AGREEMENT
OF
REORGANIZATION AND MERGER
among
Electro Scientific Industries, Inc.,
an Oregon corporation,
MicroVision Corp.,
a Minnesota corporation,
Magellan Merger Corp.,
a Minnesota corporation,
and
The Shareholders of
MicroVision Corp.
January 28, 1999
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER........................................................2
1.1 The Merger........................................................2
1.2 Effect of Merger..................................................2
1.2.1 The Surviving Corporation...............................2
1.2.2 Directors and Officers..................................3
1.3 Merger Consideration..............................................3
1.3.1 MicroVision Stock.......................................3
1.3.2 Merger Corp. Stock......................................4
1.3.3 Options.................................................4
1.4 Surrender and Cancellation of Certificates........................5
1.4.1 Surrender of Certificates...............................5
1.4.2 No Fractional Shares....................................6
1.4.3 Escheat.................................................6
1.5 Closing...........................................................6
1.6 Subsequent Actions................................................7
1.7 Sale of ESI Common Stock..........................................7
1.7.1 Unregistered Shares.....................................7
1.7.2 Stock Certificate Legends...............................8
1.7.3 Registration............................................9
1.7.4 Indemnity..............................................10
1.8 Section 338(h)(10) Election......................................11
ARTICLE II FURTHER AGREEMENTS...............................................11
2.1 [INTENTIONALLY OMITTED]..........................................11
2.2 Escrow Agreement.................................................11
2.3 Noncompetition and Nonsolicitation...............................12
2.4 Asset Purchase Agreement.........................................12
2.5 Resignation and Release..........................................12
ARTICLE III REPRESENTATIONS AND WARRANTIES...................................12
3.1 Representations and Warranties of MicroVision and
the Shareholders.................................................12
3.1.1 Organization and Status................................12
3.1.2 Capitalization.........................................13
3.1.3 Authority..............................................14
3.1.4 Governmental Filings...................................14
3.1.5 Investments; Subsidiaries..............................15
3.1.6 No Adverse Consequences................................15
3.1.7 Financial Statements...................................15
3.1.8 Undisclosed Liabilities; Returns.......................17
3.1.9 Absence of Certain Changes or Events...................18
i
3.1.10 Prohibited Payments....................................20
3.1.11 Litigation.............................................20
3.1.12 Compliance with Laws; Judgments........................20
3.1.13 Employment Matters.....................................21
3.1.13.1 Labor Matters...............................21
3.1.13.2 Employee Benefits...........................22
3.1.13.3 Employment Agreements.......................23
3.1.13.4 Compensation................................24
3.1.13.5 Confidentiality and Inventions Agreements...25
3.1.14 Title to and Condition of Real Property................25
3.1.15 Title to and Condition of Fixed Assets.................26
3.1.16 Intellectual Property..................................26
3.1.16.1 Title.......................................26
3.1.16.2 Year 2000...................................27
3.1.17 Certain Contracts and Arrangements.....................27
3.1.18 Status of Contracts....................................28
3.1.19 Insurance..............................................29
3.1.20 Permits and Licenses...................................30
3.1.21 Taxes..................................................31
3.1.21.1 Returns.....................................31
3.1.21.2 Taxes Paid or Reserved......................32
3.1.21.3 S Election..................................32
3.1.21.4 Liability for S Corporation Taxes...........33
3.1.21.5 Definition..................................33
3.1.22 Related Party Interests................................33
3.1.23 No Powers of Attorney or Restrictions..................34
3.1.24 [Environmental Conditions..............................35
3.1.24.1 Compliance..................................35
3.1.24.2 Hazardous Substances........................35
3.1.24.3 Filings and Notices.........................36
3.1.24.4 Definitions.................................36
3.1.25 Consents and Approvals.................................37
3.1.26 Records................................................37
3.1.27 [INTENTIONALLY OMITTED]................................37
3.1.28 Bank Accounts..........................................37
3.1.29 Product Warranties.....................................37
3.1.30 Inventories............................................38
3.1.31 Product Liability......................................38
3.1.32 Backlog and Customer Information.......................38
3.1.33 [INTENTIONALLY OMITTED]................................38
3.1.34 Brokers and Finders....................................38
3.1.35 Reliance...............................................39
3.1.36 Customer Programs......................................39
3.1.37 Liabilities Incurred in Ordinary Course................39
3.1.38 [INTENTIONALLY OMITTED]................................39
ii
3.1.39 [INTENTIONALLY OMITTED]................................39
3.1.40 [INTENTIONALLY OMITTED]................................39
3.1.41 [INTENTIONALLY OMITTED]................................39
3.1.42 [INTENTIONALLY OMITTED]................................39
3.1.43 [INTENTIONALLY OMITTED]................................39
3.1.44 [INTENTIONALLY OMITTED]................................39
3.1.45 [INTENTIONALLY OMITTED]................................39
3.1.46 Definition of Knowledge................................40
3.2 Representations and Warranties of ESI............................40
3.2.1 Organization and Status................................40
3.2.2 Capitalization.........................................40
3.2.3 Corporate Authority....................................41
3.2.4 Governmental Filings...................................41
3.2.5 SEC Reports and Financial Statements...................41
3.2.6 No Adverse Consequences................................42
3.2.7 Brokers and Finders....................................42
3.3 Representations and Warranties Relating to Merger Corp...........42
3.3.1 Organization and Status................................43
3.3.2 Capitalization.........................................43
3.3.3 Corporate Authority....................................43
3.3.4 Governmental Filings...................................43
ARTICLE IV COVENANTS..........................................................44
4.1 Mutual Covenants.................................................44
4.1.1 Consents and Approvals.................................44
4.1.2 Reasonable Efforts.....................................44
4.1.3 Pooling Matters........................................44
4.1.4 Tax Matters............................................45
4.1.4.1 Tax Matters After Closing...................45
4.1.4.2 Audits......................................46
4.1.4.3 Waivers.....................................46
4.1.5 Confidentiality........................................47
4.2 Covenants of MicroVision.........................................47
4.2.1 Conduct of Business....................................47
4.2.2 Investigations.........................................49
4.2.3 No Negotiations with Others............................50
4.3 Covenants of ESI and Merger Corp.................................50
4.3.1 Conduct of Business....................................50
4.3.2 Issuance of Certificates...............................50
4.3.3 Amendment of Chart Documents...........................51
4.3.4 Control of Merger Corp.................................51
4.3.5 Subsequent Stock Repurchases...........................51
4.3.6 Ownership of Surviving Corporation and Merger Corp.....51
4.3.7 Subsequent Transactions................................51
4.3.8 Ownership of MicroVision; Continuity of
Business Enterprise....................................52
iii
4.3.9 Payment of Expenses....................................52
4.3.10 Investment Company.....................................52
ARTICLE V CONDITIONS.......................................................53
5.1 Conditions to the Obligations of All Parties.....................53
5.1.1 Regulatory Approvals...................................53
5.1.2 Litigation.............................................53
5.1.3 Asset Purchase Agreement...............................53
5.1.4 Poolability Opinion....................................53
5.2 Conditions to the Obligations of MicroVision and the
Shareholders.....................................................54
5.2.1 Representations, Warranties and Covenants..............54
5.2.2 No Material Adverse Change.............................54
5.2.3 Opinion of Counsel.....................................55
5.2.4 Tax Opinion............................................55
5.3 Conditions to the Obligations of ESI and Merger Corp.............55
5.3.1 Representations, Warranties and Covenants..............55
5.3.2 Opinion of Counsel.....................................56
5.3.3 [INTENTIONALLY OMITTED]................................56
5.3.4 Investment Representations Certificates................56
5.3.5 No Material Adverse Change; Completion of Inspection...56
5.3.5.1 No Material Adverse Change.....................56
5.3.5.2 Completion of Investigation....................56
5.3.6 [INTENTIONALLY OMITTED]................................56
5.3.7 Related Party Agreements...............................57
5.3.8 Shareholder Approval...................................57
5.3.9 Employee Agreements....................................57
5.3.10 Escrow Agreement.......................................57
5.3.11 Noncompetition Agreements..............................57
5.3.12 Asset Purchase Agreement...............................57
5.3.13 Updated Financial and Other Information................57
5.3.14 Pooling Opinion........................................58
5.3.15 [INTENTIONALLY OMITTED]................................58
5.3.16 [INTENTIONALLY OMITTED]................................58
5.3.17 Resignation and Release................................58
ARTICLE VI SURVIVAL AND INDEMNIFICATION.....................................58
6.1 Survival.........................................................58
6.2 Scope of Indemnification.........................................58
6.3 Escrow...........................................................59
6.4 Limitations......................................................59
6.4.1 Minor Claims...........................................59
6.4.2 Escrowed Property......................................59
6.4.3 Effect of Payment......................................60
6.4.4 Sole and Exclusive Remedy..............................60
6.4.5 Limitation Based Upon Knowledge........................60
iv
6.5 Claim Procedure for Indemnification..............................60
6.5.1 Notice.................................................60
6.5.2 Response to Third Party Claim..........................61
6.5.3 Diligent Conduct.......................................61
ARTICLE VII TERMINATION......................................................61
7.1 Termination by Mutual Consent....................................61
7.2 Termination by Either MicroVision or ESI.........................61
7.3 Effect of Termination and Abandonment............................62
ARTICLE VIII MISCELLANEOUS AND GENERAL.......................................62
8.1 Payment of Expenses..............................................62
8.2 Entire Agreement.................................................63
8.3 Assignment.......................................................63
8.4 Binding Effect; No Third Party Benefit...........................63
8.5 Amendment and Modification.......................................63
8.6 Waiver of Conditions.............................................63
8.7 Counterparts.....................................................64
8.8 Captions.........................................................64
8.9 Subsidiary.......................................................64
8.10 Notices..........................................................64
8.11 Choice of Law; Venue.............................................65
8.12 Separability.....................................................66
8.13 Supplementation of Disclosure Schedules..........................66
v
EXHIBITS
A - Plan of Merger
B - Form of Employee Confidentiality and Assignment Agreement
C - Form of Pledge and Escrow Agreement
D - Form of Noncompetition and Nonsolicitation Agreement
E - Form of Asset Purchase Agreement
F - Form of Resignation and Release
G - Form of Employee Confidentiality and Invention Agreement
X-0 - Xxxxxxx Xxxxxxxxxxx
X-0 - Xxxxxxx Certificate
H-3 - Poolability Opinion
I - Form of Investment Representations Certificate
vi
SCHEDULES
Schedule Page
-------- ----
3.1 Representations and Warranties of MicroVision
and the Shareholders 12
3.1.1 Organization and Status 12
3.1.2 Capitalization 13
3.1.4 Governmental Filings 14
3.1.5 Investments; Subsidiaries 15
3.1.6 No Adverse Consequences 15
3.1.7 Financial Statements 15
3.1.8 Undisclosed Liabilities; Returns 17
3.1.9 Absence of Certain Changes or Events 18
3.1.11 Litigation 20
3.1.12 Compliance with Laws; Judgments 20
3.1.13 Employment Matters 21
3.1.13.1 Labor Matters 21
3.1.13.2 Employee Benefits 22
3.1.13.3 Employment Agreements 23
3.1.13.4 Compensation 24
3.1.13.5 Confidentiality and Inventions Agreements 25
3.1.14 Title to and Condition of Real Property 25
3.1.15 Title to and Condition of Fixed Assets 26
3.1.16 Intellectual Property 26
3.1.16.1 Title 26
3.1.16.2 Year 2000 27
3.1.17 Certain Contracts and Arrangements 27
3.1.18 Status of Contracts 28
3.1.19 Insurance 29
3.1.20 Permits and Licenses 30
3.1.21 Taxes 31
3.1.21.1 Returns 31
3.1.22 Related Party Interests 33
3.1.23 No Powers of Attorney or Restrictions 34
3.1.24 Environmental Conditions 35
3.1.24.1 Compliance 35
2.1.24.2 Hazardous Substances 35
3.1.24.3 Filings and Notices 36
3.1.25 Consents and Approvals 37
3.1.29 Product Warranties 37
3.1.30 Inventories 38
3.1.32 Backlog and Customer Information 38
3.1.36 Customer Programs 39
vii
INDEX OF TERMS
Term Section Page
---- ------- ----
Act Section 1.7.1 7
Agreement Preamble 1
Articles of Incorporation Section 3.1.1 13
Asset Purchase Agreement Section 3.1.14 25
Bylaws Section 3.1.1 13
Claim Notice Section 6.5.1 60
Closing Section 1.5 6
Closing Date Section 1.5 6
Code Recital B 1
Condition Completion Date Section 1.5 7
Contest Section 4.1.4.2 46
Contracts Section 3.1.18 28
Conversion Ratio Section 1.3 3
Conversion Ratio Denominator Section 1.3 3
Conversion Ratio Numerator Section 1.3 3
Current Balance Sheet Section 3.1.7 15
Damages Section 6.2 58
Effective Time Section 1.1 2
Environmental Law Section 3.1.24.4 36
ERISA Section 3.1.13.2 00
XXXXX Xxxxx Xxxxxxx 3.1.13.2 22
Escrow Agreement Section 2.2 11
Escrowed Property Section 6.3 59
ESI Preamble 1
ESI Common Stock Section 1.1 2
ESI SEC Reports Section 3.2.5 42
Financial Statements Section 3.1.7 16
Governmental Entity Section 3.1.4 14
Xxxx Xxxxx Xxxxxx Act Section 3.1.4 14
Hazardous Substance Section 3.1.24.4 37
Indemnified Parties Section 6.2 58
Intellectual Property Section 3.1.16.1 26
Leased Real Property Section 3.1.14 25
Material Adverse Change Section 5.2.2 54
Material Adverse Effect Section 5.2.2 54
MBCA Section 1.2.1 2
Merger Section 1.1 2
Merger Consideration Section 1.3 3
Merger Corp. Preamble 1
MicroVision Preamble 1
viii
INDEX OF TERMS (continued)
Term Section Page
---- ------- ----
MicroVision Common Stock Section 1.1 2
MicroVision Disclosure Schedule Section 3.1 12
MicroVision Option Agreement Section 3.1.2 12
Minnetonka Section 2.4 11
1933 Act Section 1.7.3 9
Noncompetition Agreements Section 2.3 12
Options Section 1.3.3 4
Permits Section 3.1.20 30
Policies Section 3.1.19 29
Pooling Opinion Section 5.3.14 58
Previously Leased Real Property Section 3.1.14 25
Xxxxxxxxx Preamble 1
Registration Statement Section 1.7.3 9
Returns Section 3.1.21.1 31
S Short Year Section 4.1.4.1 45
SEC Section 1.7.3 9
Shareholders Preamble 1
Xxxxxxx Preamble 1
Subsidiary Section 8.9 64
Surviving Corporation Section 1.2.1 2
Tangible Personal Property Section 3.1.15 26
Taxes Section 3.1.21.5 33
Third Party Claim Section 6.5.2 61
Year 2000 Compliant Section 3.1.16.2 27
ix
AGREEMENT
OF
REORGANIZATION AND MERGER
THIS AGREEMENT OF REORGANIZATION AND MERGER (this "Agreement") is entered
into as of January 28, 1999 among Electro Scientific Industries, Inc., an Oregon
corporation ("ESI"), MicroVision Corp., a Minnesota corporation ("MicroVision"),
Magellan Merger Corp., a Minnesota corporation ("Merger Corp."), and Xxxxxx X.
Xxxxxxxxx ("Xxxxxxxxx"), Xxxx X. Xxxxxxx ("Xxxxxxx") and Xxxx X. Xxxxxxx
("Xxxxxxx") (collectively, the "Shareholders").
RECITALS
A. The Boards of Directors of ESI and MicroVision have determined that it
is in the best interests of their respective shareholders for ESI to acquire
MicroVision upon the terms and subject to the conditions set forth herein.
B. It is intended that the Merger (as defined below) qualify as a
reorganization under the provisions of Section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "Code").
AGREEMENT
In consideration of the foregoing Recitals, the mutual representations,
warranties, covenants, agreements and conditions contained herein, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Pursuant to the laws of the States of Minnesota, and
subject to and in accordance with the terms and conditions of this Agreement and
the Plan of Merger attached hereto as Exhibit A, Merger Corp. shall be merged
with and into MicroVision, and the outstanding shares of MicroVision Common
Stock, par value $.0005 (the "MicroVision Common Stock") shall be converted into
shares of ESI Common Stock (the "ESI Common Stock"), in a transaction intended
to qualify as a tax-free reorganization under Section 368(a)(1)(A) and (a)(2)(E)
of the Code. MicroVision and Merger Corp. shall execute Articles of Merger, to
be filed with the Secretary of State of Minnesota on the Closing Date, as
defined in Section 1.5, or as soon thereafter as practicable. The merger of
Merger Corp. with and into MicroVision (the "Merger") shall take effect (the
"Effective Time") upon the time when the Articles of Merger are duly filed with
the Secretary of State of the State of Minnesota, or at such other time as the
parties may agree upon in writing pursuant to applicable law.
1.2 Effect of Merger.
1.2.1 The Surviving Corporation. At the Effective Time, Merger Corp.
shall be merged with and into MicroVision in the manner and with the effect
provided by the Minnesota Business Corporation Act (the "MBCA"), the separate
corporate existence of Merger Corp. shall cease and MicroVision shall be the
surviving corporation (the "Surviving Corporation"). The outstanding shares of
MicroVision Common Stock shall be converted into shares of ESI Common Stock, and
the outstanding shares of capital stock of Merger Corp. shall be converted into
shares of capital stock of the Surviving Corporation, all on the basis, terms
and conditions described in Section 1.3.
2
1.2.2 Directors and Officers. The officers and directors of
MicroVision prior to the Effective Time shall be deemed resigned for all
purposes and at and as of the Effective Time, the directors and officers of the
Surviving Corporation shall be as follows:
Directors
Xxxxxx X. XxxXxxxxxx
Xxxxxx X. Xxxxxxxx
Officers
Xxxxxx X. XxxXxxxxxx President and Chief Executive Officer
Xxxxxx X. Xxxxxxxx Vice President and Secretary
1.3 Merger Consideration. Each share of MicroVision Common Stock
outstanding immediately before the Effective Time will be converted into the
right to receive a fraction of a share of ESI Common Stock (such ESI Common
Stock, the "Merger Consideration") that equals the ratio (the "Conversion
Ratio," which will be rounded to the nearest .0001 of a share) determined by
dividing the Conversion Ratio Numerator by the Conversion Ratio Denominator
where:
(a) the "Conversion Ratio Numerator" will be 994,000 shares of ESI
Common Stock; and
(b) the "Conversion Ratio Denominator" will be equal to the number of
shares of MicroVision Common Stock outstanding immediately before the Effective
Time plus the number of shares of MicroVision Common Stock that are issuable as
of the Closing Date upon the exercise of the Options (as defined in Section
1.3.3).
1.3.1 MicroVision Stock. Each share of MicroVision Common Stock that
is outstanding immediately before the Effective Time will, by virtue of the
Merger and without any
3
action on the part of the holder thereof, cease to exist and be converted into
the right to receive the Merger Consideration.
1.3.2 Merger Corp. Stock. Each share of Common Stock of Merger Corp.
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of the holder thereof, cease to
exist and be converted into and become one share of common stock of the
Surviving Corporation. After the Effective Time, ESI, the sole holder of shares
of Merger Corp. common stock outstanding immediately prior to the Effective
Time, shall, upon surrender for cancellation of a certificate representing such
shares to the Surviving Corporation, be entitled to receive in exchange
therefore a certificate representing the number of shares of common stock of the
Surviving Corporation into which such shares of Merger Corp. common stock have
been converted pursuant to this Section 1.3.2. Until so surrendered, the
certificates which prior to the Merger represented shares of Merger Corp. common
stock shall be deemed, for all corporate purposes, including voting entitlement,
to evidence ownership of the shares of the Surviving Corporation common stock
into which such shares of Merger Corp. common stock shall have been converted.
1.3.3 Options. Except as otherwise provided in this Section 1.3.3, the
terms and provisions of any stock options held by MicroVision option holders,
all of which are identified in Schedule 3.1.2 (the "Options"), shall continue in
full force and effect following the Merger. At the Effective Time, and without
any further action on the part of any holder thereof, and pursuant to the terms
of the MicroVision Option Agreement, each Option shall be fully vested and
exercisable, and shall be assumed by ESI and shall be converted into an option
to purchase the whole number of shares of ESI Common Stock which the holder of
the Option would have been entitled to receive had such holder exercised the
Option in full immediately prior to the Effective
4
Time (whether or not such Option shall then have been exercisable) (rounded to
the nearest whole number). The exercise price per share shall be adjusted by
dividing the stated exercise price by the Conversion Ratio. The term,
exercisability, vesting schedule, and all other terms and conditions of the
Options will to the extent permitted by law and otherwise reasonably practicable
be unchanged.
1.4 Surrender and Cancellation of Certificates.
1.4.1 Surrender of Certificates. Upon the Effective Time, each holder
of shares of MicroVision Common Stock outstanding immediately prior to the
Effective Time, upon surrender to ESI or its agent designated for such purpose
of a certificate or certificates representing such shares, along with any
letters of transmittal, stock powers duly endorsed in blank with respect to
shares of ESI Common Stock escrowed as provided for in Section 6.3, or other
documents as may be reasonably requested by ESI or its agent, shall be entitled
to receive (x) a certificate representing the number of shares of ESI Common
Stock into which such shares of MicroVision Common Stock shall have been
converted pursuant to the provisions of Section 1.3 less the number of such
shares determined to be Escrowed Property (as defined in Section 6.3) and (y)
subject to Section 6.3 and the provisions of the Escrow Agreement, a certificate
representing the shares of ESI Common Stock determined to be Escrowed Property.
If any certificate for shares of ESI Common Stock is to be issued in a name
other than that in which the certificate for MicroVision Common Stock
surrendered in exchange therefor is registered, it shall be a condition of the
issuance thereof that the certificate so surrendered shall be properly endorsed
and otherwise in proper form for transfer, and that the person requesting such
exchange pay to ESI or its agent designated for such purpose any transfer or
other taxes required, or establish to the satisfaction of ESI or its agent that
such tax has been paid or is not payable. If any holder of MicroVision
5
Common Stock canceled and retired in accordance with this Agreement is unable to
deliver a certificate or certificates representing such shares of the holder,
ESI, in the absence of actual notice that any shares theretofore represented by
any such certificate have been acquired by a bona fide purchaser, shall deliver
to such holder the number of shares of Common Stock to which such holder is
entitled in accordance with the provisions of this Agreement upon the
presentation of the following: (i) evidence reasonably satisfactory to ESI (a)
that such person is the owner of the shares theretofore represented by each
certificate claimed by him to be lost, wrongfully taken or destroyed and (b)
that he is the person who would be entitled to present each such certificate for
conversion pursuant to this Agreement; and (ii) such security or indemnity as
may be reasonably requested by ESI to indemnify and hold ESI and the transfer
agent harmless.
1.4.2 No Fractional Shares. No certificates or scrip evidencing
fractional shares of ESI Common Stock shall be issued in the Merger, and such
fractional share interests will not entitle the owner thereof to any rights as a
shareholder of ESI. Merger Consideration to be paid to each Shareholder will be
rounded to the nearest whole share.
1.4.3 Escheat. Neither ESI nor Merger Corp. shall be liable to any
holder of shares of MicroVision Common Stock for any such shares of ESI Common
Stock (or dividends or distributions with respect thereto) or cash delivered, to
the extent required, to a public official pursuant to any applicable abandoned
property, escheat or similar law.
1.5 Closing. The closing of the Merger (the "Closing") shall take place at
the offices of Xxxxxx and Xxxxxx, P.A., 0000 XXX Xxxxxx, Xxxxxxxxxxx, Xxxxxxxxx
at 10:00 a.m. local time on January 29, 1999, or on the Condition Completion
Date (as hereinafter defined), or on such other date and/or at such other place
and time as MicroVision, ESI and Merger Corp. may agree (the "Closing Date"),
subject to the termination provisions of Article VII of this Agreement. The
6
"Condition Completion Date" shall be the day on which the last of the conditions
set forth in Article V hereof shall have been fulfilled or waived (other than
those conditions which, by their terms, are to occur at Closing). The parties
acknowledge MicroVision will close its books as of the close of business on the
Closing Date.
1.6 Subsequent Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to, or under any of the rights,
properties or assets of MicroVision or Merger Corp. acquired or to be acquired
by the Surviving Corporation as a result of, or in connection with, the Merger
or otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation are authorized to execute and deliver, in the name and on
behalf of MicroVision or Merger Corp., or otherwise, all such deeds, bills of
sale, assignments and assurances, and to take and do, in the name and on behalf
of MicroVision or Merger Corp., or otherwise, all such other actions and things
as may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out the purposes of this Agreement.
1.7 Sale of ESI Common Stock.
1.7.1 Unregistered Shares. The Shareholders have been informed by ESI
that the ESI Common Stock conveyed hereunder as Merger Consideration has not
been registered under the Securities Act of 1933 (the "Act"), and that such ESI
Common Stock must be held for the time required by SEC Rule 144, unless (i) the
distribution for sale of the ESI Common Stock has been registered under the Act
in accordance with Section 1.7.3 hereof or otherwise, (ii) a sale
7
of the ESI Common Stock is made in conformity with the provisions of Rule 144,
or (iii) in the opinion of counsel, which opinion is reasonably acceptable to
ESI, some other exemption from registration is available with respect to any
such sale, transfer or other disposition of such ESI Common Stock.
1.7.2 Stock Certificate Legends. Each Shareholder acknowledges and
understands that stock transfer instructions will be given to ESI's transfer
agent with respect to the Merger Consideration and that there will be placed on
the certificates for such shares, or any substitution therefor, the following
legends:
"The securities represented by this certificate have been
issued without registration under the Securities Act of 1933
(the 'Act') or any state securities laws. They may not be
sold, assigned, pledged or otherwise transferred for value
unless they are registered under the Act and any applicable
state securities laws or the Corporation receives an opinion
of counsel satisfactory to it, or otherwise satisfies
itself, that registration is not required."
"The securities represented by this certificate were issued
pursuant to a business combination which is being accounted
for as a pooling of interests and may not be sold, nor may
the owner thereof reduce his risk relative thereto in any
other way, until such time as the Corporation has published
the financial results covering at least 30 days of combined
operations after [here will be inserted the effective date
of the Merger], the Effective Time of the merger through
which the business combination was effected."
Each Shareholder acknowledges and understands that the Merger Consideration
is (i) being issued in a business combination that is being accounted for as a
pooling of interests and (ii) subject to the restrictions on transfer described
above. Each Shareholder agrees that he will not sell, assign, transfer, pledge
or otherwise dispose of any of the ESI Common Stock or any interest therein
until such time as ESI has published financial results covering at least 30 days
of combined operations of MicroVision and ESI after the Closing Date. Upon the
publication of such
8
financial results, ESI will promptly provide instructions to its transfer agent
to cause the "pooling legend" to be removed from the shares of ESI Common Stock
held of record by Xxxxxxxxx, Xxxxxxx and Xxxxxxx and received by the
Shareholders in the merger.
1.7.3 Registration. After the date that is six months after the
Closing Date, ESI will, at the request of the Shareholders, file with the
Securities and Exchange Commission ("SEC") a registration statement on Form S-3
(or, to the extent Form S-3 is not available to ESI, then Form S-1) (each such
registration statement a "Registration Statement") for the purpose of
registering for resale 497,000 shares of the Merger Consideration (including
19,737 shares subject to Options) and will use best efforts to cause the
Registration Statement to be declared effective as soon as possible. After the
first anniversary of the Closing Date, ESI will, at the request of the
Shareholders, file with the SEC another Registration Statement for the purpose
of registering for resale the remaining shares of the Merger Consideration
(including the remaining shares subject to Options) and will use best efforts to
cause the Registration Statement to be declared effective as soon as possible;
provided, however, that ESI shall have no obligation to register such shares if
such shares are eligible for resale in the public market pursuant to Rule 144
under the Securities Act of 1933 (the "1933 Act") and all such shares the
Shareholders desire to sell in any three-month period may be sold pursuant to
Rule 144. ESI shall use its best efforts to cause any Registration Statement
declared effective pursuant to this Section 1.7.3 to be effective continuously
for a period not to exceed 180 days from the date of effectiveness. The
Shareholders shall provide to ESI all additional information that is not
otherwise available to ESI pursuant to the transactions contemplated hereby as
ESI reasonably deems necessary (in conformity with applicable laws and
regulations) for the preparation and filing of a Registration Statement. ESI may
(1) suspend sales
9
of the ESI Common Stock pursuant to a Registration Statement filed pursuant to
this Section 1.7.3 if it determines in good faith that it contains statements
that are materially misleading or omits material information required to be
included therein or necessary to make the Registration Statement not misleading
until such time as the misleading statement(s) or omission(s) have been
corrected by ESI acting with all reasonable diligence and (2) delay registration
for a period of up to 90 days if it determines, in good faith, that such
registration would have a Material Adverse Effect on ESI.
1.7.4 Indemnity.
(a) If ESI Common Stock is registered pursuant to Section 1.7.3, each
Shareholder will severally indemnify and hold harmless ESI, each officer of ESI
who signs a Registration Statement filed pursuant to Section 1.7.3 and each
director of ESI, against all losses, claims, damages or liabilities to which ESI
or such officer or director may become subject arising out of any untrue
statement of any material fact made by such Shareholder contained in the
Registration Statement, any final prospectus contained therein, or any amendment
or supplement thereof, or arising out of the omission by such Shareholder to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the Shareholders
shall have such obligation to indemnify only in each case to the extent that
such untrue statement or omission was made by ESI in reliance upon, and in
strict conformity with, accurately described written information furnished by
the Shareholder specifically for use in the preparation of the Registration
Statement. The Shareholders shall have the right to review and approve any such
Registration Statement, or part thereof, which describes the Shareholders, the
transactions contemplated by this Agreement or MicroVision and its operations
within three (3) business days prior to its submission to the SEC.
Notwithstanding the foregoing provisions of this
10
Section 1.6.4(a), the Shareholders shall have no liability or other
indemnification obligation with respect to any financial projections or other
such forward-looking information disclosed in the Registration Statement by ESI
whether or not such information pertains to MicroVision or was provided to
prepared by the Shareholders.
(b) ESI agrees to indemnify and hold harmless each Shareholder selling
ESI Common Stock that is registered pursuant to Section 1.7.3 against all
losses, claims, damages or liabilities to which such Shareholder may become
subject arising out of any untrue statement of material fact contained in the
Registration Statement, and final prospectus contained therein, or any amendment
or supplement thereof, or arising out of the omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that ESI shall have no such
obligation to indemnify to the extent that such untrue statement or omission was
made in reliance upon, and in strict conformity with, accurately described
written information furnished by the Shareholder specifically for use in the
preparation of the Registration Statement.
1.8 Section 338(h)(10) Election. The parties acknowledge and agree that no
election under Section 338(h)(10) of the Code will be made in connection with
this Agreement and the transactions contemplated hereunder.
ARTICLE II
FURTHER AGREEMENTS
2.1 [INTENTIONALLY OMITTED]
2.2 Escrow Agreement. Prior to or at the Closing, ESI, Merger Corp. and the
Shareholders shall execute and deliver a Pledge and Escrow Agreement ("Escrow
Agreement")
11
substantially in the form attached as Exhibit C, and shall cause the Escrow
Agent, as such term is defined in the Escrow Agreement, to execute the Escrow
Agreement.
2.3 Noncompetition and Nonsolicitation. Prior to or at the Closing each of
the Shareholders shall execute and deliver Noncompetition and Nonsolicitation
Agreements ("Noncompetition Agreements") substantially in the form attached as
Exhibit D.
2.4 Asset Purchase Agreement. Shareholders shall cause Minnetonka
Investments, a Minnesota general partnership ("Minnetonka"), to execute and
deliver an Asset Purchase Agreement substantially in the form attached as
Exhibit E.
2.5 Resignation and Release. Each Shareholder shall execute a Resignation
and Release substantially in the form attached as Exhibit F.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of MicroVision and the Shareholders.
MicroVision and the Shareholders hereby represent and warrant to ESI and Merger
Corp. that, except as specifically set forth in disclosure schedules to this
Article III (the "MicroVision Disclosure Schedule"):
3.1.1 Organization and Status. MicroVision is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Minnesota and is duly qualified and in good standing as a foreign corporation in
each jurisdiction where its properties (whether owned, leased or operated) or
its business conducted require such qualification, except where failure to be so
qualified would not have a Material Adverse Effect on MicroVision. MicroVision
has all requisite corporate power and authority to own, operate and lease its
property and to carry on its businesses as now being conducted. MicroVision has
delivered to ESI complete and
12
accurate copies of its Articles of Incorporation ("Articles of Incorporation")
and the Bylaws of MicroVision ("Bylaws"), each as amended to the date hereof.
3.1.2 Capitalization. MicroVision has authorized capital stock
consisting of 20,000,000 shares of MicroVision Common Stock, of which 7,288,000
shares are outstanding on the date of this Agreement and options to purchase
301,400 shares are outstanding on the date of this Agreement under grants made
pursuant to a stock option agreement identified in Schedule 3.1.2 (the
"MicroVision Option Agreement"). All of the outstanding shares of capital stock
of MicroVision have been duly authorized and are validly issued, fully paid and
nonassessable, and no shares were issued, and no options were granted, in
violation of preemptive or similar rights of any shareholder or in violation of
any applicable securities laws. Except as set forth in Schedule 3.1.2 or as
described above, there are no shares of capital stock of MicroVision authorized,
issued or outstanding, and, except for options granted pursuant to the
MicroVision Option Agreement, there are no preemptive rights or any outstanding
subscriptions, options, warrants, rights, convertible securities or other
agreements or commitments of MicroVision of any character relating to the issued
or unissued capital stock or other securities of MicroVision. There are no
outstanding obligations of MicroVision to repurchase, redeem or otherwise
acquire any of its outstanding shares of capital stock. The list of shareholders
and option holders attached hereto in Schedule 3.1.2 sets forth a complete and
accurate list of the shareholders and option holders of MicroVision as of the
date hereof, indicating the number of shares of MicroVision Common Stock held by
each shareholder (or subject to options in the case of option holders), and the
percentage of the shares of all the MicroVision Common Stock outstanding
represented by the shares so held in the case of shareholders.
13
3.1.3 Authority. MicroVision has the corporate power and authority and
has taken all corporate action necessary to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. This Agreement has been
duly and validly authorized by the Board of Directors of MicroVision, validly
executed and delivered by MicroVision and the Shareholders and, as of the
Closing Date, will have been duly and validly approved by the shareholders of
MicroVision. The Escrow Agreement and the Noncompetition Agreements have been
validly executed and delivered by the Shareholders. This Agreement constitutes
the valid and binding obligation of MicroVision and the Shareholders, and the
Escrow Agreement and the Noncompetition Agreements constitute the valid and
binding obligations of the Shareholders, and each of the foregoing agreements is
enforceable in accordance with its terms, except as enforcement may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought.
3.1.4 Governmental Filings. Other than the filing of the Articles of
Merger contemplated by Article I, and compliance by the parties with applicable
requirements of the Xxxx Xxxxx Xxxxxx Antitrust Improvements Act of 1976, as
amended (the "Xxxx Xxxxx Xxxxxx Act"), no notices, reports or other filings are
required to be made by MicroVision or the Shareholders with, nor are any
consents, registrations, approvals, permits or authorizations required to be
obtained by MicroVision or the Shareholders from, any domestic or foreign
governmental or regulatory authority, agency, court, commission or other
governmental entity ("Governmental Entity") in connection with the execution and
delivery of this Agreement by MicroVision and the
14
Shareholders and the consummation by MicroVision and the Shareholders of the
transactions contemplated hereby.
3.1.5 Investments; Subsidiaries. MicroVision has no direct or indirect
investments in any corporation, partnership, association, joint venture or other
entity and MicroVision has no, and has never had any, subsidiaries.
3.1.6 No Adverse Consequences. Except as set forth in Schedule 3.1.6,
neither the execution and delivery of this Agreement by MicroVision or the
Shareholders nor the consummation of the transactions contemplated by this
Agreement will (a) result in the creation or imposition of any lien, charge,
encumbrance or restriction on any of the assets or properties of MicroVision,
(b) violate any provision of the Articles of Incorporation or Bylaws of
MicroVision, (c) violate any statute, judgment, order, injunction, decree, rule,
regulation or ruling of any governmental authority applicable to MicroVision or
the Shareholders, or (d) either alone or with the giving of notice or the
passage of time or both, conflict with, constitute grounds for termination of,
accelerate the performance required by, accelerate the maturity of any
indebtedness or obligation under, result in the breach of the terms, conditions
or provisions of or constitute a default under any mortgage, deed of trust,
indenture, note, bond, lease, license, permit or other agreement, instrument or
obligation to which MicroVision or either of the Shareholders is a party or by
which it or they are bound.
3.1.7 Financial Statements. MicroVision has furnished to ESI audited
balance sheets of MicroVision as of December 31, 1997 and 1996 and the related
audited statements of operations, stockholders' equity and cash flows for the
years then ended, and an unaudited balance sheet as of November 30, 1998 (the
"Current Balance Sheet") and the related unaudited statements of operations,
stockholders' equity and cash flows for the 11 months then ended and the
financial
15
statements delivered at or before the Closing pursuant to Section 5.3.13 (all
such balance sheets and statements collectively, the "Financial Statements").
The audited Financial Statements are complete and accurate in all material
respects and present fairly the financial position and operating results of
MicroVision as of the dates and for the periods indicated therein, and have been
prepared in accordance with generally accepted accounting principles. The
unaudited Financial Statements include all adjustments, consisting only of
normal recurring adjustments that are set forth in Schedule 3.1.7, necessary for
the fair statement of results for the interim periods, and omit or condense
certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles.
In furtherance of the foregoing, MicroVision and the Shareholders represent
and warrant:
(a) There are no rights of return or other agreements between MicroVision
and any customer that would cause any reduction in net sales as reflected in the
Financial Statements as determined in accordance with generally accepted
accounting principles and MicroVision's revenue recognition policy.
(b) Each of the receivables of MicroVision (including accounts receivable,
loans receivable and advances) that is reflected in the Current Balance Sheet,
and each of the receivables that has arisen since that date to the date of
Closing, has arisen only from bona fide transactions in the ordinary course of
MicroVision's business and shall be fully collected when due or, in the case of
each account receivable, within 90 days after it arose, without resort to
litigation and without offset or counterclaim, except to the extent of the
normal allowance for doubtful accounts with respect to accounts receivable as
reflected in the Current Balance Sheet.
16
(c) The aggregate cost to MicroVision to comply with its product warranties
has not exceeded and is not anticipated to exceed 2% of total revenue as
reported in MicroVision's financial statements for the fiscal years ended
December 31, 1996, 1997 and 1998.
(d) All inventories, whether finished goods, work in process or raw
materials, reflected on the Current Balance Sheet or thereafter acquired to the
date of Closing, are all items of a quality usable or saleable in the ordinary
and usual course of MicroVision's business, except for inventory items that have
been written down to an amount not in excess of realizable market value or for
which adequate reserves or allowances have been provided on the Current Balance
Sheet.
(e) MicroVision maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded in MicroVision's general ledger as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences, such that with respect to each of the foregoing
MicroVision's independent auditors may render an unqualified opinion on the
Financial Statements.
3.1.8 Undisclosed Liabilities; Returns. Except for current liabilities
which were incurred after the date of the Current Balance Sheet in the ordinary
course of business and of a type and in an amount both consistent with past
practices, MicroVision has no liability or obligation (whether absolute,
accrued, contingent or otherwise, and whether due or to become due)
17
which is not accrued, reserved against, or identified in the Current Balance
Sheet to the extent required by generally accepted accounting principles
consistently applied.
3.1.9 Absence of Certain Changes or Events. Except as set forth in
Schedule 3.1.9, since November 30, 1998 there has not been:
(a) Any Material Adverse Change (as defined in Section 5.3.4.1) with
respect to MicroVision;
(b) Any material damage, destruction, requisition, taking or casualty
loss, whether or not covered by insurance, of or to any of the material assets
or properties of MicroVision;
(c) Except for "S" corporation distributions made as set forth in
Schedule 3.1.9, any direct or indirect declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock, property or any
combination thereof) in respect of the MicroVision Common Stock, or any direct
or indirect repurchase, redemption or other acquisition by MicroVision of any
shares of its stock;
(d) Except for "S" corporation distributions made as set forth in
Schedule 3.1.9, any increase in the rate or terms of compensation payable or to
become payable by MicroVision to Xxxxxxxxx, Xxxxxxx or Xxxxxxx; any change in
the rate or terms of any bonus, insurance, pension or other employee benefit
plan, payment or arrangement made to, for or with any employees of MicroVision;
any special bonus or remuneration paid; any written employment contract executed
or amended; or any change in personnel policies;
(e) Any entry into any agreement, commitment or transaction
(including, without limitation, any license of intellectual property, any
borrowing, capital expenditure or capital financing, any purchase, acquisition,
sale or other disposition of assets (other than
18
inventory in the ordinary course of business), any lease or sublease, any
guaranty, assumption or endorsement of payment or performance of any loan or
obligation of another, or any amendment, modification or termination of any
existing agreement, commitment or transaction) by MicroVision as contemplated in
this Agreement and except for such agreements, commitments, and transactions as
do not exceed $25,000 singly;
(f) Any material change by MicroVision in accounting methods,
principles or practices;
(g) Except for 60,000 shares issued pursuant to the terms of the
MicroVision Option Agreement, any issuance or sale of any stock of MicroVision
or any issuance or granting of any option, warrant or right to purchase any
stock of MicroVision or any commitment to do any of the foregoing;
(h) Any amendment to the Articles of Incorporation or Bylaws of
MicroVision;
(i) Any conduct of business which is outside the ordinary course of
business or not substantially in the manner that MicroVision previously
conducted its business;
(j) Any encumbrance or consent to encumbrance of any property or
assets;
(k) Any pending or threatened labor disputes, organizational
activities or disturbances;
(l) Any statement from any customer of MicroVision which purchased
$50,000 or more of products or services from MicroVision in the year ended
December 31, 1997 or the ten months ended October 31, 1998 that such customer
intends to terminate or materially reduce its purchases from MicroVision for any
reason; or
19
(m) Any change not described above in the assets, liabilities,
licenses, permits or franchises of MicroVision, or in any agreement to which
MicroVision is a party or is bound, which, either individually or in the
aggregate, has had or reasonably could be expected to have a Material Adverse
Effect on MicroVision.
3.1.10 Prohibited Payments. Neither MicroVision nor any shareholder,
officer, director or other person or entity has, directly or indirectly, on
behalf of or with respect to the business or operations of MicroVision, (a) made
any payment outside the ordinary course of business to any purchasing or selling
agent or person charged with similar duties of any entity to which MicroVision
sells or from which MicroVision buys products, for the purpose of influencing
such agent or person to buy products from or sell products to MicroVision; or
(b) otherwise made or received any payment that was not legal to make or receive
under any applicable law or regulation of the United States or any other country
or territory; or (c) engaged in any transaction, maintained any bank account, or
used any corporate funds or assets except for transactions, bank accounts,
funds, and assets which have been and are reflected in the normally maintained
books and records of MicroVision.
3.1.11 Litigation. Except as set forth in Schedule 3.1.11, MicroVision
has not been served with any claim or litigation and, to the knowledge of the
Shareholders, no proceeding or governmental investigation is pending or
threatened against or relating to MicroVision, its officers or directors in
their capacities as such, or any of MicroVision's properties or businesses.
3.1.12 Compliance with Laws; Judgments. MicroVision has at all
relevant times conducted its business in compliance with the provisions of its
Articles of Incorporation, Bylaws, and all applicable laws, regulations and
standards, including without limitation the United States Export Control Act and
foreign counterparts to such laws and regulations. MicroVision is not in
20
violation of any applicable laws or regulations, other than violations which
individually or in the aggregate do not, and, with the passage of time will not,
have a Material Adverse Effect on MicroVision. MicroVision is not subject to any
outstanding judgment, order, writ, injunction or decree and has not been charged
with, or, to the knowledge of the Shareholders, threatened with a charge of, a
violation of any provision of any applicable law or regulation.
3.1.13 Employment Matters.
3.1.13.1 Labor Matters. MicroVision is not a party or otherwise
subject to any collective bargaining or other agreement governing the wages,
hours or terms of employment of its employees. MicroVision is and has been in
compliance with all applicable laws regarding employment and employment
practices, terms and conditions of employment, wages and hours and is not and
has not been engaged in any unfair labor practice. There is no (a) unfair labor
practice complaint against MicroVision pending before the National Labor
Relations Board or any other Governmental Entity of which MicroVision has
received notice, (b) labor strike, slowdown or work stoppage actually occurring
or, to the knowledge of MicroVision, threatened against MicroVision, (c)
representation petition respecting the employees of MicroVision pending before
the National Labor Relations Board or similar agency of which MicroVision has
received notice, or (d) grievance or any arbitration proceeding pending arising
out of or under collective bargaining agreements applicable to MicroVision.
MicroVision has not experienced any primary work stoppage or other organized
work stoppage involving its employees in the past two years. MicroVision and the
Shareholders have no knowledge of any labor strike, slowdown, or work stoppage
occurring or threatened against any of MicroVision's principal suppliers that
might be expected to have a Material Adverse Effect on MicroVision. Except as
disclosed on Schedule 3.1.13.1, no employee of MicroVision is the beneficiary
under an employer-sponsored non-
21
immigrant visa and no approvals, permits or consents of any governmental entity
are required in order for MicroVision to employ any current employee as a result
of or in connection with such employee's immigration status in the United
States. MicroVision has fully completed and retained a Form I-9 for each of its
employees in accordance with applicable law, and MicroVision has not been
audited in connection with such forms, has not incurred any fines or other
penalties under laws relating to employees who are not authorized to work in the
United States, and has not received notice of any such audit, fines or
penalties.
3.1.13.2 Employee Benefits. Schedule 3.1.13.2 lists all pension,
retirement, profit sharing, deferred compensation, bonus, commission, incentive
compensation (including cash, stock and option plans or arrangements), life
insurance, health and disability insurance, hospitalization and all other
employee benefit plans or arrangements (including, without limitation, any
contracts or agreements with trustees, insurance companies or others relating to
any such employee benefit plans or arrangements) established or maintained by
MicroVision, and complete and accurate copies of all those plans or arrangements
have been provided to ESI. The employee pension benefit plans (within the
meaning of Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) established and maintained by MicroVision that are subject
to ERISA (the "ERISA Plans") are listed separately as ERISA Plans on Schedule
3.1.13.2. The ERISA Plans comply in all material respects with the applicable
requirements of ERISA. MicroVision has not received from the Internal Revenue
Service a favorable determination for each of the ERISA Plans and their related
trusts that each of the ERISA Plans is qualified under Section 401(a) of the
Code and the related trust is tax-exempt under Section 501(a) of the Code. The
plan sponsor of the standardized prototype profit sharing plan with CODA which
MicroVision has adopted, however, has received a favorable opinion letter from
the
22
Internal Revenue Service as to the form of this standardized plan. There has
been no event subsequent to that determination that has adversely affected the
tax qualified status of the ERISA Plans or the exemption of the related trusts
other than changes in the Code that are not effective as of the Closing Date or
for which the remedial amendment period has not yet expired. To the knowledge of
MicroVision and the Shareholders, none of the ERISA Plans, its related trusts or
any trustee, investment manager or administrator thereof has engaged in a
nonexempt "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code. There are not and have not been any excess
deferrals or excess contributions under any ERISA Plan which have not been
cured. Each ERISA Plan is and has been operated and administered in conformity
with the requirements of all applicable laws and regulations, whether or not the
ERISA Plan documents have been amended to reflect such requirements. MicroVision
has no obligation of any kind (whether under the terms of the ERISA Plans or
under any understanding with employees) to make payments under, or to pay
contributions to, any plan, agreement or other arrangement for deferred
compensation of employees, whether or not tax qualified, including, without
limitation, a single employer tax qualified plan, a tax qualified plan of a
controlled group of corporations, a multiemployer pension plan, a "defined
benefit" plan, a nonqualified deferred compensation plan, an individual
employment or compensation agreement or a commitment to provide medical benefits
to retirees, except as required by the employee benefit plans and arrangements
identified on Schedule 3.1.13.2.
3.1.13.3 Employment Agreements. Except as set forth in Schedule
3.1.13.3, each employee of MicroVision is employed under employment agreements
which provide for annual reviews and terms that are terminable at the will of
either party, and there are no written employment, commission or compensation
agreements of any kind between
23
MicroVision and any of its employees. Schedule 3.1.13.3 lists all MicroVision's
employment or supervisory manuals, employment or supervisory policies, and
written information generally provided to employees (such as applications or
notices), and complete and accurate copies of those manuals, policies and
written information have been provided to ESI. MicroVision does not have any
agreements or understandings with its employees, including without limitation
any agreements or understandings regarding compensation of any nature, severance
payments or retirement benefits, except as reflected in the items listed in
Schedules 3.1.13.2 and 3.1.13.4.
3.1.13.4 Compensation. Schedule 3.1.13.4 contains a complete and
accurate list of all current directors, officers, employees or consultants of
MicroVision, specifying their names and job designations, the total amount paid
or payable as cash and noncash compensation to each such person, and the basis
of such compensation, whether fixed or commission or a combination thereof, and
the total amount of accrued benefits (including without limitation vacation,
sick or wellness pay) for such persons as of the date of the Current Balance
Sheet. Except as set forth in Schedules 3.1.13.2, 3.1.13.3 or the agreements
described in Section 3.1.13.5, MicroVision is not a party to any employment
contract or agreement and has not made any other commitment entitling or that
under certain circumstances could entitle any employee to any payment that would
constitute a "parachute payment" within the meaning of Section 280G of the Code
or would in the aggregate exceed 100 percent of such person's annual base cash
compensation. The aggregate amount paid or payable to the Shareholders between
January 1, 1998 and the Closing Date has not and will not exceed the amount of
Shareholders' regular salaries or other compensation for such period (which as
in effect January 1, 1998) plus not more than $1,674,000, which represents the
Shareholders' estimated tax obligations for such period.
24
3.1.13.5 Confidentiality and Inventions Agreements. Each employee
or consultant that has been given access to MicroVision's Intellectual Property
(as defined in Section 3.1.16) has previously signed a confidentiality and
invention agreement in the form or forms attached hereto as Exhibit G.
3.1.14 Title to and Condition of Real Property. MicroVision does not
own any real property. Schedule 3.1.14 contains a list of all real property
currently leased or occupied by MicroVision (the "Leased Real Property"),
including the dates of and parties to all leases and any amendments thereof and
a list of all real property previously leased or occupied by MicroVision in the
last five years (the "Previously Leased Real Property"). Except for Leased Real
Property subject to the Asset Purchase Agreement by and among ESI, ESI
Acquisition Corp., Minnetonka, and Xxxxxxxxx and Xxxxxxx (the "Asset Purchase
Agreement"), all Leased Real Property (including improvements thereon) is in
satisfactory condition and repair consistent with its present use, and is
available for immediate use in the conduct of MicroVision's business. Neither
the operations of MicroVision on any Leased Real Property (except Leased Real
Property subject to the Asset Purchase Agreement), nor any improvements on the
Leased Real Property (except Leased Real Property subject to the Asset Purchase
Agreement), violates any applicable building or zoning code or regulation of any
governmental authority having jurisdiction, except where such violation would
not have a material adverse affect on MicroVision. The Leased Real Property
includes all real property reasonably necessary to conduct the business of
MicroVision as currently conducted. None of the Leased Real Property has been
condemned or otherwise taken by public authority and no such condemnation is, to
the knowledge of MicroVision and the Shareholders, threatened or contemplated.
25
3.1.15 Title to and Condition of Fixed Assets. Schedule 3.1.15
contains a complete and accurate list of all tangible personal property
(excluding inventory) owned or leased by MicroVision (the "Tangible Personal
Property"), including the dates of and parties to all leases and any amendments
thereof. Except as set forth in Schedule 3.1.15, MicroVision has good and
marketable title to all of the Tangible Personal Property, free and clear of all
liens, mortgages, pledges, leases, restrictions and other claims and
encumbrances of any nature whatsoever. The Tangible Personal Property is in good
operating condition and repair (ordinary wear and tear excepted), is performing
satisfactorily, and is adequate for the conduct of the business of MicroVision
as now conducted. All Tangible Personal Property and the state of maintenance
thereof are in compliance with all applicable laws and regulations.
3.1.16 Intellectual Property.
3.1.16.1 Title. MicroVision owns, or has a valid license to use,
all patents, trademarks, service marks, trade names, copyrights, trade secrets,
technology, know-how and other intellectual property (the "Intellectual
Property") necessary to or used in the conduct of the business of MicroVision as
now conducted and as proposed to be conducted. Schedule 3.1.16.1 contains a
complete and accurate list of all patents, prosecuted patent applications and
registered trademarks, service marks, trade names and copyrights owned by or
licensed to MicroVision, and a complete and accurate list of all patent
applications, trademarks and service marks and related applications, trade names
and copyrights owned by or licensed to MicroVision. Schedule 3.1.16.1 also
contains a description of all agreements or licenses relating to the acquisition
by or license to MicroVision of such Intellectual Property or under which
MicroVision has sold or granted a right to use any Intellectual Property. All
Intellectual Property owned by MicroVision is owned by it free and clear of all
liens, claims, encumbrances or, to the knowledge
26
of the Shareholders, adverse claims of any third party. Except as disclosed on
Schedule 3.1.16.1, no claims of conflict or infringement are pending or
threatened against MicroVision and, to the knowledge of the Shareholders, the
conduct of MicroVision's business does not conflict with or infringe upon any
Intellectual Property rights of any other person. MicroVision has made all
necessary filings and recordations and has paid all required fees and Taxes to
maintain its ownership of its Intellectual Property.
3.1.16.2 Year 2000. Except as disclosed in Schedule 3.1.16.2, all
software used in MicroVision products, and, to the knowledge of the
Shareholders, all third party software used as of the Effective Time in the
operation of MicroVision's business, is Year 2000 compliant. As used in this
Agreement, "Year 2000 compliant" means that the software may be used prior to,
during and after the calendar year 2000, and such software will accurately
receive, provide and process date and time data (including, but not limited to,
calculating, comparing and sequencing) from, into and between the 20th and 21st
centuries, including the years 1999 and 2000, and leap-year calculations and
will not malfunction, cease to function, or provide invalid or incorrect results
as a result of date and time data, to the extent that other software (including
software imbedded in hardware) used in combination with the software that is the
subject of this representation, properly exchanges date and time data with it.
3.1.17 Certain Contracts and Arrangements. Schedule 3.1.17, which is
organized by type of agreement, contains a complete and accurate list of each of
the following types of agreements or arrangements, including any amendments
thereto, to which MicroVision is a party or by which it is bound:
27
(a) any mortgage, note or other instrument or agreement relating to
the borrowing of money or the incurrence of indebtedness or the guaranty of any
obligation for the borrowing of money;
(b) any contract, agreement, purchase order or acknowledgment form for
the purchase, sale, lease or other disposition of equipment, products, materials
or capital assets, or for the performance of services (including without
limitation consulting services), with respect to which the annual aggregate
dollar amount either due to or payable by MicroVision exceeds $100,000;
(c) contracts or agreements for the joint performance of work or
services, and all other joint venture agreements;
(d) contracts or agreements with agents, brokers, consignees, sales
representatives or distributors relating to the sale of products or services;
(e) confidentiality or inventions assignment agreements with parties
other than employees of MicroVision; and
(f) any other contract, instrument, agreement or obligation not
described in any other Schedule which contains unfulfilled obligations, is not
terminable without payment of premium or penalty upon 30 days' notice or less
and the annual amount either due to or payable by MicroVision exceeds $100,000
for any single contract.
3.1.18 Status of Contracts. Each of the contracts, agreements,
commitments and instruments listed on Schedules 3.1.14, 3.1.15, 3.1.16, and
3.1.17 and the agreements described in Section 3.1.13.5 (collectively, the
"Contracts") is in full force and effect and is valid, binding and enforceable
by MicroVision in accordance with its terms, except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting
28
the enforcement of creditors' rights generally and except that the availability
of the equitable remedy of specific performance or injunctive relief is subject
to the discretion of the court before which any proceeding may be brought. There
is no existing material default or violation by MicroVision under any Contract
and, to the knowledge of the Shareholders, no event has occurred which (whether
with or without notice, lapse of time or both) would constitute a material
default of MicroVision under any Contract. There is no pending proceeding of
which MicroVision has received notice or, to the knowledge of the Shareholders,
threatened proceeding which would interfere with the quiet enjoyment of any
leasehold of which MicroVision is lessee or sublessee. Except as disclosed in
Schedule 3.1.18, all other parties to the Contracts have consented or prior to
the Closing will have consented (where such consent is necessary) to the
consummation of the transactions contemplated by this Agreement without
modification of the rights or obligations of MicroVision under any Contract.
Complete and accurate copies of all Contracts have been delivered to ESI. Except
as disclosed in Schedule 3.1.18, MicroVision and the Shareholders are not aware
of any default by any other party to any Contract or of any event which (whether
with or without notice, lapse of time or both) would constitute a material
default by any other party with respect to obligations of that party under any
Contract. MicroVision has not granted any waiver or forbearance with respect to
a material default or obligation under any of the Contracts.
3.1.19 Insurance. Schedule 3.1.19 contains a complete and accurate
list of all current policies of fire, liability, worker's compensation and other
forms of insurance insuring MicroVision, its officers or directors, its assets
or its operations (the "Policies"), setting forth the applicable deductible
amounts. All the Policies are valid, enforceable and in full force and effect,
all premiums with respect to the Policies covering all periods up to and
including the date as of which this representation is being made have been paid
or properly accrued and no written notice
29
of late payment, cancellation or termination has been received with respect to
any Policy. The Policies are sufficient for compliance with all requirements of
law and agreements to which MicroVision is a party and provide insurance for the
risks and in the amounts and types of coverage usually obtained by persons using
or holding similar properties in similar businesses. Except as set forth in
Schedule 3.1.19, there have been no claims made for insurance payment under any
of the Policies in the three (3) years preceding the date of this Agreement.
Complete and accurate copies of the Policies and all endorsements thereto have
been delivered to ESI. MicroVision has not been refused any insurance coverage
and no insurance coverage has been canceled during the three years preceding the
date of this Agreement.
3.1.20 Permits and Licenses. Schedule 3.1.20 contains a complete and
accurate list of all governmental licenses, permits, franchises and
authorizations (collectively, "Permits") held by MicroVision, listed by the
issuing Governmental Body. MicroVision holds, and, to the knowledge of
MicroVision, at all times has held, all Permits necessary for the lawful conduct
of its business pursuant to all applicable statutes, laws, ordinances, rules and
regulations of all Governmental Bodies, agencies and other authorities having
jurisdiction over it or any part of its operations. MicroVision is in material
compliance with each of the terms of the Permits listed on Schedule 3.1.20, and
except as set forth in Schedule 3.1.20, MicroVision has not received any claims
of violation by MicroVision of any of such Permits. Complete and accurate copies
of all Permits held by MicroVision have been delivered to ESI. Except as set
forth in Schedule 3.1.20, or a certificate delivered pursuant to this Agreement,
all governmental entities and agencies that have issued any Permits to or with
respect to MicroVision or its business have consented or prior to the Closing
will have consented (where such consent is necessary) to the consummation of the
30
transactions contemplated by this Agreement without requiring modification of
the rights or obligations of MicroVision under any of such Permits.
3.1.21 Taxes.
3.1.21.1 Returns. MicroVision and any predecessor of MicroVision,
including without limitation Tschurr Technology Corporation, has filed on a
timely basis with the appropriate taxing authorities (including any and all
extensions) all federal, state, foreign and other returns, reports, forms,
declarations and information returns required to be filed by it with respect to
Taxes (as defined below) which relate to its business, results of operations,
financial condition, properties or assets (collectively, the "Returns") and has
paid on a timely basis all Taxes shown to be due on the Returns. MicroVision is
not part of an affiliated group of corporations that files or has the privilege
of filing consolidated tax returns pursuant to Section 1501 of the Code or any
similar provisions of state, local or foreign law, and MicroVision is not a
party to any tax-sharing or tax-allocation agreement. Except for liabilities
assumed in connection with the merger of Tschurr Technology Corporation with and
into MicroVision, MicroVision does not have any liability for Taxes of any
person (other than itself), whether arising under federal, state, local or
foreign law, as a transferee or successor, by contract, under Treas. Reg. ss.
1.1502-6 (or any similar provision of state, local or foreign law) or otherwise.
Except as set forth in Schedule 3.1.21, MicroVision is not the beneficiary of
any extension of time, and has not requested any extension of time, within which
to file any Return. Except as set forth in Schedule 3.1.21, (i) no Returns have
been examined by the applicable taxing authorities for all periods to and
including the fiscal year ended December 31, 1997, and (ii) MicroVision has not
received any notice of audit and there are no outstanding agreements or waivers
extending the applicable statutory periods of limitation for such Taxes for any
period. No notice of claim has ever been served on MicroVision
31
by an authority in a jurisdiction where MicroVision does not file Tax returns
that it is or may be subject to taxation by that jurisdiction. All Returns filed
are complete and accurate in all respects and no additional Taxes are owed by
MicroVision with respect to the periods covered by the Returns. MicroVision has
provided ESI with complete and correct copies of its and its predecessors'
Returns for each of the last three years. Each of MicroVision and its
predecessors has disclosed on its federal income tax returns all positions
therein that could give rise to a substantial understatement of federal income
tax within the meaning of Section 6662 of the Code. All Taxes that are required
to be withheld or collected by each of MicroVision and its predecessors have
been duly withheld and collected and, to the extent required, have been properly
paid or deposited as required by applicable laws. Neither MicroVision nor any of
its predecessors has filed a consent pursuant to Section 341(f) of the Code nor
has MicroVision or any of its predecessors agreed to have Section 341(f)(2) of
the Code apply to any disposition of a "subsection (f) asset" (as such term is
defined in Section 341(f)(4) of the Code).
3.1.21.2 Taxes Paid or Reserved. The unpaid Taxes of MicroVision
(A) did not, as of the date of the Current Balance Sheet or December 31, 1997,
exceed the reserve for Tax liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
on the face of the Current Balance Sheet (rather than in any notes thereto) and
(B) will not exceed that reserve as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of MicroVision in
filing its Returns.
3.1.21.3 S Election. MicroVision has had in effect a valid
election to be taxed as an S corporation under Section 1362(a) of the Code at
all times since January 1, 1994. Since the date of the S election, neither
MicroVision nor any Shareholder has (a) revoked the S
32
election, (b) received notification from the Internal Revenue Service that the S
election was invalid or has been terminated or (c) has had any reason to believe
the S election was invalid or may be terminated.
3.1.21.4 Liability for S Corporation Taxes. Each Shareholder has
duly included in his own federal and state income tax returns his allocable
share of items of income, gain, loss, deduction, or credit attributable to
MicroVision for any period (or that portion of any period) during which
MicroVision was an S corporation as required by applicable law, in all cases in
a manner consistent with the returns filed by MicroVision. Such returns include
each Shareholder's allocable share of taxable income of MicroVision from all
sources and each Shareholder has paid any and all taxes attributable to S
corporation taxable income that he is required to pay for all taxable periods
(or that portion of any period) during which MicroVision was an S corporation.
3.1.21.5 Definition. The term "Taxes" shall mean all federal,
state, local or foreign taxes, charges, fees, levies or other assessments,
including, without limitation, all net income, gross income, gross receipts,
premium, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, estimated, severance, stamp,
occupation, property or other taxes, fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties (including penalties
for failure to file in accordance with applicable information reporting
requirements), and additions to tax.
3.1.22 Related Party Interests. Except for the ownership of Minnetonka
Investments by Xxxxxxxxx and Xxxxxxx, no shareholder, officer or director of
MicroVision (or any entity owned or controlled by one or more of such parties)
(a) has any interest in any property, real or personal, tangible or intangible,
used in or pertaining to MicroVision's business, (b) is
33
indebted to MicroVision, or (c) has any financial interest, direct or indirect,
in any supplier or customer of, or other outside business which has significant
transactions with MicroVision. Except as set forth in Schedule 3.1.22,
MicroVision is not indebted to any of its shareholders, directors or officers
(or any entity owned or controlled by one or more of such parties) except for
amounts due under normal salary arrangements and for reimbursement of ordinary
business expenses. Except as set forth in Schedule 3.1.22, the consummation of
the transactions contemplated by this Agreement will not (either alone or upon
the occurrence of any act or event, or with the lapse of time, or both) result
in any payment (severance or other) becoming due from MicroVision to any of its
shareholders, officers, directors or employees (or any entity owned or
controlled by one or more of such parties).
3.1.23 No Powers of Attorney or Restrictions. Except as set forth in
Schedule 3.1.23, no power of attorney or similar authorization given by
MicroVision is presently in effect or outstanding. Except as set forth in
Schedule 3.1.23, no contract or agreement to which MicroVision is a party or is
bound or to which any of its properties or assets is subject limits the freedom
of MicroVision to compete in any line of business or with any person. Except as
set forth in Schedule 3.1.23, none of the Shareholders and, to the knowledge of
MicroVision and the Shareholders, none of the other employees of MicroVision is
obligated under any contract (including licenses, covenants or commitments of
any nature), or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the interests of MicroVision or that would conflict with the
business of MicroVision as now conducted.
34
3.1.24 Environmental Conditions.
3.1.24.1 Compliance. Except as set forth in Schedule 3.1.24, (i)
the business and assets of MicroVision, including without limitation the Leased
Real Property and the Previously Leased Real Property, are and have been in
compliance with all Environmental Laws (as defined below) and all Permits
required under any Environmental Laws are listed separately in or
cross-referenced to Schedule 3.1.20, (ii) there are no pending or threatened
claims, actions or proceedings against MicroVision under any Environmental Law
or related Permit, and (iii) all wastes generated in connection with
MicroVision's business are and have been transported and disposed of off-site in
compliance with all Environmental Laws. True and correct logs of such
transportation and disposal, if applicable, have been made available to ESI.
3.1.24.2 Hazardous Substances. Except as set forth in Schedule
3.24, (i) no Hazardous Substance has been disposed of, spilled, leaked or
otherwise released on, in, under or from the Leased Real Property or the
Previously Leased Real Property or has otherwise come to be located in the soil
or water (including surface and ground water) on or under the Leased Real
Property or the Previously Leased Real Property, (ii) none of the assets of
MicroVision or the improvements on the Leased Real Property or the Previously
Leased Real Property have incorporated into them any asbestos, urea formaldehyde
foam insulation, polychlorinated biphenyls (including in any floor coverings,
ceiling tiles, electrical transformer or capacitor located on such property), or
any other Hazardous Substance which is prohibited, restricted or regulated when
present in buildings, structures, fixtures or equipment, other than in material
compliance with Environmental Laws, (iii) no Hazardous Substance is or has been
generated, manufactured, treated, stored, transported, used or otherwise handled
on the Leased Real Property or the Previously Leased Real Property or in
connection with the business of
35
MicroVision or, to the knowledge of MicroVision, the business of any other
previous occupant of the Leased Real Property or the Previously Lease Property,
other than in material compliance with Environmental Laws, and (iv) there are
not any above-ground or underground storage tanks on the Leased Real Property
(whether or not regulated and whether or not out of service, closed or
decommissioned), and there were not any above-ground or underground storage
tanks on the Previously Leased Property (whether or not regulated and whether or
not out of service, closed or decommissioned) for the periods MicroVision leased
such properties and, to the knowledge of MicroVision, there were never any
above-ground or underground storage tanks on the Leased Real Property or on the
Previously Leased Property at any time a previous occupant leased such
properties.
3.1.24.3 Filings and Notices. Except as set forth in Schedule
3.1.24, (i) MicroVision has timely filed all required reports, obtained all
required approvals and permits, and generated and maintained all required data,
documentation and records under all applicable Environmental Laws, (ii) all
notifications required by any Environmental Law in respect of any discharge,
release or emission, including any notices required to be provided under
applicable Minnesota law, if any, have been made within the time prescribed by
such Environmental Law, and copies of all such notifications have been provided
to ESI, and (iii) to the knowledge of MicroVision, no part of the Leased Real
Property or the Previously Leased Real Property is listed as a site contaminated
by Hazardous Substances pursuant to any Environmental Law.
3.1.24.4 Definitions. As used in this Agreement, (a)
"Environmental Law" means any federal, state, foreign or local statute,
ordinance or regulation pertaining to the protection of human health or the
environment and any applicable orders, judgments, decrees, permits, licenses or
other authorizations or mandates under such statutes, ordinances or
36
regulations, and (b) "Hazardous Substance" means any hazardous, toxic,
radioactive or infectious substance, material or waste as defined, listed or
regulated under any Environmental Law, and includes without limitation petroleum
oil and its fractions.
3.1.25 Consents and Approvals. Except as set forth in Section 3.1.4 or
disclosed in Schedule 3.1.18, no consent, approval, or authorization of, or
filing or registration with, any court, Governmental Entity or any other entity
or person not a party to this Agreement is required to be obtained by
MicroVision for the consummation of the transactions described in this
Agreement.
3.1.26 Records. The books of account, minute books, stock certificate
books and stock transfer ledgers of MicroVision are complete and accurate in all
material respects, and there has been no transaction involving the business or
stock ownership of MicroVision, or action of MicroVision's board of directors or
shareholders, which properly should have been set forth therein and which has
not been accurately so set forth. Complete and accurate copies of such books,
records and ledgers have been made available to ESI.
3.1.27 [INTENTIONALLY OMITTED]
3.1.28 Bank Accounts. MicroVision shall deliver, at or prior to the
Closing, a complete and accurate list of all the banks or other financial
institutions at which MicroVision maintains accounts or safe deposit boxes,
together with numbers of such accounts and boxes and the names of the persons
authorized to draw thereon or permitted access thereto. All cash in such
accounts is held in demand deposits and is not subject to any restriction or
limitation as to withdrawal.
3.1.29 Product Warranties. Schedule 3.1.29 contains MicroVision's
standard form of product warranty, infringement indemnity and limitation of
liability provisions and a copy
37
of each negotiated warranty, indemnity and limitations provision that differs
materially from the standard form. MicroVision has not undertaken any
performance obligations or made any warranties or guarantees with respect to its
products other than those disclosed in Schedule 3.1.29, or sold any products or
services without the limitation of liability provisions disclosed in Schedule
3.1.29. All products under warranty as of the date of this Agreement, serviced,
distributed or sold by MicroVision, and the delivery thereof, have been in
substantial conformity with MicroVision's warranty commitments.
3.1.30 Inventories. Schedule 3.1.30 contains a true summary of all
inventory of MicroVision as of the date of the Current Balance Sheet. Except for
lender financing, MicroVision has good and marketable title to all its
inventories, free and clear of all liens, mortgages, pledges, leases,
restrictions and other claims and encumbrances of any nature whatsoever.
3.1.31 Product Liability. MicroVision has not recalled any products
manufactured, serviced, distributed, leased, or sold by MicroVision, and, to the
knowledge of the Shareholders, there is no basis for any such recall on or after
the Closing Date.
3.1.32 Backlog and Customer Information. Schedule 3.1.32 lists (a)
every outstanding purchase order received by MicroVision for more than $25,000
by customer as of the date of the Current Balance Sheet and (b) the top five
MicroVision customers for each of the last two fiscal years, with aggregate
annual revenue for each customer for each year.
3.1.33 [INTENTIONALLY OMITTED]
3.1.34 Brokers and Finders. MicroVision has not incurred any liability
for any brokerage or investment banking fees, commissions or finders' fees in
connection with the Merger, except that MicroVision has employed NationsBanc
Xxxxxxxxxx Securities LLC as its
38
investment banker. The fees due to NationsBanc Xxxxxxxxxx Securities LLC by
MicroVision in connection with the Merger and all transactions contemplated by
this Agreement shall be paid by ESI.
3.1.35 Reliance. MicroVision and the Shareholders recognize and agree
that, notwithstanding any investigation by ESI, ESI is relying upon the
representations and warranties made by MicroVision and the Shareholders in this
Agreement and in the documents attached to this Agreement as exhibits.
3.1.36 Customer Programs. Except as disclosed on Schedule 3.1.36,
there are no trade allowance, billback, rebate, discount or similar programs of
a material nature currently in effect with the customers of MicroVision,
regardless of whether MicroVision currently has an actual or contingent unpaid
liability thereunder.
3.1.37 Liabilities Incurred in Ordinary Course. The liabilities of
MicroVision and the liabilities to which the assets of MicroVision are subject
were incurred by MicroVision in the ordinary course of its business except for
reasonable expenses arising in connection with the negotiation and consummation
of this Agreement and the transactions contemplated hereby.
3.1.38 [INTENTIONALLY OMITTED]
3.1.39 [INTENTIONALLY OMITTED]
3.1.40 [INTENTIONALLY OMITTED]
3.1.41 [INTENTIONALLY OMITTED]
3.1.42 [INTENTIONALLY OMITTED]
3.1.43 [INTENTIONALLY OMITTED]
3.1.44 [INTENTIONALLY OMITTED]
3.1.45 [INTENTIONALLY OMITTED]
39
3.1.46 Definition of Knowledge. For purposes of this Agreement, the
phrases "to the knowledge of MicroVision," "to the knowledge of the
Shareholders" and phrases of similar intent shall mean the actual knowledge of
the Shareholders including knowledge that an individual with responsibilities
similar to the Shareholders would reasonably be expected to have in the ordinary
course of performing his duties, without an obligation of independent
investigation.
3.2 Representations and Warranties of ESI. ESI hereby represents and
warrants to MicroVision and the Shareholders that, except as specifically set
forth in Schedule 3.2:
3.2.1 Organization and Status. Each of ESI and its subsidiaries is a
corporation duly organized and validly existing under the laws of its
jurisdiction of incorporation and is duly qualified and in good standing as a
foreign corporation in each jurisdiction where the properties owned, leased or
operated, or the business conducted, by it require such qualification, except
where the failure to so qualify or be in good standing, when taken together with
all such failures, would not have a material adverse effect on ESI. Each of ESI
and its subsidiaries has all requisite corporate power and authority to own,
operate and lease its property and to carry on its businesses as they are now
being conducted.
3.2.2 Capitalization. ESI has authorized capital stock consisting of
40,000,000 shares of Common Stock, without par value, of which 11,404,077 shares
were outstanding on November 30, 1998 and 1,000,000 shares of Preferred Stock,
of which no shares were outstanding on November 30, 1998. All of the outstanding
shares of capital stock of ESI have been duly authorized and are validly issued,
fully paid and nonassessable, and no shares were issued in violation of
preemptive or similar rights of any shareholder. The shares of ESI Common Stock
to be issued to the Shareholders in the Merger will be duly authorized, validly
issued, and fully paid and nonassessable, and will not be issued in violation of
preemptive or similar rights of any
40
shareholder of ESI. Except (a) for shares issued to the shareholders of Testec,
Inc. pursuant to an Agreement of Reorganization and Merger among ESI, Testec,
Inc., TT Merger Corp. and the shareholders of Testec, Inc., (b) under the terms
of the various ESI employee or director benefit plans, or (c) as disclosed in
the ESI SEC Reports (defined in Section 3.2.5) there are no subscriptions,
options, warrants, rights, convertible securities or other agreements or
commitments of any character obligating ESI to issue any shares of capital
stock.
3.2.3 Corporate Authority. ESI has the corporate power and authority
and has taken all corporate action necessary to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly authorized by the Board of Directors of ESI and duly
and validly executed and delivered by ESI. This Agreement constitutes the valid
and binding obligation of ESI, enforceable in accordance with its terms, except
as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought.
3.2.4 Governmental Filings. Other than the filing of the Articles of
Merger contemplated by Article I, and compliance by the parties with applicable
requirements of the Xxxx Xxxxx Xxxxxx Act, no notices, reports or other filings
are required to be made by ESI with, nor are any consents, registrations,
approvals, permits or authorizations required to be obtained by ESI from, any
Governmental Entity in connection with the execution and delivery of this
Agreement by ESI and the consummation by ESI of the transactions contemplated
hereby.
3.2.5 SEC Reports and Financial Statements. ESI has heretofore
furnished MicroVision and the Shareholders with complete copies of all
registration statements, reports and
41
proxy statements, including amendments thereto, filed with the SEC since May 31,
1998 and prior to the date of this Agreement (collectively, the "ESI SEC
Reports"). Each of the ESI SEC Reports, as of the date filed, complied in all
material respects with the applicable requirements of the Act, the Securities
Exchange Act of 1934 and the rules and regulations promulgated by the Securities
and Exchange Commission thereunder.
3.2.6 No Adverse Consequences. Neither the execution and delivery of
this Agreement by ESI nor the consummation of the transactions contemplated by
this Agreement will (a) result in the creation or imposition of any lien,
charge, encumbrance or restriction on any of the assets or properties of ESI or
any subsidiary, (b) violate any provision of the Articles of Incorporation or
Bylaws of ESI or any subsidiary, (c) to the knowledge of ESI, violate any
statute, judgment, order, injunction, decree, rule, regulation or ruling of any
governmental authority applicable to ESI or any subsidiary or any other assets
of either, or (d) either alone or with the giving of notice or the passage of
time or both, conflict with, constitute grounds for termination of, accelerate
the performance required by, accelerate the maturity of any indebtedness or
obligation under, result in the breach of the terms, conditions or provisions of
or constitute a default under any mortgage, deed of trust, indenture, note,
bond, lease, license, permit or other agreement, instrument or obligation to
which either ESI or any subsidiary is a party or by which any of them or any of
their assets is bound.
3.2.7 Brokers and Finders. Neither ESI nor any of its subsidiaries has
incurred any liability for any brokerage or investment banking fees, commissions
or finders' fees in connection with the Merger.
3.3 Representations and Warranties Relating to Merger Corp. ESI and Merger
Corp. hereby represent and warrant to MicroVision that:
42
3.3.1 Organization and Status. Merger Corp. is a corporation duly
organized and validly existing under the laws of the State of Minnesota. Merger
Corp. does not own any properties (other than the initial cash subscription for
shares) nor has it commenced any business or operations.
3.3.2 Capitalization. Merger Corp. has an authorized capital stock
consisting of 100 shares of Common Stock, of which 100 shares were issued and
outstanding on the date of this Agreement. All of the issued and outstanding
shares of capital stock of Merger Corp. are owned by ESI.
3.3.3 Corporate Authority. Merger Corp. has the corporate power and
authority and has taken all corporate action necessary to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
Agreement has been duly and validly authorized by the Board of Directors and
sole shareholder of Merger Corp., duly and validly executed and delivered by
Merger Corp. and constitutes the valid and binding obligation of Merger Corp.,
enforceable in accordance with its terms, except as enforcement may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought.
3.3.4 Governmental Filings. Other than the filing of the Articles of
Merger contemplated by Article I, no notices, reports or other filings are
required to be made by Merger Corp. with, nor are any consents, registrations,
approvals, permits or authorizations required to be obtained by Merger Corp.
from, any Governmental Entity in connection with the execution and
43
delivery of this Agreement by Merger Corp. and the consummation by Merger Corp.
of the transactions contemplated hereby.
ARTICLE IV
COVENANTS
4.1 Mutual Covenants. MicroVision, the Shareholders and ESI and Merger
Corp. mutually covenant and agree as follows:
4.1.1 Consents and Approvals. MicroVision, the Shareholders and ESI
each will use reasonable best efforts to secure, and ESI will cause Merger Corp.
to use its reasonable best efforts to secure, all consents, approvals, licenses
or permits which may be required in connection with the Merger, and each will
cooperate with the other to secure all such consents, approvals, licenses or
permits in a form mutually satisfactory to MicroVision and ESI.
4.1.2 Reasonable Efforts. Subject to the terms of this Agreement,
MicroVision, the Shareholders and ESI each will use reasonable commercial
efforts, and ESI will cause Merger Corp. to use its reasonable best efforts, to
effectuate the transactions contemplated hereby and to fulfill the conditions of
their respective obligations under this Agreement.
4.1.3 Pooling Matters. ESI and Merger Corp. shall execute and deliver
to Xxxxxx Xxxxxxxx LLP a certificate in the form attached hereto as Exhibit H-1,
and MicroVision and each of the Shareholders shall execute and deliver to each
of KPMG Peat Marwick and Xxxxxx Xxxxxxxx LLP a certificate in the form attached
hereto as Exhibit H-2, at such time or times as reasonably requested by such
firm in connection with its delivery of the Pooling Opinion described in Section
5.3.13 with respect to the transactions contemplated hereby. Prior to the
Effective Time, none of ESI, Merger Corp., MicroVision or the Shareholders shall
take or cause to be taken
44
any action (or fail to take or cause to be taken any action) which would cause
to be untrue any of the representations in Exhibit H-1 or H-2.
4.1.4 Tax Matters.
4.1.4.1 Tax Matters After Closing. Following the Closing, the
Shareholders shall prepare and timely file a Form 1120S, including Schedules
K-1, and necessary state income tax returns for the period beginning January 1,
1999 and ending on the Closing Date (the "S Short Year") and all other income
Tax Returns for a period which ends on the Closing Date but begins before the
Closing Date consistent with prior accounting practices. The Shareholders shall
consult with ESI in connection with the preparation of such Form 1120S, and ESI
shall provide any assistance reasonably requested by the Shareholders in order
to prepare and file such Form 1120S. ESI agrees to cause MicroVision to timely
sign such return unless good cause can be shown that such signing could subject
ESI or MicroVision or one or more of its officers to penalties for inaccuracy or
for fraud or false statement. The parties agree to file any election necessary
to and shall "bifurcate" the income and deductions of MicroVision by a closing
of the books as of the close of business on the Closing Date. Each Shareholder
will duly include in his own federal and state income tax returns his allocable
share of all items of income, gain, loss, deduction, and credit attributable to
the S Short Year of Company as required by applicable law. Each Shareholder
shall have the right to receive from MicroVision to the extent not previously
distributed, within five (5) days of completion of all income Tax Returns for
the S Short Year, up to 46.5 percent of all net taxable income for the S Short
Year, which amount represents the estimated "S" corporation distributions
necessary to cover estimated S Short Year income tax liabilities of the
Shareholders. Unless otherwise required by a judicial or administrative
determination, each party hereto will file, and will cause all of its respective
45
affiliates to file, all federal and applicable state income tax returns for all
periods on a basis consistent with the treatment of the Merger as a tax-free
merger. Each party will furnish any information reasonably requested by the
other party to assist the requesting party in connection with the reporting of
the Merger and the other transactions contemplated by this Agreement.
Shareholders shall not be liable for any portions of any settlement of any
Contest with respect to any Taxes effected without its prior written consent,
which consent shall not be unreasonably withheld.
4.1.4.2 Audits. In case any examination, audit, litigation or
other proceeding that reasonably could be likely to result (directly or
indirectly) in liability of any Shareholder for any Tax ("Contest") shall be
instituted ESI shall promptly notify Shareholders in writing unless ESI agrees
in writing to waive any claim for indemnification with respect to amounts due
for any pre-Closing Date period. In case any Contest shall be brought against
ESI with respect to any income Tax for the period described above, Shareholders
shall be entitled to participate therein and shall have the right to retain
their own counsel at their own expense. Shareholders and ESI agree to cooperate
fully with each other with respect to defending or answering any such Contest
and to provide, and to cause any affiliates to provide, each other with all
materials, information and documents as reasonably requested by the other.
Neither ESI nor MicroVision shall enter into any agreement, compromise or
settlement of any Contest without written consent of the Shareholders.
4.1.4.3 Waivers. Neither ESI nor MicroVision, without the prior
written consent of the Shareholders, shall enter into or permit any person to
enter into any waiver of any law, regulation or agreement fixing, nor any
assessment or consent to any extensions of any period of time for assessment of
any Taxes for any pre-Closing Date periods. Shareholders,
46
without the prior written consent of ESI and MicroVision, shall not enter into
or permit any person to enter into any such waiver, agreement or consent with
respect to any Taxes for any post-Closing period.
4.1.5 Confidentiality. MicroVision, the Shareholders, and ESI and
Merger Corp. agree to keep confidential and not disclose to third parties
(except to legal, accounting and investment banking advisors for the purposes of
evaluating and negotiating the transactions contemplated by this Agreement) the
terms and conditions or the existence of this Agreement, or the consummation of,
or intention to consummate, the transactions contemplated by this Agreement,
prior to or following the Closing, without the written consent of the other
parties to this Agreement; provided, however, that, following the Closing, ESI
may disclose to third parties the terms and conditions of, the existence of, or
the consummation of the transactions contemplated by this Agreement.
Notwithstanding the foregoing, after having given prior notice to the other
parties, a party to this Agreement may disclose such terms and conditions as
necessary to comply with applicable laws, regulations or governmental rules, or
orders of any governmental entity.
4.2 Covenants of MicroVision. MicroVision and the Shareholders covenant and
agree as follows:
4.2.1 Conduct of Business. After the date of this Agreement and prior
to the Effective Time, MicroVision will carry on its business in the ordinary
and usual manner and maintain its existing relationships with suppliers,
customers, employees and business associates, and will not, without the prior
written consent of ESI, which consent will not be unreasonably withheld, delayed
or conditional:
(a) amend its Articles of Incorporation or Bylaws;
47
(b) enter into any new agreements respecting an increase in
compensation or benefits payable to Xxxxxxxxx, Xxxxxxx or Xxxxxxx;
(c) split, combine, reclassify any of the outstanding shares of its
capital stock or otherwise change its authorized capitalization;
(d) except as contemplated by this Agreement, declare, set aside or
pay any dividends payable in cash, stock or property with respect to shares of
its capital stock;
(e) issue, sell, pledge, dispose of or encumber any additional shares
of, or securities convertible into or exchangeable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of its capital
stock of any class;
(f) redeem, purchase or otherwise acquire any shares of its capital
stock, merge into or consolidate with any other corporation or permit any other
corporation to merge into or consolidate with it, liquidate or sell or dispose
of any of its assets, or close any plant or business operation;
(g) except for the termination of MicroVision's revolving credit line
with Firstar National Bank of Minnesota, and except for short-term indebtedness
and indebtedness incurred pursuant to MicroVision's revolving credit agreement
and renewals, replacements and amendments thereof not in excess of the current
maximum under such credit agreement incurred in the ordinary course of business,
incur, assume or guarantee any indebtedness, or modify or repay any existing
indebtedness;
(h) enter into any transaction, make any commitment (whether or not
subject to the approval of the Board of Directors of MicroVision) or modify any
Contracts, except as otherwise contemplated or permitted by this Agreement, or
take or omit to take any action which could be reasonably anticipated to have a
Material Adverse Effect on MicroVision;
48
(i) transfer, lease, license, guarantee, sell, mortgage, pledge, or
dispose of, any property or assets (including without limitation any
intellectual property), encumber any property or assets or incur or modify any
liability, other than in the ordinary and usual course of business;
(j) authorize capital expenditures other than in the ordinary course
of business, form any subsidiary, or make any acquisition of, or investment in,
assets or stock of any other person or entity;
(k) make any tax election;
(l) permit any insurance policy naming it as a beneficiary or a loss
payable payee to be canceled, terminated or renewed without prior notice to ESI;
(m) change its method of accounting as in effect at December 31, 1997,
except as required by changes in generally accepted accounting principles as
concurred with by the MicroVision's independent auditors, or change its fiscal
year;
(n) [INTENTIONALLY OMITTED]
(o) pay to the Shareholders in the aggregate, either through bonuses,
dividends or otherwise, more than the amount of the Shareholders' salaries as of
January 1, 1998 plus not more than $1,674,000; or
(p) authorize or enter into an agreement to do any of the actions
referred to in paragraphs (a) through (o) above.
4.2.2 Investigations. MicroVision agrees to give ESI and its
representatives and agents full access to all its premises, books and records
and agreements and files and to cause its officers of MicroVision to furnish ESI
with such financial and operating data and other information with respect to its
business and properties as ESI shall from time to time request.
49
Without limitation of the foregoing, MicroVision shall permit ESI to conduct an
operations review at the plant level during which ESI shall have access to the
plant managers, sales and marketing managers, finance officers, and technology,
environmental and human resource managers of each MicroVision operating
facility. Any such investigations (a) shall be conducted in such manner as not
to interfere unreasonably with the operation of MicroVision's business; and (b)
shall not diminish any of the representations and warranties hereunder.
4.2.3 No Negotiations with Others. Shareholders and MicroVision shall
refrain, and shall cause their employees and any investment banker, attorney,
accountant or other agent retained by either of them to refrain, from initiating
or soliciting any inquiries or making any proposals with respect to, or engaging
in negotiations concerning, or providing any confidential information or data to
or having any discussions with any person relating to, any acquisition, business
combination or purchase of all or any significant portion of the assets of, or
any equity interest in, MicroVision. Shareholders and MicroVision will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing.
4.3 Covenants of ESI and Merger Corp. ESI and Merger Corp., as the case may
be, covenant and agree as follows:
4.3.1 Conduct of Business. Prior to the Effective Time, ESI will not
take or omit to take any action which could be reasonably anticipated to have a
material adverse effect on the business, properties, financial condition or
results of operations of ESI.
4.3.2 Issuance of Certificates. Upon the Effective Time, ESI shall
issue and deliver, or shall cause to be issued and delivered, in accordance with
the provisions of Article I hereto, stock certificates representing the Merger
Consideration to be issued in the Merger.
50
4.3.3 Amendment of Charter Documents. On and after the Effective Time,
ESI will not permit MicroVision to amend or change its Articles of Incorporation
or Bylaws to adopt a lesser standard of indemnification with respect to
MicroVision's officers and directors.
4.3.4 Control of Merger Corp. Prior to the Effective Time, ESI shall
control Merger Corp. within the meaning of Section 368(c) of the Internal
Revenue Code of 1986, as amended (the "Code").
4.3.5 Subsequent Stock Repurchases. ESI has no plan or intention to
reacquire any of the Merger Consideration.
4.3.6 Ownership of Surviving Corporation and Merger Corp. Immediately
following the Effective Time, Surviving Corporation will hold (i) at least 90%
of the fair market value of MicroVision's net assets and at least 70% of the
fair market value of MicroVision's gross assets held immediately prior to the
Effective Time (provided, that immediately prior to the Effective Time,
MicroVision held at least 90% of the fair market value of its net assets and at
least 70% of the fair market value of its gross assets), and (ii) at least 90%
of the fair market value of Merger Corp.'s net assets and at least 70% of the
fair market value of Merger Corp.'s gross assets held immediately prior to the
Effective Time. For purposes of this covenant, amounts paid by MicroVision or
Merger Corp. to the Shareholders who receive cash or other property, amounts
paid by MicroVision or Merger Corp. to dissenters, amounts used by MicroVision
or Merger Corp. to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by MicroVision will be
included as assets of MicroVision or Merger Corp., respectively, immediately
prior to the transaction.
4.3.7 Subsequent Transactions. ESI has no plan or intention to (i)
liquidate Surviving Corporation, (ii) to merge Surviving Corporation with or
into another corporation, or
51
(iii) to sell or otherwise dispose of the stock of Surviving Corporation. ESI
has no plan to sell or otherwise dispose of any of Surviving Corporation's
assets except for dispositions made in the ordinary course of business, after
which Surviving Corporation will continue to hold (i) at least 90% of the fair
market value of MicroVision's net assets and at least 70% of the fair market
value of MicroVision's gross assets held immediately prior to the Effective Time
(provided, that immediately prior to the Effective Time, MicroVision held at
least 90% of the fair market value of its net assets and at least 70% of the
fair market value of its gross assets), and (ii) at least 90% of the fair market
value of the net assets of Merger Corp. and at least 70% of the fair market
value of the gross assets of Merger Corp. held immediately prior to the
Effective Time. For purposes of this covenant the percentage references include
payments described in Section 4.3.6 immediately above.
4.3.8 Ownership of MicroVision; Continuity of Business Enterprise.
After the Effective Time, (i) ESI, or a wholly owned, first tier subsidiary of
ESI, intends to continue to own all the outstanding stock of Surviving
Corporation and (ii) ESI intends to continue at least one significant historic
business line of MicroVision or to use at least a significant portion of
MicroVision's historic business assets in a business, in each case within the
meaning of Treasury Regulation Section 1.368-1(d).
4.3.9 Payment of Expenses. ESI and Merger Corp. will each pay its own
expenses, if any, incurred in connection with the Merger, except as provided in
Section 3.1.34 of this Agreement.
4.3.10 Investment Company. ESI and Merger Corp. each covenant that
neither is an investment company as defined in Code Sections 368(a)(2)(F)(iii)
and (iv).
52
ARTICLE V
CONDITIONS
5.1 Conditions to the Obligations of All Parties. The obligations of
MicroVision, the Shareholders, ESI and Merger Corp. to consummate the
transactions contemplated by this Agreement are subject to the fulfillment at or
before the Closing of each of the following conditions:
5.1.1 Regulatory Approvals. The parties shall have made all filings
and received all approvals of any governmental or regulatory agency of competent
jurisdiction necessary in order to consummate the Merger, and each of such
approvals shall be in full force and effect at the Closing and not subject to
any condition which requires the taking or refraining from taking of any action
which would have a material adverse effect on MicroVision or on ESI and its
subsidiaries.
5.1.2 Litigation. There shall not be in effect any order, decree or
injunction of a Federal or State court of competent jurisdiction restraining,
enjoining or prohibiting the consummation of the transactions contemplated by
this Agreement (each party agreeing to use its best efforts, including appeals
to higher courts, to have any such non-final, appealable order, decree or
injunction set aside or lifted), and no action shall have been taken, and no
statute, rule or regulation shall have been enacted, by any state or federal
government or governmental agency in the United States which would prevent the
consummation of the Merger.
5.1.3 Asset Purchase Agreement. A closing shall have occurred
simultaneously with the Closing of this Agreement under the Asset Purchase
Agreement.
5.1.4 Poolability Opinion. MicroVision shall have received a
poolability opinion from KPMG Peat Marwick substantially in the form attached
hereto as Exhibit H-3.
53
5.2 Conditions to the Obligations of MicroVision and the Shareholders. The
obligations of MicroVision and the Shareholders to consummate the transactions
contemplated by this Agreement are subject to the fulfillment at or before the
Closing of each of the following conditions:
5.2.1 Representations, Warranties and Covenants. The representations
and warranties of ESI and Merger Corp. contained in this Agreement shall be
correct (a) at the date of this Agreement and (b) as of the Closing, with the
same effect as though made on and as of such date, except for representations
and warranties made as of a specific date, which representations and warranties
need only be true and correct as of such date and for changes specifically
contemplated by this Agreement, and ESI and Merger Corp. shall each have
performed all of their respective covenants and obligations hereunder to be
performed as of the Closing. MicroVision shall have received at the Closing
certificates to the foregoing effect, dated the Closing Date, and executed on
behalf of ESI by an executive officer of ESI and on behalf of Merger Corp. by an
executive officer of Merger Corp. For purposes of affirming the accuracy of the
representations and warranties of ESI made as of the Closing, the term "ESI SEC
Reports" shall be deemed to include all registration statements, reports and
proxy statements, including all amendments thereto, filed by ESI with the SEC
after the date of this Agreement and prior to Closing.
5.2.2 No Material Adverse Change. Since November 30, 1998 there shall
have been no Material Adverse Change, or discovery of a condition or occurrence
of an event which has resulted or reasonably can be expected to result in a
Material Adverse Change to ESI and its subsidiaries. For purposes of this
Agreement, "Material Adverse Effect" means with respect to any party hereto, a
material adverse effect on the business, properties, assets, financial condition
or results of operations of such party, taken as a whole, and a "Material
Adverse Change" means
54
the occurrence of an event that has resulted or could reasonably be expected to
result in a Material Adverse Effect (but excluding changes affecting such
party's industry as a whole or the national economy), other than changes
contemplated by this Agreement.
5.2.3 Opinion of Counsel. The Shareholders shall have received from
Stoel Rives LLP, counsel to ESI and Merger Corp., an opinion dated the Closing
Date with respect to such matters as may be reasonably requested by the
Shareholders.
5.2.4 Tax Opinion. The Shareholders shall have received a letter from
KPMG Peat Marwick, dated as of the Closing Date, to the effect that the
transaction contemplated by this Agreement qualifies as a non-taxable
reorganization under the Internal Revenue Code and, based on such qualification,
the Shareholders will not be required to recognize gain or loss as a consequence
of the consummation of the transactions contemplated by this Agreement.
5.3 Conditions to the Obligations of ESI and Merger Corp. The obligations
of ESI and Merger Corp. to consummate the transactions contemplated by this
Agreement are subject to the fulfillment at or before the Closing of each of the
following conditions:
5.3.1 Representations, Warranties and Covenants. The representations
and warranties of MicroVision and the Shareholders contained in this Agreement
shall be correct (a) at the date of this Agreement and (b) as of the Closing
Date, with the same effect as though made on and as of such date, except for
representations and warranties made as of a specific date which representations
and warranties need only be true and correct as of such date and for changes
specifically contemplated by this Agreement and MicroVision and the Shareholders
shall have performed in all material respects all of their covenants and
obligations hereunder to be performed as of the Closing. ESI shall have received
at the Closing certificates to the foregoing effect, dated
55
the Closing Date, and executed by each of the Shareholders and on behalf of
MicroVision by an executive officer of MicroVision.
5.3.2 Opinion of Counsel. ESI and Merger Corp. shall have received
from Xxxxxx and Xxxxxx, counsel to MicroVision, an opinion dated the Closing
Date with respect to such matters as may be reasonably requested by ESI and
Merger Corp.
5.3.3 [INTENTIONALLY OMITTED]
5.3.4 Investment Representations Certificates. Each Shareholder shall
have executed and delivered a Certificate in the form attached hereto as Exhibit
I containing representations that such Shareholder is an accredited investor for
securities law purposes, that such Shareholder is acquiring the ESI Common Stock
for investment for his own account, and that such Shareholder has had the
opportunity to ask questions about ESI and review the ESI SEC Reports.
5.3.5 No Material Adverse Change; Completion of Inspection.
5.3.5.1 No Material Adverse Change. Since the date of the Current
Balance Sheet there shall have been no Material Adverse Change.
5.3.5.2 Completion of Investigation. On or before January 31,
1999, ESI shall have completed to its satisfaction its investigation of
MicroVision's business, including without limitation, the investigation referred
to in Section 4.2.2, and such investigation shall have not revealed any facts or
circumstances (including those arising as a result of the acquisition
contemplated hereby) that ESI believes are reasonably likely to have a material
adverse effect on the business, properties, financial condition, or results of
operations of MicroVision.
5.3.6 [INTENTIONALLY OMITTED]
56
5.3.7 Related Party Agreements. All agreements or arrangements
described on Schedule 3.1.22 (Related Parties), if requested by ESI, shall have
been terminated or amended to the reasonable satisfaction of ESI.
5.3.8 Shareholder Approval. ESI shall have received evidence
satisfactory to it that all of the shareholders of MicroVision have voted in
favor of the Merger in accordance with applicable provisions of the MBCA and the
Articles of Incorporation and Bylaws of MicroVision.
5.3.9 Employee Agreements. Each of Xxxxxxxxx, Sjolund and Xxxxxxx
shall have signed an Employee Confidentiality and Assignment Agreement
substantially in the form attached as Exhibit B.
5.3.10 Escrow Agreement. The Escrow Agreement to be delivered under
Article II shall have been signed and delivered by the parties to such agreement
other than ESI.
5.3.11 Noncompetition Agreements. The Noncompetition Agreements to be
delivered under Article II shall have been signed and delivered by each of the
Shareholders.
5.3.12 Asset Purchase Agreement. The Asset Purchase Agreement to be
delivered under Article II shall have been signed and delivered by the parties
to such agreement other than ESI.
5.3.13 Updated Financial and Other Information. ESI shall have
received (a) the unaudited balance sheet of MicroVision and the related
statements of income and stockholder's equity for the most recent accounting
period of MicroVision ended prior to the Closing Date, and (b) schedules of
accounts receivable (including an aging analysis), inventories (organized by
category), and backlog (by customer and product), in each case as of immediately
prior to Closing and in each case with an officer's certificate as to accuracy
and completeness of such schedule.
57
5.3.14 Pooling Opinion. ESI shall have received an opinion from Xxxxxx
Xxxxxxxx LLP in form and substance satisfactory to ESI that the Merger can be
accounted for as a pooling of interests (the "Pooling Opinion").
5.3.15 [INTENTIONALLY OMITTED]
5.3.16 [INTENTIONALLY OMITTED]
5.3.17 Resignation and Release. The Resignations and Releases to be
delivered under Article II shall have been signed and delivered by each
Shareholder.
ARTICLE VI
SURVIVAL AND INDEMNIFICATION
6.1 Survival. All representations and warranties of any party contained in
this Agreement shall survive the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby, but shall be
extinguished and be of no further force or effect one year after the Closing
Date. No Claim Notice (as hereinafter defined) shall be effective if delivered
after the time period referred to above in this Section 6.1.
6.2 Scope of Indemnification. From and after the Effective Time and subject
to the limitations of this Article VI, each Shareholder, in accordance with his
pro rata share of ESI Common Stock received in the Merger, will severally, but
not jointly and severally, indemnify and hold harmless ESI and Merger Corp. and
their respective officers, directors and shareholders (collectively, the
"Indemnified Parties") from, for and against any such losses, costs, expenses,
damages and liabilities, including reasonable attorneys' fees (collectively,
"Damages"), on a dollar for dollar basis, incurred by an Indemnified Party by
reason of or arising out of any inaccuracy in any representation or warranty or
the breach of any covenant of MicroVision or the Shareholders made in this
Agreement or any documents, instruments or agreements executed and
58
delivered in connection with this Agreement or out of any claims made and
disclosed in Schedule 3.1.21; provided, however, that the limitation of
liability for each Shareholder shall be the shares of ESI Common Stock placed in
escrow by such Shareholder pursuant to Section 6.3.
6.3 Escrow. On the Closing Date, ESI shall, on behalf of each of the
Shareholders, deliver to the Escrow Agent 10% of the shares of ESI Common Stock
to be received by the Shareholders pursuant to Section 1.3 of this Agreement,
provided that the shares to be delivered on behalf of each Shareholder shall be
rounded downward to the nearest whole share of ESI Common Stock (such deposited
shares shall be referred to as the "Escrowed Property"). The Escrowed Property
will be deposited with the Escrow Agent pursuant to the terms of the Escrow
Agreement. The escrow and the Escrow Agreement shall terminate and the Escrowed
Property shall be distributed to the Shareholders at the earliest time provided
for in the Escrow Agreement, but not later than the first anniversary of the
Closing Date.
6.4 Limitations. Notwithstanding any other provision of this Agreement to
the contrary, the liability of the Shareholders pursuant to Section 6.2 shall be
subject to the following limitations:
6.4.1 Minor Claims. The Shareholders shall not have any liability or
indemnity obligation under Section 6.2 with respect to the first $500,000 of
Damages of the Indemnified Parties. The foregoing shall be a fully deductible
amount that will not under any circumstances be recoverable by ESI or Merger
Corp., or any party claiming through such parties.
6.4.2 Escrowed Property. The indemnity obligation of the Shareholders
under Section 6.2 shall be satisfied solely out of the Escrowed Property in
accordance with the Escrow Agreement. To make a claim against the Escrowed
Property, the Indemnified Parties must deliver a Claim Notice within 8 months of
the Closing Date.
59
6.4.3 Effect of Payment. Any amounts paid to or on behalf of any of
the parties hereto as indemnification shall be treated as an adjustment to the
Merger Consideration.
6.4.4 Sole and Exclusive Remedy. The foregoing indemnification
provisions set forth in this Article VI shall be the sole and exclusive remedy
for matters covered by this Article VI.
6.4.5 Limitation Based Upon Knowledge. Except for claims made and
disclosed in Schedule 3.1.21, the Shareholders will not be liable with respect
to any claim covered by this Article VI if the facts and circumstances giving
rise to such claim were set forth on any other disclosure schedules attached
hereto.
6.5 Claim Procedure for Indemnification. The obligations and liabilities of
the Shareholders in connection with claims for indemnification for Damages by an
Indemnified Party shall be subject to the following terms and conditions:
6.5.1 Notice. The Indemnified Party shall give written notice to the
Shareholders and, for claims made during the term of the Escrow Agreement, the
Escrow Agent of its claim for indemnification as promptly as practicable
whenever the Indemnified Party shall have determined that there are facts or
circumstances which entitle ESI to indemnification under this Article VI;
provided, however, that the failure to give a timely notice of a claim for
indemnification shall not diminish the indemnification obligations hereunder
except to the extent that the delay in giving such notice materially adversely
affects the ability of the Shareholders to mitigate Damages with respect to any
claim. The notice ("Claim Notice") shall set forth in reasonable detail the
basis for the claim, the nature of the Damages and the amount thereof, to the
extent known.
60
6.5.2 Response to Third Party Claim. If the Claim Notice states that a
claim has been asserted by a third party against the Indemnified Party (a "Third
Party Claim"), ESI shall undertake, conduct and control, through counsel of its
choosing, the good faith settlement or defense of the Third Party Claim. The
Shareholders shall be kept apprised of the status of such Third Party Claims.
The Shareholders shall have the right to participate in, but not control, the
defense of such Third Party Claim at their sole cost and expense.
6.5.3 Diligent Conduct. If, within five days after receipt by ESI from
the Shareholders of written notice that ESI is not diligently conducting the
defense or attempted settlement in good faith, ESI does not provide reasonably
sufficient evidence to the Shareholders that ESI is diligently conducting the
defense or attempting settlement in good faith, the Shareholders shall
thereafter have the right to contest, settle or compromise the Third Party
Claim.
ARTICLE VII
TERMINATION
7.1 Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be terminated and abandoned at any time prior to the Effective Time,
whether before or after approval of this Agreement, by the mutual consent of
MicroVision, ESI and Merger Corp.
7.2 Termination by Either MicroVision or ESI. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time:
(a) by ESI, Merger Corp. or MicroVision if the Merger shall not have
become effective on or prior to February 28, 1999, provided, however, that the
right to terminate this Agreement pursuant to this Section 7.2(a) shall not be
available to any party whose breach of this Agreement has been the cause of, or
resulted in, the failure of the Merger to occur on or before such date; or
61
(b) by ESI, Merger Corp. or MicroVision if any court of competent
jurisdiction in the United States or any state shall have issued an order,
judgment or decree (other than a temporary restraining order) restraining,
enjoining or otherwise prohibiting the Merger and such order, judgment or decree
shall have become final and nonappealable.
(c) by notice of objection to a Supplement to or from one party hereto
pursuant to the procedures described in Section 8.13 hereof. To terminate this
Agreement, such Supplement must be material to the representation or warranty so
modified.
7.3 Effect of Termination and Abandonment. In the event of termination of
this Agreement and abandonment of the Merger pursuant to this Article VII, (i)
this Agreement immediately will become void and of no effect, except that
Sections 4.2.3 and 8.1 will survive the event of termination; and (ii) no party
hereto (or any of its directors of officers) shall have any liability or further
obligation to any other party to this Agreement, except for willful breach of a
party's representations, warranties, covenants or agreements which caused such
termination under this Agreement.
ARTICLE VIII
MISCELLANEOUS AND GENERAL
8.1 Payment of Expenses. Other than in the event of breach of this
Agreement by the other party and except as provided in Section 3.1.34,
MicroVision shall be responsible for all professional fees incurred by it in
connection with the transactions contemplated by this Agreement, and each party
shall be responsible for all other costs and expenses incurred by it in
connection with the transactions contemplated by this Agreement. Nothing in this
Agreement is meant to limit the right of a non-breaching party to obtain
reimbursement of expenses and other
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damages, including attorneys fees, incurred as a result breach of this Agreement
by the other party.
8.2 Entire Agreement. This Agreement, including the schedules and the
exhibits hereto, constitutes the entire agreement between the parties hereto and
supersede all prior discussions, negotiations, agreements and understandings,
oral and written, among the parties hereto with respect to the subject matter
hereof.
8.3 Assignment. This Agreement shall not be assignable by any of the
parties hereto without the prior written consent of each of ESI, MicroVision and
the Shareholders.
8.4 Binding Effect; No Third Party Benefit. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and assigns, subject to the restrictions on assignment contained in
Section 8.3. Nothing express or implied in this Agreement is intended or shall
be construed to confer upon or give to a person, firm or corporation other than
the parties hereto any rights or remedies under or by reason of this Agreement
or any transaction contemplated hereby.
8.5 Amendment and Modification. Subject to applicable law, this Agreement
may be amended, modified and supplemented at any time prior to or at the
Closing, whether before or after the votes of shareholders of MicroVision, by
written agreement executed and delivered by the duly authorized officers of
MicroVision and ESI and the Shareholders.
8.6 Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law; provided, however, that any waiver by a party must be in
writing.
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8.7 Counterparts. For the convenience of the parties hereto, this Agreement
may be executed in any number of counterparts, each such counterpart being
deemed to be an original instrument, and all such counterparts shall together
constitute the same agreement.
8.8 Captions. The article, section and paragraph captions herein are for
convenience of reference only, do not constitute a part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
8.9 Subsidiary. When a reference is made in this Agreement to a subsidiary
of a party, the term "subsidiary" means any corporation or other organization,
whether incorporated or unincorporated, of which at least a majority of the
securities or interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such party or by any one or more of its
subsidiaries, or by such party and one or more of its subsidiaries.
8.10 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered personally
or mailed, certified or registered mail with postage prepaid, or sent by
overnight carrier or by telex, telegram or facsimile (in each case with evidence
of confirmed transmission) as follows:
If to the Shareholders, to them at:
Xxxxxx X. Xxxxxxxxx
0000 Xxxxxxx Xxxxxxx
Xxxxxxxxxxx, XX 00000
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Xxxx X. Xxxxxxx
0000 Xxxxxxxx Xxxx
Xxxxxxxxx, XX 00000
Xxxx X. Xxxxxxx
0000 Xxxxxx Xxxxxx Xxxxx
Xxxxxxxxxxx, XX 00000
with copies to:
Xxxxxx and Xxxxxx
0000 XXX Xxxxxx
Xxxxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx
Fax: (000) 000-0000
If to ESI or Merger Corp., to it at:
00000 XX Xxxxxxx Xxxx Xxxxx
Xxxxxxxx, XX 00000
Attention: President and Chief Executive Officer
Fax: (000) 000-0000
with copies to:
Stoel Rives LLP
000 XX Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxxx
Fax: (000) 000-0000
or to such other person or address as any party shall specify by notice in
writing. All such notices, requests, demands, waivers and communications shall
be deemed to have been received on the date of delivery.
8.11 Choice of Law; Venue. This Agreement shall be governed by and
construed in accordance with the laws of the state of Oregon, exclusive of
choice of law rules, except that the provisions of this Agreement relating to
the Merger shall also be governed by the merger provisions of the MBCA.
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8.12 Separability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
8.13 Supplementation of Disclosure Schedules. Prior to the Effective Time
any party hereto may deliver a supplement (a "Supplement") to one or more of the
disclosure schedules contemplated by this Agreement and previously delivered to
the other parties. Any and all Supplements must be in writing and must be
delivered to the other party or parties prior to the Effective Time. If the
other party or parties object to a proposed Supplement, the sole remedy of such
objecting party shall be the termination of this Agreement in accordance with
Section 7.2 hereof.
[SIGNATURE PAGE FOLLOWS.]
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first herein
above written.
ELECTRO SCIENTIFIC INDUSTRIES, INC.
By X. X. XXXXXXXX
--------------------------------------
Xxxxxx X. Xxxxxxxx,
Vice President, Business Development
MICROVISION, INC.
By XXXXXX X. XXXXXXXXX
--------------------------------------
Xxxxxx X. Xxxxxxxxx,
President
MAGELLAN MERGER CORP.
By X. X. XXXXXXXX
--------------------------------------
Xxxxxx X. Xxxxxxxx
Vice President and Corporate Secretary
XXXXXX X. XXXXXXXXX
-----------------------------------------
Xxxxxx X. Xxxxxxxxx
XXXX X. XXXXXXX
-----------------------------------------
Xxxx X. Xxxxxxx
X. XXXXXXX
-----------------------------------------
Xxxx X. Xxxxxxx
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