity, and (4) the effectuation of a transaction or series of related
transactions in which a greater than 50% ownership change occurs within a
three-month period. The warrant has no expiration date. As of March 31, 1998,
this warrant was not exercised.
Stock Option Plan
In November 1996, the Company established a stock option plan (the Plan) to
increase its ability to attract and retain key employees, consultants and
directors. Options granted may be either incentive stock options, which are
granted at the fair market value of the common stock on the date of grant (as
determined under the Plan), or nonqualified stock options, which are generally
granted at the fair market value of the common stock on the date of grant.
Options are granted at the discretion of the Board of Directors. The maximum
number of shares that may be granted under the plan is 1,675,000. Options
granted generally become exercisable over a period of three to five years from
the date of grant except that 135,000 options vest over a one-year period.
Outstanding options expire ten years after the date of grant. As of March 31,
1998 and 1997, the weighted average fair value of options granted was $0.26 and
$0.11, respectively.
F-28
<PAGE> 33
TRANSOM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Information concerning stock options is as follows:
<TABLE>
<CAPTION>
WEIGHTED
EXERCISE
NUMBER OF PRICE AVERAGE
SHARES PER SHARE PRICE
--------- ---------- --------
<S> <C> <C> <C>
Outstanding -- Inception (October 7, 1996).......... -- -- --
1997 Activity --
Options granted................................... 800,200 $0.02-0.65 $0.15
Options exercised................................. --
Options cancelled................................. --
---------
Outstanding -- March 31, 1997....................... 800,200 $0.02-0.65 $0.15
1998 Activity --
Options granted................................... 538,100 $ 0.65 $0.65
Options exercised................................. --
Options cancelled................................. (86,533) $ 0.65 $0.65
---------
Outstanding -- March 31, 1998....................... 1,251,767 $0.30
=========
Exercisable -- March 31, 1998....................... 236,000
=========
</TABLE>
Using the intrinsic value method under APB 25, no compensation expense has
been recognized in the accompanying statement of operations for options granted
at fair value. Had compensation expense been determined based on the fair value
at the date of grant consistent with SFAS 123, the reported net loss in 1998 and
1997 would have been increased by pro forma compensation expense of $2,135 and
$752, respectively. This pro forma compensation expense may not be
representative of that to be expected in future years.
The fair value of these options was estimated at the date of grant using
the minimum value option valuation method under SFAS 123 with the following
assumptions: Weighted average risk free interest rate of 6.33%; dividend yield
of 0%; and expected life of options of five years.
Option valuation models require the input of highly subjective assumptions.
Because changes in subjective input assumptions can materially affect the fair
value estimate, in management's opinion, the existing model does not necessarily
provide a reliable single measure of the fair value of the Company's stock
options.
(7) RELATED PARTY TRANSACTIONS
The Secretary of the Board of Directors of the Company is a partner in a
law firm which provides services to the Company. Payments to this law firm for
professional services were approximately $62,000 in 1998. Payments to this firm
were not significant in 1997.
(8) TECHNOLOGY LICENSE
Effective December 3, 1996, the Company entered into a license agreement
with the University of Pennsylvania (Penn) whereby the Company has been granted
the exclusive, worldwide license to use technology developed by Penn to develop,
sell and distribute products based on this technology and to grant sublicenses
to third parties as appropriate. The agreement expires on the later of the
expiration date of the last
F-29
<PAGE> 34
TRANSOM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
to expire of the copyrights for the technology or December 3, 2046. As
consideration for the license, the Company:
(1) Issued 450,000 shares of Series A convertible preferred stock to
Penn.
(2) Issued warrants to Penn for 150,000 additional shares of Series A
convertible preferred stock (see Note 6).
(3) Issued 600,000 shares of common stock directly to the individuals
at Penn responsible for the development of the technology.
The shares of Series A convertible preferred stock and common stock, were
valued at $0.05 per share. The total aggregate value of the preferred and common
shares of $52,500 has been capitalized and is being amortized over five years on
a straight-line basis. As of March 31, 1998 and 1997, accumulated amortization
totaled $21,875 and $3,500, respectively.
(9) COMMITMENTS
The Company entered into noncancelable operating lease agreements for its
office space and office equipment which expire at various dates through February
2001. Rent expense under all agreements totaled approximately $84,000 and
$12,600 in 1998 and 1997, respectively. Minimum future rental commitments under
these agreements are as follows:
<TABLE>
<S> <C>
1999..................................................... $ 81,000
2000..................................................... 26,000
2001..................................................... 23,000
--------
$130,000
========
</TABLE>
(10) BENEFIT PLAN
In August 1997, the Company established a 401(k) plan (the Plan) for the
benefit of its employees. Participants may contribute up to 15% of their
compensation to the Plan. The Company matches 25% of participant contributions
up to a maximum of 6% of the participant's compensation. Total expense under the
Plan in 1998 was $14,000.
(11) SUBSEQUENT EVENTS
In June 1998, the Company decreased the authorized shares of preferred
stock by 750,000 shares and increased the authorized shares of Series B
convertible preferred stock by 750,000 shares. The Company then issued 400,000
shares of Series B convertible preferred stock for net proceeds of $553,072.
On July 9, 1998, the Company received and signed a letter of intent to be
acquired in a transaction to be accounted for as a pooling of interests.
F-30
<PAGE> 35
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: September 25, 1998 By: /s/ Jamie A. Wade
--------------------------------
Jamie A. Wade
Vice President of Administration
S-1
<PAGE> 36
ENGINEERING ANIMATION, INC.
EXHIBIT INDEX TO FORM 8-K REPORT
<TABLE>
<CAPTION>
Exhibit Description
- - ------- -----------
<S> <C>
2.1 Amended and Restated Agreement and Plan of Merger among the
Company, EAI Victory, Inc. and Variation Systems Analysis, Inc.*
2.2 Amended and Restated Agreement and Plan of Merger between the
Company and Transom Technologies, Inc.*
3.1 Certificate of Incorporation (as amended as a result of the
Transom Merger)
23.1 Consent of Ernst & Young LLP
23.2 Consent of Arthur Andersen LLP
</TABLE>
- - ----------
* 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> 1
EXHIBIT 2.1
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
ENGINEERING ANIMATION, INC.,
EAI VICTORY, INC.
AND
VARIATION SYSTEMS ANALYSIS, INC.
---------------------------
DATED AS OF AUGUST 19, 1998
---------------------------
<PAGE> 2
TABLE OF CONTENTS
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
<TABLE>
<S> <C> <C>
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....................................... 1
1.5. Articles of Incorporation and By-Laws....................... 2
1.6. Directors and Officers...................................... 2
1.7. Tax and Accounting Consequences............................. 2
ARTICLE II. CONVERSION AND EXCHANGE OF SHARES....................... 2
2.1. Definitions................................................. 2
2.2. Total Merger Consideration.................................. 2
2.3. Conversion of Sub Stock..................................... 2
2.4. Conversion of VSA Stock..................................... 2
2.5. Exchange of Shares.......................................... 3
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF VSA.................. 4
3.1. Corporate Organization...................................... 4
3.2. Capitalization.............................................. 4
3.3. Authority; No Violation..................................... 4
3.4. Consents and Approvals...................................... 5
3.5. Reports..................................................... 5
3.6. Compliance with Applicable Law.............................. 5
3.7. Financial Statements........................................ 5
3.8. Absence of Certain Changes or Events........................ 5
3.9. Legal Proceedings and Restrictions.......................... 6
3.10. Taxes and Tax Returns....................................... 6
3.11. Employee Benefits........................................... 8
3.12. ESOP........................................................ 9
3.13. Employment and Labor Relations.............................. 9
3.14. Contracts................................................... 9
3.15. Undisclosed Liabilities..................................... 10
3.16. Environmental Liability..................................... 10
3.17. Tangible Assets............................................. 11
3.18. Real Property............................................... 11
3.19. Intellectual Property....................................... 11
3.20. Notes and Accounts Receivable............................... 12
3.21. Bank Accounts and Powers of Attorney........................ 12
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
3.22. Guaranties.................................................. 12
3.23. Insurance................................................... 12
3.24. Service Contracts and Warranties............................ 12
3.25. Certain Relationships....................................... 12
3.26. S-4 Information............................................. 13
3.27. Broker's Fees............................................... 13
3.28. Certain Customer Relationships.............................. 13
3.29. Disclosure.................................................. 13
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF EAI................... 13
4.1. Corporate Organization...................................... 13
4.2. Capitalization.............................................. 13
4.3. Authority; No Violation..................................... 13
4.4. Consents and Approvals...................................... 14
4.5. SEC Reports................................................. 14
4.6. S-4 Information............................................. 14
4.7. Ownership of Sub; No Prior Activities....................... 14
4.8. Broker's Fee................................................ 15
4.9. Absence of Certain Changes or Events........................ 15
4.10. Legal Proceedings and Restrictions.......................... 15
4.11. Compliance With Applicable Law.............................. 15
4.12. Intellectual Property....................................... 15
4.13. Disclosure.................................................. 15
ARTICLE V. COVENANTS RELATING TO CONDUCT OF BUSINESS................ 15
5.1. Conduct of Business Prior to the Effective Time............. 15
5.2. VSA Forbearances............................................ 16
5.3. EAI Forbearances............................................ 16
ARTICLE VI. ADDITIONAL AGREEMENTS................................... 17
6.1. Regulatory and Other Matters................................ 17
6.2. Access to Information....................................... 17
6.3. Stockholders' Approval...................................... 17
6.4. NNM Listing................................................. 17
6.5. Affiliates.................................................. 17
6.6. Additional Agreements....................................... 17
6.7. Advice of Changes........................................... 18
6.8. Takeover Proposals.......................................... 18
6.9. Tax Matters................................................. 18
6.10. ESOP Committee.............................................. 19
6.11. Termination of ESOP......................................... 19
6.12. Tax Matters................................................. 19
6.13. Intellectual Property Assignment............................ 19
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
6.14. Employment Agreement........................................ 19
6.15. Form 8-K.................................................... 19
6.16. Indemnification............................................. 19
ARTICLE VII. CONDITIONS PRECEDENT................................... 20
7.1 Conditions to Each Party's Obligation To Effect the
Merger...................................................... 20
7.2. Conditions to Obligations of EAI and Sub.................... 20
7.3. Conditions to Obligations of VSA............................ 21
ARTICLE VIII. TERMINATION AND AMENDMENT............................. 21
8.1. Termination................................................. 21
8.2. Effect of Termination....................................... 22
8.3. Amendment; Extension; Waiver................................ 22
ARTICLE IX. INDEMNIFICATION......................................... 23
9.1. Indemnification by Stockholder.............................. 23
9.2. Claims...................................................... 23
9.3. Notice of Third-Party; Assumption of Defense................ 23
9.4. Settlement or Compromise.................................... 23
9.5. Failure of Indemnifying Person to Act....................... 24
9.6. Limitations on Stockholders Indemnity....................... 24
ARTICLE X. GENERAL PROVISIONS....................................... 24
10.1. Expenses.................................................... 24
10.2. Notices..................................................... 24
10.3. Interpretation.............................................. 25
10.4. Counterparts; Facsimile..................................... 25
10.5. Entire Agreement............................................ 25
10.6. Governing Law............................................... 25
10.7. Survival.................................................... 25
10.8. Severability................................................ 26
10.9. Publicity................................................... 26
10.10. Assignment; Third Party Beneficiaries....................... 26
10.11. Knowledge and Awareness..................................... 26
10.12. Construction................................................ 26
10.13. Pooling of Interests Accounting; Tax Free Reorganization.... 26
</TABLE>
iii
<PAGE> 5
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of August 19,
1998 (the "Agreement"), by and among ENGINEERING ANIMATION, INC., a Delaware
corporation ("EAI"), EAI VICTORY, INC., a Michigan corporation and a wholly
owned subsidiary of EAI ("Sub") and VARIATION SYSTEMS ANALYSIS, INC., a Michigan
corporation ("VSA").
WHEREAS, the Boards of Directors of EAI and VSA 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
VSA (the "Merger") and as a result, VSA 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 Stockholder (as defined in Article IX) is the majority
stockholder of VSA.
WHEREAS, as of July 29, 1998, EAI, Sub and VSA entered into an Agreement
and Plan of Merger (the "Original Agreement"), and the parties amended and
restated the Original Agreement in its entirety pursuant to an Amended and
Restated Agreement and Plan of Merger dated as of August 5, 1998 the "Amended
Agreement").
WHEREAS, the parties desire to amend and restate the Amended Agreement in
its entirety in the manner provided herein.
WHEREAS, the Disclosure Schedule delivered by VSA in connection with the
Amended shall be deemed to by the Disclosure Schedule delivered by VSA in
connection with this Agreement.
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 Michigan Business Corporation Act (the "MBCA"), at the
Effective Time (as hereinafter defined), Sub shall merge with and into VSA. VSA
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 Michigan under the name of "Variation Systems
Analysis, Inc.". 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,
as soon as practical, but in any event 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 actual date
of the Closing is referred to herein as the "Closing Date"). The parties
anticipate that the Closing shall occur on or before September 30, 1998.
1.3. Effective Time. Subject to the terms and conditions of this
Agreement, the Merger shall become effective as set forth in the certificate of
merger in a form mutually agreeable to the parties hereto (the "Certificate of
Merger"), which shall be filed with the Secretary of State of the State of
Michigan (the "Michigan Secretary") in accordance with the provisions of the
MBCA on or, if the parties agree, before the Closing Date. The term "Effective
Time" shall be the date and time when the Merger becomes effective, as set forth
in 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 MBCA.
<PAGE> 6
1.5. Articles 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 VSA shall be amended and restated in the forms
attached as Exhibit F and Exhibit G, respectively, and be the Amended and
Restated Articles of Incorporation and Amended and Restated 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 provisions of the MBCA and the Surviving Corporation's Articles of
Incorporation and By-Laws.
1.7. Tax and Accounting Consequences. EAI and VSA 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 VSA 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. Definitions. The following terms shall have the following respective
meanings for purposes of this Agreement:
(a) "EAI Common Stock" shall mean each share of the Common Stock, $.01 par
value per share, of EAI.
(b) "EAI Stock Value" shall mean $48.00 per share of EAI Common Stock.
(c) "Sub Stock" shall mean each share of the common stock, no par value per
share, of Sub.
(d) "VSA Certificate" shall mean each certificate representing any shares
of VSA Stock outstanding immediately prior to the Effective Time.
(e) "VSA Stock" shall mean each share of the common stock, $1.00 par value
per share, of VSA, including the common stock of VSA being held pursuant to
VSA's Employee Stock Ownership Plan.
2.2. Total Merger Consideration. The total consideration payable as
provided herein to holders of VSA Stock upon consummation of the Merger shall be
equal to that amount of EAI Common Stock having an aggregate EAI Stock Value
equal to Twenty Six Million and 00/00 U.S. Dollars (U.S. $26,000,000).
2.3. Conversion of Sub 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 per share, of the Surviving
Corporation.
2.4. Conversion of VSA Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of EAI, Sub, VSA or any stockholder of
VSA (the "VSA Stock Conversion"):
(a) Each share of the VSA Stock issued and outstanding immediately prior to
the Effective Time (including, but not limited to, the Bonus Shares (as defined
in Section 2.5(d) below)), other than Dissenter's Shares (as defined below),
shall be converted into the right to receive shares of EAI Common Stock at the
Exchange Ratio. The "Exchange Ratio" shall be determined as follows: each share
of VSA Stock shall be exchanged for that number of shares of EAI Common Stock
equal to the quotient, carried to six decimal places, of (x) the number obtained
by dividing (i) $26,000,000 by (ii) the total of the number of shares of VSA
Stock outstanding immediately prior to the Effective Time, divided by (y) the
EAI Stock Value. If, prior to the Effective Time, the outstanding shares of EAI
Common Stock or VSA 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
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other similar change in capitalization, then an appropriate and proportionate
adjustment shall be made to the Exchange Ratio.
(b) No fractional shares of EAI Common Stock shall be issued, and in lieu
thereof, EAI shall pay to each former stockholder of VSA 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
six decimal places when expressed as an Arabic number) of EAI Common Stock to
which such holder would otherwise be entitled to receive pursuant to this
Section 2.4.
(c) All of the shares of VSA Stock to be 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 VSA 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 VSA Stock represented by such VSA
Certificate have been converted.
(d) Subject to the terms and conditions of this Agreement, shares of VSA
Stock with respect to which dissenters rights have been properly demanded in
accordance with the MBCA ("Dissenters' Shares") shall not be converted into EAI
Common Stock at the Effective Time, but shall be converted into the right to
receive from EAI such consideration as is determined to be due and payable with
respect to such Dissenters' Shares pursuant to the provisions of the MBCA. VSA
shall give EAI (i) prompt notice of any written demands for appraisals,
withdrawals or demands for appraisal and any other instruments in respect
thereof received by VSA and (ii) the opportunity to direct all negotiations and
proceedings with respect to demands for appraisal. VSA shall not voluntarily
make any payment with respect to any demands for appraisal and will not, except
with the prior written consent of EAI, settle or offer to settle any such
demands.
(e) At the Effective Time, all shares of VSA Stock that are owned by VSA as
treasury stock and all shares of VSA Stock that are owned, directly or
indirectly, by VSA or 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 VSA shall become treasury stock of EAI.
(f) After the Effective Time, there shall be no transfers on VSA's stock
transfer books of shares of VSA Stock.
2.5 Exchange of Shares. (a) At or any time after the Closing, each
stockholder of VSA shall have the right to deliver to EAI a properly completed
letter of transmittal in form reasonably satisfactory to EAI (the "Transmittal
Letter") and VSA Certificates representing all of the issued and outstanding
shares of VSA Stock owned by such stockholder, other than shares which are
Dissenter's Shares, 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 or kind whatsoever, other than
federal and state securities law restrictions. Upon proper surrender of a VSA
Certificate for exchange and cancellation to EAI, and in accordance with and
subject to the other provisions of this Agreement and the Transmittal Letter,
the holder of such VSA Certificate shall receive in exchange therefor (i) a
certificate representing that number of whole shares of EAI Common Stock to
which such holder of VSA 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 VSA 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 VSA Certificates.
(b) If any certificate representing shares of EAI Common Stock is to be
issued in a name other than that in which the VSA Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance thereof
that the VSA 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 VSA Certificate shall have been lost, stolen or
destroyed, the person so claiming shall make an affidavit of that fact and
indemnify EAI against any claim that may be made against it with
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<PAGE> 8
respect to such VSA Certificate. Thereafter, EAI shall issue in exchange for
such lost, stolen or destroyed VSA Certificate the shares of EAI Common Stock
and any cash in lieu of a fractional share deliverable in respect thereof
pursuant to this Agreement.
(d) At the Effective Time, all outstanding warrants, options, phantom
stock, convertible securities or any other rights to acquire shares of the
capital stock of VSA, if any such rights exist, shall be canceled and
extinguished without any conversion thereof or any payment with respect thereto.
Notwithstanding the foregoing, however, immediately prior to the Effective Time,
VSA shall be entitled to issue 3,498 shares of VSA Stock pursuant to certain
stock bonus agreements, which shares shall then be subject to conversion and
exchange as provided in Section 2.4 and 2.5 hereof (the "Bonus Shares").
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF VSA
Except as disclosed by VSA in the disclosure schedule delivered pursuant to
this Agreement (the "Disclosure Schedule"), VSA represents and warrants to EAI
and Sub as follows:
3.1. Corporate Organization. (a) VSA and the entities listed in Section
3.1(b) of the Disclosure Schedule that 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. VSA 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 is 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, operations or financial condition (a
"Material Adverse Effect") of VSA and its Subsidiaries, taken as a whole.
Correct and complete copies of the Articles of Incorporation and By-Laws of VSA
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 VSA. For purposes of
this Article III and Article VI, each reference to VSA shall also include each
Subsidiary, unless the context requires otherwise.
(b) Except as set forth in Section 3.1(b) of the Disclosure Schedule, VSA
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.
3.2. Capitalization. The authorized capital stock of VSA consists of
100,000 shares of common stock, $1.00 par value per share, of which 69,970
shares are issued and outstanding as of the date hereof and 73,468 shares will
be issued and outstanding as of the Effective Time. No shares of VSA Stock are
held in VSA's treasury and no shares of VSA Stock are reserved for issuance
other than the Bonus Shares. All of the issued and outstanding shares of VSA
Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights. Other than the Bonus Shares and the
ESOP (as defined in Section 3.12), VSA 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) VSA 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 VSA. Except for the adoption of
this Agreement by the requisite vote of holders of the issued and outstanding
shares of VSA Stock, no other corporate proceedings on the part of VSA are
necessary to approve this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by VSA and Stockholder and constitutes a valid
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<PAGE> 9
and binding obligation of VSA and Stockholder, enforceable against VSA and
Stockholder in accordance with its terms.
(b) The execution and delivery of this Agreement by VSA, the consummation
by VSA of the transactions contemplated hereby, and the compliance by VSA with
the terms or provisions hereof, shall not (i) violate any provision of the
Articles of Incorporation or By-Laws of VSA, (ii) violate any law, statute,
code, ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to VSA 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 nature or kind (collectively,
"Liens") upon any of the properties or assets of VSA under any note, bond,
mortgage, indenture, deed of trust, license, lease, contract, agreement or other
instrument or obligation to which VSA is a party, or by which it or any of its
properties or assets may be bound or affected, which, in any such case, would
have a Material Adverse Effect on VSA.
3.4. Consents and Approvals. Except for (i) the filing of Certificate of
Merger with the Michigan Secretary pursuant to the MBCA, (ii) the approval of
this Agreement by the requisite vote of the holders of VSA Stock, and (iii) the
filing with the Securities and Exchange Commission (the "SEC") and declaration
of effectiveness of a Registration Statement on Form S-4 (the "S-4"), 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 VSA of this Agreement and the
consummation by VSA of the Merger and the other transactions contemplated by
this Agreement, except where the failure to obtain the same would not have a
Material Adverse Effect on VSA.
3.5. Reports. Except in each case where failure to do so would not have a
Material Adverse Effect on VSA, VSA 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 VSA, investigation into the business or operations of VSA.
3.6. Compliance with Applicable Law. VSA holds all licenses, franchises,
permits and authorizations necessary for the lawful conduct of its business
except where failure to hold the same would not have a Material Adverse Effect
on VSA. VSA 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 VSA, except where the failure to be
in compliance would not have a Material Adverse Effect on VSA.
3.7. Financial Statements. VSA has previously provided EAI with correct
and complete copies of the unaudited balance sheets of VSA as of June 30, 1995,
1996, 1997 and 1998 and the related unaudited statements of income and retained
earnings and cash flows for the fiscal years ended June 30, 1995, 1996, 1997 and
1998 (collectively, the "VSA Financial Statements"). The VSA Financial
Statements fairly present in all material respects the financial position of VSA
as of the dates thereof, and the results of operations and cash flows of VSA for
the respective fiscal periods or as of the respective dates thereof. Each of the
VSA 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, except that the same are not
audited and do not contain any required footnotes.
3.8. Absence of Certain Changes or Events. (a) Since June 30, 1998, (i)
VSA has not incurred any material liability that is not disclosed in the VSA
Financial Statements, (ii) no event has occurred which, individually or in the
aggregate, would have a Material Adverse Effect on VSA, and (iii) VSA has
carried on its business in the ordinary and usual course.
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(b) Since June 30, 1998, VSA has not (i) increased in any material respect
the salaries, wages, or other compensation, or pensions, fringe benefits or
other perquisites payable to any director, executive officer or other management
employee or to any non-management employee (except to the extent customary and
consistent with past practice), or (ii) granted any severance or termination
pay, or (iii) paid or accrued any bonuses or commissions (except to the extent
customary and consistent with past practice), or (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 VSA.
3.9. Legal Proceedings and Restrictions. (a) There are no actions, suits,
proceedings or, claims pending, or to the knowledge of VSA, threatened against
or affecting VSA at law or in equity or before any Governmental Authority.
(b) There is no judgment, order, writ, decree, injunction or regulatory
restriction imposed upon VSA or its assets which has not been satisfied and
which could reasonably be expected to have, a Material Adverse Effect on VSA.
3.10. Taxes and Tax Returns.
(a) (i) VSA (which term for purposes of this Section 3.10 shall
include any former subsidiaries of VSA for periods during which they were
owned) has filed correct and complete Returns in respect of Taxes required
to be filed; all Taxes shown on such Returns or otherwise known by VSA to
be due or payable by VSA have been 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 VSA's knowledge, there is no reasonable 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 VSA is subject
and, to VSA's knowledge, VSA is not under audit by any Governmental
Authority for any Tax. There are no Tax liens on any assets of VSA other
than liens for Taxes not yet due or payable;
(ii) VSA has paid, on the basis of VSA'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 VSA's books as an accrued Tax liability, either
current or deferred. All Taxes required to be withheld, collected or
deposited by VSA 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, VSA 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 VSA; and no other entity
that was included in the filing of a Return with VSA on a consolidated,
combined, or unitary basis has left VSA's consolidated, combined or unitary
group in a taxable year for which the statute of limitations on assessment
remains open. VSA 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 VSA; and
(v) There is no significant difference on the books of VSA 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.
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(b) VSA:
(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 VSA;
(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 ("USRPHC") and as of the Closing has not
been a USRPHC for the five year period immediately preceding the Closing
Date;
(ix) No withholding of Taxes by EAI 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 VSA will provide any
required certificates to avoid any such withholding; and
(x) Is not a Small Business Corporation ("S" Corporation) as defined
in Section 1361(a) of the Code.
(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.
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3.11. Employee Benefits.
(a) VSA (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 "VSA
Plans"), which would result in EAI, VSA or the Surviving Corporation having any
material liabilities, whether direct or indirect.
(b) VSA has made available to EAI correct and complete copies of (i) each
VSA 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 VSA Plan, (iv)
the most recent determination letter from the Internal Revenue Service (the
"IRS") for each VSA Plan (as applicable), and (v) the three most recent Annual
Reports -- Form 5500 (including accompanying schedules) and summary annual
reports for each VSA Plan.
(c) (i) Each VSA Plan and VSA 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 VSA Plans
have at all times been properly administered in all material respects in
accordance with all such laws, including reporting and disclosure requirements
under ERISA and the Code, and with the terms of each applicable plan document,
(ii) each of the VSA Plans intended to be "qualified" within the meaning of Code
Section 401(a) is so qualified and, to VSA's knowledge, no facts exist that
would reasonably be expected to affect adversely such "qualified" status, (iii)
no VSA 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 VSA, is any person contractually
bound to enter into any non-exempt "prohibited transaction" within the meaning
of Code Section 4975 or ERISA Section 406 with respect to a VSA Plan, (v) VSA
has not engaged in a transaction which would 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 VSA's knowledge, threatened claims (other than routine claims
for benefits) by, on behalf of or against VSA, any of the VSA Plans or any
trusts related thereto, (vii) VSA 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 VSA Plan or as otherwise required by applicable law with
respect to a VSA Plan, (viii) VSA 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) VSA has in all respects complied
with Section 9801 of the Code concerning the portability of employee health
coverage, (x) VSA has not at any time maintained, administered or contributed to
any plan subject to ERISA Title IV, and (xi) VSA 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 (other than as provided in
Section 6.10) will (i) result in any material payment (including, without
limitation, severance, unemployment compensation, golden parachute or otherwise)
becoming due to any director, officer or employee of VSA, (ii) increase in any
material respect any benefits otherwise payable under any VSA Plan, or (iii)
result in any acceleration of the time of payment or vesting of any such
benefits.
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(e) There are no actions, claims or audits pending or, to VSA's knowledge,
threatened with respect to any VSA 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 VSA 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 VSA 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 VSA 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 VSA 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 VSA, any
corporation described in clause (i) above or any trade or business described in
clause (ii) above is a member.
3.12. ESOP.
(a) Comerica Bank constitutes the sole trustee (the "ESOP Trustee") of the
Variation Systems Analysis, Inc. Employee Stock Ownership Plan (the "ESOP"), and
Trustee has been duly appointed a Trustee of the ESOP.
(b) The ESOP has been duly adopted by the Board of Directors of VSA and
executed on behalf of VSA and the ESOP Trustee. The ESOP meets all requirements
of an "employee stock ownership plan" as defined in Section 4975(e)(7) of the
Code, and the ESOP trust is a trust duly formed in accordance with its trust
agreement and Michigan law, and is validly existing under the laws of the State
of Michigan.
(c) The ESOP Trustee is the sole registered owner of 6243.78 shares of VSA
Stock, not in its individual capacity, but solely in its capacity as ESOP
Trustee.
(d) There is no "Qualified Loan" (as defined in the ESOP) outstanding.
3.13. Employment and Labor Relations. To the knowledge of VSA, no
executive, key employee or group of employees has any plans to terminate its or
their employment with VSA. There are no charges, complaints, investigations or
litigation currently pending, or to the knowledge of VSA threatened against VSA,
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, which, if determined adversely to
VSA would have a Material Adverse Effect on VSA. There are no outstanding orders
or charges against VSA under any applicable occupational safety and health laws
in any jurisdiction in which VSA conducts business which would result in a
Material Adverse Effect on VSA. All levies, assessments and penalties made
against VSA pursuant to any applicable workers' compensation legislation in any
jurisdiction in which VSA conducts business have been paid by VSA. VSA is not a
party to any contracts with any labor union or employee association nor has VSA
made commitments to or conducted negotiations with any labor union or employee
association with respect to any future contracts. VSA is not aware of any
current attempts to organize or establish any labor union or employee
association with respect to any employees of VSA, and there is no existing or
pending certification of any such union with regard to a bargaining unit.
3.14. Contracts. Section 3.14 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 VSA become
effective in the future, to which VSA is a party (collectively, the "VSA
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;
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(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 VSA has created, incurred, assumed or
guaranteed any indebtedness for borrowed money, or any capitalized lease
obligation, or under which VSA has imposed a Lien on any of its assets;
(e) any agreement outside the ordinary course of business imposing any
obligations on VSA of confidentiality or noncompetition;
(f) any written agreement with any director, officer, employee or
stockholder of VSA 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 material 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 which is not terminable by VSA upon thirty
(30) days' notice or less without payment of any termination fee, severance or
other penalty by VSA;
(i) any agreement relating to any Intellectual Property (as that term is
defined in Section 3.18) used by VSA and which is material to the conduct of its
business, or that is licensed by VSA for use by others;
(j) any agreement under which the consequences of a default, termination or
acceleration would have a Material Adverse Effect on VSA; or
(k) any other agreement the performance of which involves consideration
payable by VSA in excess of $10,000 in any one year.
VSA has made available to EAI a correct and complete copy of each VSA
Contract. Except as set forth in Section 3.14 of the Disclosure Schedule, (i)
each VSA Contract is legal, valid, binding, enforceable in accordance with its
terms and in full force and effect, (ii) the consummation of the Merger will not
cause a breach or termination of any VSA Contract nor effect a change in any of
the terms of any VSA Contract which, in any such case, would have a Material
Adverse Effect on VSA, (iii) VSA is not, and, to VSA's knowledge, no other party
is, in breach or default in any material respect of any VSA Contract and no
event has occurred which with notice or lapse of time, or both, would constitute
a breach or default by VSA that would result in or permit termination,
modification or acceleration under any VSA Contract, and (iv) VSA has not, and,
to VSA's knowledge, no other party has, repudiated any provision of any VSA
Contract.
3.15. Undisclosed Liabilities. Except for liabilities (i) that are fully
reflected or reserved against on the June 30, 1998 balance sheet of VSA included
in the VSA Financial Statements (the "1998 Balance Sheet") or (ii) that were
incurred in the ordinary course of business consistent with past practice since
June 30, 1998, or (iii) that are fully reflected or reserved against in the VSA
Financial Statements, VSA has not incurred any material liability of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether due
or to become due).
3.16. Environmental Liability.
(a) VSA has not received any notice, and does not otherwise have knowledge,
of any claim, and no proceeding has been instituted raising any claim, against
VSA or any of the real properties now or formerly owned, leased or operated by
VSA or other assets of VSA, alleging any material damage to the environment or
violation of any Environmental Laws;
(b) VSA does not have knowledge of any facts which would give rise to any
claim, public or private, of violation in any material respect of Environmental
Laws or material damage to the environment emanating from, occurring on or in
any way related to real properties now or formerly owned, leased or operated by
VSA or to other assets of VSA or their use;
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(c) VSA 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 in any material respect
to any Environmental Laws; and
(d) All buildings on all real properties now owned, leased or operated by
VSA 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 VSA.
(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 "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous wastes",
"restricted hazardous wastes", "toxic substances", "toxic pollutants" or
words of similar import, under any of the Environmental Laws.
3.17. Tangible Assets. VSA 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 1998 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. VSA owns or leases pursuant to a VSA 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 reasonably good
operating condition and repair (subject to normal wear and tear). Section 3.17
of the Disclosure Schedule contains a schedule of such tangible assets owned or
leased by VSA that have a value in excess of $10,000.
3.18. Real Property. VSA does not own any real property. Section 3.18 of
the Disclosure Schedule lists and describes briefly all real property leased or
subleased to VSA. VSA has made available to EAI correct and complete copies of
each such lease and sublease. Except as set forth in Section 3.18 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) VSA is not, and, to the knowledge of VSA, no other party to such lease
or sublease is, in breach or default in any material respect, and no event has
occurred which, with notice or lapse of time, or both, would constitute a breach
or default by VSA that would permit termination, modification or acceleration
thereunder;
(d) neither VSA nor, to the knowledge of VSA, any other party to each such
lease or sublease has repudiated or disputed any provision thereof;
(e) VSA has not assigned, transferred, conveyed, mortgaged, deeded in trust
or encumbered any interest in any leasehold or subleasehold.
3.19. Intellectual Property. (a) Section 3.19 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 material to the business of VSA
and are owned or used by or have been issued to VSA (collectively the
"Intellectual Property"). VSA 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
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evidencing ownership of or the right to use each such item. Except as set forth
in Section 3.19 of the Disclosure Schedule:
(i) VSA 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 VSA is there any reasonable basis for any such challenge;
(iii) VSA has taken all necessary action to maintain the patents
listed on Section 3.19 of the Disclosure Schedule in effect and will
continue to maintain those rights in effect prior to the Closing so as not
to affect materially the validity or enforcement thereof; and
(iv) the Intellectual Property will be owned or available for use by
the Surviving Corporation immediately subsequent to the Closing on the same
terms and conditions (except as contemplated by the Intellectual Property
Assignment described in Section 6.12) as in effect immediately prior to the
Closing and the transactions contemplated by this Agreement will have no
Material Adverse Effect on VSA's rights, title and interest in and to any
of the rights set forth in Section 3.19 of the Disclosure Schedule.
(b) To the knowledge of VSA, (i) VSA has not interfered with, infringed
upon, misappropriated or otherwise come into conflict with any intellectual
property rights of third parties, nor is VSA currently interfering with,
infringing upon, misappropriating or otherwise coming into conflict with any
intellectual property rights of third parties, in each case in any manner which
would have a Material Adverse Effect on VSA and (ii) to VSA's knowledge, 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 VSA that would result in a Material Adverse Effect on VSA, nor, to
VSA's knowledge, is any third party currently interfering with, infringing upon,
misappropriating or otherwise coming into conflict with any Intellectual
Property rights of VSA.
3.20. Notes and Accounts Receivable. All notes and accounts receivable of
VSA have arisen in the ordinary course of business, and to the knowledge of VSA
are not subject to any setoff or counterclaim and are collectible, subject only
to the reserve for bad debts, if any, established in accordance with the past
practice of VSA.
3.21. Bank Accounts and Powers of Attorney. Section 3.21 of the Disclosure
Schedule sets forth a list of all accounts and deposit boxes maintained by VSA
at any bank or other financial institution and the names of the persons
authorized to effect transactions in such accounts and with access to such
boxes. There are no outstanding powers of attorney executed on behalf of VSA.
3.22. Guaranties. VSA 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 3.24 of the Disclosure Schedule lists each
insurance policy and self-insurance arrangement to which VSA 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 VSA. VSA
is in compliance in all material respects with all conditions contained in such
policies.
3.24. Service Contracts and Warranties. VSA is not a party to any service
contract pursuant to which any material services are provided by VSA 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 currently granted or entered into by VSA.
3.25. Certain Relationships. No stockholder, director, officer or, to
VSA's knowledge, employee of VSA (i) is, or controls, or is an employee of any
competitor, supplier, customer or lessor or lessee of VSA, or (ii) is indebted
to VSA in an amount in excess of $10,000 in any individual case, or (iii) owns
any asset, tangible or intangible, which is used in the business of VSA, other
than assets that are immaterial in value; and VSA has not entered into any
transaction (including the furnishing of goods or services) with any
stockholder,
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director, officer, employer or other affiliate, except on terms and conditions
no less favorable to VSA than would be obtained in a comparable arm's-length
transaction with a third party.
3.26. S-4 Information. None of the written information to be supplied by
VSA for inclusion in the S-4 will, at the time the S-4 is filed with the SEC, at
any time it is amended or supplemented, at the time it becomes effective under
the Securities Act of 1933, as amended (the "Securities Act"), or at the Closing
Date, contains 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, VSA makes no
representation or warranty with respect to statements made in the S-4 based on
written information supplied by EAI specifically for inclusion therein.
3.27. Broker's Fees. Neither VSA 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 3.38 of the Disclosure
Schedule contains a complete and accurate list of VSA's ten largest customers
(in terms of dollar sales by VSA) for the fiscal year ending June 30, 1998 (the
"Primary Customers"), together with the total dollar amount of all sales by VSA
to such Primary Customers during such period. VSA has not received any written
notice that any Primary Customer intends to reduce in any material respect the
dollar amount of sales by VSA in the year ending June 30, 1999 from the year
ended June 30, 1998.
3.29. Disclosure. No representation or warranty by VSA contained in this
Agreement (including the Disclosure Schedule and the Exhibits referred to
herein), or in any certificate furnished or to be furnished by VSA 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 IV.
REPRESENTATIONS AND WARRANTIES OF EAI
EAI represents and warrants to VSA and Stockholder 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 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 VSA by EAI.
4.2. Capitalization. The authorized capital stock of EAI consists of
60,000,000 shares of EAI Common Stock, of which as of May 11, 1998, 10,213,195
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
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approved by the Board of Directors of EAI. No other proceedings or approvals 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 Certificate of
Merger with the Michigan Secretary pursuant to the MBCA, the filing with the SEC
and declaration of effectiveness of the S-4 and (ii) the filings and
authorizations necessary to list the shares of EAI Common Stock issued pursuant
to this Agreement on the Nasdaq Stock Market National Market ("NNM"), no
Consents from any Governmental Authority or any third party are necessary in
connection with the execution and delivery by EAI of this Agreement and the
consummation by EAI 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, 1997, 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 (collectively, the "EAI SEC
Documents"), have been duly and timely filed by EAI, complied in all material
respects with all requirements under the Exchange Act and the rules and
regulations promulgated thereunder, 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. The financial
statements of EAI included in the EAI SEC Documents complied in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP (except, in the case of interim financial statements, as permitted by
Forms 10-Q or 8-K of the SEC) consistently applied during the periods involved
(except as may be indicated in the notes thereto) and fairly presented, in
accordance with the applicable requirements of GAAP, the financial position of
EAI as of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of interim financial statements, to
normal year-end adjustments). Except as set forth in the EAI SEC Documents or as
incurred in the ordinary course of business since the date of the most recent
EAI SEC Documents. EAI does not have any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) required by GAAP to
be set forth in a balance sheet of EAI which would have a Material Adverse
Effect on EAI.
4.6. S-4 Information. None of the information that EAI will include or
incorporate by reference in the S-4 will, at the time the S-4 is filed with the
SEC, at any time it is amended, supplemented, or at the time it becomes
effective under the Securities Act 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. The
S-4 will comply as to form in all material respects with the requirements of the
Securities Act and the rules and regulations promulgated thereunder.
Notwithstanding the foregoing, EAI makes no representation or warranty with
respect to statements made in the S-4 based on written information supplied by
VSA 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.
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(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.
4.9. Absence of Certain Changes or Events. Since December 31, 1997, except
as disclosed in the EAI SEC Documents, no event has occurred which would have a
Material Adverse Effect on EAI.
4.10. Legal Proceedings and Restrictions. There are no actions, suits,
proceedings or claims that require disclosure by EAI pursuant to Item 103 of
Regulation S-K promulgated under the Exchange Act.
4.11. Compliance With Applicable Law. EAI 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 the failure to be in compliance would not have a Material
Adverse Effect on EAI.
4.12. Intellectual Property. To the knowledge of EAI, (a) EAI has not
interfered with, infringed upon, misappropriated or otherwise come into conflict
with any intellectual property rights of third parties, nor is EAI currently
interfering with, infringing upon, misappropriating or otherwise coming into
conflict with any intellectual property rights of third parties, in each case in
any manner which would have a Material Adverse Effect on EAI, and (b) to EAI's
knowledge, 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 EAI that would result in a Material Adverse
Effect on EAI, nor, to EAI's knowledge, is any third party currently interfering
with, infringing upon, misappropriating or otherwise coming into conflict with
any intellectual property rights of EAI.
4.13. Disclosure. No representation or warranty by EAI contained in this
Agreement, or in any certificate furnished or to be furnished by EAI to VSA or
Stockholder 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.
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, VSA 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 materially
and adversely affect or delay the ability of VSA 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. During the period from the date of this Agreement to the Effective
Time,
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except as expressly contemplated or permitted by this Agreement, EAI shall take
no action which would materially and adversely affect or delay the ability of
VSA 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. VSA Forbearances. During the period from the date of this Agreement
to the Effective Time, except as expressly contemplated or permitted by this
Agreement, VSA 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 3.14 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 other than the Bonus Shares;
(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 VSA 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 VSA Contract, or change any
terms in any VSA Contract, other than renewals or changes in immaterial terms
thereof;
(f) increase in any material respect 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.
5.3. EAI Forbearances. During the period from the date of this Agreement
to the Effective Time, except as expressly contemplated or permitted by this
Agreement, EAI shall not, without the prior written consent of VSA:
(a) make, declare or pay any cash dividend or other cash distribution on
any shares of its capital stock;
(b) sell, transfer, mortgage, encumber or otherwise dispose of
substantially all of its properties or assets;
(c) merge, amalgamate, consolidate or enter into a share exchange (or cause
or permit any of its subsidiaries to merge, amalgamate, consolidate or enter
into a share exchange) with any other Person, except,
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in any such case, in connection with the acquisition by EAI or a subsidiary of
EAI of the stock and/or assets of any Person; provided, however, in no event
shall EAI issue an aggregate amount of shares as a result of such transactions
in excess of the number of shares outstanding as of the date hereof;
(d) 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;
(e) amend its Articles of Incorporation or By-Laws in any manner which
would effect the EAI Common Stock; 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 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 VSA,
shall promptly prepare and file the S-4 with the SEC and use its reasonable best
efforts to have the S-4 declared effective under the Securities Act as promptly
as practicable after such filing and to maintain its effectiveness through the
Closing Date. VSA shall, upon request, furnish EAI with all information or
documents concerning VSA and its directors, officers and stockholders and such
other matters as may be reasonably necessary or advisable in connection with the
S-4. EAI shall also use its reasonable best 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 VSA
shall furnish all information concerning VSA and the holders of VSA 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 reasonable
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. Subject to the existing confidentiality
agreement between EAI and VSA, upon reasonable notice, VSA 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 VSA's books and records, properties and contracts, and, during
such period, VSA shall make available to EAI all information concerning its
business, assets and personnel as EAI may reasonably request.
6.3. Stockholders' Approval. VSA shall call a meeting of its stockholders
for the purpose of voting upon the adoption of this Agreement and the Merger,
which meeting shall be held as soon as reasonably practicable after the S-4 is
declared effective by the SEC.
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, VSA shall obtain from each
of the stockholders listed in Section 6.5 of the Disclosure Schedule as being
"affiliates" of VSA a written agreement substantially in the form attached as
Exhibit A (the "Affiliate Letter").
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.
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6.7. Advice of Changes. EAI and VSA shall promptly advise each other of
any change or event which is likely to have a Material Adverse Effect on each
other or which EAI or VSA 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) VSA agrees that from and after its execution
of this Agreement through the Effective Time, it shall not and it shall use its
reasonable best efforts to cause the directors, officers, employees and
stockholders, and all investment bankers, attorneys or other advisors or
representatives retained by VSA 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
stockholders of VSA, or the investment bankers, attorneys, or other advisors or
representatives retained by VSA 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 VSA'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 VSA, which Takeover Proposal
identifies a price or range of values to be paid and based on the advice of
VSA's investment bankers, the Board of Directors of VSA has determined that such
Takeover Proposal is financially more favorable to the stockholders of VSA than
the terms of the Merger; (iii) VSA's Board of Directors has determined, based on
the advice of VSA'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 VSA 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, VSA shall not provide any non-public information to such third party
unless (x) prior to the date thereof VSA has provided such information to EAI;
(y) VSA has notified EAI in advance of any such proposed disclosure of
non-public information and has provided EAI with a description of the
information VSA intends to disclose; and (z) VSA provides such non-public
information pursuant to a nondisclosure agreement in a form satisfactory to EAI.
(c) In addition to the foregoing requirements, VSA 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), VSA
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 VSA
or any proposal or offer to acquire a material equity interest in, or a
substantial portion of the assets of, VSA other than by EAI as contemplated by
this Agreement.
(e) VSA 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. VSA and EAI agree as follows:
(a) VSA and EAI will not, and VSA and EAI will use its best efforts to
cause its stockholders not to 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. VSA and EAI will, and
VSA will use its best efforts to cause its stockholders to, file all Returns and
take such other actions as may be required for the Merger to qualify as a
reorganization
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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 reasonable best efforts to cause the historic business
of VSA to be continued or will use its reasonable best efforts to cause a
significant portion of the historic business assets of VSA 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.
6.10. ESOP Committee. The Company shall use its reasonable best efforts to
cause Committee that administers the ESOP to take all necessary steps to comply
with the provisions of Section 9.6 of the ESOP concerning the exercise of
stockholder rights by ESOP participants and the ESOP Trustee, and to perfect any
dissenters rights pursuant to the MBCA with respect to any shares of VSA Stock
owned by the ESOP Trustee which are not being exchanged pursuant to Section 2.5.
6.11. Termination of ESOP. As soon as practicable after the Effective
time, the Surviving Corporation shall, at its own expense, cause the termination
of the ESOP in accordance with the Code and ERISA, and the distribution of
participants' interests in the ESOP.
6.12. Tax Matters. VSA will use its best efforts to provide EAI with
information as to the adjusted tax basis of its stockholders in their VSA Stock.
6.13. Intellectual Property Assignment. Effective as of the Effective
Time, VSA and Stockholder shall assign (without the payment of additional
consideration) all of their respective right title and interest in and to all
Intellectual Property to the Surviving Company or its designee in a form
satisfactory to EAI (the "Intellectual Property Assignment").
6.14. Employment Agreement. At the Closing, VSA or EAI shall enter into an
employment agreement with Mark E. Craig substantially in the form attached
hereto as Exhibit B (the "Employment Agreement").
6.15. Form 8-K. EAI shall use its reasonable best efforts to file a
current report on Form 8-K with the SEC with respect to the combined financial
results of EAI and VSA for the thirty-day period following Closing, which filing
shall be effected as soon as reasonably practicable following the end of such
thirty-day period.
6.16. Indemnification. EAI and VSA shall, from and after the Effective
Time, indemnify, defend and hold harmless each person who is now or has been at
any time prior to the date hereof or who becomes prior to the Effective Time, an
officer or director of VSA or any subsidiary of VSA (the "VSA Indemnified
Parties") against all losses, claims, damages, costs, expenses (including
attorneys' fees and expenses), liabilities or judgments or amounts that are paid
in settlement of, with the approval of the indemnifying party (which approval
shall not be unreasonably withheld) or otherwise in connection with any
threatened or actual claim, action, suit, proceeding or investigation based on
or arising out of the fact that such person is or was a director or officer of
VSA or any subsidiary of VSA at or prior to the Effective Time, whether asserted
or claimed prior to or at or after the Effective Time ("VSA Indemnified
Liabilities"), including all VSA Indemnified Liabilities based on, or arising
out of, or pertaining to this Agreement or the transactions contemplated hereby,
in each case to the full extent a corporation is permitted under applicable law
to indemnify its own directors or officers, as the case may be (and EAI and VSA
will pay expenses in advance of the final disposition of any such action or
proceeding to each VSA Indemnified Party to the full extent permitted by law).
The provisions of this Section are intended to be for the benefit of, and shall
be enforceable by, each Indemnified Party, his or her heirs and his or her
personal representatives and shall be binding on all successors and assigns of
EAI and VSA.
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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").
(b) S-4. The S-4 shall have become effective under the Securities Act, and
no stop order suspending the effectiveness of the S-4 shall have been issued and
no proceeding for that purpose shall have been initiated or threatened by the
SEC.
(c) NNM LISTING. The shares of EAI Common Stock which shall be issued to
the stockholders of VSA upon consummation of the Merger shall have been
authorized for listing on the NNM, subject to official notice of issuance.
(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) VSA STOCKHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved by the requisite holders of the
issued and outstanding shares of VSA Stock.
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
VSA set forth in this Agreement that are qualified with reference to a Material
Adverse Effect shall be true and correct, and the representations and warranties
of VSA that are not so qualified shall be true and correct, except where the
failure to be true and correct would not have a Material Adverse Effect on VSA,
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 VSA by the Chief Executive Officer or President,
to the foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF VSA. VSA 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, except to the extent that the failure
to so perform would not have a Material Adverse Effect on VSA, and EAI shall
have received a certificate signed on behalf of VSA by the Chief Executive
Officer and President to such effect.
(c) DISSENTERS RIGHTS. Holders of not more than ten percent (10%) of the
outstanding VSA Stock shall have validly exercised their "dissenters rights"
pursuant to the MBCA.
(d) AFFILIATES AGREEMENTS. EAI shall have received executed Affiliate
Letters from each stockholder of VSA listed in Section 6.5 of the Disclosure
Schedule as an "affiliate" of VSA.
(e) PROPRIETARY INFORMATION AGREEMENTS. VSA shall have in its personnel
files an executed copy of VSA's proprietary information agreement (substantially
in the form included in the Disclosure Schedule) from each employee of VSA.
(f) EMPLOYMENT AGREEMENT. Mark E. Craig shall have executed and delivered
to EAI an employment agreement substantially in the form attached as Exhibit B.
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(g) LEGAL OPINION; CLOSING CERTIFICATES. EAI shall have received from
legal counsel to VSA an opinion substantially in the form attached as Exhibit C,
together with such customary closing documents and certificates as EAI or its
counsel shall reasonably request.
(h) ESOP OPINION. EAI shall have received from legal counsel to the ESOP
an Opinion substantially in the form attached hereto as Exhibit D.
(i) INTELLECTUAL PROPERTY ASSIGNMENT. EAI shall have received the executed
Intellectual Property Assignment.
(j) MATERIAL ADVERSE CHANGE. There shall not have occurred any change
which would constitute a Material Adverse Effect on VSA and its subsidiaries,
taken as a whole.
(k) REPAYMENT OF INDEBTEDNESS. VSA shall have received payment in full of
all amounts owed to it by Mark E. Craig or any entity controlled by him or any
of his immediate family members.
7.3. Conditions to Obligations of VSA. The obligation of VSA to effect the
Merger is also subject to the satisfaction or waiver by VSA 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 Material
Adverse Effect shall be true and correct, and the representations and warranties
of EAI that are not so qualified shall be true and correct, except where the
failure to be true and correct would not have a Material Adverse Effect on EAI,
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. VSA 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, except to the extent that the failure
to so perform would not have a Material Adverse Effect on EAI, and VSA 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. VSA shall have received from
Jamie A. Wade, General Counsel of EAI, an opinion substantially in the form
attached as Exhibit E together with such customary closing documents and
certificates as VSA or its counsel shall reasonably request.
(d) RELEASE OF GUARANTEE. Mark E. Craig shall have received (i) a release
of all guarantees by him of any obligations of VSA, and (ii) payment in full of
all amounts owed to him by VSA other than salary payable in the ordinary course
of business on regular payroll dates.
(e) EMPLOYMENT AGREEMENT. VSA or EAI shall have executed and delivered to
Mark E. Craig the Employment Agreement.
(f) 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 TERMINATION AND AMENDMENT 1
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
stockholders of VSA:
(a) by mutual consent of VSA 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 VSA or the Board of Directors of
EAI if any Governmental Authority which must grant a Requisite Regulatory
Approval has denied approval of the Merger and such
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denial has become final and non-appealable, 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 and such order has become final and non-appealable;
(c) by either the Board of Directors of VSA 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 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 has resulted in a Material Adverse Effect on such other
party, which breach is not cured within 60 days following written notice to the
party committing such breach, (y) the Closing shall not have occurred on or
before November 30, 1998; 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 VSA stockholder meeting shall not have occurred in accordance with the
requirements of the MBCA 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 December 31, 1998; or
(d) by the Board of Directors of VSA (after consulting with its legal
counsel), if such action is required for the Board of Directors to comply with
its fiduciary duties to VSA and its stockholders as contemplated in Section 6.8
hereof; provided, however, if such action is taken by VSA, then (i) within 2
days of such termination VSA shall reimburse EAI for its out-of-pocket expenses
(in an amount not to exceed $100,000) incurred in connection with the
transactions contemplated by this Agreement; and (ii) if VSA 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 VSA during such 12-month period, VSA shall also promptly pay to EAI
$1,300,000 upon the occurrence of such transaction; provided, however, if the
VSA stockholder meeting shall have occurred and the VSA stockholders 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 VSA stockholder meeting
without further action of any of the parties hereto and within 2 days of such
termination VSA pay to EAI $1,300,000 and shall reimburse EAI for its
out-of-pocket expenses (in an amount not to exceed $100,000) incurred in
connection with the transactions contemplated by this Agreement.
8.2. Effect of Termination. In the event of termination of this Agreement
by either VSA or EAI as provided in Section 8.1, this Agreement shall forthwith
become void and have no effect, and none of VSA or EAI 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 VSA nor 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, 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 stockholders
of VSA, there may not be, without further approval of such stockholders, 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 VSA
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.
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ARTICLE IX.
INDEMNIFICATION
9.1. Indemnification by Stockholder. Subject to Section 9.6 hereof, Mark
E. Craig (the "Stockholder") shall indemnify EAI, and its affiliates (including
after the Closing, the Surviving Corporation), and their respective
stockholders, officers, directors, employees and agents, from and against, and
will pay them the amount of, any and all losses, costs, claims, liabilities,
damages (including incidental and consequential damages), penalties and expenses
(including attorneys' and auditor fees and the costs of investigation and
defense) (collectively, the "Losses"), incurred or suffered by EAI or its
affiliates relating to or arising out of or in connection with any of the
following:
(a) any breach of or any inaccuracy in any representation or warranty made
by VSA as of the date hereof or as the Closing Date in respect to Sections 3.2,
3.7, 3.9, 3.10, 3.11, 3.12 or 3.19 or any matter disclosed on the portion of the
Disclosure Schedule pertaining to such Sections; or
(b) any breach of or failure by VSA to perform any of its covenants or
obligations set out or contemplated in this Agreement or any document delivered
at or in connection with the Closing.
9.2. Claims. As soon as is reasonably practicable after becoming aware of
a claim for indemnification under this Agreement, EAI shall promptly give notice
to the indemnifying person ("Indemnifying Person") of such claim and the amount
EAI will be entitled to receive hereunder from the Indemnifying Person. If the
Indemnifying Person does not object in writing to such indemnification claim
within 30 days of receiving notice thereof, EAI shall be entitled to recover, on
the 31st day after such notice was given, from the Indemnifying Person the
amount of such claim, and no later objection by the Indemnifying Person shall be
permitted; if the Indemnifying Person agrees that he has an indemnification
obligation but objects that he is obligated to pay only a lesser amount, EAI
shall nevertheless be entitled to recover, on the 31st day after such notice was
given, from the Indemnifying Person the lesser amount, without prejudice to
EAI's claim for the difference.
9.3. Notice of Third-Party; Assumption of Defense. EAI shall give notice
as promptly as is reasonably practicable to the Indemnifying Person of the
assertion of any claim, or the commencement of any suit, action or proceeding,
by any Person not a party hereto in respect of which indemnity may be sought
under this Agreement. The Indemnifying Person may, at his own expense, (a)
participate in the defense of any claim, suit, action or proceeding; and (b)
upon notice to EAI and Indemnifying Person's delivering to EAI a written
agreement that EAI is entitled to indemnification for all Losses arising out of
such claim, suit, action or proceeding and that the Indemnifying Person shall be
liable for the entire amount of any Loss, at any time during the course of any
such a claim, suit, action or proceeding, assume the defense thereof; provided,
however, that (i) the Indemnifying Person's counsel is reasonably satisfactory
to EAI, and (ii) the Indemnifying Person shall thereafter consult with EAI upon
EAI's reasonable request for such consultation from time to time with respect to
such claim, suit, action or proceeding. If the Indemnifying Person assumes such
defense, EAI shall have the right (but not the duty) to participate in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the Indemnifying Person. If, however, EAI reasonably
determines in its judgment that representation by the Indemnifying Person's
counsel of both the Indemnifying Person and EAI would present such counsel with
a conflict of interest, then EAI may employ separate counsel to represent or
defend it in any such claim, action, suit or proceeding and the Indemnifying
Person shall pay the fees and disbursements of such separate counsel. Whether or
not the Indemnifying Person chooses to defend or prosecute any such claim, suit,
action or proceeding, all of the parties hereto shall cooperate in the defense
or prosecution thereof.
9.4. Settlement or Compromise. Any settlement or compromise made or caused
to be made by EAI or the Indemnifying Person, as the case may be, of any claim,
suit, action or proceeding shall also be binding upon the Indemnifying Person or
EAI, as the case may be, in the same manner as if a final judgment or decree
had been entered by a court of competent jurisdiction in the amount of such
settlement or compromise; provided, however, that no obligation, restriction or
Loss shall be imposed on EAI as a result of such settlement without its prior
written consent. EAI will give the Indemnifying Person at least 30 days' notice
of
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any proposed settlement or compromise of any claim, suit, action or proceeding
it is defending, during which time the Indemnifying Person may reject such
proposed settlement or compromise, provided, however, that from and after such
rejection, the Indemnifying Person shall be obligated to assume the defense of
and full and complete liability and responsibility for such claim, suit, action
or proceeding and any and all Losses in connection therewith in excess of the
amount of unindemnifiable Losses which EAI would have been obligated to pay
under the proposed settlement or compromise.
9.5. Failure of Indemnifying Person to Act. In the event that the
Indemnifying Person does not elect to assume the defense of any claim, suit,
action or proceeding, then any failure of EAI to defend or to participate in the
defense of any such claim, suit, action or proceeding or to cause the same to be
done, shall not relieve the Indemnifying Person of his obligations hereunder.
9.6. Limitations on Stockholders Indemnity. Notwithstanding anything to
the contrary contained in this Agreement:
(a) In order for EAI and its affiliates (including after Closing the
Surviving Corporation), and their respective, stockholders, officers, directors,
employees and agents, to make a claim against Stockholder for indemnification
pursuant to this Article IX, each such indemnifiable claim must exceed a minimum
threshold of $10,000 (a "Covered Claim");
(b) The Stockholder shall not be liable for any Covered Claim under this
Article IX unless and until the aggregate amount of the Covered Claims shall
exceed $300,000, in which event the Stockholder shall only be liable for the
aggregate amount of all Covered Claims in excess of $300,000, subject, however
to the other limitations set forth herein; and
(c) In no event shall the aggregate liability of Stockholder under this
Agreement exceed $3,000,000.
ARTICLE X.
GENERAL PROVISIONS
10.1. Expenses. Except as set forth in Article IX, Section 8.1(e) or the
final proviso clause of Section 8.1, all costs and expenses incurred by EAI or
Sub in connection with this Agreement and the transactions contemplated hereby
shall be by paid EAI, and all costs and expenses incurred by VSA (and/or
Stockholder in connection with this Agreement and the transactions contemplated
hereby shall be paid by VSA.
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, Iowa 50010
Attention: Jamie A. Wade
Vice President of Administration, General Counsel and Secretary
Fax: (515) 296-6941
24
<PAGE> 29
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 VSA or Stockholder, to:
Variation Systems Analysis, Inc.
300 Maple Park Boulevard
St. Clair Shores, MI 48081-3771
Attention: Mark E. Craig
Fax: 810-778-6470
with a copy to:
Timmis & Inman L.L.P.
300 Talon Centre
Detroit, MI 48207
Attention: Henry J. Brennan, Esq.
Fax: (313) 396-4229
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, VSA or any of their respective affiliates to take any action which would
violate any applicable law, rule or regulation.
10.4. Counterparts; Facsimile. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement. The
Agreement may be executed and delivered by facsimile transmission, and a
facsimile of this Agreement or of a signature of a party shall be as effective
as an original.
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. Disclosure of any matter in the Disclosure Schedule for purposes of any
Section of this Agreement shall constitute disclosure of such matter for
purposes of all Sections within such Article for purposes of this Agreement.
10.6. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Michigan, without regard to any
applicable conflicts of law which would result in the application of any other
law.
10.7. Survival. All representations, warranties, covenants and agreements
contained in this Agreement, or in any Schedule, certificate, document or
statement delivered pursuant hereto, shall survive the Closing for a period of
two (2) years, except for the representations and warranties contained in
Section 3.7, which shall expire at the Effective Time.
25
<PAGE> 30
10.8. 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.
10.9. Publicity. Except as otherwise required by applicable law or the
rules of the NNM, neither VSA 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.
10.10. 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, other than in respect
to the parties entitled to indemnification pursuant to Article IX.
10.11. Knowledge and Awareness. As used in this Agreement, "knowledge" or
"awareness" of VSA means the actual knowledge or awareness of Mark E. Craig.
10.12. 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.
10.13. Pooling of Interests Accounting; Tax Free Reorganization. In the
event that either EAI or VSA 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 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.
[SIGNATURE PAGE FOLLOWS]
26
<PAGE> 31
IN WITNESS WHEREOF, EAI, Sub and VSA 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 EAI VICTORY, INC.
By: /s/ JAMIE A. WADE By: /s/ JAMIE A. WADE
------------------------------ ----------------------
Name: Jamie A. Wade Name: Jamie A. Wade
---------------------------- --------------------
Title: Vice President Title: Vice President
--------------------------- -------------------
VARIATION SYSTEMS ANALYSIS, INC.
By: /s/ MARK E. CRAIG
------------------------------
Mark E. Craig
President and Chief Executive
Officer
AGREED TO WITH RESPECT TO
SECTION 6.12 AND ARTICLE IX AS OF
THE DATE FIRST ABOVE WRITTEN
/s/ MARK E. CRAIG
------------------------------
Mark E. Craig, individually as
the Stockholder
27
<PAGE> 1
EXHIBIT 2.2
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BETWEEN
ENGINEERING ANIMATION, INC.
AND
TRANSOM TECHNOLOGIES, INC.
------------------------
DATED AS OF AUGUST 19, 1998
------------------------
<PAGE> 2
TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER
<TABLE>
<S> <C> <C>
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....................................... 1
1.5. Certificate of Incorporation and By-Laws.................... 1
1.6. Directors and Officers...................................... 1
1.7. Tax and Accounting Consequences............................. 2
ARTICLE II. CONVERSION AND EXCHANGE OF SHARES........................... 2
2.1. Definition.................................................. 2
2.2. Total Merger Consideration.................................. 2
2.3. Conversion of Transom Series A Warrants..................... 2
2.4. Conversion of Transom Preferred Stock....................... 2
2.5. Conversion of Transom Common Stock.......................... 3
2.6. Exchange of Shares.......................................... 4
2.7. Options to Acquire Transom Common Stock..................... 4
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF.......................... 5
3.1. Corporate Organization...................................... 5
3.2. Capitalization.............................................. 5
3.3. Authority; No Violation..................................... 5
3.4. Consents and Approvals...................................... 6
3.5. Reports..................................................... 6
3.6. Compliance with Applicable Law.............................. 6
3.7. Financial Statements........................................ 6
3.8. Absence of Certain Changes or Events........................ 7
3.9. Legal Proceedings and Restrictions.......................... 7
3.10. Taxes and Tax Returns....................................... 7
3.11. Employee Benefits........................................... 9
3.12. Employment and Labor Relations.............................. 10
3.13. Contracts................................................... 10
3.14. Undisclosed Liabilities..................................... 11
3.15. Environmental Liability..................................... 11
3.16. Tangible Assets............................................. 12
3.17. Real Property............................................... 12
3.18. Intellectual Property....................................... 12
3.19. Notes and Accounts Receivable............................... 13
3.20. Bank Accounts and Powers of Attorney........................ 13
3.21. Guaranties.................................................. 13
3.22. Insurance................................................... 13
3.23. Service Contracts and Warranties............................ 13
3.24. Certain Relationships....................................... 13
3.25. S-4 Information............................................. 13
3.26. Broker's Fees............................................... 14
3.27. Certain Customer Relationships.............................. 14
3.28. Disclosure.................................................. 14
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF EAI......................................................... 14
4.1. Corporate Organization......................................................................... 14
4.2. Capitalization................................................................................. 14
4.3. Authority; No Violation........................................................................ 14
4.4. Consents and Approvals......................................................................... 15
4.5. SEC Reports.................................................................................... 15
4.6. S-4 Information................................................................................ 15
4.7. Broker's Fee................................................................................... 15
4.8. Disclosure..................................................................................... 15
ARTICLE V. COVENANTS RELATING TO CONDUCT OF BUSINESS....................................................... 15
5.1. Conduct of Business Prior to the Effective Time................................................ 15
5.2. Transom Forbearances........................................................................... 16
ARTICLE VI. ADDITIONAL AGREEMENTS.......................................................................... 16
6.1. Regulatory and Other Matters................................................................... 16
6.2. Access to Information.......................................................................... 17
6.3. Stockholders' Approval......................................................................... 17
6.4. NNM Listing.................................................................................... 17
6.5. Affiliates..................................................................................... 17
6.6. Additional Agreements.......................................................................... 17
6.7. Advice of Changes.............................................................................. 17
6.8. Takeover Proposals............................................................................. 17
ARTICLE VII. CONDITIONS PRECEDENT.......................................................................... 18
7.1. Conditions to Each Party's Obligation To Effect the Merger..................................... 18
7.2. Conditions to Obligations of EAI............................................................... 19
7.3. Conditions to Obligations of Transom........................................................... 20
ARTICLE VIII. TERMINATION AND AMENDMENT.................................................................... 20
8.1. Termination.................................................................................... 20
8.2. Effect of Termination.......................................................................... 21
8.3. Amendment; Extension; Waiver................................................................... 21
ARTICLE IX. GENERAL PROVISIONS............................................................................. 22
9.1. Expenses....................................................................................... 22
9.2. Notices........................................................................................ 22
9.3. Interpretation................................................................................. 22
9.4. Counterparts; Facsimile........................................................................ 23
9.5. Entire Agreement............................................................................... 23
9.6. Governing Law.................................................................................. 23
9.7. Severability................................................................................... 23
9.8. Publicity...................................................................................... 23
9.9. Assignment; Third Party Beneficiaries.......................................................... 23
9.10. Knowledge and Awareness........................................................................ 23
9.11. Construction................................................................................... 23
9.12. Pooling of Interests Accounting; Tax Free Reorganization....................................... 23
</TABLE>
ii
<PAGE> 4
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of August 19,
1998 (the "Agreement"), by and between ENGINEERING ANIMATION, INC., a Delaware
corporation ("EAI"), and TRANSOM TECHNOLOGIES, INC., a Delaware corporation
("Transom").
WHEREAS, the Boards of Directors of EAI and Transom 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
Transom, subject to the terms and conditions set forth herein, shall merge with
and into EAI (the "Merger").
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, as of July 29, 1998, EAI and Transom entered into an Agreement and
Plan of Merger (the "Original Agreement"), and the parties desire to amend and
restate the Original Agreement in its entirety in the manner provided herein.
WHEREAS, the Disclosure Schedule delivered by Transom in connection with
the Original Agreement shall be deemed to be the Disclosure Schedule delivered
by Transom in connection with this Agreement.
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 Delaware General Corporation Law (the "DGCL"), at the
Effective Time (as hereinafter defined), Transom shall merge with and into EAI.
EAI 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 Delaware under the name "Engineering
Animation, Inc." Upon consummation of the Merger, the separate corporate
existence of Transom 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,
as soon as practicable but in any event within two 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"). The parties anticipate that the Closing shall occur on or before
September 30, 1998.
1.3. Effective Time. Subject to the terms and conditions of this Agreement,
the Merger shall become effective as set forth in the certificate of merger in a
form mutually acceptable to the parties (the "Certificate of Merger"), which
shall be filed with the Secretary of State of the State of Delaware (the
"Delaware Secretary") on or, if both parties agree, before the Closing Date. The
term "Effective Time" shall be the date and time when the Merger becomes
effective, as set forth in 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 DGCL.
1.5. Certificate of Incorporation and By-Laws. Subject to the terms and
conditions of this Agreement, at the Effective Time, the Certificate of
Incorporation and By-Laws of EAI shall be the Certificate 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 EAI 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 DGCL and the Surviving Corporation's Certificate of Incorporation and
By-Laws.
<PAGE> 5
1.7. Tax and Accounting Consequences. EAI and Transom 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 Transom 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. Definitions. The following terms shall have the following respective
meanings for purposes of this Agreement:
(a) "EAI Common Stock" shall mean each share of the Common Stock, $.01 par
value per share, of EAI.
(b) "EAI Stock Value" shall mean 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 the second trading day prior to the Closing, as
reported in the NNM listings published in The Wall Street Journal.
(c) "Transom Certificate" shall mean each certificate representing any
shares of Transom Stock outstanding immediately prior to the Effective Time.
(d) "Transom Common Stock" shall mean each share of the common stock, $.001
par value per share, of Transom.
(e) "Transom Options" shall mean all options outstanding immediately prior
to the Effective Time, whether or not then exercisable, to purchase shares of
Transom Common Stock.
(f) "Transom Preferred Stock" shall mean each share of the preferred stock,
$.001 par value per share, of Transom.
(g) "Transom Series A Preferred Stock" shall mean each share of Transom
Preferred Stock designated as "Series A Non-Voting Convertible Preferred Stock".
(h) "Transom Series A Warrants" shall mean all issued and outstanding
warrants to purchase shares of Transom Series A Preferred Stock.
(i) "Transom Series B Preferred Stock" shall mean each share of Transom
Preferred Stock designated as "Series B Convertible Preferred Stock".
(j) "Transom Stock" shall mean all of the Transom Common Stock and the
Transom Preferred Stock.
2.2. Total Merger Consideration. The total consideration payable as
provided herein to holders of Transom Common Stock and Transom Options upon
consummation of the Merger (the "Total Merger Consideration") shall be equal to
235,000 shares of EAI Common Stock.
2.3. Conversion of Transom Series A Warrants. At or prior to the Effective
Time, Transom shall cause all of the issued and outstanding Transom Series A
Warrants to be fully converted into shares of Transom Common Stock on a one
share of Transom Preferred Stock issuable under such Transom Series A Warrants
for one share of Transom Common Stock basis pursuant to the terms of the Transom
Series A Warrants (the "Warrant Conversion"). All of the Transom Series A
Warrants and/or Transom Preferred Stock to be converted into Transom Common
Stock pursuant to this Section 2.3 shall no longer be outstanding and shall
automatically be canceled and cease to exist as of the effective time of the
Warrant Conversion (the "Warrant Conversion Time"), and each warrant or
certificate previously representing any such Transom Preferred Stock (or the
right to purchase Transom Preferred Stock) shall thereafter represent the right
to receive that number of Transom Common Shares as determined by this Section
2.3.
2.4. Conversion of Transom Preferred Stock. At or prior to the Effective
Time, Transom shall cause the conversion of all of the issued and outstanding
shares of Transom Preferred Stock into shares of Transom
2
<PAGE> 6
Common Stock on a one share of Transom Preferred Stock for one share of Transom
Common Stock basis pursuant to Transom's Certificate of Incorporation (the
"Preferred Share Conversion"). All of the shares of Transom Preferred Stock to
be converted into Transom Common Stock pursuant to this Section 2.4 shall no
longer be outstanding and shall automatically be canceled and cease to exist as
of the effective time of the Preferred Share Conversion (the "Preferred Stock
Conversion Time"), and each certificate previously representing any such shares
of Transom Preferred Stock shall thereafter represent the right to receive that
number of Transom Common Shares as determined by this Section 2.4.
2.5. Conversion of Transom Common Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of EAI, Transom or any
stockholder of Transom:
(a) Each share of the Transom Common Stock issued and outstanding
immediately prior to the Effective Time (but after the Warrant Conversion Time
and the Preferred Stock Conversion Time), other than Dissenter's Shares (as
defined below), shall be converted into the right to receive shares of EAI
Common Stock at the Exchange Ratio. The "Exchange Ratio" shall be determined as
follows: each share of Transom Common Stock shall be exchanged for that number
of shares of EAI Common Stock equal to the quotient, carried to six decimal
places, of (x) 235,000 divided by (y) the sum of (i) the total number of shares
of Transom Common Stock outstanding immediately prior to the Effective Time (but
after the Warrant Conversion Time and the Preferred Stock Conversion Time) plus
(ii) the number of shares of Transom Common Stock issuable upon the exercise of
all outstanding Transom Options.
(b) No fractional shares of EAI Common Stock shall be issued, and in lieu
thereof, EAI shall pay to each former stockholder of Transom 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
six decimal places when expressed as an Arabic number) of EAI Common Stock to
which such holder would otherwise be entitled to receive pursuant to this
Section 2.5.
(c) All of the shares of Transom Stock to be 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 Transom 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 Transom Common Stock
represented by such Common Certificate have been converted. If, prior to the
Effective Time, the outstanding shares of EAI Common Stock or Transom 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 and
the Total Merger Consideration.
(d) Subject to the terms and conditions of this Agreement, shares of
Transom Stock with respect to which dissenters rights have been properly
demanded in accordance with the DGCL ("Dissenters' Shares") shall not be
converted into EAI Common Stock at the Effective Time, but shall be converted
into the right to receive from EAI such consideration as is determined to be due
and payable with respect to such Dissenters' Shares pursuant to the provisions
of the DGCL. Transom shall give EAI (i) prompt notice of any written demands for
appraisals, withdrawals or demands for appraisal and any other instruments in
respect thereof received by Transom and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal. Transom
shall not voluntarily make any payment with respect to any demands for appraisal
and will not, except with the prior written consent of EAI, settle or offer to
settle any such demands.
(e) At the Effective Time, all shares of Transom Stock that are owned by
Transom as treasury stock and all shares of Transom Stock that are owned,
directly or indirectly, by Transom or 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 Transom shall become
treasury stock of EAI.
(f) After the Effective Time, there shall be no transfers on Transom's
stock transfer books of shares of Transom Stock.
3
<PAGE> 7
2.6. Exchange of Shares. (a) At or any time after the Closing, each
stockholder of Transom shall have the right to deliver to EAI a properly
completed letter of transmittal in a form reasonably satisfactory to EAI (the
"Transmittal Letter") and Transom Certificates representing all of the issued
and outstanding shares of Transom Stock owned by such stockholder, 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 or kind whatsoever, other than federal and state securities law
restrictions. Upon proper surrender of a Transom Certificate for exchange and
cancellation to EAI, and in accordance with and subject to the other provisions
of this Agreement and the Transmittal Letter, the holder of such Transom
Certificate shall receive in exchange therefor (i) a certificate representing
that number of whole shares of EAI Common Stock to which such holder of Transom
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 Transom 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 Transom Certificates.
(b) If any certificate representing shares of EAI Common Stock is to be
issued in a name other than that in which the Transom Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance thereof
that the Transom 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 Transom 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 Transom Certificate. Thereafter, EAI shall issue in exchange for
such lost, stolen or destroyed Transom Certificate the shares of EAI Common
Stock and any cash in lieu of a fractional share deliverable in respect thereof
pursuant to this Agreement.
2.7. Options to Acquire Transom Common Stock.
(a) At the Effective Time, each outstanding Transom Option shall be fully
vested in accordance with the terms of the Transom Options and the Option Plan
(as defined below), and shall be assumed by EAI. Each such Transom Option so
assumed by EAI under this Agreement shall continue to have and be subject to the
same terms and conditions set forth in the applicable Transom Option immediately
prior to the Effective Time, except that the Transom Option shall be fully
vested as provided in the preceding sentence. Each such Transom Option shall
thereafter be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such Transom Option, (i) the same number of
shares of EAI Common Stock as such Transom Option would have been exchangeable
for had such Transom 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 Transom Common
Stock otherwise purchasable pursuant to such Transom Option divided by (B) the
number of 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 Transom Option shall
not include any fractional share and, upon exercise of such Transom 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. It is the intention of the parties
that the Transom Options issued pursuant to that certain Transom 1996 Equity
Compensation Plan (the "Option Plan") which have been assumed by EAI as provided
herein, to the extent that they pertain to the purchase of EAI Common Stock
thereunder, shall continue to qualify as incentive stock options under Section
422 of the Code to the same extent immediately after the Closing as such Transom
Options so qualified immediately prior to the Closing.
(b) As soon as practicable after the Effective Time, EAI shall deliver to
the holders of Transom Options appropriate notices setting forth such holders'
rights and the agreements evidencing the grants of such Transom Options shall be
deemed to be appropriately amended so that such Transom Options shall represent
4
<PAGE> 8
rights to acquire EAI Common Stock on terms and conditions as contained in the
outstanding Transom Options (subject to the adjustments required by this Section
2.7 after giving effect to the assumption by EAI as set forth above).
(c) EAI shall file within five (5) business days following the Closing Date
and use its reasonable efforts to maintain the effectiveness of a Form S-8
registration statement covering the Transom Options (and maintain the current
status of the prospectus or prospectuses referred to therein) for so long as
such Transom Options remain outstanding.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF TRANSOM
Except as disclosed by Transom in the disclosure schedule delivered
pursuant to this Agreement (the "Disclosure Schedule"), Transom represents and
warrants to EAI as follows:
3.1. Corporate Organization. (a) Transom is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Transom 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 the
States of Michigan, Pennsylvania and Delaware, which constitutes 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, qualified or in good standing would not have a Material Adverse Effect
(as defined in Section 3.8 below) on Transom. Correct and complete copies of the
Certificate of Incorporation and By-Laws of Transom, as in effect on the date of
this Agreement, have been made available to EAI by Transom.
(b) Transom 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 Transom accurately reflect in all material respects
all actions taken by the boards of directors, including committees thereof, and
the stockholders of Transom.
3.2. Capitalization. The authorized capital stock of Transom consists of
(a) 10,000,000 shares of Transom Common Stock, of which 1,650,800 shares are
issued and outstanding and 1,537,667 shares are reserved for issuance upon
exercise of outstanding Transom Options, 628,000 are reserved for issuance upon
conversion of Transom Series A Preferred Stock and 4,650,000 are reserved for
issuance upon conversion of Transom Series B Preferred Stock, (b) 6,000,000
shares of Transom Preferred Stock, of which (x) 628,000 shares have been
designated as Transom Series A Preferred Stock, of which 478,000 shares are
issued and outstanding and 150,000 shares are reserved for issuance upon
conversion of the Transom Series A Warrants, and (y) 5,000,000 shares of Transom
Series B Preferred Stock, of which 4,650,000 shares are issued and outstanding.
Each record holder of Transom Stock and the number of shares owned by each, and
each holder of a Transom Series A Warrant and Transom Option and the number of
shares of Transom Stock which such holder may purchase, is set forth in Section
3.2 of the Disclosure Schedule. No shares of Transom Stock are held in Transom's
treasury and no shares of Transom Stock are reserved for issuance other than
those shares reserved for issuance under the Transom Preferred Stock, Transom
Series A Warrants and Transom Options. All of the issued and outstanding shares
of Transom 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 Transom Preferred Stock,
Transom Series A Warrants and Transom Options, as listed in Section 3.2 of the
Disclosure Schedule, Transom 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) Transom has the corporate power and
authority to execute and deliver this Agreement and (subject to stockholder
consent) to consummate the transactions contemplated hereby.
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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 Transom. Except for the adoption of this Agreement by the
requisite vote of holders of the issued and outstanding shares of Transom Stock,
no other corporate proceedings on the part of Transom are necessary to approve
this Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Transom and
constitutes a valid and binding obligation of Transom, enforceable against
Transom in accordance with its terms, except as such enforceability is limited
by bankruptcy, insolvency, reorganization or similar laws and general principles
of equity.
(b) The execution and delivery of this Agreement by Transom, the
consummation by Transom of the transactions contemplated hereby (subject to
stockholder approval), and the compliance by Transom with the terms or
provisions hereof, shall not (i) violate any provision of the Certificate of
Incorporation or By-Laws of Transom, (ii) violate any law, statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to Transom 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 nature or kind (collectively,
"Liens") upon any of the properties or assets of Transom under any note, bond,
mortgage, indenture, deed of trust, license, lease, contract, agreement or other
instrument or obligation to which Transom 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 as set forth on Section 3.4 of the
Disclosure Schedule and the (i) the filing of Certificate of Merger with the
Delaware Secretary pursuant to the DGCL, (ii) the approval of this Agreement by
the requisite vote of the holders of Transom Stock, and (iii) the filing with
the Securities and Exchange Commission (the "SEC") and declaration of
effectiveness of a Registration Statement on Form S-4 (the "S-4"), 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 Transom of this Agreement and the
consummation by Transom of the Merger and the other transactions contemplated by
this Agreement.
3.5. Reports. Transom has timely filed all reports, registrations and
statements required to be filed since October 6, 1996 with any Governmental
Authority, and has paid all fees and assessments due and payable in connection
therewith, except where the failure to make such filings and payments would not
have a Material Adverse Effect on Transom. No Governmental Authority has
initiated any proceeding or, to the best knowledge of Transom, investigation
into the business or operations of Transom.
3.6. Compliance with Applicable Law. Transom 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 Transom, except where the failure to
comply would not have a Material Adverse Effect on Transom.
3.7. Financial Statements. Transom has previously provided EAI with correct
and complete copies of the following (collectively, the "Transom Financial
Statements"): (a) the audited balance sheets of Transom as of March 31, 1997 and
1998, and the related audited statements of operations and stockholders' equity
and cash flows for the fiscal years ended March 31, 1997 and 1998, and (b) the
unaudited balance sheet of Transom as of June 30, 1998, and the related
unaudited consolidated statement of operations for the period then ended (the
"Interim Financial Statements"). The Transom Financial Statements fairly present
in all material respects the financial position of Transom as of the dates
thereof, and the results of operations and cash flows of Transom for the
respective fiscal periods or as of the respective dates thereof.
Each of the Transom 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
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involved subject, in the case of the Interim Financial Statements to normal
year-end adjustments and lack of footnotes. The books and records of Transom
have been, and are being, maintained in accordance with GAAP.
3.8. Absence of Certain Changes or Events. (a) Since March 31, 1998, (i)
Transom 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 reasonably be expected to have a material adverse effect
on the business, properties, operations or financial condition (a "Material
Adverse Effect") of Transom, and (iii) Transom 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
March 31, 1998, Transom 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 Transom.
3.9. Legal Proceedings and Restrictions. (a) Except as set forth on Section
3.9 of the Disclosure Schedule, there are no actions, suits, proceedings, claims
or investigations pending, or to the knowledge of Transom, threatened against or
affecting Transom at law or in equity or before any Governmental Authority.
(b) There is no judgment, order, writ, decree, injunction or regulatory
restriction imposed upon Transom or its assets which has had, or could
reasonably be expected to have, a Material Adverse Effect on Transom.
3.10. Taxes and Tax Returns.
(a) (i) Transom (which term for purposes of this Section 3.10 shall
include any former subsidiaries or predecessors of Transom 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 Transom 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 the knowledge of Transom,
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 Transom may be subject and Transom is not under audit by any
Governmental Authority for any Tax. There are no Tax liens on any assets of
Transom other than liens for Taxes not yet due or payable;
(ii) Transom has paid, on the basis of Transom'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 Transom's books as an accrued Tax liability,
either current or deferred. The amount of such Tax liabilities as of March
31, 1998 shall be set forth in Section 3.10 of the Disclosure Schedule. All
Taxes required to be withheld, collected or deposited by Transom 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, Transom 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 Transom; and no other
entity that was included in the filing of a Return with Transom on a
consolidated, combined, or unitary basis has left Transom's consolidated,
combined or unitary group in a taxable year for which the statute of
limitations on assessment remains open. Transom has not been at
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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 Transom; and
(b) Transom:
(i) Does not have any Tax sharing or allocation agreement or
arrangement, 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;
(ii) 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 Transom;
(iii) Is not and has not been subject to the provisions of Section
1503(d) of the Code related to "dual consolidated loss" rules;
(iv) 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;
(v) 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;
(vi) Does not have any unused net operating loss, unused net capital
loss, unused tax credit, or excess charitable contribution for Federal
income tax purposes;
(vii) Is not a United States real property holding corporation
("USRPHC") as defined in Section 897 of the Code and as of the Closing has
not been a USRPHC for the five year period immediately preceding the
Closing Date; and
(viii) No withholding of Taxes by EAI 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 Transom will provide any
required certificates to avoid any such withholding.
(ix) Is not a Small Business Corporation ("S" Corporation) as defined
in Section 1361(a) of the Code.
(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, 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.
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3.11. Employee Benefits.
(a) Except as set forth on Section 3.11 of the Disclosure Schedule, Transom
(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 "Transom Plans"), which
could result in EAI or Transom having any liabilities, whether direct or
indirect.
(b) Transom has made available to EAI correct and complete copies of (i)
each Transom 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
Transom Plan, including written descriptions of any unwritten Transom Plans,
(iv) the most recent determination letter from the Internal Revenue Service (the
"IRS") for each Transom Plan (as applicable), and (v) the three most recent
Annual Reports -- Form 5500 (including accompanying schedules) and summary
annual reports for each Transom Plan.
(c) (i) Each Transom Plan (and any related agreements and documents) and
Transom 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 Transom 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) Transom has
received a favorable determination letter from the IRS with respect to each
Transom Plan that is intended to be "qualified" within the meaning of Code
Section 401(a) and no facts exist that could reasonably be expected to affect
adversely such "qualified" status, (iii) no Transom 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 Transom, is any person contractually bound to enter into any
non-exempt "prohibited transaction" within the meaning of Code Section 4975 or
ERISA Section 406 with respect to a Transom Plan, (v) Transom 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) Transom 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 Transom Plan or as otherwise required by
applicable law with respect to a Transom Plan, (vii) Transom 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,
(viii) Transom has not at any time maintained, administered or contributed to
any plan subject to ERISA Title IV, and (ix) Transom 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 Transom, (ii) increase any benefits otherwise payable under any Transom 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 Transom Options, or (iv)
impair the rights of Transom under any Transom Plan.
(e) Except as set forth in Section 3.11 of the Disclosure Schedule, there
are no actions, claims, investigations or audits pending or, to Transom's
knowledge, threatened with respect to any Transom Plan
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(other than claims for benefits in the ordinary course) that will create any
liability or obligation for the Surviving Corporation with respect to any
Transom 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 Transom 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 Transom 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 Transom 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
Transom, 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 Transom, no
executive, key employee or group of employees has any plans to terminate its or
their employment with Transom. There are no charges, complaints, investigations
or litigation currently pending, or to the knowledge of Transom threatened (and
to the knowledge of Transom there is no basis therefor), against Transom,
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 Transom under any applicable occupational safety and health
laws in any jurisdiction in which Transom conducts business. All levies,
assessments and penalties made against Transom pursuant to any applicable
workers' compensation legislation in any jurisdiction in which Transom conducts
business have been paid by Transom. Transom is not a party to any contracts with
any labor union or employee association nor has Transom made commitments to or
conducted negotiations with any labor union or employee association with respect
to any future contracts. Transom is not aware of any current attempts to
organize or establish any labor union or employee association with respect to
any employees of Transom, 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 Transom become
effective in the future, to which Transom is a party (collectively, the "Transom
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 Transom has created, incurred, assumed or
guaranteed any indebtedness for borrowed money, or any capitalized lease
obligation, or under which Transom 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 stockholder of
Transom 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;
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(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 Transom in the conduct of its business, or that
is licensed by Transom 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 Transom; or
(k) any other agreement the performance of which involves consideration
payable by any party in excess of $10,000 in any one year.
Transom has made available to EAI a correct and complete copy of each
Transom Contract. Except as set forth in Section 3.13 of the Disclosure
Schedule, (i) each Transom Contract is legal, valid, binding, enforceable in
accordance with its terms and in full force and effect, except as such
enforceability is limited by bankruptcy, insolvency, reorganization or similar
laws and general principles of equity, (ii) the consummation of the Merger will
not cause a breach or termination of any Transom Contract nor effect a change in
any of the terms of any Transom Contract, (iii) Transom is not, and, to
Transom's knowledge, no other party is, in breach or default of any Transom
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 Transom Contract, and (iv) Transom has
not, and, to Transom's knowledge, no other party has, repudiated any provision
of any Transom Contract.
3.14. Undisclosed Liabilities. Except for liabilities (i) that are fully
reflected or reserved against on the audited March 31, 1998 balance sheet of
Transom (the "1998 Balance Sheet") or (ii) that were incurred in the ordinary
course of business consistent with past practice since March 31, 1998, or (iii)
that are fully reflected or reserved against in the Interim Financial
Statements, Transom 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) Transom has not received any notice, and does not otherwise have
knowledge, of any claim, and no proceeding has been instituted raising any
claim, against Transom or any of the real properties now or formerly owned,
leased or operated by Transom or other assets of Transom, alleging any damage to
the environment or violation of any Environmental Laws;
(b) Transom 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 Transom or to other
assets of Transom or their use;
(c) Transom 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, except where the failure to comply could not reasonably be expected to
result in a Material Adverse Effect on Transom; and
(d) All buildings on all real properties now owned, leased or operated by
Transom 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 Transom.
(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
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(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. Transom 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 1998 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. Transom owns or leases pursuant to a Transom
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 Transom
that have a value in excess of $10,000.
3.17. Real Property. Transom does not own any real property. Section 3.17
of the Disclosure Schedule lists and describes briefly all real property leased
or subleased to Transom. Transom 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) Transom is not, and, to the knowledge of Transom, 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 Transom nor, to the knowledge of Transom, 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 Transom, 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) Transom 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 Transom (collectively the "Intellectual Property"). Transom 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) Transom 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 Transom is it subject to any such challenge;
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(iii) Transom 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
the Surviving Corporation on identical terms and conditions immediately
subsequent to the Closing and the transactions contemplated by this
Agreement will have no Material Adverse Effect on Transom'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 Transom, (i) Transom has not interfered with,
infringed upon, misappropriated or otherwise come into conflict with any
intellectual property rights of third parties, nor is Transom 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 Transom that could result in a Material Adverse Effect on Transom, nor
is any third party currently interfering with, infringing upon, misappropriating
or otherwise coming into conflict with any Intellectual Property rights of
Transom.
3.19. Notes and Accounts Receivable. All notes and accounts receivable of
Transom are reflected properly on Transom's books and records, are not, to the
knowledge of Transom, 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 Transom.
3.20. Bank Accounts and Powers of Attorney. Section 3.20 of the Disclosure
Schedule sets forth a list of all accounts, borrowing resolutions and deposit
boxes maintained by Transom 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 Transom.
3.21. Guaranties. Transom is not a guarantor or otherwise is liable for any
indebtedness, liability or other obligation of any other person or entity.
3.22. Insurance. Section 3.22 of the Disclosure Schedule lists each
insurance policy and self-insurance arrangement to which Transom 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 Transom.
The coverage provided by each of such policies is in an amount, and of a type
consistent with industry practice. Transom is in substantial compliance with all
conditions contained in such policies.
3.23. Service Contracts and Warranties. Except as set out in Section 3.23
of the Disclosure Schedule, Transom is not a party to any service contract
pursuant to which services are provided by Transom to a third party. Section
3.23 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 Transom.
3.24. Certain Relationships. No stockholder, director, officer or, to
Transom's knowledge, employee of Transom (i) is, or controls, or is an employee
of any competitor, supplier, customer or lessor or lessee of Transom, or (ii) is
indebted to Transom 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
Transom, other than assets that are immaterial in value; and Transom has not
entered into any transaction (including the furnishing of goods or services)
with any stockholder, director, officer, employer or other affiliate, except on
terms and conditions no less favorable to Transom than would be obtained in a
comparable arm's-length transaction with a third party.
3.25. S-4 Information. None of the written information to be supplied by
Transom for inclusion in the S-4 will, at the time the S-4 is filed with the
SEC, at any time it is amended or supplemented, at the time it becomes effective
under the Securities Act of 1933, as amended (the "Securities Act"), 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.
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3.26. Broker's Fees. Neither Transom 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.
3.27. Certain Customer Relationships. Section 3.27 of the Disclosure
Schedule contains an accurate list of Transom'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 Transom since
Transom's inception. Transom believes it has good relationships with each of the
Primary Customers and Transom 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 Transom.
3.28. Disclosure. No representation or warranty by Transom contained in
this Agreement (including the Disclosure Schedule and the Exhibits referred to
herein), or in any certificate furnished or to be furnished by Transom 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 IV.
REPRESENTATIONS AND WARRANTIES OF EAI
EAI represents and warrants to Transom 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 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 Transom by EAI.
4.2. Capitalization. The authorized capital stock of EAI consists of
60,000,000 shares of EAI Common Stock, of which as of May 11, 1998, 10,213,195
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
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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 Certificate of
Merger with the Delaware Secretary pursuant to the DGCL, (ii) the filing with
the SEC and declaration of effectiveness of the S-4, (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 of this
Agreement and the consummation by EAI 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, 1997, 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. S-4 Information. None of the information that EAI will include or
incorporate by reference in the S-4 will, at the time the S-4 is filed with the
SEC, at any time it is amended or supplemented, at the time it becomes effective
under the Securities Act 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 S-4 based on written information supplied by Transom specifically
for inclusion therein.
4.7. 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.
4.8. 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 Transom 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, Transom 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 Transom 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.
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5.2. Transom Forbearances. During the period from the date of this
Agreement to the Effective Time, except as expressly contemplated or permitted
by this Agreement, Transom 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 in accordance with the Warrant Conversion and Preferred Share
Conversion;
(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 Transom 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 Transom Contract, or change any
terms in any Transom 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,
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 Certificate 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) The parties shall promptly jointly
prepare and file the S-4 with the SEC and use their commercially reasonable
efforts to have the S-4 declared effective under the Securities Act as promptly
as practicable after such filing. Transom shall, upon request, furnish EAI with
all information or documents concerning Transom and its directors, officers and
stockholders and such other matters as may be reasonably necessary or advisable
in connection with the S-4. EAI shall also use its commercially 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 Transom shall furnish all information
concerning Transom and the holders of Transom Common Stock as may be reasonably
requested by EAI in connection with such qualifications, permits and approvals.
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(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, Transom 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 Transom's books and records, properties and contracts, and,
during such period, Transom shall make available to EAI all information
concerning its business, assets and personnel as EAI may reasonably request.
6.3. Stockholders' Approval. Transom shall call a meeting of its
stockholders for the purpose of voting upon the adoption of this Agreement and
the approval of the Merger, which meeting shall be held as soon as reasonably
practicable after the S-4 is declared effective by the SEC.
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, Transom shall obtain from
each of the stockholders and each of the optionholders listed in Section 6.5 of
the Disclosure Schedule as being "affiliates" of Transom a written agreement
substantially in the form attached as Exhibit A (the "Affiliate Letters").
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. Transom shall promptly advise EAI of any change or
event which is likely to have a Material Adverse Effect on Transom or which
Transom 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) Transom agrees that from and after its
execution of this Agreement through the Effective Time, it shall not and it
shall use its reasonable efforts to cause its directors, officers and employees,
and all investment bankers, attorneys or other advisors or representatives
retained by Transom 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
stockholders of Transom, or the investment bankers, attorneys, or other advisors
or representatives retained by Transom from (x) participating in any discussions
or negotiations with, or furnishing any information to, any third party that
makes a Takeover Proposal (y) making or authorizing any statement or
recommendation in support of any Takeover Proposal, or (z) entering into any
agreement with respect to any 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 Transom's receipt thereof, including the identity of
the party making the Takeover Proposal and the material terms thereof; (ii) such
third party has made a written Takeover Proposal to the Board of Directors of
Transom, which Takeover Proposal identifies a price or range of values to be
paid and after consultation with Transom's investment bankers, the Board of
Directors of Transom has determined that such Takeover Proposal is financially
more favorable to the stockholders of Transom than the terms of the Merger;
(iii) Transom's Board of Directors reasonably believes after consultation with
Transom'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 Transom has determined, after consultation with its
outside legal counsel, that its fiduciary duties require it to
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(x) furnish information to and negotiate with such third party, (y) make or
authorize any statement or recommendation in support of any Takeover Proposal,
or (z) enter into any agreement with respect to any Takeover Proposal.
Notwithstanding the foregoing, Transom shall not provide any non-public
information to such third party unless (A) Transom has notified EAI in advance
of any such proposed disclosure of non-public information and has provided EAI
with a description of the information Transom intends to disclose; and (B)
Transom provides such non-public information pursuant to a nondisclosure
agreement in a form substantially similar to that certain Mutual Non-Disclosure
Agreement dated August 27, 1997 (the "Non-Disclosure Agreement") between Transom
and EAI.
(c) In addition to the foregoing requirements, Transom 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), Transom
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
Transom or any proposal or offer to acquire a material equity interest in, or a
substantial portion of the assets of, Transom other than by EAI as contemplated
by this Agreement.
(e) Transom 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.
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"), all
of the Consents necessary to consummate the transactions contemplated by this
Agreement shall have been obtained, and all consents necessary to transfer all
of Transom's right, title and interest to its facilities located at 201 South
Main, Suite 300, Ann Arbor, Michigan, 48104 and 2133 Arch Street, 2nd Floor,
Philadelphia, PA 19103 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 stockholders of Transom 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) EAI Stock Value. The EAI Stock Value shall be greater than or equal to
$42.00 per share (subject to appropriate and proportionate adjustment in the
event of a reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split, or other similar change in capitalization of
EAI Common Stock).
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(f) Transom Stockholder Approval. This Agreement and the transactions
contemplated hereby shall have been approved by the requisite holders of the
issued and outstanding shares of Transom Common Stock, Transom Series B
Preferred Stock and, if required by law, Transom Series A Preferred Stock.
(g) Warrant Conversion. The Warrant Conversion shall have been duly and
validly effectuated.
(h) S-4. The S-4 shall have become effective under the Securities Act, and
no stop order suspending the effectiveness of the S-4 shall have been issued and
no proceeding for that purpose shall have been initiated or threatened by the
SEC.
(i) Preferred Share Conversion. The Preferred Share Conversion shall have
been duly and validly effectuated.
7.2. Conditions to Obligations of EAI. The obligation of EAI 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
Transom 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 Transom 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 Transom
by the Chief Executive Officer and President, to the foregoing effect.
(b) Performance of Obligations of Transom. Transom 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 Transom by the Chief Executive Officer and
President to such effect.
(c) Dissenters Rights. Holders of not more than ten percent (10%) of the
outstanding Transom Stock (on a fully-converted basis) shall have validly
exercised their "dissenters rights" pursuant to the DGCL.
(d) Affiliates Agreements. EAI shall have received executed Affiliate
Letters from each stockholder and each optionholder of Transom listed in Section
6.5 of the Disclosure Schedule as an "affiliate" of Transom.
(e) Proprietary Information Agreements. Transom shall have in its personnel
files an executed copy of Transom's confidentiality, noncompetition and
nondisclosure from the employees of Transom previously disclosed in writing to
EAI.
(f) Tax Opinion. EAI shall have received a tax opinion from Ernst & Young,
LLP in the form attached as Exhibit B (the "Tax Opinion").
(g) 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 Proxy Statement Prospectus that forms a part of the S-4 is first
mailed to stockholders of Transom, 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 SEC, (the "Pooling of Interests Letter") and such letter
shall not have been withdrawn or modified in any material respect on the Closing
Date. EAI shall have received from Arthur Anderson a letter dated on or about
the date that is two business days prior to the date the Proxy
Statement/Prospectus that forms a part of the S-4 is first mailed to the
stockholders of Transom, in form and substance acceptable to EAI, to the effect
that Transom is a "poolable" entity for purposes of EAI's Consolidated Financial
Statements under GAAP and applicable rules and regulations of the SEC ("Poolable
Entity Letter"), 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.
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(h) Legal Opinion; Closing Certificates. EAI shall have received from
Morgan, Lewis & Bockius LLP, counsel to Transom, an opinion substantially in the
form attached as Exhibit C. In addition, Transom shall provide EAI with such
customary closing documents and certificates as EAI or its counsel shall
reasonably request.
(i) Certifications Regarding Tax Matters. EAI shall have received a
certificate from Transom regarding tax matters substantially in the form
attached as Exhibit D.
(j) Material Adverse Change. There shall not have occurred any change which
would constitute a Material Adverse Effect on Transom.
(k) Severance Releases. Each person who has been an officer of Transom at
any time since June 1, 1998 shall have executed and delivered to EAI a release,
in a form reasonably satisfactory to EAI, of any rights to receive severance
payments arising out of a resolution adopted by the Executive Committee of the
Board of Directors of Transom on June 2, 1998.
7.3. Conditions to Obligations of Transom. The obligation of Transom to
effect the Merger is also subject to the satisfaction or waiver by Transom 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. Transom 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 Transom 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. Transom shall have received from
Jamie A. Wade, General Counsel of EAI, an opinion substantially in the form
attached as Exhibit E together with such customary closing documents and
certificates as Transom 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) Tax Opinion. Transom shall have received the Tax Opinion.
(f) Pooling of Interests Letter/Poolable Entity Letter. Transom shall have
received the Pooling of Interests Letter from Ernst & Young LLP and the Poolable
Entity Letter from Arthur Andersen LLP.
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
stockholders of Transom:
(a) by mutual consent of Transom 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 Transom 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;
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(c) by either the Board of Directors of Transom 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 October 31, 1998, (y) the Closing
shall not have occurred on or before October 31, 1998; 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 Transom stockholder meeting shall not have
occurred in accordance with the requirements of the DGCL 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 December 31, 1998; or
(d) by the Board of Directors of Transom (after consulting with its legal
counsel), if , after compliance with the requirements of Section 6.8 hereof,
such action is required for the Board of Directors to comply with its fiduciary
duties to Transom and its stockholders as contemplated in Section 6.8 hereof;
provided, however, if such action is taken by Transom, then (i) within 2 days of
such termination Transom shall reimburse EAI for its out-of-pocket expenses (not
to exceed $150,000) incurred in connection with the transactions contemplated by
this Agreement; and (ii) if Transom 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 Transom during such
12-month period, Transom shall also promptly pay to EAI $372,000 upon the
occurrence of such transaction;
provided, however, if the Transom stockholder meeting shall have occurred and
the Transom stockholders 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 Transom stockholder meeting without further action of any of the parties
hereto and within 2 days of such termination Transom 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 Transom or EAI as provided in Section 8.1, this Agreement shall
forthwith become void and have no effect, and none of Transom or EAI 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
Transom nor 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,
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 stockholders of Transom,
there may not be, without further approval of such stockholders, 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 Transom 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.
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<PAGE> 25
ARTICLE IX.
GENERAL PROVISIONS
9.1. Expenses. Except as set forth in 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) provided it is telecopied before 12:00 noon local
time or otherwise the next business day; 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
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 Transom, to:
Transom Technologies, Inc.
201 South Main
Suite 300
Ann Arbor, MI 48104
Attention: James D. Price, President and Chief Executive Officer
Fax: (734) 761-7003
with a copy to:
Morgan, Lewis & Bockius LLP
200 One Logan Square
Philadelphia, PA 19103
Attention: Stephen Jannetta
Fax: (215) 963-5299
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,
Transom or any of their respective affiliates to take any action which would
violate any applicable law, rule or regulation.
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<PAGE> 26
9.4. Counterparts; Facsimile. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement. The
Agreement may be executed and delivered by facsimile transmission, and a
facsimile of this Agreement or of a signature of a party shall be as effective
as an original.
9.5. Entire Agreement. This Agreement (including the Disclosure Schedule,
Exhibits, documents and instruments referred to herein) and the Non-Disclosure
Agreement constitute 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 Transom 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 Transom, such term shall include the "knowledge" or "awareness"
of the directors, officers and other persons exercising supervisory authority
over Transom and the stockholders of Transom who are active in the business of
Transom.
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 Transom 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 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.
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<PAGE> 27
IN WITNESS WHEREOF, EAI, and Transom 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/ JAMIE A. WADE
----------------------------------
Name: Jamie A. Wade
-------------------------------
Title: Vice President
---------------------------------
TRANSOM TECHNOLOGIES, INC.
By: /s/ JAMES D. PRICE
----------------------------------
James D. Price
President and Chief Executive
Officer
24
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
EAI, INC.
FIRST. The name of the corporation is EAI, INC.
SECOND. The address of its registered office in the State of Delaware
is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name
of its registered agent at such address is the Corporation Trust Company.
THIRD. The nature of the business and the objects and purposes to be
conducted or promoted by the Corporation are to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH.
1. Authorized Shares. The total number of shares of stock of all
classes which the Corporation shall have authority to issue is forty million
(40,000,000), of which twenty million (20,000,000) shall be shares of Preferred
Stock of the par value of $0.01 per share, and twenty million (20,000,000) shall
be shares of Common Stock of the par value of $0.01 per share.
2. Preferred Stock.
(a) The Preferred Stock shall be issuable in series, and in connection
with the issuance of any series of Preferred Stock and to the extent now or
hereafter permitted by the laws of the State of Delaware, the Board of Directors
is authorized to fix by resolution the designation of each series, the stated
value of the shares of each series, the dividend rate or rates of each series
(which rate or rates may be expressed in terms of a formula or other method by
which such rate or rates shall be calculated from time to time) and the date or
dates and other provisions respecting the payment of dividends, the provisions,
if any, for a sinking fund for the shares of each series, the preferences of the
shares of each series in the event of the liquidation or dissolution of the
Corporation, the provisions, if any, respecting the redemption of the shares of
each series and, subject to requirements of the laws of the State of Delaware,
the voting rights (except that such shares shall not have more than one vote per
share), the terms, if any, upon which the shares of each series shall be
convertible into or exchangeable for any other shares of stock of the
Corporation and any other relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of each series.
(b) Preferred Stock of any series redeemed, converted, exchanged,
purchased, or otherwise acquired by the Corporation shall constitute authorized
but unissued Preferred Stock.
<PAGE> 2
(c) All shares of any series of Preferred Stock, as between themselves,
shall rank equally and be identical (except that such shares may have different
dividend provisions); and all series of Preferred Stock, as between themselves,
shall rank equally and be identical except as set forth in resolutions of the
Board of Directors authorizing the issuance of such series.
3. Common Stock.
(a) After dividends to which the holders of Preferred Stock may then be
entitled under the resolutions creating any series thereof have been declared
and after the Corporation shall have set apart the amounts required pursuant to
such resolutions for the purchase or redemption of any series of Preferred
Stock, the holders of Common Stock shall be entitled to have dividends declared
in cash, property, or other securities of the Corporation out of any net profits
or net assets of the Corporation legally available therefor.
(b) In the event of the liquidation or dissolution of the Corporation's
business and after the holders of Preferred Stock shall have received amounts to
which they are entitled under the resolutions creating such series, the holders
of Common Stock shall be entitled to receive ratably the balance of the
Corporation's net assets available for distribution.
(c) Each share of Common Stock shall be entitled to one vote upon all
matters upon which stockholders have the right to vote, but shall not be
entitled to vote for the election of any directors who may be elected by vote of
the Preferred Stock voting as a class if so provided in the resolution creating
such Preferred Stock pursuant to Section 2(a) of this Article FOURTH.
4. Preemptive Rights. No holder of any shares of the Corporation shall
have any preemptive right to subscribe for or to acquire any additional shares
of the Corporation of the same or of any other class whether now or hereafter
authorized or any options or warrants giving the right to purchase any such
shares, or any bonds, notes, debentures or other obligations convertible into
any such shares.
FIFTH. The name and mailing address of the incorporator is as follows:
NAME MAILING ADDRESS
Jamie A. Wade Des Moines, Iowa
SIXTH. The Corporation is to have perpetual existence.
SEVENTH. The private property of the stockholders shall not be subject
to the payment of corporate debts to any extent whatever.
EIGHTH. Except as may otherwise be fixed by resolution of the Board of
Directors pursuant to the provisions of Article FOURTH hereof relating to the
rights of the holders of
6
<PAGE> 3
Preferred Stock to elect directors as a class, the number of directors of the
Corporation shall be fixed from time to time by or pursuant to the By-Laws of
the Corporation. The directors, other than those who may be elected by the
holders of Preferred Stock, shall be classified, with respect to the time for
which they severally hold office, into three classes, as nearly equal in number
as possible. The first class shall be initially elected for a term expiring at
the next ensuing annual meeting, the second class shall be initially elected for
a term expiring one year thereafter, and the third class shall be elected for a
term expiring two years thereafter, with each member of each class to hold
office until his successor is elected and qualified. At each annual meeting of
the stockholders of the Corporation held after the initial classification and
election of directors, the successors of the class of directors whose term
expires at that meeting shall be elected to hold office for a term expiring at
the annual meeting of stockholders held in the third year following the year of
their election.
Advance notice of stockholder nominations for the election of directors
shall be given in the manner provided in the By-Laws of the Corporation.
Except as may otherwise be fixed by resolution of the Board of
Directors pursuant to the provisions of Article FOURTH hereof relating to the
rights of the holders of Preferred Stock to elect directors as a class, newly
created directorships resulting from any increase in the number of directors and
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or any other cause shall be filled by the affirmative
vote of a majority of the remaining directors then in office, even though less
than a quorum of the Board of Directors. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the class of directors in which the new directorship was created (subject to the
requirements of this Article EIGHTH that all classes be as nearly equal in
number as possible) or in which the vacancy occurred and until such director's
successor shall have been elected and qualified. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of an
incumbent director.
Subject to the rights of the holders of Preferred Stock to elect
directors as a class, a director may be removed only for cause and only by the
affirmative vote of the holders of 80% of the combined voting power of the then
outstanding shares of stock entitled to vote generally in the election of
directors, voting together as a single class.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
1. To adopt, amend and repeal the By-Laws of the Corporation. Any
By-Laws adopted by the directors under the powers conferred hereby may be
amended or repealed by the directors or by the stockholders. Notwithstanding the
foregoing or any other provision in this Certificate of Incorporation or the
By-Laws of the Corporation to the contrary, Article II, Sections 3 and 7 and
Article III, Sections 1, 2 and 3 of the By-Laws shall not be amended or repealed
and no provision inconsistent therewith shall be adopted without the affirmative
vote of the holders of at least 80% of the voting power of all the shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class.
7
<PAGE> 4
2. To fix and determine, and to vary the amount of, the working capital
of the Corporation, and to determine the use or investment of any assets of the
Corporation, to set apart out of any of the funds of the Corporation available
for dividends a reserve or reserves for any proper purpose and to abolish any
such reserve or reserves.
3. To authorize the purchase or other acquisition of shares of stock of
the Corporation or any of its bonds, debentures, notes, scrip, warrants or other
securities or evidence of indebtedness.
4. Except as otherwise provided by law, to determine the places within
or without the State of Delaware, where any or all of the books of the
Corporation shall be kept.
5. To authorize the sale, lease or other disposition of any part or
parts of the properties of the Corporation and to cease to conduct the business
connected therewith or again to resume the same, as it may deem best.
6. To authorize the borrowing of money, the issuance of bonds,
debentures and other obligations or evidences of indebtedness of the
Corporation, secured or unsecured, and the inclusion of provisions as to
redeemability and convertibility into shares of stock of the Corporation or
otherwise; and the mortgaging or pledging, as security for money borrowed or
bonds, notes, debentures or other obligations issued by the Corporation, of any
property of the Corporation, real or personal, then owned or thereafter acquired
by the Corporation.
7. To authorize the negotiation and execution on behalf of the
Corporation of agreements with officers and other employees of the corporation
relating to the payment of severance compensation to such officers or employees.
In addition to the powers and authorities herein or by statute
expressly conferred upon it, the Board of Directors may exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation,
subject, nevertheless, to the provisions of the laws of the State of Delaware,
of this Certificate of Incorporation and of the By-Laws of the Corporation.
Subject to any limitation in the By-Laws, the members of the Board of
Directors shall be entitled to reasonable fees, salaries, or other compensation
for their services, as determined from time to time by the Board of Directors,
and to reimbursement for their expenses as such members. Nothing herein
contained shall preclude any director from serving the Corporation or its
subsidiaries or affiliates in any other capacity and receiving compensation
therefor.
Notwithstanding anything contained in this Certificate of Incorporation
to the contrary, the affirmative vote of the holders of at least 80% of the
voting power of all shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required to
alter, amend, adopt any provision inconsistent with or repeal this Article
EIGHTH.
8
<PAGE> 5
NINTH. Both stockholders and directors shall have power, if the By-Laws
so provide, to hold their meetings and to have one or more offices within or
without the State of Delaware.
Except as may otherwise be fixed by resolution of the Board of
Directors pursuant to the provisions of Article FOURTH hereof relating to the
rights of the holders of Preferred Stock, any action required or permitted to be
taken by the stockholders of the Corporation may be effected by a written
consent of the stockholders, provided that upon a Public Offering, any such
action must be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by such holders. A
"Public Offering" means a public offering and sale of Common Stock pursuant to
an effective registration statement under the Securities Act of 1933, as
amended. Except as otherwise required by law and subject to the rights of the
holders of Preferred Stock, special meetings of stockholders may be called only
by the Chairman, if any, on his own initiative, the President on his own
initiative or by the Board of Directors pursuant to a resolution approved by a
majority of the entire Board of Directors. Notwithstanding anything contained in
this Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80% of the voting power of all shares of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to alter, amend, adopt any provision
inconsistent with or repeal this Article NINTH.
TENTH. Except as otherwise provided in this Certificate of
Incorporation, the Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ELEVENTH.
(a) A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. If the General Corporation Law of the State of
Delaware, or any other applicable law, is amended to authorize corporation
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of the State of
Delaware, or any other applicable law, as so amended. Any repeal or modification
of this Section (a) by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
(b) (1) Each person who has or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she or a person of
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<PAGE> 6
whom he or she is the legal representative is or was a director or officer of
the Corporation or is or was serving at the request of the Corporation as a
director, officer or employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is an
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the General Corporation Law of the State of Delaware, or
any other applicable law, as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that except as provided in
paragraph (2) of this Section (b) with respect to proceedings seeking to enforce
rights to indemnification, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section (b) shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that if the General Corporation Law of the State of Delaware, or any
other applicable law, requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding shall be made
only upon delivery to the Corporation of an undertaking by or on behalf of such
director or officer to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section (b) or otherwise.
(2) If a claim under paragraph (1) of this Section (b) is not paid in
full by the Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standard of conduct which make it permissible under the
General Corporation Law of the State of Delaware, or any other applicable law,
for the Corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on the Corporation. Neither the failure
of the Corporation (including its Board of Directors, stockholders or
independent legal counsel) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set
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<PAGE> 7
forth in the General Corporation Law of the State of Delaware, or any other
applicable law, nor an actual determination by the Corporation (including its
Board of Directors, stockholders or independent legal counsel) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
(3) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in this
Section (b) shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of this Certificate of
Incorporation, By-Law, agreement, vote of stockholders or disinterested
directors or otherwise.
(4) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of Delaware, or any other
applicable law.
(5) The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification, and rights to be paid
by the Corporation the expenses incurred in defending any proceeding in advance
of its final disposition, to any employee or agent of the Corporation to the
fullest extent of the provisions of this Section (b) with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
(6) Any repeal or modification of this Section (b) by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director, officer, employee or agent of the Corporation existing at the time of
such repeal or modification.
TWELFTH. In determining whether an "Acquisition Proposal" is in the
best interests of the Corporation and its stockholders, the Board of Directors
shall consider all factors it deems relevant including, without limitation, the
following:
(a) The consideration being offered in the Acquisition Proposal, not
only in relation to the then current market price, but also in relation to the
then current value of the Corporation in a freely negotiated transaction and in
relation to the Board of Directors' estimate of the future value of the
Corporation as an independent entity; and
(b) Such other factors the Board of Directors determines to be
relevant, including among others the social, legal and economic effects upon
employees, suppliers, customers and the communities in which the Corporation is
located, as well as on the long term business prospects of the Corporation.
"Acquisition Proposal" means any proposal of any person (i) for a
tender offer, exchange offer or any other method of acquiring any equity
securities of the Corporation with a view to acquiring control of the
Corporation, (ii) to merge or consolidate the Corporation with another
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<PAGE> 8
corporation, or (iii) to purchase or otherwise acquire all or substantially all
of the properties and assets of the Corporation.
This Article TWELFTH shall not be interpreted to create any rights on
behalf of third persons, such as employees, suppliers, or customers.
THE UNDERSIGNED, being the sole incorporator hereinafter named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this Certificate, hereby declaring and certifying
that this is his act and deed and the facts herein stated are true, and
accordingly has set his hand this 12th day of December, 1995.
/s/ Jamie A. Wade
---------------------------------
Jamie A. Wade, Incorporator
12
<PAGE> 9
CERTIFICATE OF OWNERSHIP AND MERGER
of
Engineering Animation, Inc.
(an Iowa corporation)
into
EAI, Inc.
(a Delaware corporation)
It is hereby certified that:
1. Engineering Animation, Inc. (the "Corporation") is a
corporation of the State of Iowa, the laws of which permit a merger of a
corporation of that jurisdiction with a corporation of another jurisdiction.
2. The Corporation, as the owner of all of the outstanding
shares of common stock of EAI, Inc., hereby merges itself into EAI, Inc., a
corporation of the State of Delaware ("EAI").
3. The following is a copy of the resolutions adopted on the
18th day of December, 1995, by the Board of Directors of the Corporation to
merge the Corporation into EAI:
RESOLVED, that this Corporation be reincorporated in
the State of Delaware by merging itself into EAI pursuant to
the laws of the State of Iowa and the State of Delaware as
hereinafter provided, so that the separate existence of this
Corporation shall cease as soon as the merger shall become
effective, and thereupon this Corporation and EAI will become
a single corporation, which shall continue to exist under, and
be governed by, the laws of the State of Delaware.
RESOLVED that the terms and conditions of the proposed merger
are as follows:
(a) From and after the effective time of the merger, all of the estate,
property, rights, privileges, powers, and franchises of this
Corporation shall become vested in and be held by EAI as fully and
entirely and without change or diminution as the same were before held
and enjoyed by this Corporation and EAI shall assume all of the
obligations of this
<PAGE> 10
Corporation pursuant to Section 253 of the General Corporation Law of
the State of Delaware.
(b) Each share of capital stock of this Corporation which shall be
issued and outstanding immediately prior to the effective time of the
merger shall be converted into one issued and outstanding share of
common stock, $0.01 par value, of EAI, and, from and after the
effective time of the merger, the holders of all of said issued and
outstanding shares of capital stock of this Corporation shall
automatically be and become holders of shares of EAI upon the basis
above specified, whether or not certificates representing said shares
are then issued and delivered.
(c) After the effective time of the merger, each holder of record of
any outstanding certificate or certificates theretofore representing
capital stock of this Corporation may surrender the same to EAI at its
office in Ames, Iowa and such holder shall be entitled upon such
surrender to receive in exchange therefor a certificate or certificates
representing an equal number of shares of common stock of EAI.
Until so surrendered, each outstanding certificate which prior to the
effective time of the merger represented one or more shares of capital
stock of this Corporation shall be deemed for all corporate purposes to
evidence ownership of an equal number of shares of common stock of EAI.
(d) From and after the effective time of the merger, the name of EAI
shall be amended to "Engineering Animation, Inc."
(e) From and after the effective time of the merger, the Certificate of
Incorporation and the By-Laws of EAI, Inc. shall be the Certificate of
Incorporation and the By-Laws of EAI as in effect immediately prior to
such effective time, except that the name of EAI shall be amended to be
"Engineering Animation, Inc.," and such Certificate of Incorporation
and By-laws shall continue in full force and effect until amended and
changed in the manner prescribed by the provisions of such documents
and the General Corporation Law of the State of Delaware.
2
<PAGE> 11
(f) The officers of EAI shall be the corresponding officers of the
Corporation immediately before the effective time of the merger and the
members of the Board of Directors shall be as follows, which directors
are to serve in office until the annual meeting of stockholders in the
year indicated below, or until their successors shall have been elected
and qualified:
Name of Director Expiration of Term
---------------- ------------------
Laurence J. Kirshbaum 1997
Michael Crow 1998
Jamie A. Wade 1996
Matthew Rizai 1998
Martin Vanderploeg 1997
RESOLVED that, in the event that the proposed merger shall not
be terminated, the proper officers of this Corporation be and
they hereby are authorized and directed to make and execute a
Certificate of Ownership and Merger setting forth a copy of
these resolutions to merge itself into EAI and the date of
adoption thereof, and to cause the same to be filed and
recorded as provided by law, and to do all acts and things
whatsoever, within the State of Iowa and Delaware in any other
appropriate jurisdiction, necessary or proper to effect this
merger.
4. The proposed merger herein certified has been adopted,
approved, certified, executed, and acknowledged by this Corporation in
accordance with the laws of the State of Iowa.
Signed on December 18, 1995
Engineering Animation, Inc.,
an Iowa corporation
By: /s/ Matthew M. Rizai
-----------------------------------
Name: Matthew M. Rizai
---------------------------------
Its: President
---------------------------------
Attested:
By: /s/ Jamie A. Wade
---------------------------
Name: Jamie A. Wade
-------------------------
Its: Secretary
-------------------------
3
<PAGE> 12
ENGINEERING ANIMATION, INC.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
ENGINEERING ANIMATION, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), pursuant to Section 242
of The General Corporation Law of the State of Delaware (the "Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the Certificate of Incorporation be amended to add the
following as ARTICLE THIRTEENTH:
"THIRTEENTH. Simultaneously with the effective date of this amendment
(the "Effective Date"), each share of Common Stock, par value $.01 per
share, issued and outstanding immediately prior to the Effective Date
(the "Old Common Stock") shall automatically and without any action on
the part of the holder thereof be reclassified and changed into
one-half of a share of the Corporation's Common Stock, par value $.01
per share (the "New Common Stock"), subject to the treatment of
fractional share interests as described below. Each holder of a
certificate or certificates which immediately prior to the Effective
Date represented outstanding shares of Old Common Stock (the "Old
Certificates") shall be entitled to receive upon surrender of such Old
Certificates to the Corporation's transfer agent for cancellation a
certificate or certificates (the "New Certificates") representing such
number of whole shares of the New Common Stock into which and for which
the shares of the Old Common Stock formerly represented by such Old
Certificates so surrendered are reclassified under the terms hereof.
From and after the Effective Date, Old Certificates shall represent
only the right to receive New Certificates pursuant to the provisions
hereof. No certificates or scrip representing fractional share
interests in New Common Stock will be issued by the Corporation as a
result of the reverse stock split contemplated hereby. In lieu thereof,
each stockholder whose shares of Old Common Stock are not evenly
divisible by two will receive one additional share of New Common Stock
for the fractional share that such stockholder would otherwise be
entitled to as a result of such reverse stock split. If more than one
Old Certificate shall be surrendered at one time for the account of the
same stockholder, the number of full shares of New Common Stock for
which new certificates shall be issued shall be computed on the basis
of the aggregate number of shares represented by the Old Certificates
so surrendered. In the event that the Corporation's transfer agent
determines that a holder of Old Certificates has not tendered all his
certificates for exchange, the transfer agent shall carry forward any
fractional share until all certificates of that holder have been
presented for exchange. If any New Certificate is to be issued in the
name other than that in which the Old Certificates surrender for
exchange are issued,
<PAGE> 13
the Old Certificates so surrendered shall be properly endorsed and
otherwise in proper form for transfer, and the person or persons
requesting such exchange shall affix any requisite stock transfer tax
stamps to the Old Certificates surrendered, or provide funds for their
purchase, or establish to the satisfaction of the transfer agent that
such taxes are not payable. From and after the Effective Date, the
amount of capital represented by the shares of the New Common Stock
into which and for which the shares of the Old Common Stock are
reclassified under the terms hereof shall be the same as the amount of
capital represented by the shares of Old Common Stock so reclassified,
until thereafter reduced or increased in accordance with applicable
law."
SECOND: That the foregoing amendment to the Certificate of
Incorporation of the Corporation was duly approved and adopted by written
consent of the shareholders of the Corporation dated February 16, 1996, pursuant
to the provisions of Sections 228 and 242 of the Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by its President and attested by its Secretary on the 20th day of
February, 1996.
ENGINEERING ANIMATION, INC.
By: /s/ Matthew M. Rizai
------------------------------------
Matthew M. Rizai, President
ATTEST:
/s/ Jamie A. Wade
- - --------------------------------
Jamie A. Wade, Secretary
2
<PAGE> 14
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
ENGINEERING ANIMATION, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
------------------------------
Engineering Animation, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law by unanimous written consent dated December 18, 1995:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, par value $0.01 per share (the "Preferred Stock"), of the Corporation and
hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1 Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 200,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of Shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends, the
holders of shares of Series A Preferred Stock, in preference
<PAGE> 15
to the holders of Common Stock, par value $0.01 per share (the "Common
Stock"), of the Corporation, and of any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of March, June, September and December
in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share
of Series A Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1 or (b) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times the aggregate per
share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Preferred Stock. In the
event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1 per share on the Series A Preferred
Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly
2
<PAGE> 16
Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The
Board of Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which record
date shall be not more than 60 days prior to the date fixed for the
payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preferred Stock or any
similar stock, or by law, the holders of shares of Series A Preferred
Stock and the holders of shares of Common Stock and any other capital
stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
3
<PAGE> 17
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Required Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of
4
<PAGE> 18
Preferred Stock subject to the conditions and restrictions on issuance set forth
herein, in the Certificate of Incorporation, or in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
5
<PAGE> 19
Section 8. No Redemption. The shares of Series A Preferred Stock shall
not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all series
of any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation by its President and attested by its Secretary this
20th day of February, 1996.
ENGINEERING ANIMATION, INC.
/s/ Matthew M. Rizai
-----------------------------------------
Name: Matthew M. Rizai
Title: President
Attest:
/s/ Jamie A. Wade
- - ---------------------------------
Name: Jamie A. Wade
Title: Secretary
6
<PAGE> 20
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ENGINEERING ANIMATION, INC.
FIRST: That by unanimous written consent, dated February 11, 1998, in accordance
with Section 141(f) of the General Corporation Law of the State of Delaware, the
Board of Directors of Engineering Animation, Inc. (the "Corporation") duly
adopted resolutions setting forth a proposed amendment of the Certificate of
Incorporation of said Corporation, declaring said amendment to be advisable and
submitting such amendment to the stockholders of said Corporation for
consideration thereof. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Certificate of Incorporation of this Corporation be amended
by changing Section 1 of Article Fourth thereof so that, as amended, said
Section shall be and read as follows:
"1. Authorized Shares. The total number of shares of stock of
all classes which the Corporation shall have authority to issue is
eighty million (80,000,000), of which twenty million (20,000,000) shall
be shares of Preferred Stock of the par value of $0.01 per share, and
sixty million (60,000,000) shall be shares of Common Stock of the par
value of $0.01 per share."
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
majority of the holders of Common Stock of said Corporation, by action of such
stockholders at the annual meeting of the stockholders of the corporation, on
May 1, 1998 in accordance with Section 242 of the General Corporation Law of the
State of Delaware, voted as follows: of the 9,890,949 shares of outstanding
Common Stock entitled to vote thereon, (1) the holders of 6,155,394 shares of
the outstanding stock voted in favor of the approval of said amendment; (2) the
holders of 1,322,084 shares of the outstanding stock entitled to vote thereon
voted against the approval of said amendment and (3) the holders of 11,589
shares of the outstanding stock did not vote on said amendment.
There were no shares of outstanding Preferred Stock entitled to vote thereon.
THIRD: That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Board of Directors has caused this certificate to be
signed by Jamie A. Wade, its Vice President, this eleventh day of May, 1998.
By: /s/ Jamie A. Wade
------------------------------
Vice President
<PAGE> 21
CERTIFICATE OF MERGER
OF
SENSE8 CORPORATION
INTO
ENGINEERING ANIMATION, INC.
The undersigned corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger is as follows:
Name State of Incorporation
---- ----------------------
Sense8 Corporation California
Engineering Animation, Inc. Delaware
SECOND: That an agreement and plan of merger between the parties to the
merger has been approved, adopted, certified, executed and acknowledged by each
of the constituent corporations in accordance with the requirements of Section
252 of the General Corporation Law of the State of Delaware.
THIRD: That the name of the surviving corporation of the merger is
Engineering Animation, Inc.
FOURTH: That the certificate of incorporation of Engineering Animation,
Inc., a Delaware corporation, the surviving corporation, shall be its
certificate of incorporation.
FIFTH: That the authorized stock for the non-surviving corporation is
Ten Million (10,000,000) shares of common stock with no par value.
SIXTH: That the executed agreement and plan of merger is on file at the
principal place of business of the surviving corporation. The address of the
principal place of business of the surviving corporation is 2321 North Loop
Drive, Ames, Iowa 50010.
SEVENTH: That a copy of the agreement and plan of merger will be
furnished by the surviving corporation, on request and without cost to any
stockholder of any constituent corporation.
ENGINEERING ANIMATION, INC.
DATED: June 8, 1998 BY: /s/ Jamie Wade
-----------------------------------
Jamie Wade
ITS: Vice President and
General Counsel
<PAGE> 22
CERTIFICATE OF MERGER
OF TRANSOM TECHNOLOGIES, INC.
WITH AND INTO
ENGINEERING ANIMATION, INC.
The undersigned corporation, being organized and existing under and by
virtue of the Delaware General Corporation Law, does hereby certify that:
1. The name and state of incorporation of each of the constituent
corporations to the merger are as follows:
(a) Transom Technologies, Inc., which is incorporated under the
laws of the State of Delaware; and
(b) Engineering Animation, Inc., which is incorporated under the
laws of the State of Delaware.
2. An Amended and Restated Agreement and Plan of Merger ("Merger
Agreement") has been approved, adopted, certified, executed, and acknowledged by
each of the constituent corporations to the merger in accordance with the
provisions of Section 251 of the General Corporation Law of the State of
Delaware.
3. The name of the surviving corporation in the merger is Engineering
Animation, Inc., which corporation will continue its existence as the surviving
corporation under its present name, Engineering Animation, Inc.
4. The Certificate of Incorporation of Engineering Animation, Inc., as
now in force and effect, shall continue to be the Certificate of Incorporation
of the surviving corporation until amended and changed pursuant to the
provisions of the General Corporation Law of the State of Delaware.
5. The executed Merger Agreement between the constituent corporations
is on file at the principal place of business of the surviving corporation, the
address of which is as follows:
Attention: General Counsel, 2321 North Loop Drive, Ames, Iowa 50010.
6. A copy of the Merger Agreement will be furnished by the surviving
corporation, on request and without cost, to any stockholder of the constituent
corporations.
<PAGE> 23
DATED: September 22, 1998
ENGINEERING ANIMATION, INC.
By: /s/ Jamie A. Wade
-----------------------------------
Jamie A. Wade
Its: Vice President of Administration
and General Counsel, Secretary
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated August 6, 1998, with respect to the
consolidated financial statements of Variation Systems Analysis, Inc. for the
year ended June 30, 1998, included in the Engineering Animation, Inc. Current
Report on Form 8-K dated September 25, 1998, filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG LLP
---------------------
Minneapolis, Minnesota
September 25, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
As independent public accountants, we hereby consent to the use of our
report dated July 9, 1998, and to all references to our Firm, included in or
made a part of this Form 8-K of Engineering Animation, Inc.
/s/ Arthur Andersen LLP
-----------------------
Ann Arbor, Michigan
September 25, 1998
