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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 9, 1997
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SUMMIT DESIGN, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-20923 93-1137888
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification Number)
incorporation)
9305 S.W. GEMINI DRIVE, BEAVERTON, OREGON 97008
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 643-9281
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N/A
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(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On September 9, 1997 (the "Closing Date"), pursuant to an Agreement and
Plan of Reorganization dated as of September 5, 1997 (the "Reorganization
Agreement") among Summit Design, Inc., a Delaware corporation ("Summit"), Star
Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of
Summit ("Merger Sub"), and Simulation Technologies Corp., a Minnesota
corporation ("Simulation Technologies"), Summit acquired Simulation Technologies
by means of a merger (the "Merger") of Simulation Technologies with and into
Merger Sub, with Merger Sub remaining as the surviving corporation in the
Merger. As a result of the Merger, Simulation Technologies became a
wholly-owned subsidiary of Summit. Merger Sub was formed solely for the purpose
of effecting the Merger. Summit is a leading provider of graphical design entry
and verification software tools. Simulation Technologies develops and
distributes EDA software running on Windows NT and UNIX systems.
Pursuant to the Reorganization Agreement, an aggregate of 1,980,000 shares
of Summit Common Stock were issued or reserved for issuance and $4,000,000 in
cash was paid in exchange for (i) all of the issued and outstanding capital
stock of Simulation Technologies and (ii) all unexpired and unexercised options
to acquire capital stock of Simulation Technologies. Each outstanding share of
Simulation Technologies capital stock was converted into the right to receive a
number of shares of Summit Common Stock equal to the Exchange Ratio. The
"Exchange Ratio" equalled 2,424,444 divided by the sum of (i) the total number
of shares of Simulation Technologies capital stock outstanding on the Closing
Date plus (ii) the total number of shares of Simulation Technologies capital
stock subject to unexpired and unexercised options to purchase Simulation
Technologies capital stock outstanding on the Closing Date. In lieu of the
issuance of 444,444 shares of Summit Common Stock, the Simulation Technologies
shareholders received an aggregate cash payment of $4,000,000. All options to
purchase Simulation Technologies capital stock outstanding immediately prior to
the Merger were assumed by Summit. Each such option became exercisable for that
number of whole shares of Summit Common Stock equal to the product of the number
of shares of Simulation Technologies capital stock subject to such option
multiplied by the Exchange Ratio rounded down to the nearest whole number of
shares of Summit Common Stock. The per share exercise price of each assumed
option is equal to the quotient determined by dividing the exercise price per
share of Simulation Technologies capital stock subject to such option
immediately prior to the Merger by the Exchange Ratio, rounded up to the nearest
whole cent. The actual number of shares issued in connection with the
transaction (including shares to be issued upon exercise of assumed options) is
subject to downward adjustment to the extent that claims are made against an
escrow fund created at the time of the transaction.
The consideration paid by Summit for the outstanding capital stock of
Simulation Technologies pursuant to the Reorganization Agreement was determined
pursuant to arms' length negotiations and took into account various factors
concerning the valuation of the business of Simulation Technologies.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF SIMULATION TECHNOLOGIES
The Financial Information required to be filed pursuant to Item 7(a)
of Form 8-K was not available at the time of filing of this Current Report on
Form 8-K and will be filed on a Form 8-K/A as soon as practicable, but in no
event later than 60 days after the date this Form 8-K is required to be filed.
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(b) PRO FORMA FINANCIAL INFORMATION.
The Pro Forma Financial Information required to be filed pursuant to
Item 7(b) of Form 8-K was not available at the time of filing of this Current
Report on Form 8-K and will be filed on a Form 8-K/A as soon as practicable, but
in no event later than 60 days after the date this Form 8-K is required to be
filed.
(c) EXHIBITS
2.1 Agreement and Plan of Reorganization dated as of September
5, 1997.
2.2 Certificate of Merger dated September 9, 1997, filed with
the Secretary of State of Delaware on September 9, 1997.
2.3 Articles of Merger dated September 9, 1997, filed with the
Secretary of State of Minnesota on September 9, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: September 23, 1997 SUMMIT DESIGN, INC.
/s/ C. Albert Koob
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C. Albert Koob
Vice President of Finance
and Chief Financial Officer
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INDEX TO EXHIBITS
Exhibit
Number Description of Document
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2.1 Agreement and Plan of Reorganization dated as of September 5,
1997.
2.2 Certificate of Merger dated September 9, 1997, filed with the
Secretary of State of Delaware on September 9, 1997.
2.3 Articles of Merger dated September 9, 1997, filed with the
Secretary of State of Minnesota on September 9, 1997.
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AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
SUMMIT DESIGN, INC.,
STAR ACQUISITION, INC.,
AND
SIMULATION TECHNOLOGIES CORP.
DATED AS OF SEPTEMBER 5, 1997
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INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
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Exhibit A Form of Company Affiliate Agreement
Exhibit B Declaration of Registration Rights
Exhibit C Form of Shareholder Tax Consent
Exhibit D Form of S Corporation Termination Election
Exhibit E Form of Legal Opinion of Counsel to Parent
Exhibit F Form of Legal Opinion of Counsel to the Company
Exhibit G Form of Employment and Noncompetition Agreement (Davenport)
Exhibit H Form of Employment and Noncompetition Agreement (Loegering)
Exhibit I Form of Employment and Noncompetition Agreement (Carroll)
Exhibit J Form of Employment and Noncompetition Agreement (Campbell)
Exhibit K Shareholder Indemnification Agreement
Exhibit L Escrow Fund Allocation
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INDEX OF SCHEDULES
SCHEDULE DESCRIPTION
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4.1 Conduct of the Business
5.10 Company Affiliate List
6.2(c) Third Party Consents Required of the Company
6.3(c) Third Party Consents Required of Parent
COMPANY DISCLOSURE SCHEDULE IS BOUND SEPARATELY.
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TABLE OF CONTENTS
PAGE
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ARTICLE I - THE MERGER........................................................2
1.1 The Merger...........................................................2
1.2 Effective Time.......................................................2
1.3 Effect of the Merger.................................................2
1.4 Certificate of Incorporation; Bylaws.................................2
1.5 Directors and Officers...............................................3
1.6 Maximum Shares to Be Issued..........................................3
1.7 Effect of Merger on Capital Stock....................................3
1.8 Dissenting Shares....................................................5
1.9 Surrender of Certificates............................................6
1.10 No Further Ownership Rights in Company Common Stock..................8
1.11 Lost, Stolen or Destroyed Certificates...............................8
1.12 Tax and Accounting Consequences......................................8
1.13 Taking of Necessary Action; Further Action...........................8
ARTICLE II - REPRESENTATIONS AND WARRANTIES
OF THE COMPANY....................................................8
2.1 Organization of the Company..........................................9
2.2 Company Capital Structure............................................9
2.3 Subsidiaries.........................................................9
2.4 Authority............................................................9
2.5 Company Financial Statements........................................10
2.6 No Undisclosed Liabilities..........................................10
2.7 No Changes..........................................................11
2.8 Tax and Other Returns and Reports...................................12
2.9 Restrictions on Business Activities.................................14
2.10 Title to Properties; Absence of Liens and Encumbrances..............14
2.11 Intellectual Property...............................................15
2.12 Agreements, Contracts and Commitments...............................18
2.13 Interested Party Transactions.......................................19
2.14 Compliance with Laws................................................20
2.15 Litigation..........................................................20
2.16 Insurance...........................................................20
2.17 Minute Books........................................................20
2.18 Environmental Matters...............................................20
2.19 Brokers' and Finders' Fees; Third Party Expenses....................21
2.20 Employee Matters and Benefit Plans..................................21
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TABLE OF CONTENTS
(CONTINUED)
PAGE
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2.21 Representations Complete............................................25
2.22 Projections, Estimates, Etc.........................................25
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB..................................................25
3.1 Organization, Standing and Power....................................25
3.2 Authority...........................................................25
3.3 Capital Structure...................................................25
3.4 SEC Documents; Parent Financial Statements..........................26
3.5 No Material Adverse Change..........................................26
3.6 Litigation..........................................................26
3.7 Due Diligence Investigation.........................................26
3.8 Certain Tax Matters.................................................27
ARTICLE IV - CONDUCT PRIOR TO THE EFFECTIVE TIME.............................27
4.1 Conduct of Business of the Company..................................27
4.2 S Status............................................................29
4.3 No Solicitation.....................................................29
ARTICLE V - ADDITIONAL AGREEMENTS............................................30
5.1 Shareholder Meeting.................................................30
5.2 Access to Information...............................................30
5.3 Confidentiality.....................................................30
5.4 Expenses............................................................30
5.5 Public Disclosure...................................................31
5.6 Consents............................................................31
5.7 FIRPTA Compliance...................................................31
5.8 Reasonable Efforts..................................................31
5.9 Notification of Certain Matters.....................................31
5.10 Affiliate Agreements................................................31
5.11 Additional Documents and Further Assurances.........................32
5.12 Royalty Prepayment..................................................32
5.13 Cash Payment........................................................32
5.14 Resale Registration Statement.......................................32
5.15 Form S-8............................................................33
5.16 NMS Listing.........................................................33
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TABLE OF CONTENTS
(CONTINUED)
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5.17 Tax Election........................................................33
5.18 Tax-Free Reorganization Matters.....................................33
5.19 Loan Forgiveness....................................................33
5.20 Company Benefit Plans...............................................33
ARTICLE VI - CONDITIONS TO THE MERGER........................................34
6.1 Conditions to Obligations of Each Party to Effect the Merger........34
6.2 Additional Conditions to Obligations of the Company.................34
6.3 Additional Conditions to the Obligations of Parent and Merger Sub...35
ARTICLE VII - SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; ESCROW; INDEMNITY...................................37
7.1 Survival of Representations and Warranties..........................37
7.2 Escrow Arrangements.................................................37
ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER.............................44
8.1 Termination.........................................................44
8.2 Effect of Termination...............................................45
8.3 Amendment...........................................................45
8.4 Extension; Waiver...................................................45
ARTICLE IX - GENERAL PROVISIONS..............................................46
9.1 Notices.............................................................46
9.2 Interpretation......................................................47
9.3 Counterparts........................................................47
9.4 Entire Agreement; Assignment........................................48
9.5 Severability........................................................48
9.6 Other Remedies......................................................48
9.7 Governing Law.......................................................48
9.8 Rules of Construction...............................................48
9.9 Specific Performance................................................48
9.10 Share Legends.......................................................48
9.11 California Corporate Securities Law.................................49
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made and
entered into as of September 5, 1997 among Summit Design, Inc., a Delaware
corporation ("PARENT"), Star Acquisition, Inc., a Delaware corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), and Simulation Technologies
Corp., a Minnesota corporation (the "COMPANY").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger Sub
believe it is in the best interests of each company and their respective
shareholders that Parent acquire the Company through the statutory merger of the
Company with and into Merger Sub (the "MERGER") and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, all of the issued and outstanding shares of
common stock of the Company ("COMPANY COMMON STOCK") and all outstanding options
to acquire shares of Company Common Stock (each, a "COMPANY OPTION") shall be
converted into the right to receive shares of Common Stock of Parent ("PARENT
COMMON STOCK").
C. The shareholders of the Company (the "SHAREHOLDERS") will receive cash
in lieu of a portion of the shares of Parent Common Stock otherwise issuable by
Parent in connection with the Merger (such cash, together with the shares of
Parent Common Stock issuable in connection with the Merger and upon exercise of
Company Options, hereinafter collectively referred to as the "MERGER
CONSIDERATION").
D. A portion of the shares of Parent Common Stock otherwise issuable by
Parent in connection with the Merger and upon certain exercises of Company
Options shall be placed in escrow by Parent, the release of which amount shall
be contingent upon certain events and conditions, including reduction of the
Merger Consideration with respect to Losses (as defined in Section 7.2(b)), all
as set forth in Article VII hereof.
E. Shares of Parent Common Stock issuable upon exercise of Company
Options assumed pursuant to this Agreement and the associated exercise price
shall be subject to adjustment if the Merger Consideration is reduced.
F. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
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ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law (the "DELAWARE
CODE") and the Minnesota Business Corporation Act (the "MINNESOTA ACT"), the
Company shall be merged with and into Merger Sub, the separate corporate
existence of the Company shall cease and Merger Sub shall continue as the
surviving corporation and as a wholly-owned subsidiary of Parent. Merger Sub as
the surviving corporation after the Merger is hereinafter sometimes referred to
as the "SURVIVING CORPORATION."
1.2 EFFECTIVE TIME. Unless this Agreement is earlier terminated pursuant
to Section 8.1, the closing of the Merger (the "CLOSING") will take place as
promptly as practicable, but no later than five (5) business days, following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California,
unless another place or time is agreed to by Parent and the Company. The date
upon which the Closing actually occurs is herein referred to as the "CLOSING
DATE". On the Closing Date, the parties hereto shall cause the Merger to be
consummated by filing an Agreement of Merger (or like instrument) with the
Secretary of State of the States of Delaware and Minnesota (the "AGREEMENT OF
MERGER"), in accordance with the relevant provisions of applicable law. The
date and time the Merger becomes effective in accordance with the provisions of
the Delaware Code and Minnesota Act is the "EFFECTIVE TIME".
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of the Delaware Code and
Minnesota Act. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS. Unless otherwise determined by
Parent prior to the Effective Time, at the Effective Time:
(a) The Certificate of Incorporation of Merger Sub as in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation; provided, however, that Article I
of the Certificate of Incorporation of the Surviving Corporation shall be
amended to read as follows: "The name of the corporation is Summit
Verification, Inc."
(b) The Bylaws of Merger Sub as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation.
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1.5 DIRECTORS AND OFFICERS. The director(s) of Merger Sub immediately
prior to the Effective Time shall be the initial director(s) of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
1.6 MAXIMUM SHARES TO BE ISSUED. The maximum number of shares of Parent
Common Stock to be issued (including Parent Common Stock to be reserved for
issuance upon exercise of any of the Company Options to be assumed by Parent) in
exchange for the acquisition by Parent of all outstanding Company Common Stock
and upon assumption of all unexpired and unexercised Company Options shall be
equal to the Base Number (as defined in Section 1.7(f) below). No adjustment
shall be made in the number of shares of Parent Common Stock issued in the
Merger as a result of any cash proceeds received by the Company from the date
hereof to the Closing Date pursuant to the exercise of options or warrants to
acquire Company Common Stock.
1.7 EFFECT OF MERGER ON CAPITAL STOCK. Subject to the terms and
conditions of this Agreement, as of the Effective Time, by virtue of the Merger
and without any action on the part of Parent, Merger Sub, the Company or the
holder of any shares of the Company Common Stock, the following shall occur:
(a) CONVERSION OF COMPANY COMMON STOCK. Subject to adjustment as
otherwise provided in this Agreement, each share of Common Stock of the Company
issued and outstanding immediately prior to the Effective Time ("COMPANY COMMON
STOCK") (other than any Dissenting Shares (as defined and to the extent provided
in Section 1.8(a)) will be canceled and extinguished and be converted
automatically into the right to receive that number of shares of Parent Common
Stock equal to the Exchange Ratio (as defined in paragraph (f) below), upon
surrender of the certificate representing such share of Company Common Stock in
the manner provided in Section 1.8.
(b) STOCK OPTIONS. At the Effective Time, all Company Options then
outstanding under the Simulation Technologies Corp. 1994 Stock Option Plan (the
"OPTION PLAN"), or otherwise, shall be assumed by Parent in accordance with
provisions described below.
(i) At the Effective Time, each outstanding Company Option
under the Option Plan or otherwise, whether vested or unvested, shall be, in
connection with the Merger, assumed by Parent. Each Company Option so assumed
by Parent under this Agreement shall continue to have, and be subject to, the
same terms and conditions set forth in the Option Plan and/or as provided in the
respective option agreements governing such Company Option immediately prior
to the Effective Time, except that, subject to adjustment as provided in
paragraph (ii) below, (A) such Company Option shall be exercisable for that
number of whole shares of Parent Common Stock equal to the product of the number
of shares of Company Common Stock that were issuable upon exercise of such
Company Option immediately prior to the Effective Time multiplied by the
Exchange Ratio, rounded down to the nearest whole number of shares of Parent
Common
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Stock and (B) the per share exercise price for the shares of Parent Common Stock
issuable upon exercise of such assumed Company Option (the "INITIAL EXERCISE
PRICE") shall be equal to the quotient determined by dividing the exercise price
per share of Company Common Stock at which such Company Option was exercisable
immediately prior to the Effective Time by the Exchange Ratio, rounded up to the
nearest whole cent.
(ii) In the event that the holder of a Company Option
exercises rights to acquire any of the Parent Common Stock, and at or prior to
the time that such right is exercised there has been a payment of Parent Common
Stock out of the Escrow Fund (as defined in Section 7.2(a)) as a result of
Losses (as defined in Section 7.2(a)), then (A) the number of shares of Parent
Common Stock issuable upon exercise of such Company Option shall be reduced to
the number determined by multiplying such number of shares of Parent Common
Stock by the quotient (the "ADJUSTED EXCHANGE RATIO") determined by dividing (1)
1,701,227, less the number of shares of Parent Common Stock theretofore paid to
Parent out of the Escrow Fund by reason of Losses, by (2) 1,701,227 and (B) the
exercise price per share shall be increased to the price (the "ADJUSTED EXERCISE
PRICE") determined by multiplying the Initial Exercise Price by the quotient
determined by dividing (x) the Initial Exercise Price by (y) the Adjusted
Exchange Ratio.
(iii) It is the intention of the parties that the Company
Options assumed by Parent qualify following the Effective Time as incentive
stock options as defined in Section 422 of the Code to the extent the Company
Options qualified as incentive stock options immediately prior to the Effective
Time.
(iv) Promptly following the Effective Time, Parent will
issue to each holder of an outstanding Company Option a document evidencing the
foregoing assumption of such Company Option by Parent.
(c) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock of
Merger Sub issued and outstanding immediately prior to the Effective time shall
be converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall continue
to evidence ownership of such shares of capital stock of the Surviving
Corporation.
(d) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
appropriately adjusted to reflect fully the effect of any stock split, reverse
split, stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Common Stock), reorganization,
recapitalization or other like change with respect to Parent Common Stock or
Company Common Stock occurring after the date hereof and prior to the Effective
Time.
(e) FRACTIONAL SHARES. No fraction of a share of Parent Common Stock
will be issued, but in lieu thereof, each holder of shares of Company Common
Stock who would otherwise be entitled to a fraction of a share of Parent Common
Stock (after aggregating all fractional shares of Parent Common Stock to be
received by such holder) shall be entitled to receive from Parent an amount of
cash (rounded to the nearest whole cent) equal to the product of (i) such
fraction,
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multiplied by (ii) the average closing price of a share of Parent Common Stock
for the five (5) consecutive trading days ending on the trading day immediately
prior to the Closing Date, as reported on the Nasdaq National Market.
(f) DEFINITIONS.
(i) BASE NUMBER. The "Base Number" shall mean 2,424,444 minus
the number of shares of Parent Common Stock that would otherwise be issuable
pursuant to this Agreement in respect of Dissenting Shares (as defined in
Section 1.8).
(ii) EXCHANGE RATIO. The "Exchange Ratio" shall mean the
quotient obtained by dividing (x) Base Number by (y) the sum of (A) the
aggregate number of shares of Company Common Stock outstanding immediately prior
to the Effective Time plus (B) the Outstanding Option Amount.
(iii) ESCROW AMOUNT. The "Shareholder Escrow Amount" shall be
one-tenth (1/10th) of the number of shares of Parent Common Stock obtained by
multiplying (x) the aggregate number of shares of Company Common Stock
outstanding immediately prior to the Effective Time by (y) the Exchange Ratio.
The Escrow Amount shall be increased by the deposit by the holders of Company
Options exercised during the Escrow Period (as defined in Section 7.2(c)) of 10%
of the shares of Parent Common Stock issued upon such exercise (in the
aggregate, the "OPTIONHOLDER ESCROW AMOUNT"). The "Escrow Amount" shall be the
sum of the Shareholder Escrow Amount and the Optionholder Escrow Amount.
(iv) OUTSTANDING OPTION AMOUNT. The "Outstanding Option Amount"
shall mean the aggregate number of shares of Company Common Stock issuable upon
the exercise of all outstanding options and warrants to acquire shares of
Company Common Stock immediately prior to the Effective Time.
1.8 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Company Common Stock held by a holder who has demanded dissenters'
rights with respect to such shares in accordance with Section 302A.473 of the
Minnesota Act and who, as of the Effective Time, has not effectively withdrawn
or lost such dissenters' rights ("DISSENTING SHARES"), shall not be converted
into or represent a right to receive Parent Common Stock pursuant to Section
1.7, but the holder thereof shall only be entitled to such rights as are granted
by the Minnesota Act.
(b) Notwithstanding the provisions of subsection (a), if any holder
of shares of Company Common Stock who demands the fair value of such shares
under the Minnesota Act shall effectively withdraw or lose (through failure to
perfect or otherwise) such holder's dissenter's rights, then, as of the later of
the Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive Parent
Common Stock and
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fractional shares as provided in Section 1.7, without interest thereon, upon
surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written
demands for the fair value of any shares of Company Common Stock, withdrawals of
such demands, and any other instruments served pursuant to the Minnesota Act and
received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to demands for appraisal under the
Minnesota Act. The Company shall not, except with the prior written consent of
Parent, voluntarily make any payment with respect to any demands for the fair
value of capital stock of the Company or offer to settle or settle any such
demands.
1.9 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Parent shall
designate a bank or trust company reasonably acceptable to the Company to act as
exchange agent (the "EXCHANGE AGENT") in the Merger.
(b) PARENT TO PROVIDE COMMON STOCK. Promptly after the Effective
Time, Parent shall make available to the Exchange Agent for exchange in
accordance with this Article I, the aggregate number of shares of Parent Common
Stock issuable pursuant to Section 1.7 in exchange for outstanding shares of
Company Common Stock; provided that, on behalf of the holders of Company Common
Stock, Parent shall deposit into an escrow account a number of shares of Parent
Common Stock equal to the Shareholder Escrow Amount out of the aggregate number
of shares of Parent Common Stock otherwise issuable pursuant to Section 1.7.
The portion of the Shareholder Escrow Amount contributed on behalf of each
holder of Company Common Stock shall be in proportion to the aggregate number of
shares of Parent Common Stock which such holder would otherwise be entitled to
receive under Section 1.7 by virtue of ownership of outstanding shares of
Company Common Stock.
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "CERTIFICATES") which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock whose
shares were converted into the right to receive shares of Parent Common Stock
pursuant to Section 1.7, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Parent may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Parent Common Stock (less the number of shares of Parent Common Stock,
if any, (i) to be deposited in the Escrow Fund (as defined in Section 7.2(a)
below) on such holder's behalf pursuant to Article VII
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hereof, (ii) for which cash in lieu thereof shall be provided pursuant to
Section 5.13 of this Agreement (which cash shall be paid by Parent promptly
after surrender of a Certificate as provided in this sentence) and (iii) to be
held in a separate escrow account on such holder's behalf (if such holder is
Richard Davenport, Charles Loegering, Daniel Carroll and Jason Campbell
(collectively, the "COMPANY EXECUTIVES")) pursuant to the terms of such Company
Executive's Employment Agreements (as defined in Section 6.3(i)), plus cash in
lieu of fractional shares in accordance with Section 1.7, to which such holder
is entitled pursuant to Section 1.7, and the Certificate so surrendered shall
forthwith be canceled. As soon as practicable after the Effective Time, and
subject to and in accordance with the provisions of Article VII hereof, Parent
shall cause to be distributed to the Escrow Agent (as defined in Section 7.2(a)
below) a certificate or certificates representing that number of shares of
Parent Common Stock equal to the Shareholder Escrow Amount which shall be
registered in the name of the Escrow Agent. Such shares shall be beneficially
owned by the holders on whose behalf such shares were deposited in the Escrow
Fund and shall be available to compensate Parent as provided in Article VII.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented shares of Company Common Stock will be deemed from and after
the Effective Time, for all corporate purposes, other than the payment of
dividends, to evidence the ownership of the number of full shares of Parent
Common Stock into which such shares of Company Common Stock shall have been so
converted and the right to receive an amount in cash in lieu of the issuance of
any fractional shares in accordance with Section 1.7.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends
or other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such Certificate
shall surrender such Certificate. Subject to applicable law, following
surrender of any such Certificate, there shall be paid to the record holder of
the certificates representing whole shares of Parent Common Stock issued in
exchange therefor, without interest, at the time of such surrender, the amount
of dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of Parent
Common Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.9, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of shares of Parent Common Stock or Company
Common Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
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1.10 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of Company
Common Stock in accordance with the terms hereof (including any cash paid in
respect thereof) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Common Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
1.11 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any certificates
evidencing shares of Company Common Stock shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed certificates, upon the making of an affidavit of that fact by the
holder thereof, such shares of Parent Common Stock and cash for fractional
shares, if any, as may be required pursuant to Section 1.7; provided, however,
that Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Parent or the Exchange Agent with respect to the
certificates alleged to have been lost, stolen or destroyed.
1.12 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties hereto
that the Merger shall constitute a reorganization within the meaning of Section
368 of the Internal Revenue Code of 1986, as amended (the "CODE").
Notwithstanding the foregoing, Parent makes no representations or warranties as
to whether the transactions contemplated by this Agreement qualify as a tax-free
reorganization with the meaning of Section 368(a) of the Code. The Company
acknowledges that it, its shareholders and the Company Executives have obtained
their own advice regarding the tax consequences of the Merger and neither the
Company, its shareholders or the Company Executives are relying on Parent
concerning such matters.
1.13 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any such further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub,
subject to such exceptions as are specifically disclosed in the disclosure
letter (referencing the appropriate section number) supplied by the Company to
Parent (the "DISCLOSURE SCHEDULES") and dated as of the date hereof, as follows:
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2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota. The Company has the corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified to
do business and in good standing as a foreign corporation in each jurisdiction
in which the failure to be so qualified would have a material adverse effect on
the business, assets (including intangible assets), financial condition or
results of operations of the Company (hereinafter referred to as a "MATERIAL
ADVERSE EFFECT"). The Company has delivered a true and correct copy of its
Articles of Incorporation and Bylaws, each as amended to date, to Parent.
2.2 COMPANY CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of
15,000,000 shares of Common Stock, of which 6,627,064 shares are issued and
outstanding and no shares of authorized Company Preferred Stock. All shares of
Company Common Stock are held by the persons listed on Schedule 2.2(a) in the
amounts set forth opposite their respective names thereon. All outstanding
shares of Company Common Stock are duly authorized, validly issued, fully paid
and non-assessable and were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities
created by statute, the Articles of Incorporation or Bylaws of the Company or
any agreement to which the Company is a party or by which it is bound.
(b) The Company has reserved 2,902,500 shares of Common Stock for
issuance to employees and consultants pursuant to the Option Plan, of which
2,817,263 shares are subject to outstanding, unexercised options and 90,237
shares remain available for future grant. Schedule 2.2(b) sets forth for each
outstanding Company Option the name of the holder of such option, the domicile
address of such holder, the number of shares of Common Stock subject to such
option, the exercise price of such option and the vesting schedule for such
option, including the extent vested to date and whether the exercisability of
such option will be accelerated and become exercisable by the transactions
contemplated by this Agreement. Except for the Company Options described in
Schedule 2.2(b), there are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which the Company is a party or
by which it is bound obligating the Company to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of the Company or obligating the Company to grant,
extend, accelerate the vesting of, change the price of, otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement. As a
result of the Merger, Parent will be the record and sole beneficial owner of all
Company Common Stock and rights to acquire or receive Company Common Stock.
2.3 SUBSIDIARIES. The Company does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
2.4 AUTHORITY. Subject only to the requisite approval of the Merger and
this Agreement by the Company's shareholders, the Company has all requisite
corporate power and authority to enter
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into this Agreement and to consummate the transactions contemplated hereby. The
vote required of the Company's shareholders to duly approve the Merger and this
Agreement is a majority of the outstanding shares of the Company Common Stock.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject only to the approval of the
Merger by the Company's shareholders. The Company's Board of Directors has
unanimously approved the Merger and this Agreement. This Agreement has been
duly executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable in accordance with its terms. Except as
set forth on Schedule 2.4, subject only to the approval of the Merger and this
Agreement by the Company's shareholders, the execution and delivery of this
Agreement by the Company does not, and, as of the Effective Time, the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (any such event, a
"CONFLICT") (i) any provision of the Articles of Incorporation or Bylaws of the
Company or (ii) any material term of any mortgage, indenture, lease, contract or
other agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Company or its properties or assets. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other federal, state, county, local or
foreign governmental authority, instrumentality, agency or commission
("GOVERNMENTAL ENTITY") or any third party (that would trigger any Conflict), is
required by or with respect to the Company in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of the Agreement of Merger with the Secretary
of State of the States of Minnesota and Delaware, (ii) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws and (iii)
such other consents, waivers, authorizations, filings, approvals and
registrations which are set forth on Schedule 2.4.
2.5 COMPANY FINANCIAL STATEMENTS. Schedule 2.5 sets forth the Company's
audited balance sheet as of June 30, 1997 (the "BALANCE SHEET"), the related
audited statements of operations and cash flows for the six-month period then
ended and for the twelve-month period ended December 31, 1996 (collectively, the
"COMPANY FINANCIALS"). The Company Financials are correct in all material
respects and have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a basis consistent throughout the periods
indicated and consistent with each other. The Company Financials present fairly
the financial condition and operating results of the Company as of the dates and
during the periods indicated therein.
2.6 NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule 2.6, the
Company does not have any material liability, indebtedness, obligation for the
payment of money, expense, claim for the payment of money, deficiency, guaranty
or endorsement of any type, whether accrued, absolute, contingent, matured,
unmatured or other (whether or not required to be reflected in financial
statements in accordance with generally accepted accounting principles), which
individually or in the aggregate, (i) has not been reflected in the Balance
Sheet, or (ii) has not arisen in the ordinary course of the Company's business
since June 30, 1997 consistent with past practices.
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2.7 NO CHANGES. Except as set forth in Schedule 2.7 and except as
contemplated by this Agreement, since June 30, 1997, there has not been,
occurred or arisen any:
(a) material transaction by the Company except in the ordinary course
of business as conducted on that date;
(b) amendments or changes to the Articles of Incorporation or Bylaws
of the Company;
(c) capital expenditure or commitment by the Company of $20,000 in
any individual case or $50,000 in the aggregate.
(d) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(f) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
capital stock;
(i) increase in the salary or other compensation payable or to become
payable by the Company to any of its officers, directors, employees (other than
normal periodic adjustments in the case of non-officers) or advisors, or the
declaration, payment or commitment or obligation of any kind for the payment, by
the Company, of a bonus or other additional salary or compensation to any such
person except as otherwise contemplated by this Agreement;
(j) sale, lease, license or other disposition of any of the assets or
properties of the Company, except in the ordinary course of business as
conducted on that date and consistent with past practices;
(k) amendment or termination of any material contract, agreement or
license to which the Company is a party or by which it is bound;
(l) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others except for advances to
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employees for travel and business expenses in the ordinary course of business,
consistent with past practices;
(m) waiver or release of any material right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company;
(n) commencement or notice or threat of commencement of any lawsuit
or proceeding against or investigation of the Company or its affairs;
(o) notice of any claim of ownership by a third party of the
Company's Intellectual Property (as defined in Section 2.11 below) or of
infringement by the Company of any third party's Intellectual Property rights;
(p) issuance or sale by the Company of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or of
any other of its securities otherwise than pursuant to outstanding stock
options;
(q) change in pricing or royalties set or charged by the Company to
its customers or licensees or in pricing or royalties set or charged by persons
who have licensed Intellectual Property to the Company;
(r) event or condition of any character that has or could be
reasonably expected to have a Material Adverse Effect on the Company; or
(s) negotiation or agreement by the Company or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (r) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
2.8 TAX AND OTHER RETURNS AND REPORTS.
(a) DEFINITION OF TAXES. For the purposes of this Agreement, "TAX"
or, collectively, "TAXES", means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(b) TAX RETURNS AND AUDITS. Except as set forth in Schedule 2.8:
(i) The Company as of the Effective Time will have prepared
and filed all required federal, state, local and foreign returns, estimates,
information statements and reports
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("RETURNS") relating to any and all Taxes concerning or attributable to the
Company or its operations and such Returns are true and correct and have been
completed in accordance with applicable law.
(ii) The Company as of the Effective Time: (A) will have
paid or accrued all Taxes it is required to pay or accrue and (B) will have
withheld with respect to its employees all federal and state income taxes, FICA,
FUTA and other Taxes required to be withheld.
(iii) The Company has not been delinquent in the payment of
any Tax nor is there any Tax deficiency outstanding, proposed or assessed
against the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of the
Company is presently in progress, nor has the Company been notified of any
request for such an audit or other examination.
(v) The Company does not have any liabilities for unpaid
federal, state, local or foreign Taxes which have not been accrued or reserved
against in accordance with GAAP on the Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and the Company has no knowledge of any
basis for the assertion of any such liability attributable to the Company, its
assets or operations.
(vi) The Company has provided to Parent copies of all
federal and state income and all state sales and use Tax Returns for all periods
since the date of Company's incorporation.
(vii) There are (and as of immediately following the Closing
there will be) no liens, pledges, charges, claims, security interests or other
encumbrances of any sort ("LIENS") on the assets of the Company relating to or
attributable to Taxes.
(viii) The Company has no knowledge of any basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company.
(ix) None of the Company's assets are treated as "tax-exempt
use property" within the meaning of Section 168(h) of the Code.
(x) As of the Effective Time, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Section 280G or 162 of the
Code.
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(xi) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(xii) The Company is not a party to a tax sharing or
allocation agreement nor does the Company owe any amount under any such
agreement.
(xiii) The Company is not, and has not been at any time,
a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
(xiv) The Company has been an S Corporation within the
meaning of Section 1361 of the Code since its formation.
2.9 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth in Schedule
2.9, there is no agreement (noncompete or otherwise), commitment, judgment,
injunction, order or decree to which the Company is a party or otherwise binding
upon the Company which has or reasonably could be expected to have the effect of
prohibiting or impairing any business practice of the Company, any acquisition
of material property (tangible or intangible) by the Company or the conduct of
business by the Company as it is currently being conducted. Without limiting
the foregoing, the Company has not entered into any agreement under which the
Company is restricted from selling, licensing or otherwise distributing any of
its products to any class of customers, in any geographic area, during any
period of time or in any segment of the market.
2.10 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The Company owns no real property, nor has it ever owned any real
property. Schedule 2.10(a) sets forth a list of all real property currently, or
at any time in the past, leased by the Company, the name of the lessor and the
date of the lease and each amendment thereto and, with respect to any current
lease, the aggregate annual rental and/or other fees payable under any such
lease. All such current leases are in full force and effect, are valid and
effective in accordance with their respective terms, and there is not, under any
of such leases, any existing material default or event of default (or event
which with notice or lapse of time, or both, would constitute a material
default).
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its material
tangible properties and assets, real, personal and mixed, used or held for use
in its business, free and clear of any Liens (as defined in Section
2.8(b)(vii)), except as reflected in the Company Financials or in Schedule
2.10(b) and except for liens for taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the value,
or materially interfere with the present use, of the property subject thereto or
affected thereby.
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2.11 INTELLECTUAL PROPERTY.
(a) For the purposes of this Agreement, the following terms have the
following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following and all
rights in, or arising out of the following: (i) all United States and foreign
patents and applications therefor and all reissues, divisions, renewals,
extensions, provisionals, continuations and continuations-in-part thereof; (ii)
all inventions (whether patentable or not), invention disclosures, improvements,
trade secrets, proprietary information, know how, technology, technical data and
customer lists, and all documentation relating to any of the foregoing; (iii)
all copyrights, copyrights registrations and applications therefor, and all
other copyrightable subject matter rights corresponding thereto throughout the
world, including without limitation, the sole and exclusive right to prepare
derivative works of such copyrighted works; (iv) all mask works, mask work
registrations and applications therefor, and all other mask works rights
corresponding thereto throughout the world; (v) all industrial designs and any
registrations and applications therefor throughout the world; (vi) all trade
names, logos, common law trademarks and service marks; trademark and service
mark registrations and applications therefor throughout the world; (vii) all
databases and data collections and all rights therein throughout the world; and
(viii) all computer software including all source code, object code, firmware,
development tools, files, records and data, all media on which any of the
foregoing is recorded, and all documentation related to any of the foregoing
throughout the world.
"INTELLECTUAL PROPERTY OF THE COMPANY" shall mean any Intellectual
Property that: (i) is owned by or exclusively licensed to the Company, or (ii)
which is used in or necessary to the operation of the Company, including the
design, manufacture, sale and use of the products or performance of the services
of the Company as it currently is operated or is reasonably anticipated to be
operated in the future.
"CURRENTLY" means, as used in this section, the period beginning three
years prior to the Closing Date and ending on such date.
(b) Schedule 2.11(b) lists all of the Company's United States and
foreign: (i) patents, patent applications (including provisional applications);
(ii) registered trademarks, applications to register trademarks, intent-to-use
applications, or other registrations related to trademarks; (iii) registered
copyrights and applications for copyright registration; (iv) mask work
registrations and applications to register mask works; and (v) any other
Intellectual Property of the Company that is the subject of an application,
certificate or registration of the Company issued by or recorded by any state,
government or other public legal authority, all of the foregoing, the
"REGISTERED INTELLECTUAL PROPERTY."
(c) Schedule 2.11(c) lists any proceedings or actions before any
court, tribunal (including the United States Patent Office ("PTO") or equivalent
authority anywhere in the world) related to any of the Registered Intellectual
Property.
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(d) To the Company's knowledge, the Company has complied with all
applicable disclosure requirements and has not committed any fraudulent act in
the application for and maintenance of any patent, trademark or copyright of the
Company.
(e) Each item of Registered Intellectual Property is valid and
subsisting as of the Closing Date, all necessary registration, maintenance and
renewal fees falling due prior to the Closing Date in connection with such
Registered Intellectual Property have been made and all necessary maintenance
and renewal documents falling due prior to the Closing Date in connection with
such Registered Intellectual Property have been filed with the relevant patent,
copyright, trademark or other authorities in the United States or foreign
jurisdictions, as the case may be, for the purposes of maintaining such
Registered Intellectual Property. Schedule 2.11(e) lists all actions and
payments that must be made in the six month period following the Closing Date in
connection with the preservation or maintenance of the Registered Intellectual
Property.
(f) Except as set forth in Schedule 2.11(f), the Company is not
barred from seeking patents on material potentially patentable inventions of the
Company by "on-sale" or similar bars to patentability or by failure to apply
for a patent on such inventions within the time required.
(g) The contracts, licenses and agreements listed on Schedule 2.11(g)
include all contracts, licenses and agreements, to which the Company is a party,
either as a grantor or grantee of rights, with respect to any Intellectual
Property with a value or cost in excess of $10,000.
(h) The contracts, licenses and agreements listed on Schedule 2.11(g)
are in full force and effect. Except as set forth in Schedule 2.11(h), the
consummation of the transactions contemplated by this Agreement will neither
violate nor result in the breach, modification, cancellation, termination, or
suspension of the contracts, licenses and agreements listed on Schedule 2.11(g).
The Company is in material compliance with, and has not breached any material
term of, the contracts, licenses and agreements listed on Schedule 2.11(g) and,
to the knowledge of the Company, all other parties to the contracts, licenses
and agreements listed on Schedule 2.11(g) are, in material compliance with, and
have not breached any material term of, such contracts, licenses and agreements.
Except as set forth in Schedule 2.11(h), following the Closing Date, the Company
will be permitted to exercise all of its rights under the contracts, licenses
and agreements listed in Schedule 2.11(g) without the payment of any additional
amounts or consideration other than ongoing fees, royalties or payments which
the Company would otherwise be required to pay.
(i) Except as set forth in Schedule 2.11(i): (i) no person has any
rights to use any of the Intellectual Property of the Company; and (ii) the
Company has not granted to any person, nor authorized any person to retain, any
rights in the Intellectual Property of the Company.
(j) Except as set forth in Schedule 2.11(j): (i) the Company owns
and has good and exclusive title to each item of Intellectual Property of the
Company, including all Registered Intellectual Property listed on Schedule
2.11(b) of the Disclosure Schedule, free and clear of any lien or encumbrance;
(ii) the Company owns, or has the right, pursuant to a valid contract to use or
operate under, all other Intellectual Property of the Company; and (iii) the
Company is the exclusive
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owner of all material trademarks and trade names used in connection with the
operation or conduct of the business of the Company, including the sale of any
products or the provision of any services by the Company.
(k) To the Company's knowledge, the operation of the business of the
Company as such business currently is conducted, including the Company's design,
development, manufacture, marketing and sale of the products or services of the
Company (including with respect to products currently under development) has
not, does not and will not infringe or misappropriate the Intellectual Property
of any other person or constitute unfair competition or trade practices under
the laws of any jurisdiction.
(l) Neither the Company nor, to the knowledge of the Company, its
shareholders have received notice from any person that the operation of the
business of the Company, including its design, development, manufacture and sale
of its products (including with respect to products currently under development)
and provision of its services, infringes or misappropriates the Intellectual
Property of any person or constitutes unfair competition or trade practices
under the laws of any jurisdiction.
(m) The Company owns or has the right to use all Intellectual
Property necessary to the conduct of its business as it currently is conducted,
including, without limitation, the design, development, manufacture and sale of
all products currently manufactured or sold by the Company or under development
by the Company and the performance of all services provided or contemplated to
be provided by the Company.
(n) Schedule 2.11(n) lists all contracts, licenses and agreements
between the Company and any other person wherein or whereby the Company has
agreed to, or assumed, any obligation or duty to warrant, indemnify, hold
harmless or otherwise assume or incur any obligation or liability with respect
to the infringement or misappropriation by the Company or such other person of
the Intellectual Property of any other person.
(o) Except as listed on Schedule 2.11(o), there are no contracts,
licenses and agreements between the Company and any other person with respect to
Intellectual Property of the Company under which there is any dispute known to
the Company regarding the scope of such agreement, or performance under such
agreement including with respect to any payments to be made or received by the
Company thereunder.
(p) Except as listed on Schedule 2.11(p) to the knowledge of the
Company, no person has or is infringing or misappropriating any of Intellectual
Property of the Company.
(q) No Intellectual Property of the Company, or product or service of
the Company is subject to any proceeding or outstanding decree, order, judgment,
or stipulation restricting in any material manner the use or licensing thereof
by the Company, or which may materially affect the validity, use or
enforceability of such Intellectual Property of the Company.
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(r) Except as set forth on Schedule 2.11(r), the Company has taken
all reasonable steps to protect its rights in its material confidential
information and trade secrets or any trade secrets or confidential information
of third parties provided to the Company.
(s) The Company owns exclusively and has good title to all
copyrighted works that are its products, except for those copyrighted works
licensed to the Company listed on Schedule 2.11(s).
(t) Except as provided in Schedule 2.11(t), to the extent that any
work, invention, or material has been developed or created by a third party for
the Company, the Company has a written agreement with such third party with
respect thereto and the Company thereby has obtained ownership of, and are the
exclusive owners of, all Intellectual Property in such work, material or
invention by operation of law or by valid assignment.
(u) Neither the actions of, nor the products or services currently
offered by, the Company violate the rights of privacy, publicity or any other
similar right of any person.
2.12 AGREEMENTS, CONTRACTS AND COMMITMENTS.
(a) Except as set forth on Schedule 2.12(a), the Company does not
have, is not a party to nor is it bound by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements (other than legally mandated
requirements such as COBRA) that contain any severance pay or post-employment
liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements,
(iv) any employment or consulting agreement with an employee or
individual consultant or salesperson or consulting or sales agreement with a
firm or other organization,
(v) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value individually
in excess of $10,000,
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(viii) any agreement of indemnification or guaranty,
(ix) any agreement containing any covenant limiting the freedom
of the Company to engage in any line of business or to compete with any person,
(x) any agreement relating to capital expenditures and involving
future payments in excess of $10,000,
(xi) any agreement relating to the disposition or acquisition of
assets or any interest in any business enterprise outside the ordinary course of
the Company's business,
(xii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause
(viii) hereof,
(xiii) any purchase order or contract for the purchase of raw
materials involving $10,000 or more,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development agreement,
(xvi) any agreement pursuant to which the Company has granted or
may grant in the future, to any party a source-code license or option or other
right to use or acquire source-code, or
(xvii) any other agreement that involves $10,000.
(b) Except for such alleged breaches, violations and defaults, and events
that would constitute a breach, violation or default with the lapse of time,
giving of notice, or both, as are all noted in Schedule 2.12(b) or would not in
the aggregate have a Material Adverse Effect on the Company, the Company has not
breached, violated or defaulted under, or received notice that it has breached,
violated or defaulted under, any of the terms or conditions of any agreement,
contract or commitment required to be set forth on Schedule 2.12(a) (any such
agreement, contract or commitment, a "CONTRACT"). Each Contract is in full
force and effect and, except as otherwise disclosed in Schedule 2.12(b), is not
subject to any default thereunder of which the Company has knowledge by any
party obligated to the Company pursuant thereto.
2.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule 2.13,
to the Company's knowledge, no officer, director or shareholder of the Company
(nor any ancestor, sibling, descendant or spouse of any of such persons, or any
trust, partnership or corporation in which any of such persons has or has had an
economic interest), has or has had, directly or indirectly, (i) a material
economic interest in any entity which furnished or sold, or furnishes or sells,
services or products that the Company furnishes or sells, or proposes to furnish
or sell, (ii) a material economic interest in any entity that purchases from, or
sells or furnishes to, the Company any goods or services or (iii) a
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beneficial interest in any contract or agreement set forth in Schedule 2.12(a)
or Schedule 2.11(b); provided, that (x) ownership of no more than one percent
(1%) of the outstanding voting stock of a publicly traded corporation and no
more than ten percent (10%) of the outstanding equity of any other entity shall
not be deemed an "economic interest in any entity" for purposes of this Section
2.13 and (y) this provision shall only apply if the terms and conditions
applicable to the subject relationship are materially less favorable to the
Company than the terms and conditions that could be obtained in an arms-length
relationship.
2.14 COMPLIANCE WITH LAWS. The Company has complied in all material
respects with, to the knowledge of the Company, is not in material violation of,
and has not received any notices of violation with respect to, any foreign,
federal, state or local statute, law or regulation.
2.15 LITIGATION. Except as set forth in Schedule 2.15, there is no action,
suit or proceeding of any nature pending or to the Company's knowledge
threatened against the Company, its properties or any of its officers or
directors, in their respective capacities as such. Except as set forth in
Schedule 2.15, to the Company's knowledge, there is no investigation pending or
threatened against the Company, its properties or any of its officers or
directors by or before any governmental entity. Schedule 2.15 sets forth, with
respect to any pending or threatened action, suit, proceeding or investigation,
the forum, the parties thereto, the subject matter thereof and the amount of
damages claimed or other remedy requested. No governmental entity has at any
time challenged or questioned the legal right of the Company to manufacture,
offer or sell any of its products in the present manner or style thereof.
2.16 INSURANCE. With respect to the insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of the Company, there is no claim by the Company pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and the Company
is otherwise in material compliance with the terms of such policies and bonds
(or other policies and bonds providing substantially similar insurance
coverage). The Company has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.
2.17 MINUTE BOOKS. The minute books of the Company provided to counsel for
Parent are the only minute books of the Company and contain a reasonably
accurate summary of all meetings of directors (or committees thereof) and
shareholders or actions by written consent since the time of incorporation of
the Company.
2.18 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. The Company has not: (i) operated any
underground storage tanks at any property that the Company has at any time
owned, operated, occupied or leased; or (ii) illegally released any material
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos,
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petroleum, urea-formaldehyde and all substances listed as hazardous substances
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to
the United States Resource Conservation and Recovery Act of 1976, as amended,
and the regulations promulgated pursuant to said laws, (a "HAZARDOUS MATERIAL"),
but excluding office and janitorial supplies properly and safely maintained. No
Hazardous Materials are present, as a result of the deliberate actions of the
Company, or, to the Company's knowledge, as a result of any actions of any third
party or otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that the Company has at
any time owned, operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. The Company has not transported,
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before the
Closing Date, nor has the Company disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as "HAZARDOUS MATERIALS ACTIVITIES") in
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) PERMITS. The Company currently holds all environmental
approvals, permits, licenses, clearances and consents (the "ENVIRONMENTAL
PERMITS") necessary for the conduct of the Company's Hazardous Material
Activities and other businesses of the Company as such activities and businesses
are currently being conducted.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Company's knowledge, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activities of the Company. The Company is
not aware of any fact or circumstance which could involve the Company in any
environmental litigation or impose upon the Company any environmental liability.
2.19 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Neither the Company
nor its shareholders have incurred, nor will they incur, directly or indirectly,
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby. Schedule 2.19 sets forth the Company's current reasonable
estimate of all Third Party Expenses (as defined in Section 5.4) expected to be
incurred by the Company in connection with the negotiation and effectuation of
the terms and conditions of this Agreement and the transactions contemplated
hereby.
2.20 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) DEFINITIONS. With the exception of the definition of "Affiliate"
set forth in Section 2.20(a)(i) below (such definition shall only apply to this
Section 2.20), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
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(i) "AFFILIATE" shall mean any other person or entity under
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(iii) "COMPANY EMPLOYEE PLAN" shall refer to any plan,
program, policy, practice, contract, agreement or other arrangement, other than
an Employee Agreement, providing for compensation, severance, termination pay,
performance awards, stock or stock-related awards, fringe benefits or other
employee benefits or remuneration of any kind, whether formal or informal,
funded or unfunded, including without limitation, each "employee benefit plan",
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any "Employee" (as defined below), and pursuant to
which the Company or any Affiliate has or may have any material liability
contingent or otherwise;
(iv) "EMPLOYEE" shall mean any current, former, or retired
employee, officer, or director of the Company or any Affiliate;
(v) "EMPLOYEE AGREEMENT" shall refer to each management,
employment, severance, consulting, relocation, repatriation, expatriation, visa,
work permit or similar agreement or contract between the Company or any
Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "MULTIEMPLOYER PLAN" shall mean any "Pension Plan" (as
defined below) which is a "multiemployer plan", as defined in Section 3(37) of
ERISA; and
(viii) "PENSION PLAN" shall refer to each Company Employee
Plan which is an "employee pension benefit plan", within the meaning of Section
3(2) of ERISA.
(b) SCHEDULE. Schedule 2.20(b) contains an accurate and complete
list of each Company Employee Plan and each Employee Agreement, together with a
schedule of all existing or reasonably anticipated liabilities under each such
Company Employee Plan or Employee Agreement. Except as contemplated by Parent
and the Company in connection with the Merger, the Company does not have any
plan or commitment to establish any new Company Employee Plan or Employee
Agreement, to modify any Company Employee Plan or Employee Agreement (except to
the extent required by law or to conform any such Company Employee Plan or
Employee Agreement to the requirements of any applicable law, in each case as
previously disclosed to Parent in writing, or as required by this Agreement), or
to enter into any Company Employee Plan or Employee Agreement, nor does it have
any intention or commitment to do any of the foregoing.
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(c) DOCUMENTS. The Company has provided to Parent (i) correct and
complete copies of all documents embodying or relating to each Company Employee
Plan and each Employee Agreement including all amendments thereto and written
interpretations thereof; (ii) the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (iii) the three most recent annual
reports (Series 5500 and all schedules thereto), if any, required under ERISA or
the Code in connection with each Company Employee Plan or related trust; (iv) if
the Company Employee Plan is funded, the most recent annual and periodic
accounting of Company Employee Plan assets; (v) the most recent summary plan
description together with the most recent summary of material modifications, if
any, required under ERISA with respect to each Company Employee Plan; (vi) all
IRS determination letters and rulings relating to Company Employee Plans and
copies of all applications and correspondence to or from the IRS or the
Department of Labor ("DOL") with respect to any Company Employee Plan; and (vii)
all communications material to any Employee or Employees relating to any Company
Employee Plan and any proposed Company Employee Plans, in each case, relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events which
would result in any material liability to the Company.
(d) EMPLOYEE PLAN COMPLIANCE. Except as set forth on Schedule
2.20(d), (i) the Company has performed in all material respects all obligations
required to be performed by it under each Company Employee Plan and each Company
Employee Plan has been established and maintained in all material respects in
accordance with its terms and in compliance with all applicable laws, statutes,
orders, rules and regulations, including but not limited to ERISA or the Code;
(ii) no "prohibited transaction", within the meaning of Section 4975 of the Code
or Section 406 of ERISA, has occurred with respect to any Company Employee Plan;
(iii) there are no actions, suits or claims pending, or, to the knowledge of the
Company, threatened or anticipated (other than routine claims for benefits)
against any Company Employee Plan or against the assets of any Company Employee
Plan; and (iv) each Company Employee Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms,
without liability to the Company, Parent or any of its Affiliates (other than
ordinary administration expenses typically incurred in a termination event); (v)
there are no inquiries or proceedings pending or, to the knowledge of the
Company, threatened by the IRS or DOL with respect to any Company Employee Plan;
and (vi) neither the Company nor any Affiliate is subject to any penalty or tax
with respect to any Company Employee Plan under Section 402(i) of ERISA or
Section 4975 through 4980 of the Code.
(e) PENSION PLANS. The Company does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) MULTIEMPLOYER PLANS. At no time has the Company contributed to
or been requested to contribute to any Multiemployer Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in Schedule
2.20(g), no Company Employee Plan provides, or has any liability to provide,
life insurance, medical or other employee benefits to any Employee upon his or
her retirement or termination of employment for any
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reason, except as may be required by statute, and the Company has never
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) that such Employee(s)
would be provided with life insurance, medical or other employee welfare
benefits upon their retirement or termination of employment, except to the
extent required by statute.
(h) EFFECT OF TRANSACTION.
(i) Except as provided in Section 1.6 of this Agreement or
as set forth on Schedule 2.20(h)(i), the execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(ii) Except as set forth on Schedule 2.20(h)(ii), no payment
or benefit which will or may be made by the Company or Parent or any of their
respective affiliates with respect to any Employee will be characterized as an
"excess parachute payment", within the meaning of Section 280G(b)(1) of the
Code.
(i) EMPLOYMENT MATTERS. The Company (i) is in compliance in all
material respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld all amounts required by law or by agreement to be
withheld from the wages, salaries and other payments to Employees; (iii) is not
liable for any arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing; and (iv) is not liable for any payment to any
trust or other fund or to any governmental or administrative authority, with
respect to unemployment compensation benefits, social security or other benefits
or obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice).
(j) LABOR. No work stoppage or labor strike against the Company is
pending or, to the knowledge of the Company, threatened. Except as set forth in
Schedule 2.20(j), the Company is not involved in or, to the knowledge of the
Company, threatened with, any labor dispute, grievance, or litigation relating
to labor, safety or discrimination matters involving any Employee, including,
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in the
aggregate, result in liability to the Company. Neither the Company nor any of
its subsidiaries has engaged in any unfair labor practices within the meaning of
the National Labor Relations Act which would, individually or in the aggregate,
directly or indirectly result in a liability to the Company. Except as set
forth in Schedule 2.20(j), the Company is not presently, nor has it been in the
past, a party to, or bound by, any collective bargaining agreement or union
contract with respect to Employees and no collective bargaining agreement is
being negotiated by the Company.
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2.21 REPRESENTATIONS COMPLETE. To the knowledge of the Company, none of
the representations or warranties made by the Company (as modified by the
Disclosure Schedule), nor any statement made in any Schedule or certificate
furnished by the Company pursuant to this Agreement, or furnished in or in
connection with documents mailed or delivered to the shareholders of the Company
in connection with soliciting their consent to this Agreement and the Merger,
contains any untrue statement of a material fact.
2.22 PROJECTIONS, ESTIMATES, ETC. The Company shall not be deemed to have
made to Parent any representation or warranty other than as expressly made by
the Company in this Article II, including, without limitation, any projections,
estimates or budgets heretofore made available to Parent of future revenues,
expenses or expenditures or future results of operations.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
3.1 ORGANIZATION, STANDING AND POWER. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Parent and
Merger Sub has the corporate power to own its properties and to carry on its
business as now being conducted and is duly qualified to do business and is in
good standing in each jurisdiction in which the failure to be so qualified would
have a material adverse effect on the ability of Parent and Merger Sub to
consummate the transactions contemplated hereby.
3.2 AUTHORITY. Parent and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub. This
Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligations of Parent and Merger Sub,
enforceable in accordance with its terms.
3.3 CAPITAL STRUCTURE.
(a) The authorized stock of Parent consists of 30,000,000 shares of
Common Stock, of which approximately 14,024,092 shares were issued and
outstanding as of August 5, 1997, and 5,000,000 shares of Preferred Stock, none
of which is issued or outstanding. Parent has reserved 2,322,000 shares of
Parent Common Stock for issuance under its 1994 Stock Plan, 150,000 shares of
Parent Common Stock for issuance under its 1996 Employee Stock Purchase Plan and
150,000 shares of Parent Common Stock for issuance under its 1996 Director
Option Plan. The authorized capital stock of Merger Sub consists of 1,000
shares of Common Stock, 1,000 shares of which, as of
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the date hereof, are issued and outstanding and are held by Parent. All such
shares of Parent and the Merger Sub have been duly authorized, and all such
issued and outstanding shares have been validly issued, are fully paid and
nonassessable and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof.
(b) The shares of Parent Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid and nonassessable and
will not be issued in violation of or subject to any preemptive or other rights
to subscribe for or a purchase such securities created by the Certificate of
Incorporation or Bylaws of Parent or any agreement to which Parent is a party or
by which it is bound.
3.4 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Parent has furnished or
made available to the Company true and complete copies of all reports or
registration statements filed by it with the U.S. Securities and Exchange
Commission (the "SEC") under the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), for all periods subsequent to October, 1996, all in the
form so filed (all of the foregoing being collectively referred to as the "SEC
DOCUMENTS"). As of their respective filing dates, the SEC Documents complied in
all material respects with the requirements of the Exchange Act, and none of the
SEC Documents 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 made therein not misleading, except to the extent corrected by a
subsequently filed document with the SEC. The financial statements of Parent,
including the notes thereto, included in the SEC Documents (the "PARENT
FINANCIAL STATEMENTS") comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles consistently applied (except as may be indicated
in the notes thereto) and present fairly the consolidated financial position of
Parent at the dates thereof and of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal audit
adjustments).
3.5 NO MATERIAL ADVERSE CHANGE. Since June 30, 1997, other than the sale
of substantially all of the assets of Test Systems Strategies, Inc., a
wholly-owned subsidiary of Parent, Parent has conducted its business in the
ordinary course and there has not occurred (a) any material adverse change in
the financial condition, liabilities, assets or business of Parent, or (b) any
damage to, destruction or loss of any assets of the Parent (whether or not
covered by insurance) that materially and adversely affects the financial
condition or business of Parent.
3.6 LITIGATION. There is no action, suit, proceeding, claim, arbitration
or investigation pending, or as to which Parent has received any notice of
assertion against Parent which in any manner challenges or seeks to prevent,
enjoin, alter or materially delay any of the transactions contemplated by this
Agreement.
3.7 DUE DILIGENCE INVESTIGATION. Parent acknowledges that: (a) it has
had the opportunity to visit with the Company and meet with its respective
officers and other representatives to discuss the business and the assets,
liabilities, financial condition, cash flow and operations of the Company; (b)
all material and information requested by Parent has been provided to Parent to
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Parent's reasonable satisfaction; (c) it has made its own independent
examination, investigation, analysis and evaluation of the Company, including
its own estimate of the value of the Company's business; and (d) it has
undertaken such due diligence (including a review of the assets, liabilities,
books, records and contracts of the Company) as it deems adequate.
Notwithstanding the foregoing, nothing in this Section 3.7 shall be deemed to in
any way modify or limit the representations and warranties made by the Company
in this Agreement or in any other agreement or certificate executed in
connection with the transactions contemplated by this Agreement.
3.8 CERTAIN TAX MATTERS. Parent has no plan or intention (i) to liquidate
Merger Sub; (ii) to merge Merger Sub with or into another corporation, except if
Merger Sub is the surviving corporation; (iii) to sell or otherwise dispose of
the stock of Merger Sub, except for transfers of stock to corporations
controlled by Parent; or (iv) to cause Merger Sub to sell or otherwise dispose
of any of its assets, except for dispositions made in the ordinary course of
business or transfers of assets to a corporation controlled by Merger Sub.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date
of this Agreement and continuing until the earlier of (i) the termination of
this Agreement and (ii) the Effective Time, the Company agrees (except to the
extent that Parent shall otherwise consent in writing) to carry on its business
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay its debts and Taxes when due, to pay or perform
other obligations when due, and, to the extent consistent with such business, to
use all reasonable efforts consistent with past practice and policies to
preserve intact its present business organization, keep available the services
of its present officers and key employees and preserve their relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it, all with the goal of preserving unimpaired its
goodwill and ongoing businesses at the Effective Time. The Company shall
promptly notify Parent of any event or occurrence or emergency not in the
ordinary course of its business, and any material event involving the Company or
its business. Except as expressly contemplated by this Agreement or disclosed
in Schedule 4.1, the Company shall not, without the prior written consent of
Parent:
(a) Enter into any commitment or transaction not in the ordinary
course of business.
(b) Transfer to any person or entity any rights to the Company
Intellectual Property Rights (other than pursuant to end-user licenses in the
ordinary course of business);
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(c) Enter into or amend any agreements pursuant to which any other
party is granted marketing, distribution or similar rights of any type or scope
with respect to any products of the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Disclosure Schedule;
(e) Commence any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of its capital
stock (or options, warrants or other rights exercisable therefor);
(g) Except for the issuance of shares of Company Common Stock upon
exercise or conversion of presently outstanding Company Options, issue, grant,
deliver or sell or authorize or propose the issuance, grant, delivery or sale
of, or purchase or propose the purchase of, any shares of its capital stock or
securities convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities;
(h) Cause or permit any amendments to its Articles of Incorporation
or Bylaws;
(i) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets in an amount in excess of $10,000 in the case of a single transaction or
in excess of $30,000 in the aggregate;
(j) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business;
(k) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of the Company or guarantee
any debt securities of others;
(l) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee, except payments made pursuant to standard
written agreements outstanding on the date hereof;
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(m) Except as expressly provided in this Agreement, adopt or amend
any employee benefit plan, or enter into any employment contract, extend
employment offers, pay or agree to pay any special bonus or special remuneration
to any director or employee, or increase the salaries or wage rates of its
employees, other than normal periodic adjustment of non-management employee
compensation;
(n) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
(o) Pay, discharge or satisfy, in an amount in excess of $10,000 in
the aggregate, any claim, liability or obligation (absolute, accrued, asserted
or unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business of liabilities reflected or
reserved against in the Company Financial Statements (or the notes thereto) or
expenses consistent with the provisions of this Agreement incurred in connection
with any transaction contemplated and permitted hereby;
(p) Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(q) Enter into any strategic alliance, development or joint marketing
agreement; or
(r) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (q) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
4.2 S STATUS. The Company shall maintain its tax status as an S
Corporation up to the Effective Time and its shareholders shall not revoke or
otherwise terminate the election of the Company to be treated as an S
Corporation.
4.3 NO SOLICITATION. Until the earlier of (i) the Effective Time and (ii)
the date of termination of this Agreement pursuant to the provisions of Section
8.1 hereof, the Company will not (nor will the Company permit any of the
Company's officers, directors, agents, representatives or affiliates to)
directly or indirectly, take any of the following actions with any party other
than Parent and its designees: (a) solicit, conduct discussions with or engage
in negotiations with any person, relating to the possible acquisition of the
Company (whether by way of merger, purchase of capital stock, purchase of assets
or otherwise) or any material portion of its capital stock or assets, (b)
provide information with respect to it to any person, other than Parent,
relating to the possible acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) or any material
portion of its capital stock or assets, (c) enter into an agreement with any
person, other than Parent, providing for the acquisition of the Company (whether
by way of
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merger, purchase of capital stock, purchase of assets or otherwise) or any
material portion of its capital stock or assets or (d) make or authorize any
statement, recommendation or solicitation in support of any possible acquisition
of the Company (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise) or any material portion of its capital stock or assets by
any person, other than by Parent. In addition to the foregoing, if the Company
receives prior to the Effective Time or the termination of this Agreement any
offer or proposal relating to any of the above, the Company shall promptly
notify Parent thereof, including information as to the identity of the offeror
or the party making any such offer or proposal and the specific terms of such
offer or proposal, as the case may be, and such other information related
thereto as Parent may reasonably request.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 SHAREHOLDER MEETING. The Company shall use its best efforts to
solicit and obtain the consent of its shareholders sufficient to approve the
Merger and this Agreement and to enable the Closing to occur as promptly as
practicable. The materials submitted to the Company's shareholders shall be
subject to prior review and approval by Parent and shall include the unanimous
recommendation of the Board of Directors of the Company in favor of the Merger
and this Agreement.
5.2 ACCESS TO INFORMATION. Subject to any applicable contractual
confidentiality obligations (which the Company shall use its reasonable best
efforts to cause to be waived), each party shall afford the others and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of its
properties, books, contracts, agreements and records, and (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of it as the others may reasonably
request. No information or knowledge obtained in any investigation pursuant to
this Section 5.2 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the Merger.
5.3 CONFIDENTIALITY. Each of the parties hereto hereby agrees to and
reaffirms the terms and provisions of the Mutual Nondisclosure Agreement between
Parent and the Company dated as of August 1, 1997.
5.4 EXPENSES. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties ("THIRD PARTY EXPENSES") incurred by a party in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby, shall be the obligation
of the respective party incurring such fees and expenses.
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5.5 PUBLIC DISCLOSURE. Upon execution and delivery of this Agreement by
the parties hereto, Parent and the Company shall release a jointly prepared
announcement describing the Merger. Except as aforesaid, unless otherwise
required by law (including, without limitation, securities laws) or, as to
Parent, by the rules and regulations of the National Association of Securities
Dealers, Inc., prior to the Effective Time, no disclosure (whether or not in
response to an inquiry) of the subject matter of this Agreement shall be made to
any person (other than Shareholders who have signed confidentiality agreements,
the form of which shall have been previously approved by counsel to Parent) by
any party hereto unless approved by Parent and the Company prior to release,
provided that such approval shall not be unreasonably withheld.
5.6 CONSENTS. The Company shall use its reasonable best efforts to obtain
the consents, waivers and approvals referred to on Schedule 6.3(c).
5.7 FIRPTA COMPLIANCE. On the Closing Date, the Company shall deliver to
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.8 REASONABLE EFFORTS. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable best efforts
to take promptly, or cause to be taken, all actions, and to do promptly, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings and to remove any injunctions
or other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for the purpose
of securing to the parties hereto the benefits contemplated by this Agreement;
provided that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or the Company or its affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and capital
stock.
5.9 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt notice
to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Company or Parent
and Merger Sub, respectively, contained in this Agreement to be untrue or
inaccurate at or prior to the Effective Time except as contemplated by this
Agreement (including the Disclosure Schedule) and (ii) any failure of the
Company, its shareholders or Parent, as the case may be, to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it hereunder.
5.10 AFFILIATE AGREEMENTS. Schedule 5.10 sets forth those persons who, in
the Company's reasonable judgment, are or may be "affiliates" (as that term is
used in paragraphs (c) and (d) of Rule 145 under the Securities Act) of the
Company (collectively, the "COMPANY AFFILIATES"). Prior to the Closing Date,
the Company Executives shall, and the Company shall cause
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each other Company Affiliate to, execute and deliver a written Affiliate
Agreement in the form attached as EXHIBIT A, that he or she will not sell, offer
to sell, or otherwise dispose of any of the Parent Common Stock issued to him or
her pursuant to the terms of this Agreement, except in compliance with Rule 145
or another exemption for the registration requirements of the Securities Act.
Parent and Merger Sub shall be entitled to place appropriate legends on the
certificates evidencing any Parent Common Stock to be received by Company
Affiliates, and to issue appropriate stop transfer instructions to the transfer
agent for Parent Common Stock, consistent with the terms of such Affiliate
Agreements.
5.11 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at
the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be reasonably
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
5.12 ROYALTY PREPAYMENT. Prior to the Effective Time, the Company shall
pay in full all current and future royalties (the "ROYALTY OBLIGATIONS")
associated with the Vericov product or otherwise payable to Sky Design, Systems,
Inc. ("SKY DESIGN"), and all current and future obligations related to each of
the foregoing shall be permanently extinguished. The Company shall provide to
Parent such evidence of prepayment and extinguishment of the Royalty Obligations
as Parent shall reasonably request.
5.13 CASH PAYMENT.
(a) In lieu of the issuance to the Shareholders of an aggregate of
444,444 shares of Parent Common Stock as provided in Section 1.7(a), Parent
shall pay to the Shareholders at the Effective Time on a pro rata basis an
aggregate cash payment of $4,000,000 minus the difference between $200,000 and
the amount of cash on the balance sheet of the Company at the Effective Time (if
such amount on the balance sheet is less than $200,000) (the "CASH PAYMENT").
Notwithstanding the foregoing, prior to disbursement of the Cash Payment, Parent
shall withhold from the Cash Payment on a pro rata basis, and hold in escrow, an
amount equal to $125,000 (the "CASH WITHHOLDING"). Parent may recover from the
Cash Withholding an amount equal to the amount paid or payable in respect of the
Company's legal fees incurred in connection with the transactions contemplated
by this Agreement and the fees of Coopers & Lybrand for performing the audit of
the Company's financial statements, up to a total recovery by Parent of
$125,000.
(b) After (i) payment of the foregoing legal and accounting fees and
receipt by Parent of such evidence of prepayment and extinguishment of the
Royalty Obligations as Parent shall reasonably request and (ii) the recovery, if
any, by Parent as provided in this Section 5.13, Parent shall promptly disburse
to the Shareholders on a pro rata basis any remaining Cash Withholding.
5.14 RESALE REGISTRATION STATEMENT. Parent shall file and use its
reasonable best efforts to cause to become effective a registration statement
with the SEC covering the resale of the Parent Common Stock to be issued
pursuant to this Agreement within 180 days following the Effective
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Time. Such registration shall be subject to the terms and conditions set forth
in the Declaration of Registration Rights Declaration substantially in the form
attached hereto as EXHIBIT B.
5.15 FORM S-8. Parent shall use its reasonable best efforts to cause to
become effective a registration statement on Form S-8 for the shares of Parent
Common Stock issuable with respect to assumed Company Options within 180 days
following the Effective Time.
5.16 NMS LISTING. Parent shall authorize for listing on the Nasdaq
National Market the shares of Parent Common Stock issuable, and those required
to be reserved for issuance, in connection with the Merger, prior to the
earliest possible date that such shares of Parent Common Stock could be resold
on the Nasdaq National Market.
5.17 TAX ELECTION. The Company agrees to elect and Parent agrees to
consent, pursuant to Section 1362(e)(3) of the Code, to allocate tax items to
its "S Short Year" and "C Short Year" pursuant to normal tax accounting rules
(the "closing of the books method") rather than by the pro rata allocation
method contained in Section 1362(e)(2) of the Code. The Company and Parent
agree to take all necessary actions under Treasury Regulation Section 1.1362-6
to cause such election and consents to be effective for federal income tax
purposes, including the execution and delivery, by all Shareholders, to Parent
of a consent in substantially the form attached hereto to as EXHIBIT C (the
"SHAREHOLDER TAX CONSENT"). Additionally, the Company agrees to execute and
attach to its tax return filed with the Internal Revenue Service an executed
election in substantially the form attached hereto to as EXHIBIT D (the
"TERMINATION ELECTION").
5.18 TAX-FREE REORGANIZATION MATTERS. Parent and the Company will not take
any actions inconsistent with the treatment of the transactions contemplated by
this Agreement as a tax-free reorganization within the meaning of Section 368(a)
of the Code.
5.19 LOAN FORGIVENESS. In the event that Richard Davenport and Charles
Loegering pay to Merger Sub an aggregate amount equal to $98,355 on or prior to
the Closing Date in partial satisfaction of amounts due to the Company pursuant
to a loan from the Company to Messrs. Davenport and Loegering entered into on
June 4, 1997, Parent agrees to cause Merger Sub immediately following the
Closing to forgive and cancel the $98,356 remaining outstanding under such loan.
5.20 COMPANY BENEFIT PLANS. The Company shall terminate all employee
benefit plans, including without limitation the Company's 401(k) plan, prior to
the Closing.
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ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the Merger shall have
been approved and adopted by the shareholders of the Company by the requisite
vote under applicable law and the Company's Articles of Incorporation.
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations
of the Company to consummate the Merger and the obligations of the Company to
consummate the transactions contemplated by this Agreement shall be subject to
the satisfaction at or prior to the Closing of each of the following conditions,
any of which may be waived, in writing, exclusively by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall have been
true and correct in all material respects as of the date of this Agreement. In
addition, the representations and warranties of Parent and Merger Sub contained
in this Agreement shall be true and correct in all material respects on and as
of the Effective Time except for changes contemplated by this Agreement and
except for those representations and warranties which address matters only as of
a particular date (which shall remain true and correct as of such particular
date), with the same force and effect as if made on and as of the Effective
Time, except in such cases (other than the representation in Section 3.3) where
the failure to be so true and correct would not have a Material Adverse Effect
on Parent. The Company shall have received a certificate with respect to the
foregoing signed on behalf of Parent by the President and the Chief Financial
Officer of Parent.
(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have
performed or complied (which performance or compliance shall be subject to
Parent's or Merger Sub's ability to cure as provided in Section 8.1(e) below) in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by them on or prior to the Effective
Time, and the Company shall have received a certificate to such effect signed on
behalf of Parent by the President and the Chief Financial Officer of Parent.
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(c) THIRD PARTY CONSENTS. The Company shall have been furnished with
evidence satisfactory to it that Parent has obtained the consents, approvals and
waivers set forth in Schedule 6.2(c).
(d) LEGAL OPINION. The Company shall have received a legal opinion
from Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel to
Parent, in substantially the form attached hereto as EXHIBIT E.
(e) MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change in the business, assets (including intangible assets),
financial condition or results of operations of Parent since June 30, 1997. For
purposes of this condition, a reduction in the trading price of Parent's Common
Stock, whether occurring at any time or from time to time, as reported by Nasdaq
or any other automated quotation system or exchange, shall not constitute a
material adverse change.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB.
The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in this Agreement shall have been true and
correct in all material respects as of the date of this Agreement. In addition,
the representations and warranties of the Company contained in this Agreement
shall be true and correct in all material respects on and as of the Effective
Time except for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such particular date), with the
same force and effect as if made on and as of the Effective Time, except in such
cases (other than the representations in Sections 2.2 and 2.22) where the
failure to be so true and correct would not have a Material Adverse Effect on
the Company. Parent shall have received a certificate with respect to the
foregoing signed on behalf of the Company by the President and the Chief
Financial Officer of the Company.
(b) AGREEMENTS AND COVENANTS. The Company and the Shareholders shall
have performed or complied (which performance or compliance shall be subject to
the Company's ability to cure as provided in Section 8.1(d) below) in all
material respects with all agreements and covenants required by this Agreement
to be performed or complied with by it on or prior to the Effective Time, and
Parent and Merger Sub shall have received a certificate to such effect signed on
behalf of the Company by the President and the Chief Financial Officer of the
Company.
(c) THIRD PARTY CONSENTS. Parent shall have been furnished with
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Schedule 6.3(c).
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(d) LEGAL OPINION. Parent shall have received a legal opinion from
Dorsey & Whitney, legal counsel to the Company and the Shareholders, in
substantially the form attached hereto as EXHIBIT F.
(e) MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change in the business, assets (including intangible assets),
financial condition or results of operations of the Company since June 30, 1997.
(f) AFFILIATE AGREEMENTS. Each of the Company Affiliates shall have
delivered an executed Affiliate Agreement which shall be in full force and
effect.
(g) COMPANY PERSONNEL. At least eighty percent (80%) of the
engineers and field applications engineers employed by the Company on the date
of this Agreement shall have accepted employment offers from Parent or one of
Parent's subsidiaries.
(h) EMPLOYMENT AND NONCOMPETITION AGREEMENTS. Each of Richard
Davenport, Charles Loegering, Daniel Carroll and Jason Campbell shall have
executed and delivered to Parent an Employment and Noncompetition Agreement in
substantially the form of EXHIBIT G, EXHIBIT H, EXHIBIT I and EXHIBIT J hereto,
respectively, and all of such Employment and Noncompetition Agreements shall be
in full force and effect.
(i) SHAREHOLDER INDEMNIFICATION AGREEMENT. Each of the Shareholders
shall have executed a Shareholder Indemnification Agreement substantially in the
form of EXHIBIT K hereto.
(j) OPTION AGREEMENT ADDENDUM. The Company shall have duly executed
an Addendum to Incentive Stock Option Agreement in a form reasonably
satisfactory to counsel to Parent.
(k) DISSENTERS' RIGHTS. Holders of more than 5% of the outstanding
shares of Company Common Stock shall not have exercised, nor shall they have any
continued right to exercise, appraisal, dissenters' or similar rights under
applicable law with respect to their shares by virtue of the Merger.
(l) TRANSACTION EXEMPTION. The offer and issuance of the Parent
Common Stock pursuant to this Agreement shall be exempt from registration
requirements of Section 5 of the Securities Act.
(m) ROYALTY PREPAYMENT. All current and future royalties obligations
associated with the Vericov product and otherwise owed to Sky Design shall have
been permanently extinguish and settlement agreements satisfactory to counsel to
Parent evidencing such extinguishings shall have been duly executed and
delivered by the former holders of such royalty rights.
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(n) TAX CONSENTS AND ELECTIONS. Each of the Shareholders shall have
executed and delivered to Parent a Shareholder Tax Consent, and the Company
shall have executed and delivered to Parent the Termination Election, and all of
foregoing shall be in full force and effect.
(o) 401(K) PLAN. All necessary corporate action shall have been
taken to cause the Company's 401(k) Plan to terminate prior to the Closing.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW; INDEMNITY
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the Company's
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (each as modified by the Disclosure Schedule) shall
survive the Merger and continue until 5:00 p.m., California time, on the date
which is eighteen (18) months following the Closing Date (the "EXPIRATION
DATE"), provided that the representations and warranties set forth in Section
2.8 (Tax and Other Returns and Reports) shall survive until the expiration of
the applicable statute of limitations.
7.2 ESCROW ARRANGEMENTS.
(a) ESCROW FUND. At the Effective Time the Shareholders will be
deemed to have received and deposited with the Escrow Agent (as defined below)
the Escrow Amount (plus any additional shares as may be issued upon any stock
split, stock dividend or recapitalization effected by Parent after the Effective
Time) without any act of any Shareholder. As soon as practicable after the
Effective Time, the Escrow Amount, without any act of any Shareholder, will be
deposited with First Trust of California, National Association (or other
institution acceptable to Parent and the Securityholder Agent (as defined in
Section 7.2(g) below)) as Escrow Agent (the "ESCROW AGENT"), such deposit to
constitute an escrow fund (the "ESCROW FUND") to be governed by the terms set
forth herein and at Parent's cost and expense. The portion of the Escrow Amount
contributed on behalf of each Shareholder shall be in proportion to the
aggregate Parent Common Stock which such holder would otherwise be entitled
under Section 1.6(a) and shall be in the respective amounts listed opposite such
Shareholder's name on EXHIBIT L hereto. In addition, in the event that the
holder of a Company Option exercises rights to acquire any of the Parent Common
Stock during the Escrow Period (as defined in paragraph (c) below), 10% of the
Parent Common Stock issued upon the exercise of such rights shall be placed in
the Escrow Fund.
(b) COMPENSATION FOR LOSSES. The Escrow Fund shall be available to
compensate Parent and its officers, directors, shareholders and other affiliates
for the Secured Portion of any claims, losses, liabilities, damages,
deficiencies, costs and expenses, including reasonable attorneys' fees and
expenses, and expenses of investigation and defense (hereinafter individually a
"LOSS" and collectively "LOSSES") incurred by Parent, its officers, directors,
shareholders or other affiliates (including the Surviving Corporation) directly
or indirectly as a result of any inaccuracy or breach of a representation or
warranty or any breach of a covenant or agreement of the Company and,
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except as otherwise provided in the Shareholder Indemnification Agreements or in
Section 1.7(b)(ii) of this Agreement, shall be the sole source for any such
compensation. Parent may not receive any shares from the Escrow Fund unless and
until Officer's Certificates (as defined in paragraph (d) below) identifying
Losses, the aggregate amount of which exceed $220,000, have been delivered to
the Escrow Agent as provided in paragraph (e); in such case, Parent may recover
from the Escrow Fund the amount of its Losses which exceeds the first $110,000.
For purposes of this Article VII, the "SECURED PORTION" of any Loss shall mean
the percentage of such Loss determined by dividing (i) the Escrow Amount
(without giving effect to any prior reduction thereof in respect of prior
Losses), plus the number of additional shares of Parent Common Stock that would
have been issued to holders of Company Options who exercised such Company
Options during the Escrow Period but for a reduction in the Exchange Ratio
pursuant to Section 1.7(b)(ii) of this Agreement by (ii) 242,444.
(c) ESCROW PERIOD; DISTRIBUTION UPON TERMINATION OF ESCROW PERIODS.
Subject to the following requirements, the Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
California time, on the Expiration Date (the "ESCROW PERIOD"); provided that the
Escrow Period shall not terminate with respect to such amount (or some portion
thereof) of the aggregate amount remaining in the Escrow Fund that is necessary
in the reasonable judgment of Parent, subject to the objection of the
Securityholder Agent and the subsequent arbitration of the matter in the manner
provided in Section 7.2(f) hereof, to satisfy any unsatisfied claims concerning
facts and circumstances existing prior to the termination of such Escrow Period
specified in any Officer's Certificate delivered to the Escrow Agent prior to
termination of such Escrow Period. As soon as all such claims have been
resolved, the Escrow Agent shall deliver to the Shareholders and the holders of
Company Options who have contributed to the Optionholder Escrow Fund
("CONTRIBUTING OPTIONHOLDERS") the remaining portion of the Escrow Fund not
required to satisfy such claims. Deliveries of shares of Parent Common Stock to
the Shareholders and the Contributing Optionholders pursuant to this Section
7.2(b) shall be made in proportion to their respective original contributions to
the Escrow Fund.
(d) PROTECTION OF ESCROW FUND.
(i) The Escrow Agent shall hold and safeguard the Escrow
Fund during the Escrow Period, shall treat such fund as a trust fund in
accordance with the terms of this Agreement and not as the property of Parent
and shall hold and dispose of the Escrow Fund only in accordance with the terms
hereof.
(ii) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued upon a stock
split) ("NEW SHARES") in respect of Parent Common Stock in the Escrow Fund which
have not been released from the Escrow Fund shall be added to the Escrow Fund
and become a part thereof. New Shares issued in respect of shares of Parent
Common Stock which have been released from the Escrow Fund shall not be added to
the Escrow Fund but shall be distributed to the recordholders thereof. Cash
dividends on Parent Common Stock shall not be added to the Escrow Fund but shall
be distributed to the recordholders thereof.
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(iii) Each Shareholder and Contributing Optionholder shall
have voting rights with respect to the shares of Parent Common Stock contributed
to the Escrow Fund by such Shareholder or Contributing Optionholder, as the case
may be (and on any voting securities added to the Escrow Fund in respect of such
shares of Parent Common Stock).
(e) CLAIMS UPON ESCROW FUND.
(i) Upon receipt by the Escrow Agent at any time on or
before the last day of the Escrow Period of a certificate signed by any officer
of Parent (an "OFFICER'S CERTIFICATE"): (A) stating that Parent has paid or
properly accrued or reasonably anticipates that it will have to pay or accrue
Losses, and (B) specifying in reasonable detail the individual items of Losses
included in the amount so stated, the date each such item was paid or properly
accrued, or the basis for such anticipated liability, and the nature of the
misrepresentation, breach of warranty or covenant to which such item is related,
the Escrow Agent shall, subject to the provisions of Section 7.2(e) hereof,
deliver to Parent out of the Escrow Fund, as promptly as practicable, shares of
Parent Common Stock held in the Escrow Fund in an amount equal to the Secured
Portion of such Losses.
(ii) For the purposes of determining the number of shares of
Parent Common Stock to be delivered to Parent out of the Escrow Fund pursuant to
Section 7.2(d)(i) hereof, the shares of Parent Common Stock shall be valued at
the average of the closing prices of Parent's Common Stock on the principal
securities exchange on which Parent's Common Stock is then traded, or if not so
traded, the National Market System of the National Association of Securities
Dealers Automated Quotation system, in either case as reported in THE WALL
STREET JOURNAL for the thirty (30) consecutive trading days ending on the date
that is two (2) trading days prior to the Closing Date. Parent and the
Securityholder Agent shall certify such fair market value in a certificate
signed by both Parent and the Securityholder Agent, and shall deliver such
certificate to the Escrow Agent.
(f) OBJECTIONS TO CLAIMS. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Securityholder Agent and for a period of thirty (30) days after
such delivery, the Escrow Agent shall make no delivery to Parent of any Escrow
Amounts pursuant to Section 7.2(d) hereof unless the Escrow Agent shall have
received written authorization from the Securityholder Agent to make such
delivery. After the expiration of such thirty (30) day period, the Escrow Agent
shall make delivery of shares of Parent Common Stock from the Escrow Fund in
accordance with Section 7.2(d) hereof, provided that no such payment or delivery
may be made if the Securityholder Agent shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent prior to the expiration of such thirty (30) day
period.
(g) RESOLUTION OF CONFLICTS; ARBITRATION.
(i) In case the Securityholder Agent shall so object in
writing to any claim or claims made in any Officer's Certificate, the
Securityholder Agent and Parent shall attempt in good faith to agree upon the
rights of the respective parties with respect to each of such claims. If the
Securityholder Agent and Parent should so agree, a memorandum setting forth such
agreement
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shall be prepared and signed by both parties and shall be furnished to the
Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum
and distribute shares of Parent Common Stock from the Escrow Fund in accordance
with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either Parent or the Securityholder Agent may demand arbitration of
the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained or both parties agree to arbitration; and in
either such event the matter shall be settled by arbitration conducted by a
single independent arbitrator mutually acceptable to Parent and the
Securityholder Agent. In the event that within thirty (30) days after
submission of any dispute to arbitration Parent and the Securityholder Agent
cannot mutually agree on an arbitrator, Parent and the Securityholder Agent
shall each select one independent arbitrator, and the two arbitrators so
selected shall select a third independent arbitrator. The arbitrator or
arbitrators shall set a limited time period and establish procedures designed to
reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the arbitrator or arbitrators, to
discover relevant information from the opposing parties about the subject matter
of the dispute. The arbitrator or arbitrators shall rule upon motions to compel
or limit discovery and shall have the authority to impose sanctions, including
attorneys fees and costs, to the extent as a court of competent law or equity,
should the arbitrator or arbitrators determine that discovery was sought without
substantial justification or that discovery was refused or objected to without
substantial justification. The decision of the sole arbitrator, or a majority
of the arbitrators, as the case may be, as to the validity and amount of any
claim in such Officer's Certificate shall be binding and conclusive upon the
parties to this Agreement, and notwithstanding anything in Section 7.2(e)
hereof, the Escrow Agent shall be entitled to act in accordance with such
decision and make or withhold payments out of the Escrow Fund in accordance
therewith. Such decision shall be written and shall be supported by written
findings of fact and conclusions which shall set forth the award, judgment,
decree or order awarded by the arbitrator or arbitrators.
(iii) Judgment upon any award rendered by the arbitrator or
arbitrators may be entered in any court having jurisdiction. Any such
arbitration shall be held in Minneapolis, Minnesota under the rules then in
effect of the American Arbitration Association. For purposes of this Section
7.2(f), in any arbitration hereunder in which any claim or the amount thereof
stated in the Officer's Certificate is at issue, Parent shall be deemed to be
the Non-Prevailing Party in the event that the arbitrator or arbitrators award
Parent less than the sum of one-half (1/2) of the disputed amount plus any
amounts not in dispute; otherwise, the Shareholders of the Company as
represented by the Securityholder Agent shall be deemed to be the Non-Prevailing
Party. The Non-Prevailing Party to an arbitration shall pay its own expenses,
the fees of each arbitrator, the administrative costs of the arbitration, and
the expenses, including without limitation, reasonable attorneys' fees and
costs, incurred by the other party to the arbitration.
(h) SECURITYHOLDER AGENT OF THE SHAREHOLDERS; POWER OF ATTORNEY.
(i) In the event that the Merger is approved, effective
upon such vote, and without further act of any Shareholder, Richard Davenport
shall be appointed as agent and
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attorney-in-fact (the "SECURITYHOLDER AGENT") for each Shareholder (except such
shareholders, if any, as shall have perfected their dissenters' rights under the
Minnesota Act), for and on behalf of Shareholders, to give and receive notices
and communications, to authorize delivery to Parent of shares of Parent Common
Stock from the Escrow Fund in satisfaction of claims by Parent, to object to
such deliveries, to agree to, negotiate, enter into settlements and compromises
of, and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of Securityholder Agent for the accomplishment of
the foregoing. Such agency may be changed by the Shareholders from time to time
upon not less than thirty (30) days prior written notice to Parent; provided
that the Securityholder Agent may not be removed unless holders of a majority of
the Escrow Fund agree to such removal and to the identity of the substituted
agent. Any vacancy in the position of Securityholder Agent may be filled by
approval of the holders of a majority in interest of the Escrow Fund. No bond
shall be required of the Securityholder Agent, and the Securityholder Agent
shall not receive compensation for his or her services. Notices or
communications to or from the Securityholder Agent shall constitute notice to or
from each of the Shareholders.
(ii) The Securityholder Agent shall not be liable for any
act done or omitted hereunder as Securityholder Agent while acting in good faith
and in the exercise of reasonable judgment. The Shareholders and Contributing
Optionholders on whose behalf the Escrow Amount was contributed to the Escrow
Fund shall severally indemnify the Securityholder Agent and hold the
Securityholder Agent harmless against any loss, liability or expense incurred
without negligence or bad faith on the part of the Securityholder Agent and
arising out of or in connection with the acceptance or administration of the
Securityholder Agent's duties hereunder, including the reasonable fees and
expenses of any legal counsel retained by the Securityholder Agent.
(i) ACTIONS OF THE SECURITYHOLDER AGENT. A decision, act, consent or
instruction of the Securityholder Agent shall constitute a decision of all the
Shareholders and Contributing Optionholders for whom a portion of the Escrow
Amount otherwise issuable to them are deposited in the Escrow Fund and shall be
final, binding and conclusive upon each of such Shareholders and Contributing
Optionholders, and the Escrow Agent and Parent may rely upon any such decision,
act, consent or instruction of the Securityholder Agent as being the decision,
act, consent or instruction of each every such Shareholder and Contributing
Optionholder. The Escrow Agent, Parent and the Surviving Corporation are hereby
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Securityholder
Agent.
(j) THIRD-PARTY CLAIMS. In the event Parent becomes aware of a
third-party claim which Parent believes may result in a demand against the
Escrow Fund, Parent shall notify the Securityholder Agent of such claim, and the
Securityholder Agent, as representative for the shareholders of the Company,
shall be entitled, at their expense, to participate in any defense of such
claim. Parent shall have the right in its sole discretion to settle any such
claim; provided, however, that except with the consent of the Securityholder
Agent, no settlement of any such claim with third-party claimants shall alone be
determinative of the amount of any claim against the Escrow Fund. In the event
that the Securityholder Agent has consented to any such settlement and
acknowledged that
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the claim is a valid claim against the Escrow Fund, the Securityholder Agent
shall have no power or authority to object under any provision of this Article
VII to the amount of any claim by Parent against the Escrow Fund with respect to
such settlement.
(k) ESCROW AGENT'S DUTIES.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Parent and the Securityholder Agent, and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties.
The Escrow Agent shall not be liable for any act done or omitted hereunder as
Escrow Agent while acting in good faith and in the exercise of reasonable
judgment, and any act done or omitted pursuant to the advice of counsel shall be
conclusive evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree of any court, the Escrow Agent shall not be liable to any of the
parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration
of any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the
Escrow Agent shall not be liable to any party for damages, losses, or expenses,
except for gross negligence or willful misconduct on the part of the Escrow
Agent. The Escrow Agent shall not incur any such liability for (A) any act or
failure to act made or omitted in good faith, or (B) any action taken or omitted
in reliance upon any instrument, including any written statement of affidavit
provided for in this Agreement that the Escrow Agent shall in good faith believe
to be genuine, nor will the Escrow Agent be liable or responsible for forgeries,
fraud, impersonations, or determining the scope of any representative authority.
In addition, the Escrow Agent may consult with the legal counsel in connection
with Escrow Agent's duties under this Agreement and shall be fully protected in
any act taken, suffered, or permitted by him/her in good faith in accordance
with the advice of counsel. The
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Escrow Agent is not responsible for determining and verifying the authority of
any person acting or purporting to act on behalf of any party to this Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and shares of Parent Common Stock and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damage.
Furthermore, the Escrow Agent may, at its option, file an
action of interpleader requiring the parties to answer and litigate any claims
and rights among themselves. The Escrow Agent is authorized to deposit with the
clerk of the court all documents and shares of Parent Common Stock held in
escrow, except all cost, expenses, charges and reasonable attorney fees incurred
by the Escrow Agent due to the interpleader action and which the parties jointly
and severally agree to pay. Upon initiating such action, the Escrow Agent shall
be fully released and discharged of and from all obligations and liability
imposed by the terms of this Agreement.
(vii) The parties and their respective successors and assigns
agree jointly and severally to indemnify and hold Escrow Agent harmless against
any and all losses, claims, damages, liabilities, and expenses, including
reasonable costs of investigation, counsel fees, and disbursements that may be
imposed on Escrow Agent or incurred by Escrow Agent in connection with the
performance of his/her/its duties under this Agreement, including but not
limited to any litigation arising from this Agreement or involving its subject
matter.
(viii) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to the parties; provided, however, that no
such resignation shall become effective until the appointment of a successor
escrow agent which shall be accomplished as follows: the parties shall use
their best efforts to mutually agree on a successor escrow agent within thirty
(30) days after receiving such notice. If the parties fail to agree upon a
successor escrow agent within such time, the Escrow Agent shall have the right
to appoint a successor escrow agent authorized to do business in the State of
California. The successor escrow agent shall execute and deliver an instrument
accepting such appointment and it shall, without further acts, be vested with
all the estates, properties, rights, powers, and duties of the predecessor
escrow agent as if originally named as escrow agent. The Escrow Agent shall be
discharged from any further duties and liability under this Agreement.
(l) FEES. All fees of the Escrow Agent for performance of its duties
hereunder shall be paid by Parent. It is understood that the fees and usual
charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a
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party to, or intervenes in, any litigation pertaining to this escrow or its
subject matter, the Escrow Agent shall be reasonably compensated for such
extraordinary services and reimbursed for all costs, attorney's fees, and
expenses occasioned by such default, delay, controversy or litigation.
(m) SUCCESSION OF ESCROW AGENT. Any company into which the Escrow
Agent may be merged or with which it may be consolidated, or any company to whom
the Escrow Agent may transfer a substantial amount of its Global Escrow
business, shall be the successor to the Escrow Agent without the execution or
filing of any paper or any further act on the part of any of the parties,
anything herein to the contrary notwithstanding.
(n) SHAREHOLDER INDEMNIFICATION AGREEMENT. Notwithstanding any
provision of this Agreement to the contrary, including without limitation any
provision of this Article VII, nothing in this Agreement shall prejudice the
right of Parent, or otherwise limit the liability of the Shareholders, under the
Shareholder Indemnification Agreements.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. Except as provided in Section 8.2 below, this Agreement
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not
occurred by October 31, 1997 (provided that the right to terminate this
Agreement under this clause 8.1(b)(i) shall not be available to any party whose
willful failure to fulfill any obligation hereunder has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date);
(ii) there shall be a final nonappealable order of a federal or state court in
effect preventing consummation of the Merger; or (iii) there shall be any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any governmental entity that would make consummation
of the Merger illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any Governmental Entity, which would: (i) prohibit Parent's or
the Company's ownership or operation of any portion of the business of the
Company or (ii) compel Parent or the Company to dispose of or hold separate, as
a result of the Merger, any portion of the business or assets of the Company or
Parent.
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company or the Shareholders and as a result of such breach the conditions set
forth in Section 6.3(a) or 6.3(b), as the case may be, would not then be
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satisfied; provided, however, that if such breach is curable by the Company or
the Shareholders, as the case may be, within thirty (30) days through the
exercise of its reasonable best efforts, then for so long as the Company or the
Shareholders, as the case may be, continue to exercise such reasonable best
efforts Parent may not terminate this Agreement under this Section 8.1(d) unless
such breach is not cured within thirty (30) days (but no cure period shall be
required for a breach which by its nature cannot be cured);
(e) by the Company if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
Parent or Merger Sub and as a result of such breach the conditions set forth in
Section 6.2(a) or 6.2(b), as the case may be, would not then be satisfied;
provided, however, that if such breach is curable by Parent or Merger Sub within
thirty (30) days through the exercise of its reasonable best efforts, then for
so long as Parent or Merger Sub continues to exercise such reasonable best
efforts the Company may not terminate this Agreement under this Section 8.1(e)
unless such breach is not cured within thirty (30) days (but no cure period
shall be required for a breach which by its nature cannot be cured).
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Merger Sub, the
Shareholders or the Company, or their respective officers, directors or
shareholders, provided that, the provisions of Sections 5.3 and 5.4 and Article
IX of this Agreement shall remain in full force and effect and survive any
termination of this Agreement.
8.3 AMENDMENT. Except as is otherwise required by applicable law after
the Shareholders approve this Agreement, this Agreement may be amended by the
parties hereto at any time by execution of an instrument in writing signed on
behalf of each of the parties hereto.
8.4 EXTENSION; WAIVER. At any time prior to the Effective Time, Parent
and Merger Sub, on the one hand, and the Company and the Shareholders, on the
other, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations of the other party hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
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ARTICLE IX
GENERAL PROVISIONS
9.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Summit Design, Inc.
9305 S.W. Gemini Drive
Beaverton, Oregon 97008
Attention: Chief Executive Officer
Telephone No.: (503) 643-9281
Facsimile No.: (503) 646-9320
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Steven V. Bernard
Telephone No.: (415) 493-9300
Facsimile No.: (415) 493-6811
(b) if to the Company, to:
Simulation Technologies Corp.
2299 Palmer Drive, Suite 202
New Brighton, Minnesota 55112
Attention: Chief Executive Officer
Telephone No.: (612) 631-1858
Facsimile No.: (612) 631-1830
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with a copy to:
Dorsey & Whitney
Pillsbury Center South
220 South 6th Street
Minneapolis, Minnesota 55402
Attention: William B. Payne
Telephone No.: (612) 340-2600
Facsimile No.: (612) 340-8738
(c) if to the Securityholder Agent:
Richard Davenport
5944 Oxford Street
Shoreview, Minnesota 55126
Telephone No.: (612) 482-0119
Facsimile No.: (___) ________
(d) if to the Escrow Agent:
First Trust of California, National Association
1 California Street, Fourth Floor
San Francisco, California 94111
Attention: Barbara Wise
Telephone No.: (415) 273-4530
Facsimile No.: (415) 273-4593
9.2 INTERPRETATION. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The word "agreement" when used herein shall be deemed in each case
to mean any contract, commitment or other agreement, whether oral or written,
that is legally binding. As used in this Agreement, the phrase "to [a party's]
knowledge," "[a party] is not aware," and similar phrases shall mean the
knowledge of such party, or of the officers and directors of such party, after
careful consideration of the matters set forth in the representation that is so
qualified and a reasonably diligent review of all files, documents, agreements
and other materials in such person's possession or subject to his or her
control. The table of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the schedules and
exhibits hereto (including without limitation the agreements listed as exhibits
hereto), and the documents and
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instruments and other agreements among the parties hereto referenced herein:
(a) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof; (b) are not intended to confer upon any other person any rights or
remedies hereunder; and (c) shall not be assigned by operation of law or
otherwise except as otherwise specifically provided, except that Parent and
Merger Sub may assign their respective rights and delegate their respective
obligations hereunder to their respective affiliates.
9.5 SEVERABILITY. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 OTHER REMEDIES. Except as otherwise expressly provided for in this
Agreement, any and all remedies herein expressly conferred upon a party,
including without limitation the remedies provided in Article VII, will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy.
9.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
9.8 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.9 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
9.10 SHARE LEGENDS. All certificates representing any of the shares of
Parent Common Stock to be issued pursuant to this Agreement shall have endorsed
thereon a restrictive legend substantially as follows:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES
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UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED."
(b) Any legend required to be placed thereon by applicable blue sky
laws of any state.
9.11 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Securityholder
Agent (as to Article VII only) and the Escrow Agent (as to matters set forth in
Article VII only) have signed this Agreement, or caused this Agreement to be
signed by their duly authorized respective officers, all as of the date first
written above.
SIMULATION TECHNOLOGIES SUMMIT DESIGN, INC.
CORP.
By /s/ Richard Davenport By /s/ Larry J. Gerhard
------------------------------------- ---------------------------------
Richard Davenport Larry J. Gerhard
President and Chief Executive Officer President and Chief Executive Officer
SECURITYHOLDER AGENT: STAR ACQUISITION, INC.
/s/ Richard Davenport By /s/ Larry J. Gerhard
- --------------------------------------- ---------------------------------
Richard Davenport Larry J. Gerhard
President and Chief Executive Officer
ESCROW AGENT
By /s/ Barbara L. Wise
-------------------------------------
Name: Barbara L. Wise
Title: Vice President
***REORGANIZATION AGREEMENT SIGNATURE PAGE***
<PAGE>
CERTIFICATE OF MERGER
OF
SIMULATION TECHNOLOGIES CORP.
INTO
STAR ACQUISITION, INC.
Star Acquisition, Inc., a Delaware corporation, hereby certifies, that:
1. The constituent corporations are: Simulation Technologies Corp., a
Minnesota corporation, and Star Acquisition, Inc., a Delaware corporation.
2. An agreement of merger has been approved, adopted, certified, executed
and acknowledged by each of the constituent corporations in accordance with the
provisions of Section 252(c) of the Delaware General Corporation Law.
3. The surviving corporation (the "Surviving Corporation") shall be Star
Acquisition, Inc., which shall change its name to Summit Verification, Inc.
4. The Certificate of Incorporation of Star Acquisition, Inc. shall
continue to be the Certificate of Incorporation of the Surviving Corporation
except that the First Article is to be amended in its entirety to read as
follows:
"The name of the corporation is Summit Verification, Inc."
5. An executed copy of the agreement of merger is on file at an office of
the Surviving Corporation, the address of which is as follows: 2299 Palmer
Drive, Suite 202, New Brighton, Minnesota 55112.
6. A copy of the agreement of merger will be furnished by the Surviving
Corporation, on request and without cost, to any stockholder of any constituent
corporation.
7. The authorized capital stock of Simulation Technologies Corp. is
15,000,000 shares of Common Stock, no par value.
Dated: September 9, 1997
STAR ACQUISITION, INC.
By: /s/ C. Albert Koob
------------------------------------------
C. Albert Koob, Secretary
<PAGE>
ARTICLES OF MERGER
OF
SIMULATION TECHNOLOGIES CORP.
INTO
STAR ACQUISITION, INC.
The undersigned, the Secretary of Star Acquisition, Inc., a Delaware
corporation, and the Secretary of Simulation Technologies Corp., a Minnesota
corporation, hereby certify as follows:
1. The Plan of Merger attached hereto as EXHIBIT A provides for the
merger of Simulation Technologies Corp. into Star Acquisition, Inc.
2. The plan of merger has been approved by each corporation pursuant to
the Minnesota Business Corporation Act and, in the case of Star Acquisition,
Inc. pursuant to the Delaware General Corporation Law.
3. Star Acquisition, Inc. hereby consents to service of process in the
State of Minnesota in a proceeding for the enforcement of an obligation of a
constituent corporation and in a proceeding for the enforcement of the rights of
a dissenting shareholder of a constituent corporation against Star Acquisition,
Inc. The Secretary of State of the State of Minnesota is irrevocably appointed
as the agent of the Star Acquisition, Inc. to accept service of process in any
such proceeding, which shall be forwarded to Summit Design, Inc., 9305 S.W.
Gemini Drive, Beaverton, Oregon 97008, Attention: C. Albert Koob.
4. Star Acquisition, Inc. agrees that it will promptly pay to the
dissenting shareholders of Stimulation Technologies Corp. the amount, if any, to
which they are entitled under Section 302A.473 of the Minnesota Business
Corporation Act.
Dated: September 9, 1997
SIMULATION TECHNOLOGIES CORP. STAR ACQUISITION, INC.
By: /s/ Richard P. Davenport By: /s/ C. Albert Koob
--------------------------- -----------------------
Secretary Secretary
<PAGE>
PLAN OF MERGER
This Plan of Merger is by and between Simulation Technologies Corp., a
Minnesota corporation ("SimTech") and Star Acquisition, Inc., a Delaware
corporation ("Merger Sub").
ARTICLE I
THE MERGER
1.01 THE MERGER. At the Effective Time (as defined in Section 1.03 hereof)
in accordance with the Minnesota Business Corporation Act (the "MBCA") and the
Delaware General Corporation Law ("DGCL"), SimTech shall be merged (the
"Merger") into Merger Sub, the separate corporate existence of SimTech shall
cease, and Merger Sub shall continue as the surviving corporation under the
corporate name "Summit Verification, Inc." Merger Sub, in its capacity as the
corporation surviving the Merger, is hereinafter sometimes referred to as the
"Surviving Corporation." SimTech and Merger Sub are hereinafter sometimes
collectively referred to as the "Constituent Corporations."
1.02 EFFECT OF THE MERGER. The effect of the Merger shall be as set forth
in Section 302A.641 of the MBCA and Section 259 of the DGCL, and the Surviving
Corporation shall succeed to and possess all the property, rights, privileges,
immunities, powers, and franchises, and be subject to all the duties,
liabilities, debts, obligations, restrictions and disabilities of the
Constituent Corporations, all without further act or deed.
1.03 EFFECTIVE TIME. The Merger shall become effective immediately upon
the filing of the Articles of Merger with the Secretary of State of Minnesota
and the Certificate of Merger with the Secretary of State of the State of
Delaware. The date and time on which the Merger shall become effective is
referred to herein as the "Effective Time."
1.04 DIRECTORS AND OFFICERS. From and after the Effective Time, the
directors of the Surviving Corporation shall be the persons who were the
directors of Merger Sub immediately prior to the Effective Time and the officers
of the Surviving Corporation shall be the persons who were the officers of
Merger Sub immediately prior to the Effective Time. Said directors and officers
of the Surviving Corporation shall hold office in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation.
1.05 CERTIFICATION OF INCORPORATION; BYLAWS. As of the Effective Time, the
Certificate of Incorporation of Merger Sub as in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation; provided, however, that the First Article of the Certificate of
Incorporation shall be amended to read as follows: "The name of the Corporation
is Summit Verification, Inc." As of the Effective Time, the Bylaws of Merger
Sub as in effect immediately prior to the Effective Time shall be the Bylaws of
the Surviving Corporation.
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1.06 FURTHER ACTION. If, at any time after the Effective Time, any further
action is necessary or desirable to carry out the purposes of this Plan of
Merger and to vest the Surviving Corporation with full right, title and
possession to all the property, rights, privileges, immunities, powers and
franchises of either of the Constituent Corporations, the officers of the
Surviving Corporation are fully authorized in the name of each Constituent
Corporation or otherwise to take, and shall take, all such lawful and necessary
action.
ARTICLE II
CONVERSION OF SECURITIES
2.01 CONVERSION OF SECURITIES. At the Effective Time, by virtue of the
Merger and without any action on the part of Summit Design, Inc., a Delaware
corporation ("Summit"), SimTech, Merger Sub, the Surviving Corporation or the
holder of any of the securities of Summit, SimTech or Merger Sub, the following
shall occur:
(a) COMMON STOCK OF SIMTECH.
(i) Each share of Common Stock of SimTech ("SimTech Common
Stock,") issued and outstanding immediately prior to the Effective Time (other
than any Dissenting Shares (as defined in Section 2.02 hereof)) shall be
canceled and extinguished and converted into the right to receive .25671 share
(the "Exchange Ratio") of Summit Common Stock, upon surrender of the certificate
representing each such share of SimTech Common Stock; and
(ii) In lieu of the issuance of an aggregate of 444,444
shares of Summit Common Stock to the holders of SimTech Common Stock, Summit
shall pay to such holders on a pro rata basis an aggregate cash payment of
$4,000,000, a portion of which shall be placed in escrow by Summit, the release
of which shall be contingent upon the amount of certain expenses incurred by
SimTech prior to the Effective Time;
(b) STOCK OPTIONS. At the Effective Time, all options to purchase
SimTech Common Stock then outstanding under SimTech's 1994 Stock Option Plan
(the "Option Plan"), or otherwise (each a "SimTech Option"), shall be assumed by
Summit in accordance with the provisions described below:
(i) At the Effective Time, each outstanding SimTech Option,
whether vested or unvested, shall be, in connection with the Merger, assumed by
Summit. Each SimTech Option so assumed by Summit shall continue to have, and be
subject to, the same terms and conditions set forth in the Option Plan and/or as
provided in the respective option agreements governing such SimTech Option
immediately prior to the Effective Time, except that, subject to adjustment as
provided in paragraph (ii) below, (A) such SimTech Option shall be exercisable
for that number of whole shares of Summit Common Stock equal to the product of
the number of shares of SimTech Common Stock that were issuable upon exercise of
such SimTech Option immediately
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prior to the Effective Time multiplied by the Exchange Ratio, rounded down to
the nearest whole number of shares of Summit Common Stock and (B) the per share
exercise price for the shares of Summit Common Stock issuable upon exercise of
such assumed SimTech Option (the "Initial Exercise Price") shall be equal to the
quotient determined by dividing the exercise price per share of SimTech Common
Stock at which such SimTech Option was exercisable immediately prior to the
Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.
(ii) In the event that the holder of a SimTech Option exercises
rights to acquire any of the Summit Common Stock, and at or prior to the time
that such right is exercised there has been a payment of Summit Common Stock out
of the Escrow Fund (as defined in Section 2.01(f)(i) as a result of Losses (as
defined in Section 2.01(f)(ii)), then (A) the number of shares of Summit Common
Stock issuable upon exercise of such SimTech Option shall be reduced to the
number determined by multiplying such number of shares of Summit Common Stock by
the quotient (the "Adjusted Exchange Ratio") determined by dividing (1)
1,701,227, less the number of shares of Summit Common Stock theretofore paid to
Summit out of the Escrow Fund by reason of Losses, by (2) 1,701,227 and (B) the
exercise price per share shall be increased to the price determined by
multiplying the Initial Exercise Price by the quotient determined by dividing
(x) the Initial Exercise Price by (y) the Adjusted Exchange Ratio.
(iii) Promptly following the Effective Time, Summit will issue to
each holder of an outstanding SimTech Option a document evidencing the foregoing
assumption of such SimTech Option by Summit.
(c) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock of
Merger Sub issued and outstanding immediately prior to the Effective Time shall
be converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall continue
to evidence ownership of such shares of capital stock of the Surviving
Corporation.
(d) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
appropriately adjusted to reflect fully the effect of any stock split, reverse
split, stock dividend (including any dividend or distribution of securities
convertible into Summit Common Stock or SimTech Common Stock), reorganization,
recapitalization or other like change with respect to Summit Common Stock or
SimTech Common Stock occurring after the date hereof and prior to the Effective
Time.
(e) FRACTIONAL SHARES. No fraction of a share of Summit Common Stock
will be issued, but in lieu thereof, each holder of shares of SimTech Common
Stock who would otherwise be entitled to a fraction of a share of Summit Common
Stock (after aggregating all fractional shares of Summit Common Stock to be
received by such holder) shall be entitled to receive from Summit an amount of
cash (rounded to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) the average closing price of a share of Summit
Common Stock for the five (5) consecutive trading days ending on the trading day
immediately prior to the Closing Date, as reported on the Nasdaq National
Market.
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(f) ESCROW. A portion of the shares of Summit Common Stock otherwise
issuable by Summit in connection with the Merger shall be placed in escrow by
Summit in accordance with the provisions described below:
(i) ESCROW FUND. At the Effective Time the holders of SimTech
Common Stock (the "SimTech Shareholders") will be deemed to have received and
deposited with the Escrow Agent (as defined below) one-tenth (1/10th) of the
number of shares of Summit Common Stock obtained by multiplying (x) the
aggregate number of shares of SimTech Common Stock outstanding immediately prior
to the Effective Time by (y) the Exchange Ratio (the "Shareholder Escrow
Amount") (plus any additional shares as may be issued upon any stock split,
stock dividend or recapitalization effected by Summit after the Effective Time)
without any act of any SimTech Shareholder. As soon as practicable after the
Effective Time, the Shareholder Escrow Amount, without any act of any SimTech
Shareholder, will be deposited with First Trust of California, National
Association as Escrow Agent (the "Escrow Agent"), such deposit to constitute an
escrow fund (the "Escrow Fund"). The portion of the Shareholder Escrow Amount
contributed on behalf of each Shareholder shall be in proportion to the
aggregate Summit Common Stock which such holder would otherwise be entitled. In
addition, in the event that the holder of a SimTech Option exercises rights to
acquire any of the Summit Common Stock during the period beginning immediately
after the closing of the Merger and ending at 5:00 p.m. California time on the
date which is eighteen (18) months following the date of the closing of the
Merger (the "Escrow Period"), 10% of the Summit Common Stock issued upon the
exercise of such rights (the "Optionholder Escrow Amount") shall be placed in
the Escrow Fund. The "Escrow Amount" shall be the sum of the Shareholder Escrow
Amount and the Optionholder Escrow Amount.
(ii) COMPENSATION FOR LOSSES. The Escrow Fund shall be available
to compensate Summit and its officers, directors, shareholders and other
affiliates for the Secured Portion of any claims, losses, liabilities, damages,
deficiencies, costs and expenses, including reasonable attorneys' fees and
expenses, and expenses of investigation and defense (hereinafter individually a
"Loss" and collectively "Losses") incurred by Summit, its officers, directors,
shareholders or other affiliates (including the Surviving Corporation) directly
or indirectly as a result of any inaccuracy or breach of a representation or
warranty or any breach of a covenant or agreement of the SimTech. Summit may
not receive any shares from the Escrow Fund unless and until Officer's
Certificates identifying Losses, the aggregate amount of which exceed $220,000,
have been delivered to the Escrow Agent; in such case, Summit may recover from
the Escrow Fund the amount of its Losses which exceeds the first $110,000. For
purposes of this Article II, the "Secured Portion" of any Loss shall mean the
percentage of such Loss determined by dividing (i) the Escrow Amount (without
giving effect to any prior reduction thereof in respect of prior Losses), plus
the number of additional shares of Summit Common Stock that would have been
issued to holders of SimTech Options who exercised such SimTech Options during
the Escrow Period but for a reduction in the Exchange Ratio pursuant to Section
2.01(b)(ii) of this Plan of Merger by (ii) 242,444.
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2.02 DISSENTING SHARES.
(a) Notwithstanding anything in this Plan of Merger to the contrary,
any shares of SimTech Common Stock held by a holder who has demanded and
perfected dissenters' rights for such shares in accordance with Sections
302A.471 and 302A.473 of the MBCA and who, as of the Effective Time, has not
effectively withdrawn or lost such dissenters' rights, shall not be converted
into or represent a right to receive Summit Common Stock, but the holder thereof
shall only be entitled to such rights as are granted by Sections 302A.471 and
302A473 of the MBCA.
If any holder of shares of Summit Common Stock who demands the fair
market value of such shares under 302A.473 of the MBCA shall effectively
withdraw or lose (through failure to perfect or otherwise) the such fair market
value, then, as of the later of the Effective Time and the occurrence of such
event, such holder's shares shall automatically be converted into and represent
only the right to receive Summit Common Stock and fractional shares, without
interest thereon, upon surrender of the certificate representing such shares.
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