SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
PREMIS CORPORATION
(Name of Registrant as Specified In Its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ X ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
common stock, $.01 par value
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): $1,135.76.
Calculated pursuant to Rule 0-11(a)(4), based on the average of the bid
and asked prices as of October 13, 2000 (which is within 5 business
days prior to the date of filing this preliminary proxy statement)
4) Proposed maximum aggregate value of transaction:
5) Total Fee Paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
PREMIS CORPORATION
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
PREMIS Corporation to be held at the Ramada Inn Plaza, Minnetonka, Minnesota,
on November 20, 2000, at 3:00 p.m. (Minneapolis time).
The attached Notice of Annual Meeting and Proxy Statement describe the formal
business to be transacted at the meeting. Perhaps the most important item
presented for your consideration and vote is the proposed acquisition of
Nonvolatile Electronics Incorporated. We hope you will be able to attend the
meeting, but whether or not you attend, your vote is important.
PLEASE COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD PROMPTLY.
IF YOU ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON. IF
YOU DO NOT ATTEND, YOU MAY STILL REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE
MEETING BY PROVIDING WRITTEN NOTICE OF YOUR REVOCATION TO F.T. BIERMEIER, CEO,
AT PREMIS CORPORATION, c/o Moss & Barnett, 4800 Wells Fargo Center, 90 South
Seventh Street, Minneapolis, Minnesota 55402-4129, Attn: Janna R. Severance, BY
MAIL OR BY FAX to (612)339-6686. PLEASE DO NOT SEND ANY STOCK CERTIFICATES IN
YOUR PROXY ENVELOPE. INSTRUCTIONS REGARDING THE EXCHANGE OF SHARES WILL BE
MAILED TO YOU AFTER APPROVAL OF THE MERGER
.
Sincerely,
/s/ F.T. Biermeier
F.T. Biermeier
Chief Executive Officer
Minneapolis, Minnesota
_______________, 2000
PREMIS CORPORATION
____________________________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
November 20, 2000
____________________________________________
To the shareholders of PREMIS CORPORATION:
The annual meeting of shareholders of PREMIS Corporation ("PREMIS" or the
"Company")will be held at 3:00 p.m. (Minneapolis time) on November 20, 2000 at
the Ramada Inn Plaza, Minnetonka, Minnesota, for the following purposes:
1. To vote on the approval of the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of September 22, 2000, pursuant to which Nonvolatile
Electronics, Incorporated a Minnesota corporation ("NVE"), will merge into
PREMIS with PREMIS as the surviving corporation. Details of this transaction
and other important information are set forth in the accompanying Proxy
Statement which we urge you to read carefully. Implementation of the Merger
Agreement requires amendment and restatement of our Articles of Incorporation,
as amended, to (a) change the corporate name of the company to "NVE
Corporation," and (b) establish the number of authorized shares of capital
stock at 50,000,000 shares including 30,000,000 of common stock, par value $.01
per share, and 20,000,0000 undesignated shares which can be designated at the
discretion of the Board of Directors as common stock, par value $.01 per share,
or preferred stock. In addition, the Merger Agreement provides that the
holders of the currently outstanding shares of PREMIS common stock will receive
one share for each five shares held at the effective time of the merger and the
current NVE Board of Directors will become the initial Board of Directors of
the surviving company at the effective time of the merger. Because these
changes are necessary and integral parts of the Merger Agreement, you are not
asked to vote on them apart from the vote on the Merger Agreement. Approval of
this proposal will also serve to revoke the prior authorization to liquidate
and dissolve PREMIS.
2. To approve the 2000 Stock Option Plan, provided that if the Merger Agreement
is not approved the plan will be terminated at the discretion of the Board of
Directors.
3. To elect four directors, with the condition that if the Merger Agreement is
approved, the directors elected at this meeting shall resign as of the
effective time of the Merger, and the current NVE Board of Directors (four
persons) named in the Merger Agreement shall become the Board of Directors, to
serve until the next annual meeting of the shareholders.
4. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
OUR BOARD OF DIRECTORS RECOMMENDS AN AFFIRMATIVE VOTE FOR EACH PROPOSAL AND FOR
EACH NOMINEE NAMED IN THIS PROXY STATEMENT.
If the merger is approved, but you do not vote for the merger, you may assert
"dissenter's rights" if you strictly comply with the provisions of Sections
302A.471 and 302A.473 of the Minnesota Business Corporation Act (the "MINNESOTA
BUSINESS CORPORATION ACT"). This means that you may make written demand for
payment of the "fair value" of your shares of common stock. Sections 302A.471
and 302A.473 of the MINNESOTA BUSINESS CORPORATION ACT are attached as Appendix
C to the Proxy Statement. In addition, a description of the procedures to be
followed in order to obtain payment is set forth under the caption "Approval of
the Merger Agreement - Rights of Dissenting Shareholders" in the Proxy
Statement.
Only holders of record of common stock at the close of business on October 30,
2000, will be entitled to notice of and to vote at the meeting or any
adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ F.T. Biermeier
F.T. Biermeier
Chief Executive Officer
October __ 2000
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
November 20, 2000
This proxy statement is provided to you in connection with the annual meeting
of shareholders of PREMIS Corporation ("PREMIS" or the "Company"), which will
be held at 3:00 p.m. (Minneapolis time) on November 20, 2000, at the Ramada Inn
Plaza, Minnetonka, Minnesota, and any adjournment thereof. The accompanying
proxy is solicited by our board of directors.
The matters to be considered at the meeting are listed in the preceding Notice
of Annual Meeting. We know of no other matters to be presented. If any other
matters properly come before the meeting, the persons named in the proxy will
vote on such other matters in accordance with their best judgment.
Our board of directors recommends that you vote FOR each proposal listed in the
proxy (or voting instructions) card and FOR each director nominee. By signing
and returning the accompanying proxy, you authorize F.T. Biermeier ( with the
power to act alone and with the power of substitution and revocation) to vote
all of your shares. Your proxy, if completed (instructions given) properly,
signed, and dated, will be voted as you have directed. If you do not indicate
your vote on the proxy card, your signed proxy will be voted FOR each proposal
and FOR each nominee. Regardless of the size of your holdings, we encourage
you to complete and return the proxy or voting instructions card so that your
shares may be voted at the meeting. You may revoke your proxy at any time
before it is voted at the meeting by giving written notice of revocation to our
chief executive officer (F.T. Biermeier) by execution of a later dated proxy,
or by attending and voting at the meeting.
We are sending this proxy statement and the accompanying form of proxy to you
on or about October 30, 2000.
Only holders of record of shares of common stock at the close of business on
October 15, 2000, are entitled to vote at the meeting. Each share of common
stock is entitled to one vote. On October 9, 2000, a total of 5,293,952 shares
of PREMIS common stock were outstanding. A majority of the voting power of the
outstanding shares of common stock entitled to vote, represented in person or
by proxy, is required for a quorum. The Merger Agreement, as defined herein,
must be approved by the holders of a majority of outstanding shares of common
stock.
If you abstain from voting, your abstention will be counted as shares present
and entitled to vote and will be counted for purposes of determining the
presence of a quorum at the meeting. Your abstention will not count FOR (in
effect it will be a vote AGAINST any proposal). If a broker submits a proxy
that indicates the broker does not have discretionary authority to vote on one
or more matters, we will count those shares for purposes of determining the
presence of a quorum at the meeting, but will not count them as present and
entitled to vote with respect to such matters. Executed but unmarked proxies
will be voted for approval of the Merger Agreement, for adoption of the 2000
Stock Option Plan, and for election of each director nominee.
We will pay all expenses in connection with the solicitation of proxies.
Officers and directors of the Company may solicit proxies by telephone or
electronic transmission and will receive no extra compensation for their
services.
A copy of our annual report on Form 10-KSB for the fiscal year ended March 31,
2000 and a copy of our quarterly report on From 10-QSB for the fiscal quarter
ended June 30, 2000 are enclosed with this Proxy Statement. The Form 10-KSB
includes information about our operations during the year and our audited
fiscal year financial statements. The Form 10-QSB containing information about
our operations during the first fiscal quarter of our fiscal year ending March
31, 2001 and unaudited financial statements for that period. Except to the
extent that they are incorporated by reference in this proxy statement (See
"Incorporation of Certain Documents by Reference"), the Form 10-KSB, and the
Form 10-QSB do not constitute soliciting material in connection with the proxy
requested by management for the annual meeting.
TABLE OF CONTENTS
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING INFORMATION....................1
SUMMARY........................................................................1
Date, Time and Place of Meeting................................................1
Record Date; Shareholders Entitled To Vote; Quorum.............................1
Proposals......................................................................2
PREMIS Corporation.............................................................2
Nonvolatile Electronics, Incorporated..........................................2
The Merger.....................................................................3
Market for Common Stock........................................................5
Restrictions on NVE Stock......................................................5
Comparative Unaudited Per Common Share Data....................................5
Unaudited Pro Forma Combined Financial Information.............................6
Basis of Presentation.........................................................10
THE ANNUAL MEETING............................................................10
General.......................................................................10
Matters to Be Considered......................................................10
Record Date; Shareholders Entitled to Vote; Voting; Quorum....................11
PROPOSAL 1: APPROVAL OF THE MERGER AGREEMENT.................................11
The Merger....................................................................11
Effects of the Merger.........................................................11
Effective Time................................................................12
Fractional Shares.............................................................12
Restrictions on NVE Stock.....................................................12
Background of the Merger; Reasons for the Merger..............................12
Favorable Recommendation of the Company's Board of Directors..................14
NVE's Reasons for the Merger..................................................14
Regulatory Approval...........................................................14
Management of the Company and the Surviving Corporation After the Merger......14
Interests of Certain Persons in the Merger....................................15
Security Ownership of Certain Beneficial Owners and Management ...............16
Accounting Treatment..........................................................17
Certain Federal Income Tax Consequences.......................................17
THE MERGER AGREEMENT..........................................................19
General.......................................................................19
Certain Representations and Warranties........................................20
Certain Covenants.............................................................20
Limitations on Solicitation of Transactions...................................22
Termination...................................................................22
Indemnification...............................................................23
AMENDMENT AND RESTATEMENT OF THE ARTICLES OF INCORPORATION....................23
General.......................................................................23
Purposes and Effects..........................................................24
Waiver of Director Liability and Indemnification..............................26
State Law Provisions with Potential Anti-Takeover Effect......................26
Transfer Agent and Registrar..................................................27
RIGHTS OF DISSENTING SHAREHOLDERS.............................................27
RISK FACTORS..................................................................28
CERTAIN INFORMATION CONCERNING PREMIS.........................................33
Description of Business.......................................................33
Recent History and Company Strategy...........................................33
Market Price and Dividend Data................................................34
CERTAIN INFORMATION CONCERNING NONVOLATILE ELECTRONICS INCORPORATED...........36
General.......................................................................36
Products......................................................................36
Competition...................................................................39
Employees.....................................................................40
Legal Proceedings.............................................................40
Selected Consolidated Financial Data of Nonvolatile Electronics, Inc..........40
Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................42
PROPOSAL 2: ADOPTION OF 2000 STOCK OPTION PLAN...............................44
PROPOSAL 3: ELECTION OF DIRECTORS............................................48
MANAGEMENT OF PREMIS..........................................................49
Directors and Officers........................................................49
Officers .....................................................................50
Director Compensation.........................................................50
Board Committees and Meetings.................................................50
Executive Compensation........................................................50
Stock Options.................................................................51
Option/SAR Grants in Last Fiscal Year.........................................52
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End
Option/SAR Values.............................................................52
Retirement Plan...............................................................52
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT 1934.............52
OTHER MATTERS.................................................................53
PRINCIPAL ACCOUNTANTS.........................................................53
DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS..............................53
AVAILABLE INFORMATION.........................................................53
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................53
DIRECTIONS TO ANNUAL MEETING..................................................54
APPENDICES:
A Agreement and Plan of Merger
B Amended and Restated Articles of Incorporation
C Minnesota Statutes, Sections 302A.471 and 302A.473 concerning rights
of dissenting shareholders
D Financial Statements of Nonvolatile Electronics Incorporated (NVE).
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
Information in this proxy statement which is not historical information may be
"forward looking-statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (as amended). The words or phrases "will likely
result," "are expected to," "will continue," "is anticipated," "estimate,"
"project," "believe" or similar expressions identify forward-looking
statements. This proxy statement contains forward-looking statements about the
financial condition, results of operations, plans, objectives, future
performance and business of each of PREMIS and NVE, and the effect of the
merger. Because these statements are subject to risks and uncertainties,
actual results may differ materially from historical results and those
presently anticipated or projected. You should not make your decision about
the merger based on these statements alone. We may be wrong in our assessment
of the future prospects of NVE and the effects of the merger. Factors that
could cause actual results in the future to differ materially from the
forward-looking statements are mentioned in Certain Information Concerning
PREMIS, Certain Information Regarding NVE, and Risk Factors under the
discussion of Proposal 1:Approval of the Merger Agreement. Neither we nor NVE
intends to release publicly any revisions to such forward-looking statements to
reflect events or circumstances after the date of this proxy statement or to
reflect the occurrence of unanticipated events.
All subsequent written and oral forward-looking statements attributable to the
Company or NVE or persons acting on behalf of either the Company or NVE are
expressly qualified in their entirety by the cautionary statements contained or
referred to in this section.
SUMMARY
For your convenience, we have summarized some of the information in this proxy
statement. This summary is not intended to be complete. You should review the
entire proxy statement carefully. PREMIS has supplied all information in this
proxy statement relating to PREMIS and NVE has supplied all information in this
proxy statement relating to NVE. Neither PREMIS nor NVE makes any
representation as to information supplied by the other.
Date, Time and Place of Meeting
The meeting will be held on November 20, 2000 at 3:00 p.m. (Minneapolis time)
at the Ramada Inn Plaza, Minnetonka, Minnesota.
Record Date; Shareholders Entitled To Vote; Quorum
Only holders of record of shares of common stock on October 15, 2000 are
entitled to notice of and to vote at the meeting or at any adjournment or
postponement. As of October 9, 2000, there were 5,293,952 shares of common
stock outstanding. The presence, in person or by proxy, of the holders of a
majority of the voting power of the outstanding shares of the common stock is
necessary to constitute a quorum at the meeting.
Proposals
At the meeting, you will be asked to: (1) approve the Merger Agreement dated
as of September 22, 2000 (the "Merger Agreement"), with Nonvolatile Electronics
Incorporated (NVE), a Minnesota corporation ("NVE") which includes amendment to
and restatement of the Articles of Incorporation of PREMIS, as amended (the
"Articles of Incorporation"), to (a) change the corporate name to "NVE
Corporation" and (b) establish the number of authorized shares of the capital
stock at 50,000,000 shares, including 30,000,000 of common stock, par value
$.01 per share, and 20,000,000 undesignated shares which can be designated at
the discretion of the Board of Directors as common stock, par value $.01 per
share or preferred stock, (2) adopt the 2000 Stock Option Plan, and (3) elect
four directors.
PREMIS Corporation
Until April 1999, PREMIS developed, marketed and supported a line of
enterprise-wide solutions to meet the information needs of multi-store
specialty and general merchandise retailing chains. Since February of 1999
PREMIS has been winding down operations and selling its remaining assets. In
November 1999, we completed a series of transactions resulting in the sale of
substantially all of our operating assets. As of September 2000, PREMIS has
ceased all business operations and is using its existing cash resources to
pursue a business combination with another entity engaged in other lines of
business.
The principal offices of the Company are located at 13200 County Rd 6,
Plymouth, Minnesota, and the Company's telephone number is (612)550-1999. Upon
the consummation of the transactions contemplated by the Merger Agreement, the
new company's principal executive offices will be located at NVE's principal
executive offices, 11409 Valley View Road, Eden Prairie, MN 55344-3617.
Nonvolatile Electronics Incorporated (NVE)
Nonvolatile Electronics Incorporated ("NVE"), founded in 1989, is a privately
held company located in Eden Prairie, Minnesota, approximately 20 miles
southwest of downtown Minneapolis. In 1990, NVE began research to develop GMR
(Giant Magnetoresistance) materials for use on memory, sensors, and isolators.
Commercialization of NVE's research began in 1994 when NVE introduced the
world's first magnetic sensor made of GMR materials to the automotive,
commercial, medical electronics, and defense markets. These sensors outperform
competing devices in size, power consumption, temperature stability,
sensitivity and range of operation. Since 1998, NVE has provided nonexclusive
licenses to its patents in magnetoresistive computer memory technology ("MRAM")
to two major electronics manufacturers. Both manufacturers have indicated they
will introduce products using the NVE technology between 2001 or 2004. MRAM is
extremely fast, very dense and maintains its contents when power is removed,
which makes it highly suitable for portable computing devices, cell phones and
other electronic applications. In 1999, NVE announced the availability of
electronic isolators using GMR materials. Isolators are widely used to reduce
noise and other transients in communications and other applications where
signals are passed between devices. The NVE isolators outperform competitive
devices in speed, dynamic temperature range and higher transient immunity. NVE
achieved ISO 9001 certification in 1997.
The Merger
If the merger is approved, NVE will merge with and into PREMIS, with PREMIS as
the surviving corporation. Concurrent with the merger each five outstanding
shares of PREMIS common stock will be converted to one share of PREMIS common
stock. Upon the merger each outstanding share of common stock of NVE ("NVE
common stock") will be converted into 3.5 shares of PREMIS common stock.
Fractional shares of common stock will not be issued in connection with the
merger; rather, all fractional shares will be rounded up to the nearest whole
number.
Based upon the exchange ratios determined on August 17, 2000, and the number of
shares of common stock of NVE and PREMIS outstanding as of August 17, 2000, and
assuming no change prior to the effective time of the merger, the former NVE
shareholders will own an aggregate of 15,745,860 shares of PREMIS (93.7%, or
94.2% assuming exercise of all outstanding options and warrants) and the
holders of PREMIS common stock immediately prior to the effective time will own
1,058,791 shares of PREMIS (6.3%, or 5.8% assuming exercise of all outstanding
options and warrants).
For more information, see "Approval of the Merger Agreement--The
Merger--Effects of the Merger--Interests of Certain Persons in the Merger."
Closing Conditions
The merger will be completed only if approved by the holders of a majority of
the outstanding shares of our common stock. The merger is also subject to
various other closing conditions, including the absence of any event that would
prevent the consummation of the transactions contemplated by the Merger
Agreement, or that would cause any of the transactions contemplated by such
agreement to be rescinded following consummation of such transactions. The
merger will be submitted for approval by the shareholders of NVE at a special
meeting prior to the Company's annual meeting. See "Approval of the Merger
Agreement--The Merger Agreement--Certain Conditions to Consummation."
Termination of the Merger Agreement
The Merger Agreement may be terminated and the transactions abandoned,
notwithstanding shareholder approval of the Merger Agreement. See "Approval of
the Merger Agreement--The Merger Agreement--Termination."
Effective Time
The merger will become effective at the time to be specified in the Articles of
Merger (the "effective time"). The filing of such Articles with the Secretary
of State of Minnesota will be made as promptly as practicable after the
adoption by the shareholders of the Company of the Merger Agreement and the
satisfaction or waiver of all other conditions to the merger.
Favorable Recommendation of the Company's Board of Directors
Our Board of Directors believes that the merger is fair from a financial point
of view to, and in the best interests of, the PREMIS shareholders. Our Board
of Directors has approved the Merger Agreement and recommends that you vote in
favor of the proposal to approve and adopt the Merger Agreement. See "Approval
of The Merger Agreement--The Merger--Background of the Merger; The Company's
Reasons for the Merger" and "Amendment and Restatement of the Articles of
Incorporation."
Shareholder Approval
Approval of the merger requires the affirmative vote of the holders of a
majority of the voting power of all outstanding shares of common stock. Each
share of common stock is entitled to one vote. It is expected that all shares
of common stock beneficially owned by directors and officers of the Company
will be voted in favor of the merger.
Rights of Dissenting Shareholders
If you do not vote your shares in favor of the Merger Agreement and if you
strictly comply with the provisions of Sections 302A.471 and 302A.473 of the
Minnesota Business Corporation Act (attached as Appendix C to this Proxy
Statement), you have the right to object to the approval and adoption of the
Merger Agreement, and to make written demand for payment of the "fair value" of
your shares of common stock. See "Approval of the Merger Agreement--Rights of
Dissenting Shareholders."
Accounting Treatment
The merger will be accounted for as a business combination utilizing the
reverse acquisition method with NVE being the accounting acquirer under
generally accepted accounting principles. As such, the merger will be treated
as an acquisition using the purchase method of accounting with no change in the
recorded amount of NVE's assets and liabilities. The assets and liabilities of
PREMIS that are acquired as a result of the merger, consisting principally of
approximately $975,000 in cash, will be recorded at their fair market values.
Certain Federal Income Tax Consequences
We intend that the merger will qualify as a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and that it will not result in any federal income tax consequences to
shareholders of the Company, other than shareholders exercising dissenters'
rights under the Minnesota Business Corporation Act. The material tax issues
affecting dissenting shareholders are discussed under "Approval of the Merger
Agreement--The Merger--Certain Federal Income Tax Consequences."
Regulatory Approval
The Company and NVE each believe that no regulatory approvals are or will be
required in connection with the merger.
Market for Common Stock
Our common stock is currently trading on the Over The Counter Bulletin Board
under the symbols, "PMIS" and "PMIS.ob". We may apply for listing of the
common stock on The NASDAQ SmallCap Market after completion of the merger. We
cannot assure you that we will be successful in obtaining listing of the Common
Stock on NASDAQ. See "Approval of the Merger Agreement--Certain Information
Concerning the Company--Risk Factors."
Restrictions on NVE Stock
The common stock issued in the merger to the NVE shareholders will be issued
without registration under the Securities Act of 1933 or applicable state
securities law in reliance upon exemption from registration pursuant to Section
4(2) and related regulations of the Securities Act and various state
exemptions. As required by such exemptions, these shares will bear
restrictions on transferability after issuance (and indefinitely thereafter in
the case of NVE shareholders who become "affiliates" of the new company).
However, the Company plans to pursue the registration of such shares, thus
allowing for free tradeability.
Comparative Unaudited Per Common Share Data
The following table presents selected comparative unaudited per share data with
respect to PREMIS common stock on an historical and a pro forma combined basis,
and with respect to NVE common stock on an historical and a pro forma
equivalent basis, giving effect to the merger as a business combination
utilizing the reverse acquisition method for accounting and financial reporting
purposes. The pro forma data assume that the merger took effect on April 1,
1999 for the book value per share data, the dividends declared and net earnings
per share data. The historical per share data set forth in the following table
are derived from and should be read in conjunction with the historical
consolidated financial statements of the Company and NVE, including the notes
which are included at the end of this proxy statement. The per share data
below should not be viewed as indicative of the results of the future
operations of the combined entity or the actual results that would have been
achieved if the merger been completed on April 1, 1999.
Comparative Per Share Data
(dollars in thousands, except per share amounts)
Twelve Months
Three Months Ended Ended
June 30, 2000 March 31, 2000
__________________________________
Net Income (Loss)
Premis $ 13,437 $ 4,695,362
NVE (23,257) (316,751)
Pro Forma Consolidated $ ( 9,746) $ (152,914)
Book Value
Premis $ 1,088,243
NVE 1,416,749
Pro Forma Consolidated $ 2,504,992
Net Tangible Book Value
Premis $ 1,088,243
NVE 1,367,329
Pro Forma Consolidated $ 2,455,572
Per Share Consolidated
Net Income 0.00
Book Value .15
Net Tangible book value .15
(1) For purposes of this calculation, an assumed conversion of one NVE share
for 3.5 shares of the surviving company and the reverse split of five for one
Premis shares was used
Unaudited Pro Forma Combined Financial Information
The following tables set forth the unaudited pro forma financial information of
the Company, which consists of (i) the unaudited consolidated pro forma balance
sheet of the Company as of March 31, 2000, giving effect to the merger on such
date, and (ii) the unaudited consolidated pro forma statement of operations of
the Company for the twelve months ended March 31, 2000, giving effect to the
merger as if such transaction had occurred on April 1, 1999.
The unaudited pro forma financial statements and the related notes are provided
for illustrative purposes only and are not necessarily indicative of the
balance sheet and statement of operations that would have been reported had the
merger occurred on the dates indicated, nor do they represent a forecast of the
financial position at any future period. The statements are based on estimates
and assumptions set forth below and in the accompanying notes, which include
pro forma adjustments. The unaudited pro forma financial statements and the
related notes should be read in conjunction with the historical financial
statements and related notes of the Company and NVE which are included
elsewhere in this Proxy Statement.
PREMIS Corporation
Unaudited Consolidated Pro Forma Statement of Operations
For The Twelve Months Ended March 31, 2000
Unadjusted Adjustment for Pro Forma Adjusted
Statement of Nonvolatile Adjustments Statement of
Operatons Electronics Operations
March 31, Incorporated March 31,
2000 2000
Revenue:
Research and Development $5,120,152 $5,120,152
Product Sales 371,383 371,383
License Fees 525,000 525,000
System sales 3,198,703 (3,198,703)(1) -
Maintenance fees and
other revenue 658,590 (658,590)(1) -
__________________________________________________
Total revenue 3,857,293 6,016,535 (3,857,293)(1) 6,016,535
Expenses
Research and Development 5,096,122 5,096,122
Cost of Sales 203,901 203,901
Selling, general, and
administrative expenses 434,456 1,004,328 (434,456)(1) 1,004,328
Maintenance and other 176,521 (176,521)(1) -
__________________________________________________
Total Expenses 610,977 6,304,351 (610,977)(1) 6,304,351
Income (loss) from
continuing operations 3,246,316 (287,816) (3,246,316)(1) (287,816)
Gain on sale of Premis
Systems Canada 1,529,537 (1,529,537)(1) -
Interest income, net 129,705 15,083 144,788
Interest expense (44,018) (44,018)
Other income (expense) 34,132 34,132
__________________________________________________
Income (loss) from
continuing operations
before income taxes 4,939,690 (316,751) (4,775,853)(1) (152,914)
Income tax expense (benefit) (244,328) 244,328 (2) -
__________________________________________________
Net (loss) income $4,695,362 $ (316,751) $(4,531,525)(2) $(152,914)
Income per share
Basic $ .92 $ - $ (.91) $ (.01)
Diluted $ .92 $ $ (.91) $ (.01)
Shares used in computing
income per share
Basic 5,099,412 16,769,530
Diluted 5,099,412 16,769,530
(1) Reflects the elimination of discontinued operations of PREMIS Corporation..
(2) Reflects the elimination of income tax expense due to the net operating
loss of NVE.
PREMIS Corporation
Unaudited Consolidated Pro Forma Statement of Operations
For the Three Months Ended June 30, 2000
Unadjusted Adjustment for Pro Forma Adjusted
Statement of Nonvolatile Adjustments Statement of
Operatons Electronics Operations
June 30, Incorporated June 30,
2000 2000
Revenue:
Research and Development $ 1,192,242 $ 1,192,242
Product Sales 146,427 146,427
License Fees 181,250 181,250
Maintenance fees and
other revenue 68,757 (68,757)(1) -
__________________________________________________
Total revenue 68,757 1,519,919 (68,757)(1) 1,519,919
__________________________________________________
Expenses
Research and Development 1,241,980 1,241,980
Cost of Sales 47,826 47,826
Selling, general, and
administrative expenses 14,999 326,748 (14,999)(1) 326,748
Maintenance and other 53,832 (53,832)(1) -
__________________________________________________
Total Expenses 68,831 1,616,554 (68,831)(1) 1,616,554
__________________________________________________
Income (loss) from
continuing operations (74) (96,635) 74 (1) (96,635)
Interest income, net 10,254 6,430 16,684
Interest Expense (8,141) (8,141)
Other income (expense) 3,257 75,089 78,346
__________________________________________________
Income (loss) from
continuing operations
before income taxes 13,437 (23,257) 74 (1) (9,746)
Income tax expense (benefit) - - -
__________________________________________________
Net (loss) income $ 13,437 $ (23,257) $ 74 (1) $ (9,746)
__________________________________________________
Income per share
Basic $ - $ - $ -
Diluted $ - $ - $ -
Shares used in computing
income per share
Basic 5,293,952 16,804,650
Diluted 5,293,952 16,804,650
(1) Reflects the elimination discontinued operations of PREMIS Corporation.
PREMIS Corporation
Unaudited Consolidated Pro Forma Balance Sheet
As of June 30, 2000
Unadjusted Adjustment for Pro Forma Adjusted
Balance Nonvolatile Adjustments Balance
Sheet Electronics Sheet
June 30, Incorporated June 30,
2000 2000
ASSETS
Current Assets:
Cash and cash equivalents $1,043,342 $ 686,392 $ 1,729,734
Accounts Receivables 17,747 1,490,123 1,507,870
Inventories 784,856 784,856
Prepaids and other assets 40,000 49,420 89,420
__________________________________________________
Total current assets 1,101,089 3,010,791 4,111,880
Fixed Assets
Machinery and equipment 1,240,391 1,240,391
Furniture and fixtures 35,498 35,498
Leaseholds 348,887 348,887
Construction in progress 77,571 77,571
1,702,347 1,702,347
Accumulated Depreciation 1,164,007 1,164,007
Property and equipment, net 538,340 538,340
Total assets $1,101,089 $ 3,549,131 $ - $ 4,650,220
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note Payable 294,707 294,707
Accounts payable 2,778 243,946 246,724
Accrued Expenses 10,068 204,129 214,197
Deferred Revenue 1,389,600 1,389,600
Total liabilities 12,846 2,132,382 2,145,228
Stockholders' equity:
Preferred A 16,750 (16,750)(1) -
Common Stock 52,934 28,238 86,875 (1) 168,047
Additional paid-in capital 3,875,559 4,734,794 (2,910,375)(1) 5,699,978
Accumulated deficit (2,840,250) (3,363,033) 2,840,250 (1) (3,363,033)
Total stockholders' equity 1,088,243 1,416,749 - 2,504,992
Total liabilities and
stockholders' equity $1,101,089 $ 3,549,131 $ - $4,650,220
(1) Reflects the recapitalization of the Company, the elimination of the
Company's retained deficit, and the elimination of NVE Common Stock and the NVE
Series A Preferred Stock, each in accordance with GAAP guidelines regarding
purchase adjustments associated with accounting for a reverse acquisition.
Basis of Presentation
The merger will be accounted for using the reverse purchase method of
accounting. Since the Company will issue new shares of common stock in
exchange for outstanding shares of NVE capital stock, the current shareholders
of the Company are expected to retain approximately 6% of all of the
outstanding shares of common stock. In applying generally accepted accounting
principles ("GAAP"), the merger will be accounted for as a reverse acquisition
by NVE. Under GAAP, the merger will be deemed to be equivalent, for accounting
purposes, to NVE's issuance of its capital stock in exchange for the fair
market value of the assets and liabilities of the Company. As a result, no
goodwill will be recorded, and the assets of NVE and its subsidiaries will
continue to be recorded at their historic values.
The unaudited consolidated pro forma statement of operations data included
herein is based on the historical year ended December 31, 1999 audited
statement of operations of NVE, adjusted to coincide with the March 31, 2000
year end results of the Company. NVE's statement of operations results for the
year ended March 31, 2000 were derived by adding results from continuing
operations for the three month period ended March 31, 2000 to, and deducting
the results from continuing operations for the three month period ended March
31, 1999 from, NVE's statement of operations results for the year ended
December 31, 1999.
All Company operating results prior to September 30, 2000 relate to discontinued
operations and have been excluded from the accompanying unaudited consolidated
pro forma statement of operations in accordance with Securities and Exchange
Commission guidelines.
THE ANNUAL MEETING
General
This Proxy Statement is being furnished to our shareholders in connection with
the solicitation of proxies by our Board of Directors for use at the annual
meeting to be held on November 20, 2000 at 3:00 p.m. (Minneapolis time) at the
Ramada Inn Plaza, Minnetonka, Minnesota, and at any adjournment or
postponement.
Matters to Be Considered
At the meeting, the holders of record of our common stock as of October 30,
2000, the record date, will: (1) consider and vote upon a proposal to approve
the Merger Agreement; which includes an amendment to and restatement of the
Articles of Incorporation which, among other things, (a) changes the corporate
name to "NVE Corporation," and (b) increases the number of authorized shares of
the capital stock to 50,000,000 shares, including 30,000,000 of common stock,
par value $.01 per share, and 20,000,000 undesignated shares which can be
designated at the discretion of the Board of Directors as common stock, par
value $.01 per share or preferred stock, (2) adopt the 2000 Stock Option Plan,
and (3) elect four directors. If Proposal 1 is not approved, the Company will
consider implementing the plan to liquidate and dissolve, which was approved by
the shareholders at the annual meeting in July 1999, or seek shareholder
approval for extension of the period for completing an acquisition.
Record Date; Shareholders Entitled to Vote; Voting; Quorum
October 15, 2000 is the record date for the determination of the holders of
common stock entitled to notice of and to vote at the meeting. As of that
date, there were 5,293,952 shares of common stock outstanding. Each holder is
entitled to cast one vote per share, exercisable in person or by properly
executed proxy, on all matters properly submitted for consideration at the
meeting. The presence, in person or by properly executed proxy, of the holders
of a majority of the outstanding shares of common stock is necessary to
constitute a quorum at the meeting.
PROPOSAL 1: APPROVAL OF THE MERGER AGREEMENT
The Merger
FOR YOUR CONVENIENCE, WE HAVE SUMMARIZED MATERIAL ASPECTS OF THE MERGER. THIS
SUMMARY IS NOT A COMPLETE DESCRIPTION. WE ENCOURAGE YOU TO READ APPENDIX A.
SEE ALSO "THE MERGER AGREEMENT."
Effects of the Merger
Upon consummation of the merger, NVE will be merged with and into PREMIS,
PREMIS will continue as the surviving corporation, and the separate existence
of NVE will cease. At the effective time of the merger, (1) each share of NVE
common stock outstanding immediately prior to the effective time (other than
shares owned by PREMIS or NVE) will be converted into 3.5 shares of common
stock of the surviving corporation, subject to adjustments for, among other
things, stock dividends by either the Company or NVE occurring after the date
of the Merger Agreement, (2) each share of NVE common stock owned by NVE or the
Company immediately prior to the effective time will be canceled and
extinguished without any conversion thereof, (3) each share of PREMIS common
stock outstanding immediately prior to the effective time will be converted
into 0.2 shares of common stock of the surviving corporation, (4) the name of
the surviving corporation will be changed from PREMIS Corporation to NVE
Corporation, and (5) the Board of Directors of the Company will be the Board of
Directors of NVE.
Based upon the exchange ratios determined on August 17, 2000, and the number of
shares of common stock of NVE and PREMIS outstanding as of August 17, 2000, and
assuming no change prior to the effective time of the merger, the former NVE
shareholders will own an aggregate of 15,745,860 shares of PREMIS (93.7%, or
94.2% assuming exercise of all outstanding options and warrants) and the
holders of PREMIS common stock immediately prior to the effective time will own
1,058,791 shares of PREMIS (6.3%, or 5.8% assuming exercise of all outstanding
options and warrants). As a result, the NVE shareholders receiving shares of
common stock pursuant to the merger would have the ability to control the
election of the Company's entire Board of Directors and the affairs of the
Company, including, but not limited to, all fundamental corporate transactions
such as acquisitions, mergers, consolidations and the sale of substantially all
of the Company's assets.
Effective Time
If the Merger Agreement is adopted by the requisite vote of the PREMIS
shareholders and all of the other conditions described under "The Merger
Agreement--Certain Conditions to Consummation" are satisfied or waived (to the
extent permitted by the Merger Agreement), then, unless the Merger Agreement is
previously terminated, the merger will be consummated and become effective at
the time designated in the Articles of Merger to be filed with the Minnesota
Secretary of State as soon as is practicable thereafter. For purposes of this
Proxy Statement, "effective time" means the date the Articles of Merger are
filed with the Minnesota Secretary of State.
The Merger Agreement provides that the Company and NVE will cause the effective
time to occur as promptly as practicable after approval by the PREMIS
shareholders and the satisfaction or waiver (to the extent permitted by the
Merger Agreement) of the other conditions described under "The Merger
Agreement--Certain Conditions to Consummation," but in no event later than ten
business days after all such conditions have been satisfied or waived, or on
such date as may be mutually agreed to by PREMIS and NVE's respective Boards of
Directors. We cannot assure you that all conditions to the Merger will be
satisfied. The Merger Agreement may be terminated prior to the effective time
by either PREMIS or NVE in certain circumstances, whether before or after
approval of the Merger Agreement by the PREMIS shareholders. See "The Merger
Agreement --Termination."
Fractional Shares
We will not issue certificates or scrip representing fractional shares of
common stock. Instead, all fractional shares will be rounded up to the nearest
whole number.
Restrictions on NVE Stock
The common stock issued in the merger to the NVE shareholders will be issued
without registration under the Securities Act of 1933 or applicable state
securities laws in reliance upon exemption from registration pursuant to
Section 4(2) and related regulations of the Securities Act and various state
exemptions. As required by such exemptions, these shares will bear
restrictions on transferability for two years after issuance (and indefinitely
thereafter in the case of NVE shareholders who become "affiliates" of the new
company). However, the Company currently plans to pursue the registration of
such shares, thus allowing for free tradeability.
Background of the Merger; Reasons for the Merger
In November 1999, PREMIS completed the sale of substantially all its operating
assets and does not currently have any active business operations. In December
1999, PREMIS made a partial liquidating distribution of cash to its
shareholders, leaving approximately $1.0 million in liquid assets. We have
since used our remaining resources to pursue a business combination with
another entity engaged in other lines of business.
Our business relationship with NVE began in early February of 2000, when Mr.
Terrence Glarner, a member of the Board of Directors of both NVE and PREMIS,
suggested to Mr. F. T. Biermeier, president and Chief Executive Officer of
PREMIS, that a combination with NVE might be in the best interest of both
companies. Mr. Glarner suggested that the two companies meet directly (without
Mr. Glarner's involvement) to determine whether mutual interest existed.
Mr. Biermeier reviewed materials on NVE products and on February 22, 2000 met
by teleconference with Dr. James Daughton, President and Chief Executive
Officer of NVE, and members of his staff, to discuss research, development,
products and plans for NVE. Mr. Daughton was informed that PREMIS had
approximately $1.0 million in cash resources, public shareholders, and its
stock traded on the OTC Bulletin Board. Mr. Biermeier expressed a high level
of interest in the technology and prospects for NVE; however, it became
apparent to Mr. Biermeier, that NVE needed more capital during the coming year
than would be available at that time from the combination of NVE and PREMIS.
It was decided that the best course of action would be to watch several NVE
potential developments during the coming months and have further discussions in
the summer.
In the interim, Mr. Biermeier had several telephone conversations with Mr.
Glarner about the progress of NVE toward its goals and objectives for the year.
During one of those calls, Mr. Glarner suggested that Mr. Biermeier again
contact Mr. Daughton. After discussions with Mr. Daughton regarding NVE
developments, Mr. Biermeier met with Mr. Daughton and Mr. Irish, a member of
the Board of Directors of NVE, at the NVE headquarters in Eden Prairie,
Minnesota on August 11, 2000. At that meeting Mr. Daughton and Mr. Irish
discussed new developments in packaging of isolators, significant new research
contracts for the years 2001 and beyond, and other potential sources of capital
which greatly reduced the NVE capital requirements for the coming year. Mr.
Biermeier then proposed a transaction whereby NVE would become a public entity
by entering into a business combination transaction with PREMIS. At this
meeting, Mr. Daughton expressed his belief that the increased visibility which
results from public company status could lend credibility to NVE and enhance
its marketing efforts. Mr. Daughton, Mr. Irish and Mr. Biermeier then
discussed the framework of a potential business combination transaction. Mr.
Daughton and Mr. Biermeier agreed to explore further the possibility of such a
business combination with their respective Boards of Directors.
After the meeting, Mr. Biermeier reviewed his discussions with Mr. Daughton and
proposed parameters of a potential letter of intent with the PREMIS Board of
Directors (Mr. Glarner did not attend the meeting to avoid the potential for a
conflict of interest). The PREMIS Board of Directors indicated its support
for the objectives and opportunities to enhance shareholder value and decided
to approve the issuance of a letter of intent to proceed with the transaction.
Mr. Daughton received similar feedback and direction from NVE's Board of
Directors, with Mr. Glarner abstaining.
On August 13, 2000 Mr. Irish and Mr. Biermeier had telephone discussions on a
number of important aspects of a possible business combination transaction.
On August 15, 2000, Mr. Biermeier, Mr. Daughton, and Mr. Irish met by
teleconference to discuss a number of important aspects of a possible
transaction, including relative ownership of the Company after the potential
transaction and the Company's listing status with NASDAQ. Thereafter, Mr.
Daughton and Mr. Biermeier continued telephone discussions on a number of other
important aspects of a possible business combination transaction.
On August 17, 2000, the parties signed a letter of intent outlining the
proposed terms of the transaction. The parties then proceeded with the
preparation of the definitive merger agreement. Following approval of the
Merger Agreement by the respective Boards of Directors, the parties executed
the Merger Agreement on September 22, 2000.
Favorable Recommendation of the Company's Board of Directors
Our Board of Directors believes that the terms and conditions of the Merger are
fair from a financial point of view to the PREMIS shareholders and that the
merger is in the best interests of PREMIS and its shareholders. We have not
requested or obtained a third party evaluation of the fairness of the
transaction.
OUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT
YOU VOTE IN FAVOR OF THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT.
Our directors intend to vote all shares of common stock under their control in
favor of such proposal.
NVE's Reasons for the Merger
The decision of the NVE Board of Directors and shareholders to enter into the
Merger Agreement is based upon their conclusion that the merger affords NVE an
opportunity to access capital markets for the development of its GMR (giant
magnetoresistance) materials based products and will provide greater liquidity
for the NVE shareholders.
Regulatory Approval
Neither we nor NVE believe that any regulatory approvals are or will be
required in connection with the merger.
Management of the Company and the Surviving Corporation After the Merger
If the merger is approved at the annual meeting, the directors of the Company
will, after the effective time, be James Daughton, Terrence Glarner, Herbert
Goronkin, and Robert Irish. All current officers of both PREMIS and NVE will
resign and it is contemplated that the new board of directors will elect the
following officers:
James Daughton, President and CEO
Richard George, Treasurer and CFO
James Daughton, President and Director, age 64, has been a Director of NVE
since its inception in 1989. He has been President since 1992. From 1974 to
1989 he held various positions in research and product development, including
the position of vice president, solid state research and product development
for Honeywell, Inc. From 1964 to 1974 he held various positions in the
development of magnetic and semiconductor memory devices for IBM Corporation.
He received a doctorate in electrical engineering from Iowa State University in
1963. He is a member of advisory boards at Iowa State University and the
University of New Orleans and is an adjunct professor of physics at the
University of Minnesota. He has more than 20 issued or pending patents,
primarily dealing with thin magnetic films and devices.
Richard George, Chief Financial Officer, age 56, has been Chief Financial
Officer since March, 1995. From 1991 to 1995 he served as controller at NVE.
From 1966 to 1991 he held various financial and financial management positions
in the areas of operations and contracts at Honeywell Inc. Mr. George received
a B.A. in economics in 1966 from the University of Minnesota, where he later
took graduate courses in law and management
Terrence Glarner, Director, age 57, has been a director since August, 1999.
Since February, 1993 Mr. Glarner has been the President of West Concord
Ventures, Inc. He also currently consults with Norwest Venture Capital, an
entity affiliated with Norwest Growth Fund, Inc. Prior to starting West
Concord Ventures, Inc., Mr. Glarner was the President of North Star Ventures,
Inc. from 1988 to February 1993, a firm which he joined in 1976. From 1968 to
1976 Mr. Glarner was a Securities Analyst and Vice President in the Research
Department of Dain Bosworth, Inc. He has a BA in English from the University
of St. Thomas, a JD from the Law School of the University of Minnesota, and is
a Chartered Financial Analyst. Mr. Glarner supervised investments in
approximately 100 small companies during his involvement with North Star. Mr.
Glarner currently serves as a director of five publicly-held companies
including: Aetrium, Cima Labs, Datakey, and FSI, all of which are publicly-held
companies. He is also a director of Oncotech, Inc.
Herbert Goronkin, Director, age 64, has been a director since 1995. From 1977
to the present, Dr. Goronkin has held various positions including the position
of Vice President and Director of the Physical Research Laboratory at Motorola
Laboratories in Pheonix, Arizona. He has more than 25 patents and has authored
numerous papers. He received BS, MS and Doctorate degrees in physics from
Temple University in 1961, 1962, and 1973, respectively. He is a Fellow of the
IEEE and a member of both the American Physical Society and Sigma Xi.
Robert H. Irish, Director, age 61, has been a director since 1992 and was a
founding investor in NVE. He recently formed The RICE Group to consult in
Information Technology. Since 1994 Mr. Irish has held a number of sales,
consulting, and technical positions, most recently with Compuware and Drodea
Software. From 1988 to 1994 he was a consultant and co-investor with Norwest
Venture Capital. From 1981 to 1988 he was the Executive Vice President of
Centron DPL responsible for Technical Marketing, Product Marketing, and
Research and Development. Prior to that he worked at IBM, from 1966 to 1981, in
management, sales and systems. He attended Rensselaer Polytechnic Institute and
then received a BS in Physics from Syracuse University in 1965. He has 3 issued
patents dealing with magnetic intrusion detection systems.
If the merger is not approved at the annual meeting, the directors will be the
PREMIS nominees elected at the meeting. It is contemplated that if the merger
is not approved, the current officer, F. T. Biermeier, President and CEO, will
remain in office.
Interests of Certain Persons in the Merger
One of the PREMIS directors, Terrence Glarner, is also a member of the Board of
Directors of NVE and an associate of Norwest Venture Capital, a significant NVE
shareholder. Mr. Glarner was instrumental in the introduction of PREMIS to
NVE. Mr. Glarner has not received any special fee or other compensation for
his services and he has abstained from voting on the merger as a director of
NVE and PREMIS. He intends to vote for the merger as an NVE shareholder
(individually and on behalf of Norwest Venture Capital) and has indicated that
he intends to vote for the merger as a PREMIS shareholder (individually).
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership of common stock of PREMIS as of October 15, 2000 and assuming
consummation of the merger and the issuance of common stock to NVE's
shareholders and the Company's shareholders, on such date, by (a) each person
known by the Company to be the beneficial owner of more than 5% of outstanding
common stock of PREMIS, (b) each director, (c) each nominee for election as
director, (d) all executive officers and directors as a group, and (e) all post
merger executives officers and directors as a group.
Pre-Merger Post-Merger
____________________ _____________________
Shares Shares
Name Beneficially Beneficially
Owned(1) Percent Owned(1) Percent
F.T. Biermeier 1,936,751(2)(3) 36.6% 387,350(2)(3) 2.3%
Mary Ann Calhoun 25,000 * 5,000 *
Gerald F. Schmidt 25,000(4) * 5,000(4) *
S. Albert D. Hanser 30,000(4) * 6,000(4) *
Terrence W. Glarner 16,000(5) * 3,200(5) *
All directors and executive
officers of PREMIS (pre-merger)
as a group (5 persons) 2,032,751(6) 38.4% 401,555(6) 2.4%
Norwest Venture Capital 7,577,434 45.2%
James Daughton 2,849,021(7) 17.0%
Motorola, Inc. 1,750,000 10.4%
Herber Goronkin 1,750,000(8) 10.4%
Richard George 507,500(9) 3.0%
Robert Irish 10,000 * 197,761(10) 1.2%
Terrence Glarner 16,000(5) 31,200(11) *
All NVE directors, executive
officers, and owners of more
than 5% of the stock (post-merger)
as a group (7 persons) 26,000(6) * 12,912,916(6) 76.6%
*Less than 1%.
(1) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire them as of the record date, or within 60 days
after such date, are treated as outstanding when determining the percent of
the class owned by such individual and when determining the percent owned
by the group. Unless otherwise indicated, each person named or included in
the group has sole voting and investment power with respect to the shares
of common stock set forth opposite the shareholder's name.
(2) Includes 75,000 shares pre-merger and 15,000 shares post-merger held by
record by Sandra J. Biermeier.
(3) Includes 30,000 shares pre-merger and 6,000 shares post-merger held by John
F. Biermeier, a minor child.
(4) Includes 10,000 shares pre-merger and 2,000 shares post-merger that may be
acquired pursuant to exercise of options.
(5) Includes 5,000 shares pre-merger and 1,000 shares post-merger that may be
acquired pursuant to exercise of options.
(6) See notes (4) - (5) above.
(7) Includes 50,000 shares pre-merger and 175,000 shares post-merger that may
be acquired pursuant to exercise of options.
(8) Includes 1,750,000 shares held by Motorola Corporation. Mr. Goronkin
represents on the Board of Directors of NVE.
(9) Includes 10,000 shares pre-merger and 35,000 shares post-merger that may b
acquired pursuant to exercise of options.
(10) Includes 2,000 shares pre-merger and 7,000 shares post-merger that may be
acquired pursuant to exercise of options.
(11) Includes 2,000 shares pre-merger and 7,000 shares post-merger that may be
acquired pursuant to exercise of options
Accounting Treatment
The merger will be accounted for as a business combination utilizing the
reverse acquisition method with NVE being the accounting acquiror under
generally accepted accounting principles. As such, the merger will be treated
as an acquisition using the purchase method of accounting with no change in the
recorded amount of NVE's assets and liabilities. The assets and liabilities of
the Company that are acquired as a result of the merger will be recorded at
their fair market values.
Certain Federal Income Tax Consequences
We intend that the merger will be treated as a tax-free reorganization within
the meaning of the Code, and that no income, gain or loss will be recognized by
the Company or its shareholders as a result of the consummation of the merger
other than the shareholders exercising dissenters' rights under the Minnesota
Business Corporation Act. Dissenting shareholders of the Company may be
subject to state and federal taxation as described below. We have not
requested or received an opinion by counsel or independent certified
accountants, or a ruling from the Internal Revenue Service (the "IRS"), to the
effect that the merger qualifies as a reorganization under Section 368(a) of
the Code.
To assist you in analyzing your choices, we have summarized the federal income
tax consequences of exercise of dissenters' rights under currently existing
provisions of the Code, the Treasury Regulations under the Code, applicable
judicial decisions, and administrative rulings, all of which are subject to
change. Due to the complexity of the Code, the following discussion is limited
to the material federal income tax aspects of the merger for a Company
shareholder who properly exercises his or her dissenters' rights under the
Minnesota Business Corporation Act, who is a citizen or resident of the United
States and who, on the date of disposition of the holder's shares of common
stock, holds the shares as a capital asset. The general tax principles
discussed below are subject to retroactive changes that may result from
subsequent amendments to the Code. The following discussion does not address
the material federal income tax aspects of the merger for any dissenting
shareholder who is not a citizen or resident of the United States. The
following discussion does not address potential foreign, state, local and other
tax consequences, nor does it address the effect on taxpayers subject to
special treatment under the federal income tax laws (such as life insurance
companies, tax-exempt organizations, S corporations, trusts, and taxpayers
subject to the alternative minimum tax). In addition, the following discussion
may not apply to dissenting shareholders who acquired their shares upon the
exercise of employee stock options or otherwise as compensation. We have not
requested the Internal Revenue Service to rule or issue an opinion on the
federal income tax consequences of the merger. ALL SHAREHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, FOREIGN, STATE, AND LOCAL
TAX CONSEQUENCES OF THE DISPOSITION OF THEIR SHARES IN THE MERGER.
For federal income tax purposes, the exchange of common stock for cash pursuant
to the merger will be treated as a distribution in redemption of common stock
from each holder of the Company's common stock who properly exercises
dissenter's rights, subject to the provisions of Section 302 of the Code.
Under the rules of Section 302, the determination of whether the exchange of
common stock for cash pursuant to the exercise of dissenter's rights has the
effect of a distribution of a dividend will be made, on a shareholder by
shareholder basis, by comparing the proportionate, percentage interest of a
shareholder after the merger with the proportionate, percentage interest of
such shareholder before such transaction. In making this comparison, there
must be taken into account (a) any other shares of common stock actually owned
by such shareholder, and (b) any such shares considered to be owned by such
shareholder by reason of the constructive ownership rules set forth in Section
318 of the Code. These constructive ownership rules apply in certain specified
circumstances to attribute ownership of shares of a corporation from the
shareholder actually owning the shares, whether an individual, trust,
partnership or corporation, to certain members of such individual's family or
to certain other individuals, trusts, partnerships or corporations. Under
these rules, a shareholder is also considered to own any shares with respect to
which the shareholder holds stock options.
Under applicable IRS guidelines, such a redemption involving a holder of a
minority interest in the Company whose relative stock interest in the Company
is minimal, who exercises no control over the affairs of the Company and who
experiences a reduction in the shareholder's proportionate interest in the
Company, both directly and by application of the foregoing constructive
ownership rules, generally will not be deemed to have resulted in a
distribution of a dividend under the rules set forth in Section 302(b)(1) of
the Code. Accordingly, the federal income tax consequences to the Company's
shareholders who exercise dissenters' rights will generally be as follows:
(a) Assuming that the shares of common stock exchanged by a dissenting
shareholder for cash in connection with the merger are capital assets in the
hands of the dissenting shareholder at the effective time (and the exchange
does not result in a distribution of a dividend under Section 302 of the Code),
such dissenting shareholder may recognize a capital gain or loss by reason of
the consummation of the merger.
(b) The capital gain or loss, if any, will be long-term with respect to
shares of common stock held for more than twelve months as of the effective
time, and short-term with respect to such shares held for twelve months or
less.
(c) The amount of capital gain or loss to be recognized by each
dissenting shareholder will be measured by the difference between the amount of
cash received by such dissenting shareholder in connection with the exercise of
dissenters' rights and such dissenting shareholder's adjusted tax basis in the
common stock at the effective time.
(d) An individual's long-term capital gain is subject to federal income
tax at a maximum rate of 20%, while any capital loss can be offset only against
other capital gains plus $3,000 of other income in any tax year ($1,500 in the
case of a married individual filing a separate return). Capital losses in
excess of these limits can be carried forward to future years.
(e) A corporation's long-term capital gain is subject to federal income
tax at a maximum rate of 35%, while any capital loss can be offset only against
other capital gains in any tax year, subject to the carryback and carryforward
rules of the Code.
Cash payments made pursuant to the merger will be reported to the extent
required by the Code to dissenting shareholders and the IRS. Such amounts will
ordinarily not be subject to withholding of U.S. federal income tax. However,
backup withholding of such tax at a rate of 31% may apply to certain dissenting
shareholders by reason of the events specified in Section 3406 of the Code and
the Treasury Regulations promulgated thereunder, which include failure of a
dissenting shareholder to supply the Company or its agent with such dissenting
shareholder's taxpayer identification number. Accordingly, Company dissenting
shareholders (or other payees) will be asked to provide the dissenting
shareholder's taxpayer identification number (social security number in the
case of an individual, or employer identification number in the case of other
dissenting shareholders of the Company) on a Form W-9 and to certify that such
number is correct. Withholding may also apply to Company dissenting
shareholders who are otherwise exempt from such withholding, such as a foreign
person, if such person fails to properly document its status as an exempt
recipient. Each dissenting shareholder of the Company, and, if applicable,
each other payee, should complete and sign a Form W-9 to provide the
information and certification necessary to avoid backup withholding, unless an
applicable exemption exists and is proved in a manner satisfactory to the
Company.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE FOR GENERAL INFORMATION
ONLY. EACH HOLDER OF SHARES OF COMMON STOCK IS URGED TO CONSULT HIS OR HER OWN
TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH SHAREHOLDER OF
THE TRANSACTION (INCLUDING THE APPLICABILITY AND EFFECT OF FOREIGN, STATE,
LOCAL AND OTHER TAX LAWS).
THE MERGER AGREEMENT
FOR YOUR CONVENIENCE, WE ARE PROVIDING A BRIEF SUMMARY OF THE MATERIAL
PROVISIONS OF THE MERGER AGREEMENT. THIS SUMMARY IS NOT A COMPLETE DESCRIPTION.
WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT IN ITS ENTIRETY (APPENDIX A).
General
Upon consummation of the merger, NVE will be merged with and into PREMIS,
PREMIS will continue as the surviving corporation, and the separate existence
of NVE will cease. At the effective time, (1) each share of NVE common stock
outstanding immediately prior to the effective time (other than shares owned by
PREMIS or NVE) will be converted into 15,746,860 shares of common stock of the
surviving corporation, subject to adjustments for, among other things, stock
dividends by either the Company or NVE occurring after the date of the Merger
Agreement, (2) each share of NVE common stock owned by NVE or the Company will
be canceled and extinguished, (3) each share of PREMIS common stock outstanding
immediately prior to the effective time will be converted into 0.2 shares of
common stock of the surviving corporation, and (4) the name of the surviving
corporation will be changed from PREMIS Corporation to NVE Corporation.
All shares of NVE common stock converted into shares of PREMIS common stock in
the merger will no longer be outstanding and will automatically be canceled and
retired and will cease to exist.
Certain Representations and Warranties
The Merger Agreement contains various representations and warranties of each of
the Company and NVE relating to, among other things, the following matters
(which representations and warranties are subject, in certain cases, to
specified exceptions): (a) organization, corporate powers, and qualification
to do business; (b) due authorization, execution, delivery and performance of
the Merger Agreement; (c) the absence of conflicts of the Merger Agreement and
the transactions contemplated thereby with any provision of the Articles of
Incorporation or Bylaws of the Company or NVE or any statute, ordinance, rule,
regulation, order, decree, note, bond, mortgage, indenture, license, franchise,
permit, agreement or other instrument or obligation and the absence of required
filings, permits, consents, approvals, or notices; (d) capital structure; (e)
accuracy of financial statements provided by each to the other party; (f)
absence of certain undisclosed liabilities; (g) absence of material adverse
changes; (h) absence of material legal proceedings; (i) compliance with
applicable laws; (j) rights to use of intellectual property; (k) material
contracts and leases; (l) rights to use of properties; (m) taxes; (n) employee
benefit plans; (o) accuracy of certain disclosures; (p) labor matters; and (q)
absence of broker's or finder's fees.
The Company has also made certain additional representations and warranties to
NVE relating to (a) the authorization and validity of the shares of common
stock to be issued pursuant to the Merger Agreement and (b) the filing of
reports and other documents with the Securities and Exchange Commission.
Certain Covenants
Pursuant to the Merger Agreement, the Company has agreed that, prior to the
effective time, except as expressly contemplated by the Agreement or as
otherwise consented to by NVE, the Company (a) will carry on its business in
the usual, regular and ordinary course; (b) will not dispose of or encumber any
of its properties or assets; (c) will not split, combine or reclassify any of
its capital stock, declare any dividends on or make any other distribution in
respect of such shares, or amend its Articles of Incorporation or Bylaws or
similar governing documents; (d) will not issue, sell, authorize or propose the
sale or issuance of, or purchase, acquire or propose the purchase or
acquisition of any shares of the capital stock of NVE or securities convertible
into, or rights, warrants or options (including employee stock options) to
acquire any such shares or other convertible securities; (e) will not acquire
or agree to acquire by merging or consolidating with or into, purchasing
substantially all of the assets or stock of, or otherwise, any material assets,
any assets outside of the ordinary course of business, or any business or any
corporation, partnership, association or other business organization or
division thereof; (f) will not adopt or amend in any material respect any
agreement related to employees or employee benefits; (g) will not incur, assume
or prepay any long-term debt or, except in the ordinary course of business
under existing lines of credit, incur or assume any short-term debt, assume,
guaranty, endorse or otherwise become liable or responsible for the obligations
of any other person or make any loans, advances or capital contributions to or
investments in any other person; and (h) will not take, agree to take, or
knowingly permit to be taken any action to do or to be done anything in the
conduct of its business that would be contrary to or in breach of any terms of
the Merger Agreement or would cause any of the representations and warranties
of the Company to be or become untrue in any material respect. Pursuant to the
Merger Agreement, NVE has agreed that, prior to the effective time, except as
expressly contemplated by the Merger Agreement or as otherwise consented to by
the Company, NVE (a) will carry on its business in the usual, regular and
ordinary course; (b) will not dispose of or encumber any of its properties or
assets; (c) will not split, combine, reclassify any of its shares or declare
any dividends on or make any distributions in respect of the shares or amend
its Articles or Certificate of Incorporation or Bylaws or similar governing
documents; (d) will not issue, sell, authorize or propose the sale or issuance
of or purchase, acquire or propose the purchase or acquisition of any shares of
the capital stock of NVE or securities convertible into, or rights, warrants or
options (including employee stock options) to acquire, any such shares or
convertible securities, except as expressly provided by the Merger Agreement;
(e) will not acquire or agree to acquire by merging or consolidating with or
into, purchasing substantially of the assets or stock of, or otherwise,
material assets, any assets outside of the ordinary course of business, or any
business or any corporation, partnership, association or other business
organization or division thereof; (f) will not adopt or amend in any material
respect any agreement related to employees or employee benefit plans; (g) will
not incur, assume, or prepay any long-term debt or, except in the ordinary
course of business under existing lines of credit, incur or assume any
short-term debt, assume, guaranty, endorse or otherwise become liable or
responsible for the obligations of any other person or make any loans, advances
or capital contributions to or investments in any other person; and (h) will
not take, agree to take, or knowingly permit to be taken any action or do or
knowingly permit to be done anything in the conduct of its business that would
be contrary to or in breach of the terms or provisions of the Merger Agreement
or would cause any of the representations or warranties of NVE contained
therein to be or become untrue in any material respect.
The Company and NVE have each also agreed to (a) provide the other and its
accountants, counsel, advisers and other authorized representatives full access
to any and all premises, properties, contracts, commitments, books, records and
other information; (b) use their best efforts to obtain consents of all third
parties and governmental authorities necessary to the consummation of the
transactions contemplated by the Merger Agreement; (c) use their best efforts
to take or cause to be taken all action and to do or cause to be done all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by the Merger
Agreement; (d) promptly inform the other party in writing of the occurrence of
any event which will or may result in the failure to satisfy any of the
conditions to closing; and (e) not issue any press release or other information
to the press or any third parties with respect to the Merger Agreement or the
transactions contemplated thereby without the prior written consent of the
other.
Limitations on Solicitation of Transactions
The parties have agreed that, until the earlier of the effective time or the
termination of the Merger Agreement, neither the Company nor NVE nor any
officer, director or employee of (or any investment banker, attorney,
accountant or any representative retained by) either NVE or the Company, shall,
either directly or indirectly, solicit, initiate or encourage (including by way
of furnishing information) any inquiries or proposals by, or engage in any
discussions or negotiations with, any corporation, partnership, person or other
entity or group which it is reasonably expected may lead to, or which relates
to, any takeover proposal. Each party will promptly advise the other orally
and in writing of the receipt and content of any such inquiries or proposals.
"Takeover proposal" shall mean any proposal for a merger of the business, or
any other combination involving the Company or NVE for the acquisition of a
substantial equity interest in the Company or NVE or a substantial portion of
the assets of the Company or NVE other than the one contemplated by the Merger
Agreement.
Certain Conditions to Consummation of Merger
Pursuant to the Merger Agreement, each party's respective obligations to effect
the merger are subject to the fulfillment at or prior to the effective time of
various conditions, including the following: (a) the Merger Agreement shall
have been approved and adopted by the affirmative vote of the shareholders of
the Company and NVE in accordance with applicable law; (b) no statute, rule,
regulation, executive order, decree, order or injunction shall have been
enacted, entered, promulgated or enforced by any court or governmental
authority prohibiting or materially and adversely restricting the consummation
of the merger; (c) the representations and warranties of the Company and NVE,
respectively, contained in the Merger Agreement shall be true and correct in
all material respects at and as of the effective time as if made at and as of
such time, except as affected by the transactions contemplated by the Merger
Agreement; and (d) the Company and NVE shall each have performed in all
material respects the obligations under the Merger Agreement required to be
performed by it at or prior to the effective time.
Termination
Pursuant to the Merger Agreement, the Merger Agreement may be terminated and
the merger may be abandoned at any time prior to the effective time,
notwithstanding the approval of the Merger Agreement by the shareholders of
NVE, (a) by mutual consent of NVE and the Company; (b) by either the Company or
NVE if, without fault of such terminating party, the merger shall not have been
consummated on or before December 31, 2000; or (c) by either the Company or
NVE, if any court of competent jurisdiction or other governmental body shall
have issued an order, judgment or decree (other than a temporary restraining
order) restraining, enjoining or otherwise prohibiting the merger and such
order, judgment or decree shall become final and nonappealable.
In the event of termination of the Merger Agreement and the merger, the Merger
Agreement shall be void, and there shall be no liability on the part of either
party to the other except that each party shall be required to pay its own
expenses.
Indemnification
The Company and NVE have each agreed to, and shall immediately upon demand,
defend, indemnify and hold harmless the other from, against, and in respect of
any liabilities, penalties, interests, costs, expenses or other damages or
deficiencies incurred as a result of any misrepresentation, breach of warranty,
or nonfulfillment of any agreement or covenant under the Merger Agreement or
from any misrepresentation in or omission from any certificate, schedule or
other instrument furnished or to be furnished by the indemnifying party and all
actions, suits, proceedings, demands, assessments, judgments, costs and
expenses (including, without limitation, reasonable attorneys' fees) incident
to any of the foregoing. Any claims for indemnification under the Merger
Agreement shall be effected through an adjustment in the number of shares of
Common Stock to be issued to the shareholders of NVE or the Company. No claims
for indemnification may be brought by either party against the other unless and
until the aggregate amount of such claims exceeds $50,000. In addition, all
claims must be brought on or before the first anniversary of the effective time
unless either written notice of such claim was provided by one party to the
other on or prior to such first anniversary or such claim involves fraud or a
knowing and intentional breach or nonperformance of the Merger Agreement.
Expenses
Under the Merger Agreement, all costs and expenses incurred in connection with
the Merger Agreement and the transactions contemplated thereby are to be paid
by the party incurring such costs and expenses.
AMENDMENT AND RESTATEMENT OF THE ARTICLES OF INCORPORATION
General
Article I of the Articles of Incorporation, as amended, currently provides that
the name of the Company is "PREMIS Corporation," Article III of the Articles
of Incorporation, as amended, currently provides for 10,000,000 authorized
shares of common stock, par value $.01 per share.
In connection with the consummation of the merger, the Board of Directors has
approved an amendment to and restatement of the Articles of Incorporation, a
copy of which articles of incorporation as so amended and restated (the
"Restated Articles") is attached to this proxy statement as Appendix B. The
principal changes made to the Articles of Incorporation by the Restated
Articles include (a) changing the corporate name of the Company to "NVE
Corporation", (b) increasing the number of authorized shares of capital stock
to 50,000,000 shares, including 30,000,000 of common stock, par value $.01 per
share, and 20,000,000 undesignated shares which can be designated at the
discretion of the Board of Directors as common stock, par value $.01 per share
or preferred stock.
If the Merger Agreement is approved by the Company's shareholders, the Restated
Articles would become the current articles of incorporation of the Company upon
the consummation of the merger. If the Merger Agreement is not approved by the
Company's shareholders, or if the merger is not consummated for any reason, the
Restated Articles would not be adopted and the Articles of Incorporation, as
previously amended, will remain in effect.
Purposes and Effects
Change in Name. The Board of Directors believes that the corporate name of the
Company should be changed to reflect the Company's intention to operate the
business of NVE after the Merger.
Change in Authorized Capital Stock. Except for shares to be issued upon
consummation of the merger and the shares reserved for issuance under
outstanding options and warrants, the Company has no agreements or
understandings concerning the issuance of any additional shares of common
stock. However, if all of the holders of NVE common stock receive shares of
common stock upon consummation of the merger, the present number of authorized
but unissued shares of common stock would be inadequate to allow for all such
issuances. In addition, the Board of Directors believes that the increased
authorization of shares is advisable at this time so that shares will be
available in the future on a timely basis if such need arises in connection
with stock splits or dividends, financings, acquisitions or other corporate
purposes. This will enable the Company to take advantage of market conditions,
the availability of favorable financing, and opportunities for acquisitions
without the delay and expense associated with convening special shareholders'
meetings.
Unless required by law, the Articles of Incorporation or the rules of any stock
exchange on which the shares may in the future be listed, the Board of
Directors will be able to provide for the issuance of the additional shares
without further action by the Company's shareholders and no further
authorization by the shareholders will be sought prior to such issuance. If
the common stock qualifies for listing on the Nasdaq National Market or the
Nasdaq SmallCap Market, under existing Nasdaq regulations approval by a
majority of the holders of the shares of common stock would be required prior
to the original issuance of additional shares in certain circumstances,
including (a) in connection with certain stock plans, (b) in connection with
certain acquisitions if the number of shares of common stock to be issued
(including securities convertible into or exercisable for shares of common
stock) is or will be equal to or in excess of 20% of the number of shares
outstanding before the issuance of such common shares, or (c) if the issuance
would result in a change in control of the Company.
Although not designed or intended for such purposes, the effect of the proposed
increase in the authorized shares might be to render more difficult or to
discourage a merger, tender offer, proxy contest or change in control of the
Company and the removal of management, which holders of common stock might
otherwise deem favorable. The authority of the Board of Directors to issue
shares might be used to create voting impediments or to frustrate an attempt by
another person or entity to effect a takeover or otherwise gain control of the
Company because the issuance of additional shares would dilute the voting power
of the shares then outstanding. Shares could also be issued to purchasers who
would support the Board of Directors in opposing a takeover bid which the Board
of Directors determines not to be in the best interests of the Company and its
shareholders. The overall effect of the ability of the Board of Directors to
issue additional shares may be to delay or prevent attempts by other persons or
entities to acquire control of the Company without negotiations with the Board
of Directors.
There are no preemptive, subscription, conversion or redemption rights
pertaining to the common stock currently outstanding or to be authorized under
the Restated Articles. The absence of preemptive rights could result in a
dilution of the interest of existing shareholders if additional shares of
common stock are issued. Holders of the common stock are entitled to receive
such dividends as may be declared by the Board of Directors out of assets
legally available for dividends and to share ratably in the assets of the
Company available upon liquidation.
Each share of common stock is entitled to one vote for all purposes and
cumulative voting is not permitted in the election of directors. Accordingly,
the holders of more than 50% of all of the outstanding shares can elect all of
the directors. Significant corporate transactions such as amendments to the
Articles of Incorporation, mergers, sales of assets and dissolution or
liquidation require approval by the affirmative vote of the majority of the
outstanding shares of common stock. Other matters to be voted upon by the
holders of common stock normally require affirmative vote of a majority of the
shares present at the particular shareholders meeting.
The effect of the proposed authorization of undesignated shares would
allow the Board of Directors, without additional action by the shareholders, to
designate one or more series of common stock or preferred stock to be issued
from time-to-time, to establish the preferences, limitations and relative
rights of any such series and to authorize the issuance of shares of any such
series. Such authority is limited by Minnesota law, the rules of any
securities exchange on which shares of common stock are then listed and any
other applicable laws or regulations. Any series of preferred stock could have
dividend, voting, liquidation and other rights that are senior to the rights of
the common stock. The issuance of any shares of preferred stock likely would
dilute the voting power of the outstanding shares of common stock and reduce
the portion of the dividends and liquidation proceeds payable to the holders of
the outstanding shares of common stock.
The ability to authorize and issue preferred stock offers the Board of
Directors additional flexibility in connection with possible future actions
such as: stock splits or stock dividends, the sale of stock to raise additional
capital, acquisitions of properties or businesses where the use of preferred
stock is deemed advantageous, establishing strategic relationships with
corporate partners and distributions of stock for general corporate purposes.
Preferred stock enhances the Company's ability to accomplish any of
aforementioned actions by providing the Board of Directors with the authority
to vary the preferences, limitations and relative rights of the issued
securities. Currently, there are no plans to issue any series of preferred
stock for any particular purposes.
The Board of Directors could, in the future, use the authorized but
unissued undesignated shares of preferred stock as an anti-takeover device to
impede a takeover or acquisition of control of the Company or its stock. The
authorization of preferred stock may deter a takeover attempt deemed by the
holders of the common stock to be in their best interests or in which holders
of common stock may be offered a premium over market price for their shares of
common stock. Also, the authorization of undesignated shares could facilitate
the adoption of a shareholders rights plan ("poison pill") by the Company,
which is an anti-takeover device. The Board is not recommending the
authorization of undesignated shares to thwart any existing or percived
take-over effort or threat.
Waiver of Director Liability and Indemnification
The Company's Articles of Incorporation and the Restated Articles limit
personal liability for breach of the fiduciary duty of the Company's directors,
to the fullest extent provided by the Minnesota Business Corporation Act. Such
Articles eliminate the personal liability of directors for damages occasioned
by breach of fiduciary duty, except for liability based on breach of the
director's duty of loyalty to the Company, liability for acts or omissions not
made in good faith, liability for acts or omissions involving intentional
misconduct, liability based on payments of improper dividends, liability based
on violations of state securities laws and liability for acts occurring prior
to the date such provision was added. Any amendment to or repeal of such
provision will not adversely affect any right or protection of a director of
the Company for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
In addition, the Minnesota Business Corporation Act and the Company's Bylaws
provide that officers and directors of the Company have the right to
indemnification from the Company for liability arising out of certain actions
to the fullest extent permissible by law. This indemnification may be
available for liabilities arising in connection with the merger. Insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Act") may be permitted to directors, officers or persons
controlling the Company pursuant to such indemnification provisions, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is therefore unenforceable.
State Law Provisions with Potential Anti-Takeover Effect
Certain provisions of Minnesota law described below could have an anti-takeover
effect. These provisions are intended to provide management flexibility, to
enhance the likelihood of continuity and stability in the composition of the
Company's Board of Directors and in the policies formulated by the Board of
Directors and to discourage an unsolicited takeover of the Company, if the
Board of Directors determines that such a takeover is not in the best interests
of the Company and its shareholders. However, these provisions could have the
effect of discouraging certain attempts to acquire the Company, which could
deprive the Company's shareholders of opportunities to sell their shares of
sommon stock at prices higher than prevailing market prices.
Section 302A.671 of the Minnesota Statutes applies, with certain exceptions, to
any acquisition of voting stock of the Company (from a person other than the
Company, and other than in connection with certain mergers and exchanges to
which the Company is a party) resulting in the beneficial ownership of 20% or
more of the voting stock then outstanding. Section 302A.671 requires approval
of any such acquisition by a majority vote of the shareholders of the Company
prior to its consummation. In general, shares acquired in the absence of such
approval are denied voting rights and are redeemable at their then-fair market
value by the Company within 30 days after the acquiring person has failed to
give a timely information statement to the Company or the date the shareholders
voted not to grant voting rights to the acquiring person's shares.
Section 302A.673 of the Minnesota Statutes generally prohibits any business
combination by the Company, or any subsidiary of the Company, with any
shareholder that purchases 10% or more of the Company's voting shares (an
"interested shareholder") within four years following such interested
shareholder's share acquisition date, unless the business combination is
approved by a committee of all of the disinterested members of the Board of
Directors of the Company before the interested shareholder's share acquisition
date.
Transfer Agent and Registrar
Corporate Stock Transfer, Denver, Colorado, is the transfer agent and registrar
for the common stock and will process the exchange of shares.
RIGHTS OF DISSENTING SHAREHOLDERS
Under the Minnesota Business Corporation Act, the holders of our common stock
are entitled to dissenters' rights with respect to the merger. The following
is a summary of your rights if you dissent. The summary is not a complete
description and, because the rules for preserving and asserting dissenters'
rights are very technical and strictly enforced, it is very important that you
read Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act
(the "Minnesota Dissenters' Rights Statute"), which are attached as Appendix C.
Under the Minnesota Business Corporation Act, you have the right to dissent
from the merger and, subject to certain conditions provided for under Minnesota
law, to receive payment for the fair value of your shares of common stock
immediately prior to the merger. If the shareholders approve of the Merger
Agreement, shareholders will be bound by the terms of the Merger Agreement
unless they dissent by complying with all of the requirements of the Minnesota
Dissenters' Rights Statute. To demand such payment, you should carefully
review the Minnesota Dissenters' Rights Statute, and in particular the
procedural steps. IF YOU FAIL TO COMPLY PRECISELY WITH THESE PROCEDURAL
REQUIREMENTS YOU WILL LOSE YOUR RIGHT TO DISSENT.
If you wish to dissent, you must deliver to the Company, prior to the
vote on the merger Agreement, a written notice of intent to demand payment for
your shares if the merger is effectuated. Such notice should be sent to PREMIS
Corporation, C/O Moss & Barnett, 4800 Wells Fargo Center, 90 South Seventh
Street, Minneapolis, Minnesota 55402-4129, Attn: Janna R. Severance. In
addition, you must not vote to approve the Merger Agreement. If you fail to
deliver the notice on time or vote to approve the Merger Agreement, you will
not have any dissenters' rights. If you return a signed proxy but do not
specify a vote AGAINST approval of the Merger Agreement or a direction to
abstain, the proxy will be voted for approval of the Merger Agreement, which
will have the effect of waiving your dissenters' rights.
If the Merger Agreement is approved at the meeting, the Company will deliver a
written dissenters' notice to all of its shareholders who gave timely notice of
intent to demand payment and who did not vote in favor of the Merger Agreement.
The Company's notice will:
* state where the payment demand and certificates of certificated shares must be
sent in order to obtain payment and the date by which they must be received;
* inform shareholders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
* supply a form for demanding payment and requiring the dissenting shareholder
to certify the date on which such shareholder acquired his or her shares of
common stock; and
* be accompanied by a copy of the Minnesota Dissenters' Rights Statute.
In order to receive fair value for your shares of common stock, you must demand
payment within 30 days following the date of the Company's notice, deposit your
shares and provide the other information required by such notice. We may
restrict the transfer of shares from the date of the demand for payment until
the merger is completed; however, you retain all other rights of a shareholder
of the Company until those rights are canceled by the merger.
Upon the completion of the merger, or upon receipt of the payment demand
(whichever is later), we must pay each dissenter who complies with the
Minnesota Dissenters' Rights Statute the amount we estimate to be the fair
value of the dissenter's shares of common stock plus accrued interest, except
for shares of common stock acquired by a dissenter after the date of the first
announcement to the public of the merger. The payment must be accompanied by
certain financial information concerning the Company, a statement of our
estimate of the fair value of the shares, an explanation of the method used to
reach the estimate, a brief description of the procedure to demand supplemental
payment, and a copy of the Minnesota Dissenters' Rights Statute.
If you believe the amount remitted by us is less than fair value for the shares
of common stock plus interest, you may notify the Company in writing of your
estimate of the fair value of the shares and the amount of interest, and may
demand additional payment, by following the procedures set forth in the
Minnesota Dissenters' Rights Statute.
RISK FACTORS
You should consider the following risks in deciding whether or not to approve
the Merger Agreement. The risks described below are not the only risks
involved in this transaction; rather, they are risks that we have identified as
the most significant risks as of the date of this proxy statement.
The liquidity of our stock may be limited by broker-dealer regulations
concerning sales of "penny stock." Federal regulations promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") regulate the
trading of so-called "penny stocks" (the "Penny Stock Rules"), which are
generally defined as any security not listed on a national securities exchange
or The Nasdaq Stock Market ("Nasdaq"), priced at less than $5.00 per share and
offered by an issuer with limited net tangible assets and revenues. In
addition, equity securities listed on Nasdaq that are priced at less than $5.00
per share are deemed penny stocks for the limited purpose of Section 15(b)(6)
of the Exchange Act. Therefore, trading of the Company's common stock if it
continues to be priced below $5.00 per share, will be subject to the provisions
of Section 15(b)(6) of the Exchange Act, which make it unlawful for any
broker-dealer to participate in a distribution of any penny stock without the
consent of the Commission if, in the exercise of reasonable care, the
broker-dealer is aware of or should have been aware of the participation of a
previously sanctioned person. In such event, it may be more difficult for
broker-dealers to sell the common stock, and purchasers of shares of common
stock may experience difficulty in selling such shares in the future in
secondary trading markets.
So long as the common stock is not traded in the Nasdaq SmallCap Market or
Nasdaq National Market, trading, if any, is subject to the Penny Stock Rules.
Under Exchange Act Rule 15g-8, broker-dealers must take certain steps prior to
selling a penny stock. Many brokers refrain from any trading in such stock as
a result of the requirements which include:
* obtaining financial and investment information from the investor;
* obtaining a written suitability questionnaire and purchase agreement signed
by the investor;
* providing the investor with a written identification of the shares being
offered and in what quantity; and
* delivering to the investor a written statement setting forth the basis on
which the broker-dealer approved the investor's account for the transaction.
If the Penny Stock Rules are not followed, the investor has no
obligation to purchase the shares. Accordingly, the application of the Penny
Stock Rules makes it more difficult for broker-dealers to sell the common stock
and purchasers may have difficulty in selling the shares in secondary trading
markets.
Effective on July 17, 1998, PREMIS common stock was delisted from trading on
the Nasdaq National Market and the Nasdaq SmallCap Market. We may apply for
initial listing of the common stock upon completion of the merger. To qualify,
we must comply with the applicable requirements for initial inclusion on the
Nasdaq SmallCap Market, including a minimum bid price of $4.00. In addition,
all companies listed on the Nasdaq SmallCap Market must meet specific corporate
governance requirements. A company applying for listing on the Nasdaq SmallCap
Market must meet three additional requirements: (a) the company must have
either net tangible assets of more than $4 million, a market capitalization of
$50 million or net income of $750,000; (b) the company must have a public float
of 1 million shares; and (c) the market value of such public float must be more
than $5 million. Additionally, the company must have a minimum of 300 round
lot shareholders and there must be at least three market makers in the
company's common stock. Failure by a company to comply with these
requirements, which currently are not being met, may result in the company's
common stock not qualifying for listing on the Nasdaq SmallCap Market. For
listing on the Nasdaq National Market, we must comply with certain initial
listing requirements that are more stringent than the comparable initial
listing requirements for the Nasdaq SmallCap Market.
The success of NVE's proposed operations is highly speculative. The success of
the proposed plan of operation will depend to a great extent on the operations,
financial condition and management of NVE, if the merger is consummated.
PREMIS has experienced significant competition for business opportunities. We
are an insignificant participant in the business of seeking business
combination transactions with other entities. A large number of established
and well financed entities, including venture capital firms, are active in
mergers and acquisitions of business entities that may be desirable candidates
for a strategic combination with the Company. These competitors have
significantly greater financial resources, technical expertise and managerial
capabilities than we do. Consequently, we have been at a competitive
disadvantage in identifying possible business combination opportunities.
Your investment will not be diversified. The merger will result in a business
combination with only one business opportunity entity. Consequently, our
activities will be limited to those engaged in by NVE. Our inability to
diversify into a number of areas may subject us to economic fluctuations within
a particular business or industry and therefore increase the risks associated
with the Company's operations.
NVE will gain control and management of the Company. The merger will result in
a shift in control to the shareholders of NVE and a change in directors and
officers of the Company. Based upon the exchange ratios described in this
proxy statement and the number of shares of NVE common stock and PREMIS common
stock outstanding as of the record date, and assuming no change prior to the
effective time, the aggregate number of shares of common stock issuable to
shareholders of NVE would be 15,801,860 or approximately 93.7% of the common
stock outstanding immediately following the consummation of the Merger
(approximately 94.1% on a fully diluted basis assuming the exercise of all
outstanding options and warrants to purchase shares of common stock exercisable
at a per share purchase price of $5 or less). The current Company shareholders
will only own approximately 6.3% of the outstanding shares of common stock
immediately following the merger (approximately 5.9% on a diluted basis). As a
result, the NVE shareholders receiving shares of common stock pursuant to the
merger would have the ability to control the election of the Company's entire
Board of Directors and the affairs of the Company, including, but not limited
to, all fundamental corporate transactions such as acquisitions, mergers,
consolidations and the sale of substantially all of the Company's assets.
You may experience volatility in the price of our stock. If the merger is
consummated, the market price of the common stock may be highly volatile and
could be subject to wide fluctuations in response to quarterly variations in
operating results, announcements of technological innovations or new software,
services or products by the Company or its competitors, changes in financial
estimates by securities analysts or other events or factors, and significant
sales into a low volume trading market, many of which are beyond our control.
In addition, the stock market has experienced significant price and volume
fluctuations that have particularly affected the market prices of equity
securities of many technology and service companies and that often have been
unrelated to the operating performance of such companies. These broad market
fluctuations may adversely affect the market price of the common stock. In the
past, following periods of volatility in the market price for a company's
securities, securities class action litigation often has been instituted. Such
litigation could result in substantial costs and a diversion of management
attention and resources, which could have a material adverse effect on the
Company's business, financial condition and operating results.
We are and will be controlled by a small number of shareholders. Following the
merger, the directors and executive officers of the Company will beneficially
own approximately 77% of our outstanding common stock. As a result, such
directors, officers and certain principal shareholders of the Company may have
the ability to effectively control the election of the Company's entire Board
of Directors and the affairs of the Company, including, but not limited to, all
fundamental corporate transactions such as acquisitions, mergers,
consolidations and the sale of substantially all of the Company's assets.
NVE is dependent on key personnel. For the foreseeable future, NVE will place
substantial reliance upon the personal efforts and abilities of James Daughton,
Chief Executive Officer. The loss of his services likely would have a material
adverse effect on the business, operations, revenues and/or prospects of NVE.
NVE currently has key man life insurance covering Dr. Daughton. The success of
NVE is also dependent upon its ability to retain and hire additional highly
skilled personnel. Competition among technology companies for experienced
personnel is intense. There can be no assurance that NVE will be able to
retain such personnel or hire and retain additional qualified and skilled
personnel.
The new company does not intend to pay dividends. NVE intends to retain all
earnings in the foreseeable future for continued growth and does not expect to
declare or pay any cash dividends in the foreseeable future. Moreover, the
Company's ability to pay dividends in the future may be restricted by its
covenants with commercial lenders and institutional investors.
There are risks associated with management of a changing business. NVE has
experienced substantial changes in and expansion of its business and operations
and expects to continue to experience periods of rapid change in connection
with its intended development of GMR products. NVE's past expansion has
placed, and any future expansion would place, significant demands on NVE's
administrative, operational, financial and other resources. NVE expects
operating expenses and staffing levels to increase substantially in the future.
In particular, NVE intends to hire a significant number of additional skilled
personnel, including persons with experience in the semiconductor industry,
and, in particular, persons with sales and marketing experience. Competition
for such personnel is intense, and there can be no assurance that NVE will be
able to attract or retain additional highly qualified senior managers and
technical persons in the future. NVE also expects to expend resources with
respect to future expansion of its accounting and internal management systems
and the implementation of a variety of new systems and procedures. In
addition, NVE expects that future expansion will continue to challenge NVE's
ability to hire, train, motivate and manage its associates. If NVE's revenues
do not increase in proportion to its operating expenses, NVE's management
systems do not expand to meet increasing demands, NVE fails to attract and
retain qualified personnel, or NVE's management otherwise fails to manage NVE's
expansion effectively, there would be a material adverse effect on NVE's
business, financial condition and operating results.
There are risks associated with entering new markets. To obtain market share
in the sales of sensors and isolators requires time for manufacturers to test,
design and prototype new products. New product development cycles may take
several years before a product is ready for market and sold in volume. During
the development period, NVE or its representatives must assist the manufacturer
with samples and technical support while achieving only minimal revenues.
These long manufacturer development cycles may extend beyond the financial
strength of the company or the will of its distributors to endure.
The new company will need additional financing. NVE expects that it will need
to raise additional funds in order to support more rapid expansion, develop new
or enhanced services and products, respond to competitive pressures, acquire
complementary businesses or technologies or respond to unanticipated
requirements. If additional funds are raised through the issuance of equity
securities, the percentage ownership of shareholders will be reduced,
shareholders may experience additional dilution in net book value per share, or
such equity securities may have rights, preferences or privileges senior to
those of the holders of NVE common stock. Additional financing may not be
available when needed on terms favorable to NVE, if at all. If adequate funds
are not available on acceptable terms, NVE may be unable to develop or enhance
its services and products, take advantage of future opportunities or respond to
competitive pressures or unanticipated requirements, any of which could have a
material adverse effect on NVE's business, financial condition and operating
results.
The new company may undertake acquisitions, joint ventures and other strategic
relationships. While NVE has no current agreements with respect to any
potential acquisitions, NVE may make acquisitions. Acquisitions entail
numerous risks, including difficulties in the assimilation of acquired
operations and products, diversion of management's attention from other
business concerns, amortization of acquired intangible assets and potential
loss of key employees of acquired companies. No assurance can be given as to
the ability of NVE to consummate any acquisitions or integrate successfully any
operations, personnel, services or products that might be acquired in the
future, and the failure of NVE to do so could have a material adverse effect on
NVE's business, financial condition and operating results.
The new company may find its MRAM patents and sublicense rights to be
insufficiently broad to insure its participation in a successful MRAM market.
NVE believes its issued and applied for patents and the patents which they may
sublicensed from Honeywell are important to MRAM technology. If MRAM becomes a
successful application of giant magnetoresistance technology in the
manufacturing of computer memory, no assurances can be given that it will
require the use of NVE or Honeywell patents and therefore generate future
license fees and royalties for the new company.
CERTAIN INFORMATION CONCERNING PREMIS
PREMIS was incorporated under the laws of the State of Minnesota on April 3,
1982. The Company's executive offices are located at 13220 County Rd. 6,
Plymouth, Minnesota.
Description of Business
During the fiscal year ended March 31, 1999, the Board of Directors of the
Company determined that greater shareholder value would be obtained by the sale
of the Company's business rather than continued operations. See "Recent
History and Company Strategy" below. On July 15, 1999 the shareholders of the
Company approved the sale of its subsidiary, PREMIS Systems Canada, the
distribution of a major portion of the cash assets of the Company to the
shareholders as a partial liquidating distribution, and the search for a merger
partner for the remaining assets of the Company.
Following the shareholder meeting and prior to the end of the fiscal year ended
March 31, 2000, the Company completed the sale of its Canadian subsidiary, made
a partial liquidating distribution of $1.1266 per share to its shareholders,
and continued to wind down operations and satisfy prior software maintenance
commitments. In addition, the Company has been actively seeking a suitable
merger partner to maximize the remaining shareholder investment.
Recent History and Company Strategy
With the acquisition of REF Retail Systems Corporation ("REF") on October 1,
1996, the Company's strategy was to rapidly grow the Company and achieve and
secure a leadership position as a provider of enterprise-wide information
management systems. The Company's business strategy for attainment of its
objective was to provide innovative leading edge systems, expand the Company's
marketing and sales efforts to capitalize on first to market product
advantages, and pursue strategic acquisitions of complementary products and
service capabilities.
In September 1996 (prior to the Company's acquisition of REF), REF entered into
a subcontractor arrangement with NCR Corporation ("NCR") in support of the
United States Postal Service ("USPS") POS ONE project to upgrade point of sale
systems in various post office locations throughout the United States. Under
the subcontractor arrangement with NCR, the Company's OpenStore product
framework and architecture would serve as the foundation of the point of sale
system for the USPS. Just prior to the acquisition of REF by the Company, REF,
in conjunction with NCR, decided to make significant changes to the underlying
framework architecture of OpenStore in support of the USPS POS ONE project.
The changes to the framework were expected to enhance the marketability of the
commercial release of OpenStore. However, the time and effort devoted to these
changes resulted in significant delays in the commercial release of OpenStore,
which worked to the detriment of the Company's commercial prospects for
OpenEnterprise.
In August 1998, to improve its cash flow and reduce the breadth of its product
support obligations, the Company announced a software license agreement with
NCR, which amended the subcontract for the USPS POS ONE program (the "NCR
Agreement"). The NCR Agreement eliminated the Company's obligations under its
previous USPS POS ONE subcontract with NCR and licensed the Company OpenStore
technology to NCR for use in the USPS POS ONE project. The Company received
two payments of $3,250,000 under the NCR Agreement - the first in 1998 and the
second in September 1999.
As a result of the initial delays encountered with the release of OpenStore,
discussed above, and other factors, including the continued depletion of cash
reserves, the Company undertook a search for a corporate partner and/or a
purchaser of the Company. From April 1998 until February 1999, the Company,
with the assistance of an investment banking firm, engaged in an exhaustive and
unsuccessful search for a corporate partner and/or a purchaser of the Company.
On February 4, 1999, the Board of Directors of the Company voted to propose the
liquidation of the Company to its shareholders. On April 20, 1999, the Company
entered into an agreement, subject to shareholder approval, to sell all of its
stock in REF (renamed PREMIS Systems Canada ), which held title to the
OpenEnterprise products, to ACA Facilitair, BV (ACA), a Netherlands company.
On July 15, 1999, the shareholders of the Company approved the sale of the
Canadian subsidiary, a partial liquidating distribution, and the search for a
merger partner.
However, in 1999 the Company's Board of Directors re-evaluated this strategy
and adopted a new strategy which involved termination of the Company's
operations and the exploitation of its software products through sale or
licensing to others. Sale of the Company's Canadian business was approved by
the shareholders at the Annual Meeting in July 1999 and consummated in November
1999.
At our 1999 annual meeting, our shareholders authorized the sale of
substantially all our assets, which positioned us as an attractive business
partner for an entity seeking a strategic combination with a publicly traded
corporation. Our management believes that such a combination will serve the
interests of our shareholders better than a liquidation and distribution of
assets to shareholders. If the Merger Agreement is approved by the
shareholders, it is our intention to complete the merger. If for any reason
the merger is not consummated, it is our intention to proceed to liquidate and
dissolve (as authorized by the shareholders at the 1999 annual meeting).
Since November 17, 1999, when we completed the sale of our assets, our
principal activity has been the investigation of potential acquisitions and the
termination of our discontinued operations. Day-to-day operations are
administered on an as-needed basis by F.T. Biermeier, our president and chief
executive officer. Mr. Biermeier, along with the other members of our board of
directors, are overseeing the business acquisition process.
Market Price and Dividend Data
Our common stock is currently trading on the Over The Counter Bulletin
Board under the symbol, "PMIS." The following table sets forth, for the
fiscal quarters indicated, a summary of the high and low closing prices of the
common stock from April 1, 1998 to September 30, 2000. Prices through July 17,
1998 are high and low closing sale prices as reported by the Nasdaq National
Market. The Company's common stock was delisted from the Nasdaq National
Market, effective the close of business on July 17, 1998, for failure to
satisfy the revised listing maintenance standards adopted by Nasdaq. Prices
for the periods after July 17, 1998 represent high and low bids as reported on
the Over-the-Counter Bulletin Board system of the National Association of
Securities Dealers, Inc. Such bid information reflects inter-dealer prices,
without retail mark-up, mark-down, or commissions and does not necessarily
reflect actual transactions.
Common Stock
Low High
Fiscal 1999
First Quarter $1.125 $1.797
Second Quarter .75 1.406
Third Quarter .75 1.313
Fourth Quarter .375 1.00
Fiscal 2000
First Quarter $.594 $.938
Second Quarter .734 1.000
Third Quarter .250 1.282
Fourth Quarter .375 1.406
Fiscal 2001
First Quarter $.438 $1.031
Second Quarter .438 .818
On September 23, 2000, the last full day of trading prior to the
announcement that the Company had entered into the Merger Agreement, the
highest, lowest and last reported sale price per share of common stock were
$0.7812, $0.7188 and $0.7812, respectively. On October 10, 2000, the last
reported sale price per share of common stock on the Over The Counter Bulletin
Board was $0.3125. This quotation reflects inter-dealer prices, without retail
markup, markdown or commission and may not reflect actual transactions. WE
URGE YOU TO OBTAIN A CURRENT MARKET QUOTATION FOR YOUR SHARES.
We have never paid or declared any cash dividends on our common stock and we do
not intend to declare any dividends in the foreseeable future (whether or not
the merger is completed).
On December 4, 1999, in connection with the final sale of assets, the Company
made a distribution in partial liquidation to its shareholders. If the merger
is not approved or completed, we expect to dissolve the Company and to
liquidate all remaining assets to the shareholders.
CERTAIN INFORMATION CONCERNING NONVOLATILE ELECTRONICS INCORPORATED
General
NVE develops, produces, and markets components made from advanced
magnetic materials combined with integrated circuits. NVE was formed in 1989
as a spin-off from Honeywell and has been an research and development company
funded largely by government contracts, and to a lesser extent by product
sales, licenses and royalties, and sale of stock. NVE sold and shipped the
products using giant magnetoresistance ("GMR") materials in 1995 and the first
known products combining GMR materials with integrated circuits in 1998. NVE
has the capabilities to deposit and optically define conductor, dielectric, and
metal films, and has full integrated circuit and magnetic device design
capability. NVE believes it complies with federal, state, and local
environmental and hazardous materials regulations. NVE is certified to
manufacture products under ISO 9001 NVE is a recognized leader in the
development and application of GMR materials and other advanced magnetic
materials. NVE's product areas include sensors, signal isolators, and
nonvolatile memories. Contract R&D currently supplies more than half of NVE's
revenues, supplements the R&D required for the product areas, and helps to fund
operations.
NVE has some limited revenue risks from fluctuations in values of
foreign currency because of NVE product sales in Europe. NVE's largest
customer is the United States government, and although no problems with
contracting currently are known to exist, disqualification as a vendor to the
United States government would be a serious setback for NVE.
Products
Sensors:
NVE's sensors combine integrated circuits with giant GMR material.
This GMR material is deposited in layers and lithographically formed into
resistors which change value when introduced to a magnetic field. The resistors
are then connected together with transistors and resistors to form circuits
that are sensitive to magnetic fields. These circuits are then packaged in
much the same way as conventional integrated circuits. Other NVE products are
produced by similar methods.
NVE sensors are quite small, and they are very sensitive to magnetic fields.
In addition, they are able to operate at relatively high temperatures (125
degrees Centigrade and higher). This combination of attributes should allow
them to be used in industrial control applications, anti-skid brake systems
(ABS), currency detection, current detection, and medical electronics.
Marketing efforts over the past year have concentrated on pneumatic cylinder
position sensing, where three of the top four users have adopted the NVE
sensor, and several other smaller users are in the process of converting to the
NVE sensor. Targeted major new applications for NVE sensors will be currency
detection, in-bearing sensors, and pacemakers.
NVE holds basic US and foreign patents in the GMR material used in its sensor
and a US patent in the circuit configuration. It also has know-how in the area
of sputtering the GMR materials, method of maintaining process and packaging
compatibility with integrated circuits, plating of thick magnetic materials for
shielding and flux concentration, sensor and circuit design, and testing
techniques. These serve as barriers to competition. To our knowledge no other
company manufactures a sensor similar to the NVE sensor.
NVE uses a combination of distributors, manufacturers' representatives, and
direct sales, and will probably use this combination for the foreseeable
future. Distributors handle smaller orders (typically under $1000).
Manufacturers' representatives and direct sales account for larger orders. To
date the largest sensor orders have been about $100,000.
NVE is currently developing sensors for the ABS market and for the currency
detection market. It typically takes three to five years from start of
development to sales in the automotive markets and from one to three years to
sales in the industrial controls market.
Isolators:
The isolators reduce or eliminate ground noise in communications
carried by wire that is a result of connecting electrical circuits having
independent grounds. In some cases it also provides some limited protection
against electrical damage. The NVE isolator uses the IsoLoop(r) which is an
integrated coil, made by integrated circuit techniques and which is
electrically insulated from a sensor made from GMR resistors, and integrated
circuits, all packaged in a standard integrated circuit package. The resulting
isolator is faster and smaller than any other existing approach and is very
cost competitive.
The two main known competing technologies are opto-isolators and inductive
isolators. The fastest opto-isolators currently run at frequencies below 20
million cycles per second, and the IsoLoop(r) approach produces isolators which
operate at 100 million cycles per second, with potential for IsoLoop(r)
isolators that run ten times faster than now achieved. Inductive isolators
require special data encoding to transmit logic signals which are not required
by IsoLoop(r) isolators. The IsoLoop(r) approach requires less board area
than either the opto-isolator or inductive approach.
Isolators are commonly used in communications networks of all kinds.
Differences in ground potentials between pieces of electronics gear are
virtually impossible to eliminate, and the resulting noise is often many times
larger than the logic signals which are being transmitted. The isolator
virtually eliminates this noise.
Because of the high speed of the IsoLoop(r) approach, signal isolation in high
speed communications will be possible for systems using random signal
transmission in wires. Isolation in back planes of PC's and other high speed
systems may enable these systems to operate at higher speeds.
IsoLoop(r) products have the potential for high growth, and it is currently
expected that the sale of isolator products will be a significant portion of
NVE revenues in 2004.
NVE holds a basic patent on using a magnetic sensor and an integrated coil to
construct an isolator. Patents containing several improvements on the basic
patent have also been filed. These patents, plus know how in the design,
processing, packaging, and testing of the IsoLoop(r) products, are the primary
barriers to competition to the NVE isolator products.
Initial distribution channels for isolators have been established in Europe,
Japan, Korea, China, and Taiwan. Domestic sales have been direct or through
appointed distributors to date, but could include distribution through
manufacturers' representatives and additional distributors in the future. In
addition, initial discussions have taken place with a major producer of
opto-isolators who has expressed interest in "private labeling" of IsoLoop(r)
products. Sales of isolators to date have been for design analysis and low
volume production. Isolators have been sold for testing purposes to many large
electronics and semiconductor corporations. The strongest initial interest for
these isolators is for applications in data communications in the industrial
and telecommunications markets. The typical time from design to production
orders in these markets is one to three years.
MRAM:
Magnetoresistive Random Access Memory ("MRAM") was initially invented by Dr.
Arthur Pohm and Dr. James Daughton, while they were employed at Honeywell. Dr.
James Daughton, founded NVE with the intent to develop commercial applications
for MRAM and other GMR products. The MRAM is a nonvolatile memory, i.e. the
data is retained after electrical power to the memory chip is removed. Data
are stored in the magnetism of thin films of iron, nickel, and cobalt alloys,
and data are recovered through the magnetoresistive properties of devices made
chiefly of these alloys. After the discovery of GMR, considerable innovative
work in MRAM has been done at NVE. NVE invented several memory cells and modes
of operation which are being adapted by several large companies including
Motorola, IBM, and Honeywell. MRAM is not currently in production at NVE or
elsewhere, although there are ongoing development efforts at Motorola,
Honeywell, IBM, NVE, USTC, Hewlett Packard, and other companies.
The chief advantages of MRAM over other solid state nonvolatile memory
technology are the ability to write fast (much less than 100 billionths of a
second) and to write new data indefinitely (other competing technologies are
limited to about one million write cycles, and would wear out with continuous
writing in less than a second). Applications of interest which could
potentially use these properties include cameras and copiers, reconfigurable
computing, cell phones, and other "imbedded" memory applications.
NVE believes the patent coverage, which NVE has through its own intellectual
property and its rights to sublicense Honeywell MRAM technology, are broad.
NVE currently has license agreements with Honeywell, Motorola, and USTC.
Motorola has issued a statement lauding the potential of MRAM for imbedded
applications such as in cell phones. Under its license agreements, if MRAM
products are produced, NVE would receive initial payments equal to or greater
than $1,000,000 and royalties based on sales could be significantly higher.
NVE could also potentially produce MRAM niche products, and is currently funded
under a research contract, to develop a memory chip for use in reconfigurable
computing.
Because MRAM is still in development at NVE and elsewhere, it is difficult to
forecast the potential revenue which NVE might receive from licensing and sale
of niche memory. Current forecasts anticipate minor revenues from MRAM through
2004, but this could change if holders of MRAM licenses have success in their
product development and introduction.
Contract R&D
Contract R&D currently provides a majority of NVE's revenue. It has been the
source for the underlying patents and product developments for the sensor,
isolator, and MRAM business areas. NVE has won contracts and grants totaling
approximately $30,000,000, and hopes to continue to obtain between $4,000,000
and $5,000,000 revenue per year in contract revenue.
In general, the government has the right to require NVE to issue licenses to
technology developed under contracts for the purpose of having products made
for the government.
NVE currently holds 15 US patents and has 15 US patents pending. NVE has 2
issued foreign patents and 6 foreign patents pending. In addition, by virtue
of a technology license agreement with Dr. James Daughton and a subsequent
agreement between Dr. Daughton and NVE, NVE can sublicense certain of
Honeywell's intellectual property in the MRAM technology.
It is projected that activities in this area will result in additional
intellectual property, enhancement to current product lines, additional license
revenue, and will offer possibilities for future product areas. While contract
R&D is a very important component of NVE's business, the percentage of total
NVE revenue from contract R&D may shrink if there is significant growth in
product sales.
Competition
Three of NVE's chief competitors in sensors are Honeywell, Allegro, and
Phillips. Honeywell and Phillips make magnetoresistive sensors using a
traditional nickel iron alloy rather than the GMR materials NVE uses. Allegro
makes very cost competitive sensors using the Hall effect in silicon. Silicon
Hall sensors are not as sensitive to magnetic fields as NVE's sensors. These
competitors and several other sensor producers all have more financial
resources, greater R&D budgets, and more developed distribution systems than
NVE.
Agilient, a Hewlett Packard spin-off, is the leading producer of high speed
opto-isolators. Two of the other top producers of opto-isolators are Siemens
and OMRON. These competitors and several other isolator producers all have more
financial resources, greater R&D budgets, and more developed distribution
systems than NVE.
Motorola, IBM, Hewlett Packard, USTC, and Honeywell have significant R&D
efforts in MRAM technology. Hewlett Packard and USTC have stated they plan to
introduce MRAM products in the next year, and Motorola has stated they plan to
introduce MRAM products within a few years. Significant new inventions by
larger companies with more financial resources and greater R&D budgets could
erode the value of NVE licenses to MRAM technology.
Employees
NVE currently has 56 employees: one executive, four adminsistrative
people, six sales and marketing people, 20 technicians, and 25 scientists.
Nine current employees have PhD's.
Legal Proceedings
In March of 2000, Motorola and NVE reached an agreement regarding a
complaint filed by NVE against Motorola and Eugene Chen (a Motorola employee)
relating to certain intellectual property rights to MRAM technology. As a
result of the settlement NVE dropped the suit without prejudice, and Motorola
agreed to allow NVE to sublicense a patent related to MRAM and the derivatives
of that patent, to pay part of NVE's legal expenses incurred in the suit, and
to sign a license agreement related to NVE's intellectual property related to
MRAM.
Selected Consolidated Financial Data of Nonvolatile Electronics, Inc.
The following table summarizes certain selected historical consolidated
financial data of NVE which should be read in conjunction with the financial
statements of NVE, and the notes thereto, set forth elsewhere in this Proxy
Statement. The financial data for the two years ended December 31, 1999 have
been derived from the audited financial statements of NVE.
NVE Statements of Operations
Year ended December 31
1999 1998
______________________
Revenues:
Research and development $5,028,358 $3,880,318
Product sales 274,515 230,975
License fees 500,000 1,900,000
_______________________
5,802,873 6,011,293
Expenses:
Research and development 5,046,571 4,106,116
Cost of sales 194,045 620,766
Selling, general and administrative 961,024 878,109
_______________________
Total expenses 6,201,640 5,604,991
_______________________
(Loss) income from operations (398,767) 406,302
Other income (expense): (24,566) (28,762)
_______________________
(Loss) income before extraordinary item (423,333) 377,540
_______________________
Net (loss) income for the period and deficit
accumulated during the development stage $ (423,333) $ 377,540
_______________________
NVE Balance Sheets
December 31
1999 1998
_______________________
Assets
Current assets:
Cash and cash equivalents $ 563,628 $1,144,749
Grants and contracts receivable 955,314 788,123
Inventories 663,216 494,432
Prepaid expenses and other assets 42,676 25,549
_______________________
Total current assets 2,224,834 2,452,853
Other assets net of depreciation 635,083 579,651
_______________________
Total assets $2,859,917 $3,032,504
_______________________
Liabilities and shareholders' equity
Current liabilities:
Note payable - line of credit $ 317,888 $ 350,000
Accounts payable 132,345 163,619
Accrued expenses 205,560 247,564
Billings in excess of costs on research contracts 139,473 44,418
_______________________
Total current liabilities 795,266 805,601
Employee Stock Purchase Plan - 107,331
Shareholders' equity:
Convertible Preferred Stock, Series A 16,750 16,750
Common Stock, par value $.01 per share: 27,544 25,630
Additional paid-in capital 4,708,924 4,342,426
Deficit accumulated during the development stage (2,688,567) (2,265,234)
_______________________
Total shareholders' equity 2,064,651 2,119,572
_______________________
Total liabilities and shareholders' equity $2,859,917 $3,032,504
_______________________
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
NVE develops, produces, and sells components that combine certain magnetic
materials with integrated circuits. Over the past several years NVE has
engaged in materials and device research and development funded principally by
contracts and grants from agencies of the US government. NVE has been able to
license some of its technology, principally nonvolatile memory technology, and
has used license payments to establish product designs and production of sensor
and isolator products. NVE is currently seeking to expand its product revenue
while still relying on government contracts for basic technology development.
The expansion of product revenue will require additional product development
and marketing expenditures as well as increased working capital to fund
receivables and inventories. NVE is seeking investment and revenue from
license agreements to fund these expenditures.
Results from Operations
Three and Six Months Ended June 30, 2000 and June 30, 1999.
Revenues before accounting adjustment for the second quarter and six months
ended June 30, 2000, were $1,835,659 and $3,215,260, respectively, increases of
5.99% and 6.37% from revenues of $1,731,903 and $3,022,843 for the
corresponding periods of the prior year. The increases in revenue were due
primarily to increased contract R&D revenues and increased component sales.
Securities and Exchange Commission Staff accounting Bulletin No. 101 on
"Revenue Recognition" requires that revenues from licenses with royalty
payments be recognized over three years rather than at the point of sale.
License revenue from 1998 through 2000 to date are now restated. The
cumulative effect on the second quarter and the first six months of the year
ending June 30, 2000 restated total revenue were $1,519,919 and $2,982,854,
respectively, reflecting adjusted decreases of 12.24% and 1.32% from
corresponding periods.
Costs of sales increased by approximately 15.25% and 10.38% to $1,289,806 and
$2,488,914, respectively, in the second quarter and first six months of 2000
from $1,119,109 and $2,218,716 in the same periods of 1999.
The restated Gross Margins decreased by approximately 62.45% and 33.60% to
$230,113 and $533,940, respectively, for the current quarter and for the first
six months of 2000 as compared to $612.794 and $804,127 in the same periods for
the prior year. These decreases were due primarily to increased product
development costs.
Research and development expenses (non-contract) increased by approximately
348% and 147% to $87,814 and $210,576, respectively, for the current quarter
and for the first six months of 2000 as compared to $19,613 and $85,482 in the
same periods for the prior year. These increases reflected increased efforts
in product development.
Selling, general, and administrative expenses in the second quarter and for the
first six months of 2000 decreased by 40.2% and 27.7% to $238,434 and $454,589,
respectively, from $398,734 and $628,645 compared to the corresponding periods
of 1999. The decrease reflects a more normal rate of legal costs for NVE in
2000 compared to 1999, when patent activities were unusually high and a law
suit was active.
Other Income/Expenses showed gains of $73,379 and $69,048 for the current
quarter and first six months of 2000, respectively, compared to losses of
$4,677 and $4,638 for the corresponding periods in 1999. The sale and lease
back of certain equipment used in the NVE production facilities, resulted in a
gain of $75,089 in the quarter ending June 30, 2000.
NVE had restated net losses for the quarter and six months ended June 30, 2000
of $23,256 and $674,467, respectively, as a result of the cumulative effect of
the accounting change of revenue recognition in year 2000, which were compared
to net income of $189,269 and $84,362 for the same periods of the prior year.
Twelve Months Ended December 31, 1999 and December 31, 1998
Revenues for the twelve months ending December 31, 1999 were $5,802,873, a
decrease of 3.47% from revenues of $6,011,293 for the year ending December 31,
1998. The decrease in revenue was due primarily an extraordinarily high
license revenue in 1998 of $1,900,000 compared with a license revenue of
$500,000 in 1999.
Costs of sales increased by approximately 13.8% to $4,842,677 for the year
ending December 31, 1999 compared to $4,253,754 for the year ending December
31, 1998. Much of this cost of sales increase was due to matching requirements
for funding under terms of an Advance Technology Program (ATP) on isolators
with the Department of Commerce.
Gross Margins decreased by approximately 45.4% to $960,196 for the current
quarter and for year ending December 31, 1999 as compared to $1,757,540 for
year ending December 31, 1998. These decreases were due primarily to higher
cost of sales and lower license revenue in 1999.
Research and development expenses (non-contract) decreased by approximately
35.7% to $304,400 for year ending December 31, 1999 as compared to $473,128 for
year ending December 31, 1998. These decreases were supplemented by contract
funding for isolators under an Advanced Technology Program (ATP) from the
Department of Commerce.
Selling, general, and administrative expenses year ending December 31, 1999
increased by 20.1% to $1,052,538 compared to $876,614 year ending December 31,
1998. The increase higher legal costs for patent activities.
Other Income/Expenses showed gains of $24,566 year ending December 31, 1999
compared to $28,758 year ending December 31, 1998. Lower interest income and
higher interest expense were the primary causes for the difference.
NVE had a net loss for year ending December 31, 1999 of $423,333 compared to
net income of $377,540 year ending December 31, 1998. The primary causes were a
lower license revenue in 1999 compared to 1998, and an increase in costs of
sales due to matching requirements on a isolator R&D contract from the
Department of Commerce.
Liquidity and Capital Resources
NVE had cash on June 30, 2000 of $686,637 compared with $350,774 on June 30,
1999. The increase in cash is primarily due to the collection of receivables
from government contracts. NVE's use of cash has been and continues to be
primarily for isolator product and business development.
Inflation
Inflation has not had a significant impact on the operations of NVE since its
inception. Prices for NVE's products and for the materials and labor going
into their products are governed by market conditions. It is possible that
inflation in future years could impact both materials and labor in the
production of NVE's products. Rates paid by the US Government on R&D contracts
are adjustable with inflation.
PROPOSAL 2: ADOPTION OF THE 2000 STOCK OPTION PLAN
Prior to the Annual Meeting, the Board of the Directors of the Company (the
"Board") will have adopted the 2000 Stock Option Plan (the "Plan"), subject to
shareholder approval. The purposes of the Plan are to enhance shareholder
investment by attracting, retaining and motivating employees and consultants of
the Company, and to encourage stock ownership by such employees and consultants
by providing them with a means to acquire a proprietary interest in the
Company's success. A summary of the Plan is set forth below. This summary is
qualified in all respects by reference to the full text of the, which is
available from the Company upon written request.
Summary of the Plan
Eligibility and Administration. All employees and consultants of the
Company, including officers and directors of the Company, are eligible to
receive options under the Plan. The approximate number of persons currently
eligible to receive such options is __. The Plan authorizes the granting of
options to purchase up to 2,000,000 shares of common stock of the Company
("Stock"). The shares of Stock subject to the options will generally be made
available from authorized but unissued shares of Stock.
The Plan will be administered by the Board, or a committee thereof (the
"Committee"), which, if the Company is or becomes subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), will consist
of no fewer than two members of the Board, each member being a "non-employee
director," within the meaning of the applicable rules of the Exchange Act. The
Committee has full authority, except as limited by law, the Articles of
Incorporation or the Bylaws of the Company, to, among other things, award
options under the Plan, and determine the size, type and terms and conditions
thereof; to construe and interpret the Plan; and to take all other action
deemed appropriate for administration of the Plan.
As the Committee, in its sole discretion, determines the employees and
consultants who may participate in the Plan, as well as the amount of their
Options, it is not possible to state the name or positions of, or the number of
Options that may be granted to, the Company's employees and consultants in the
future. Currently, the only proposals for the grant of Options under the Plan
are in connection with the merger with Nonvolatile Electronics, Inc.
Incentive Stock Options and Nonstatutory Options. The Plan provides
both for incentive stock options ("Incentive Stock Options"), which are
specifically tailored to the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), and for options that are not intended to qualify as
Incentive Stock Options ("Nonstatutory Options"). Options are typically
designated by the Committee at grant as Incentive Stock Options or Nonstatutory
Options; however, if an option is granted as an Incentive Stock Options and it
does not qualify as such, or ceases to qualify as such, and it is not otherwise
terminated, it will be deemed a Nonstatutory Option for purposes of the Plan.
The term "Option," as used herein, will mean both Incentive Stock Options and
Nonstatutory Options.
In order to obtain certain tax benefits, the Plan establishes special
rules for Incentive Stock Options. In particular, the Plan provides that
Incentive Stock Options may only be granted to employees, that no individual
may receive grants of Incentive Stock Options exercisable for the first time
during any calendar year in excess of $100,000 in the aggregate (valued at the
time of grant), and that the option price per share for Incentive Stock Options
must not be less than the fair market value per share of the Common Stock on
the date of grant.
As a result of the application of tax rules limiting the deductibility
of certain compensation paid to "named executive officers," certain
restrictions also apply to Nonstatutory Options. Although such rules are
discussed more fully in the section entitled "Federal Income Tax Consequences,"
it is important to note that no optionee may be granted Options to purchase a
number of shares of Stock in excess of 1,500,000 in any fiscal year.
Terms and Conditions of Options. Except as otherwise described in this
Proxy Statement, Options may be granted under the Plan with such terms and
conditions as the Committee may from time to time determine. Options are
awarded with an exercise price equal to the fair market value of the Stock on
the date of grant, and no Option may be exercised later than 10 years from the
date of the grant. Payment for Stock purchased upon the exercise of an Option
may be made in cash, stock or other cash equivalents or forms acceptable to the
Committee.
Unless otherwise determined by the Committee, Options granted under the
Plan may not be transferred or assigned and, during the life of the optionee,
the Options may be exercised only by said optionee. If an optionee's
employment is terminated for cause, as defined in the Plan, all Options
terminate immediately. Unless otherwise determined by the Committee, if an
optionee ceases continuous status as an employee or consultant for any reason
other than death or disability, the optionee's Options may be exercised,
subject to the expiration date of the Option, for 30 days after such
termination, but only to the extent that they were exercisable on the date of
termination. If employment is terminated because of death or disability, the
Options may be exercised (subject to the expiration date of the Option) for up
to 6 months after such termination, but only to the extent that such Options
were exercisable on the date of death or disability.
Changes in Capitalization and Termination. In the event of a
subdivision of the outstanding Stock, a declaration of certain dividends, a
combination or consolidation of the outstanding Stock, a recapitalization,
spin-off or similar occurrence, the Committee may adjust the number of shares
of Stock available for future grants, the number of shares of Stock covered by
each outstanding Option or the exercise price under each outstanding Option.
The Plan will terminate 10 years from the date it is adopted by the
Board. Further, the Board may, at any time, terminate or amend the Plan,
except with respect to certain amendments which require shareholder approval
under the Code and rules of the Securities and Exchange Commission. In
particular, under such rules, any amendment that would materially increase the
cost of the Plan to the Company or the benefits to eligible employees would
require shareholder approval. No amendment or termination of the Plan by the
Board may adversely affect any Option previously granted under the Plan without
the consent of the optionee.
Dissolution, Liquidation, Reorganization or Exchange. The Plan
provides that in the event of dissolution or liquidation of the Company, the
Options will terminate immediately prior to such dissolution or liquidation.
In the event of a merger, exchange or reorganization of the Company, the
agreement of merger, exchange or reorganization shall provide for one of the
following events: (a) continuation of the Options by the Company, if the
Company is the surviving corporation; (b) assumption of the outstanding Options
by the surviving corporation (or its parent or subsidiary); (c) substitution by
the surviving corporation (or its parent or subsidiary) of its own Options for
the outstanding Options; (d) full exercisability or vesting and accelerated
expiration of the outstanding Options; or (e) settlement of the full value of
the outstanding Options in cash or cash equivalents followed by cancellation of
such Options.
Federal Income Tax Consequences
The following is a brief summary of the principal federal income tax
consequences under current federal income tax laws relating to awards under the
Plan. This summary is not intended to be exhaustive and, among other things,
does not describe state or local tax consequences.
In general, an optionee will be subject to tax at the time a
Nonstatutory Option is exercised (but not at the time of grant), and he or she
will include in ordinary income in the taxable year in which he or she
exercises a Nonstatutory Option an amount equal to the difference between the
exercise price and the fair market value of the shares of Stock acquired on the
date of exercise. The Company will generally be entitled to deduct such amount
for federal income tax purposes, except as such deductions may be limited by
the Revenue Reconciliation Act of 1993 ("1993 Tax Act"), described below. Upon
disposition of shares of Stock, the appreciation (or depreciation) after the
date of exercise will be treated by the optionee as either short-term or
long-term capital gain or loss depending on whether the shares of Stock have
been held for the then-required holding period.
In general, an optionee will not be subject to tax at the time an
Incentive Stock Option is granted or exercised. Upon disposition of the shares
of Stock acquired upon exercise of an Incentive Stock Option, long-term capital
gain or loss will be recognized in an amount equal to the difference between
the disposition price and the exercise price, provided that the optionee has
not disposed of the Stock within 2 years of the date of grant or within one
year from the date of exercise. If the optionee disposes of the Stock without
satisfying both holding period requirements (a "Disqualifying Disposition"),
the optionee will recognize ordinary income at the time of such Disqualifying
Disposition to the extent of the difference between the exercise price and the
lesser of the fair market value of the Stock on the date the Incentive Stock
Option was exercised or the date of sale. Any remaining gain or loss is
treated as short-term or long-term capital gain or loss depending upon how long
the Stock has been held. The Company is not entitled to a tax deduction upon
either the exercise of an Incentive Stock Option or upon disposition of the
Stock acquired pursuant to such exercise, except to the extent that the
optionee recognizes ordinary income in a Disqualifying Disposition, and then
only to the extent that such deduction is not limited by the 1993 Tax Act.
If the optionee pays the exercise price, in full or in part, with
previously acquired shares of Stock, the exchange will not affect the tax
treatment of the exercise. If such exercise is effected using shares of Stock
previously acquired through the exercise of an Incentive Stock Option, however,
the exchange of the previously acquired shares of Stock will be considered a
disposition of such Stock for the purpose of determining whether a
Disqualifying Disposition has occurred.
Under the provisions of the 1993 Tax Act, the Company will be limited
as to the deduction that it may take for otherwise deductible compensation
payable to executive officers who, on the last day of the fiscal year, are
treated as "named executive officers" in the Company Proxy Statement. The
deduction limit on compensation will apply to all compensation, except
compensation deemed under the 1993 Tax Act to be "performance-based" and
certain compensation related to retirement and other employee benefit plans.
The determination of whether compensation related to the Plan is
performance-based for purposes of the 1993 Tax Act will be dependent upon a
number of factors, including shareholder approval of the Plan, and the exercise
price at which Options are granted. The 1993 Tax Act also prescribes certain
limitations and procedural requirements in order for compensation to qualify as
performance-based, including rules which require that in the case of
compensation paid in the form of Options, the option price be not less than the
fair market value of the stock at date of grant and that the plan under which
the Options are granted states the maximum number of shares of Stock with
respect to which Options may be granted during a specified period to any
employee.
Current Market Price of Common Stock
The high bid and low asked prices for shares of Stock as of October 13,
2000, were $0.281 and $0.438, respectively.
Required Vote; Board Recommendation
The affirmative vote of the holders of a majority of the outstanding
shares of Stock, present and entitled to vote on the matter, is required to
approve the adoption of the 2000 Stock Option Plan.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THIS
PROPOSAL NO. 2.
PROPOSAL 3: ELECTION OF DIRECTORS
The Bylaws of the Company provide that the number of directors shall be as
fixed from time to time by resolution of the Board of Directors. The current
number of members of the Board of Directors is five (5). The directors elected
at this annual meeting or at annual meetings thereafter, or who assume office
pursuant to the terms of the Merger Agreement, will serve a one-year term
expiring upon the election of their successors at the next annual meeting,
unless otherwise determined by the Board or the shareholders. The four persons
designated by the Board of Directors as nominees for election as directors at
the annual meeting are F. T. Biermeier, Terrence W. Glarner, S. Albert Hanser,
Gerald F. Schmidt.
F. T. Biermeier, See Management of PREMIS.
Terrence W. Glarner, Director, age 57, has been a director since
October 1997. Since 1993, Mr. Glarner has been the President of West Concord
Ventures, Inc. Mr. Glarner is also of consul with Norwest Venture Capital, an
entity affiliated with Norwest Growth Fund, Inc. Prior to starting West
Concord Ventures, Inc., Mr. Glarner was the President of North Star Ventures,
Inc. from 1988 to February 1993, a firm which he joined in 1976. Mr. Glarner
currently serves as a director of Aetrium, Cima Labs, Datakey, and FSI, all of
which are publicly-held companies.
S. Albert D. Hanser, Director, age 63, was elected as a Director of the
Company in September 1996. He has served as Chairman of Hanrow Financial
Group, Ltd., a merchant banking firm since 1989; as chairman of Astrocom
Corporation since 1992; and as chairman of Prevention First Inc. since 1997.
Mr. Hanser is also currently a member of the Boards of Directors of Hawkins
Chemical, Inc. and E-Z Gard Industries, Inc.
Gerald F. Schmidt, Director, age 60, has been a Director of the Company
since June of 1986. Since 1989, Mr. Schmidt has been President and CEO of
Cordova Capital, Inc., a venture capital firm located in Atlanta, Georgia.
Cordova Capital is the General Partner in four growth funds with $92 million
dollars under management. From 1984 to 1988, he was a Senior Vice President
and partner at O'Neill Development Inc., a commercial real estate development
firm in Atlanta, Georgia. From 1966 to 1984, he held various positions in
sales and marketing management and was Vice President and General Manager of
two divisions at Jostens in Minneapolis, Minnesota.
In the event any nominee should be unavailable to stand for election at the
time of the annual meeting, the proxies may be voted for a substitute nominee
selected by the Board of Directors.
For information concerning compensation of directors, see "MANAGEMENT -Director
Compensation."
MANAGEMENT OF PREMIS
Directors and Officers
The directors and executive officers of the Company as of September 15, 2000
are as follows:
Name Age Position
____________________________ ____ _______________________________________
F.T. Biermeier 60 President and Chief Executive Officer,
Chief Financial Officer and Director
Mary Ann Calhoun 42 Director
Gerald F. Schmidt 60 Director
S. Albert D. Hanser 63 Director
Terrence W. Glarner 57 Director
F.T. Biermeier has been a Director of the Company since its inception in April
1982. Since May of 1988, he has been President and Chief Executive Officer.
From June 1986 to May 1988, he was Chairman and Chief Executive Officer. From
April 1982 to June 1986, he was President and Secretary. He also functions as
the Company's Treasurer. From 1980 to 1983, he operated an independent
management consulting firm, F.T. Biermeier & Associates, Inc. From July of
1986 to January 1988, Mr. Biermeier was President and Chief Executive Officer
of Intran Corporation, a supplier of imaging software to publishing
organizations, and devoted part-time efforts to the Company. Mr. Biermeier
assumed the role of Chief Financial Officer of the Company on April 6, 1999,
effective with the resignation of Richard R. Peterson. Mr. Biermeier is married
to Mary Ann Calhoun, a Director of the Company.
See "ELECTION OF DIRECTORS" for information concerning the non-employee members
of the Board of Directors.
All directors of the Company hold office until the next regular meeting of the
shareholders or until their successors are elected and qualify. All officers
hold office until their successor is appointed by the Board. There are no
arrangements or understandings between any of the directors or officers or any
other person pursuant to which any person was or may be elected as a director
or selected as an officer of the Company.
Officers
The officers of the Company are elected by the Board of Directors and serve
until their successors are elected and qualified, subject to earlier removal by
the Board.
Director Compensation
Non-employee directors currently receive $500 per meeting and are reimbursed by
the Company for their actual out-of-pocket expenses for telephone, travel, and
miscellaneous items incurred on behalf of the Company. In addition, during the
fiscal year ended March 31, 2000, each non-employee director received a
five-year non-qualified option to purchase 10,000 shares of Common Stock
vesting 90 days from the date of grant and exercisable at fair market value as
of the date of grant.
Board Committees and Meetings
The Board of Directors has established an Audit Committee currently comprised
of Gerald F. Schmidt and S. Albert D. Hanser, who are non-employee members of
the Board and are "independent" as defined in Nasdaq listing standards, Rule
4200(d)(15). The audit committee has not adopted a written charter. The
purpose of the Audit Committee is to (1) annually select a firm of independent
public accountants as auditors of the books, records and accounts of the
Company; (2) review the scope of audits made by the independent public
accountants; and (3) receive and review the audit reports submitted by the
independent public accountants and take such action in respect of such reports
as the Audit Committee may deem appropriate to assure that the interests of the
Company are adequately protected.
During the year ended March 31, 2000, the Board of Directors met five times and
otherwise conducted business by unanimous written action; and the audit
committee of the Board did not meet. Each incumbent director attended at least
75% of the meetings of the Board of Directors and each member of the Audit
Committee attended the single meeting of that committee.
Executive Compensation.
The following table discloses compensation received by the Company's President
and Chief Executive Officer (the "Named Executive Officer") during the fiscal
year ended March 31, 2000. No other officer received cash compensation in
excess of $100,000.
Summary Compensation Table
Annual Compensation
Year Long Term
Ended Other Annual Stock Option
March Bonus Compensation Compensation
Name and Principal Position 31, Salary($) ($) ($) ($)
___________________________ ______ ___________ ______ ____________ ____________
F.T. Biermeier 2000 144,102 (2) -0- 1,810 -0-
Chief Executive Officer 1999 128,000 -0- 3,950 -0-
And President 1998 128,000 -0- 3,382 -0-
(1) Represents contributions to the Company's Employee Retirement 401(k)
Plan and other fringe benefits.
(2) Includes separation payments and payments for accrued vacation
totaling $57,436.
The Company currently has no employment agreement with Mr. Biermeier or any
executive officer. However, in connection with the termination of most of the
Company's operations in March and April 1999, and the separation of
substantially all of its employees, the Company has agreed to pay executive
officers, as separation payment, four months' salary, plus benefits, from the
date of separation. F. T. Biermeier the remaining executive officer, will
continue to draw salary until liquidation or a business combination is
concluded, (except that his salary has been reduced effective September 1, 1999
to reflect part-time engagement in light of the Company's needs). Mr.
Biermeier had received four months' salary as separation payment in fiscal 2000
and will receive four months benefits, after the date of termination of his
regular salary and separation from employment with the Company.
Stock Options
The Company's 1994 Employee Incentive Stock Option Plan (the "Option Plan"),
was adopted to provide incentives to selected employees of the Company. The
Board of Directors is authorized to grant options under the Option Plan for
purchase of up to 500,000 shares of Common Stock at exercise prices not less
than the fair market value of the Common Stock as of the grant date. As of
September 15, 2000, there were no outstanding options to purchase shares of
Common Stock pursuant to the Option Plan.
In addition to the Option Plan, the Board authorized grant of non-qualified
stock options for an aggregate of up to 600,000 shares of Common Stock to
employees (including officers) and non-employee directors. As of September 15,
2000, non-qualified options to purchase 30,000 shares were outstanding. Such
options are exercisable at an average exercise price of $2.20 per share and, in
each case, the exercise price is equal to the fair market value of the Common
Stock as of the grant date.
In addition to the Option Plans, the Board authorized warrants to be issued in
connection with the secondary offering in September, 1996 and in leiu of
consulting fees for various executive search undertakings. As of September 15,
2000, warrants to purchase 199,126 shares were outstanding. Such warrants are
exercisable at an average exercise price of $5.92 per share and, in each case,
the exercise price was equal to the fair market value of the Common Stock as of
the grant date. All warrants expire prior to October 2, 2001.
Option/SAR Grants in Last Fiscal Year
There were no options granted to the Named Executive Officer during the
fiscal year ended March 31, 2000 or the interim period to October 13, 2000.
No options are to be issued by the Company prior to the Merger.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End
Option/SAR Values
There were no option/SAR's exercised by the Named Executive Officer
during the fiscal year ending March 31, 2000 or the interim period ending
September 15,2000, and there are no unexercised Options/SAR's for the Named
Executive Officer as of October 13, 2000.
Retirement Plan
During fiscal year 1995, the Company established a retirement savings
plan which qualifies under Internal Revenue Code Section 401(k) ("401(k)
Plan"). All employees with at least 90 days of employment are eligible to
participate in the 401(k) Plan. The Company's contributions to the 401(k) Plan
are based on 15% of employee contributions, which are subject to salary
limitations. The Company's contributions to the 401(k) Plan were approximately
$13,714 during fiscal 2000. The Plan was terminated on August 31, 1999 and the
funds were distributed to the participants.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than
ten percent of the Company's Common Stock, to file initial reports of ownership
and reports of changes in ownership with the Securities and Exchange Commission
(the "SEC"). Executive officers, directors and greater than ten percent
beneficial owners are required by the SEC to furnish the Company with copies of
all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the Company
and written representations from the executive officers and directors, the
Company believes that all Section 16(a) filing requirements applicable to its
executive officers and directors were complied with, except that F. T.
Biermeier was delinquent in the filing of one Form 4 concerning the exercise of
an option. Such filing has now been completed.
OTHER MATTERS
As of this date, the Board of Directors does not know of any business to be
brought before the Annual Meeting other than as specified above. However, if
any matters properly come before the Annual Meeting, it is the intention of the
person named in the enclosed proxy to vote such proxy in accordance with their
judgment on such matters.
PRINCIPAL ACCOUNTANTS
PriceWaterhouseCoopers LLC has served as the principal accountants for the
Company since the inception of the Company. PriceWaterhouseCoopers LLC is not
expected to attend the Annual Meeting.
Ernst & Young, LLP has served as the principal accountants for NVE since the
inception of NVE. Representatives of Ernst & Young, LLP will attend the
Annual Meeting. They will have the opportunity to make a statement if they
desire to do so, and will be available to answer appropriate questions that may
be asked by shareholders.
DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Because the Company delayed its 2000 annual meeting of shareholders and is
unable to set a date for the 2001 annual meeting, the date by which proposals
of shareholders must be received by the Company for inclusion in the Company's
proxy materials relating to its 2001 annual meeting of shareholders has not
been determined. The Company intends to provide such date to its shareholders
at a later date in its Quarterly Report on Form 10-Q or some other appropriate
filing.
AVAILABLE INFORMATION
We are subject to the informational reporting requirements of the Securities
Exchange Act of 1934 and, accordingly, file reports, proxy statements and other
information with the Commission. These reports, proxy statements and other
information can be inspected and copies made at the public reference facilities
of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
and the Commission's regional offices at Seven World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can also be obtained
from the Public Reference Section of Commission at its Washington, D.C. address
at prescribed rates. The Commission also maintains a Web site address,
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, are enclosed
herewith and, to the extent indicated below, incorporated herein by reference,
as permitted by Schedule 14A under the 1934 Act:
Document Portions Incorporated By Reference
____________________________ _________________________________________
Report on Form 10-KSB for the Financial Statements; Report of the
Fiscal Year ended March 31, 2000 Independent Accountants, Changes in and
Disagreements with Accountants,
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Report on Form 10-QSB for the Financial Statements; Management's
Quarter ended June 30, 2000 Discussion and Analysis of Financial
Condition and the Results of Operations
DIRECTIONS TO ANNUAL MEETING
Ramada Inn Plaza Hotel, located at Minnetonka, Minnesota, (612)000-0000. From
Highway 169 take Highway 394 west, exit at Ridgedale Drive, turn left at the
exit lights, pass through 2 stop lights and the hotel is on the left hand side
of the road.
APPENDIX A
_________________________
AGREEMENT AND PLAN OF MERGER
by and between
PREMIS Corporation
and
Nonvolatile Electronics Incorporated (NVE)
Dated as of September 22, 2000
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of
September xx, 2000, between PREMIS Corporation, a Minnesota corporation
("PREMIS"), and Nonvolatile Electronics, Incorporated (NVE), a Minnesota
corporation ("NVE").
WHEREAS, the Board of Directors of PREMIS has approved the acquisition
of the NVE by PREMIS pursuant to this Agreement; and
WHEREAS, the Board of Directors of NVE have approved the merger of NVE
with PREMIS (the "Merger" or "Transaction"), upon the terms and subject to the
conditions set forth herein;
WHEREAS, both Boards of Directors have approved the calling of a
shareholder meeting to solicit shareholder consent for entering into the
acquisition;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties and agreements herein contained, and intending to
be legally bound hereby, PREMIS and NVE agree as follows:
ARTICLE I. THE MERGER
1.01 The Merger. At the Effective Time (as defined in Section
1.02), NVE shall be merged with and into PREMIS and the separate existence of
NVE shall thereupon cease, with PREMIS being the surviving corporation in the
Merger (the "Surviving Corporation").
1.02 Effective Time of the Merger. The Merger shall become
effective at the time specified in the Articles of Merger, to be filed with the
Secretary of State of the State of Minnesota (the "Secretary of State") in
accordance with Section 302A.615, subd. 2, of the Business Corporation Act of
the State of Minnesota (the "Business Corporation Act"). The Articles of
Merger shall be delivered by NVE and PREMIS to the Secretary of State
concurrently with the closing of the Merger contemplated by this Agreement in
accordance with Section 9.01. When used in this Agreement, the term "Effective
Time" shall mean the date and time at which the Articles of Merger are filed
and the Certificate of Merger is issued by the Secretary of State.
1.03 Effects of the Merger. The Merger shall have the effects
set forth in Section 302A.641 of the Business Corporations Act.
1.04 Articles of Incorporation. The Articles of Incorporation
of PREMIS shall be amended and restated as of the Effective Time in such manner
and to contain such content as the Board of Directors of NVE deems reasonable
and appropriate, and such amended and restated articles of incorporation shall
be the Articles of Incorporation of the Surviving Corporation, the name of
which shall be Nonvolatile Electronics, Inc.
1.05 By-Laws. The By-Laws of NVE, as in effect immediately
prior to the Effective Time, shall be the By-Laws of the Surviving Corporation.
1.06 Directors. The directors of the Surviving Corporation
following the Effective Time shall be the prior members of the Board of
Directors of NVE, who shall serve until their respective successors are duly
elected and qualified in the manner provided in the Articles of Incorporation
and By-Laws of the Surviving Corporation, or as otherwise provided by law. The
members of the Premis Board of Directors shall all resign effective as of the
Effective Time and shall take all action required by governing corporate
documents and law to appoin the prior members of the Board of Directors of NVE
to serve as the directors of the Surviving Corporation.
1.07 Officers. As of the Effective Time, the Board of Directors
of the Surviving Corporation shall appoint the following individuals to serve
as officers of the Surviving Corporation:
James Daughton, President;
Richard George, Chief Financial Officer
1.08 NVE Stock Options. A new stock option plan shall be adopted by the
PREMIS shareholders at the Annual Meeting of PREMIS shareholders (the "New
Option Plan"). Such plan shall provide for the granting of both incentive and
non-qualified stock options, shall have similar content to the stock option
plan being used by NVE prior to the Effective Time, and shall have a pool of
2,000,000 shares of common stock reserved for issuance thereunder.
ARTICLE II. CONVERSION OF SHARES
2.01 Conversion of Shares. As of the Effective Time, by virtue
of the Merger and without any action on the part of any holder thereof:
(a) PREMIS shall effect a consolidation of shares (the "Consolidation") such
that not greater than 1,060,000 shares of common stock held by PREMIS
shareholders shall be outstanding as of the Effective Time.
(b) The number of authorized shares of the Surviving Corporation as of the
Effective Time and after completion of the Transaction shall be 50,000,000.
(c) Each outstanding share of NVE's Common Stock, without par value (the "NVE
Shares"), owned by NVE shareholders shall be converted into the right to
receive 3.5 shares (rounded up to the nearest whole number) of PREMIS Common
Stock, $.01 par value (the "PREMIS Shares").
(d) Each outstanding right to acquire shares of NVE's capital stock, whether
in the form of an option, warrant, or otherwise (the "NVE Options"), shall be
converted to the right to purchase 3.5 PREMIS Shares (rounded up to the nearest
whole number) at a purchase price equal to the exercise price of the NVE Option
divided by 3.5 (the "New Options"). The period of exercise and other terms of
each New Option shall be substantially the same as the NVE Option being
converted and as required under the New Option Plan.
(e) All outstanding NVE Shares, if any, which are held by NVE shareholders
shall be canceled and retired and shall cease to exist..
2.02 Termination of Stock Plan. The NVE option plan shall
terminate as of the Effective Time. Following the Effective Time no holder of
an NVE Option shall have any right thereunder to acquire any equity securities
of the Surviving Corporation.
2.03 Exchange Procedures. Prior to the Closing the parties shall enter
into an exchange agreement (the "Exchange Agreement") with an agent mutually
chosen by the parties (the "Exchange Agent") to administer the exchange of NVE
Shares and PREMIS Shares contemplated hereunder. As soon as practicable after
the Effective Time, the Exchange Agent shall mail to each holder of NVE Shares
and PREMIS Shares (other than certificates held by a holder that has properly
exercised, preserved and protected Dissenters' Rights) (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to such certificate shall pass, only upon delivery of such
certificates to such Exchange Agent), and (ii) instructions for use in
effecting the surrender of the certificates for the Surviving Corporation
Shares to be received upon conversion of the NVE Shares or consolidation and
change of name of the PREMIS Shares, as applicable, at the Effective Time.
Upon proper surrender to the Exchange Agent of such certificates for
cancellation, the holder of such certificates shall after the Effective Time be
entitled only to the number of Surviving Corporation Shares into which the
aggregate number of NVE Shares and PREMIS Shares previously represented by such
certificate or certificates surrendered shall have been converted pursuant to
this Agreement. The Exchange Agent shall accept such certificates upon
compliance with such reasonable terms and conditions as the Exchange Agent may
impose to effect an orderly exchange thereof in accordance with normal exchange
practices.. Until surrendered as contemplated by this Section 2.03, each
certificate for shares of NVE or PREMIS common stock shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the Surviving Corporation Shares as described in this Merger
Agreement. The Exchange Agent shall also serve as the transfer agent and
registrar for the Surviving Corporation. In the event the transfer agent or
exchange agent appointed is other than the previous PREMIS transfer agent,
Corporate Stock Transfer, Inc., the costs of implementing the new transfer
agent/exchange agent shall be borne by NVE.
2.04 Lost CertificatesLost Certificates. In the event that a
certificate for NVE Shares shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the holder claiming such certificate to
have been lost, stolen or destroyed, the number of PREMIS Shares to which such
holder would have been entitled but for failure to deliver such certificate to
the Exchange Agent shall nevertheless be delivered to such holder, provided
that the Surviving Corporation may, in its sole discretion and as a condition
precedent to such payment, require such holder to give the Surviving
Corporation a bond in such sum as it may reasonably direct as indemnity against
any claim that may be had against the Surviving Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF NVE
NVE represents and warrants to PREMIS that, except as previously
disclosed to PREMIS in writing or on the Disclosure Schedules attached hereto:
3.01 Charter Documents
(a) Corporate Organization. NVE (i) is a corporation duly organized,
validly existing and in good standing under the laws of Minnesota, (ii) has all
requisite power and authority, corporate and otherwise, to own, operate and
lease the properties and assets it now owns, operates and leases and to carry
on its business as now being conducted and (iii) is qualified or licensed to do
business and in good standing in every jurisdiction in which the ownership,
operation or lease of property by it or the conduct of its business requires
such qualification or licensing, except for such failures, if any, to be so
qualified and in good standing, which, when taken together with all such other
failures, would not in the aggregate have a material adverse effect on the
business, financial condition, operations, prospects, properties, assets or
liabilities (the "Business") of NVE.
(b) Articles of Incorporation and By-Laws. NVE has previously delivered
to PREMIS complete and correct copies of the Articles of Incorporation and all
amendments thereto to the date hereof and By-Laws (or comparable governing
documents), as presently in effect, of NVE, and NVE is not in default in the
performance, observation or fulfillment of either of its Articles of
Incorporation (as amended) or By-Laws (or comparable governing documents).
3.02 Authorization. NVE has full corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The Board of Directors of NVE has duly approved this
Agreement and has duly authorized the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and has resolved
to recommend that its stockholders adopt this Agreement and approve the Merger,
and no other corporate proceedings (other than the approval of this Agreement
by the holders of a majority of the issued and outstanding Shares in order to
consummate the Merger) on the part of NVE is necessary to approve the
consummation of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by NVE and constitutes (assuming due authorization,
execution and delivery of this Agreement by the other parties hereto), the
valid and binding agreement of NVE, enforceable against NVE in accordance with
its terms.
3.03 Consents and Approvals; No Violations. Except as set forth
in Schedule 3.03 hereto and for the filing of the Articles of Merger and other
appropriate merger documents, and required federal and state securities laws
filings, if any, as required by the Business Corporation Act, the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby will not: (i) violate any provision of the Articles or
Certificate of Incorporation or By-Laws (or comparable governing documents) of
NVE; (ii) violate any statute, ordinance, rule, regulation, order or decree of
any court or of any public, governmental or regulatory body, agency or
authority applicable to NVE or by which any of its properties or assets may be
bound; (iii) require any filing with, or permit, consent or approval of, or the
giving of any notice to, any public, governmental or regulatory body, agency or
authority or any third party; or (iv) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, franchise, permit, agreement or other instrument or obligation to
which NVE is a party, or by which it or any of its properties or assets may be
bound, excluding from the foregoing clauses (ii), (iii) and (iv) violations,
breaches and defaults which, and filings, notices, permits, consents and
approvals the absence of which, in the aggregate, would not have a material
adverse effect on the business of NVE and would not prevent or delay the
consummation of the transactions contemplated hereby.
3.04 Capitalization. The authorized capital stock of NVE
consists of 12,000,000 Common Shares and 8,000,000 of Class A Preferred Shares.
As of August 17, 2000, 2,839,817 Common Shares and 1,675,000 Preferred Shares
issued and outstanding. There are stock options and warrants to purchase
558,289 shares of NVE Common Stock outstanding as of August 17, 2000. The Class
A Preferred Shares shall be converted to 1,675,000 Common Shares prior to the
Effective Time such that at the Effective Time the capital stock of NVE shall
consist exclusively of not more than 5,073,106 shares of fully diluted Common
Stock along with outstanding options and warrants. All shares of capital stock
of NVE which are outstanding as of the date hereof are duly authorized, validly
issued, fully paid and nonassessable, and are not subject to, nor were they
issued in violation of, any preemptive rights, without such rights being
appropriately waived as required by governing documents and applicable law.
Except as set forth above, there are no shares of capital stock of NVE
authorized or outstanding. Except as set forth above, there are not any, and
at the Effective Time there will not be any, subscriptions, options, conversion
or exchange rights, warrants or other agreements, claims or commitments of any
nature whatsoever obligating NVE to issue, transfer, deliver or sell, or cause
to be issued, transferred, delivered or sold, additional shares of the capital
stock of NVE or obligating NVE to grant, extend or enter into any such
agreement or commitment.
3.05 Financial Statements. NVE has previously delivered to
PREMIS the audited balance sheet and statements of income, changes in
shareholders' equity and cash flows for the fiscal years ended December 31,
1998 and 1999, and unaudited reports for interim periods ending March 31, 2000
and June 30, 2000, (collectively, the "Company Financial Statements"). NVE
Financial Statements have been prepared from, and are in accordance with, the
books and records of NVE and present fairly the financial position, results of
operations and changes in financial position of NVE as of the dates and for the
periods indicated, in each case in conformity with generally accepted
accounting principles, consistently applied during such periods, except as
otherwise stated in such financial statements or in the notes thereto or in the
auditor's certifying report thereon.
3.06 Absence of Undisclosed Liabilities. Except as and to the
extent reflected in the balance sheets dated as of December 31,1999 included in
NVE Financial Statements (the "Balance Sheet"), or in the notes thereto, NVE
did not have at that date any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise and whether due or to become due),
which were material to NVE taken as a whole. Since the date of the Balance
Sheet, NVE has not incurred any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise, and whether due or to
become due) which are material to NVE taken as a whole, except for such which
were incurred in the ordinary course of business and consistent with past
practice.
3.07 Absence of Material Adverse Change. Since June 30, 2000
there has not been, occurred or arisen any material adverse change in or effect
on the business of NVE, nor has NVE entered into any transaction, or conducted
its business or operations, other than in the ordinary course of business and
consistent with past practice.
3.08 Legal Proceedings, etc. There are no suits, actions,
claims, proceedings or investigations pending, or, to the best knowledge of the
officers of NVE, threatened against, relating to or involving NVE (or any of
its officers or directors in connection with the business or affairs of NVE) or
any properties or rights of NVE, before any federal, state, foreign, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, which if adversely determined would have a materially adverse
effect on the business of NVE. There are no such suits, actions, claims,
proceedings or investigations pending or, to the best knowledge of the officers
of NVE, threatened challenging the validity or propriety of the transactions
contemplated by this Agreement. NVE is not subject to any judgment, decree,
injunction, rule or order of any court or, to the best knowledge of the
officers of NVE, any governmental restriction applicable to NVE which is
reasonably likely to have a material adverse effect on the business of NVE, or
which materially adversely affects the ability of NVE to acquire any property
or rights or conduct business in any geographical area.
3.09 Compliance with Applicable Law. To the best of its
knowledge, NVE currently holds and is in compliance with the terms of, and has
for at least the last three years been in compliance with the terms of, all
licenses, permits and authorizations necessary for the lawful conduct of its
businesses, and has complied with, and NVE is not in violation of, or in
default in any respect under, the applicable statutes, ordinances, rules,
regulations, orders or decrees of all federal, state, local and foreign
governmental bodies, agencies and authorities having, asserting or claiming
jurisdiction over it or over any part of its operations or assets, except for
such failures of compliance, violations and defaults which in the aggregate
would not have a material adverse effect on the business of NVE.
3.10 Intellectual Property.
(a) Schedule 3.10 hereto sets forth all licenses, copyrights,
trademarks, trade names, patents, technology, know-how, formulas and processes
("Intellectual Property") material to the business of NVE taken as a whole.
(b) Except as previously disclosed to PREMIS in writing or otherwise
described on the Disclosure Schedule attached hereto, NVE owns, or is licensed
to use, or otherwise has the full right to use, all Intellectual Property
material to the business of NVE. To the best knowledge of NVE, (i) no claim
has been asserted against NVE by any person with respect to the use by NVE of
any such Intellectual Property, and (ii) the use of such Intellectual Property
by NVE does not infringe on the rights of any person.
3.11 Contracts and Leases.
(a) Schedule 3.11 hereto sets forth all contracts and leases material to
the business of NVE taken as a whole.
(b) NVE is not in default, and no event has occurred which (whether with
or without notice, lapse of time or both or the happening or occurrence of any
other event) would constitute a default, under any contract or lease set forth
on Schedule 3.11, which defaults are or would be, in the aggregate, material to
the business of Company. To the best knowledge of NVE, no other party to any
such contract or lease is in default, and no event has occurred which (whether
with or without notice, lapse of time or both or the happening or occurrence of
any other event) would constitute a default, under any such contract or lease,
which defaults are or would be, in the aggregate, material to the business of
NVE. For the purposes of this Section 3.11, only contracts which obligate NVE
to an amount in excess of $50,000 are considered material.
3.12 Property.
(a) NVE has good and marketable title to all the properties and assets
which it has listed in the Disclosure Schedule or has otherwise been reflected
as an asset on the Balance Sheet, except assets disposed of in the ordinary
course of business since the date thereof, in each case to its knowledge free
and clear of all title defects and all liens, pledges, claims, charges,
security interests or other encumbrances, and is not, in the case of real
property, Subject to any rights of way, building or use restrictions,
exceptions, variances, reservations or limitations of any nature whatsoever,
except, with respect to all such properties, (a) mortgages and liens securing
debt which is reflected as a liability on the Balance Sheet and (b) (i) liens
for current taxes and assessments not in default, (ii) minor imperfections of
title, liens, encumbrances and easements, and (iii) mechanics', carriers',
workmen's, repairmen's and other similar liens, rights of way, building or use
restrictions, exceptions, variances, reservations and other limitations of any
kind, if any, which in the case of clauses (i), (ii) and (iii) are not
substantial in amount, do not materially detract from the value of or
materially interfere with the present or contemplated use of any of the
properties subject thereto or affected thereby or otherwise materially impair
the business operations conducted by NVE and which have arisen or been incurred
only in the ordinary course of business and consistent with past practice.
(b) All physical properties and assets of NVE are in such condition and
repair as are consistent with and sufficient for the uses in which they are
presently employed.
3.13 Taxes.
(a) NVE has duly filed all Tax Returns (as hereinafter defined) required
to be filed and has duly paid, or has set up a reserve which is adequate for
the payment of, all Taxes (as hereinafter defined) required to be paid in
respect of the periods covered by such Tax Returns. NVE is not delinquent in
the payment of any amount of Taxes which would have a material adverse effect
on the business of NVE. No material deficiencies for any Taxes have been
proposed, asserted or assessed against NVE and, with respect to United States
federal and state taxes, no waivers of the time to assess any Taxes have been
given or requested except to the extent previously disclosed to PREMIS in
writing or otherwise described on the Disclosure Schedule attached hereto. No
issues have been raised (and are currently pending) by the Internal Revenue
Service (the "IRS") or any other taxing authority in connection with any of the
Tax Returns referred to above for which adequate reserves have not been
established on the books of NVE and which, individually or in the aggregate,
are likely to have a material adverse effect on the business of NVE. There are
no liens with respect to Taxes (except for liens with respect to real property
taxes not yet due) upon any of the properties or assets of NVE. NVE, with
regard to any property or assets held or acquired by it at any time, has not
filed a consent pursuant to Section 341(f) of the Internal Revenue Code of
1986, as amended (the "Code").
(b) For purposes of this Agreement, (i) the term "Taxes" shall include
all taxes, assessments and governmental charges imposed by the United States or
any state, local and foreign government or subdivision or agency thereof,
including any interest, penalties or additions thereto, and (ii) the term "Tax
Return" shall include any return, report or other information required to be
supplied to a taxing authority with respect to Taxes.
3.14 Employee Benefit Plans; ERISA.
(a) Schedule 3.14(a) hereto contains a true and complete list of each
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance or termination pay, hospitalization or other medical, life or
other insurance, supplemental unemployment benefits, profit-sharing, pension,
or retirement plan, program, agreement or arrangement, and each other employee
benefit plan, program, agreement or arrangement, maintained or contributed to
or required to be contributed to by NVE or by any trade or business, whether or
not incorporated (an "ERISA Affiliate" as listed in the Disclosure Schedules),
that together with NVE would be deemed a "single employer" within the meaning
of Section 414 of the Code, for the benefit of any employee or terminated
employee of NVE or any ERISA Affiliate, whether formal or informal and whether
legally binding or not (the "Plans"). No Plan is an "employee benefit plan"
("ERISA Plan"), as that term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended, and the rules and
regulations promulgated thereunder ("ERISA"). Neither NVE nor any ERISA
Affiliate has any formal plan or commitment, whether legally binding or not, to
create any additional Plan or modify or change any existing Plan that would
affect any employee or terminated employee of NVE or any ERISA Affiliate.
(b) With respect to each of the Plans, NVE has heretofore delivered to
PREMIS true and complete copies of each of the following documents:
(i) a copy of the Plan (including all amendments thereto) or a written
discription of any plan that is not otherwise in writting;
(ii) a copy of the annual report, if required under ERISA, with respect
to each such Plan for the last year including all attachments and schedules;
(iii) a copy of the most recent Summary Plan Description, together with
each Summary of Material Modifications, required under ERISA with respect to
such Plan;
(iv) if the Plan is funded through a trust or any third party funding
vehicle, a copy of the trust or other funding agreement (including all
amendments thereto) and the latest financial statements thereof;
(v) the most recent determination letter received from the IRS with
respect to each Plan that is intended to be qualified under Section 401 of the
Code; and
(vi) contracts with third party administrators, actuaries, investment man-
agers, consultants, and other independent contractors that relate to any Plan.
(c) No liability under Title IV of ERISA has been incurred by NVE or any
ERISA Affiliate since the effective date of ERISA that has not been satisfied
in full, and no condition exists that presents a material risk to NVE or an
ERISA Affiliate of incurring a liability under such Title. To the extent this
representation applies to Sections 4064, 4069 or 4204 of Title IV of ERISA, it
is made with respect to any employee benefit plan, program, agreement or
arrangement subject to Title IV of ERISA to which NVE or an ERISA Affiliate
made, or was required to make, contributions during the five (5) year period
ending on the last day of the last plan year.
(d) Neither NVE nor any ERISA Affiliate, nor any ERISA Plan, nor any
trust created thereunder, nor any trustee or administrator thereof has engaged
in a transaction in connection with which NVE or any ERISA Affiliate, any ERISA
Plan, any such trust, or any trustee or administrator thereof, or any party
dealing with any ERISA Plan or any such trust could be subject to either a
civil penalty assessed pursuant to Section 409 or 502 of ERISA, a criminal
penalty pursuant to Section 501 of ERISA or a tax imposed pursuant to Section
4975 or 4976 of the Code.
(e) None of the Plans is a "multi-employer plan," as such term is
defined in Section 3(37) of ERISA.
(f) Each of the Plans has been operated and administered in all material
respects in accordance with applicable laws, including but not limited to ERISA
and the Code.
(g) No amounts payable under the Plans will fail to be deductible for
federal income tax purposes by virtue of Section 280G of the Code.
(h) No "leased employee," as that term is defined in Section 414(n) of
the Code, performs services for NVE or any ERISA Affiliate.
(i) No Plan provides benefits, including without limitation, death or
medical benefits (whether or not insured), with respect to current or former
employees of NVE or any ERISA Affiliate beyond their retirement or other
termination of service other than (i) coverage mandated by applicable law, (ii)
death benefits or retirement benefits under any "employee pension plan," as
that term is defined in Section 3(2) of ERISA, (iii) deferred compensation
benefits accrued as liabilities on the books of NVE or the ERISA Affiliate, or
(iv) benefits the full cost of which is borne by the current or former employee
(or his beneficiary).
(j) The consummation of the transactions contemplated by this Agreement
will not (i) entitle any current or former employee or officer of NVE or any
ERISA Affiliate to severance pay, unemployment compensation or any other
payment, except as expressly provided in this Agreement, (ii) accelerate the
time of payment or vesting, or increase the amount of compensation due any such
employee or officer, or (iii) result in any prohibited transaction described in
Section 406 of ERISA or Section 4975 of the Code for which an exemption is not
available.
(k) With respect to each Plan that is funded wholly or partially through
an insurance policy, there will be no liability of NVE or an ERISA Affiliate,
as of the Effective Time, under any such insurance policy or ancillary
agreement with respect to such insurance policy in the nature of a retroactive
rate adjustment, loss sharing arrangement or other actual or contingent
liability arising wholly or partially out of events occurring prior to the
Effective Time.
(l) There are no pending, threatened or anticipated claims by or on
behalf of any of the Plans, by any employee or beneficiary covered under any
such Plan, or otherwise involving any such Plan (other than routine claims for
benefits).
3.15 Disclosure. No representation or warranty by NVE in this
Agreement and no statement contained in any document, certificate or other
writing furnished by NVE to PREMIS in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact or omits
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
3.16 Labor Matters. NVE has no collective bargaining
agreements. NVE is in substantial compliance with all applicable laws relating
to employment and employment practices, wages, hours, and terms and conditions
of employment; there is no unfair labor practice charge or complaint pending
before the National Labor Relations Board, which if decided adversely could
have a material adverse effect on the business of NVE; and there is no labor
strike, slow down or work stoppage or lockout actually pending or, to the
knowledge of the officers of NVE, threatened against or affecting NVE, and NVE
has not experienced any strike, slow down or work stoppage or lockout since
January 1, 1996.
3.17 Brokers and Finders. Neither NVE nor any of its officers,
directors, or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions, finders' fees or similar fees or
expenses and no broker or finder has acted directly or indirectly for NVE in
connection with this Agreement or the transactions contemplated hereby. No
investment banking, financial advisory or similar fees have been incurred or
are or will be payable by NVE in connection with this Agreement or the
transactions contemplated hereby.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PREMIS
PREMIS represents and warrants to NVE that:
4.01 Corporate Organization. PREMIS (i) is a corporation duly
organized, validly existing and in good standing under the laws of Minnesota,
(ii) has all requisite power and authority, corporate and otherwise, to own,
operate and lease the properties and assets it now owns, operates and leases
and to carry on its business as now being conducted, and (iii) is qualified or
licensed to do business as a foreign corporation and in good standing in every
jurisdiction in which the ownership, operation or lease of property by it or
the conduct of its business requires such qualification or licensing, except
for such failures to be so qualified and in good standing, if any, which when
taken together with all such other failures would not in the aggregate have a
material adverse effect on the business, financial condition, operations,
properties, assets or liabilities of PREMIS.
4.02 Authorization. PREMIS has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Board of Directors of PREMIS has duly
approved this Agreement, has duly authorized the execution and delivery of this
Agreement and has resolved to recommend that its stockholders adopt this
Agreement and approve the Merger and no other corporate proceedings (other than
the approval of this Agreement by the PREMIS shareholders) on the part of
PREMIS is necessary to approve the Transaction. The consummation of the
Transaction is subject to the approval of the shareholders of PREMIS, and the
Board of Directors of PREMIS shall call a meeting of the shareholders of PREMIS
and solicit proxies for the purpose of amending and restating the articles of
Incorporation as provided in Section 2.01 (b) hereof, approving the Merger and
the consummation thereof and adopting the New Option Plan. This Agreement has
been duly executed and delivered by PREMIS and constitutes (assuming due
authorization, execution and delivery of this Agreement by NVE), the valid and
binding agreement of PREMIS, subject to the approval of the shareholders,
enforceable against PREMIS in accordance with its terms.
4.03 Consents and Approvals; No Violations. Except for the
filing of Articles of Merger and other appropriate merger documents, if any, as
required by the Business Corporations Act, the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, will
not: (i) violate any provision of the Articles of Incorporation or By-Laws (or
other comparable governing documents) of PREMIS; (ii) violate any statute,
ordinance, rule, regulation, order or decree of any court or of any public,
governmental or regulatory body, agency or authority applicable to PREMIS or by
which any of its properties or assets may be bound; (iii) require any filing
with or permit, consent or approval of, or the giving of any notice to, any
public, governmental or regulatory body or authority; or (iv) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, franchise, permit, agreement or other
instrument or obligation to which PREMIS is a party, or by which it or its
properties or assets may be bound, excluding from the foregoing clauses (ii),
(iii) and (iv) violations, breaches and defaults which, and filings, notices,
permits, consents and approvals the absence of which, in the aggregate, would
not have a material adverse effect on the business, financial condition,
operations, properties, assets or liabilities of PREMIS taken as a whole and
would not prevent or delay the consummation of the transactions contemplated
hereby.
4.05 Common Stock. The PREMIS Shares to be issued to the
shareholders of NVE pursuant to Section 2.01(a) hereof, at the time such shares
are issued, will have been duly authorized, validly issued, fully paid and
nonassessable and NVE shall receive good title to such PREMIS Shares, free and
clear of any liens, options, charges, security interests or other legal or
equitable rights and encumbrances of any nature whatsoever (other than liens,
options, charges, security interests or other legal or equitable rights or
encumbrances on such shares created or incurred by NVE), and the holder thereof
will not be subject to any pre-emptive or other similar rights.
4.06 SEC Reports. All reports, registration statements, proxy
statements and other documents filed by the PREMIS with the Securities and
Exchange Commission (the "Commission") since April 1, 1997, complied, as of
their respective dates, in all material respects, with all applicable
requirements of the Securities Exchange Act of 1934, as amended, and the
Securities Act of 1933, as amended (the "Securities Act"), and none of such
documents, as of their respective dates, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
4.07 Capitalization. The authorized capital stock of PREMIS consists of
10,000,000 shares of Common Stock. As of August 31, 2000, 5,293,592 shares of
Common Stock are issued and outstanding and there are issued and outstanding
stock options and warrants to purchase 224,126 shares of PREMIS Common Stock.
The Common Stock shall be consolidated as of the Effective Time such that at
the Effective Time the outstanding shares of PREMIS shall consist exclusively
of 1,060,000 shares of Common Stock and options to purchase 44,825 shares of
Common at an average exercise price of $27.50 per share, all as fully detailed
on Schedule 4.07, and the authorized capital stock of PREMIS will be 50,000,000
shares. All shares of capital stock of PREMIS which are outstanding as of the
date hereof are duly authorized, validly issued, fully paid and nonassessable,
and are not subject to, nor were they issued in violation of, any preemptive
rights. Except as set forth above, there are no shares of capital stock of
PREMIS authorized or outstanding. Except as set forth above, there are not
any, and at the Effective Time there will not be any, subscriptions, options,
conversion or exchange rights, warrants or other agreements, claims or
commitments of any nature whatsoever obligating PREMIS to issue, transfer,
deliver or sell, or cause to be issued, transferred, delivered or sold,
additional shares of the capital stock of PREMIS or obligating PREMIS to grant,
extend or enter into any such agreement or commitment.
4.08 Financial Statements. PREMIS has previously delivered to
NVE the audited balance sheet and statements of income, changes in
shareholders' equity and statement of cash flows for the fiscal years ended
March 31, 1999 and 2000, and interim period ending June30, 2000 (collectively,
the "PREMIS Financial Statements"). PREMIS Financial Statements have been
prepared from, and are in accordance with, the books and records of PREMIS and
present fairly the financial position, results of operations and changes in
financial position of PREMIS as of the dates and for the periods indicated, in
each case in conformity with generally accepted accounting principles,
consistently applied during such periods, except as otherwise stated in such
financial statements or in the notes thereto or in the auditor's certifying
report thereon.
4.09 Absence of Undisclosed Liabilities. Except as and to the
extent reflected in the balance sheets dated as of June 30, 2000 included in
the PREMIS Financial Statements (the PREMIS Balance Sheet"), or in the notes
thereto, PREMIS did not have at that date any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise and whether due or
to become due), which were material to PREMIS. Since the date of the PREMIS
Balance Sheet, PREMIS has not incurred any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) which are material to PREMIS, except for such which were
incurred in the ordinary course of business and consistent with past practice.
4.10 Absence of Material Adverse Change. Since June 30, 2000
there has not been, occurred or arisen any material adverse change in or effect
on the business of PREMIS, nor has PREMIS entered into any transaction, or
conducted its business or operations, other than in the ordinary course of
business and consistent with past practice.
4.11 Legal Proceedings, etc. In September 1997, PREMIS commenced
legal proceedings against Robert E. Ferguson, a former owner of REF Retail
Systems Corp. ("REF"), which the Company acquired on October 1, 1996, seeking
damages in an unspecified amount related to alleged breaches of the agreement
for the purchase of REF, and related matters. The legal proceeding against Mr.
Ferguson was filed in the Ontario Court of Justice, General Division on
September 22, 1997 (Case No. 97-CV-132581). The Ferguson suit has not been
settled as of August 31, 2000. Other than the Ferguson matter, there are no
suits, actions, claims, proceedings or investigations pending, or, to the best
knowledge of the officers of PREMIS, threatened against, relating to or
involving PREMIS (or any of its officers or directors in connection with the
business or affairs of PREMIS) or any properties or rights of PREMIS, before
any federal, state, foreign, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, which if adversely
determined would have a materially adverse effect on the business of PREMIS.
There are no such suits, actions, claims, proceedings or investigations pending
or, to the best knowledge of the officers of PREMIS, threatened challenging the
validity or propriety of the transactions contemplated by this Agreement.
PREMIS is not subject to any judgment, decree, injunction, rule or order of any
court or, to the best knowledge of the officers of PREMIS, any governmental
restriction applicable to PREMIS which is reasonably likely to have a material
adverse effect on the business of PREMIS, or which materially adversely affects
the ability of PREMIS to acquire any property or rights or conduct business in
any geographical area.
4.12 Compliance with Applicable Law. PREMIS currently holds and
is in compliance with the terms of, and has for at least the last three years
been in compliance with the terms of, all licenses, permits and authorizations
necessary for the lawful conduct of its businesses, and has complied with, and
is not in violation of, or in default in any respect under, the applicable
statutes, ordinances, rules, regulations, orders or decrees of all federal,
state, local and foreign governmental bodies, agencies and authorities having,
asserting or claiming jurisdiction over it or over any part of its operations
or assets, except for such failures of compliance, violations and defaults
which in the aggregate would not have a material adverse effect on the business
of PREMIS.
4.13 Intellectual Property. PREMIS has no licenses, copyrights,
trademarks, trade names, patents, technology, know-how, formulas and processes
("Intellectual Property") material to its business.
4.14 Contracts and Leases.
(a) Schedule 4.14 hereto sets forth all contracts and leases material to
the business of PREMIS.
(b) PREMIS is not in default, and no event has occurred which (whether
with or without notice, lapse of time or both or the happening or occurrence of
any other event) would constitute a default, under any contract or lease set
forth on Schedule 4.14, which defaults are or would be, in the aggregate,
material to the business of PREMIS. To the best knowledge of PREMIS, no other
party to any such contract or lease is in default, and no event has occurred
which (whether with or without notice, lapse of time or both or the happening
or occurrence of any other event) would constitute a default, under any such
contract or lease, which defaults are or would be, in the aggregate, material
to the business of PREMIS.
4.15 Property.
PREMIS has good and marketable title to all the properties and assets which it
purports to own, including all assets reflected on the PREMIS Balance Sheet,
except assets disposed of in the ordinary course of business since the date
thereof, in each case free and clear of all title defects and all liens,
pledges, claims, charges, security interests or other encumbrances, and is not,
in the case of real property, subject to any rights of way, building or use
restrictions, exceptions, variances, reservations or limitations of any nature
whatsoever, except, with respect to all such properties, liens for current
taxes and assessments not in default, minor imperfections of title, liens,
encumbrances and easements, and mechanics', carriers', workmen's, repairmen's
and other similar liens, rights of way, building or use restrictions,
exceptions, variances, reservations and other limitations of any kind, if any,
which are not substantial in amount, do not materially detract from the value
of or materially interfere with the present or contemplated use of any of the
properties subject thereto or affected thereby or otherwise materially impair
the business operations conducted by PREMIS and which have arisen or been
incurred only in the ordinary course of business and consistent with past
practice. Other than cash, cash equivalent short term investments, and its
records in a storage locker in Plymouth, Minnesota, PREMIS has no other assets
or physical property.
4.16 Taxes. PREMIS has duly filed all Tax Returns required to be
filed and has duly paid, or has set up a reserve which is adequate for the
payment of, all Taxes required to be paid in respect of the periods covered by
such Tax Returns. PREMIS is not delinquent in the payment of any amount of
Taxes which would have a material adverse effect on the business of PREMIS. No
material deficiencies for any Taxes have been proposed, asserted or assessed
against PREMIS and, with respect to United States federal and state taxes, no
waivers of the time to assess any Taxes have been given or requested except to
the extent previously disclosed to NVE in writing or otherwise described on the
Disclosure Schedule attached hereto. No issues have been raised (and are
currently pending) by the IRS or any other taxing authority in connection with
any of the Tax Returns referred to above for which adequate reserves have not
been established on the books of PREMIS and which, individually or in the
aggregate, are likely to have a material adverse effect on the business of
PREMIS. There are no liens with respect to Taxes (except for liens with
respect to real property taxes not yet due) upon any of the properties or
assets of PREMIS. PREMIS, with regard to any property or assets held or
acquired by it at any time, has not filed a consent pursuant to Section 341(f)
of the Code.
4.17 Employee Benefit Plans; ERISA.
(a) Schedule 4.17(a) hereto contains a true and complete list of each
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance or termination pay, hospitalization or other medical, life or
other insurance, supplemental unemployment benefits, profit-sharing, pension,
or retirement plan, program, agreement or arrangement, and each other employee
benefit plan, program, agreement or arrangement, maintained or contributed to
or required to be contributed to by PREMIS or by any trade or business, whether
or not incorporated (an "ERISA Affiliate", as listed on the Disclosure
Schedules), that together with PREMIS would be deemed a "single employer"
within the meaning of Section 414 of the Code, for the benefit of any employee
or terminated employee of PREMIS or any ERISA Affiliate, whether formal or
informal and whether legally binding or not (the "Plans"). No Plan is an
"employee benefit plan" ("ERISA Plan"), as that term is defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended , and the
rules and regulations promulgated thereunder ("ERISA"). Neither PREMIS nor any
ERISA Affiliate has any formal plan or commitment, whether legally binding or
not, to create any additional Plan or modify or change any existing Plan that
would affect any employee or terminated employee of PREMIS or any ERISA
Affiliate.
(b) With respect to each of the Plans, PREMIS has heretofore delivered
to NVE true and complete copies of each of the following documents:
(i) a copy of the Plan (including all amendments thereto) or a written
description of any Plan that is not otherwise in writing;
(ii) a copy of the annual report, if required under ERISA, with respect
to each such Plan for the last year, including all attachments and schedules;
(iii) a copy of the most recent Summary Plan Description, together with
each Summary of Material Modifications, required under ERISA with respect to
such Plan;
(iv) if the Plan is funded through a trust or any third party funding
vehicle, a copy of the trust or other funding agreement (including all
amendments thereto) and the latest financial statements thereof;
(v) the most recent determination letter received from the IRS with
respect to each Plan that is intended to be qualified under Section 401 of the
Code; and
(vi) contracts with third party administrators, actuaries, investment
managers, consultants, and other independent contractors that relate to any
Plan.
(c) No liability under Title IV of ERISA has been incurred by PREMIS or
any ERISA Affiliate since the effective date of ERISA that has not been
satisfied in full, and no condition exists that presents a material risk to
PREMIS or an ERISA Affiliate of incurring a liability under such Title. To the
extent this representation applies to Sections 4064, 4069 or 4204 of Title IV
of ERISA, it is made with respect to any employee benefit plan, program,
agreement or arrangement subject to Title IV of ERISA to which PREMIS or an
ERISA Affiliate made, or was required to make, contributions during the five
(5) year period ending on the last day of the last plan year.
(d) Neither PREMIS nor any ERISA Affiliate, nor any ERISA Plan, nor any
trust created thereunder, nor any trustee or administrator thereof has engaged
in a transaction in connection with which PREMIS or any ERISA Affiliate, any
ERISA Plan, any such trust, or any trustee or administrator thereof, or any
party dealing with any ERISA Plan or any such trust could be subject to either
a civil penalty assessed pursuant to Section 409 or 502 of ERISA, a criminal
penalty pursuant to Section 501 of ERISA or a tax imposed pursuant to Section
4975 or 4976 of the Code.
(e) None of the Plans is a "multi-employer plan," as such term is
defined in Section 3(37) of ERISA.
(f) Each of the Plans has been operated and administered in all material
respects in accordance with applicable laws, including but not limited to ERISA
and the Code.
(g) No amounts payable under the Plans will fail to be deductible for
federal income tax purposes by virtue of Section 280G of the Code.
(h) No "leased employee," as that term is defined in Section 414(n) of
the Code, performs services for PREMIS or any ERISA Affiliate.
(i) No Plan provides benefits, including without limitation, death or
medical benefits (whether or not insured), with respect to current or former
employees of PREMIS or any ERISA Affiliate beyond their retirement or other
termination of service other than (i) coverage mandated by applicable law, (ii)
death benefits or retirement benefits under any "employee pension plan," as
that term is defined in Section 3(2) of ERISA, (iii) deferred compensation
benefits accrued as liabilities on the books of PREMIS or the ERISA Affiliate,
or (iv) benefits the full cost of which is borne by the current or former
employee (or his beneficiary).
(j) The consummation of the transactions contemplated by this Agreement
will not (i) entitle any current or former employee or officer of PREMIS or any
ERISA Affiliate to severance pay, unemployment compensation or any other
payment, except as expressly provided in this Agreement, (ii) accelerate the
time of payment or vesting, or increase the amount of compensation due any such
employee or officer, or (iii) result in any prohibited transaction described in
Section 406 of ERISA or Section 4975 of the Code for which an exemption is not
available.
(k) With respect to each Plan that is funded wholly or partially through
an insurance policy, there will be no liability of PREMIS or an ERISA
Affiliate, as of the Effective Time, under any such insurance policy or
ancillary agreement with respect to such insurance policy in the nature of a
retroactive rate adjustment, loss sharing arrangement or other actual or
contingent liability arising wholly or partially out of events occurring prior
to the Effective Time.
(l) There are no pending, threatened or anticipated claims by or on
behalf of any of the Plans, by any employee or beneficiary covered under any
such Plan, or otherwise involving any such Plan (other than routine claims for
benefits).
4.18 Disclosure. No representation or warranty by PREMIS in
this Agreement and no statement contained in any document, certificate or other
writing furnished by PREMIS to NVE in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact or omits
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
4.19 Labor Matters. PREMIS has no collective bargaining
agreements. PREMIS is in substantial compliance with all applicable laws
relating to employment and employment practices, wages, hours, and terms and
conditions of employment; there is no unfair labor practice charge or complaint
pending before the National Labor Relations Board, which if decided adversely
could have a material adverse effect on the business of PREMIS; and there is no
labor strike, slow down or work stoppage or lockout actually pending or, to the
knowledge of the officers of PREMIS, threatened against or affecting PREMIS,
and PREMIS has not experienced any strike, slow down or work stoppage or
lockout since January 1, 1996.
4.20 Brokers and Finders. Neither PREMIS nor any of its
officers, directors, or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions, finders' fees or similar
fees or expenses and no broker or finder has acted directly or indirectly for
PREMIS in connection with this Agreement or the transactions contemplated
hereby and thereby. No investment banking, financial advisory or similar fees
have been incurred or are or will be payable by PREMIS in connection with this
Agreement or the transactions contemplated hereby.
ARTICLE V. NATURE OF THE SECURITIES
(a) By their approval of the Transaction, the shareholders of NVE
understand that (i) the issuance and delivery of Surviving Corporation Shares
to them pursuant to Section 2.01(a) hereof are intended to be exempt from
registration under the Securities Act; and (ii) such PREMIS Shares will be
"restricted" and may not be sold, transferred or disposed of in the absence of
registration under the Securities Act or an exemption therefrom.
(b) The Surviving Corporation Shares to be acquired by the NVE
shareholders are being acquired for their own account for investment and
without a view to the distribution of such Surviving Corporation Shares or any
interest therein. PREMIS is not and will not be required to file a registration
statement under the Securities Act in connection with any sale, transfer or
other disposition of such Surviving Corporation Shares. The certificate or
certificates representing such Surviving Corporation Shares shall be imprinted
with such legends as are required under customary for compliance with
applicable state and federal law regarding the issuance of securities without
registration under the Securities Act.
(c) Prior to the Effective Time, the NVE shareholders will have been
furnished with and has carefully read a copy of the most recent PREMIS Reports
on 10-KSB and 10-QSB and been given the opportunity to ask questions of, and
receive answers from PREMIS concerning the terms and conditions of the
Surviving Corporation Shares and other related matters.
ARTICLE VI. CONDUCT OF NVE'S BUSINESS
During the period commencing on the date hereof and continuing until
the Effective Time, NVE agrees (except as expressly contemplated by this
Agreement or to the extent that PREMIS shall otherwise consent in writing)
that:
(a) NVE will carry on its business in, and only in, the usual, regular
and ordinary course in substantially the same manner as heretofore conducted
and, to the extent consistent with such business, use its best efforts to
preserve intact its present business organization, keep available the services
of its present officers and employees and preserve its relationships with
customers, consultants, suppliers and others having business dealings with it
to the end that its goodwill and ongoing business shall not be impaired at the
Effective Time.
(b) NVE will not dispose of or encumber any of its properties and
assets, other than sales of inventory and collections of receivables in the
ordinary course of business. Notwithstanding the foregoing, NVE may enter into
an agreement with Honeywell International, Inc. to forfeit its exclusive rights
to certain Honeywell patents in exchange for a cash payment not less than the
fair value of such rights.
(c) NVE will not split, combine or reclassify any Shares or declare any
dividends on or make other distributions in respect of the Shares. NVE will
not amend its Articles or Certificate of Incorporation or By-Laws or similar
governing documents.
(d) NVE will not issue, sell, authorize or propose the sale or
issuance of, or purchase, acquire or propose the purchase or acquisition of,
any shares of the capital stock of NVE or securities convertible into, or
rights, warrants or options (including employee stock options) to acquire, any
such shares or other convertible securities except that NVE may issue
additional shares or rights (including options, warrants, and convertible
securities), between the signing of this Agreement and the closing, for
consideration equal to or greater than $5.00 per newly issued NVE share;
provided that NVE shall not issue shares in an amount in excess of 25% of the
number of NVE shares outstanding on August 17, 2000. Any commitment made prior
to the Effective Time to issue shares after the Effective Time must specify
that the price per share will be equal to or greater than the equivalent of
$5.00 per share prior to the merger.
(e) Until the earlier of (i) the Effective Time or (ii) the termination
of this Agreement, neither NVE, nor any officer, director or employee of (or
any investment banker, attorney, accountant or other representative retained
by) NVE shall, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing information) any inquiries or proposals by, or
engage in any discussions or negotiations with, any corporation, partnership,
person or other entity or group which it is reasonably expected may lead to, or
which relates to, any takeover proposal. NVE will promptly advise PREMIS
orally and in writing of the receipt and content of any such inquiries or
proposals. As used in this subsection (e), "takeover proposal" shall mean any
proposal for a merger or any other business combination involving NVE for the
acquisition of a substantial equity interest in NVE or a substantial portion of
the assets of NVE other than the one contemplated by this Agreement.
(f) NVE will not acquire or agree to acquire by merging or consolidating
with or into, purchasing substantially all of the assets or stock of, or
otherwise, (i) any assets material to NVE taken as a whole, (ii) any assets
outside of the ordinary course of business or (iii) any business or any
corporation, partnership, association or other business organization or
division thereof.
(g) NVE will not adopt or amend in any material respect any collective
bargaining, employee pension, profit-sharing, retirement, insurance, incentive
compensation, severance, vacation or other plan, agreement, trust, fund or
arrangement for the benefit of any director, officer or employee (whether or
not legally binding).
(h) NVE will not,(i) incur, assume or prepay any long-term debt or, except in
the ordinary course of business under existing lines of credit, incur or assume
any short-term debt, (ii) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingency or otherwise) for the obligations
of any other person except in the ordinary course of business and consistent
with past practices or (iii) make any loans, advances or capital contributions
to, or investments in, any other person.
(i) NVE will not take, agree to take, or knowingly permit to be taken any
action or do or knowingly permit to be done anything in the conduct of the
business of NVE or otherwise, which would be contrary to or in breach of any of
the terms or provisions of this Agreement, or which would cause any of the
representations and warranties of NVE contained herein to be or become untrue
in any material respect.
ARTICLE VII. CONDUCT OF PREMIS' BUSINESS
During the period commencing on the date hereof and continuing until
the Effective Time, PREMIS agrees (except as expressly contemplated by this
Agreement or to the extent that NVE shall otherwise consent in writing) that:
(a) PREMIS will carry on its business in, and only in, the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and, to the extent consistent with such business, use its best
efforts to preserve intact its present business organization, keep available
the services of its present officers and employees and preserve its
relationships with customers, consultants, suppliers and others having business
dealings with it to the end that its goodwill and ongoing business shall not be
impaired at the Effective Time.
(b) PREMIS will not dispose of or encumber any of its properties and
assets, other than sales of inventory and collections of receivables in the
ordinary course of business.
(c) Except as specifically stated in this Agreement, PREMIS will not (i)
split, combine or reclassify any PREMIS Shares, (ii) declare any dividends on
or make other distributions in respect of such Shares, or (iii) amend its
Articles of Incorporation or By-Laws or similar governing documents.
(d) PREMIS will not issue, sell, authorize or propose the sale
or issuance of, or purchase, acquire or propose the purchase or acquisition of,
any shares of the capital stock of NVE or securities convertible into, or
rights, warrants or options (including employee stock options) to acquire, any
such shares or other convertible securities.
(e) Until the earlier of (i) the Effective Time or (ii) the termination
of this Agreement, neither PREMIS, nor any officer, director or employee of (or
any investment banker, attorney, accountant or other representative retained
by) PREMIS shall, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing information) any inquiries or proposals by, or
engage in any discussions or negotiations with, any corporation, partnership,
person or other entity or group which it is reasonably expected may lead to, or
which relates to, any takeover proposal. PREMIS will promptly advise NVE
orally and in writing of the receipt and content of any such inquiries or
proposals. As used in this subsection (e), "takeover proposal" shall mean any
proposal for a merger or any other business combination involving PREMIS for
the acquisition of a substantial equity interest in PREMIS or a substantial
portion of the assets of PREMIS other than the one contemplated by this
Agreement.
(f) PREMIS will not acquire or agree to acquire by merging or
consolidating with or into, purchasing substantially all of the assets or stock
of, or otherwise, (i) any assets material to PREMIS taken as a whole, (ii) any
assets outside of the ordinary course of business or (iii) any business or any
corporation, partnership, association or other business organization or
division thereof.
(g) PREMIS will not adopt or amend in any material respect any
collective bargaining, employee pension, profit-sharing, retirement, insurance,
incentive compensation, severance, vacation or other plan, agreement, trust,
fund or arrangement for the benefit of any director, officer or employee
(whether or not legally binding).
(j) PREMIS will not, (i) incur, assume or prepay any long-term debt or,
except in the ordinary course of business under existing lines of credit, incur
or assume any short-term debt, (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingency or otherwise) for
the obligations of any other person except in the ordinary course of business
and consistent with past practices or (iii) make any loans, advances or capital
contributions to, or investments in, any other person.
(k) PREMIS will not take, agree to take, or knowingly permit to be
taken any action or do or knowingly permit to be done anything in the conduct
of the business of PREMIS or otherwise, which would be contrary to or in breach
of any of the terms or provisions of this Agreement, or which would cause any
of the representations and warranties of PREMIS contained herein to be or
become untrue in any material respect.
ARTICLE VIII ADDITIONAL AGREEMENTS
8.01 Access to Properties and Records. Between the date of this
Agreement and the Effective Time, each party will provide the other and its
accountants, counsel, advisers and other authorized representatives full
access, during reasonable business hours and under reasonable circumstances, to
any and all premises, properties, contracts, commitments, books, records and
other information (including Tax Returns filed and those in preparation) of
such party and will cause their officers to furnish to the other party and its
authorized representatives any and all financial, technical and operating data
and other information pertaining to the business of such party, as the other
party shall from time to time request.
8.02 Consents. PREMIS and NVE each will use its best efforts to
obtain consents of all third parties and governmental authorities necessary to
the consummation of the transactions contemplated by this Agreement.
8.03 Best Efforts; etc. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its best efforts to
take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including obtaining any consents, authorizations, exemptions and approvals
from, and making all filings with, any governmental, regulatory or public body
or authority which are necessary or, in the judgment of PREMIS or NVE,
desirable in connection with the transactions contemplated by this Agreement.
PREMIS and NVE shall each have the right to review and approve in advance all
characterizations of the information relating to PREMIS or NVE, as the case may
be, which appear in any filings made in connection with the transactions
contemplated by this Agreement with any governmental body.
8.04 Material Events. At all times prior to the Effective Time,
each party shall promptly notify the others in writing of the occurrence of any
event which will or may result in the failure to satisfy any of the conditions
specified in Article IX hereof.
8.05 Public Announcements. None of the parties hereto shall,
nor shall any party permit any of its directors, officers, employees or agents
to, issue any press release or other information to the press or any third
parties with respect to this Agreement or the transactions contemplated hereby
without the prior written consent of the other parties hereto.
8.06 Indemnification.
(a) NVE, as one party, and PREMIS, as another party, each (as both
"Indemnitee" and Indemnitor") do hereby agree to, and shall immediately upon
demand, defend, indemnify and hold harmless the Indemnitee from, against and
in respect of:
(i) Any liabilities, penalties, interest, costs, expenses or other
damages or deficiencies incurred as a result of any misrepresentation, breach
of warranty or non-fulfillment of any agreement or covenant by Indemnitor under
this Agreement or from any misrepresentation in or omission from any
certificate, schedule or other instrument furnished or to be furnished by the
Indemnitor; and
(ii) All actions, suits, proceedings, demands, assessments, judgments,
costs and expenses (including, without limitation, reasonable attorneys' fees)
incident to any of the foregoing.
(b) Any claims for indemnification under this Agreement shall be
effected pursuant to an adjustment in the number of shares of PREMIS common
stock issued to the pre-Merger shareholders of NVE or the pre-Merger
shareholders of PREMIS, as the case may be, in accordance with the following:
(i) No claims for indemnification shall be brought by one party against
the other pursuant to this Section 8.06 unless and until, and only to the
extent that, the aggregate amount of such claims exceeds $50,000. In addition,
no claims for indemnification under this Section 8.06 may be brought by one
party against the other after the first anniversary of the Effective Time
unless either (i) written notice of such claim is provided by one party to the
other on or prior to the first anniversary of the Effective Time or (ii) such
claim involves fraud or a knowing and intentional breach or non-performance of
this Agreement.
(ii) For purposes of arriving at the number of shares of PREMIS common
stock to be issued to the NVE shareholders pursuant to this Merger, the parties
agreed that the relative value of NVE was $25,000,000 and the relative value of
PREMIS was $1,450,000.
(iii) If and to the extent NVE has a claim or claims (the "Claims")
against PREMIS under Section 8.06(a) above which have been reduced to a
non-appealable judgment or which PREMIS does not intend to appeal, the relative
value of PREMIS under Section 8.06(b)(ii) above shall be reduced by the
aggregate amount of such Claims in excess of $50,000. The reduced relative
value of PREMIS shall then be compared to the relative value of NVE, and an
additional number of shares of PREMIS common stock shall be issued to the
pre-Merger shareholders of NVE pursuant to Section 2.01(c) above, retroactive
to the Effective Time, so that the percentage of PREMIS shares owned by them
immediately following the Effective Time will be equal to a fraction, the
numerator of which is the relative value of NVE and the denominator of which is
the combined relative values of NVE and PREMIS (in each case, relative values
shall be reduced to account for Claims in excess of $50,000).
(iv)If and to the extent PREMIS has a claim or claims(the "Claims")against
NVE under Section 8.06(a) above which have been reduced to a non-appealable
judgment or which NVE does not intend to appeal, the relative value of NVE
under Section 8.06(b)(2) above shall be reduced by the aggregate amount of such
Claims in excess of $50,000. The reduced relative value of NVE shall then be
compared to the relative value of PREMIS and an additional number of shares of
PREMIS common stock shall be issued to the pre-Merger shareholders of PREMIS
pursuant to Section 2.01(e) above, retroactive to the Effective Time, so that
the percentage of PREMIS shares owned by them immediately following the
Effective Time will be equal to a fraction, the numerator of which is the
relative value of PREMIS and the denominator of which is the combined relative
values of NVE and PREMIS (in each case, relative values shall be reduced to
account for Claims in excess of $50,000).
(v) To illustrate the foregoing, if PREMIS has a claim against NVE under
Section8.06(b)(iv) in the amount of $2,000,000 then the relative values of NVE
and PREMIS (retro active to the Effective Time) shall be $23,000,000 and
$1,450,000, respectively; the percentage contribution of PREMIS shall be 1.45
divided by 24.45 (or 5.93%), rather than 1.45 divided by 26.45 (or 5.48%), and
an additional number of shares of the Surviving Corporations shall be issued
to pre-Merger PREMIS shareholders such that the ownership of the Surviving
Corporation (retro-active as of the Effective Time) would equal the greater
percentage.
(c) Each party shall promptly, and in all events within ninety (90) days
of obtaining actual knowledge thereof (the "Notifying Party"), notify the party
obligated to provide indemnification under this Section 8.06 (the "Indemnifying
Party") of the existence of any claim, demand or other matter requiring a
defense to which the Indemnifying Party's obligations under this Section 8.06
would apply. The Notifying Party shall give the Indemnifying Party a
reasonable opportunity to defend the claim, demand or matter at the
Indemnifying Party's own expense and with counsel selected by the Indemnifying
Party and satisfactory to the Notifying Party; provided that the Notifying
Party shall at all times also have the right to fully participate in the
defense at its own expense. Any such claim, demand or other matter shall not
be settled or compromised without the consent of the Notifying Party; provided,
however, if the Notifying Party does not consent to such settlement or
compromise, such claim, demand or other matter shall not be settled or
compromised, but the Indemnifying Party's obligation to indemnify with respect
thereto shall be limited to the amount for which such claim, demand or other
matter could have been settled or compromised, together with the cost of
defense through the date such matter could have been settled or compromised.
If the Indemnifying party shall, within a reasonable time after receipt of
notice, fail to defend, the Notifying Party shall have the right, but not the
obligation, to undertake the defense, and to compromise or settle, exercising
reasonable business judgment, the claim, demand or other matter on behalf, for
the account and at the risk of the Indemnifying Party. If the claim is one
that cannot by its nature be defended solely by the Indemnifying Party
(including, without limitation, any federal or state tax proceeding), the
Notifying Party shall make available, or cause to be made available, all
information and assistance that the Indemnifying Party may reasonably request.
ARTICLE IX. CONDITIONS TO CONSUMMATION OF THE MERGER
9.01 Conditions to each Party's Obligation to Effect the Merger.
The respective obligations of each party to effect the Merger are subject to
the satisfaction at or prior to the Effective Time of each of the following
conditions:
(a) This Agreement shall have been approved and adopted by the
affirmative vote of the stockholders of NVE and PREMIS in accordance with
applicable law.
(b) No statute, rule, regulation, executive order, decree, order or
injunction shall have been enacted, entered, promulgated or enforced by any
court or governmental authority which prohibits or materially and adversely
restricts the consummation of the Merger.
9.02 Conditions to the Obligation of NVE to Effect the Merger.
The obligation of NVE to effect the Merger is further subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) The representations and warranties of PREMIS contained in this
Agreement shall be true and correct in all material respects at and as of the
Effective Time as if made at and as of such time, except as affected by the
transactions contemplated hereby.
(b) PREMIS shall have performed in all material respects the obligations
under this Agreement required to be performed by it at or prior to the
Effective Time pursuant to the terms hereof.
9.03 Conditions to Obligations of PREMIS to Effect the Merger.
The obligation of PREMIS to effect the Merger is further Subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) The representations and warranties of NVE contained in this
Agreement shall be true and correct in all material respects at and as of the
Effective Time as if made at and as of such time, except as affected by the
transactions contemplated hereby.
(b) NVE shall have performed in all material respects each of the
obligations under this Agreement required to be performed by it at or prior to
the Effective Time pursuant to the terms hereof.
ARTICLE X. CLOSING
10.01 Time and Place. Subject to the provisions of Articles IX
and XI hereof, the closing (herein sometimes referred to as the "Closing") of
the Merger contemplated hereby shall take place at the offices of Moss &
Barnett, A Professional Association, 4800 Wells Fargo Center, 90 South Seventh
Street, Minneapolis, Minnesota 55402-4129 at 10:00 A.M., local time, on
November 21, 2000 (the "Closing Date") or such other place, at such other time,
or on such other date as the parties may mutually agree upon for the Closing to
take place.
10.02 Deliveries at the Closing. At the Closing:
(a) There shall be delivered to PREMIS the certificates and other
documents and instruments, if any, provided to be delivered under Article IX
hereof.
(b) PREMIS and NVE shall cause the Articles of Merger to be filed in
accordance with the provisions of the Business Corporation Act and shall take
any and all other lawful actions and do any and all other lawful things
necessary to effect the Merger and to enable the Merger to become effective.
ARTICLE XI. TERMINATION AND ABANDONMENT
11.01 Termination. Notwithstanding approval and adoption of
this Agreement by the stockholders of NVE, this Agreement may be terminated,
and the Merger abandoned, at any time prior to the Effective Time of the
Merger:
(a) by the mutual consent of the parties hereto; or
(b) by either PREMIS or NVE if, without fault of such terminating party,
the Merger shall not have been consummated on or before December 31, 2000; or
(c) by either PREMIS or NVE, if any court of competent jurisdiction or
other governmental body in the United States shall have issued an order,
judgment or decree (other than a temporary restraining order) restraining,
enjoining or otherwise prohibiting the Merger and such order, judgment or
decree shall have become final and nonappealable.
11.02 Effect of Termination. In the event of the termination of
this Agreement and the Merger pursuant to Section 11.01, this Agreement shall
become void and there shall be no liability hereunder on the part of PREMIS or
NVE except as provided in Sections VI(e), VII (e) and 12.01 hereof, which
Sections shall survive any such termination and continue in effect thereafter.
ARTICLE XII. MISCELLANEOUS
12.01 Expenses. All costs and expenses incurred in connection
with this Agreement, and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses.
12.02 Survival of Representations and Warranties. The
representations and warranties set forth in this Agreement shall survive the
Effective Time and any investigation at any time made by or on behalf of any
party for a period of 1 year following the Effective Time.
12.03 Headings. The descriptive headings of the several
Articles and Sections of this Agreement are inserted for convenience only and
do not constitute a part of this Agreement.
12.04 Notices. Any notices or other communications required or
permitted hereunder shall be sufficiently given if sent by certified or
registered mail, postage prepaid, cable, telecopy, telegram, telex or delivered
by hand addressed as follows:
(a) If to PREMIS, to:
F. T. Biermeier
PREMIS Corporation.
c/o Moss & Barnett, A Professional Association
4800 Wells Fargo Center
90 South Seventh Street
Copy to:
Moss & Barnett, A Professional Association
4800 Wells Fargo Center
90 South Seventh Street
Minneapolis, Minnesota 55402-4129
Attn: Janna Severance
(b) If to NVE, to:
James M. Daughton
Nonvolatile Electronics, Inc.
11409 Valley View Rd
Eden Prairie, MN 55344-3617
Copy to:
Gray Plant Mooty Mooty & Bennett, PA
3400 City Center
33 South 6th Street
Minneapolis, MN 55402-3796
Attn:Daniel Tenenbaum
or such other address as shall be furnished in writing by either party, and any
such notice of communication shall be deemed to have been given as of the date
so mailed, except a notice of change of address which shall be effective only
upon receipt.
12.05 Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective heirs, personal representatives, successors and permitted
assigns, but neither this Agreement nor any of the rights, interests, or
obligations hereunder, shall be assigned by any of the parties hereto without
the prior written consent of the other parties.
12.06 Complete Agreement. This Agreement, including the
schedules, exhibits and other writings referred to herein or delivered pursuant
hereto, together contain the entire understanding of the parties with respect
to the Merger and the related transactions and supersede all prior arrangements
or understandings with respect thereto.
12.07 Modifications, Amendments and Waivers. At any time prior
to the Effective Time of the Merger (notwithstanding any stockholder approval),
if authorized by PREMIS and NVE and to the extent permitted by law, (i) the
parties hereto may, by written agreement, modify, amend or supplement any term
or provision of this Agreement and (ii) any term or provision of this Agreement
may be waived by the party which is entitled to the benefits thereof, provided
that after such stockholder approval, no amendment shall be made which
decreases the consideration to be paid in the Merger without stockholder
approval. Any written instrument or agreement referred to in this Section
shall be validly and sufficiently authorized for the purposes of this Agreement
if signed on behalf of PREMIS and NVE by a person authorized to sign this
Agreement.
12.08 Counterparts. This Agreement may be executed in two or
more counterparts all of which shall be considered one and the same agreement
and each of which shall be deemed an original.
12.09 Governing Law. This Agreement shall be governed by the
laws of the State of Minnesota (regardless of the laws that might be applicable
under principles of conflicts of law) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies.
12.10 Accounting Terms. All accounting terms used herein which
are not expressly defined in this Agreement shall have the respective meanings
given to them in accordance with generally accepted accounting principles.
12.11 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
12.12 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
PREMIS Corporation
By /s/F. T. Biermier
Its President
NONVOLATILE ELECTRONICS, INCORPORATED, (NVE).
By /s/James Daughton
Its President
SCHEDULES ARE AVAILABLE UPON REQUEST
APPENDIX B
PROPOSED
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
NVE CORPORATION
(formerly known as Premis Corporation, Inc.)
ARTICLE I
Name
The name of the Corporation is NVE Corporation.
ARTICLE II
Registered Office
The registered office of the Corporation is 11409 Valley View Road,
Eden Prairie, Minnesota, 55344.
ARTICLE III
Authorized Capital
The aggregate number of shares of capital stock that the Corporation shall be
authorized to issue is 50,000,000 shares, 30,000,000 of which shall be Common
Stock, $.01 par value per share (the "Common Stock"), and 20,000,000 shares of
which shall be undesignated shares of capital stock, $.01 par value per share
(the "Undesignated Shares"). The Board of Directors is authorized to establish
from the Undesignated Shares, by resolution adopted and filed in the manner
provided by law, one or more classes or series of shares, to set forth the
designation of each such class or series and to fix the relative rights and
preferences of each such class or series to the full extent permitted by law.
In addition, and without limitation of the foregoing, the Board of Directors is
authorized to designate additional shares of any designated class or series of
capital stock (including Common Stock and any class of junior or preferred
stock) from the Undesignated Shares to the full extent permitted by law. The
Board shall be authorized to issue shares of Common Stock to holders of Common
Stock and to holders of any class or series of Undesignated Shares and to issue
shares of any class or series of Undesignated Shares to holders of Common Stock
and to holders of any class or series of Undesignated Shares, in any case, for
any purpose to the full extent permitted by law.
ARTICLE IV
Cumulative Voting Prohibition
No shareholder of the Corporation shall have any cumulative voting
rights.
ARTICLE V
Preemptive Rights Prohibition
No shareholder of the Corporation shall have any preemptive rights to
subscribe for, purchase or acquire any shares of the Corporation of any class,
whether unissued or now or hereafter authorized, or any obligations or other
securities convertible into or exchangeable for any such shares.
ARTICLE VI
Voting Requirements
The affirmative vote of the holders of a majority of the voting power
of the shares represented and voting at a duly held meeting of the shareholders
of the Corporation is required for an action of the shareholders, except where
Chapter 302A of the Minnesota Statutes requires the affirmative vote of a
majority of the voting power of all voting shares.
ARTICLE VII
Number of Directors
The number of directors of the Corporation shall be fixed in the manner
provided in the bylaws.
ARTICLE VIII
Director Action by Written Consent
Any action required or permitted to be taken at a meeting of the board
of directors of the Corporation not needing approval by the shareholders under
Chapter 302A of the Minnesota Statutes may be taken by written action signed by
the number of directors that would be required to take such action at a meeting
of the board of directors at which all directors were present.
ARTICLE IX
Limitation of Director Liability
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for any breach of
fiduciary duty as a director; provided, however, that this provision shall not
eliminate or limit the liability of a director:
a. for any breach of the director's duty of loyalty to the Corporation
or its shareholders;
b. for actions or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law;
c. under Section 302A.559 or 80A.23 of the Minnesota Statutes;
d. for any transaction from which the director derived an improper
personal benefit; or
e. for any act or omission occurring prior to the date when this
amendment to the Articles of Incorporation became effective.
If Chapter 302A of the Minnesota Statutes, the Minnesota Business
Corporation Act, is hereafter amended to authorize the further elimination or
limitation of the liability of directors, then the liability of a director of
the Corporation in addition to the limitation on the personal liability
provided herein, shall be limited to the fullest extent permitted by the
amended Chapter 302A of the Minnesota Statutes. Any repeal or modification of
this Article by the shareholders of the Corporation shall be prospective only,
and shall not adversely affect any limitation on the personal liability of a
director of the Corporation at the time of such repeal or modification.
APPENDIX C
Dissenters' Rights Provisions
of the
Minnesota Business Corporation Act
302A.471 RIGHTS OF DISSENTING SHAREHOLDERS.
SUBDIVISION 1. ACTIONS CREATING RIGHTS. A shareholder of a corporation may
dissent from, and obtain payment for the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects
the rights or preferences of the shares of the dissenting shareholder in that
it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking fund for
the redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the
shares to acquire shares, securities other than shares, or rights to purchase
shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a matter,
or to cumulate votes, except as the right may be excluded or limited through
the authorization or issuance of securities of an existing or new class or
series with similar or different voting rights; except that an amendment to the
articles of an issuing public corporation that provides that section 302A.671
does not apply to a control share acquisition does not give rise to the right
to obtain payment under this section;
(b) A sale, lease, transfer, or other disposition of all or
substantially all of the property and assets of the corporation, but not
including a transaction permitted without shareholder approval in section
302A.661, subdivision 1, or a disposition in dissolution described in section
302A.725, subdivision 2, or a disposition pursuant to an order of a court, or a
disposition for cash on terms requiring that all or substantially all of the
net proceeds of disposition be distributed to the shareholders in accordance
with their respective interests within one year after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B,
to which the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter
322B, to which the corporation is a party as the corporation whose shares will
be acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote with
respect to which the articles, the bylaws, or a resolution approved by the
board directs that dissenting shareholders may obtain payment for their shares.
SUBDIVISION 2. BENEFICIAL OWNERS.
(a) A shareholder shall not assert dissenters' rights as to less than all of
the shares registered in the name of the shareholder, unless the shareholder
dissents with respect to all the shares that are beneficially owned by another
person but registered in the name of the shareholder and discloses the name and
address of each beneficial owner on whose behalf the shareholder dissents. In
that event, the rights of the dissenter shall be determined as if the shares as
to which the shareholder has dissented and the other shares were registered in
the names of different shareholders.
(b) A beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of this
section and section 302A.473, if the beneficial owner submits to the
corporation at the time of or before the assertion of the rights a written
consent of the shareholder.
SUBDIVISION 3. RIGHTS NOT TO APPLY.
(a) Unless the articles, the bylaws, or a resolution approved by the board
otherwise provide, the right to obtain payment under this section does not apply
to a shareholder of the surviving corporation in a merger, if the shares, of the
shareholder are not entitled, to be voted on the merger.
(b) If a date is fixed according to section 302A.445, subdivision 1, for
the determination of shareholders entitled to receive notice of and to vote on
an action described in subdivision 1, only shareholders as of the date fixed,
and beneficial owners as of the date fixed who hold through shareholders, as
provided in subdivision 2, may exercise dissenters' rights.
SUBDIVISION 4. OTHER RIGHTS. The shareholders of a corporation who have a
right under this section to obtain payment for their shares do not have a right
at law or in equity to have a corporate action described in subdivision 1 set
aside or rescinded, except when the corporate action is fraudulent with regard
to the complaining shareholder or the corporation.
302A.473 PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS.
SUBDIVISION 1. DEFINITIONS.
(a) For purposes of this section, the terms defined in this subdivision have
the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action referred to in section 302A.471, subdivision I or
the successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective
date of the corporate action referred to in section 302A.471, subdivision 1, up
to and including the date of payment, calculated at the rate provided in
section 549.09 for interest on verdicts and judgments.
SUBDIVISION 2. NOTICE OF ACTION. If a corporation calls a shareholder meeting
at which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
SUBDIVISION 3. NOTICE OF DISSENT. If the proposed action must be approved by
the shareholders, a shareholder who is entitled to dissent under section
302A.471 and who wishes to exercise dissenters' rights must file with the
corporation before the vote on the proposed action a written notice of intent
to demand the fair value of the shares owned by the shareholder and must not
vote the shares in favor of the proposed action.
SUBDIVISION 4. NOTICE OF PROCEDURE; DEPOSIT OF SHARES.
(a) After the proposed action has been approved by the board and, if neces-
sary, the shareholders, the corporation shall send to all shareholders who have
complied with subdivision 3 and to all shareholders entitled to dissent if no
shareholder vote was required, a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or
the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief description
of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all other
rights of a shareholder until the proposed action takes effect.
SUBDIVISION 5. PAYMENT; RETURN OF SHARES.
(a) After the corporate action takes effect, or after the corporation
receives a valid demand for payment, whichever is later, the corporation shall
remit to each dissenting shareholder who has complied with subdivisions 3 and 4
the amount the corporation estimates to be the fair value of the shares, plus
interest, accompanied by:
(1) the corporation's closing balance sheet and statement of income for
a fiscal year ending not more than 16 months before the effective date of the
corporate action, together with the latest available interim financial
statements;
(2) an estimate by the corporation of the fair value of the shares and a
brief description of the method used to reach the estimate; and
(3) a copy of section 302A.471 and this section, and a brief description
of the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph
(a) from a person who was not a shareholder on the date the action dissented
from was first announced to the public or who is dissenting on behalf of a
person who was not a beneficial owner on that date. If the dissenter has
complied with subdivisions 3 and 4, the corporation shall forward to the
dissenter the materials described in paragraph (a), a statement of the reason
for withholding the remittance, and an offer to pay to the dissenter the amount
listed in the materials if the dissenter agrees to accept that amount in full
satisfaction. The dissenter may decline the offer and demand payment under
subdivision 6. Failure to do so entities the dissenter only to the amount
offered. If the dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the
deposit of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and cancel
all transfer restrictions. However, the corporation may again give notice
under subdivision 4 and require deposit or restrict transfer at a later time.
SUBDIVISION 6. SUPPLEMENTAL PAYMENT; DEMAND. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to
the amount remitted by the corporation.
SUBDIVISION 7. PETITION; DETERMINATION. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand,
either pay to the dissenter the amount demanded or agreed to by the dissenter
after discussion with the corporation or file in court a petition requesting
that the court determine the fair value of the shares, plus interest. The
petition shall be filed in the county in which the registered office of the
corporation is located, except that a surviving foreign corporation that
receives a demand relating to the shares of a constituent domestic corporation
shall file the petition in the county in this state in which the last
registered office of the constituent corporation was located. The petition
shall name as parties all dissenters who have demanded payment under
subdivision 6 and who have not reached agreement with the corporation. The
corporation shall, after filing the petition, serve all parties with a summons
and copy of the petition under the rules of civil procedure. Nonresidents of
this state may be served by registered or certified mail or by publication as
provided by law. Except as otherwise provided, the rules of civil procedure
apply to this proceeding. The jurisdiction of the court is plenary and
exclusive. The court may appoint appraisers, with powers and authorities the
court deems proper, to receive evidence on and recommend the amount of the fair
value of the shares. The court shall determine whether the shareholder or
shareholders in question have fully complied with the requirements of this
section, and shall determine the fair value of the shares, taking into account
any and all factors the court finds relevant, computed by any method or
combination of methods that the court, in its discretion, sees fit to use,
whether or not used by the corporation or by a dissenter. The fair value of the
shares as determined by the court is binding on all shareholders, wherever
located. A dissenter is entitled to judgment in cash for the amount by which
the fair value of the shares as determined by the court, plus interest, exceeds
the amount, if any, remitted under subdivision 5, but shall not be liable to the
corporation for the amount, if any, by which the amount, if any, remitted to
the dissenter under subdivision 5 exceeds the fair value of the shares as
determined by the court, plus interest.
SUBDIVISION 8. COSTS; FEES; EXPENSES.
(a) The court shall determine the costs and expenses of a proceeding under
subdivision 7, including the reasonable expenses and compensation of any
appraisers appointed by the court, and shall assess those costs and expenses
against the corporation, except that the court may assess part or all of those
costs and expenses against a dissenter whose action in demanding payment under
subdivision 6 is found to be arbitrary, vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously,
or not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if
any.
APPENDIX D
Financial Statements
Nonvolatile Electronics, Inc.
(A Development Stage Company)
Years ended December 31, 1999 and 1998
Nonvolatile Electronics, Inc.
(A Development Stage Company)
Financial Statements
Years ended December 31, 1999 and 1998
Contents
Report of Independent Auditors 1
Audited Financial Statements
Balance Sheets 2
Statements of Operations 4
Statement of Shareholders' Equity 5
Statements of Cash Flows 11
Notes to Financial Statements 12
Report of Independent Auditors
Board of Directors
Nonvolatile Electronics, Inc.
We have audited the accompanying balance sheets of Nonvolatile Electronics, Inc.
(a development stage company) as of December 31, 1999 and 1998, and the related
statements of operations, shareholders' equity and cash flows for the years
ended December 31, 1999 and 1998, and the period from March 8, 1989 (inception)
to December 31, 1999. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nonvolatile Electronics, Inc.
(a development stage company) at December 31, 1999 and 1998, and the results of
its operations and its cash flows for the years ended December 31, 1999 and
1998, and the period from March 8, 1989 (inception) to December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
June 16, 2000
Nonvolatile Electronics, Inc.
(A Development Stage Company)
Balance Sheets
December 31
1999 1998
Assets
Current assets:
Cash and cash equivalents $ 563,628 $1,144,749
Grants and contracts receivable 955,314 788,123
Inventories 663,216 494,432
Prepaid expenses and other assets 42,676 25,549
Total current assets 2,224,834 2,452,853
Fixed assets:
Machinery and equipment 1,254,879 986,591
Furniture and fixtures 35,499 26,385
Leasehold improvements 348,887 334,132
Construction in progress 28,763 28,511
1,668,028 1,375,619
Less accumulated depreciation 1,032,945 802,218
635,083 573,401
Sublicense agreement, net of amortization of
$150,000 and $143,750 at December 31, 1999
and 1998, respectively - 6,250
Total assets $2,859,917 $3,032,504
Liabilities and shareholders' equity
Current liabilities:
Note payable - line of credit $ 317,888 $ 350,000
Accounts payable 132,345 163,619
Accrued expenses 205,560 247,564
Billings in excess of costs on research contracts 139,473 44,418
Total current liabilities 795,266 805,601
Employee Stock Purchase Plan - 107,331
Shareholders' equity:
Convertible Preferred Stock, Series A:
Authorized, issued and outstanding shares-1,675,000
Liquidation preference - $2.00 per share 16,750 16,750
Common Stock, par value $.01 per share:
Authorized shares - 12,000,000
Issued and outstanding shares-2,754,328 in 1999
and 2,562,992 in 1998 27,544 25,630
Additional paid-in capital 4,708,924 4,342,426
Deficit accumulated during the development stage (2,688,567) (2,265,234)
Total shareholders' equity 2,064,651 2,119,572
Total liabilities and shareholders' equity $2,859,917 $3,032,504
See accompanying notes.
Nonvolatile Electronics, Inc.
(A Development Stage Company)
Statements of Operations
Period from
March 8, 1989
(Inception) to
Year ended December 31 December 31,
1999 1998 1999
Revenues:
Research and development $5,028,358 $3,880,318 $24,754,040
Product sales 274,515 230,975 679,589
License fees 500,000 1,900,000 3,945,000
5,802,873 6,011,293 29,378,629
Expenses:
Research and development 5,046,571 4,106,116 25,909,765
Cost of sales 194,045 620,766 1,240,311
Selling, general and administrative 961,024 878,109 5,131,724
Total expenses 6,201,640 5,604,991 32,281,800
(Loss) income from operations (398,767) 406,302 (2,903,171)
Other income (expense):
Interest income 20,160 4,982 180,528
Interest expense (44,726) (33,744) (268,983)
Option to purchase technology - - 250,000
Other - - (2,429)
(Loss) income before extraordinary item (423,333) 377,540 (2,744,055)
Extraordinary gain on forgiveness of debt - - 55,488
Net (loss) income for the period and
deficit accumulated during the
development stage $ (423,333) $ 377,540 $ (2,688,567)
See accompanying notes.
Nonvolatile Electronics, Inc.
(A Development Stage Company)
Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Developmt Subcrip-
Trans- Convertible Subscrbd Additionl Stage tion
action Preferred Common Stock But Not Paid-In Accum Receiv-
Date Shares Amount Shares Amount Issued Capital Deficit able Total
_____ _________________________________________ _________________ ______________ ________ __________ __________ _________ __________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mar- Sale Common Stk to founder @ $.17/share $ 200,000 $2,000 $ $ 31,823 $ 33,823
Dec Net loss for year ended December 31, 1989 (27,776) (27,776)
1989 ____________________________________________________________________________________
Balance at December 31, 1989 200,000 2,000 31,823 (27,77 6,047
Oct Issue Common Stk $.11/share for services 45,200 452 4,520 4,972
1990 Sale Preferred Stk, less costs of $86,243 1,175,000 11,750 2,252,007 2,263,757
Issue Common Stk $.125/share for services 9,000 90 1,035 1,125
Net loss for year ended December 31, 1990 (316,436) (316,436)
____________________________________________________________________________________
Balance at December 31, 1990 1,175,000 11,750 254,200 2,542 2,289,385 (344,212) 1,959,465
Jan- Issue Common Stk $.125/share for services 1,000 10 115 125
Dec Issue Common Stock for options exercised 104,000 1,040 11,960 13,000
1991
Net loss for year ended December 31, 1991 (1,860,088) (1,860,088)
____________________________________________________________________________________
Balance at December 31, 1991 1,175,000 11,750 359,200 3,592 2,301,460 (2,204,300) 112,502
Mar Issue Common Stk for options @ $.125/share 1,200 12 138 150
Apr Issuance of warrants for cash 150 150
Feb- Common Stk subscriptns sold to employees &
Dec existing sharehldrs $.50/share, not issued 210,865 (23,122) 187,743
1992
Net loss for year ended December 31, 1992 (56,812) (56,812)
___________________________________________________________________________________
Balance at December 31, 1992 1,175,000 11,750 360,400 3,604 210,865 2,301,748 (2,261,112) (23,122) 243,733
Mar Issue of warrants for cash 125 125
Jul Issue Common Stk for options @ $.125/share 5,500 55 633 688
Jan- Common Stk subscriptns sold to employees &
Dec existing sharehldrs $.60/share, not issued 305,788 (32,472) 273,316
Dec Issue Common Stk under stk purchase plan 422,012 4,220(211,006) 206,786 23,263 23,263
1993
Net loss for year ended December 31, 1993 (265,877) (265,877)
___________________________________________________________________________________
Balance at December 31, 1993 1,175,000 11,750 787,912 7,879 305,647 2,509,292 (2,526,989) (32,331) 275,248
Feb Issue Common Stk for options @ $.125/share 3,950 40 454 494
Jan- Common Stk subscriptns sold to employees &
Dec existing sharehldrs $.75/share, not issued 168,347 (19,053) 149,294
Nov Warrants issued for equipmt leasing rights 1,272 1,272
Dec Issue Common Stock under stk purchase plan 509,404 5,094(305,642) 300,548 32,326 32,326
1994
Net loss for year ended December 31, 1994 (270,876) (270,876)
___________________________________________________________________________________
Balance at December 31, 1994 1,175,000 11,750 1,301,266 13,013 168,352 2,811,566 (2,797,865) (19,058) 187,758
Mar Sale Series A Convertible Preferred Stock 500,00 5,000 995,000 1,000,000
Mar Issuance of warrants for leasing rights 4,926 4,926
Jun Issue Common Stk for options @$.125/share 6,500 65 748 813
Dec Convert Note & accrued int. to Common Stk 452,020 4,520 221,490 226,010
Jan- Common Stk subscriptns sold to employees &
Dec existing sharehldrs $1.00/share, not issued 51,239 (6,644) 44,595
Dec Issue Common Stk under stock purchase plan 224,462 2,245(168,347) 166,102 19,058 19,058
1995
Net income for year ended December 31, 1995 144,805 144,805
___________________________________________________________________________________
Balance at December 31, 1995 1,675,000 16,750 1,984,248 19,843 51,244 4,199,832 (2,653,060) (6,644) 1,627,965
Jan- Issue of warrants for leasing rights 9,730 9,730
Dec Issue Common Stk for options @ $.125/share 107,800 1,078 12,397 13,475
Dec Issue Common Stk under stock purchase plan 51,239 512(51,244) 50,732 6,644 6,644
1996
Net income for year ended December 31, 1996 197,509 197,509
___________________________________________________________________________________
Balance at December 31, 1996 1,675,000 16,750 2,143,287 21,433 4,272,691 (2,455,551) 1,855,323
Jan- Issue Common Stock for options exercised 72,225 722 8,306 9,028
Dec Issue of warrants for leasing rights 6,450 6,450
1997 Issue of Common Stk for warrants exercised 299,500 2,995 45,255 48,250
Net loss for year ended December 31, 1997 (187,223) (187,223)
___________________________________________________________________________________
Balance at December 31, 1997 1,675,000 16,750 2,515,012 25,150 4,332,702 (2,642,774) 1,731,828
Jan- Issue of Common Stk for options exercised 47,980 480 9,724 10,204
Dec
1998
Net income for year ended December 31, 1998 377,540 377,540
___________________________________________________________________________________
Balance at December 31, 1998 1,675,000 16,750 2,562,992 25,630 4,342,426 (2,265,234) 2,119,572
Jan- Issue Common Stock for options exercised 8,500 85 2,640 2,725
Dec Issue Common Stk Employee Stock Purch Plan 182,836 1,829 363,858 365,687
1999
Net income for year ended December 31, 1999 (423,333) (423,333)
___________________________________________________________________________________
Balance at December 31, 1999 1,675,000 $16,750 2,754,328 $27,544 $ $4,708,924 $(2,688,567) $2,064,651
</TABLE>
Nonvolatile Electronics, Inc.
(A Development Stage Company)
Statements of Cash Flows
Period from
March 8, 1989
(Inception) to
Year ended December 31 December 31,
1999 1998 1999
Operating activities
Net (loss) income $ (423,333) $ 377,540 $(2,688,567)
Adjustments to reconcile net (loss)
income to net cash (used in) provided by
operating activities:
Depreciation 230,727 189,666 1,047,892
Amortization 6,250 15,000 150,000
Warrants issued for leasing rights - - 22,378
Disposal of capital assets - - 16,172
Gain on forgiveness of debt - - 55,488
Changes in operating assets & liabilities:
Grants and contracts receivable (167,191) 491,426 (926,155)
Inventories i (168,784) 37,284 (663,216)
Prepaid expenses and other assets (17,127) (19,420) (42,676)
Billings in excess of costs on
research contracts 95,055 (81,074) 110,314
Accounts payable and accrued expenses (73,278) (51,252) 345,426
Net cash (used in) provided by operating
activities (517,681) 959,170 (2,572,944)
Investing activities
Capital expenditures (292,409) (88,163) (1,725,830)
Sublicense agreement - - (150,000)
Proceeds from sale of capital equipment - - 32,906
Net cash used in investing activities (292,409) (88,163) (1,842,924)
Financing activities
Proceeds from note payable - 50,000 738,000
Proceeds from Employee Stock Purchase Plan 258,356 107,331 365,687
Payments for note payable (32,112) - (257,112)
Proceeds from stock issuance - - 3,297,580
Proceeds from warrants issued - 5,028 15,053
Proceeds from the exercise of stock options 2,725 5,176 84,049
Proceeds from Common Stock subscribed
but not issued - - 654,948
Proceeds from subscription receivable - - 81,291
Net cash provided by financing activities 228,969 167,535 4,979,496
(Decrease) increase in cash (581,121) 1,038,542 563,628
Cash at beginning of period 1,144,749 106,207 -
Cash at end of period $ 563,628 $1,144,749 $ 563,628
Supplemental schedule of non-cash transactions
Notes payable and accrued interest
converted into Common Stock $ 365,687 $ - $ 591,697
See accompanying notes.
Nonvolatile Electronics, Inc.
(A Development Stage Company)
Notes to Financial Statements
1. Description of Business
Nonvolatile Electronics, Inc. (a development stage enterprise) (the Company)
began operations on March 8, 1989 and is engaged in the research, design,
manufacture, distribution and sale of nonvolatile integrated circuits, magnetic
sensors, high speed signal isolators and memory systems. The Company is in the
product development and introduction stage for these products and has not
earned significant revenue from its operations.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments with a remaining maturity
of three months or less when purchased to be cash equivalents.
Revenue Recognition
Revenue under research and development agreements and license agreements is
recognized as earned under the terms of the respective agreements. Sales of
product are recorded upon shipment.
Adoption of Recent Staff Accounting Bulletin
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, or SAB 101, "Revenue Recognition in
Financial Statements." SAB 101 requires that license and other up-front fees
received from research collaborators be recognized over the term of the
agreement unless the fee is in exchange for products delivered or services
performed that represent the culmination of a separate earnings process. The
Company expects to implement the principles of SAB 101 in 2000 and is currently
evaluating the cumulative effect the resulting accounting change will have on
the financial statements.
Inventories
Inventories are stated at lower of cost, first-in, first-out (FIFO) method, or
market.
Fixed Assets
Fixed assets are stated at cost. Depreciation of machinery and equipment, and
furniture and fixtures is recorded over the estimated useful lives of the
assets, generally five years, using the straight-line method. Amortization of
leasehold improvements is recorded using the straight-line method over the
lesser of the lease term or useful life of five years.
Sublicense Agreement
The sublicense agreement is stated at cost. Amortization is recorded over the
ten-year life of the agreement using the straight-line method.
Stock-Based Compensation
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," but applies Accounting Principles Board Opinion No. 25 (APB 25)
and related interpretations in accounting for its plans. Under APB 25, when the
exercise price of employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Income Taxes
The Company accounts for income taxes using the liability method. Deferred
income taxes are provided for temporary differences between the financial
reporting and tax bases of assets and liabilities.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from the estimates.
Accounting for Long-Lived Assets
The Company records losses on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Advertising Costs
The Company expenses all advertising as incurred. Advertising costs charged to
operations were $11,647 and $14,757 in 1999 and 1998, respectively.
3. Inventories
Inventories consist of the following:
December 31
1999 1998
Finished goods $249,379 $234,909
Raw materials 13,484 46,585
Work-in-progress 448,353 248,938
____________________
711,216 530,432
Less obsolescence reserve (48,000) (36,000)
____________________
$663,216 $494,432
4. Income Taxes
As of December 31, 1999, the Company has net operating loss carryforwards of
approximately $2,492,000 which expire in fiscal years 2006 through 2019 and
$128,000 in research and development credits which can be used to offset
federal income taxes. Credits will expire in fiscal years 2004 through 2006.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows:
December 31
1999 1998
Deferred tax assets:
Net operating loss carryforwards $1,007,000 $ 857,000
Book over tax depreciation 45,000 16,000
Accrued vacation 45,000 38,000
Tax credit carryforward 128,000 134,000
_____________________
1,225,000 1,045,000
Valuation allowance (1,225,000) (1,045,000)
_____________________
$ - $ -
_____________________
5. Notes Payable
The Company has a note payable to a bank with $317,888 outstanding at December
31, 1999. The line of credit accrues interest at a rate equal to 1.5% above the
bank's index rate (8.5% at December 31, 1999) and expires on July 15, 2000.
Substantially all of the Company's assets are pledged as collateral on the line
of credit.
Interest paid was $44,726 in 1999 and $33,744 in 1998.
6. Stock Options and Warrants
The Company has an Employee Incentive Stock Option Plan. The plan provides for
issuance to employees of incentive stock options and non-statutory stock
options. Generally, the options may be exercised at any time prior to
expiration, subject to vesting based on terms of employment. Options granted
are exercisable over a one- to six-year period or a one- to seven-year period
from date of grant at prices not less than fair market value at the date the
options are granted as determined by the Board of Directors.
Weighted Average
Shares Options Exercise Price
Reserved Outstanding Per Share
Balance at December 31, 1997 784,825 334,000 $.35
Granted (155,000) 155,000 .60
Exercised - (39,600) .13
Terminated 18,400 (18,400) .34
___________________
Balance at December 31, 1998 648,225 431,000 .46
Granted (23,500) 23,500 .60
Exercised - (8,500) .32
Terminated 2,500 (2,500) .54
___________________
Balance at December 31, 1999 627,225 443,500 $.47
As of December 31, 1999 and 1998, there were currently exercisable options
outstanding covering 252,742 and 182,192 shares, respectively, at a weighted
average exercise price of $.39 and $.35 per share, respectively. The fair value
of options granted was $.15 for 1999 and 1998. The remaining average
exercisable life is 3.6 years at December 31, 1999.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" (Statement 123),
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and income per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a minimum
value option pricing model with the following weighted average assumptions:
risk-free interest rate of 6.5% and 3.7% for 1999 and 1998, respectively, and a
weighted average expected life of the option of five years.
The minimum value option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
1999 1998
______________________
Pro forma net (loss) income $(434,108) $368,527
During the initial phase-in period, the effects of applying FASB 123 for
recognizing compensation cost may not be representative of the effects on
reported net income for future years because the options in the Incentive Stock
Option Plans vest over several years and additional awards will be made in the
future.
In 1997, 1996, 1995 and 1994, the Company issued five-year warrants in return
for leasing rights. The warrants issued are exercisable immediately to purchase
up to 18,429, 34,321, 1,221 and 10,134 shares, respectively, of the Company's
Common Stock at an exercise price of $2.00 per share. The value assigned to
these warrants of $6,450, $9,730, $4,926 and $1,272 for the years ended
December 31, 1997, 1996, 1995 and 1994, respectively, has been charged to
expense.
In March 1993, the Company sold for $100 and $25, five-year warrants, which are
exercisable immediately, to purchase up to 40,000 and 10,000 shares of the
Company's Common Stock at an exercise price of $.50 and $.60 per share,
respectively. During 1998, 8,380 of these warrants were converted to Common
Stock at a price of $.60 per share. The life of the remaining warrants was
extended to March 2001 and the exercise price was increased to $2.00.
In April 1992, the Company sold for $150, five-year warrants, which are
exercisable immediately, to purchase up to 60,000 shares of the Company's
Common Stock at an exercise price of $.50 per share. In 1997, 19,500 of these
warrants were converted to Common Stock. Effective February 22, 1999, the life
of the remaining warrants was extended to March 2000 and the exercise price was
increased to $2.00.
7. Common Stock
During 1998, the Company started the 1998 stock purchase plan. Under the plan,
employees purchased advancing convertible notes by electing to have a portion
of their after-tax compensation automatically deducted from their payroll
check. The notes ($365,687), including interest accrued at 8%, were converted
into 182,843 shares of Common Stock at $2.00 per share on December 31, 1999.
During 1995, the Company issued a $25,000 convertible note to a venture capital
firm. The note, plus accrued interest at 8%, was converted into 28,621 shares
of Common Stock on December 31, 1996 at $1.00 per share.
During 1995, the Company started the 1995 stock purchase plan. Under the plan,
employees purchased advancing convertible notes by electing to have a portion
of their after-tax compensation automatically deducted from their payroll
check. The notes ($19,595), plus interest accrued at 8%, were converted to
22,618 shares of Common Stock at $1.00 per share on December 31, 1996.
During 1994, the Company started the 1994 stock purchase plan. Under the plan,
employees purchased advancing convertible notes by electing to have a portion
of their after-tax compensation automatically deducted from their payroll
check. The notes ($74,289), plus interest accrued at 8%, were converted into
111,254 shares of Common Stock at $.75 per share on December 31, 1995.
During 1994, the Company issued a $75,000 convertible note to a venture capital
firm. The note, plus accrued interest at 8%, was converted into 113,208 shares
of Common Stock on December 31, 1995 at $.75 per share through the stock
purchase plan.
During 1993, the Company issued a $110,000 convertible note to a venture
capital firm. The note, plus interest accrued at 8%, was converted into 205,398
shares of Common Stock on December 31, 1994 at $.60 per share through the stock
purchase plan.
During 1993, the Company started the 1993 stock purchase plan. Under the plan,
employees purchased advancing convertible notes by electing to have a portion
of their after-tax compensation automatically deducted from their payroll
check. The notes ($163,316), plus interest accrued at 8%, were converted into
304,006 shares of Common Stock at $.60 per share on December 31, 1994.
In 1992, the Company started the 1992 stock purchase plan. Under the plan,
employees purchased advancing convertible notes by electing to have a portion
of their after-tax compensation automatically deducted from their payroll
check. The notes ($135,613), plus interest accrued at 8%, were converted into
303,900 shares of Common Stock at $.50 per share on December 31, 1993.
In February of 1992, the Company issued a $50,000 convertible note to a venture
capital firm. The note, plus interest accrued at 8%, was converted into 113,220
shares of Common Stock on December 31, 1993 at $.50 per share through the stock
purchase plan.
During 1992, the Company issued a $2,130 convertible note to a Board member.
The note, plus interest accrued at 8%, was converted into 4,892 shares of
Common Stock on December 31, 1993 at $.50 per share through the stock purchase
plan.
During 1991, the Company issued a $163,000 convertible note to a venture
capital firm. The note, plus accrued interest at 8%, was converted into 452,020
shares of Common Stock on December 31, 1995 at $.50 per share.
8. Convertible Preferred Stock
In March 1995, the Company entered into an agreement with a commercial entity
("entity") to provide consulting services related to NVE MRAM Technology. In
connection with this agreement, the entity purchased 500,000 shares of the
Company's Series A Convertible Preferred Stock at $2.00 per share.
At December 31, 1999, the Company has one series of Convertible Preferred Stock
outstanding. There are 6,325,000 additional shares of $.01 par value Preferred
Stock authorized but undesignated as to series.
The holders of the Series A Convertible Preferred Stock are entitled to receive
dividends at the same rate as dividends are paid with respect to Common Stock.
Holders of the Series A Convertible Preferred Stock generally have the same
voting rights as holders of Common Stock. However, holders of Series A
Convertible Preferred Stock are entitled to elect two of the directors of the
Company.
Each share of Series A Preferred Stock is convertible into one share of Common
Stock, subject to adjustment for dilution. Series A Preferred Stock shall be
automatically converted into shares of Common Stock concurrently with the first
public offering by the Company in which the aggregate offering price of the
securities sold is at least $10,000,000; the offering is underwritten by an
underwriter who is a member or represented by a member of the New York Stock
Exchange; and the offering price is at least $10 per share of Common Stock.
Series A Preferred Stock may also be converted into shares of Common Stock upon
the affirmative vote or written consent of 66 2/3% of the shares of Series A
Preferred Stock. The Company has reserved 1,675,000 shares of Common Stock for
issuance upon conversion of the Series A Preferred Stock.
9. Sublicense Agreement
The Company's President, upon founding the Company, obtained a Technology
License Agreement with Honeywell Inc. (Agreement). The Agreement, which has
been sublicensed to the Company, allows the use of certain technology in
markets which are not central to the present or presently intended business
markets of Honeywell Inc., the developer of the technology. The Agreement was
amended in May 1994 to extend the expiration date of the original ten-year
agreement by five years to June 1, 2004.
Terms of the Amended Agreement define full royalties at $100,000, which have
been paid to Honeywell by the Company. No further payments are required to be
paid by the Company to Honeywell during the course of the Agreement.
10. Leases
The Company leases its office facility under an operating lease that expires on
December 31, 2003. Operating expenses, including maintenance, utilities, real
estate taxes and insurance, are paid by the Company.
The Company also leases various pieces of equipment under operating leases.
Terms of the leases range from 36 to 60 months through March 2002, with
payments due the first of each month.
Total rent expense for operating leases was $659,464 and $516,852 for the years
ended December 31, 1999 and 1998, respectively.
Future minimum payments, including the Company's estimated share of operating
expenses, under non-cancelable operating leases, consist of the following at
December 31, 1999:
Operating Leases
2000 $ 532,610
2001 383,164
2002 187,666
2003 73,736
___________
Total minimum lease payments $1,177,176
11. Commitments
Minnesota Technology, Inc. (formerly the Greater Minnesota Corporation), a
Minnesota nonprofit economic development organization, provided a grant of
$60,000 to the Company in funds for the research and development of new
products. The Company must repay the grant plus interest at a rate of 8% in the
form of a royalty of not less than $60,000 at the rate of 2 1/2% of sales of
products developed, unless the grant is terminated by the Minnesota Technology,
Inc. or the research is unsuccessful. The grant was accounted for as a
reduction in the cost of the research and development, and any payments made to
Minnesota Technology, Inc. will be charged to operations as royalty expense. No
royalties have been paid under this agreement at December 31, 1999.
12. Employee Benefit Plan
The Company has a 401(k) savings plan. All employees are eligible to
participate in the plan the first quarter subsequent to attaining the age of
21. Employees may contribute up to 15% of their gross wages. During 1998, the
Company did not make matching contributions to the Plan. Effective January 1,
1999, the Company began matching contributions equal to 100% of the first 2% of
elective salary deferral contributions made by eligible participants. The
Company made matching contributions equal to $55,839.
