AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
IWERKS ENTERTAINMENT, INC.
IWK-1 MERGER CORPORATION
AND
SHOWSCAN ENTERTAINMENT, INC.
AUGUST 4, 1997
TABLE OF CONTENTS
PAGE
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AGREEMENT AND PLAN OF REORGANIZATION. . . . . . . . . . . . . . . . . . . . 1
R E C I T A L S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A G R E E M E N T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
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2. THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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2.1 EXECUTION, FILING, EFFECTIVE TIME. . . . . . . . . . . . . . 6
2.2 CONSTITUENT AND SURVIVING CORPORATIONS . . . . . . . . . . . 6
2.3 CERTIFICATE OF INCORPORATION AND BYLAWS. . . . . . . . . . . 7
2.4 BOARD OF DIRECTORS AND OFFICERS. . . . . . . . . . . . . . . 7
2.5 CONVERSION OF THE COMPANY COMMON STOCK, COMPANY PREFERRED
STOCK AND SUB CAPITAL STOCK. . . . . . . . . . . . . . . . . 7
2.6 COMPANY PURCHASE RIGHTS AND CONVERTIBLE NOTES. . . . . . . .10
2.7 CLOSING OF TRANSFER BOOKS. . . . . . . . . . . . . . . . . .11
2.8 RELATED AGREEMENTS . . . . . . . . . . . . . . . . . . . . .11
2.9 DISSENTING STOCKHOLDERS. . . . . . . . . . . . . . . . . . .11
2.10 DISSENTER PAYMENT. . . . . . . . . . . . . . . . . . . . . .12
3. CLOSING DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
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4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . . . .12
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4.1 ORGANIZATION AND STANDING; ARTICLES AND BY-LAWS. . . . . . .12
4.2 AUTHORIZATION. . . . . . . . . . . . . . . . . . . . . . . .13
4.3 NO CONSENTS. . . . . . . . . . . . . . . . . . . . . . . . .13
4.4 CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . .13
4.5 SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . . . .14
4.6 COMMISSION REPORTS AND FINANCIAL STATEMENT . . . . . . . . .15
4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS . . . . . . . . . . . .15
4.8 PENDING LITIGATION. . . . . . . . . . . . . . . . . . . . .16
4.9 PARTICIPATIONS AND RESIDUALS . . . . . . . . . . . . . . . .16
4.10 TAX RETURNS. . . . . . . . . . . . . . . . . . . . . . . . .16
4.11 TAX ELECTION . . . . . . . . . . . . . . . . . . . . . . . .17
4.12 PROPERTIES, ENCUMBRANCES . . . . . . . . . . . . . . . . . .17
4.13 PERSONAL PROPERTY. . . . . . . . . . . . . . . . . . . . . .17
4.14 EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . .18
4.15 CERTAIN AGREEMENTS . . . . . . . . . . . . . . . . . . . . .18
4.16 COMPLIANCE WITH APPLICABLE LAW . . . . . . . . . . . . . . .19
4.17 ENVIRONMENTAL COMPLIANCE MATTERS . . . . . . . . . . . . . .19
4.18 PATENTS, TRADE NAMES AND OTHER INTELLECTUAL PROPERTY RIGHTS.20
4.19 NO BROKERS.. . . . . . . . . . . . . . . . . . . . . . . . .20
4.20 BOARD APPROVAL.. . . . . . . . . . . . . . . . . . . . . . .20
4.21 TAKEOVER PROVISIONS INAPPLICABLE.. . . . . . . . . . . . . .20
4.22 FAIRNESS OPINION.. . . . . . . . . . . . . . . . . . . . . .20
4.23 NO DISSENTERS RIGHTS.. . . . . . . . . . . . . . . . . . . .20
5. REPRESENTATIONS AND WARRANTIES OF PARENT . . . . . . . . . . . . . . .20
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5.1 ORGANIZATION AND STANDING; ARTICLES AND BY-LAWS. . . . . . .21
5.2 AUTHORIZATION. . . . . . . . . . . . . . . . . . . . . . . .21
5.3 NO CONSENTS. . . . . . . . . . . . . . . . . . . . . . . . .21
5.4 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . .22
5.5 SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . .22
5.6 AUTHORIZATION OF PARENT COMMON STOCK . . . . . . . . . . . .23
5.7 COMMISSION REPORTS AND FINANCIAL STATEMENTS. . . . . . . . .23
5.8 ABSENCE OF CERTAIN CHANGES OR EVENTS . . . . . . . . . . . .23
5.9 PENDING LITIGATION . . . . . . . . . . . . . . . . . . . . .24
5.10 TAX RETURNS. . . . . . . . . . . . . . . . . . . . . . . . .24
5.11 TAX ELECTION.. . . . . . . . . . . . . . . . . . . . . . . .25
5.12 PROPERTIES, ENCUMBRANCES.. . . . . . . . . . . . . . . . . .25
5.13 PERSONAL PROPERTY. . . . . . . . . . . . . . . . . . . . . .25
5.14 EMPLOYEE BENEFIT PLANS.. . . . . . . . . . . . . . . . . . .25
5.15 CERTAIN AGREEMENTS . . . . . . . . . . . . . . . . . . . . .26
5.16 COMPLIANCE WITH APPLICABLE LAW . . . . . . . . . . . . . . .26
5.17 ENVIRONMENTAL COMPLIANCE MATTERS . . . . . . . . . . . . . .26
5.18 PATENTS, TRADE NAMES AND OTHER INTELLECTUAL PROPERTY RIGHTS.27
5.19 NO BROKERS . . . . . . . . . . . . . . . . . . . . . . . . .27
5.20 BOARD APPROVAL . . . . . . . . . . . . . . . . . . . . . . .28
5.21 TAKEOVER PROVISIONS INAPPLICABLE.. . . . . . . . . . . . . .28
5.22 FAIRNESS OPINION.. . . . . . . . . . . . . . . . . . . . . .28
6. COVENANTS OF PARENT AND THE COMPANY. . . . . . . . . . . . . . . . . .28
-----------------------------------
6.1 CONDUCT OF BUSINESS BY THE COMPANY . . . . . . . . . . . . .28
6.2 CONDUCT OF BUSINESS BY PARENT. . . . . . . . . . . . . . . .30
6.3 INSPECTION OF RECORDS. . . . . . . . . . . . . . . . . . . .31
6.4 STOCKHOLDER APPROVAL . . . . . . . . . . . . . . . . . . . .31
6.5 REGISTRATION STATEMENT; PROXY STATEMENT. . . . . . . . . . .31
6.6 AGREEMENTS BY AFFILIATED STOCKHOLDERS OF THE COMPANY . . . .33
6.7 COMFORT LETTER . . . . . . . . . . . . . . . . . . . . . . .33
6.8 TAKEOVER STATUTES. . . . . . . . . . . . . . . . . . . . . .33
6.9 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . .34
6.10 REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . .34
6.11 CONTINUITY OF INTEREST LETTERS . . . . . . . . . . . . . . .34
6.12 FILINGS; OTHER ACTION. . . . . . . . . . . . . . . . . . . .34
6.13 NOTIFICATION OF CERTAIN MATTERS. . . . . . . . . . . . . . .34
6.14 LEGAL ACTION. . . . . . . . . . . . . . . . . . . . . . . .34
6.15 PUBLICITY. . . . . . . . . . . . . . . . . . . . . . . . . .35
6.16 ALTERNATIVE PROPOSALS. . . . . . . . . . . . . . . . . . . .35
6.17 INDEMNIFICATION AND INSURANCE. . . . . . . . . . . . . . . .36
6.18 APPOINTMENT OF COMPANY NOMINATED DIRECTORS . . . . . . . . .37
7. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER . . . . . .37
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7.1 STOCKHOLDER APPROVAL . . . . . . . . . . . . . . . . . . . .37
7.2 NO LEGAL ACTION. . . . . . . . . . . . . . . . . . . . . . .37
7.3 REGISTRATION STATEMENT EFFECTIVE . . . . . . . . . . . . . .37
7.4 LISTING OF ADDITIONAL SHARES ON THE NASDAQ NATIONAL MARKET .37
7.5 PERMITS AND APPROVALS. . . . . . . . . . . . . . . . . . . .38
7.6 ACCOUNTING TREATMENT . . . . . . . . . . . . . . . . . . . .38
8. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT . . . . . . . . . . . .38
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8.1 REPRESENTATIONS, COVENANTS, CERTIFICATE. . . . . . . . . . .38
8.2 NO ADVERSE CHANGE. . . . . . . . . . . . . . . . . . . . . .38
8.3 CERTAIN LEGAL MATTERS. . . . . . . . . . . . . . . . . . . .38
8.4 TAX OPINION AND CERTIFICATES . . . . . . . . . . . . . . . .38
8.5 CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . . .39
8.6 RESIGNATION OF COMPANY OFFICERS AND DIRECTORS. . . . . . . .39
9. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. . . . . . . .39
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9.1 REPRESENTATIONS, COVENANTS, CERTIFICATE. . . . . . . . . . .39
9.2 CERTAIN LEGAL MATTERS. . . . . . . . . . . . . . . . . . . .39
9.3 TAX OPINION AND CERTIFICATES . . . . . . . . . . . . . . . .39
9.4 CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . . .40
10. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
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10.1 TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . .40
10.2 OPTION TO PURCHASE . . . . . . . . . . . . . . . . . . . . .41
10.3 EFFECT OF TERMINATION. . . . . . . . . . . . . . . . . . . .44
11. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . .45
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11.1 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . .45
11.2 TERMINATION OF REPRESENTATIONS AND WARRANTIES. . . . . . . .46
11.3 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . .46
11.4 EXHIBITS AND SCHEDULES . . . . . . . . . . . . . . . . . . .46
11.5 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . .46
11.6 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . .46
11.7 NO ADVERSE CONSTRUCTION. . . . . . . . . . . . . . . . . . .47
11.8 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . .47
11.9 COSTS AND ATTORNEYS' FEES. . . . . . . . . . . . . . . . . .47
11.10 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . .47
11.11 AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . .47
11.12 WAIVER.. . . . . . . . . . . . . . . . . . . . . . . . . . .47
11.13 ENFORCEMENT OF AGREEMENT . . . . . . . . . . . . . . . . . .47
11.14 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . .47
11.15 BEST EFFORTS.. . . . . . . . . . . . . . . . . . . . . . . .48
11.16 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS.. . . . . . . . . . . . . . . . . . . . . . . . .48
11.17 NO THIRD PARTY BENEFICIARIES. . . . . . . . . . . . . . . .48
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made and
entered into as of August 4, 1997, by and among SHOWSCAN ENTERTAINMENT, INC., a
Delaware corporation (the "Company"), IWK-1 MERGER CORPORATION, a Delaware
corporation ("Sub"), and IWERKS ENTERTAINMENT, INC., a Delaware corporation
("Parent"), with respect to the following:
R E C I T A L S
- - - - - - - -
A. The Boards of Directors of Parent, the Company and Sub each
has determined that a business combination among Parent, the Company and Sub is
in the best interest of their respective companies and stockholders and
presents an opportunity for their respective companies to achieve long-term
strategic and financial benefits, and accordingly the parties have agreed to
effect the merger provided for herein (the "Merger") upon the terms and subject
to the conditions set forth herein.
B. The Boards of Directors of Parent, the Company and Sub each has
approved and adopted this Agreement and approved the Merger and the other
transactions contemplated hereby (including the Company Stockholder Support
Agreements and the Parent Stockholder Support Agreements, as such terms are
defined in Section 2.8 hereof) and recommended approval and adoption of this
Agreement and the Merger by their respective stockholders.
C. For federal income tax purposes, it is intended that the Merger
shall qualify as a tax-free reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended, and for financial accounting
purposes shall be accounted for as a pooling of interests.
D. Parent, Sub and the Company desire to make certain representations,
warranties and agreements in connection with the Merger.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants and agreements contained herein, and
intending to be bound hereby, the parties to this Agreement hereby agree as
follows:
1. DEFINITIONS. As used in this Agreement, terms defined in the
preamble and recitals hereto shall have the respective meanings specified
therein and the following terms shall have the meanings set forth below:
1.1 "AFFILIATE" means, when used with reference to a specified
Person, any other Person that directly or indirectly through one or more
intermediaries controls or is controlled by, or is under common control with,
such specified Person. The term "control"
Page 1
(including as used in the terms "controlling," "controlled by," and "under
common control with") of a Person means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise. For purposes of this Agreement (i) each of the joint ventures known
as Showscan Citywalk, Showscan Attractions, Framingham Venture, Osaka Venture
and Xxxxxxx Venture is an Affiliate of the Company so long as such joint
venture is not dissolved or otherwise terminated and so long as the Company or
its Subsidiary or Affiliate, as applicable, has not sold or otherwise
transferred its interest in such joint venture to a third party (other than an
Affiliate of the Company), and (ii) neither Parent nor any of its Subsidiaries
shall be considered an Affiliate of the Company or any of its Subsidiaries, or
vice versa.
1.2 "AGREEMENT" shall mean this Agreement and Plan of
Reorganization.
1.3 "AVERAGE PRICE" shall mean the average of the closing sale
prices of the Parent Common Stock on the Nasdaq National Market (as reported
by the Wall Street Journal, or if not so reported as reported by another
authoritative source) over the 20 trading day period ending on (and including)
the third trading day immediately preceding the date of the meeting of the
stockholders of the Company contemplated in Section 6.4. For purposes of the
preceding sentence, a "trading day" means a day on which trading generally
takes place on the Nasdaq National Market and on which trading in shares of
Parent Common Stock occurred.
1.4 "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
1.5 "COMMISSION" means the Securities and Exchange Commission.
1.6 "COMPANY" shall mean Showscan Entertainment, Inc., a Delaware
corporation.
1.7 "COMPANY COMMON STOCK" shall mean the Common Stock, par value
$0.001 per share, of the Company.
1.8 "COMPANY PREFERRED STOCK" shall mean the Series C
Convertible Preferred Stock, par value $0.001 per share, of the Company.
1.9 "COMPANY PURCHASE RIGHTS" shall mean each outstanding
warrant, option, purchase right, subscription or other right or agreement or
commitment of any character relating to the issuance of shares of Company
Common Stock, Company Preferred Stock, or any other shares of capital stock of
the Company (including, without limitation warrants, options or rights that may
be issued and outstanding under any stock option plan but excluding the
Convertible Notes, the Company Preferred Stock, and the Series D Rights).
1.10 "COMPANY SECURITIES" shall mean the Company Common Stock,
Company Preferred Stock and the Company Purchase Rights.
1.11 "CONVERTIBLE NOTES" shall mean the 8% Convertible Notes due
September 1, 1999 of the Company.
Page 2
1.12 "DELAWARE LAW" shall mean the General Corporation Law of the
State of Delaware.
1.13 "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended and the rules and regulations promulgated thereunder.
1.14 "GAAP" shall mean generally accepted accounting principles.
1.15 "KNOWLEDGE OF THE COMPANY" shall mean the actual knowledge,
if any, of the officers, directors, and employees of the Company set forth in
Section 1.15 of the Company Disclosure Letter.
1.16 "KNOWLEDGE OF PARENT" shall mean the actual knowledge, if
any, of the officers, directors, and employees of Parent set forth in Section
1.16 of the Parent Disclosure Letter.
1.17 "MATERIAL ADVERSE EFFECT" means when used in connection with
the Company or any of its Subsidiaries, or Parent or any of its Subsidiaries,
as the case may be, any condition, change or effect that is or is reasonably
likely to be materially adverse to the business, assets (including intangible
assets), financial condition or results of operations of the Company and its
Subsidiaries or Parent and its Subsidiaries, in each case taken as a whole;
provided, however, Parent and the Company acknowledge and agree that the
adverse effect (if any) on the Company's film license renewals, customer
orders, backlog, consolidated revenues and net income (and the related effect
on the Company's financial condition), or the loss of employees, directly or
indirectly, resulting from, or which is reasonably likely to result from, the
public announcement by Parent and the Company of this Agreement and the Merger
shall not constitute a Material Adverse Effect hereunder.
1.18 "MERGER" shall have the meaning provided in Recital A to this
Agreement.
1.19 "NASD" shall mean the National Association of Securities
Dealers, Inc.
1.20 "NASDAQ NATIONAL MARKET" shall mean the Nasdaq National
Market.
1.21 "PARENT" shall mean Iwerks Entertainment, Inc., a Delaware
corporation.
1.22 "PARENT COMMON STOCK" shall mean the Common Stock, par value
$0.001 per share, of Parent.
1.23 "PARENT PURCHASE RIGHTS" shall mean each outstanding warrant,
option, purchase right, subscription or other right or agreement or commitment
of any character relating to the issuance of shares of Parent Common Stock or
any other shares of capital stock of Parent (including, without limitation,
warrants, options or rights that may be issued and outstanding under any stock
option plan).
Page 3
1.24 "PERSON" includes an individual, general or limited
partnership, limited liability company, limited liability partnership, trust,
estate, corporation, joint venture, unincorporated association, government
bureau or agency or other entity of whatsoever kind or nature.
1.25 "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended and the rules and regulations promulgated thereunder.
1.26 "SERIES D RIGHTS" shall mean the issued and outstanding
rights to purchase shares, or fractions thereof, of Series D Convertible
Preferred Stock, par value $0.001, of the Company.
1.27 "SUB" shall mean IWK-1 Merger Corporation, a Delaware
corporation.
1.28 "SUB COMMON STOCK" shall mean the Common Stock, par value
$0.001 per share, of Sub.
1.29 "SUBSIDIARY" shall mean, with respect to Parent, those
entities identified on SCHEDULE 1.29(A) and with respect to the Company, those
entities identified on SCHEDULE 1.29(B).
SECTION
DEFINED TERM WHERE FOUND
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Alternative Proposal 6.16
AICPA Statement 6.7
Beneficial Ownership 10.2(d)
Certificate(s) 2.5(d)
Certificate of Merger 2.1
Closing 3
Closing Date 3
Company Disclosure Letter 4
Company Financial Statements 4.6
Company Named Stockholders 2.8
Company Nominated Directors 6.18
Company Participations 4.9
Company Permitted Liens 4.12
Company Plans 4.14
Company Reports 4.6
Page 4
Company Rights Agreement 4.21
Company Stockholders Support Agreement 2.8
Confidentiality Agreement 6.3
Constituent Corporations 2.2
Dissenter 2.9
Effective Time 2.1
Environmental Laws 4.17
ERISA 4.14
ERISA Affiliate 4.14
Exchange Agent 2.5(c)
Exchange Fund 2.5(c)
Initial Triggering Event 10.2(d)
Indemnified Parties 6.17(b)
Intellectual Property 4.18
IRS 4.10
Leased Property 4.12
Liens 4.12
Maximum Amount 6.17(c)
Notice Date 10.2(b)
Option 10.2(a)
Optioned Shares 10.2(a)
Parent Disclosure Letter 5
Parent Financial Statements 5.7
Parent Named Directors and Officers 2.8
Parent Permitted Liens 5.12
Parent Plans 5.14
Parent Properties 5.12
Parent Reports 5.7
Page 5
Parent Rights Agreement 5.21
Parent Stockholders Support Agreement 2.8
Per Share Consideration 2.5(a)(i)
Per Share Price 10.2(a)
Pooling Letters 7.6
Proxy Statement 6.5(a)
Purchase Event 10.2(d)
Registration Statement 6.5(a)
Remedies Exception 4.2
Restrictions 4.12
Rule 145 Affiliates 6.6
Securities Laws 4.6
Sub Capital Stock 2.5(a)(v)
Surviving Corporation 2.2
Tax Matters Certificate 8.4
Tax Returns 4.10
Taxes 4.10
Treasury Shares 2.5(a)(iv)
2. THE MERGER.
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2.1 EXECUTION, FILING, EFFECTIVE TIME. On the date of the
Closing of the Merger referred to in Section 3, and subject to the terms and
conditions hereinafter set forth, the Company, Parent and Sub agree to cause
the Merger to be consummated by executing, delivering and filing with the
office of the Delaware Secretary of State a Certificate of Merger (the
"Certificate of Merger") in a form approved by the Company and Parent, which
approval shall not be unreasonably withheld or delayed, and such other
documents as may be required by the provisions of the Delaware Law and as are
necessary to cause the Merger to become effective. The Merger shall become
effective when such Certificate of Merger and such other necessary documents
are so filed with the Secretary of State of the State of Delaware. The time at
which the Merger becomes effective is herein referred to as the "Effective
Time."
Page 6
2.2 CONSTITUENT AND SURVIVING CORPORATIONS. The Company and Sub
shall be the constituent corporations in the Merger (collectively, the
"Constituent Corporations"). At the Effective Time, Sub shall be merged into
the Company in accordance with the Delaware Law and the Company shall be the
surviving corporation in the Merger (in such capacity, the Company is sometimes
hereinafter referred to as the "Surviving Corporation"). At the Effective
Time, the identity and separate existence of Sub shall cease. Upon the
effectiveness of the Merger, the Surviving Corporation shall possess all of the
rights, privileges, immunities, powers, franchises and authority, whether of a
public or private nature, and be subject to all restrictions, disabilities and
duties, of each of the Constituent Corporations, and all the rights,
privileges, immunities, powers, franchises and authority of each of the
Constituent Corporations, and all assets and properties of every description,
real, personal and mixed, and every interest therein, wherever located, and
all debts and other obligations belonging or due to either of the Constituent
Corporations on whatever account, as well as stock subscriptions and all other
things in action belonging or due to each of the Constituent Corporations,
shall be vested in the Surviving Corporation, and all property rights,
privileges, immunities, powers, franchises and authority, and all and every
other interest, shall be thereafter as effectually the property of the
Surviving Corporation as they were of the Constituent Corporations, and the
title to any real estate or interest therein vested in either Constituent
Corporation shall not revert or be in any way impaired by reason of the Merger
but all rights of creditors and all liens upon any property of either of the
Constituent Corporations shall be preserved unimpaired, and the Surviving
Corporation shall be liable for the debts and other obligations of each of the
Constituent Corporations, and any claims existing or action or proceeding
pending, by or against either of the Constituent Corporations may be prosecuted
to judgment with right of appeal, as if the Merger had not taken place.
2.3 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation and Bylaws of the Company in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation and Bylaws of the
Surviving Corporation.
2.4 BOARD OF DIRECTORS AND OFFICERS. At the Effective Time, the
directors of Sub immediately prior to the Effective Time shall become the
directors, and the officers of the Company immediately prior to the Effective
Time shall become the officers, of the Surviving Corporation, each such
director and officer to hold office from the Effective Time until their
respective successors are duly elected or appointed and qualified in the manner
provided in the Certificate of Incorporation and Bylaws of the Surviving
Corporation and applicable law. The Company shall use reasonable efforts to
cause each director of the Company and of its Subsidiaries which are
corporations to tender his or her resignation prior to the Effective Time, each
such resignation to be effective as of the Effective Time.
2.5 CONVERSION OF THE COMPANY COMMON STOCK, COMPANY PREFERRED
STOCK AND SUB CAPITAL STOCK.
(a) CONVERSION OF THE COMPANY COMMON STOCK, THE COMPANY
PREFERRED STOCK AND SUB CAPITAL STOCK. At the Effective Time, each share of
Company Common Stock, Company Preferred Stock and Sub capital stock issued and
outstanding immediately prior to the Effective Time (excluding any treasury
shares of the Company Common Stock and Company Preferred Stock then owned by
the Company or any of its Subsidiaries and any shares
Page 7
of the Company Common Stock and Company Preferred Stock then held by Parent or
any of its Subsidiaries) shall, by virtue of the Merger and without any action
on the part of Parent, Sub, the Company or the holder thereof, be canceled and
converted into the right to receive the following:
(i) each share of Company Common Stock
outstanding immediately prior to the Effective Time shall entitle the holder
thereof to 0.85 validly issued, fully paid and non-assessable shares of Parent
Common Stock (the "Per Share Consideration");
(ii) each share of Company Preferred Stock
outstanding immediately prior to the Effective Time shall entitle the holder
thereof to that number of validly issued, fully paid and non-assessable shares
of Parent Common Stock as is equal to the number of shares of Company Common
Stock into which such share of Company Preferred Stock is convertible
immediately prior to the Effective Time multiplied by 0.85;
(iii) no fractional shares of Parent Common Stock
will be issued, but in lieu thereof, any holder of shares of Company Common
Stock or Company Preferred Stock entitled to receive a fractional share of
Parent Common Stock shall be paid cash (rounded to the nearest whole cent)
equal to the product of multiplying such fraction by the Average Price;
(iv) If more than one certificate representing
shares of Company Common Stock and/or Company Preferred Stock shall be
surrendered at one time for the account of the same stockholder of record, the
number of full shares of Parent Common Stock for which certificates shall be
delivered shall be computed on the basis of the aggregate number of shares of
the Company Common Stock and/or Company Preferred Stock, as the case may be,
represented by the certificates so surrendered. All shares of Company Common
Stock and Company Preferred Stock held by the Company at the Effective Time as
treasury shares or held by any of the Company's Subsidiaries or by Parent or
any of its Subsidiaries (collectively, "Treasury Shares") shall cease to exist
and the certificates for such shares shall, as promptly as practicable
thereafter, be canceled and no shares of capital stock of Parent or Sub shall
be issued in exchange therefor.
(v) each outstanding share of capital stock of
Sub (the "Sub Capital Stock") shall be converted into and become one fully paid
and nonassessable share of Common Stock of the Surviving Corporation. At the
Effective Time, Parent, as the sole holder of the Sub Capital Stock, shall
surrender any and all certificates representing such Sub Capital Stock to the
Surviving Corporation and shall be entitled to receive in exchange therefor a
certificate representing the number of shares of Common Stock of the Surviving
Corporation into which the Sub Capital Stock theretofore represented by the
certificates so surrendered shall have been converted as provided in this
Section 2.5(a)(v). From and after the Effective Time, until so surrendered,
each certificate theretofore representing shares of issued and outstanding Sub
Capital Stock shall be deemed for all corporate purposes to evidence the number
of shares of Common Stock of the Surviving Corporation into which such shares
of Sub Capital Stock shall have been converted.
Page 8
(b) ADJUSTMENT TO THE PER SHARE CONSIDERATION. The Per
Share Consideration shall be adjusted to reflect fully the effect of any stock
split, reverse stock split, stock dividend (including any dividend or
distribution of securities convertible into shares of Parent Common Stock,
shares of Company Common Stock or shares of Company Preferred Stock),
reorganization, recapitalization or other like change in the number of shares
of Parent Common Stock, shares of Company Common Stock or shares of Company
Preferred Stock occurring after the date hereof and prior to the Effective
Time; PROVIDED, HOWEVER, that no such changes to the capital stock of Parent,
the Surviving Corporation or the Company shall be effected except as permitted
by this Agreement.
(c) PAYMENT FOR COMPANY COMMON STOCK AND COMPANY
PREFERRED STOCK. Parent shall authorize one or more persons reasonably
acceptable to the Company to act as exchange agents (the "Exchange Agent")
hereunder. As of the Effective Time, Parent shall deposit, or cause to be
deposited, with the Exchange Agent, for the benefit of the holders of the
Company Common Stock and Company Preferred Stock, certificates representing the
number of whole shares of Parent Common Stock and cash in lieu of fractional
shares (such cash and certificates, together with any dividends or
distributions thereon, being hereinafter referred to as the "Exchange Fund")
into which the shares of the Company Common Stock and Company Preferred Stock
outstanding at the Effective Time are converted in accordance with Section
2.5.(a) hereof. The Exchange Fund shall include sufficient cash as is
reasonably determined by Parent to be necessary to account for additional
fractional shares as the result of shares which are held in depositary, nominee
or book entry form.
(d) DELIVERY OF NEW CERTIFICATES. Promptly after the
Effective Time, Parent shall cause the Exchange Agent to mail to each holder of
record of a certificate or certificates representing shares of Company Common
Stock and/or Company Preferred Stock (a "Certificate" and collectively the
"Certificates") (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 and the Company 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 and cash in lieu of fractional shares. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such letter of
transmittal, duly executed and completed in accordance with the instructions
thereto, the holder of such Certificate shall be entitled to receive in
exchange therefor (x) a certificate representing that number of whole shares of
Parent Common Stock and (y) a check representing the amount of cash in lieu of
fractional shares, if any, and unpaid dividends and distributions, if any,
which such holder has the right to receive in respect of the Certificate
surrendered pursuant to the provisions of this Section 2.5(d), after giving
effect to any required withholding tax, and the Certificate so surrendered
shall forthwith be canceled. No interest will be paid or accrued on the cash
included within the Exchange Fund, payable to holders of Certificates. If any
certificate for shares of Parent Common Stock is to be issued in a name other
than that in which a certificate for shares of the Company Common Stock and/or
Company Preferred Stock so surrendered is then registered, such surrender shall
be accompanied by payment of any applicable transfer taxes and documents
required for a valid transfer. From and after the Effective Time, until so
surrendered, each Certificate theretofore representing shares of issued and
outstanding Company Common Stock
Page 9
and/or Company Preferred Stock shall be deemed for all corporate purposes,
except as provided in Section 2.5(a) with respect to fractional shares and
Treasury Shares, and except as set forth below, to evidence the number of
whole shares of Parent Common Stock into which such shares of Company Common
Stock and/or Company Preferred Stock shall have been converted. Unless and
until any such Certificates shall be so surrendered, the holder of such
Certificate shall not have any right to receive any cash amounts included in
the Exchange Fund. Upon surrender of a Certificate representing the Company
Common Stock and/or Company Preferred Stock, the holder of record thereof shall
receive a certificate representing the whole shares of Parent Common Stock,
cash in lieu of fractional shares to which he shall be entitled, and all
dividends and other distributions which shall have been paid or made to holders
of record of Parent Common Stock after the Effective Time with respect to such
shares of Parent Common Stock, without interest thereon. All such cash amounts
unclaimed at the end of one year from the Effective Time shall be released or
repaid by the Exchange Agent to Parent, after which the holders of the shares
not receiving such payment shall look, subject to applicable escheat or other
laws, only to Parent as general creditors for payment thereof.
(e) NO LIABILITY. None of Parent, the Company, the
Exchange Agent or any other Person shall be liable to any former holder of
shares of Company Common Stock and/or Company Preferred Stock for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(f) LOST, STOLEN OR DESTROYED CERTIFICATES. In the
event any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such Certificate to
be lost, stolen or destroyed and, if required by the Surviving Corporation, the
posting by such Person of a bond in such reasonable amount as the Surviving
Corporation may direct as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Certificate the shares of Parent Common
Stock, cash in lieu of fractional shares, and unpaid dividends and
distributions on shares of Parent Common Stock as provided in Section 2.5(d),
deliverable in respect thereof pursuant to this Agreement.
2.6 COMPANY PURCHASE RIGHTS AND CONVERTIBLE NOTES.
(a) Each of the Company Purchase Rights, whether vested
or unvested, shall, subject to the terms of any applicable stock option,
warrant agreement or other applicable agreement evidencing the same, remain
outstanding following the Effective Time. At the Effective Time, such Company
Purchase Rights shall, by virtue of the Merger and without any further action
on the part of the Company, Parent, Sub or the holder of any Company Purchase
Right, be assumed by Parent in such manner that Parent (x) is a corporation
"assuming a stock option in a transaction to which Section 424 applied" within
the meaning of Section 424(a) of the Code or (y) to the extent Section 424 of
the Code does not apply to any such Company Purchase Rights, would be such a
corporation were Section 424 applicable to such option. In connection with the
assumption of the Company Purchase Rights, Parent shall effect such assumption
in such manner as not to affect the "incentive stock option" status of those
options which are "incentive stock options" within the meaning of Section 422
of the Code at the Effective Time. From and after the date hereof, no
additional Company Purchase Rights shall
Page 10
be granted by the Company and no "vesting" or exercise schedule of Company
Purchase Rights shall be modified or accelerated (other than pursuant to the
express terms of such Company Purchase Right or pursuant to other contractual
obligations to modify such "vesting" or exercise schedule as disclosed on the
Company Disclosure Letter) and no exercise price of any Company Purchase Right
shall be modified without the prior written consent of Parent.
(b) Parent agrees that each Convertible Note
outstanding prior to the Effective Time shall entitle the holder thereof to
receive, during the period such Convertible Note shall be convertible, upon
conversion of such Convertible Note, in lieu of each share of Company Common
Stock deliverable on such conversion immediately prior to the Merger, such
number of shares of Parent Common Stock which are receivable upon the
effectiveness of the Merger by a holder of one share of Company Common Stock.
2.7 CLOSING OF TRANSFER BOOKS. At and after the Effective
Time, transfers of the shares of Company Common Stock and Company Preferred
Stock outstanding immediately prior to the Effective Time shall not be made on
the stock transfer books of the Company.
2.8 RELATED AGREEMENTS. Each of the stockholders identified on
SCHEDULE 2.8(A) of the Company Disclosure Letter (the "Company Named
Stockholders") have executed and delivered to Parent separate agreements
(collectively the "Company Stockholder Support Agreements") pursuant to which
they agree to vote the shares of Company Common Stock and/or Company Preferred
Stock, as applicable, held by them in favor of this Agreement and the Merger at
the Stockholders Meeting called for that purpose and have granted an
irrevocable proxy to Parent to do the same in their place and stead. Each of
the Directors and Officers of Parent identified on SCHEDULE 2.8(B) (the
"Parent Named Directors and Officers") have executed and delivered to the
Company separate agreements (collectively the "Parent Stockholder Support
Agreements") pursuant to which they agree to vote the shares of Parent Common
Stock held by them in favor of the issuance of the Parent Common Stock pursuant
to the terms of this Agreement at the Stockholders Meeting called for that
purpose and have granted an irrevocable proxy to the Company to do the same in
their place and stead. The Company Stockholder Support Agreements and the
Parent Stockholder Support Agreements collectively are referred to herein as
the "Stockholder Support Agreements" and are attached hereto on SCHEDULE
2.8(C).
2.9 DISSENTING STOCKHOLDERS. All issued and outstanding shares
of Company Preferred Stock held by holders of record as of the date fixed for
determination of stockholders entitled to notice of and to vote at the meeting
of the stockholders of the Company who shall have neither voted in favor of the
Merger nor consented thereto in writing and shall have delivered (and then have
been entitled to deliver) to the Company a written demand for appraisal of
their shares of Company Preferred Stock within the time and in the manner
provided in Section 262 of the Delaware Law (individually, a "Dissenter," and
collectively, the "Dissenters") shall not be converted into Parent Common
Stock, but shall be entitled to receive such consideration as shall be provided
in Section 262 in accordance with the terms and subject to the conditions set
forth in said Section 262, except that each share of Company Preferred Stock
issued and outstanding immediately prior to the Effective Time and held by a
Dissenter who shall thereafter withdraw his demand for appraisal of his shares
of Company Preferred Stock with the Surviving Corporation's consent or lose his
right to such payment as provided in Section 262
Page 11
shall be deemed converted, as of the Effective Time, into fully paid and
nonassessable shares of Parent Common Stock, in which event such stockholder
shall no longer be a Dissenter. The Company shall deliver to Parent (i) on
the first business day following the meeting of stockholders of the Company
(or the twenty first (21st) day following notice of written consent), a list of
all holders of Company Preferred Stock who have filed written demands for
payment of their shares of Company Preferred Stock by the date of such meeting
in accordance with said Section 262, and (ii) from time to time, as Parent
shall reasonably request, other relevant information with respect to such
objections and demands. The Company shall afford to Parent the opportunity to
participate in all negotiations and proceedings with respect to any such
demands and shall not, prior to the Effective Time, except with the prior
written consent of Parent, voluntarily make any payment with respect to,
settle or offer or agree to settle, any such demands for payment.
2.10 DISSENTER PAYMENT. Each Dissenter who becomes entitled,
pursuant to the provisions of Section 262 of the Delaware Law, to payment for
the shares of Company Preferred Stock held by such Dissenter shall receive the
payment therefor provided under Section 262 from the Surviving Corporation, but
only up to the amount of such payment as shall have been agreed upon or finally
determined pursuant to Section 262, and such shares shall thereupon be
canceled.
3. CLOSING DATE. The Closing of the Merger (the "Closing") shall,
unless another date or place is agreed to in writing by the parties, take place
at the offices of Troop Xxxxxxxxx Xxxxxxx & Xxxxxx, 00000 Xxxxxxxx Xxxxxxxxx,
Xxx Xxxxxxx, Xxxxxxxxxx 00000 (except for the filing of the Certificate of
Merger, which shall take place in the office of the Secretary of State of the
State of Delaware) on the second business day following the satisfaction or
waiver of all conditions precedent to the Merger (or such other date as the
parties hereto may mutually agree), including those set forth in Sections 7, 8
and 9 of this Agreement. The date of the Closing is referred to in this
Agreement as the "Closing Date."
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
in the disclosure letter delivered to Parent at or prior to the execution of
this Agreement by the Company, which shall refer to the relevant Sections of
this Agreement (the "Company Disclosure Letter"), or in the Company Reports,
the Company represents and warrants to and agrees with Parent and Sub as
follows:
4.1 ORGANIZATION AND STANDING; ARTICLES AND BY-LAWS. The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. The Company is qualified,
licensed or domesticated as a foreign corporation and is in good standing in
all jurisdictions where the character of its properties owned or held under
lease or the nature of its activities make such qualification necessary, except
where the failure to be so qualified, licensed or domesticated would not have
individually or in the aggregate, a Material Adverse Effect. The Company has
all requisite power and authority and all requisite licenses, permits and
franchises necessary to own, lease and operate its properties and assets and to
carry on its business in the manner and in the locations as presently
conducted, except where the failure to do so would not have individually or in
the aggregate, a Material Adverse Effect. Copies of the Certificate of
Incorporation (as certified by the Delaware Secretary
Page 12
of State) and Bylaws of the Company have been delivered to Parent and are
accurate and complete as of the date hereof.
4.2 AUTHORIZATION. The Company has the requisite corporate
power and authority to enter into and carry out the terms and conditions of
this Agreement and all the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by the Company's Board of
Directors and, other than the stockholder approval required pursuant to Section
6.4 hereof, all corporate proceedings have been taken and no other corporate
proceedings on the part of the Company are necessary to authorize the
execution, delivery and performance by the Company of this Agreement. This
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligations of the Company, enforceable in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting creditors' rights generally from time to time in effect and except
that equitable remedies may not in all cases be available (regardless of
whether enforceability is considered in a proceeding at law or in equity)
(collectively, the "Remedies Exception"). The execution and delivery of this
Agreement by the Company does not, and the consummation of the transactions
contemplated hereby, will not (i) conflict with or violate the Certificate of
Incorporation or By-Laws of the Company or any of its Subsidiaries, (ii)
conflict with or violate any statute, law, rule, regulation, judgment, decree,
order, writ, governmental permit or license applicable to the Company or any of
its Subsidiaries or by which any asset of the Company or any or its
Subsidiaries is bound or affected, (iii) result in a breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, result in a loss of a material benefit under, or give to others
any right of purchase or sale, or any right of termination, amendment,
acceleration, increased payments or cancellation of, or result in the creation
of a lien on any property or asset of the Company or any of its Subsidiaries
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound; except in the case of clauses (ii) and (iii) above, for such
conflicts, violations, breaches or defaults which (x) would not prevent or
delay the consummation of the transactions contemplated hereby in any material
respect, and (y) would not have, individually or in the aggregate, a Material
Adverse Effect.
4.3 NO CONSENTS. No consent, authorization, order or approval
of, or filing with or registration with, any governmental authority,
commission, board or other regulatory body of the United States or any state or
political subdivision thereof, or any other Person, is required to be made or
obtained by the Company for or in connection with the execution and delivery by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby, the absence of which, individually or in the
aggregate, would have a Material Adverse Effect, other than the filing of the
Certificate of Merger with the Delaware Secretary of State, the approval of the
Merger by the stockholders of the Company, compliance with the Securities Laws
and compliance with any applicable state securities or "Blue Sky" laws.
4.4 CAPITAL STOCK. The authorized capital stock of the Company
consists of 20,000,000 shares of Company Common Stock, par value $0.001 per
share, 150,000 shares
Page 13
of Class A Preferred Stock, $0.001 par value per share, 24,000 shares of Class
B Preferred Stock, $.001 par value per share, 100,000 shares of Class C
Preferred Stock, $.001 par value per share and 10,000 shares of Class D
Preferred Stock, $0.001 par value per share. As of the date hereof, (i) there
are 5,642,058 shares of Company Common Stock issued and outstanding, all of
which are duly authorized, validly issued, fully paid and non-assessable and
were not issued in violation of any preemptive rights or any Federal or State
securities laws, (ii) no shares of Company Common Stock are held by
Subsidiaries of the Company, and (iii) 4,904,287 shares of Company Common Stock
are reserved for future issuance under outstanding Company Purchase Rights, the
Convertible Notes and the Company Preferred Stock. As of the date hereof,
there are 49,000 shares of Series C Preferred Stock issued and outstanding, all
of which are duly authorized, validly issued, fully paid and non-assessable and
were not issued in violation of any preemptive rights or any Federal or State
securities laws. As of the date hereof, there are no shares of Class A
Preferred Stock, Class B Preferred Stock or Class D Preferred Stock
outstanding. As of the date hereof, there are (i) no options, warrants, calls,
subscriptions, convertible securities or other rights, (including preemptive
rights), agreements, understandings, arrangements or commitments of any
character obligating the Company now or at any time in the future to issue or
sell any of its capital stock or other equity interests of the Company or any
of its Subsidiaries, (ii) there are no obligations, contingent or otherwise, of
the Company or any of its Subsidiaries, to repurchase, redeem or otherwise
acquire any shares of capital stock or other equity interests of the Company or
any of its Subsidiaries or to provide funds or to make any investment (in the
form of a loan, capital contribution or otherwise) in any Subsidiary or another
entity, other than guarantees of bank obligations of Subsidiaries entered into
in the ordinary course of business, (iii) there are no outstanding bonds,
debentures, notes or other obligations of the Company the holders of which have
the right to vote (or which are convertible into or exercisable for securities
having the right to vote) with the Company stockholders on any matter, (iv)
there are no obligations, contingent or otherwise, guaranteeing the value of
any of the shares of the Common Stock of the Company or any of its Subsidiaries
either now or at any time in the future, and (v) there are no voting trusts,
proxies or other agreements or understandings to which the Company is a party
or is bound with respect to the voting of any capital stock or other equity
interests of the Company or any of its Subsidiaries.
4.5 SUBSIDIARIES. The Company Disclosure Letter sets forth a
true and correct list of each Subsidiary of the Company as of the date hereof.
All of the outstanding capital stock of each such Subsidiary is owned entirely
by the Company or by a Subsidiary of the Company, as the case may be, as of the
date hereof, free and clear of all liens, charges, pledges, security interests
or other encumbrances, except for restrictions on transfer imposed by
applicable securities laws. All such shares of capital stock have been duly
authorized and validly issued and are fully paid and nonassessable. There are
no agreements, understandings or undertakings governing the rights and duties
of the Company or any Subsidiary of the Company as a stockholder of any
Subsidiary, including, without limitation, any agreement, arrangement or
understanding under which the Company is or may become obligated, directly or
indirectly, to acquire or dispose of any equity interest in, make any capital
contribution or extend credit to, or act as guarantor, surety or indemnitor for
any liability of any Subsidiary. Each such Subsidiary is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, has the corporate power and authority to carry on its business as
it is now being conducted and is duly qualified to do business and is in good
standing in all jurisdictions where
Page 14
the failure to be so qualified would have, individually or in the aggregate, a
Material Adverse Effect. Other than its Subsidiaries, neither the Company nor
any Subsidiary of the Company has any equity investment in any corporation,
joint venture, partnership or other business enterprise.
4.6 COMMISSION REPORTS AND FINANCIAL STATEMENTS. From and
after April 1, 1994 the Company has filed with the Commission all forms,
reports, registration statements, proxy statements and other documents
(collectively, the "Company Reports") required to be filed by the Company under
the Securities Act, the Exchange Act, and the rules and regulations promulgated
thereunder (collectively, the "Securities Laws"), except failures to file
which, individually or in the aggregate, do not have a Material Adverse Effect.
As of their respective dates, or, in the case of registration statements, as of
their respective effective dates, all of the Company Reports, including all
exhibits and schedules thereto and all documents incorporated by reference
therein, (i) complied as to form in all material respects with the requirements
of the Securities Laws applicable thereto, and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements, in light of the
circumstances under which they were made, not misleading. The representation
in clause (ii) of the preceding sentence shall not apply to any misstatement or
omission in any Company Report filed prior to the date of this Agreement which
was superseded or corrected by a subsequent Company Report filed by the Company
before the date hereof. No Subsidiary of the Company is required to file any
report, form or other document with the Commission. The audited consolidated
financial statements and unaudited interim consolidated financial statements
included or incorporated by reference in the Company Reports (collectively, the
"Company Financial Statements") have been prepared in accordance with GAAP
applied on a consistent basis (except as may be indicated therein or in the
notes thereto) and fairly present the consolidated financial position of the
Company or other Person, as applicable, as of and at the dates thereof and the
results of operations and cash flows for the periods then ended, subject in the
case of the unaudited interim financial statements, to normal, recurring year-
end adjustments and any other adjustments described therein. Except as set
forth or reflected in the Company Financial Statements at March 31, 1997, or as
set forth in the interim unaudited balance sheets, or in the notes thereto,
included in the Company Reports since that date, neither the Company nor any of
its Subsidiaries, has any liabilities or obligations of any kind or nature
(whether accrued, absolute, contingent or otherwise) which would be required to
be reflected or reserved against in any balance sheet of the Company, or in the
notes thereto, prepared in accordance with GAAP consistently applied, except
liabilities arising since March 31, 1997 either (i) in the ordinary course of
business; or (ii) which, individually or in the aggregate, would not have a
Material Adverse Effect; or (iii) as contemplated or permitted by this
Agreement.
4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since March 31,
1997, the Company and its Subsidiaries each has conducted its business in all
material respects in the ordinary and usual course consistent with past
practice, and there has not been (a) any event or occurrence which,
individually or in the aggregate, has or reasonably could result in a Material
Adverse Effect, (b) any material change in accounting methods, principles and
practices by the Company and its Subsidiaries (except for any such changes
required by reason of a concurrent change in GAAP or to conform a Subsidiary's
accounting methods, principles or practices to those of the Company), (c) any
damage, destruction or loss, whether covered by insurance or not, having,
individually or in the aggregate, a Material Adverse Effect, (d) except as
contemplated
Page 15
by this Agreement, any entry by the Company or any of its Subsidiaries into any
commitment or transaction material to the Company which is not in the ordinary
course of business consistent with past practice, (e) any declaration, payment
or setting aside for payment of any dividends, or (f) any grant to any officer
or director of any increase in compensation (other than periodic salary
increases not in excess of 10% made in the ordinary course of business
consistent with past practice or increases resulting from job promotions or
expansions of employment responsibilities), or any loan to any officer or
director, or any adoption, amendment in any material respect or termination of
any bonus, profit sharing, stock option, employee stock ownership, pension,
retirement, deferred compensation, employment or consulting or other plan,
agreement or arrangement for the benefit of employees of the Company.
4.8 PENDING LITIGATION. There are no actions, suits or
proceedings of any nature pending, or, to the Knowledge of the Company,
threatened, against or by the Company or any of its properties, assets or
business, nor is the Company or any of its properties, assets or business,
subject to any order, judgment, ruling, or decree of any competent authority,
which would have, or is reasonably like to have, individually or in the
aggregate, a Material Adverse Effect. The Company has not received notice of
violation of any applicable statute, regulation, code, ordinance, rule, order,
judgment, decree or requirement relating to its operations or its owned or
leased properties and to the Knowledge of the Company, no such violation
exists, in each case, other than a violation which would not have, individually
or in the aggregate, a Material Adverse Effect.
4.9 PARTICIPATIONS AND RESIDUALS. All agreements providing for
the payment of any participation or the payment of residuals now or hereafter
payable by the Company or any of its Subsidiaries to any and all Persons (the
"Company Participations") as of the date hereof relating to Devil's Mine Ride,
Cosmic Pinball, Space Race, Dracula's Haunted Castle and Storm Rider are
identified on the Company Disclosure Letter and have been delivered by the
Company to Parent.
4.10 TAX RETURNS. The Company and each of its Subsidiaries (i)
has accurately prepared and duly and timely filed all federal and state and all
other material income, property, sales and use and other applicable tax reports
and returns ("Tax Returns") required to be filed (subject to any extensions
applicable to any such filing) except where the failure to do so would not
have, individually or in the aggregate, a Material Adverse Effect, and all such
Tax Returns are true and complete except for such inaccuracies which would not
have a Material Adverse Effect, (ii) has paid all Taxes shown to be due and
payable on such Tax Returns or which have become due and payable pursuant to
any assessment, deficiency notice, 30-day letter, or other notice received by
it (except to the extent being contested in good faith), and (iii) has properly
accrued on its books and records all Taxes for such periods subsequent to the
periods covered by the Tax Returns, except for any Taxes which would not have,
individually or in the aggregate, a Material Adverse Effect. The Tax Returns
of the Company and each of its Subsidiaries have not been examined by the
appropriate taxing authority. Neither the Company nor any of its Subsidiaries
has executed or filed with the Internal Revenue Service ("IRS") or any other
taxing authority any agreement now in effect extending the period for
assessment or collection of any income or other Taxes. Neither the Company nor
any of its Subsidiaries is a party to any pending action or proceeding by any
governmental authority for assessment or
Page 16
collection of Taxes, and to the Knowledge of the Company, no claim for
assessment or collection of Taxes has been asserted against it. There are no
liens for Taxes upon the assets of the Company or any of its Subsidiaries
except liens for Taxes not yet due. True, correct and complete copies of all
Tax Returns filed by the Company and each of its Subsidiaries and all
communications relating thereto have been delivered to Parent or made available
to the representatives of Parent. All Taxes which the Company is required to
withhold or collect, including without limitation, sales and use taxes, have
been duly withheld or collected and, to the extent required, have been paid
over to the proper governmental authorities or are held in separate bank
accounts for such purposes, except where the failure to do so would not have,
individually or in the aggregate, a Material Adverse Effect. For purposes of
this Agreement, the term "Taxes" shall mean and include all taxes, charges,
fees, levies or other assessments, including, without limitation, income, gross
receipts, excise, property, sales, withholding, social security, occupation,
use, service, license, payroll, franchise, transfer and recording taxes, fees
and charges imposed by the United States, or any state, local or foreign
government or subdivision or agency thereof, whether computed on a separate,
consolidated, unitary, combined or any other basis; and such term shall include
any interest, fines, penalties or additional amounts attributable or imposed on
or with respect to any such taxes, charges, fees, levies or other assessments.
4.11 TAX ELECTION. Neither the Company nor any of its
Subsidiaries has filed (and will not file prior to the Effective Time) any
consent agreement under Section 341(f) of the Code or agreed to have Section
341(f) of the Code apply to any disposition of the subsection (f) assets (as
such term is defined in Section 341(f)(4) of the Code) owned by the Company or
any of its Subsidiaries.
4.12 PROPERTIES, ENCUMBRANCES. The Company has a valid
leasehold interest in the property located at 0000 Xxxxxxxx Xxxxxx, Xxxxxx
Xxxx, Xxxxxxxxxx 00000-0000 (the "Leased Property") free and clear of all
liens, mortgages or deeds of trust, claims against title, security interests or
other encumbrances on title ("Liens") or any rights of way, written agreements,
laws, ordinances or regulations affecting the use or occupancy of such
properties, or any reservations of an interest in title ("Restrictions") except
(i) Liens and Restrictions reflected in the Company Financial Statements, (ii)
Liens and Restrictions for taxes not yet due and payable or being contested in
good faith, (iii) Liens and Restrictions attaching by operation of law,
incurred in the ordinary course of business consistent with past practices and
securing payments not past due, (iv) the rights of landlords or sublessors
under the applicable lease, (v) Liens and Restrictions disclosed in the Company
Disclosure Schedule and (vi) Liens and Restrictions which do not have,
individually or in the aggregate, a Material Adverse Effect (collectively, the
"Company Permitted Liens"). Neither the Company nor any of its Subsidiaries
own any real property or lease or otherwise use any real property other than
the Leased Property in the conduct of its business. All rental payments due
under the lease pursuant to which the Company uses the Leased Property have
been paid and neither the Company nor any of its Subsidiaries is in default,
and to the Knowledge of the Company, the landlord under the lease is not in
default, and no condition or event exists which with the giving of notice or
the passage of time, or both, would constitute a material default by any party
under any such lease other than any such non-payment or default which could not
have, individually or in the aggregate, a Material Adverse Effect.
Page 17
4.13 PERSONAL PROPERTY. The Company and its Subsidiaries own
good and marketable title to or a valid right to use all items of personal
property owned or used by them which are material to their business, free and
clear of all Liens or Restrictions other than the Company Permitted Liens.
4.14 EMPLOYEE BENEFIT PLANS. The Company Disclosure Letter sets
forth a list of all plans and other arrangements which provide compensation or
benefits to officers, directors or consultants or employee benefits to
employees of the Company or its Subsidiaries, including, without limitation,
all "employee benefit plans" as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and all bonus,
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar fringe or employee benefit plans, and
all employment or executive compensation agreements (collectively, the "Company
Plans"). All Company Plans comply with and are and have been operated in
material compliance with each applicable provision of ERISA, the Code, other
federal statutes, state law (including, without limitation, state insurance
law) and the regulations and rules promulgated pursuant thereto or in
connection therewith, except for any such failure to comply which would not
have, individually or in the aggregate, a Material Adverse Effect. No Company
Plan is covered by Title IV of ERISA or Section 412 of the Code. Neither the
Company, any of its Subsidiaries, nor any affiliate of the Company as
determined under Section 414(b), (c), (m) or (o) of the Code ("ERISA
Affiliate") has failed to make any contributions or to pay any amounts due and
owing as required by the terms of any Company Plan, which failure would have,
individually or in the aggregate, a Material Adverse Effect. No amounts
payable under the Company Plans will fail to be deductible for federal income
tax purposes by virtue of Section 280G of the Code. True and complete copies
of each written Company Plan have been made available to Parent or its
representatives. Except as required by Section 4980B of the Code, neither the
Company, any of its Subsidiaries nor any ERISA Affiliate has promised any
former employee or other individual not employed by the Company, any of its
Subsidiaries or any ERISA Affiliate, medical or other benefit coverage, and
neither the Company, any of its Subsidiaries nor any ERISA Affiliate maintains
or contributes to any plan or arrangement providing medical benefits, life
insurance or other welfare benefits to former employees, their spouses or
dependents or any other individual not employed by the Company, any of its
Subsidiaries or any ERISA Affiliate except to the extent required by applicable
law. Neither the Company nor any Subsidiary is a party or subject to any
agreement, contract or other obligation which would require the making of any
payment, other than payments as contemplated by this Agreement, to any employee
of the Company or to any other Person as a result of the consummation of the
transactions contemplated herein.
4.15 CERTAIN AGREEMENTS. Neither the Company nor any of its
Subsidiaries is a party to any oral or written (i) agreement (including,
without limitation, any employment, management, severance or consulting
contract) with any current or former officer (whose employment terminated in
the last year), director, or holder of more than 10% of the outstanding shares
of the Company Common Stock or with any entity in which any of the foregoing is
a more than 10% equity owner, officer, director, employee or consultant, (ii)
any agreement involving an amount in excess of $100,000 the benefits of which
are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving the Company or any of its Subsidiaries of
the nature contemplated by this Agreement, (iii) agreement or plan,
Page 18
including any stock option plan, stock appreciation rights plan, restricted
stock 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 the transactions contemplated by this Agreement or the value of
any of the benefits of which will be calculated on the basis of the
transactions contemplated by this Agreement or (iv) unconsummated or pending
agreement involving the acquisition of any equity interest in any business.
4.16 COMPLIANCE WITH APPLICABLE LAW. The businesses of the
Company and its Subsidiaries are not being conducted in violation of any
applicable law, ordinance, regulation, decree or order of any governmental
entity, except for violations which either singly or in the aggregate do not
and are not expected to have a Material Adverse Effect. Neither the Company
nor any of its Subsidiaries is a party to or subject to any judgment, decree,
or order entered in any suit or proceeding brought by any governmental agency
or by any other person, enjoining the Company or any of its Subsidiaries with
respect to any business practice, the acquisition of any property, or the
conduct of business in any area.
4.17 ENVIRONMENTAL COMPLIANCE MATTERS. The businesses of the
Company and its Subsidiaries as conducted in the past were not and as currently
being conducted are not in violation of any applicable law, ordinance, rule,
prohibition or regulation relating to pollution, or the production, storage,
labeling or disposition of wastes or hazardous or toxic substances, or the
health, safety or environmental conditions on, beneath or about any of the
properties owned, used or leased by the Company or any of its Subsidiaries or
relating to the business of the Company or any of its Subsidiaries (such laws,
ordinances, rules, prohibitions and regulations being herein referred to as
"Environmental Laws"), except for any such violation which would not have,
individually or in the aggregate, a Material Adverse Effect. The Company and
its Subsidiaries have timely filed all material reports, obtained all material
approvals and permits and generated and maintained all material data,
documentation and records required under any applicable Environmental Laws,
except where the failure to do so would not have, individually or in the
aggregate, a Material Adverse Effect. Neither the Company, its Subsidiaries
nor, to the Knowledge of the Company or its Subsidiaries, any other Person has
placed, stored, buried, spilled or released, used, generated, manufactured,
refined, processed, treated, dumped or disposed of any materials produced by,
or resulting from, any business, commercial or industrial activities,
operations or processes, including without limitation any materials which are
"Hazardous Wastes", "Hazardous Substances", "Hazardous Materials",
"Pollutants", "Toxic Substances", "Solid Wastes" or "Contaminants" (as such
terms are defined in any applicable Environmental Law, including without
limitation the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, the Hazardous Materials Transportation Act, the
Resource Conservation and Recovery Act and the Toxic Substances Control Act),
on, beneath or about, or transported any such materials to or from, any of the
properties owned, used or leased by the Company or its Subsidiaries in each
case other than in material compliance with applicable Environmental Laws and
in the ordinary course of the Company's or its Subsidiaries' business or where
the failure to comply would not have individually or in the aggregate a
Material Adverse Effect. Neither the Company nor its Subsidiaries has received
any notice from any governmental agency or private or public entity advising it
that it is or may be responsible, or potentially responsible, for costs with
respect to a release, a threatened release or clean up of materials located in
any property owned by the Company or its Subsidiaries or produced by, or
resulting from, any business,
Page 19
commercial or industrial activities, operations or processes of the Company or
its Subsidiaries, including without limitation, materials which are Hazardous
Wastes, Hazardous Substances, Hazardous Materials, Pollutants, Toxic
Substances, Solid Wastes or Contaminants.
4.18 PATENTS, TRADE NAMES AND OTHER INTELLECTUAL PROPERTY
RIGHTS. The Company owns or is validly licensed or otherwise has the right to
use, free and clear of all Liens and Restrictions other than Company Permitted
Liens, any and all patents, trademarks, trade names, service marks, copyrights,
trade secrets, technology, know-how and processes (collectively, "Intellectual
Property"), used in or necessary for the conduct of its business as now
conducted or as proposed to be conducted except where any such failure would
not have, individually or in the aggregate, a Material Adverse Effect. The
operations and products of the Company do not infringe any Intellectual
Property rights of any other Person, except for any infringement which would
not have, individually or in the aggregate, a Material Adverse Effect. The
Company has not received any communication in the past three years alleging or
stating that the Company or any employee has violated or infringed, or by
conducting business as proposed, would violate or infringe any Intellectual
Property right of any other Person.
4.19 NO BROKERS. Other than with respect to the services of
Xxxxx & Co., the Company's financial advisor, (the arrangements with which have
been disclosed to Parent), neither the Company, nor any of its Subsidiaries has
entered into any contract, arrangement or understanding with any Person or firm
which may result in the obligation of the Company, the Surviving Corporation or
Parent to pay any finder's fee, brokerage or agent's commissions or other like
payments in connection with the negotiation, execution or performance of this
Agreement and the Company is not aware of any claim for any such payment.
4.20 BOARD APPROVAL. As of the date hereof, the Board of
Directors of the Company has duly approved this Agreement, has determined that
the Merger is in the best interests of the Company and its stockholders and has
resolved to recommend the adoption of this Agreement and the Merger by its
stockholders.
4.21 TAKEOVER PROVISIONS INAPPLICABLE. As of the date hereof
and at all times on or prior to the Effective Date, the Rights Agreement dated
as of November 11, 1994 by and between the Company and Continental Stock
Transfer & Trust Company, as amended (the "Company Rights Agreement") is, and
shall be, inapplicable to the Merger and the transactions contemplated by this
Merger Agreement and the Company Stockholder Support Agreements and a
"Distribution Date" as defined in the Company Rights Agreement has not
occurred.
4.22 FAIRNESS OPINION. The Board of Directors of the Company
has received an opinion of Xxxxx & Co., its financial advisor, to the effect
that the consideration to be paid to the holders of Company Common Stock and
Company Preferred Stock pursuant to the Merger is fair to the stockholders of
the Company from a financial point of view.
4.23 NO DISSENTERS RIGHTS. Assuming the Parent Common Stock is
listed for quotation of the Nasdaq National Market, pursuant to Section
262(b)(1)(i) of the Delaware Law, there are no dissenters rights available to
the holders of Company Common Stock.
Page 20
5. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB. Except as set
forth in the disclosure letter delivered to the Company at or prior to the
execution of this Agreement by Parent, which shall refer to the relevant
Sections of this Agreement (the "Parent Disclosure Letter"), or in the Parent
Reports, Parent and Sub jointly and severally represent, warrant, covenant and
agree with the Company as follows:
5.1 ORGANIZATION AND STANDING; ARTICLES AND BY-LAWS. Each of
Parent and Sub is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. Parent is qualified,
licensed or domesticated as a foreign corporation and is in good standing in
all jurisdictions where the character of its properties owned or held under
lease or the nature of its activities make such qualification necessary, except
where the failure to be so qualified, licensed or domesticated would not have,
individually or in the aggregate, a Material Adverse Effect. Sub has not
conducted any business prior to the date hereof and has no material assets and
liabilities other than those incident to its formation. Parent has all
requisite power and authority and all requisite licenses, permits and
franchises necessary to own, lease and operate its properties and assets and to
carry on its business in the manner and in the locations as presently
conducted, except where the failure to do so would not have, individually or in
the aggregate, a Material Adverse Effect. Copies of the Certificate of
Incorporation (as certified by the Delaware Secretary of State) and Bylaws of
each of Parent and Sub have been delivered to the Company and are accurate and
complete as of the date hereof.
5.2 AUTHORIZATION. Each of Parent and Sub has the requisite
corporate power and authority to enter into and carry out the terms and
conditions of this Agreement and all the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by Parent's and
Sub's Boards of Directors and, other than the stockholder approval required
pursuant to Section 6.4 hereof, all corporate proceedings have been taken and
no other corporate proceedings on the part of Parent or Sub are necessary to
authorize the execution, delivery and performance by Parent and Sub of this
Agreement. This Agreement has been duly executed and delivered by each of
Parent and Sub and constitutes the valid and binding obligations of Parent and
Sub, enforceable against each in accordance with its terms, subject to the
Remedies Exception. The execution and delivery of this Agreement by Parent and
Sub do not, and the consummation of the transactions contemplated hereby, will
not (i) conflict with or violate the Certificate of Incorporation or By-Laws of
Parent or any of its Subsidiaries, (ii) conflict with or violate any statute,
law, rule, regulation, judgment, decree, order, writ, governmental permit or
license applicable to Parent or any of its Subsidiaries or by which any asset
of Parent or any or its Subsidiaries is bound or affected, (iii) result in a
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, result in a loss of a material
benefit under, or give to others any right of purchase or sale, or any right of
termination, amendment, acceleration, increased payments or cancellation of, or
result in the creation of a lien on any property or asset of Parent or any of
its Subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument to which
Parent or any of its Subsidiaries is a party or by which Parent or any of its
Subsidiaries is bound; except, in the case of clauses (ii) and (iii) above, for
such conflicts, violations, breaches or defaults which (x) would not prevent or
delay the consummation of the transactions
Page 21
contemplated hereby in any material respect, and (y) would not have,
individually or in the aggregate, a Material Adverse Effect.
5.3 NO CONSENTS. No consent, authorization, order or approval
of, or filing with or registration with, any governmental authority,
commission, board or other regulatory body of the United States or any state or
political subdivision thereof, or any other Person, is required to be made or
obtained by Parent or Sub for or in connection with the execution and delivery
by Parent and Sub of this Agreement and the consummation by Parent and Sub of
the transactions contemplated hereby, the absence of which would have,
individually or in the aggregate, a Material Adverse Effect, other than the
filing of the Certificate of Merger with the Delaware Secretary of State,
the approval of the issuance of Parent Common Stock pursuant to the terms of
this Agreement by the stockholders of Parent, compliance with the Securities
Laws and compliance with any applicable state securities or "Blue Sky" laws.
5.4 CAPITALIZATION. The authorized capital stock of Parent
consists of 50,000,000 shares of Parent Common Stock, par value $0.001 per
share, and 1,000,000 shares of Preferred Stock, $0.001 par value per share. As
of the date hereof, (i) there are 12,160,102 shares of Parent Common Stock
issued and outstanding, all of which are duly authorized, validly issued, fully
paid and non-assessable and were not issued in violation of any preemptive
rights or any Federal or State securities laws, (ii) there are no shares of
Parent Preferred Stock issued and outstanding, (iii) no shares of Parent
Common Stock are held by Subsidiaries of Parent and (iv) 2,278,979 shares of
Parent Common Stock are reserved for future issuance under outstanding Parent
Purchase Rights. As of the date hereof, there are (i) no options, warrants,
calls, subscriptions, convertible securities or other rights (including
preemptive rights), agreements, understandings, arrangements or commitments of
any character obligating Parent now or at any time in the future to issue or
sell any of its capital stock or other equity interests of Parent or any of its
Subsidiaries, (ii) there are no obligations, contingent or otherwise, of Parent
or any of its Subsidiaries, to repurchase, redeem or otherwise acquire any
shares of capital stock or other equity interests of Parent or any of its
Subsidiaries or to provide funds or to make any investment (in the form of a
loan, capital contribution or otherwise) in any Subsidiary or another entity,
other than guarantees of bank obligations of Subsidiaries entered into in the
ordinary course of business, (iii) there are no outstanding bonds, debentures,
notes or other obligations of Parent the holders of which have the right to
vote (or which are convertible into or exercisable for securities having the
right to vote) with Parent stockholders on any matter, (iii) there are no
obligations, contingent or otherwise, guaranteeing the value of any of the
shares of the Common Stock of Parent or any of its Subsidiaries either now or
at any time in the future, and (iv) there are no voting trusts, proxies or
other agreements or understandings to which Parent is a party or is bound with
respect to the voting of any capital stock or other equity interests of Parent
or any of its Subsidiaries.
5.5 SUBSIDIARIES. Parent Disclosure Letter sets forth a true
and correct list of each Subsidiary of Parent as of the date hereof. All of
the outstanding capital stock of each such Subsidiary is owned entirely by
Parent or by a Subsidiary of Parent, as the case may be, as of the date hereof,
free and clear of all liens, charges, pledges, security interests or other
encumbrances, except for restrictions on transfer imposed by applicable
securities laws. All such shares of capital stock have been duly authorized
and validly issued and are fully paid and
Page 22
nonassessable. There are no agreements, understandings or undertakings
governing the rights and duties of Parent or any Subsidiary of Parent as a
stockholder of any Subsidiary, including, without limitation, any agreement,
arrangement or understanding under which Parent is or may become obligated,
directly or indirectly, to acquire or dispose of any equity interest in, make
any capital contribution or extend credit to, or act as guarantor, surety or
indemnitor for any liability of any Subsidiary. Each such Subsidiary is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, has the corporate power and authority to carry
on its business as it is now being conducted and is duly qualified to do
business and is in good standing in all jurisdictions where the failure to be
so qualified would have, individually or in the aggregate, a Material Adverse
Effect. Other than its Subsidiaries, neither Parent nor any Subsidiary of
Parent has any equity investment in any corporation, joint venture, partnership
or other business enterprise.
5.6 AUTHORIZATION OF PARENT COMMON STOCK. The issuance of
shares of Parent Common Stock at the Closing will have been duly authorized by
all necessary corporate action prior to the Effective Time and, when issued as
contemplated by this Agreement, all such shares of Parent Common Stock will be
validly issued, fully paid and non-assessable.
5.7 COMMISSION REPORTS AND FINANCIAL STATEMENTS. From and
after April 1, 1994 Parent has filed with the Commission all forms, reports,
registration statements, proxy statements and other documents (collectively,
the "Parent Reports") required to be filed by Parent under the Securities Laws,
except failures to file which, individually or in the aggregate, do not have a
Material Adverse Effect. Parent has heretofore furnished the Company with true
and complete copies of all Parent Reports filed as of the date hereof. As of
their respective dates, or, in the case of registration statements, as of their
respective effective dates, all of the Parent Reports, including all exhibits
and schedules thereto and all documents incorporated by reference therein, (i)
complied as to form in all material respects with the requirements of the
Securities Laws applicable thereto, and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The representation in
clause (ii) of the preceding sentence shall not apply to any misstatement or
omission in any Parent Report filed prior to the date of this Agreement which
was superseded or corrected by a subsequent Parent Report filed by Parent
before the date hereof. No Subsidiary of Parent is required to file any
report, form or other document with the Commission. The audited consolidated
financial statements and unaudited interim consolidated financial statements
included or incorporated by reference in Parent Reports (collectively, the
"Parent Financial Statements") have been prepared in accordance with GAAP
applied on a consistent basis (except as may be indicated therein or in the
notes thereto) and fairly present the consolidated financial position of Parent
or other Person, as applicable, as of and at the dates thereof and the results
of operations and cash flows for the periods then ended, subject in the case of
the unaudited interim financial statements, to normal, recurring year-end
adjustments and any other adjustments described therein. Except as set forth
or reflected in Parent Financial Statements at June 30, 1996, or as set forth
in the interim unaudited balance sheets, or in the notes thereto, included in
Parent Reports since that date, neither Parent nor any of its Subsidiaries, has
any liabilities or obligations of any kind or nature (whether accrued,
absolute, contingent or otherwise) which would be required to be reflected or
reserved against in any balance sheet of Parent, or in the notes thereto,
Page 23
prepared in accordance with GAAP consistently applied, except liabilities
arising since June 30, 1996 either (i) in the ordinary course of business; or
(ii) which, individually or in the aggregate, would not have a Material Adverse
Effect; or (iii) as contemplated or permitted by this Agreement.
5.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1996,
Parent and its Subsidiaries each has conducted its business in all material
respects in the ordinary and usual course consistent with past practice, and
there has not been (a) any event or occurrence which, individually or in the
aggregate, has or reasonably could result in a Material Adverse Effect, (b)
any material change in accounting methods, principles and practices by Parent
and its Subsidiaries (except for any such changes required by reason of a
concurrent change in GAAP or to conform a Subsidiary's accounting methods,
principles or practices to those of Parent), (c) any damage, destruction or
loss, whether covered by insurance or not, having, individually or in the
aggregate, a Material Adverse Effect, (d) except as contemplated by this
Agreement, any entry by Parent or any of its Subsidiaries into any commitment
or transaction material to Parent which is not in the ordinary course of
business consistent with past practice (e) any declaration, payment or setting
aside for payment of any dividends or (f) any grant to any officer or director
of any increase in compensation (other than periodic salary increases not in
excess of 10% made in the ordinary course of business consistent with past
practice or increases resulting from job promotions or expansions of employment
responsibilities), or any loan to any officer or director, or any adoption,
amendment in any material respect or termination of any bonus, profit sharing,
stock option, employee stock ownership, pension, retirement, deferred
compensation, employment or consulting or other plan, agreement or arrangement
for the benefit of employees of Parent.
5.9 PENDING LITIGATION. There are no actions, suits or
proceedings of any nature pending, or, to the Knowledge of Parent, threatened,
against or by Parent or any of its properties, assets or business, nor is
Parent or any of its properties, assets or business, subject to any order,
judgment, ruling, or decree of any competent authority, which would have, or is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect. Parent has not received notice of violation of any applicable statute,
regulation, code, ordinance, rule, order, judgment, decree or requirement
relating to its operations or its owned or leased properties and to the
Knowledge of Parent, no such violation exists, in each case, other than a
violation which would not have, individually or in the aggregate, a Material
Adverse Effect.
5.10 TAX RETURNS. Parent and each of its Subsidiaries (i) has
accurately prepared and duly and timely filed all Tax Returns required to be
filed (subject to any extensions applicable to any such filing) except where
the failure to do so would not have, individually or in the aggregate, a
Material Adverse Effect, and all such Tax Returns are true and complete, except
for such inaccuracies which would not have a Material Adverse Effect, (ii) has
paid all Taxes shown to be due and payable on such Tax Returns or which have
become due and payable pursuant to any assessment, deficiency notice, 30-day
letter, or other notice received by it (except to the extent being contested in
good faith), and (iii) has properly accrued on its books and records all Taxes
for such periods subsequent to the periods covered by the Tax Returns, except
for any Taxes which would not have, individually or in the aggregate, a
Material Adverse Effect. The Tax Returns of Parent and each of its
Subsidiaries have not been examined by the appropriate taxing authority.
Neither Parent nor any of its Subsidiaries has executed or filed with
Page 24
the IRS or any other taxing authority any agreement now in effect extending the
period for assessment or collection of any income or other Taxes. Neither
Parent nor any of its Subsidiaries is a party to any pending action or
proceeding by any governmental authority for assessment or collection of Taxes,
and to the Knowledge of Parent, no claim for assessment or collection of Taxes
has been asserted against it. There are no liens for Taxes upon the assets of
Parent or any of its Subsidiaries except liens for Taxes not yet due. True,
correct and complete copies of all Tax Returns filed by Parent and each of its
Subsidiaries and all communications relating thereto have been delivered to
the Company or made available to the representatives of the Company. All Taxes
which Parent is required to withhold or collect, including without limitation,
sales and use taxes, have been duly withheld or collected and, to the extent
required, have been paid over to the proper governmental authorities or are
held in separate bank accounts for such purposes, except where the failure to
do so would not have, individually or in the aggregate, a Material Adverse
Effect.
5.11 TAX ELECTION. Neither Parent nor any of its Subsidiaries
has filed (and will not file prior to the Effective Time) any consent agreement
under Section 341(f) of the Code or agreed to have Section 341(f) of the Code
apply to any disposition of the subsection (f) assets (as such term is defined
in Section 341(f)(4) of the Code) owned by the Company or any of its
Subsidiaries.
5.12 PROPERTIES, ENCUMBRANCES. Parent and its Subsidiaries
have good and marketable title in fee simple to, or a valid leasehold interest
in, each of the real properties reflected on the Parent Financial Statements or
which have been acquired after the date thereof or used by them as of the date
hereof (collectively, the "Parent Properties"), in each case, free and clear of
all Liens and Restrictions except (a) Liens and Restrictions reflected in the
Parent Financial Statements, (b) Liens and Restrictions for taxes not yet due
and payable or being contested in good faith, (c) Liens and Restrictions
attaching by operation of law, incurred in the ordinary course of business
consistent with past practices and securing payments not past due, (iv) the
rights of landlords or sublessors under the applicable lease, (v) Liens and
Restrictions disclosed in the Parent Disclosure Schedule and (vi) Liens and
Restrictions which do not have, individually or in the aggregate, a Material
Adverse Effect (collectively, the "Parent Permitted Liens"). All rental
payments due under any lease pursuant to which Parent uses any Parent Property
has been paid and neither Parent nor any of its Subsidiaries is in default, and
to the Knowledge of Parent, the landlord under the lease is not in default, and
no condition or event exists which with the giving of notice or the passage of
time, or both, would constitute a material default by any party under any such
leases other than any such non-payment or default which could not have,
individually or in the aggregate, a Material Adverse Effect.
5.13 PERSONAL PROPERTY. Parent and its Subsidiaries own good
and marketable title to or a valid right to use all items of personal property
owned or used by them which are material to their business, free and clear of
all Liens or Restrictions other than the Parent Permitted Liens.
5.14 EMPLOYEE BENEFIT PLANS. The Parent Disclosure Letter sets
forth a list of all plans and other arrangements which provide compensation or
benefits to officers, directors or consultants or employee benefits to
employees of Parent or its Subsidiaries, including, without
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limitation, all "employee benefit plans" as defined in Section 3(3) of ERISA,
and all bonus, stock option, stock purchase, incentive, deferred compensation,
supplemental retirement, severance and other similar fringe or employee benefit
plans, and all employment or executive compensation agreements (collectively,
the "Parent Plans"). All Parent Plans comply with and are and have been
operated in material compliance with each applicable provision of ERISA, the
Code, other federal statutes, state law (including, without limitation, state
insurance law) and the regulations and rules promulgated pursuant thereto or in
connection therewith, except for any such failure to comply which would not
have, individually or in the aggregate, a Material Adverse Effect. No Parent
Plan is covered by Title IV of ERISA or Section 412 of the Code. Neither
Parent, any of its Subsidiaries, nor any ERISA Affiliate of Parent has failed
to make any contributions or to pay any amounts due and owing as required by
the terms of any Parent Plan, which failure would have, individually or in the
aggregate, a Material Adverse Effect. No amounts payable under the Parent
Plans will fail to be deductible for federal income tax purposes by virtue of
Section 280G of the Code. True and complete copies of each Parent Plan have
been made available to the Company or its representatives. Except as required
by Section 4980B of the Code, neither Parent, any of its Subsidiaries nor any
ERISA Affiliate has promised any former employee or other individual not
employed by Parent, any of its Subsidiaries or any ERISA Affiliate, medical or
other benefit coverage, and neither Parent, any of its Subsidiaries nor any
ERISA Affiliate maintains or contributes to any plan or arrangement providing
medical benefits, life insurance or other welfare benefits to former
employees, their spouses or dependents or any other individual not employed by
Parent, any of its Subsidiaries or any ERISA Affiliate except to the extent
required by applicable law. Neither Parent nor any Subsidiary is a party or
subject to any agreement, contract or other obligation which would require the
making of any payment, other than payments as contemplated by this Agreement,
to any employee of Parent or to any other Person as a result of the
consummation of the transactions contemplated herein.
5.15 CERTAIN AGREEMENTS. Neither Parent nor any of its
Subsidiaries is a party to any oral or written (i) agreement (including,
without limitation, any employment, management, severance or consulting
contract) with any current or former officer (whose employment terminated in
the last year), director, or holder of more than 10% of the outstanding shares
of the Parent Common Stock or with any entity in which any of the foregoing is
a more than 10% equity owner, officer, director, employee or consultant, (ii)
any agreement involving an amount in excess of $100,000 the benefits of which
are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving Parent or any of its Subsidiaries of the
nature contemplated by this Agreement, (iii) agreement or plan, including any
stock option plan, stock appreciation rights plan, restricted stock 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 the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of the transactions contemplated by
this Agreement or (iv) unconsummated or pending agreement involving the
acquisition of any equity interest in any business.
5.16 COMPLIANCE WITH APPLICABLE LAW. The businesses of Parent
and its Subsidiaries are not being conducted in violation of any applicable
law, ordinance, regulation, decree or order of any governmental entity, except
for violations which either singly or in the aggregate do not and are not
expected to have a Material Adverse Effect. Neither Parent nor any
Page 26
of its Subsidiaries is a party to or subject to any judgment, decree, or order
entered in any suit or proceeding brought by any governmental agency or by any
other Person, enjoining Parent or any of its Subsidiaries with respect to any
business practice, the acquisition of any property, or the conduct of business
in any area.
5.17 ENVIRONMENTAL COMPLIANCE MATTERS. The businesses of Parent
and its Subsidiaries as conducted in the past were not and as currently being
conducted are not in
violation of any Environmental Laws, except for any such violation which would
not have, individually or in the aggregate, a Material Adverse Effect. Parent
and its Subsidiaries have timely filed all material reports, obtained all
material approvals and permits and generated and maintained all material data,
documentation and records required under any applicable Environmental Laws,
except where the failure to do so would not have, individually or in the
aggregate, a Material Adverse Effect. Neither Parent, its Subsidiaries nor, to
the Knowledge of Parent or its Subsidiaries, any other Person has placed,
stored, buried, spilled or released, used, generated, manufactured, refined,
processed, treated, dumped or disposed of any materials produced by, or
resulting from, any business, commercial or industrial activities, operations
or processes, including without limitation any materials which are "Hazardous
Wastes", "Hazardous Substances", "Hazardous Materials", "Pollutants", "Toxic
Substances", "Solid Wastes" or "Contaminants" (as such terms are defined in any
applicable Environmental Law, including without limitation the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, the
Hazardous Materials Transportation Act, the Resource Conservation and Recovery
Act and the Toxic Substances Control Act), on, beneath or about, or transported
any such materials to or from, any of the properties owned, used or leased by
Parent or its Subsidiaries in each case other than in material compliance with
applicable Environmental Laws and in the ordinary course of Parent's or its
Subsidiaries' business or where the failure to comply would not have,
individually or in the aggregate, a Material Adverse Effect. Neither Parent
nor its Subsidiaries has received any notice from any governmental agency or
private or public entity advising it that it is or may be responsible, or
potentially responsible, for costs with respect to a release, a threatened
release or clean up of materials located in any property owned by Parent or its
Subsidiaries or produced by, or resulting from, any business, commercial or
industrial activities, operations or processes of Parent or its Subsidiaries,
including without limitation, materials which are Hazardous Wastes, Hazardous
Substances, Hazardous Materials, Pollutants, Toxic Substances, Solid Wastes or
Contaminants.
5.18 PATENTS, TRADE NAMES AND OTHER INTELLECTUAL PROPERTY
RIGHTS. Parent owns or is validly licensed or otherwise has the right to use,
free and clear of all Liens and Restrictions other than Parent Permitted Liens,
any and all Intellectual Property used in or necessary for the conduct of its
business as now conducted or as proposed to be conducted, except where any such
failure would not have, individually or in the aggregate, a Material Adverse
Effect. The operations and products of Parent do not infringe any Intellectual
Property rights of any other Person, except for any infringement which would
not have, individually or in the aggregate, a Material Adverse Effect. Parent
has not received any communication in the past three years alleging or stating
that Parent or any employee has violated or infringed, or by conducting
business as proposed, would violate or infringe any Intellectual Property right
of any other Person.
Page 27
5.19 NO BROKERS. Other than with respect to the services of
Equitable Securities, Parent's financial advisor, (the arrangements with which
have been disclosed to the Company), neither Parent, nor any of its
Subsidiaries has entered into any contract, arrangement or understanding with
any Person or firm which may result in the obligation of Parent, the Surviving
Corporation or the Company to pay any finder's fee, brokerage or agent's
commissions or other like payments in connection with the negotiation,
execution or performance of this Agreement and Parent is not aware of any claim
for any such payment.
5.20 BOARD APPROVAL. As of the date hereof, the Board of
Directors of Parent has duly approved this Agreement, has determined that the
Merger is in the best interests of Parent and its stockholders and has resolved
to recommend the approval of the issuance of the Parent Common Stock pursuant
to the terms of this Agreement by its stockholders.
5.21 TAKEOVER PROVISIONS INAPPLICABLE. As of the date hereof
and at all times on or prior to the Effective Date, the Rights Agreement dated
as of May 22, 1995 by and between Parent and U.S. Stock Transfer Corporation,
as amended (the "Parent Rights Agreement") is, and shall be, inapplicable to
the Merger and the transactions contemplated by this Merger Agreement and the
Parent Stockholder Support Agreements and a "Distribution Date" as defined in
the Company Rights Agreement has not occurred.
5.22 FAIRNESS OPINION. The Board of Directors of Parent has
received an opinion of Equitable Securities, its financial advisor, to the
effect that the consideration to be paid to the holders of Company Common Stock
and Company Preferred Stock pursuant to the Merger is fair to Parent from a
financial point of view.
6. COVENANTS OF PARENT AND THE COMPANY. Each of Parent and the Company
covenants and agrees with the other that:
6.1 CONDUCT OF BUSINESS BY THE COMPANY. During the period from
the date of this Agreement until the earlier to occur of the termination of
this Agreement or the Effective Time, except as contemplated by this Agreement,
unless Parent has consented in writing thereto, the Company (i) shall, and
shall cause each of its Subsidiaries to, conduct its operations only in the
ordinary course of business and in a manner consistent with past practice, and
(ii) shall use its reasonable commercial efforts, and shall cause each of its
Subsidiaries to use its reasonable commercial efforts, to preserve intact its
respective business organizations and goodwill, keep available the services of
its respective officers and employees and maintain satisfactory relationships
with those Persons having business relationships with it. By way of
amplification and not limitation, except as noted above or as contemplated
hereby, neither the Company nor any of its Subsidiaries shall, during the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, directly or indirectly,
do, or propose to do, any of the following without the prior written consent of
Parent:
(a) amend or otherwise change its Certificate of
Incorporation or Bylaws;
Page 28
(b) split, combine, reclassify or amend the terms of any
of its capital stock;
(c) declare, set aside or pay any dividend or distribution
payable in cash, stock or property or any combination thereof with respect to
shares of its capital stock (other than pursuant to their terms);
(d) except pursuant to Company Purchase Rights outstanding
on the date hereof, authorize, issue, sell, pledge, encumber or agree to
authorize, issue, sell, pledge or encumber any additional shares of its capital
stock of any class or any other securities in respect of, in lieu of or in
substitution of Company Common Stock outstanding as of the date hereof or any
options, warrants, conversion rights or other rights to acquire capital stock
of the Company or any of its Subsidiaries;
(e) redeem or otherwise acquire any of its outstanding
equity securities or any outstanding options or rights to purchase any such
equity securities or make any commitment to take such action (other than
pursuant to their terms);
(f) accelerate, amend or change (or permit any
acceleration, amendment or change of) the period of exercisability of any
Company Purchase Right (other than pursuant to the express terms of such
Company Purchase Right or pursuant to other contractual obligations to
accelerate, amend or change the period of exercisability as disclosed on the
Company Disclosure Letter);
(g) sell, pledge, dispose of or encumber any material
assets (including the capital stock of a Subsidiary) of the Company or any of
its Subsidiaries, except in the ordinary course of business consistent with
past practice and except any encumbrance on the Company's film library to
secure indebtedness allowed pursuant to clause (i) below;
(h) acquire (by merger, consolidation or acquisition of
stock or assets) any corporation, partnership or any other business
organization or division thereof;
(i) incur any indebtedness for borrowed money, or assume,
guarantee or otherwise as an accommodation become responsible for, the
obligations of any other Person or entity in excess of $1,000,000;
(j) authorize or make any capital expenditures or purchase
of fixed assets for the Company and its Subsidiaries which are in the aggregate
more than $500,000;
(k) increase the compensation or benefits payable or to
become payable to its officers or employees, except in amounts consistent with
past practices; or grant any severance or termination pay to, or enter into any
employment or severance agreement with, any director, officer or other employee
of the Company or any of its Subsidiaries; or establish any collective
bargaining, bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation, employment or consulting or other plan,
agreement, trust, fund, plan, policy or arrangement for the benefit of any
current or former directors, officers or employees;
Page 29
provided, however, notwithstanding the foregoing, the Company may expend sums
not to exceed an aggregate of $450,000 to provide transition bonuses to its
employees.
(l) make any change to its accounting (including tax
accounting) methods, principles or practices except for any changes required by
GAAP;
(m) make any material tax election inconsistent with past
practices or settle or compromise any material federal, state, local or foreign
tax liability;
(n) take or agree to take, any action which would cause a
material breach of any of the representations or warranties of the Company
contained in this Agreement or prevent the Company from performing or cause the
Company not to perform its covenants hereunder in any material respect;
(o) submit any matters to the stockholders of the Company
for a vote prior to the Closing other than the Merger;
(p) enter into, or permit any of its Subsidiaries to enter
into any production or distribution arrangements, including, without
limitation, any joint venture agreements, with a term in excess of one year,
without consulting with Parent; or
(q) take any action which to the Company's knowledge would
prevent treatment of the Merger on a pooling of interests basis.
Notwithstanding the foregoing, the parties hereto acknowledge that prior to the
Closing, the Company intends to engage in the following transactions: (i) the
sale of all or substantially all of the assets used in connection with
operation of Showscan/General Cinema Ventures and Showscan Xxxxxxx and the
dissolution and liquidation of Showscan/General Cinema Ventures and Showscan
Xxxxxxx in accordance with the terms of the joint venture agreements,
respectively; (ii) enter into a new joint venture relationship with United
Artists Theater Circuit, Inc. pursuant to the joint venture agreements with
United Artists Theater Circuit, Inc. to operate a theater in Austin, Texas;
(iii) relocate its principal corporate offices (following consultation with
Parent) and to sublease the premises at which its current principal corporate
offices are located and (iv) as set forth on the Company Disclosure Letter in
Section 6.1. Nothing contained in this Section 6.1 shall prohibit or otherwise
restrict the Company from engaging in these transactions.
6.2 CONDUCT OF BUSINESS BY PARENT. During the period from the
date of this Agreement until the earlier to occur of the termination of this
Agreement or the Effective Time, except as contemplated by this Agreement,
unless the Company has consented in writing thereto, which consent shall not be
unreasonably withheld, Parent, (i) shall use its reasonable commercial efforts,
and shall cause each of its Subsidiaries to use its reasonable commercial
efforts, to preserve intact its respective business organizations and goodwill,
keep available the services of its respective officers and employees and
maintain satisfactory relationships with those Persons having business
relationships with it; (ii) shall not issue any shares of capital stock or
securities convertible into shares of its capital stock at less than the fair
market value of the stock as determined based on the closing sale price of a
share of Parent Common Stock on the National
Page 30
Market System on the day preceding such issuance (other than pursuant to
outstanding options and warrants); (iii) shall not amend or otherwise change
its Certificate of Incorporation or Bylaws; (iv) shall not split, combine,
reclassify or amend the terms of any of its capital stock; (v) shall not
declare, set aside or pay any dividend or distribution payable in cash, stock
or property or any combination thereof with respect to shares of its capital
stock; (vi) shall not take or agree to take any action which would cause a
material breach of any of the representations or warranties of Parent contained
in this Agreement or prevent Parent from performing or cause Parent not to
perform its covenants hereunder in any material respect; (vii) shall not submit
any matters to the stockholders of Parent for a vote prior to the Closing other
than the Merger and other than the other matters presented to the stockholders
of Parent concurrently with the Merger (all of which shall be presented as
separate proposals and the passage of such other matters shall not be a
condition to approval of the Merger); and (viii) take any action which to
Parent's knowledge would prevent treatment of the Merger on a pooling of
interests basis.
6.3 INSPECTION OF RECORDS. From the date hereof to the earlier
to occur of the termination of this Agreement and the Effective Time, each of
the Company and Parent shall allow the duly authorized and appropriate
officers, attorneys, accountants and other representatives of the other access
at all reasonable times to the records and files, correspondence, audits and
properties, as well as to all information relating to commitments, contracts,
titles and financial position, or otherwise pertaining to, the business and
affairs of the Company and Parent and their respective Subsidiaries. Parent
and the Company acknowledge that they are parties to that certain
Confidentiality Agreement, dated March 6, 1997 (the "Confidentiality
Agreement") the terms and conditions of which shall survive the execution of
this Agreement and shall continue to be binding on the parties with respect to
the inspections referred to in this Section 6.3 of this Agreement.
6.4 STOCKHOLDER APPROVAL. Each of the Company and Parent will
take all necessary or appropriate action under the Exchange Act, Delaware Law,
the Bylaws of the NASD and other applicable Nasdaq rules and their respective
Certificates of Incorporation and Bylaws to call a meeting of its stockholders,
which shall be held at the earliest practicable date following the effective
date of the Registration Statement, but in no event later than 45 days
following the effective date of the Registration Statement, to consider and
vote on a proposal to approve this Agreement, the Merger and the transactions
contemplated hereby and thereby, will submit the same to its stockholders with
a recommendation for approval by the Board of Directors of the Company or
Parent, as the case may be, and will solicit the approval thereof by such
stockholders by mailing or delivering to each of the stockholders a Proxy
Statement as provided for below.
6.5 REGISTRATION STATEMENT; PROXY STATEMENT.
(a) As promptly as practicable after the execution of
this Agreement, (i) Parent and the Company shall prepare and file with the
Commission (with appropriate requests for confidential treatment) under the
Exchange Act a joint proxy statement/prospectus and a form of proxy (such joint
proxy statement/prospectus together with any amendments thereof or supplements
thereto, in the form or forms delivered to the stockholders of the Company and
the stockholders of Parent, the "Proxy Statement") relating to the meeting of
the stockholders of the Company and the vote of the stockholders of the Company
with respect to the Merger and the
Page 31
meeting of the stockholders of Parent and the vote of the stockholders of
Parent with respect to the issuance of Parent Common Stock in connection with
the Merger and (ii) following clearance by the Commission of the Proxy
Statement, Parent shall prepare and file with the Commission under the
Securities Act a registration statement on Form S-4 (such registration
statement, together with any amendments thereof or supplements thereto, the
"Registration Statement"), in which the Proxy Statement will be included as a
prospectus, in connection with the registration under the Securities Act of the
shares of Parent Common Stock to be distributed to holders of shares of
Company Common Stock and Company Preferred Stock pursuant to the Merger.
Parent and the Company will cause the Registration Statement
and the Proxy Statement to comply in all material respects with the Securities
Act and the Exchange Act. Each of Parent and the Company shall use all
commercially reasonable efforts to have or cause the Registration Statement to
become effective (including clearing the Proxy Statement with the Commission)
as promptly as practicable thereafter, and shall take any and all actions
required under any applicable federal or state securities or "Blue Sky" laws
in connection with the issuance of shares of Parent Common Stock pursuant to
the Merger. Without limiting the generality of the foregoing, each of Parent
and the Company agrees to use all commercially reasonable efforts, after
consultation with the other such party, to respond promptly to any comments
made by the Commission with respect to the Proxy Statement (including each
preliminary version thereof) and the Registration Statement (including each
amendment thereof and supplement thereto). Each of Parent and the Company
shall, and shall cause its respective representatives to, fully cooperate with
the other such party and its respective representatives in the preparation of
the Proxy Statement and the Registration Statement, and shall, upon request,
furnish the other such party with all information concerning it and its
Affiliates, directors, officers and stockholders as the other may reasonably
request in connection with the preparation of the Proxy Statement and the
Registration Statement. The Proxy Statement shall include the determination
and recommendation of the Board of Directors of the Company that the
stockholders of the Company vote in favor of the approval and adoption of this
Agreement and the Merger and the determination and recommendation of the Board
of Directors of Parent that the stockholders of Parent vote in favor of the
approval of the issuance of Parent Common Stock pursuant to this Agreement;
provided, however, that the Board of Directors of the Company or Parent may
withdraw, modify or change such respective recommendation if either such Board
of Directors determines in good faith, based upon the advice of outside
counsel, that making such recommendations, or the failure to so withdraw,
modify or change its recommendation, or the failure to recommend any other
offer or proposal, could reasonably be deemed to cause the members of such
Board of Directors to breach their fiduciary duties under applicable law. As
promptly as practicable after the Registration Statement shall have become
effective, Parent and the Company shall cause the Proxy Statement to be mailed
to their stockholders.
(b) Without limiting the generality of the foregoing,
(i) the Company and Parent shall each notify the other as promptly as
practicable upon becoming aware of any event or circumstance which should be
described in an amendment of, or a supplement to, the Proxy Statement or the
Registration Statement, and (ii) the Company and Parent shall each notify the
other as promptly as practicable after the receipt by it of any written or oral
comments of the Commission on, or of any written or oral request by the
Commission for amendments or supplements to, the Proxy Statement or the
Registration Statement, and shall promptly supply the
Page 32
other with copies of all correspondence between it or any of its
representatives and the Commission with respect to any of the foregoing
filings.
(c) The information supplied by the Company for
inclusion or incorporation by reference in the Proxy Statement and the
Registration Statement shall not (i) at the time the Registration Statement is
declared effective, (ii) at the time the Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to holders of Company Common
Stock, Company Preferred Stock or holders of Parent Common Stock, (iii) at the
time of the meeting of the stockholders of the Company or the meeting of the
stockholders of Parent and (iv) at the Effective Time, contain any untrue
statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event or
circumstance relating to the Company or any of its Affiliates or its or their
respective officers or directors should be discovered by the Company which
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, the Company shall promptly inform Parent of
such event or circumstance.
(d) The information supplied by Parent for inclusion or
incorporation by reference in the Proxy Statement and the Registration
Statement shall not (i) at the time the Registration Statement is declared
effective, (ii) at the time the Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to holders of Company Common Stock, Company
Preferred Stock or holders of Parent Common Stock, (iii) at the time of the
meeting of the stockholders of the Company or the meeting of the stockholders
of Parent and (iv) at the Effective Time, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they are misleading. If at any time prior to the Effective Time
any event or circumstance relating to Parent or any of its Affiliates or its or
their respective officers or directors should be discovered by Parent which
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, Parent shall promptly inform the Company of
such event or circumstance.
6.6 AGREEMENTS BY AFFILIATED STOCKHOLDERS OF THE COMPANY. The
Company shall use reasonable efforts to deliver or cause to be delivered to
Parent, from each "affiliate" of the Company, as such term is defined and used
in Rule 145 under the Securities Act ("Rule 145 Affiliates") an Affiliate
Letter in the form attached hereto as SCHEDULE 6.6. Parent shall be entitled
to place legends as specified in such Affiliate Letters on the certificate
evidencing any Parent Common Stock to be received by such Rule 145 Affiliates
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for the Parent Common Stock, consistent with
the terms of such Affiliate Letters.
6.7 COMFORT LETTER. If requested by Parent, the Company shall
use commercially reasonable efforts to deliver to Parent a "comfort" letter
from Xxxxxx & Xxxxx, LLP, independent public accountants for the Company, of
the kind contemplated by the Statement of Auditing Standards with respect to
Letters to Underwriters promulgated by the American Institute of Certified
Public Accountants (the "AICPA Statement"), dated the Effective Time, in form
and substance reasonably satisfactory to Parent in connection with the
procedures undertaken
Page 33
by it with respect to the financial statements and other financial information
of the Company and its Subsidiaries contained in the Proxy Statement and
Registration Statement and the other matters contemplated by the AICPA
Statement and customarily included in comfort letters relating to transactions
similar to the Merger.
6.8 TAKEOVER STATUTES. The Company and Parent shall cooperate
and take all action reasonably necessary to render inapplicable the
prohibitions on business combinations contained in Section 203 of the Delaware
Law and eliminate or minimize the validity or applicability to the Merger of
any state takeover statute.
6.9 EXPENSES. Whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses except as expressly provided herein and except that (a) the filing fee
in connection with the filing of the Registration Statement or Proxy Statement
with the Commission and (b) the expenses incurred in connection with printing
and mailing the Registration Statement and the Proxy Statement, shall be shared
equally by the Company and Parent.
6.10 REORGANIZATION. From and after the date hereof and until
the Effective Time, neither Parent nor the Company nor any of their respective
Subsidiaries shall (i) knowingly take any action, or knowingly fail to take any
action, that would jeopardize qualification of the Merger as a reorganization
with the meaning of Section 368(a) of the Code; or (ii) enter into any
contract, agreement, commitment or arrangement with respect to the foregoing.
In addition, neither Parent, Sub nor the Company shall take a position
inconsistent with the treatment of the Merger as a reorganization within the
meaning of Section 368(a) of the Code on any Tax Return or otherwise.
6.11 CONTINUITY OF INTEREST LETTERS. The Company shall use its
reasonable efforts to cause each holder of 5% or more (by value) of Company
Common Stock and Company Preferred Stock (determined as of the date hereof) to
execute a Continuity-of-Interest Letter in the form attached hereto as SCHEDULE
6.11. Copies of any executed Continuity-of-Interest Letters received shall be
delivered to counsel to the Company and Parent, respectively, at the Closing.
6.12 FILINGS; OTHER ACTION. Subject to the terms and conditions
herein provided, the Company and Parent shall (a) use all reasonable efforts to
cooperate with one another in (i) determining which filings are required to be
made prior to the Effective Time with, and which consents, approvals, permits
or authorizations are required to be obtained prior to the Effective Time from
states and foreign jurisdictions in connection with the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
and (ii) timely making all such filings and timely seeking all such consents,
approvals, permits or authorizations; and (b) use all reasonable efforts to
take, or cause to be taken, all other action and do, or cause to be done, all
other things necessary, proper or appropriate to consummate and make effective
the transactions contemplated by this Agreement. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purpose of this Agreement, the proper officers and directors of Parent and the
Company shall take all such necessary action.
Page 34
6.13 NOTIFICATION OF CERTAIN MATTERS. The Company shall use
reasonable good faith efforts to promptly give written notice to Parent and
Parent shall use reasonable good faith efforts to promptly give written notice
to the Company, upon becoming aware of the occurrence or, to its Knowledge,
respectively, impending or threatened occurrence, of any event which would
cause or constitute a breach of any of its representations, warranties or
covenants contained or referenced in this Agreement and use its reasonable good
faith efforts to prevent or promptly remedy the same.
6.14 LEGAL ACTION. In the event that a preliminary or permanent
injunction or other order, decree or ruling is issued by any court of competent
jurisdiction or by any
governmental, administrative or regulatory agency or commission in the United
States which prohibits the consummation of the Merger and shall be in effect,
each party agrees to use its reasonable efforts to have such injunction lifted.
6.15 PUBLICITY. The Company and Parent shall, subject to their
respective legal obligations of public companies, use reasonable efforts to
agree upon the text of any press release relating to the Merger or the
transactions contemplated by this Agreement; provided, however, if the parties
hereto are unable to agree upon the text of any such press release, nothing
herein shall require any party to obtain the consent of any other party to the
release of any such press release which, upon the advice of outside legal
counsel, such party determines in good faith is required to be issued by
applicable law or the rule and regulations of the NASD.
6.16 ALTERNATIVE PROPOSALS. Prior to the earlier to occur of
the termination of this Agreement and the Effective Time, the Company agrees
(a) that neither it nor any of its Subsidiaries shall, and it shall direct and
use its best efforts to cause its officers, directors, employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it or any of its Subsidiaries) not to, initiate or
solicit, directly or indirectly, any inquiries or the making or implementation
of any proposal or offer (including, without limitation, any proposal or offer
to its stockholders) with respect to a merger, acquisition, consolidation or
similar transaction involving, or any purchase of (i) all or any significant
portion of the assets of the Company and its Subsidiaries, taken as a whole; or
(ii) 25% or more of the outstanding voting power of the capital stock of the
Company, (any such proposal or offer being hereinafter referred to as an
"Alternative Proposal") or engage in any negotiations concerning, or provide
any confidential information or data to, or have any discussions with, any
Person relating to an Alternative Proposal; and (b) that it will notify Parent
immediately if any such inquiries or proposals are received by, any such
information is received from, or any such negotiations or discussions are
sought to be initiated or continued with, it; PROVIDED, HOWEVER, that nothing
contained in this Section 6.16 shall prohibit the Board of Directors of the
Company from (i) furnishing information to, or entering into discussions or
negotiations with, any Person that makes an unsolicited bona fide offer or
proposal with respect to an Alternative Proposal, if, and only to the extent
that (A) the Board of Directors determines in good faith, after advice of its
outside counsel, that such action is required for the Board of Directors to
comply with its fiduciary duties to stockholders imposed by law, (B) prior to
furnishing such information to, or entering into discussions or negotiations
with, such Person, the Company provides written notice to Parent to the effect
that it is furnishing information to, or entering into discussions or
negotiations with, a Person (provided nothing herein shall require the Company
to identify such
Page 35
Person); and (ii) to the extent applicable, taking and disclosing to the
Company's stockholders a position with regard to a tender or exchange offer
contemplated by Rules 14d-9 or 14e-2 or promulgated under the Exchange Act
and making such disclosure to the Company's stockholders as may be required
under applicable law. Nothing in this Section 6.16 shall (x) permit
any party to terminate this Agreement (except as specifically provided in
Section 10.1 hereof), (y) permit any party to enter into any agreement for an
Alternative Proposal during the term of this Agreement (it being agreed that
during the term of this Agreement, no party shall enter into any agreement with
any Person that provides for, or in any way facilitates, an Alternative
Proposal (other than a confidentiality agreement in customary form)), or (z)
affect any other obligation of any party under this Agreement.
6.17 INDEMNIFICATION AND INSURANCE. From and after the
Effective Time,
(a) Parent shall cause the Surviving Corporation to,
and the Surviving Corporation shall, include as part of its Certificate of
Incorporation and Bylaws provisions relating to the indemnification of all
current and former directors, officers, employees and agents of the Company
which are no less favorable than the provisions contained in the Company's
Certificate of Incorporation and Bylaws. Such provisions shall not be amended,
repealed or otherwise modified after the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at any time
prior to the Effective Time were directors, officers, employees or agents of
the Company in respect to actions or omissions occurring at or prior to the
Effective Time (including, without limitation, actions or omissions which occur
in connection with the transactions contemplated by this Agreement), unless
such modification is required by law.
(b) The Company shall, to the fullest extent permitted
under applicable law or under the Company's Certificate of Incorporation or
Bylaws and regardless of whether the Merger becomes effective, indemnify and
hold harmless and after the Effective Time, Parent and the Surviving
Corporation shall, to the fullest extent permitted under applicable law or
under the Surviving Corporation's Certificate of Incorporation or Bylaws,
indemnify and hold harmless, each present and former director, officer or
employee of the Company or any of its subsidiaries (collectively, the
"Indemnified Parties") against any costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, (x)
arising out of or pertaining to the transactions contemplated by this Agreement
or (y) otherwise with respect to any act or omissions occurring at or prior to
the Effective Time, in each case for a period of six years after the date
hereof; provided, however, in no event shall Parent be obligated to provide
indemnity to the Indemnified Parties pursuant to clause (y) immediately above
which in the aggregate is in excess of $10,243,000. In the event of any such
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), (i) any counsel retained by the Indemnified Parties
for any period after the Effective Time shall be reasonably satisfactory to the
Surviving Corporation, (ii) after the Effective Time, the Surviving Corporation
shall pay the reasonable fees and expenses of such counsel, promptly after
statements therefor are received, and (iii) the Surviving Corporation will
cooperate in the defense of any such matter; provided, however, the Surviving
Corporation shall not be liable for any settlement effected without its written
consent
Page 36
(which consent shall not be unreasonably withheld); and provided,
further, that, in the event that any claim or claims for indemnification are
asserted or made within such six-year period, all rights to indemnification in
respect of any such claim or claims shall continue until the disposition of any
and all such claims. The Indemnified Parties as a group may retain only one
law firm to represent them with respect to any single action unless there is,
under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Indemnified Parties
in which case this limitation shall not apply.
(c) For a period of six years after the Effective Time,
Parent shall cause the Surviving Corporation to maintain in effect directors'
and officers' liability insurance covering those persons who are currently
covered by the Company's directors' and officers'
insurance policy on terms no less favorable than those now applicable to
directors and officers of the Company; provided, however, that Parent and the
Surviving Corporation may substitute therefor policies of insurance containing
terms and conditions that are no less advantageous to such covered persons or
provide for such coverage under Parent's directors' and officers' liability
insurance policy (a copy of which has been made available to the Company) if
Parent's policy provides, subject to the last sentence of this Section 6.17(c),
at least the same coverage and amounts and on terms and conditions that are no
less favorable to covered persons than the Company's current policy.
Notwithstanding the foregoing, neither Parent nor the Surviving Corporation
shall be required to maintain such policies to the extent the premium therefore
exceeds 200% of the annual premiums currently paid by the Company in respect of
the current policy or policies (the "Maximum Amount") but in such case shall
purchase as much comparable coverage as available for the Maximum Amount.
6.18 APPOINTMENT OF COMPANY NOMINATED DIRECTORS. Parent hereby
agrees to appoint, immediately after the Effective Time, Messrs. Xxxx,
XxXxxxxxxxx and Xxxx ("Company Nominated Directors") to serve as directors on
Parent's Board of Directors in the Class of Directors and to serve as members
of that committee of Parent's Board of Directors each as set forth opposite
each Company Nominated Directors' name on SCHEDULE 6.18, all in accordance with
Parent's Bylaws until such time as their successors have been duly elected or
appointed and qualified or until the earlier death, resignation or removal of
such director in accordance with Parent's Bylaws.
7. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
7.1 STOCKHOLDER APPROVAL. This Agreement and the Merger shall
have been approved and adopted by the requisite vote or written consent of the
stockholders of the Company and the issuance of the shares of Parent Common
Stock pursuant to the terms of this Agreement shall have been approved and
adopted by the requisite vote of the stockholders of Parent.
7.2 NO LEGAL ACTION. No preliminary or permanent injunction or
other order, decree or ruling issued by any court of competent jurisdiction, or
by any governmental, administrative or regulatory agency or commission, in the
United States which prohibits the consummation of the Merger shall be in
effect.
Page 37
7.3 REGISTRATION STATEMENT EFFECTIVE. The Registration
Statement shall have become effective and shall not be subject to a "stop
order," and no action, suit, proceeding or investigation by the Commission to
suspend the effectiveness thereof shall have been initiated and be continuing.
7.4 LISTING OF ADDITIONAL SHARES ON THE NASDAQ NATIONAL MARKET.
The shares of Parent Common Stock issued in connection with the Merger shall
have been approved for listing on the Nasdaq National Market subject to oral
notice of official issuance.
7.5 PERMITS AND APPROVALS. All material filings,
registrations, covenants, permits, authorizations and regulatory approvals of
governmental authorities necessary for the consummation of the Merger shall
have been duly obtained or made and shall be in full force and effect.
7.6 ACCOUNTING TREATMENT. Each of Parent and the Company shall
have received letters (the "Pooling Letters"), dated as of the Effective Date,
from Ernst & Young, LLP, regarding such firm's concurrence with Parent's
management's and the Company's management's conclusions as to the
appropriateness of pooling of interest accounting for the Merger under
Accounting Principles Opinion No. 16 if closed and consummated in accordance
with this Agreement.
8. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT. The obligations of
Parent to effect the Merger are subject to the fulfillment at or prior to the
Closing of the following additional conditions, any of which may be waived in
writing in whole or in part by Parent:
8.1 REPRESENTATIONS, COVENANTS, CERTIFICATE. The Company shall
have performed in all material respects its agreements contained in this
Agreement required to be performed on or prior to the Effective Time, and the
representations and warranties of the Company herein contained shall be true in
all material respects as of the date of this Agreement and the Effective Time
except for representations and warranties that speak as of a specific date or
time, which need only be true and correct in all material respects as of such
date or time and except for such inaccuracies which do not in the aggregate
have a Material Adverse Effect.
8.2 NO ADVERSE CHANGE. Since the date hereof, there shall not
have occurred any change in the financial condition, business or operations of
the Company and its Subsidiaries that would have or would be reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect.
8.3 CERTAIN LEGAL MATTERS. There shall not have been any
statute, rule, regulation or order promulgated, enacted, entered, enforced or
deemed applicable to the Merger by any United States federal or state
government or governmental authority, nor shall there be in effect an order or
judgment entered by any United States federal or state court, which (i) would
make the consummation of the Merger illegal or would materially delay the
Effective Time, (ii) would require the divestiture by Parent, the Company or
any of their respective Subsidiaries of any of the shares of Company Common
Stock or of a material portion of the business, assets, or property of either
Parent or any of its Subsidiaries, or of the Company or any
Page 38
of its Subsidiaries, or impose any material limitation on the ability of any
of them to conduct their respective businesses and own their respective assets
or property, or (iii) impose any limitations on the ability of Parent,
directly or indirectly, to control in any material respect the business or
operations of the Company, or any of its Subsidiaries.
8.4 TAX OPINION AND CERTIFICATES. At the Closing, the Company
and Parent shall deliver Tax Matters Certificates to counsel to Parent, which
certificates shall be substantially in the form of SCHEDULES 8.4(A) and 8.4(B)
attached hereto, respectively (the "Tax Matters Certificates"). At the
Closing, Parent shall have received a written opinion from its
counsel, dated the Closing Date, to the effect that (i) the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code
and the Company, Parent and Sub will each be a party to that reorganization
within the meaning of Section 368(b) of the Code, (ii) no gain or loss will be
recognized by the Company, Parent or Sub as a result of the Merger, and (iii)
no stockholder of the Company will recognize gain or loss on the exchange of
Company Common Stock or Company Preferred Stock solely for Parent Common Stock
in the Merger. Such counsel shall, in rendering such opinions, be entitled to
rely on reasonable representations and assumptions from officers of the Company
and Parent related thereto.
8.5 CERTIFICATE. Parent shall have received a certificate of
the Company dated the Effective Time, signed by a senior officer of the
Company, certifying that (i) all representations and warranties of the Company
were true and correct in all material respects when made and are true and
correct in all material respects on the Effective Time as if made on the
Effective Time, and (ii) the Company has performed and complied in all material
respects with all covenants and agreements required in this Agreement to be
performed or complied with by it on or prior to the Effective Time.
8.6 RESIGNATION OF COMPANY OFFICERS AND DIRECTORS. Prior to
the Effective Time, each of the members of the Board of Directors of the
Company and its Subsidiaries shall have executed letters of resignation which
shall become effective as of the Effective Time.
9. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to effect the Merger are subject to the fulfillment
at or prior to the Closing of the following additional conditions, any of which
may be waived in writing, in whole or in part, by the Company:
9.1 REPRESENTATIONS, COVENANTS, CERTIFICATE. Parent and Sub
shall have performed in all material respects their respective agreements
contained in this Agreement required to be performed on or prior to the
Effective Time, and the representations and warranties of Parent and Sub herein
contained shall be true and correct in all material respects as of the date of
this Agreement and the Effective Time except for representations and warranties
that speak as of a specific date or time, which need only be true and correct
in all material respects as of such date or time and except for such
inaccuracies which do not in the aggregate have a Material Adverse Effect.
Page 39
9.2 CERTAIN LEGAL MATTERS. There shall not have been any
statute, rule, regulation or order promulgated, enacted, entered, enforced or
deemed applicable to the Merger by any United States federal or state
government or governmental authority, nor shall there be in effect an order or
judgment entered by any United States federal or state court, which would make
the consummation of the Merger illegal or would materially delay the Effective
Time.
9.3 TAX OPINION AND CERTIFICATES. At the Closing, the Company
and Parent shall deliver the Tax Matters Certificates to counsel to the
Company. At the Closing, the Company shall have received a written opinion
from its counsel, dated the Closing Date, to the effect that (i) the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code and the Company, Parent and Sub will each be a party to that
reorganization within the meaning of Section 368(b) of the Code, (ii) no gain
or loss will be recognized by the Company, Parent or Sub as a result of the
Merger, and (iii) no stockholder of the Company will recognize gain or loss on
the exchange of Company Common Stock or Company Preferred Stock solely for
Parent Common Stock or Parent Preferred Stock in the Merger. Such counsel
shall, in rendering such opinions, be entitled to rely on reasonable
representations and assumptions from officers of the Company and Parent related
thereto.
9.4 CERTIFICATE. The Company shall have received a certificate
of Parent dated the Effective Time, signed by a senior officer of Parent,
certifying that (i) all representations and warranties of Parent and Sub were
true and correct in all material respects when made and are true and correct in
all material respects on the Effective Time as if made on the Effective Time,
and (ii) Parent and Sub has performed and complied in all material respects
with all covenants and agreements required in this Agreement to be performed or
complied with by it on or prior to the Effective Time.
9.5 NO ADVERSE CHANGE. Since the date hereof, there shall not
have occurred any change in the financial condition, business or operations of
Parent and its Subsidiaries, that would have or would be reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect.
10. TERMINATION.
10.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof by the
stockholders of the Company or Parent:
(a) by mutual written consent duly authorized by the
Boards of Directors of Parent and the Company; or
(b) by either Parent or the Company, if the Merger
shall not have been consummated by December 31, 1997 (provided that the right
to terminate this Agreement under this Section 10.1 shall not be available to
any party whose failure to fulfill any obligation under this Agreement has been
the cause of or a substantial contributor to the failure of the Merger to occur
on or before such date); or
Page 40
(c) by either Parent or the Company, if a court of
competent jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued a nonappealable final order, decree or ruling or
taken any other action having the effect of permanently restraining, enjoining
or otherwise prohibiting the Merger (provided that (i) if the party seeking to
terminate this Agreement pursuant to Section 10.1 is subject to such order,
decrees or ruling, it shall have used all reasonable efforts to have such
order, decree or ruling removed and (ii) the right to terminate this Agreement
under this Section 10.1 shall not be available to any party who has not
complied with its obligations under Section 6.12 and such noncompliance
materially contributed to the issuance of any such order, decree or ruling or
the taking of such action);
(d) by action of the Board of Directors of the Company
(i) following receipt of an Alternative Proposal if (a) the Board of Directors
of the Company determines in good faith, after advice of outside counsel, that
such action is necessary in order to fulfill its fiduciary duties to
stockholders imposed by law, and if (b) such Board of Directors is then in
receipt of a written opinion from its financial advisor that such Alternative
Proposal would, if consummated, result in a transaction more favorable to the
Company's stockholders from a financial point of view than the transaction
contemplated by this Agreement; PROVIDED, HOWEVER, prior to any such
termination, the Company notifies Parent promptly of its intention to terminate
this Agreement or enter into a definitive agreement with respect to an
Alternative Proposal, but in no event shall such notice be given less than 48
hours prior to the public announcement of such action; or (ii) if the Board of
Directors of Parent shall have withdrawn or modified in a manner materially
adverse to the Company its approval of this Agreement or the Merger or
recommendation of the issuance of the Parent Common Stock pursuant to the terms
of this Agreement or the Merger.
(e) by action of the Board of Directors of Parent if
the Board of Directors of the Company shall have withdrawn or modified in a
manner materially adverse to Parent its approval or recommendation of this
Agreement or the Merger.
(f) by Parent or the Company, if, at a duly held
meeting of the stockholders of the Company (including any adjournment thereof)
held for the purpose of voting on the Merger, this Agreement and the
consummation of the transactions contemplated hereby, the holders of a majority
of the outstanding shares of Company Common Stock and Company Preferred Stock
(voting as a single class) shall not have approved the Merger and this
Agreement;
(g) by Parent or the Company, if, at a duly held
meeting of the stockholders of Parent (including any adjournment thereof) held
for the purpose of voting on the issuance of the Parent Common Stock in
connection with the Merger, the requisite vote of a majority of the holders of
the outstanding shares of Parent Common Stock shall not have approved such
issuance.
10.2 OPTION TO PURCHASE.
(a) The Company hereby grants to Parent an irrevocable
option (the "Option") to purchase for an amount equal to $4.14 per share (the
"Per Share Price") in cash up
Page 41
to 330,714 authorized but unissued shares of Company Common Stock (the
"Optioned Shares"). The Option shall expire (such event being referred to
herein as the "Option Termination Event") if not exercised as permitted under
this Agreement prior to the earlier of (i) the Effective Time, (ii) termination
of this Agreement in accordance with the provisions of Section 10.1(a),
10.1(b), 10.1(c), 10.1(d)(ii), 10.1(f) (unless prior to the date of the
meeting referred to therein an Alternative Proposal is publicly announced) or
10.1(g) or (iii) the first business day after the three hundred and sixty-fifth
calendar day following termination of this Agreement for any reason pursuant to
10.1(d)(i), 10.1(e) or 10.1(f) (if prior to the date of the meeting referred
to therein an Alternative Proposal is publicly announced); PROVIDED, HOWEVER,
that in the event that the exercise of the Option shall be subject to any
injunction prohibiting its exercise such period shall be extended for a period
of sixty days following the removal of any such injunction.
(b) Provided that (i) no preliminary or permanent
injunction or other order issued by any Federal or state court of competent
jurisdiction in the United States prohibiting the exercise of the Option or the
delivery of the Optioned Shares shall be in effect and (ii) any such exercise
shall otherwise be subject to compliance with applicable law, Parent may
exercise the Option in whole or in part at any time or from time to time after
the occurrence of both an Initial Triggering Event and a Purchase Event (as
defined in Section 10.2(d)) if, but only if, both the Initial Triggering Event
and the Purchase Event shall have occurred prior to the occurrence of an Option
Termination Event. In the event that Parent wishes to exercise the Option,
Parent shall give written notice of such exercise (the date of such notice
being herein called the "Notice Date") within 30 days following such Purchase
Event to the Company specifying the number of Optioned Shares it will purchase
pursuant to such exercise and a place and date for the closing of such
purchase.
(c) At any closing of the exercise of the Option, (i)
Parent will make payment to the Company of the aggregate price for the Optioned
Shares in immediately available funds, in an amount equal to the product of the
Per Share Price multiplied by the number of Optioned Shares being purchased at
such closing and (ii) the Company will deliver to Parent a duly executed
certificate or certificates representing the number of Optioned Shares so
purchased, registered in the name of Parent or its nominee in the denominations
designated by Parent in its notice of exercise.
(d) For the purposes this Section 10.2, an "Initial
Triggering Event" shall have occurred at such time as one of the following
events shall have occurred and Parent shall have determined in good faith (and
shall have notified the Company in writing of such determination) that there is
a reasonable likelihood that, as a result of the occurrence of any of the
following events, consummation of the Merger pursuant to the term of this
Agreement is jeopardized: (i) any Person as defined in Sections (a)(9) or
13(d)(3) of the Exchange Act (other than Parent or any Subsidiary
of Parent) shall have commenced a bona fide offer to purchase shares of
Company Common Stock such that, upon consummation of said offer, such Person
would own or control 10% or more of the outstanding shares of Company Common
Stock, or shall have entered into an agreement to (A) merge or consolidate or
enter into any similar transaction, with the Company, or (B) purchase or
otherwise acquire (including by way of merger, consolidation, share exchange
or any similar transaction) securities representing 10% or more of the voting
power of the Company; (ii) any Person (other than Parent or any Subsidiary
Page 42
of Parent) shall have acquired beneficial ownership or the right to acquire
beneficial ownership of 10% or more of the outstanding shares of the Company
Common Stock (the term "beneficial ownership" for purposes of this Section
10.2(d) having the meaning assigned thereto in Section 13(d) of the Exchange
Act); (iii) any Person (other than Parent or any Subsidiary of Parent) shall
have made a bona fide proposal to the Company after the date of this Agreement
by public announcement or written communication to (A) acquire the Company by
merger, consolidation, purchase of all or substantially all of its assets or
any other similar transaction, or (B) make an offer described herein; (iv) any
Person shall have solicited proxies in a proxy solicitation subject to
Regulation 14A under the Exchange Act in opposition to approval of this
Agreement by the Company's stockholders; (v) or any Person shall have
willfully breached any provision of this Agreement, which breach would entitle
Parent to terminate this Agreement and such breach shall not have been cured
pursuant to the terms of this Agreement and prior to Parent's request under
this Section 10.2. For purposes of this Section 10.2, a "Purchase Event" shall
have occurred at such time as the Company is obligated to pay to Parent the
Company Termination Fee set forth in Section 10.3(a)(i).
(e) At any time commencing upon the occurrence of a
Purchase Event at Parent's or Company's request, the Company shall pay to
Parent an amount equal to the difference between the "market/tender offer"
price for shares of Company Common Stock (defined as the higher of the average
price per share at which a tender or exchange offer has been made or the
highest reported sale price for shares of Company Common Stock on the date
Parent or the Company gives notice of the required payment under this Section
10.2) and the Per Share Price, as adjusted pursuant to Section 10.2(f) which
difference shall be multiplied by the total number of Optioned Shares as to
which the Option has not theretofore been exercised, as adjusted pursuant to
Section 10.2(f), but only if the market/tender offer price is greater than such
exercise price. In the event that the Company makes a payment directly to
Parent of the amounts provided for in this Section 10.2(e), such payment shall
extinguish all other rights of Parent under this Option but shall not affect
the rights of Parent under the Agreement or otherwise.
(f) If between the date of this Agreement and the
Effective Time, the shares of the Company Common Stock shall be changed into a
different number of shares by reason of any reclassification, recapitalization,
split-up, combination or exchange of shares, or if a stock dividend thereon
shall be declared with a record date within said period, the number of Optioned
Shares and the Per Share Price shall be adjusted appropriately so as to restore
Parent to its rights hereunder, at an adjusted per share purchase price equal
to the Per Share Price multiplied by a fraction, the numerator of which shall
be equal to the number of shares of the Company Common Stock purchasable prior
to the adjustment and the denominator of which shall be equal to the number of
shares of Company Common Stock purchasable after the adjustment; PROVIDED,
HOWEVER, that nothing in this Option shall be construed as permitting the
Company to take any action or enter into any transaction prohibited by this
Agreement.
(g) The Company shall, if requested by Parent, as
expeditiously as possible file a registration statement on a form of general
use under the Securities Act if necessary in order to permit the sale or other
disposition of the shares of Company Common Stock that have been acquired upon
exercise of the Option in accordance with the intended method of sale or other
disposition requested by Parent. Parent shall provide all information
Page 43
reasonably requested by the Company for inclusion in any registration statement
to be filed hereunder. The Company will use its best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of two hundred and seventy calendar days from the
day such registration statement first becomes effective as may be reasonably
necessary to effect such sales or other dispositions. The registration
effected under this Section 10.2 shall be at the Company's expense except for
all agency fees and commissions and underwriting discounts and commissions
attributable to the sale of such securities, which amounts shall be borne by
Parent. In no event shall the Company be required to effect more than one
registration hereunder regardless of the number of assignees. The filing of
any registration statement hereunder may be delayed for such period of time as
may reasonably be required if the Company determines that any such filing or
the offering of any such shares of Company Common Stock would (i) impede, delay
or otherwise interfere with any financing, offer or sale of Company Common
Stock or any other securities of the Company, or (ii) require disclosure of
material information which, if disclosed at that time, would be materially
harmful to the interests of the Company and its shareholders. If requested
by Parent in connection with any such registration, the Company will become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in such
underwriting agreements. Upon receiving any request from Parent or an
assignee thereof under this Section 10.2(g) the Company agrees to send a copy
thereof to Parent and to any assignee thereof known to the Company,
in each case by promptly mailing the same, postage prepaid, to the address of
record of the Persons entitled to receive such copies.
10.3 EFFECT OF TERMINATION.
(a) The Company shall pay Parent a fee of $1,500,000
(the "Company Termination Fee") in the event that (i) this Agreement is
terminated pursuant to (x) Section 10.1(d)(i) or 10.1(e), or (y) Section
10.1(f) if prior to the meeting of the stockholders of the Company contemplated
pursuant to Section 6.4 an Alternative Proposal is publicly announced and the
Company consummates such Alternative Proposal within 12 months of the
termination of this Agreement pursuant to Section 10.1(f), or (ii) the
condition set forth in Section 7.6 is not satisfied as a result of either (x)
false or inaccurate statements made by the Company in the representation letter
delivered by the Company to Ernst & Young or (y) a sale or other transfer after
the date hereof of the capital stock of the Company or of Parent by an
"affiliate" of the Company, as such term is defined and used in Accounting
Series Releases 130 and 135, as amended; or (z) any action taken by the Company
subsequent to the date of this Agreement. The Company Termination Fee shall be
payable by wire transfer of same day funds either on the date contemplated in
the last sentence of Section 10.1(d) if applicable, or otherwise, within two
business days after such amount becomes due. The Company acknowledges that the
agreements contained in this Section 10.3(a) are an integral part of the
transactions contemplated in this Agreement, and that, without these
agreements, Parent would not enter into this Agreement; accordingly, if the
Company fails to promptly pay the amount due pursuant to this Section 10.3(a)
and, in order to obtain such payment, Parent commences a suit which results in
a judgment against the Company for the fee set forth in this Section 10.3(a)
the Company shall pay to Parent its costs and expenses (including attorneys'
fees) in connection with such suit, together with interest on the amount of the
fee at the rate of 10% per annum.
Page 44
(b) Parent shall pay the Company a fee of $1,500,000
(the"Parent Termination Fee") in the event that (i) this Agreement is
terminated pursuant to Section 10.1(d)(ii), or (ii) the condition set forth in
Section 7.6 is not satisfied as a result of either (x) false or inaccurate
statements made by Parent in the representation letter delivered by Parent to
Ernst & Young; or (y) a sale or other transfer after the date hereof of the
capital stock of Parent by an "affiliate" of Parent, as such term is defined
and used in Accounting Series Releases 130 and 135, as amended; or (z) any
action taken by Parent subsequent to the date of this Agreement. The Parent
Termination Fee shall be payable by wire transfer of same day funds within two
business days after such amount becomes due. Parent acknowledges that the
agreements contained in this Section 10.3(a) are an integral part of the
transactions contemplated in this Agreement, and that, without these
agreements, the Company would not enter into this Agreement; accordingly, if
Parent fails to promptly pay the amount due pursuant to this Section 10.3(a)
and, in order to obtain such payment, the Company commences a suit which
results in a judgment against Parent for the fee set forth in this Section
10.3(a) Parent shall pay to the Company its costs and expenses (including
attorneys' fees) in connection with such suit, together with interest on the
amount of the fee at the rate of 10% per annum.
(c) If this Agreement is terminated pursuant to Section
10.1, this Agreement shall become void and of no effect with no liability on
the part of any party hereto, except that (a) the agreements contained in
Section 6.8, the last sentence of Section 6.3 and Sections 10.3(a) and 10.3(b)
shall survive the termination hereof and (b) if termination of this Agreement
shall be judicially determined to have been caused by willful breach of this
Agreement, then, in addition to other remedies at law or equity for breach of
this Agreement, the party so found to have willfully breached this Agreement
shall indemnify the other parties for their respective costs, fees and expenses
of their counsel, accountants and other experts and advisors as well as fees
and expenses incident to negotiation, preparation and execution of this
Agreement and related documentation and their stockholders' meetings and
consents.
11. MISCELLANEOUS PROVISIONS.
11.1 NOTICES. All notices, demands or other communications
hereunder shall be in writing and shall be deemed to have been duly given if
(i) delivered in Person, on the date actually given, (ii) by United States
mail, certified or registered, with return receipt requested, on the date which
is two business days after the date of mailing, or (iii) if sent by telex or
facsimile transmission, with a copy mailed on the same day in the manner
provided in (ii) above, on the date transmitted provided receipt is confirmed
by telephone:
(a) if to Parent to:
Iwerks Entertainment, Inc.
0000 Xxxx Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxx X. Xxxxxx
Telecopy No.: (000) 000-0000
Page 45
With copies to:
Troop Xxxxxxxxx Xxxxxxx & Xxxxxx, LLP
00000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: C.N. Xxxxxxxx Xxxxxxx III, Esq.
Telecopy No.: (000) 000-0000
(b) if to the Company to:
Showscan Entertainment, Inc.
0000 Xxxxxxxx Xxxxxx
Xxxxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxx Xxxx
Telecopy No.: (000) 000-0000
With copies to:
Xxxxxx & Xxxxxxx
00 Xxxxxx Xxxx
Xxxxx Xxxx, Xxxxxxxxxx
Attention: Xxxxx Xxxxxx, Esq.
Telecopy No.: (000) 000-0000
or at such other address as may have been furnished by such Person in writing
to the other parties.
11.2 TERMINATION OF REPRESENTATIONS AND WARRANTIES. The
respective representations and warranties of the Company, Parent and Sub
contained herein shall expire with, and be terminated and extinguished at the
Effective Time. Neither the Company, Parent nor Sub shall be under any
monetary or other liability whatsoever with respect to any breach of a
representation or warranty contained herein or in or with respect to any
certificate or other document delivered pursuant hereto, and the sole
consequence of any such breach shall be limited to the failure to satisfy a
condition set forth in Sections 8 and 9 hereof, as applicable, and the
termination right provided for in Section 10.1 hereof, in each case to the
extent applicable according to such Section's express terms.
11.3 SEVERABILITY. Should any Section or any part of a Section
within this Agreement be rendered void, invalid or unenforceable by any court
of law for any reason, such invalidity or unenforceability shall not void or
render invalid or unenforceable any other Section or part of a Section in this
Agreement.
11.4 EXHIBITS AND SCHEDULES. Each Exhibit and Schedule
delivered pursuant to the terms of this Agreement and each document, instrument
and certificate delivered by the parties in connection with the transactions
contemplated hereby constitutes an integral part of this Agreement.
Page 46
11.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED BOTH AS TO VALIDITY AND PERFORMANCE AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO THE CHOICE OF LAW
PRINCIPLES THEREOF.
11.6 WAIVER OF JURY TRIAL. The parties hereto each waives any
right to have a jury participate in resolving any dispute whether sounding in
contract, tort, or otherwise arising
out of, connected with, related to or incidental to the relationship
established between them pursuant to this Agreement. Instead, any disputes
resolved in court will be resolved in a bench trial without a jury.
11.7 NO ADVERSE CONSTRUCTION. The rule that a contract is to be
construed against the party drafting the contract is hereby waived, and shall
have no applicability in construing this Agreement or any provisions hereof.
11.8 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
11.9 COSTS AND ATTORNEYS' FEES. In the event that any action,
suit, or other proceeding is instituted concerning or arising out of this
Agreement, the prevailing party shall recover all of such party's costs, and
reasonable attorneys' fees incurred in each and every such action, suit, or
other proceeding, including any and all appeals or petitions therefrom.
11.10 SUCCESSORS AND ASSIGNS. None of the parties hereto may
assign their rights or obligations hereunder to any other person without the
prior written consent of the other parties hereto. All rights, covenants and
agreements of the parties contained in this Agreement shall, except as
otherwise provided herein, be binding upon and inure to the benefit of their
respective successors and assigns.
11.11 AMENDMENT. This Agreement may be amended by the parties
hereto, by action taken by their respective Boards of Directors at any time
before or after approval hereof by the stockholders of the Company, but after
any such approval, no amendment shall be made which changes the Per Share
Consideration, or which is otherwise not permitted by the Delaware Law, without
the further approval of the stockholders. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
11.12 WAIVER. At any time prior to the Effective Time, any party
hereto, by action taken by its Board of Directors, at any time before or after
approval hereof by the stockholders of the Company, may (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties of
the other parties contained herein or in any document delivered pursuant
hereto, and (iii) waive compliance with any of the agreements or conditions
contained herein. Any agreement on the part of a party hereto shall be valid
if set forth in an instrument in writing signed on behalf of such party by a
duly authorized officer.
Page 47
11.13 ENFORCEMENT OF AGREEMENT. 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 its specific terms or was
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, this being in
addition to any other remedy to which they are entitled at law or in equity.
11.14 ENTIRE AGREEMENT. This Agreement, the attached Exhibits
and Schedules, the other schedules referred to in this Agreement and the
Confidentiality Agreement contain the entire understanding of the parties and
there are no further or other agreements or understandings, written or oral,
in effect between the parties relating to the subject matter hereof unless
expressly referred to herein.
11.15 BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each party will use its best efforts to take, or cause to be taken,
all actions and do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement.
11.16 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. The representations, warranties, covenants and agreements
contained herein and in any certificate or other writing delivered pursuant
hereto shall not survive the Effective Time, except Sections 2, 6.10, 6.12,
6.17 and 6.18 and this Article 11.
11.17 NO THIRD PARTY BENEFICIARIES. The Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement, including, without limitation by way of subrogation,
other than Section 2.6 (which is intended to be for the benefit of the holders
of Company Purchase Rights and Convertible Notes) and Section 6.17 (which is
intended to be for the benefit of the Indemnified Parties).
Page 48
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
IWERKS ENTERTAINMENT, INC.
A DELAWARE CORPORATION
By: /s/ Xxx X. Xxxxxx
--------------------------------------------
Name: Xxx Xxxxxx
Title: Chief Executive Officer
SHOWSCAN ENTERTAINMENT, INC.
A DELAWARE CORPORATION
By: /s/ Xxxxxx Xxxx
--------------------------------------------
Name: Xxxxxx Xxxx
Title: President & CEO
IWK-1 MERGER CORPORATION
A DELAWARE CORPORATION
By: /s/ Xxx X. Xxxxxx
--------------------------------------------
Name: Xxx Xxxxxx
Title: Chief Executive Officer
