SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, For Use of the
[ ] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2)?
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
IWERKS ENTERTAINMENT, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No Fee Required
[X] Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
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(2) Aggregate number of securities to which transactions applies:
3,449,303 outstanding shares of common stock
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
The per unit price is expected to be approximately $0.63 per share.
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(4) Proposed maximum aggregate value of transaction:
$2,250,000
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(5) Total fee paid:
$450.00
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[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or
schedule and the date of its filing.
(1) Amount previously paid:
N/A
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(2) Form, Schedule or Registration Statement No.:
N/A
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(3) Filing party:
N/A
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(4) Date filed:
N/A
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Iwerks Entertainment, Inc.
4520 West Valerio Street
Burbank, California 91505-1045
(818) 841-7766
Dear Stockholder: ___________, 2001
You are cordially invited to attend a special meeting of stockholders of
Iwerks Entertainment, Inc. to be held at Iwerks' offices at 4520 West Valerio
Street, Burbank, California 91505-1045, on December __, 2001 at 10:00 a.m., Los
Angeles time.
At the special meeting, we are asking you to consider and vote upon the
adoption of an Agreement and Plan of Merger, dated August 31, 2001, providing
for the merger of SimEx Acquisition Corporation, a Delaware corporation and a
wholly owned subsidiary of SimEx, Inc., an Ontario corporation, with and into
Iwerks. We will refer to SimEx, Inc. and SimEx Acquisition Corporation as
"SimEx" and "Acquisition Co.," respectively. Pursuant to the merger agreement,
you will be entitled to receive in cash, without interest, for each of your
shares of Iwerks common stock a ratable portion of US $2.25 million. The per
share consideration will be equal to the quotient obtained by dividing:
o US $2.25 million by
o the number of shares of our common stock outstanding immediately prior
to the effective time of the Merger. At September 10, 2001, we had
3,449,303 shares of common stock issued and outstanding (not including
shares of common stock held in treasury), 105,000 shares of common
stock underlying "in-the-money" options or warrants, and 1,199,628
shares of common stock underlying "at- or out-of-the-money" options,
warrants, or other convertible securities. Assuming the exercise of
all "in-the-money" securities prior to the effective time of the
merger, the per share consideration to be offered to our stockholders
will be approximately US $0.63.
In connection with the merger, each of our directors and our chief
financial officer have entered into voting agreements to, among other matters,
vote their shares in favor of the approval of the merger agreement and the
transactions contemplated thereby, and have granted to officers of SimEx an
irrevocable proxy to vote their shares in favor of the merger, at the special
meeting. Upon completion of the merger, we will become a wholly-owned subsidiary
of SimEx. The accompanying proxy statement provides detailed information about
the proposed merger. We encourage you to read the entire proxy statement,
including the annexes, completely and carefully.
The board of directors of Iwerks, having extensively considered and
discussed the merger, has unanimously approved the merger agreement and the
transactions contemplated thereby. The board of directors believes that the
terms and provisions of the merger agreement are fair and in your best interest.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
Your vote is very important. The proposed merger cannot occur unless, among
other things, the merger agreement is adopted by the affirmative vote of the
holders of a majority of outstanding shares of common stock of Iwerks. Whether
or not you plan to attend the special meeting, we urge you to sign, date and
promptly return the enclosed proxy card. YOUR FAILURE TO VOTE WILL HAVE THE SAME
EFFECT AS IF YOU VOTED AGAINST ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY.
Sincerely,
/S/ DONALD W. IWERKS
-----------------------------------
Donald W. Iwerks
Chairman of the Board of Directors
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION. THE COMMISSION HAS NOT PASSED UPON THE FAIRNESS OR MERITS
OF THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
IWERKS ENTERTAINMENT, INC.
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER __, 2001
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To Our Stockholders:
Notice is hereby given that a special meeting of stockholders of Iwerks
Entertainment, Inc., which we will refer to as "Iwerks," will be held at Iwerks'
offices at 4520 West Valerio Street, Burbank, California 91505-1045, on December
__, 2001 at 10:00 a.m., Los Angeles time. The special meeting is being held for
the following purposes:
1. To consider and vote on a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of August 31, 2001, by and among Iwerks,
SimEx and Acquisition Co., and the transactions contemplated thereby.
We refer to the Agreement and Plan of Merger as the "Merger
Agreement." Pursuant to the Merger Agreement:
o Acquisition Co. will merge with and into Iwerks, which will be
the "Surviving Company." We collectively refer to the foregoing
transaction as the "Merger"; and
o All issued and outstanding shares of common stock, par value US
$0.001 per share, of Iwerks, outstanding immediately prior to the
Merger, other than shares held in our treasury or shares held by
stockholders who properly perfect their appraisal rights under
Delaware Law, will be cancelled and converted automatically into
the right to receive, a cash payment per share, without interest,
of a ratable portion of US $2.25 million. The per share
consideration will be equal to the quotient obtained by dividing:
o US $2.25 million by
o the number of shares of our common stock outstanding
immediately prior to the effective time of the merger. At
September 10, 2001, we had 3,449,303 shares of common stock
issued and outstanding (not including shares of common stock
held in treasury), 105,000 shares of common stock underlying
"in-the-money" options or warrants, and 1,199,628 shares of
common stock underlying "at- or out-of-the-money" options,
warrants, or other convertible securities. Assuming the
exercise of all "in-the-money" securities prior to the
effective time of the merger, the per share consideration to
be offered to our stockholders will be approximately US
$0.63.
As a result of the Merger, Iwerks, as the Surviving Company, will become a
wholly owned subsidiary of SimEx.
2. To transact such other business as may properly come before the
special meeting or any adjournments or postponements thereof.
OUR BOARD OF DIRECTORS, HAVING EXTENSIVELY CONSIDERED AND DISCUSSED THE
MERGER, HAS DETERMINED THAT THE MERGER IS FAIR AND IN THE BEST INTERESTS OF OUR
STOCKHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED, AND
RECOMMENDS THAT YOU VOTE IN FAVOR OF, THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AT THE SPECIAL MEETING.
The Merger is an important matter and is described in detail in the
accompanying proxy statement. Please read the proxy statement, including the
annexes thereto, completely and carefully. In addition, you may obtain
information about us from documents that we have filed with the Securities and
Exchange Commission, including the Schedule 13e-3 transaction statement filed in
connection with the proposed Merger. A copy of the Merger Agreement is attached
as Annex A to the proxy statement.
Only stockholders of record of our common stock at the close of business on
_________, 2001, the record date for the special meeting, are entitled to notice
of, and to vote at, the special meeting or any adjournments or postponements
thereof. A list of these stockholders will be available for review at our
principal executive office during normal business hours for a period of ten days
prior to the special meeting.
OUR STOCKHOLDERS WHO DO NOT VOTE IN FAVOR OF APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT WILL HAVE THE RIGHT TO SEEK APPRAISAL OF THE FAIR VALUE OF
THEIR SHARES IF THE MERGER IS COMPLETED, BUT ONLY IF THEY SUBMIT A WRITTEN
DEMAND FOR AN APPRAISAL PRIOR TO THE TAKING OF THE VOTE ON THE MERGER AGREEMENT
AND THEY COMPLY WITH THE OTHER DELAWARE LAW PROCEDURES EXPLAINED IN THE
ACCOMPANYING PROXY STATEMENT.
We welcome your attendance at the special meeting. Whether or not you
expect to attend the special meeting in person, we urge you to complete, sign,
date and promptly return the enclosed proxy card in the accompanying return
envelope. Your proxy is revocable and will not affect your right to vote in
person if you decide to attend the special meeting. Simply attending the special
meeting, however, will not revoke your proxy. For an explanation of the
procedures for revoking your proxy, see the section of the proxy statement
captioned "The Special Meeting -Voting, Revocation, and Solicitation of
Proxies." Returning your proxy card without indicating how you want to vote will
have the same effect as a vote FOR the approval and adoption of the Merger
Agreement and the transactions contemplated thereby.
FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR VOTE IN PERSON AT THE
SPECIAL MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE APPROVAL OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
Our principal executive offices are located at 4520 West Valerio Street,
Burbank, California 91505-1045. Our telephone number is (818) 841-7766. This
proxy statement is dated _______, 2001 and is first being mailed to stockholders
on or about _______, 2001.
By Order of the Board of Directors
/S/ GARY J. MATUS
------------------------------------
GARY J. MATUS
CHIEF EXECUTIVE OFFICER AND DIRECTOR
Burbank, California 91505
__________, 2001
YOUR VOTE IS IMPORTANT. IN ORDER TO ENSURE YOUR REPRESENTATION AT THE
SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING PROXY
IN THE ENCLOSED ENVELOPE AS PROMPTLY AS POSSIBLE. IF YOU DO ATTEND THE SPECIAL
MEETING AND ARE A STOCKHOLDER OF RECORD, YOU MAY, IF YOU PREFER, VOTE YOUR
SHARES IN PERSON.
TABLE OF CONTENTS
PAGE
QUESTIONS AND ANSWERS ABOUT THE MERGER........................................1
SUMMARY.......................................................................4
The Participants...........................................................4
The Merger Consideration...................................................4
Our Recommendations to Stockholders........................................4
Record Date; Voting Power; Vote Required...................................5
Share Ownership of Directors and Management................................5
The Merger Agreement.......................................................5
Appraisal Rights...........................................................5
Interests of Iwerks Directors and Officers in the Merger...................5
Recommendations of the Board of Directors..................................6
No Fairness Opinion........................................................6
Effects of the Merger......................................................6
Conditions to the Merger...................................................6
Termination of the Merger Agreement........................................6
What Happens if Iwerks Receives a Better Offer.............................7
Amending or Waiving Terms of the Merger Agreement..........................7
Financing for the Merger...................................................7
Price Range of Common Stock................................................7
Cautionary Statement Regarding Forward-Looking Statements..................7
SUMMARY SELECTED HISTORICAL FINANCIAL DATA....................................9
CONSOLIDATED STATEMENT OF OPERATIONS DATA.....................................9
THE SPECIAL MEETING..........................................................11
Time, Place and Date......................................................11
Purpose of Special Meeting................................................11
Record Date and Voting....................................................11
Voting, Revocation and Solicitation of Proxies............................11
Appraisal Rights..........................................................12
SPECIAL FACTORS..............................................................13
Background Of The Merger..................................................13
Recommendations of the Board of Directors.................................17
No Fairness Opinion.......................................................19
Purpose and Structure of the Merger.......................................20
Effects of the Merger.....................................................21
Risk that the Merger will Not be Completed................................22
Interests of Iwerks Directors and Officers in the Merger..................22
Financing for the Merger..................................................23
Accounting Treatment of the Merger........................................23
Material Federal Income Tax Consequences of the Merger....................23
Appraisal Rights..........................................................24
THE MERGER AGREEMENT.........................................................27
Structure, Timing.........................................................27
Consideration to be Received in the Merger................................28
Exchange of Stock Certificates............................................28
Representations and Warranties............................................29
Page i
Certain Covenants.........................................................30
Conditions to Obligations to Effect the Merger............................33
Termination; Termination Fees and Expenses................................34
Amendment and Waiver......................................................35
Rights Agreement Amendment................................................35
EXPENSES.....................................................................36
PRICE RANGE OF COMMON STOCK..................................................37
DIVIDENDS....................................................................37
COMMON STOCK PURCHASE INFORMATION............................................37
DIRECTORS AND EXECUTIVE OFFICERS OF IWERKS ENTERTAINMENT, INC................38
Directors.................................................................38
Executive Officers........................................................39
PRINCIPAL STOCKHOLDERS.......................................................39
OTHER MATTERS................................................................40
FUTURE STOCKHOLDER PROPOSALS.................................................40
WHERE YOU CAN FIND MORE INFORMATION..........................................40
ANNEXES
Agreement and Plan of Merger...............................................A
Form of Voting Agreement...................................................B
Section 262 of the General Corporatin Law of the State of Delaware.........C
Page ii
QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers are for your convenience only, and
briefly address some commonly asked questions about the Merger. You should still
carefully read this proxy statement in its entirety, including the attached
annexes.
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: You are being asked to approve and adopt a Merger Agreement that provides
for SimEx Acquisition Corporation, a Delaware corporation and a wholly
owned subsidiary of SimEx, Inc., an Ontario corporation, to be merged with
and into Iwerks, with Iwerks as the surviving corporation. If the Merger
Agreement and the transactions contemplated thereby are approved and
adopted, we will no longer be a publicly-held corporation and we will
become a wholly-owned subsidiary of SimEx.
Q: WHAT IS THE PROPOSED TRANSACTION?
A: In the proposed transaction, Acquisition Co. will merge with and into
Iwerks, with Iwerks being the surviving corporation. As a result of the
Merger, SimEx will own 100% of the Surviving Company. Other than shares
held in our treasury and shares held by stockholders who properly perfect
appraisal rights under Delaware law, all holders of our common stock will
receive a cash payment per share, without interest, of a ratable portion of
US $2.25 million. The per share consideration will be equal to the quotient
obtained by dividing US $2.25 million by the number of shares of our common
stock outstanding immediately prior to the effective time of the Merger.
When we make any reference to dollar ($) amounts, we refer to these dollar
amounts in United States dollars. At September 10, 2001, we had 3,449,303
shares of common stock issued and outstanding (not including shares of
common stock held in treasury), 105,000 shares of common stock underlying
"in-the-money" options or warrants, and 1,199,628 shares of common stock
underlying "at- or out-of-the-money" options, warrants or other convertible
securities. Assuming the exercise or conversion of all "in-the-money"
securities prior to the effective time of the Merger, the per share
consideration to be offered to our stockholders will be approximately
$0.63.
Q: WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE IN FAVOR OF THE
MERGER AGREEMENT?
A: The board of directors, having extensively considered and discussed the
Merger, the lack of other strategic transactions or financings available to
us, and our ability to continue as a going concern, has unanimously
determined that the Merger is fair and in the best interests of our
stockholders. Accordingly, the board of directors unanimously recommends
that stockholders vote FOR the approval and adoption of the Merger
Agreement and the transactions contemplated thereby.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the Merger is completed, for each share of your Iwerks common stock, you
will have the right to receive a cash payment per share, without interest,
of a ratable portion of $2.25 million. The per share consideration will be
equal to the quotient obtained by dividing $2.25 million by the number of
shares of our common stock outstanding immediately prior to the effective
time of the Merger. At September 10, 2001, we had 3,449,303 shares of
common stock issued and outstanding (not including shares of common stock
held in treasury), 105,000 shares of common stock underlying "in-the-money"
options or warrants, and 1,199,628 shares of common stock underlying "at-
or out-of-the-money" options, warrants or other convertible securities.
Assuming the exercise or conversion of all "in-the-money" securities prior
to the effective time of the Merger, the per share consideration to be
offered to our stockholders will be approximately $0.63. The per share
consideration of $0.63 to be paid in the Merger represents a premium of
186% over the closing price of our common stock on March 2, 2001 (the day
prior to entering into the non-binding letter of intent with SimEx) and a
97% premium over the closing price of our common stock on August 31, 2001
(the date the Merger Agreement was signed).
Q: WHAT WILL HAPPEN TO PRESENT MEMBERS OF MANAGEMENT?
A. We expect that members of our current management will assist and cooperate
with SimEx in the integration and management of the Surviving Company.
Members of management will be entitled to receive the same per share
consideration for each of their shares of Iwerks common stock as each other
stockholder.
Page 1
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We and SimEx are working toward completing the Merger as quickly as
possible. We and SimEx hope to complete the Merger by the end of the second
quarter of fiscal 2002.
Q: WILL I OWE ANY FEDERAL INCOME TAX AS A RESULT OF THE MERGER?
A: The receipt of cash for shares of common stock in the Merger will be a
taxable transaction for federal income tax purposes and may also be a
taxable transaction under applicable state, local, foreign or other tax
laws. Generally, you will recognize gain or loss for these purposes equal
to the difference between the cash received in connection with the Merger
and your tax basis for the shares of common stock that you owned
immediately prior to the Merger. For federal income tax purposes, this gain
or loss generally would be a capital gain or loss if you held the shares of
common stock as a capital asset.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR
TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER
TO YOU.
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The special meeting of our stockholders will be held on December __, 2001
at our offices at 4520 West Valerio Street, Burbank, California 91505-1045
at 10:00 a.m. local time.
Q: WHO CAN VOTE ON THE MERGER AGREEMENT?
A: Holders of our common stock at the close of business on ________, 2001, the
record date relating to the special meeting, may vote in person or by proxy
on the Merger at the special meeting.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE MERGER AGREEMENT?
A: The Merger Agreement must be approved by the affirmative vote of at least a
majority of the outstanding shares of common stock. In connection with the
Merger Agreement, all the members of our board of directors and our chief
financial officer have entered into voting agreements agreeing to vote
their shares in favor of the Merger, and have granted irrevocable proxies
to certain officers of SimEx to vote their shares in favor of the Merger.
As of the record date, the total number of shares of common stock with
respect to which a vote in favor of the Merger is required was ______
shares, representing approximately 50.1% of the total number of shares of
common stock outstanding as of that date.
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully reviewed this proxy statement, including the
attached annexes, please indicate how you want to vote on your proxy card
and sign and mail it in the enclosed return envelope as soon as possible.
This will ensure that your shares will be represented at the special
meeting. If you sign and send in the proxy card and do not indicate how you
want to vote, your proxy will be voted FOR the approval and adoption of the
Merger Agreement and the transactions contemplated thereby. If you do not
vote by either sending in your proxy card or voting in person at the
special meeting, it will have the same effect as a vote AGAINST the
approval and adoption of the Merger Agreement and the transactions
contemplated thereby. If you respond but abstain from voting, it will have
the same effect as a vote AGAINST the Merger Agreement and the transactions
contemplated thereby.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions as to
how to vote your shares. You should follow the directions provided by your
broker regarding how to instruct your broker to vote your shares. Without
instructions, your shares will not be voted by that broker and the failure
to vote will have the same effect as a vote AGAINST the approval and
adoption of the Merger Agreement and the transactions contemplated thereby.
Q. IS THE MERGER SUBJECT TO THE FULFILLMENT OF CERTAIN CONDITIONS?
A: Yes. Prior to completion of the transactions contemplated by the Merger
Agreement, we and SimEx must fulfill or waive, if permissible,
Page 2
several conditions. These conditions include, among others, the approval of
the Merger Agreement and the transactions contemplated thereby by our
stockholders, obtaining all necessary permits and approvals, and ensuring
that no law, injunction or order restrains or prohibits the completion of
the Merger.
Q. WHAT RIGHTS DO I HAVE TO DISSENT FROM THE MERGER?
A: If you wish, you may dissent from the Merger and seek an appraisal of the
fair value of your shares, but only if you comply with all requirements of
Delaware law summarized on pages 24 through 27 of this proxy statement.
Based on the determination of the Delaware Chancery Court, the appraised
fair value of your Iwerks shares of common stock may be more than, less
than or equal to the per share consideration to be paid in the Merger.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before the vote is taken at the
special meeting. If you are the record holder of your shares, you can do
this in one of the following three ways:
o You can send a written notice dated later than your proxy card stating
that you would like to revoke your current proxy.
o You can complete and submit a new proxy card dated later than your
original proxy card.
If you choose either of the above two methods, you must submit your notice
of revocation or your new proxy card to the Secretary/Chief Financial
Officer of Iwerks Entertainment, Inc. at 4520 West Valerio Street, Burbank,
California 91505-1045. Iwerks must receive the notice or new proxy card
before the vote is taken at the special meeting.
o You can attend the special meeting and vote in person.
Simply attending the special meeting, without voting in person, however,
will not revoke your proxy.
If you hold your shares in "street name" and have instructed a broker to
vote your shares, you must follow the instructions received from your
broker as to how to change your vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. Do not send in your stock certificates with your proxy. If the Merger
is completed, you will promptly receive written instructions for sending in
your stock certificates in exchange for the per share consideration for
your shares.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A. The information provided above in "question and answer" format is for your
convenience only and is merely a summary of the information contained in
this proxy statement. You should carefully read this proxy statement,
including the attached annexes, in its entirety.
If you have more questions about the Merger, or if you need additional
copies of the enclosed proxy statement or proxy, you should contact:
Iwerks Entertainment, Inc.
4520 West Valerio Street
Burbank, California 91505-1045
Attention: Secretary/Chief Financial Officer
(818) 841-7766
Page 3
SUMMARY
THIS SUMMARY ONLY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. TO FULLY UNDERSTAND THE MERGER AND FOR A MORE COMPLETE
DESCRIPTION OF THE TERMS OF THE MERGER, YOU SHOULD CAREFULLY READ THIS ENTIRE
PROXY STATEMENT, INCLUDING ITS ANNEXES, AND THE DOCUMENTS TO WHICH WE HAVE
REFERRED YOU. SEE "WHERE YOU CAN FIND MORE INFORMATION" ON PAGES 39 AND 40.
THE PARTICIPANTS
Iwerks Entertainment, Inc.
4520 West Valerio Street
Burbank, California 91505-1045
Telephone: (818) 841-7766
Iwerks Entertainment, Inc., a Delaware corporation, founded in 1986, is the
number one provider of 8/70 Large Format Theater systems worldwide and the
industry leader in ride simulation. Iwerks' technologies include Giant Screen
(Iwerks(R) Extreme Screen(TM)), ride simulation (Iwerks(R) TurboRide(TM)),
turnkey 3D/4D theatres (Iwerks(R) 3D/4D FX Theatre(TM)) and other specialty
attractions. Iwerks has sold nearly 200 installations in 38 countries worldwide
at entertainment centers, amusement parks, movie theatres, museums, science
centers, shopping centers, casinos, resorts, nightclubs, and restaurants.
SimEx, Inc.
511 King Street West, Suite 130
Toronto, Ontario M5V 1K4
Telephone: (416) 597-1585
SimEx, Inc., an Ontario corporation, builds turnkey special venue
attractions that feature film or digital projection, simulation technology and
themed environments. With corporate offices in Toronto, SimEx has film
production studios in Los Angeles, Toronto and Vancouver, and international
sales and service offices in Tokyo, Osaka, Florida, New York, Lisbon and London.
Today, SimEx attractions can be found worldwide in theme parks, science centers,
museums, shopping centers, family entertainment centers, location based
entertainment centers and world expos. SimEx attractions are offered in 2D, 3D
and 4D and are multi-stage and multi-programmable.
SimEx Acquisition Corporation
511 King Street West, Suite 130
Toronto, Ontario M5V 1K4
Telephone: (416) 597-1585
SimEx Acquisition Corporation, a Delaware corporation, was formed on July
3, 2001, solely for purposes of completing the Merger. SimEx Acquisition
Corporation is 100% owned by SimEx. SimEx Acquisition Corporation has not
carried on any activities to date other than those activities incident to its
formation and as contemplated by the Merger Agreement.
THE MERGER CONSIDERATION
(See Pages 20 and 27)
Pursuant to the merger agreement, you will be entitled to receive in cash,
without interest, for each of your shares of Iwerks common stock a ratable
portion of US $2.25 million. The per share consideration will be equal to the
quotient obtained by dividing:
o US $2.25 million by
o the number of shares of our common stock outstanding immediately prior
to the effective time of the Merger. At September 10, 2001, we had
3,449,303 shares of common stock issued and outstanding (not including
shares of common stock held in treasury), 105,000 shares of common
stock underlying "in-the-money" options or warrants, and 1,199,628
shares of common stock underlying "at- or out-of-the-money" options,
warrants or other convertible securities. Assuming the exercise or
conversion of all "in-the-money" securities prior to the effective
time of the merger, the per share consideration to be offered to our
stockholders will be approximately US $0.63.
OUR RECOMMENDATIONS TO STOCKHOLDERS
(See Pages 17 through 19)
The board of directors, after extensively considering and discussing the
Merger, has determined that the Merger is fair and in the best interests of our
stockholders, and unanimously
Page 4
recommends that you vote FOR the approval and adoption of the Merger Agreement
and the transactions contemplated thereby.
RECORD DATE; VOTING POWER; VOTE REQUIRED
(See Pages 11 and 12)
At the special meeting, you will be entitled to one vote for each share of
our common stock you hold of record as of _______, 2001, the record date for the
special meeting. On the record date, there were ________ shares of our common
stock entitled to vote at the special meeting.
The Merger Agreement must be approved and adopted by the affirmative
vote of at least a majority of the shares of Iwerks' common stock outstanding on
the record date.
We do not expect to ask you to vote on any other matters at the special
meeting. However, if any other matters are properly presented at the special
meeting for consideration, the holder of the proxies will have discretion to
vote on these matters in accordance with their best judgment. Proxies voting
against a specific proposal may not be used by the holder to vote for
adjournment of the meeting for the purpose of giving management additional time
to solicit votes in favor of that proposal.
SHARE OWNERSHIP OF DIRECTORS AND MANAGEMENT
(See Pages 39 and 40)
Each of our directors and our chief financial officer has entered into
separate voting agreements, whereby each has agreed to vote his shares of Iwerks
common stock in favor of the Merger Agreement and the transactions contemplated
thereby, and each has granted a proxy to certain officers of SimEx to vote their
shares in favor of the Merger Agreement and the transactions contemplated
thereby. As of the record date for the special meeting, our directors and our
chief financial officer owned an aggregate of _______ shares of Iwerks' common
stock, representing approximately ___% of the total number of shares of common
stock outstanding on the record date (not including shares of common stock held
in our treasury).
THE MERGER AGREEMENT
(See Pages 27 through 36)
The Merger Agreement is described on pages 27 through 36 and attached as
Annex A to this proxy statement. We encourage you to read carefully the Merger
Agreement in its entirety as it is the legal document that governs the Merger.
APPRAISAL RIGHTS
(See Pages 24 through 27)
Iwerks is a corporation organized under Delaware law. Under Delaware law,
if you do not vote in favor of the Merger and you follow all of the procedures
for demanding your appraisal rights described on pages 24 through 27 and in
Annex C, you may receive a cash payment for the "fair value" of your shares of
common stock instead of the per share consideration to be received by the other
stockholders pursuant to the Merger Agreement. Generally, in order to exercise
appraisal rights, among other things:
o You must NOT vote in favor of the Merger Agreement;
o You must make a written demand for appraisal in compliance with
Delaware law BEFORE the vote on the Merger Agreement; and
o You must precisely follow the procedures of Delaware Law.
Merely voting against the Merger Agreement will not preserve your right of
appraisal under Delaware law. Annex C to this proxy statement contains the
Delaware statute relating to your right of appraisal. If you properly exercise
and perfect your appraisal rights, the fair value of your shares will be
determined by the Delaware Court of Chancery and may be more than, the same as
or less than the per share consideration you would have received in the Merger
if you had not exercised your appraisal rights. IF YOU WANT TO EXERCISE YOUR
APPRAISAL RIGHTS, YOU ARE URGED TO READ AND CAREFULLY FOLLOW THE PROCEDURES ON
PAGES 24 THROUGH 27 AND IN ANNEX C. FAILURE TO TAKE ANY OF THE STEPS REQUIRED
UNDER DELAWARE LAW WILL RESULT IN THE LOSS OF YOUR APPRAISAL RIGHTS.
INTERESTS OF IWERKS DIRECTORS AND OFFICERS IN THE MERGER
(See Pages 22 and 23)
When considering the recommendation of our board of directors with respect
to the Merger, you should be aware that some of our directors and
Page 5
officers have interests in approving the Merger that are different from, or in
addition to, yours as stockholders of Iwerks. The board of directors was aware
of and considered these interests when it approved the Merger Agreement. For
example, it is expected that certain members of our current management will
assist and cooperate with SimEx in the integration and management of the
Surviving Company.
Several of our officers have agreements with Iwerks that obligate Iwerks to
make cash payments to them upon the occurrence of a change in control. Donald
Iwerks, Gary Matus, and Jeff Dahl each will receive $100,000.
For more information on the interests of our officers and directors in the
Merger, which may be different from, or in addition to, yours as stockholders of
Iwerks generally, see "Special Factors -- Interests of Iwerks Directors and
Officers in the Merger."
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
(See Pages 17 through 19)
The board of directors' decision to approve the Merger Agreement and the
transactions contemplated thereby was based upon a number of factors which are
described in "Special Factors - Background Of The Merger," "Special
Factors--Recommendations of the Board of Directors," and "Special Factors - No
Fairness Opinion."
NO FAIRNESS OPINION
(See Pages 19 and 20)
We did not obtain a fairness opinion from an independent professional
advisor in connection with the Merger.
EFFECTS OF THE MERGER
(See Page 21)
Following the Merger, SimEx will own 100% of our common stock. As a result,
our stockholders will not participate in any future earnings and growth of the
Surviving Company. Although an equity investment in the Surviving Company
involves substantial risk resulting from the limited liquidity of the
investment, if the Surviving Company is able to grow earnings and cash flow,
SimEx will be the sole beneficiary of the future earnings and growth of the
Surviving Company.
After the Merger, the Surviving Company will be a wholly owned subsidiary
of SimEx, a privately held corporation. As a result, there will be no public
market for our common stock, and the common stock will cease to be quoted on the
Over The Counter Bulletin Board. The registration of Iwerks' common stock under
the Securities Exchange Act of 1934, as amended, will be terminated.
CONDITIONS TO THE MERGER
(See Pages 33 and 34)
We and SimEx will complete the Merger only if a number of conditions are
met or waived, including, but not limited, to the following:
o stockholder approval of the Merger Agreement must have been obtained;
o any waiting period applicable to the Merger under any applicable
competition, merger control, antitrust or similar law must have been
terminated or expired; and
o no temporary restraining order, injunction, or other judgment, order,
or decree or other legal restraint or prohibition that prevents the
consummation of the Merger be in effect.
TERMINATION OF THE MERGER AGREEMENT
(See Pages 34 and 35)
We and SimEx may mutually agree to terminate the Merger Agreement at any
time prior to the completion of the Merger. In addition, either party may
terminate the Merger Agreement if, among other things:
o any court of competent jurisdiction issues a final and nonappealable
temporary restraining order, injunction, or other judgment, order, or
decree or other legal restraint or prohibition that prevents the
consummation of the Merger; or
o the Merger is not consummated by December 31, 2001, provided, however,
that if on December 31, 2001, SimEx provides evidence to Iwerks of
legally binding financial commitments totaling in the
Page 6
aggregate of not less than $5.0 million, then neither party will be
permitted to terminate the agreement prior to February 28, 2002.
We also may terminate the Merger Agreement under the circumstances
described under "What Happens if Iwerks Receives a Better Offer" below.
Termination of the Merger Agreement by either party may be before or after
stockholder approval. Under certain circumstances, we will be required to pay
fees and expenses associated with the Merger as a result of the termination as
described under "What Happens if Iwerks Receives a Better Offer" below.
WHAT HAPPENS IF IWERKS RECEIVES A BETTER OFFER
(See Pages 31 and 32)
Our board of directors may withdraw its recommendation of the Merger
Agreement or approve, recommend or cause us to enter into any agreement with
respect to any bona fide unsolicited takeover proposal, if, after consulting
with legal counsel, the board of directors determines in good faith that the
failure to do so would constitute a breach of its fiduciary duty to our
stockholders. If we receive a bona fide unsolicited takeover proposal, we must
provide written notice to SimEx advising SimEx that we have received a bona fide
unsolicited proposal, identifying the parties to the proposal and specifying the
material terms and conditions of the proposal. We must also for a period of
three business days, first negotiate with SimEx so that SimEx can have the
ability to make commercially reasonable adjustments to the Merger Agreement so
as to permit us to proceed with the Merger. If we terminate the Merger Agreement
following our approval of a bona fide unsolicited proposal, we must pay SimEx a
termination fee in the amount of $175,000, together with reasonable costs and
expenses not to exceed $100,000.
AMENDING OR WAIVING TERMS OF THE MERGER AGREEMENT
(See Page 35)
We and SimEx may amend the Merger Agreement by mutual consent before or
after stockholder approval. However, following stockholder approval of the
Merger Agreement, applicable law may require stockholder approval of certain
subsequent amendments or waivers of the Merger Agreement.
FINANCING FOR THE MERGER
(See Pages 23 and 32)
SimEx estimates that approximately $5.0 million will be required to
complete the Merger and pay the related fees and expenses for the Surviving
Company following the Merger. SimEx expects to fund this amount through existing
cash on hand and other working capital.
PRICE RANGE OF COMMON STOCK
(See page 36)
Our common stock is quoted on the Over The Counter Bulletin Board. On March
2, 2001, the day prior to our entering into a non-binding letter of intent with
SimEx, our common stock closed at $0.2188 per share. On August 31, 2001, the
last trading day prior to our public announcement of the execution of the Merger
Agreement, our common stock closed at $0.32 per share. On the record date, our
common stock closed at $______ per share.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
We have made certain forward-looking statements in this proxy statement
(and in documents that are incorporated by reference) that are subject to risks
and uncertainties. Forward-looking statements are not guarantees of performance.
You are cautioned not to place undue reliance on our forward-looking statements.
Forward-looking statements include the information concerning our possible or
assumed results of operations. Also, when we use words such as "believe,"
"expect," "anticipate," "plan," "intend" or similar expressions, we are making
forward-looking statements. You should note that many factors could affect our
future financial results and could cause these results to differ materially from
those expressed in our forward-looking statements. These factors include the
following:
o our ability to maintain gross profit margins;
o the level of our direct costs;
o the effect of economic conditions;
o our future capital requirements;
o the impact of competition, including its impact on market share in
each of our markets;
o our ability to manage our growth;
o the loss of key employees;
Page 7
o the impact of current or pending litigation, legislation and
regulation; and
o other factors which may be described from time to time in our filings
with the Securities and Exchange Commission.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described in this proxy statement. We do not intend, or assume any
obligation, to update these forward looking statements to reflect actual
results, changes in assumptions or changes in the factors affecting any forward
looking statements.
Page 8
SUMMARY SELECTED HISTORICAL FINANCIAL DATA
Set forth below is selected consolidated financial data of Iwerks as of and
for each of the five years in the period ended June 30, 2001. The data should be
read in conjunction with our historical consolidated financial statements, and
the notes thereto. No pro forma data giving effect to the Merger is provided
because we do not believe that information is material to stockholders in
evaluating the Merger and the Merger Agreement since:
o the Merger consideration is all cash, and
o if the Merger is completed, our stockholders will no longer have any
equity interest in Iwerks.
Our consolidated financial statements for the year ended June 30, 2001,
which have been audited by Ernst & Young LLP, independent public accountants,
are incorporated by reference in this proxy statement from our Annual Report on
Form 10-K, as amended, for the year ended June 30, 2001.
CONSOLIDATED STATEMENT OF OPERATIONS DATA
(In thousands, except for per share data)
Fiscal Year Ended June 30,
---------------------------------------------------------------------
1997(1)(2) 1998 (1)(3) 1999 (1) 2000(1)(4) 2001 (1)(5)
---------- ----------- ---------- ---------- -----------
OPERATIONS:
Total revenue $ 39,584 $ 25,073 $ 34,869 $ 28,243 $ 22,204
Loss from operations (10,573) (12,132) (4,986) (22,620) (5,034)
Net loss $ (9,956) $ (11,560) $ (4,778) $ (22,507) $ (5,037)
Net loss per share - basic $ (2.94) $ (3.33) $ (1.36) $ (6.53) $ (1.46)
Net loss per share -diluted $ (2.94) $ (3.33) $ (1.36) $ (6.53) $ (1.46)
Weighted average shares outstanding - basic 3,387 3,489 3,520 3,449 3,449
Weighted average shares outstanding - diluted 3,387 3,489 3,520 3,449 3,449
FINANCIAL POSITION (AT PERIOD END):
Cash, cash equivalents and short-term
investments $ 19,067 $ 10,464 $ 6,717 $ 2,733 $ 2,191
Total assets 64,529 50,857 50,822 25,864 15,445
Capital lease obligations and notes payable 1,827 1,082 1,087 2,634 1,991
Stockholders' equity 48,386 36,834 31,775 9,520 4,483
Total liabilities and stockholders' equity $ 64,529 $ 50,857 $ 50,822 $ 25,864 $ 15,445
PER SHARE DATA (AT END OF PERIOD):
Net book value per common share $ 13.90 $ 10.43 $ 9.21 $ 2.76 $ 1.30
Common shares outstanding 3,474 3,527 3,448 3,449 3,449
Page 9
<FN>
(1) Net income (loss) per share - basic and diluted, weighted average shares
outstanding - basic and diluted, net book value per common share and common
shares outstanding have been restated to reflect the 3.5 to 1 reverse stock
split effective January 18, 2000.
(2) Net loss for 1997 includes the write-down of $5.6 million ($1.61 loss per
share) for the impairment of long-lived assets for the portable ride
simulation theaters and other fixed assets.
(3) Net loss for 1998 includes approximately $1.6 million of severance costs
associated with a company-wide layoff and termination of certain officers,
and an additional $1.6 million for merger related costs associated with the
failed merger.
(4) Net loss for 2000 includes the write-down of approximately $13.8 million
($4.00 loss per share) for the impairment of goodwill and other assets.
(5) Net loss for 2001 includes the write-down of approximately $3.2 million
($0.93 loss per share) for the impairment of goodwill and other assets.
</FN>
Page 10
THE SPECIAL MEETING
TIME, PLACE AND DATE
This proxy statement is being furnished to stockholders of Iwerks as part
of the solicitation of proxies by Iwerks' board of directors for use at a
special meeting of stockholders to be held on December __, 2001 at 4520 West
Valerio Street, Burbank, California 91505-1045, at 10:00 a.m. local time, or any
adjournment or postponement thereof.
PURPOSE OF SPECIAL MEETING
The purpose of the special meeting is to consider and vote on a proposal to
approve and adopt the Merger Agreement and the transactions contemplated
thereby, and to transact such other business as may properly come before the
special meeting or any adjournments or postponements thereof.
RECORD DATE AND VOTING
The board of directors has set _________, 2001 as the record date for the
special meeting. Only holders of record of our common stock as of the close of
business on the record date will be entitled to notice of and to vote at the
special meeting. Our only class of voting securities is our common stock. As of
the record date, there were outstanding and entitled to vote _______ shares of
common stock, which shares were held by approximately ___ holders of record.
Each share of common stock entitles the holder thereof to one vote, which may be
cast either in person or by properly executed proxy at the special meeting.
The approval and adoption of the Merger Agreement and the transactions
contemplated thereby will require the affirmative vote of at least a majority of
the shares of common stock outstanding on the record date.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of common stock entitled to vote at the
special meeting is necessary to constitute a quorum at the special meeting.
Shares that are entitled to vote but that are not voted at the direction of the
beneficial owner ("abstentions") and votes withheld by brokers in the absence of
instruction from beneficial holders ("broker nonvotes") will be counted for the
purpose of determining whether there is a quorum for the transaction of business
at the special meeting. Abstentions and broker nonvotes will have the same
effect as a vote AGAINST the approval and adoption of the Merger Agreement and
the transactions contemplated thereby. FAILURE EITHER TO RETURN A PROPERLY
EXECUTED PROXY CARD OR TO VOTE IN PERSON AT THE SPECIAL MEETING WILL HAVE THE
SAME EFFECT AS A VOTE AGAINST THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY.
As of the record date, our board of directors and our chief financial
officer owned, in the aggregate, _______ shares of common stock, representing
approximately ___% of the common stock outstanding as of that date (not
including shares of common stock held in our treasury). Each member of our board
of directors and our chief financial officer has agreed, pursuant to voting
agreements dated August 31, 2001, to vote their shares of common stock in favor
of the Merger Agreement and the transactions contemplated thereby, and has
granted irrevocable proxies to certain officers of SimEx to vote their shares of
common stock in favor of the Merger Agreement and the transactions contemplated
thereby.
VOTING, REVOCATION AND SOLICITATION OF PROXIES
All shares of common stock entitled to vote at the special meeting and
represented by properly executed proxies received prior to or at the special
meeting, unless previously revoked, will be voted at the special meeting in
accordance with the instructions indicated on those proxies. If no instructions
are indicated (other than in the case of broker non-votes), those proxies will
be voted FOR the approval and adoption of the Merger Agreement.
The board of directors does not know of any other matter to be presented at
the special meeting other than the matter described in the Notice of the Special
Meeting of Stockholders.
Page 11
If any other matters are properly presented at the special meeting for
consideration, including, among other things, consideration of a motion to
adjourn the meeting to another time and/or place (including, without limitation,
for the purposes of soliciting additional proxies or allowing additional time
for the satisfaction of conditions to the Merger), the persons named in the
enclosed form of proxy and acting thereunder generally will have discretion to
vote on those matters in accordance with their best judgment. Notwithstanding
the foregoing, proxies voting against a specific proposal may not be used by the
persons named in the proxies to vote for adjournment of the meeting for the
purpose of giving management additional time to solicit votes to approve that
proposal.
The grant of a proxy on the enclosed form of proxy does not preclude you
from attending the special meeting and voting in person. You may revoke a proxy
at any time before it is voted. If you are a stockholder of record, you may
revoke your proxy by:
o delivering to the Secretary/Chief Financial Officer of Iwerks, before
the vote is taken at the special meeting, a written notice of
revocation bearing a later date than the proxy,
o duly executing a later dated proxy relating to the same shares of
common stock and delivering it to the Secretary/Chief Financial
Officer of Iwerks before the vote is taken at the special meeting, or
o attending the special meeting and voting in person.
Attendance at the special meeting will not in and of itself constitute a
revocation of a proxy. Any written notice of revocation or subsequent proxy
should be sent to Iwerks Entertainment, Inc., 4520 West Valerio Street, Burbank,
California 91505-1045, Attention: Secretary/Chief Financial Officer, or hand
delivered to the Secretary/Chief Financial Officer of Iwerks before the vote is
taken at the special meeting. If you hold your shares in "street name" and have
instructed your broker to vote your shares, you must follow the instructions
received from your broker as to how to change your vote.
All expenses of our solicitation of proxies for the special meeting will be
borne by us. In addition to solicitation by use of the mails, proxies may be
solicited from our stockholders by our directors, officers and employees in
person or by telephone, telefax or other means of communication. These
directors, officers and employees will not be additionally compensated, but may
be reimbursed for reasonable out-of-pocket expenses in connection with the
solicitation. We have retained __________________________, a proxy solicitation
firm, for assistance in connection with the solicitation of proxies for the
special meeting at a cost of approximately $7,500 plus reimbursement of
reasonable out-of-pocket expenses. Arrangements may be made with brokerage
houses, custodians, nominees and fiduciaries for forwarding of proxy
solicitation materials to beneficial owners of shares of common stock held of
record by those brokerage houses, custodians, nominees and fiduciaries, and
Iwerks will reimburse those brokerage houses, custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses incurred in connection
therewith.
APPRAISAL RIGHTS
Stockholders who do not vote in favor of the approval and adoption of the
Merger Agreement and who otherwise comply with the applicable statutory
procedures of Section 262 of the General Corporation Law of the State of
Delaware, which we refer to as the "DGCL," summarized herein, will be entitled
to seek appraisal of their shares of common stock under Section 262 of the DGCL.
See "Special Factors--Appraisal Rights."
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS. IF
THE MERGER IS COMPLETED, TRANSMITTAL FORMS AND INSTRUCTIONS WILL BE SENT TO
STOCKHOLDERS FOR THE SURRENDER OF THEIR SHARES OF COMMON STOCK.
Page 12
SPECIAL FACTORS
BACKGROUND OF THE MERGER
In June of 1998, following several years of sharp fluctuations and overall
declines in our common stock valuation, our board of directors and senior
management sought to analyze whether the price at which our common stock was
trading properly reflected our intrinsic value and longer-term prospects. Our
stock had traded as high as $42.00 per share in May of 1996 and as low as $1.97
per share in October of 1998 (both figures are adjusted to reflect our 3.5-for-1
reverse stock split effective January 18, 2001). In addition, we had experienced
several years of significant operating losses and declining cash and short-term
investment balances and were operating in a capital intensive industry.
Our board of directors, together with management, concluded that it had
become necessary to redirect our company to address a changing competitive
landscape and a rapidly maturing industry. Our board also concluded that the
inability to achieve a reasonable stock price would have a negative impact on
our ability to pursue our long-term business strategy, thereby creating a
further impediment to stockholder value. Therefore, after extensive discussion,
the board directed senior management to analyze and review potential strategic
transactions to raise capital, form strategic partnerships and/or identify
mutual alliances in order to preserve our viability and to enhance stockholder
value.
In June of 1998, we retained Schroder & Company Inc., an investment banking
group, to identify and seek out potential strategic transactions, particularly
those that would provide us with an infusion of capital. Schroder & Company
investigated at least five possible alliances. These potential strategic
partners were uncertain of the long term viability of our product lines. These
entities communicated investment and acquisition proposals to us with terms
significantly below our intrinsic value. We terminated our relationship with
Schroder & Company in September of 1999 without any viable strategic solutions.
In November 1999, we retained the services of Resource Financial
Corporation to continue to pursue potential strategic transactions and/or assist
in raising capital. From November of 1999 to March 5, 2000, the date we signed
our non-binding letter of intent with SimEx, Resource Financial Corporation
pursued at least twelve separate potential transactions, including acquisitions
by our company, financial investments in our company and the sale or merger of
our company with or into another company. We held meaningful discussions with
these proposed strategic partners and in many cases, entered into
confidentiality agreements and conducted mutual preliminary due diligence
reviews. These discussions contemplated various investment strategies, potential
combinations and the mutual benefits of combined resources. After extensive
consideration and discussion, the majority of these transactions were not
approved by the board due to unacceptable terms and limited strategic value.
Familiar with SimEx as a competitor in the special venue and ride
simulation industry and examining a potential strategic alliance between the two
companies, on May 4, 2000, Joseph Froehlich of Resource Financial Corporation,
coordinated a meeting between Gary Matus and Jeff Dahl, our Chief Executive
Officer and a director, and Chief Financial Officer, respectively, and Paul
Elliot and Richard Willoughby of Torys, SimEx's Chief Financial Officer and
outside legal counsel, respectively, to review our past financial performance
and future expected potential. As a result of these discussions, on May 12,
2000, we entered into a confidentiality agreement with SimEx and we provided
them with additional financial and other information to permit them to better
evaluate our company.
During the following weeks, our management discussed our various financial
and operational matters with representatives of SimEx.
On July 7, 2000, Mr. Elliot communicated an offer, through Resource
Financial Corporation, to purchase certain of our assets and liabilities
consisting of our film library and film distribution business for an aggregate
consideration of $3.0 million. At that time, we had received several other
initial offers from other third parties interested in a possible business
combination. Our board reviewed these potential transactions, including the
offer communicated by SimEx, and after extensive consideration and discussion,
determined that it would not be in the best interests of our stockholders to
pursue any of the transactions. The transactions presented to the board involved
private companies that were unable to demonstrate the financial ability to
consummate a strategic transaction.
Page 13
Reviewing the SimEx offer, the board also determined that a sale of our film
library and film distribution business would effectively remove the core of our
business operations, leaving us with significant liabilities and insufficient
revenue to provide for operating costs.
In June of 2000, the S. Kumars Group, an Indian company, indicated an
interest in owning a minority interest in our company. Through its Landmarc
Leisure Corporation Limited, the S. Kumars Group entered into the leisure and
entertainment industries to develop family entertainment centers throughout
India. Having considered the potential investment capital and significant
potential opportunities for international growth, on October 19, 2000, we
announced the signing of a strategic $4.0 million investment transaction with
the S. Kumars Group. Under the agreement with the S. Kumars Group, we agreed to
sell $3.0 million of our common stock at a price of $1.70 per share and to issue
warrants to purchase an aggregate of 2.5 million shares of our common stock at
exercise prices ranging from $2.05 to $2.25 per share. Additionally, the S.
Kumars Group agreed to purchase a five year, $1.0 million convertible debenture.
Consistent with the investment documents, on October 19, 2000, we issued the S.
Kumars Group a $300,000 convertible subordinated debenture in exchange for the
initial $300,000 of the expected total $1.0 million convertible debenture.
On October 24, 2000, the S. Kumars Group purchased approximately 19% of the
issued and outstanding shares of our common stock on the open market through the
liquidation of a block of shares of our common stock held by Heartland Advisors,
Inc. The sale of our shares by Heartland Advisors, Inc. severely depressed the
trading price of our common stock, causing it to drop on October 9, 2000 to
$0.1562. As a result of the stock purchase by the S. Kumars Group, our stock
price improved slightly during the latter part of October 2000, reaching into
the high $0.60 and low $0.70 levels.
From October 19, 2000 through November 27, 2000, Mr. Matus and other
members of senior management worked with the S. Kumars Group to close the $4.0
million investment transaction. We engaged in numerous telephone conferences and
other communications in an effort to cause the funding to occur. Despite these
efforts, the S. Kumars Group refused to further perform under the executed
investment documents. The S. Kumars Group indicated to us that because of the
decline in value of our common stock resulting from the Heartland Advisors, Inc.
sale of Iwerks shares and the recent de-listing of our common stock from The
Nasdaq Small Capital Market, it did not want to fund in accordance with the
terms of the investment documents. On November 27, 2000, the board of directors
held a special meeting to discuss the S. Kumars Group transaction. In light of
our then existing financial condition, the substantial ownership interest held
by the S. Kumars Group in us and the lack of any other viable financing or
strategic alternatives, the board authorized our management to amend the
investment transaction on mutually agreeable terms.
During the following weeks, Mr. Matus and other management representatives,
together with our legal counsel, negotiated and revised the investment documents
in an effort to respond to the concerns raised by the S. Kumars Group.
On December 7, 2000, the board of directors held a special meeting to
consider the proposed amended and restated investment documents that had been
negotiated by management and the S. Kumars Group. The board resolved to amend
the investment transaction consistent with the amended and restated documents.
The new terms required a loan by the S. Kumars Group and a concurrent issuance
of a $2.5 million principal amount subordinated convertible debenture,
convertible at a per share price of $1.00. The funding was structured to take
place in three stages - on December 31, 2000, January 31, 2001 and February 28,
2001.
In light of the difficulties associated with the investment transaction
with the S. Kumars Group, the uncertainty regarding the closing of the revised
investment transaction, and ongoing concern over our future financial health and
stockholder value, Mr. Matus consulted with other members of the board and
senior management regarding the pursuit of strategic alternatives for our
company. With their concurrence, management continued to explore and pursue
potential alternative strategic initiatives.
As a result of these efforts, on December 13, 2000, Messrs. Matus and
Froehlich met with SimEx representatives to discuss a potential merger between
the two companies. This meeting included Michael Needham, SimEx's Chief
Executive Officer and President, Brian Peebles, SimEx's Vice President of
Operations, Shiori Sudo, a SimEx director and Mr. Elliot, and took place at
SimEx's corporate headquarters in Toronto, Canada. These
Page 14
discussions included an analysis of the financial and technical synergies
between the companies, their complimentary product lines and customer segments,
and the benefits of combining corporate overhead costs. As a result of these
discussions, Resource Financial Corporation, on our behalf, and SimEx, entered
into a confidentiality agreement and the companies agreed to meet in New York,
with both companies' attorneys to discuss the structure and certain specific
terms of a potential transaction.
On December 31, 2000, we did not receive the first tranche of the funding
from the S. Kumars Group as provided under the amended and restated investment
documents. Over the next few weeks, Mr. Matus and other members of management
had continuous discussions by telephone and via e-mail with representatives of
the S. Kumars Group, attempting to move the investment transaction forward.
However, following this period of inaction by the S. Kumars Group and in view of
its failure to meet the terms of the initial investment documents and the
amended documents, on January 19, 2001, we terminated the investment
transaction.
On January 11, 2001, Messrs. Matus, Froehlich, Needham, Peebles, Elliot,
Ms. Sudo, Don Gordon, a director of SimEx, Michael Blumenthal and Joel Handel of
Baer Marks, and Julie Kaufer of Akin, Gump, Strauss, Hauer & Feld LLP, our
outside legal counsel (by telephonic conference call), met in New York, to
discuss a potential merger and potential transaction terms. The parties
discussed a mutually beneficial transaction structure, including the costs and
benefits of a merger, asset acquisition, or other combination. The parties also
discussed specific monetary terms and other transaction terms including,
director and officer indemnification, non-solicitation provisions and
termination fees.
On January 24, 2001, the board of directors held a special meeting to
discuss the proposed SimEx transaction. Throughout this period, the board was
maintaining ongoing and lengthy discussions with our legal and financial
advisors regarding any other potential strategic alternatives that may be
available to us. Michael Needham attended the meeting and made a presentation to
the board which included a financial and operational report of the combined
company. This presentation, and the board's discussion, overviewed the various
synergies between the companies, the potential for a combined company to reach
across customer segments, the ability for a combined company to double the
amount of films in its film library, and the cost savings available to the
combined company. The board also considered a number of relevant financial and
operational issues, including:
o our lack of any other viable financing or strategic transactions;
o our recent operating losses;
o our declining cash balances;
o our historical stock performance;
o our net book, going concern and liquidation value;
o the delisting of our common stock from The Nasdaq Stock Market;
o the recent decline in our revenue;
o the general economic downturn; and
o a general decrease in investor interest in our industry.
The board believed that these factors made it extremely difficult for us to
attract equity investments, debt financing or strategic partners on terms that
were more favorable than those being proposed in the SimEx transaction. The
board agreed that if our financial condition continued to worsen and it was
unable to attract alternative equity or debt financing or other strategic
transactions, we would be forced to consider steps that would protect our
company's assets against creditors. As a result of these considerations, the
board directed senior management to discuss and negotiate a non-binding letter
of intent with SimEx consistent with the terms discussed by the board.
Page 15
On January 30 and 31, 2001, Messrs. Matus, Froehlich, Dahl, Needham, Elliot
and Ms. Sudo met at our corporate headquarters to discuss, negotiate and
consider the structure and timing of a merger transaction between our companies.
During the following weeks, our representatives, together with our legal
counsel, negotiated a non-binding letter of intent pursuant to which our company
and SimEx would enter into a strategic transaction.
Throughout February of 2001, representatives of Iwerks and SimEx conducted
preliminary due diligence reviews of each other's operations.
On March 5, 2001, we and SimEx executed the non-binding letter of intent
and announced the transaction. The non-binding letter of intent provided for a
strategic $2.25 million acquisition of Iwerks by SimEx, whereby SimEx would
acquire us in exchange for approximately $0.63 per share of common stock
currently issued and outstanding. Consummation of the merger would be subject to
due diligence, financing, execution of binding transaction documents,
stockholder approval and other customary closing conditions.
On March 23, 2001, Messrs. Matus, Dahl, Needham, Donald Stults, our Chief
Operating Officer, Ms. Sudo, and Rob Ryan, SimEx's newly appointed Chief
Financial Officer, met at our corporate headquarters to discuss the timing of
the transaction and the various due diligence aspects involved.
On April 5, 2001, the board of directors held a special meeting, with
Michael Needham attending by telephone conference, the primary purpose of which
was to receive an update regarding SimEx's financing. Mr. Needham informed the
board that SimEx had been circulating a private placement memorandum to identify
and coordinate specific targeted investors and that it was in the process of
securing financing to consummate the merger.
Over the period of April 23, 2001 through April 25, 2001, SimEx conducted
extensive due diligence at our corporate headquarters.
On May 1, 2001, the board of directors held a special meeting, with Michael
Needham attending by telephone conference, to again receive an update regarding
SimEx's financing. Mr. Needham informed the board that SimEx had identified its
target group of investors and had been continuing its efforts in securing
financing commitments. In light of our existing financial condition, the lack of
any other viable financing or strategic alternatives, and the progress
identified by SimEx, the board agreed to extend the termination date of the
executed non-binding letter of intent, dated March 5, 2001, to June 15, 2001.
In May of 2001, SimEx had instructed its legal counsel to prepare the
Merger Agreement in accordance with the non-binding letter of intent, dated
March 5, 2001, and with the various terms discussed between SimEx's
representatives and our board, senior management and legal counsel.
On June 12 and 13, 2001, the board of directors, together with Messrs. Dahl
and Stults, held a special meeting in Toronto, Canada, to discuss the future
structure of the combined company and again to review SimEx's financing status.
During the course of these two days, Mr. Matus also met with key inside and
outside venture capital partners, investors and other partners of SimEx to
review SimEx's financing options and its ability to consummate the transaction.
The parties discussed numerous aspects of SimEx's business, its future sales
projections and its enterprise value. Also during the course of these two days,
Messrs. Dahl and Stults conducted extensive due diligence of SimEx's financial
statements and business operations. As a result of the due diligence and
meetings conducted, on June 15, 2001, the board agreed to extend the termination
date of the non-binding letter of intent, dated March 5, 2001, as amended, to
July 31, 2001.
During the period from June 15, 2001 through July 31, 2001, our senior
management conducted numerous telephone meetings with SimEx officers to discuss
SimEx's financing.
On July 31, 2001, the board of directors again held a special meeting to
discuss SimEx's financing. SimEx indicated prior to the meeting that it had
received financial commitments from investors already affiliated with its
company, including its directors and other primary investors, that would enable
SimEx to consummate the merger. As a result of these financial commitments and
because SimEx agreed to make us a loan in the aggregate principal
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amount of $200,000, to be evidenced by a four year interest-free convertible
promissory note, the board agreed to provide an additional extension to the
termination date of the non-binding letter of intent, dated March 5, 2001, as
amended, to August 21, 2001, and under specified circumstances, to September 24,
2001.
On August 21, 2001, SimEx funded the loan in the aggregate amount of
$200,000 and we concurrently issued the promissory note. The note does not bear
interest and is payable in full on the fourth anniversary of the date of
issuance. We may prepay the note at any time without penalty. The note is
secured by one portable ride simulation unit. SimEx has the right to convert, in
whole or in part, at any time the entire unpaid balance of the note, into shares
of our common stock at a conversion price equal to $0.63 per share.
In May and June of 2001, our legal counsel negotiated the proposed Merger
Agreement with counsel to SimEx.
On August 30, 2001, the board of directors held a special meeting to
consider the Merger, the Merger Agreement and the transactions contemplated
thereby. The following sections, "Special Factors - Recommendations of the Board
of Directors" and "Special Factors - No Fairness Opinion," also discuss the
considerations made by the board and its recommendations.
On August 31, 2001, we and SimEx executed the Merger Agreement. On that
date, each of our directors and our chief financial officer entered into
separate voting agreements, whereby each agreed to vote his shares of our common
stock in favor of the Merger Agreement and the transactions contemplated
thereby, and each has granted a proxy to certain officers of SimEx to vote his
shares in favor of the Merger Agreement and the transactions contemplated
thereby.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
At a meeting held on August 30, 2001, the board of directors unanimously:
o determined that the Merger is fair and in the best interests of our
stockholders;
o approved the Merger Agreement and the transactions contemplated
thereby; and
o recommended that stockholders vote to approve and adopt the Merger
Agreement and the transactions contemplated thereby.
In making the determination and recommendation set forth above, the board
considered various factors, including, but not limited to, the following:
o OUR OPERATING AND FINANCIAL CONDITION. Our board considered our
current and historical financial condition and results of operations,
as well as our prospects and strategic objectives. In particular, the
board examined our recent operating losses, declining cash balances,
the delisting of our common stock from The Nasdaq Stock Market, the
recent decline in revenue, a general economic downturn and a general
decrease in investor interest in our industry. The board determined
that these factors make it difficult for us to attract equity
investments or debt financing or strategic partners on terms that are
deemed favorable to us. The board also determined that if our
financial condition continued to worsen and if we were unable to
attract alternative equity or debt financing or other strategic
transactions, we would be forced to consider steps that would protect
our assets against our creditors. The board also considered our
independent auditor's report which contained an emphasis paragraph
indicating there is substantial doubt about our ability to continue as
a going concern;
o MARKET PRICE AND PREMIUM. Our board considered the recent and
historical price and trading activity of our common stock. In
particular, our board considered that the price of $0.63 per share to
be paid in the Merger represents a premium of 186% over the closing
price of our common stock on March 2, 2001 (the day prior to entering
into the non-binding letter of intent with SimEx)
Page 17
and a 97% premium over the closing price of our common stock on August
31, 2001 (the date the Merger Agreement was signed);
o STRATEGIC ALTERNATIVES. Our board reviewed, with our executive
management, our prospects and anticipated competitive position if we
were to retain our current ownership structure, including the risks
and benefits inherent in remaining a stand-alone entity and continuing
to pursue our current strategy in an intensely competitive
environment. Our board considered our immediate need for additional
capital and our inability to engage in a financing sufficient to
provide adequate working capital. Our board also considered comparable
transactions as well as possible alternatives to the merger involving
third parties, the likelihood of consummation of those comparable and
alternative transactions and the risks associated with them. In
considering the likelihood of our receiving other comparable
proposals, our board discussed the scarcity of potential suitors or
suitable strategic partners based on our directors', officers', and
investment bankers' previous extensive efforts to identify a viable
partner and their knowledge of the industry. Based on prior
discussions and knowledge of available partners, our board was not
aware of any other parties that would be in a financial position to
acquire our company. Our board also took into account the fact that,
in its view, conducting an extensive public auction process prior to
selling our company would be detrimental to us, would cause
significant disruptions in our existing operations and would not be
likely to produce a better result;
o THE COMBINED COMPANY. Our board reasoned that, based on the revenue,
cost and technical synergies between us and SimEx, the potential to
combine product lines to encompass, among other items, an expanded
film library, the potential to compliment customer segments in both
commercial and institutional venue markets, and the potential to
reduce corporate overhead and thereby increase needed capital for film
production, product design and technology development, the combined
company is well poised as a strong competitor in the industry and it
is therefore likely that SimEx would be willing to pay more for our
company than any other suitor;
o ARM'S-LENGTH NEGOTIATIONS. Our board considered the fact that the
Merger, the Merger Agreement and the transactions contemplated by the
Merger Agreement were determined through extensive arms-length
negotiations between us and our advisors, on the one hand, and SimEx
and its advisors, on the other;
o SUPERIOR PROPOSAL. Our board considered the fact that while the Merger
Agreement prohibits us from soliciting proposals concerning an
acquisition of our company, in the exercise of its fiduciary duties,
our board, following further negotiations with SimEx, would be able to
furnish information to and participate in negotiations with persons
making bona fide unsolicited offers and the board may terminate the
Merger Agreement and accept a superior proposal under certain
conditions, subject to a payment to SimEx in the amount of $175,000,
together with reasonable costs and expenses not to exceed $100,000;
o DISCUSSIONS WITH MANAGEMENT AND ADVISORS. Our board discussed and
considered in detail all aspects of the Merger with our executive
management and our financial and legal advisors.
o ABILITY OF SIMEX TO FINANCE THE MERGER. Our board considered the fact
that SimEx represented in the Merger Agreement that based on existing
cash on hand and financing commitments, it was able to consummate the
Merger and the transactions contemplated thereby on the closing date
of the Merger.
o LIMITED CONDITIONS TO CONSUMMATION. Our board considered that SimEx
and Acquisition Co. have committed to close the Merger subject only to
a limited number of conditions as set forth in "The Merger Agreement -
Conditions to Obligations to Effect the Merger."
o CERTAINTY OF VALUE. Our board considered the fact that the purchase
price in the Merger would be cash, thus eliminating any uncertainties
in valuing the consideration to be received by our
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stockholders. If any consideration were to be received in the form of
stock, these uncertainties might be particularly acute in light of the
recent volatility in the price of our common stock, as well as the
volatility in the market prices of shares of comparable companies.
o SMALL CAP STOCKS. The board considered the diminished attention of the
public market in small capitalization stocks.
o APPRAISAL RIGHTS. The board considered the ability of our stockholders
who may not support the Merger to obtain "fair value" for their shares
if they properly perfect and exercise their appraisal rights under the
DGCL. The board felt that it was important that the DGCL provides
stockholders with the opportunity to exercise appraisal rights and to
seek a determination of the Delaware Court of Chancery of the fair
value of their shares of common stock. See the section entitled
"Special Factors - Appraisal Rights" for information on how to
exercise your appraisal rights.
o OUR FUTURE PROSPECTS. Our board considered the fact that all holders
of shares whose shares are purchased in the Merger will not
participate in our future growth. Because of the risks and
uncertainties associated with our future prospects, our board
concluded that this detriment was not reasonably quantifiable. Our
board also concluded in their judgment that obtaining a cash premium
for the shares now was preferable to enabling the holders of shares to
have a speculative potential future return.
See the sections entitled "Special Factors -- Background of the Merger" and
"Special Factors - No Fairness Opinion" for additional information on the board
of director's consideration of the Merger.
The description set forth above is not intended to be exhaustive but merely
summarizes the primary factors considered by our board. In view of its many
considerations our board did not find it practical to, and did not, quantify or
otherwise assign relative weights to the specific factors considered. In
addition, individual members of our board may have given different weights to
the various factors considered. After weighing all of these considerations, and
after careful deliberations, our board approved the terms of the Merger and
recommended that holders of our common stock vote in favor of the Merger
Agreement and the transactions contemplated thereby.
THE BOARD, ACTING UPON EXTENSIVE CONSIDERATION AND DISCUSSION, HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND HAS DETERMINED THAT THE MERGER IS
FAIR AND IN THE BEST INTERESTS OF IWERKS' STOCKHOLDERS. THE BOARD UNANIMOUSLY
RECOMMENDS A VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
NO FAIRNESS OPINION
Our board of directors decided not to retain an independent financial
advisor to deliver a fairness opinion in connection with the proposed Merger. In
deciding not to obtain a fairness opinion, the board of directors considered a
number of factors including, without limitation, the familiarity of the members
of the board of directors with our company's business affairs and prospects, the
long and thorough process by which our board of directors and senior management
had sought to locate a potential strategic transaction in order to preserve our
viability and enhance stockholder value, the limited size of the transaction,
and the expenses that would be incurred in obtaining advisory services and a
fairness opinion from a reputable independent financial advisor. In addition,
the board of directors considered the factors that an independent financial
advisor would evaluate in determining whether a merger is fair, from a financial
point of view, to the stockholders. These factors included:
o the terms of the Merger Agreement;
o our publicly available financial statements;
o internal financial and operating information, including financial
forecasts and projections;
Page 19
o discussions with management;
o historical market prices and trading activity of the common stock;
o analysis of our net book, going concern and liquidation value;
o the premium represented by the per share consideration to be paid in
the Merger over the closing price of our common stock on March 2, 2001
(the day prior to entering into the non-binding letter of intent with
SimEx) and the closing price of our common stock on August 31, 2001
(the date the Merger Agreement was signed).
o the lack of other viable financing or strategic alternatives available
to our company; and
o comparison of the terms of the Merger with other precedent mergers and
acquisitions comparable to the Merger.
See the sections entitled "Special Factors - Background of the Merger" and
"Special Factors - Recommendations of the Board of Directors" for additional
information on the board of director's consideration of the Merger.
In view of the foregoing, the board of directors determined that the
consideration to be paid to our stockholders is fair from a financial point of
view and decided that the expense of a fairness opinion was not warranted.
PURPOSE AND STRUCTURE OF THE MERGER
PURPOSE. We entered into the Merger Agreement because the board of
directors concluded, acting upon extensive consideration and discussion, that
the Merger is fair and in the best interests of our stockholders. In particular,
the board of directors believed that the Merger presented our stockholders with
the most attractive opportunity available at the current time to maximize the
value of their shares of our common stock by selling those shares at a premium
to current market prices for the common stock. Specifically, the per share
consideration of $0.63 to be paid in the Merger represents a premium of 186%
over the closing price of our common stock on March 2, 2001 (the day prior to
entering into the non-binding letter of intent with SimEx) and a 97% premium
over the closing price of our common stock on August 31, 2001 (the date the
Merger Agreement was signed). In addition, our imminent need for additional
financing and our uncertainty regarding our ability to continue as an ongoing
enterprise, make the Merger a necessary transaction and an attractive
opportunity. For a discussion of the various factors considered by the board of
directors in reaching its conclusions, see "Special Factors - Background On The
Merger," "Special Factors - Recommendations of the Board of Directors," and
"Special Factors - No Fairness Opinion."
The purpose for SimEx to proceed with the Merger is for SimEx to make an
investment in, and to acquire all of the equity of Iwerks.
STRUCTURE. In order to provide a prompt and orderly transfer of
ownership of Iwerks from its stockholders to SimEx, in light of relevant
financial, legal, tax and other considerations, the acquisition has been
structured as a reverse triangular merger. If the Merger Agreement is adopted by
the requisite vote of the stockholders and the remaining conditions to the
completion of the Merger are satisfied or waived, Acquisition Co. will be merged
with and into Iwerks, with Iwerks as the Surviving Company. We will then become
a wholly owned subsidiary of SimEx. All the outstanding shares of our common
stock (other than shares held in our treasury or shares held by stockholders who
properly perfect their appraisal rights under Delaware Law) will be converted
into the right to receive a cash payment per share, without interest, of a
ratable portion of $2.25 million equal to the quotient obtained by dividing (i)
$2.25 million by (ii) the number of shares of our common stock outstanding
immediately prior to the effective time of the Merger. At September 10, 2001, we
had 3,449,303 shares of common stock issued and outstanding (not including
shares of common stock held in treasury), 105,000 shares of common stock
underlying "in-the-money" options or warrants, and 1,199,628 shares of common
stock underlying "at- or out-of-the-money" options, warrants or other
convertible securities. Assuming the exercise or conversion of all "in-the-
Page 20
money" securities prior to the effective time of the merger, the per share
consideration to be offered to our stockholders will be approximately $0.63. All
of the shares held in our treasury will be cancelled and will cease to exist as
of the effective time of the Merger.
EFFECTS OF THE MERGER
As a result of the Merger, SimEx will own 100% of the Surviving Company's
common stock. After the effective time of the Merger, our stockholders will
cease to have ownership interests in or rights as stockholders of, the Surviving
Company. Although an equity investment in the Surviving Company involves
substantial risk resulting from the limited liquidity of the investment, if the
Surviving Company is able to grow earnings and cash flow, SimEx will be the sole
beneficiary of the future earnings and growth of the Surviving Company. The
benefit of the Merger to holders of our common stock is the payment of a
premium, in cash, to the market value for their shares of common stock. This
cash payment assures that all of our stockholders will receive the same amount
for their shares, rather than taking the risks associated with attempting to
sell their shares in the open market. The detriment to these holders is their
inability to participate as continuing stockholders in any future growth of the
Surviving Company.
As a result of the Merger, the Surviving Company will be a privately held
corporation and there will be no public market for its common stock. At the
effective time of the Merger, our common stock will cease to be quoted on the
Over The Counter Bulletin Board and price quotations with respect to sales of
shares of our common stock in the public market will no longer be available. In
addition, registration of our common stock under the Securities Exchange Act of
1934, as amended, will be terminated. This termination will make certain
provisions of the Securities Exchange Act of 1934, as amended, such as the
short-swing profit recovery provisions of Section 16(b) and the requirement
under the proxy rules of Regulation 14A of furnishing a proxy or information
statement in connection with stockholders meetings, no longer applicable to the
Surviving Company. After the effective time of the Merger, the Surviving Company
will no longer be required to file periodic reports with the Securities and
Exchange Commission, which we will refer to as the "SEC."
At the effective time of the Merger, the certificate of incorporation of
Acquisition Co. in effect immediately prior to the effective time of the Merger
will be the certificate of incorporation of the Surviving Company, which we will
refer to as the "Iwerks Certificate of Incorporation," until duly amended in
accordance with the terms thereof and the DGCL. The bylaws of Acquisition Co. in
effect immediately prior to the effective time of the Merger will be the bylaws
of the Surviving Company, which we will refer to as the "Iwerks By-laws," until
duly amended in accordance with the terms thereof and the DGCL.
At the effective time of the Merger, the directors of Acquisition Co. will
be the initial directors of the Surviving Company. We expect that members of our
current management will assist and cooperate with SimEx in the integration and
management of the Surviving Company. Specifically, at the effective time of the
Merger, the following officers of Iwerks are expected to continue in their
existing capacities at the Surviving Company: Gary J. Matus (Chief Executive
Officer), Donald Stults (Chief Operating Officer), and Jeffrey M. Dahl
(Executive Vice President and Chief Financial Officer).
It is expected that following the completion of the Merger, our operations
will be conducted substantially as they are currently being conducted. SimEx has
no formal plans or proposals that relate to or would result in an extraordinary
corporate transaction involving our corporate structure or business, such as a
merger, reorganization, liquidation, or sale or transfer of a material amount of
assets. However, SimEx will continue to evaluate our business and operations
after the Merger from time to time, and may propose to develop new plans and
proposals which SimEx considers to be in the best interests of the Surviving
Company.
At the effective time of the Merger, all of our outstanding stock options
and warrants, with the exception of specified warrants identified in the Merger
Agreement, unless exercised prior to the effective time of the Merger, will be
cancelled without any payment or other consideration, and all holders of those
options and warrants will cease to have any rights or privileges arising
therefrom. The specified warrants identified in the Merger Agreement will be
assumed by the Surviving Company, but upon exercise will only represent the
right to receive in cash an amount equal to the per share consideration as is
received by each other stockholder in the Merger.
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RISK THAT THE MERGER WILL NOT BE COMPLETED
Completion of the Merger is subject to various conditions, including, but
not limited to, the following:
o stockholder approval of the Merger Agreement and the transactions
contemplated thereby must have been obtained;
o any waiting period applicable to the Merger under any applicable
competition, merger control, antitrust or similar law must have been
terminated or expired; and
o no court of competent jurisdiction will have issued a final and
nonappealable temporary restraining order, injunction, or other
judgment, order, or decree or other legal restraint or prohibition
that prevents the consummation of the Merger;
As a result of the various conditions to the completion of the Merger, even
if the requisite stockholder approval is obtained, we cannot assure you that the
Merger will be completed.
It is expected that if the Merger Agreement is not approved and adopted by
stockholders, or if the Merger is not completed for any other reason, our
current management, under the direction of the board of directors, will continue
to manage us as an on-going business. We are not currently considering any other
alternative to the Merger.
In the event the Merger is not completed for any reason, we will need to
aggressively seek additional debt or equity financing and other strategic
alternatives. However, recent operating losses, our declining cash balances, our
historical stock performance, the delisting of our common stock from The Nasdaq
Stock Market, the recent decline in revenue, a general economic downturn and a
general decrease in investor interest in our industry, may make it difficult for
us to attract equity investments or debt financing or strategic partners on
terms that are deemed favorable to us. If our financial condition continues to
worsen and we are unable to attract alternative equity or debt financing or
other strategic transactions, we could be forced to consider steps that would
protect our assets against our creditors. Our independent auditor's report
contains an emphasis paragraph indicating there is substantial doubt about our
ability to continue as a going concern.
INTERESTS OF IWERKS DIRECTORS AND OFFICERS IN THE MERGER
In considering the recommendations of the board of directors, you should be
aware that certain members of our management and the board of directors have
interests that are different from, or in addition to, your interests as a Iwerks
stockholder generally. Each of the board of directors was aware of these
interests and considered them, among other matters, in approving the Merger
Agreement.
DIRECTORS AND EXECUTIVE OFFICERS. At the effective time of the Merger, the
directors of Acquisition Co. will be the initial directors of the Surviving
Company. We expect that members of our current management will assist and
cooperate with SimEx in the integration and management of the Surviving Company.
Specifically, at the effective time of the Merger, the following officers of
Iwerks are expected to continue in their existing capacities at the Surviving
Company: Gary J. Matus (Chief Executive Officer), Donald Stults (Chief Operating
Officer), and Jeffrey M. Dahl (Executive Vice President and Chief Financial
Officer).
MANAGEMENT AGREEMENTS. We currently have agreements with Donald Iwerks,
Gary Matus, and Jeff Dahl (collectively, the "Existing Agreements"). The
Existing Agreements, provide, among other things, for a payment to the director
or officer, as applicable, upon the occurrence of a "change of control" of
Iwerks. Completion of the Merger will constitute a "change of control" under the
Existing Agreements and entitle each of the above mentioned individuals to a
payment equal to $100,000.
VOTING AGREEMENT. In connection with the Merger Agreement, each member of
our board of directors and our chief financial officer has entered into voting
agreements, dated August 31, 2001, with SimEx, pursuant to which they, among
other things:
Page 22
o have agreed to vote their shares to approve and adopt the Merger
Agreement and the transactions contemplated thereby, and in favor of
any matter that could reasonably be expected to facilitate the
transactions contemplated by the Merger Agreement; and
o have each granted an irrevocable proxy to certain officers of SimEx to
vote their shares to approve and adopt the Merger Agreement and the
transactions contemplated thereby, and in favor of any other matter
necessary to consummate the transactions contemplated by the Merger
Agreement.
For a more complete description of these voting agreements, you should
refer to the form of voting agreement attached hereto as Annex B to this proxy
statement.
INDEMNIFICATION OF DIRECTORS AND OFFICERS; DIRECTORS AND OFFICERS
INSURANCE. The Merger Agreement provides that, all rights to indemnification and
exculpation from liability for any acts and omissions occurring at or prior to
the effective time of the Merger existing on the date of the Merger Agreement in
favor of our current or former directors or officers, as provided for in our
certificate of incorporation, by-laws and in indemnification agreements entered
into between our company and each director and officer, will be assumed by the
Surviving Company at the effective time of the Merger. The Merger Agreement
further provides that for a period of six years after the effective time of the
Merger, SimEx will maintain officers' and directors' liability insurance
covering the persons who, on the date of the Merger Agreement, were covered by
our officers' and directors' liability insurance policies with respect to acts
and omissions occurring prior to the effective time of the Merger, subject to
certain limitations. The persons benefiting from these provisions include all of
our current directors and executive officers. See "The Merger Agreement--Certain
Covenants--Director and Officers Indemnification and Insurance."
COMMON STOCK. As of the record date, our directors and executive officers
owned directly an aggregate of _______ shares of common stock. All of the our
common stock owned by our directors and executive officers will be converted
into the right to receive the same per share consideration as received by each
other stockholder if the Merger is consummated.
TREATMENT OF STOCK OPTIONS AND WARRANTS. As of the record date, our
directors and executive officers had outstanding options and warrants to
purchase an aggregate of ______ shares of common stock. Pursuant to the Merger
Agreement, all issued and outstanding options and warrants held by our directors
and executive officers not exercised prior to the effective time of the Merger
will be cancelled at the effective time of the Merger without any payment or
other consideration, and the holders of those options and warrants will cease to
have any rights or privileges arising therefrom.
FINANCING FOR THE MERGER
Based on existing cash on hand and financing commitments, SimEx has all the
funds necessary to consummate the Merger and the transactions contemplated
thereby, including payment in full for all the issued and outstanding shares of
our common stock.
ACCOUNTING TREATMENT OF THE MERGER
SimEx will treat the Merger as a purchase for accounting purposes. It will
use the purchase method of accounting.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary of certain anticipated federal income tax
consequences to a holder of common stock in connection with the Merger is based
upon current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), currently applicable Treasury regulations and judicial and
administrative rulings and decisions as of the date hereof. Legislative,
judicial or administrative changes may be forthcoming that could alter or modify
the statements set forth herein, possibly on a retroactive basis. The summary
does not purport to deal with all aspects of federal income taxation that may
affect particular holders of common stock in light of their individual
circumstances, nor with certain types of holders subject to special treatment
under the federal income tax laws (e.g., life insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, holders
Page 23
owning stock as part of a "straddle," "hedge" or "conversion transaction,"
holders who acquired their common stock pursuant to the exercise of an employee
stock option or otherwise as compensation, and holders who are neither citizens
nor residents of the United States, or that are foreign corporations, foreign
partnerships or foreign estates or trusts for U.S. federal income tax purposes).
In addition, the summary assumes that any common stock exchanged in the Merger
is held as a capital asset. CONSEQUENTLY, EACH STOCKHOLDER SHOULD CONSULT HIS OR
HER OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF THE MERGER IN LIGHT OF
THAT HOLDER'S OWN SITUATION, INCLUDING THE APPLICATION AND EFFECT OF ANY STATE,
LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS.
TAX TREATMENT OF HOLDERS OF COMMON STOCK. THE CONVERSION OF COMMON STOCK IN
THE MERGER WILL BE TAXABLE TO STOCKHOLDERS. Accordingly, a stockholder who,
pursuant to the Merger, converts shares of common stock into cash will recognize
a gain or loss equal to the difference between (i) the amount of cash received
in the Merger and (ii) that stockholder's adjusted tax basis in the common
stock. In the case of a stockholder who is an individual, estate or trust, any
realized capital gain will be taxable at a maximum capital gain rate of 20% if
the holder held the common stock for more than one year at the time of the
Merger.
BACKUP WITHHOLDING. In order to avoid "backup withholding" of federal
income tax on payments of cash to a stockholder who exchanges shares of common
stock in the Merger, a stockholder must, unless an exception applies under the
applicable law and regulations, provide the payor of the cash with that
stockholder's correct taxpayer identification number ("TIN") on a Form W-9 and
certify under penalties of perjury that the number is correct and that the
stockholder is not subject to backup withholding. A Form W-9 is included as part
of the letter of transmittal to be sent to stockholders by the exchange agent
(See "The Merger Agreement - Exchange of Stock Certificates"). If the correct
TIN and certifications are not provided, a penalty may be imposed on a
stockholder by the Internal Revenue Service (the "IRS") and the cash payments
received by a stockholder in consideration for shares of common stock in the
Merger may be subject to backup withholding tax at a rate of 30.5%.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER, IT IS RECOMMENDED THAT
STOCKHOLDERS CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL (AND ANY STATE,
LOCAL AND FOREIGN) TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
APPRAISAL RIGHTS
Stockholders who do not vote for the approval and adoption of the Merger
Agreement at the special meeting and who otherwise comply with the applicable
statutory procedures of Section 262 of the DGCL summarized herein may be
entitled to appraisal rights under Section 262 of the DGCL. In order to exercise
and perfect appraisal rights, the record holder of common stock must follow the
steps summarized below properly and in a timely manner. A person having a
beneficial interest in shares of common stock held of record in the name of
another person, such as a broker or nominee, must act promptly to cause the
record holder to follow the steps summarized below properly and in a timely
manner to perfect appraisal rights.
SECTION 262 OF THE DGCL IS REPRINTED IN ITS ENTIRETY AS ANNEX C TO THIS
PROXY STATEMENT. SET FORTH BELOW IS A SUMMARY DESCRIPTION OF SECTION 262. THE
FOLLOWING SUMMARY DESCRIBES THE MATERIAL ASPECTS OF SECTION 262 AND THE LAW
RELATING TO APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
ANNEX C. ALL REFERENCES IN SECTION 262 AND THIS SUMMARY TO "STOCKHOLDER" ARE TO
THE RECORD HOLDER OF THE SHARES OF COMMON STOCK IMMEDIATELY PRIOR TO THE
EFFECTIVE TIME AS TO WHICH APPRAISAL RIGHTS ARE ASSERTED. FAILURE TO COMPLY
STRICTLY WITH THE PROCEDURES SET FORTH IN SECTION 262 OF THE DGCL WILL RESULT IN
THE LOSS OF APPRAISAL RIGHTS.
Under the DGCL, holders of common stock who follow the procedures set forth
in Section 262 will be entitled to have their shares appraised by the Delaware
Court of Chancery (the "Delaware Court") and to receive payment in cash of the
"fair value" of those shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, as determined by the court.
Page 24
Under Section 262, where a proposed Merger is to be submitted for approval
at a meeting of stockholders, as in the case of the special meeting, the
corporation, not less than 20 days prior to the meeting, must notify each of its
stockholders who was a stockholder on the record date with respect to those
shares for which appraisal rights are available, that appraisal rights are so
available, and must include in each notice a copy of Section 262. This proxy
statement constitutes the notice to the holders of common stock and Section 262
of the DGCL is attached to this proxy statement as Annex C. Any stockholder who
wishes to exercise their appraisal rights or who wishes to preserve his or her
right to do so should review the following discussion and Annex C carefully,
because failure to timely and properly comply with the procedures specified will
result in the loss of appraisal rights under the DGCL.
A STOCKHOLDER WISHING TO EXERCISE APPRAISAL RIGHTS (A) MUST NOT VOTE FOR
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND (B) MUST DELIVER TO
IWERKS, BEFORE THE VOTE ON THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENT, A WRITTEN DEMAND FOR APPRAISAL OF THAT HOLDER'S SHARES OF COMMON
STOCK. A STOCKHOLDER WHO SIGNS AND RETURNS A PROXY CARD WITHOUT EXPRESSLY
DIRECTING THAT HIS OR HER SHARES OF COMMON STOCK BE VOTED AGAINST THE MERGER
AGREEMENT WILL EFFECTIVELY WAIVE HIS, HER OR ITS APPRAISAL RIGHTS BECAUSE THE
SHARES REPRESENTED BY THE PROXY CARD WILL BE VOTED FOR THE APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT. ACCORDINGLY, A STOCKHOLDER WHO DESIRES TO EXERCISE AND
PERFECT APPRAISAL RIGHTS WITH RESPECT TO ANY OF HIS OR HER SHARES OF COMMON
STOCK MUST EITHER (I) REFRAIN FROM EXECUTING AND RETURNING THE ENCLOSED PROXY
CARD AND FROM VOTING IN PERSON IN FAVOR OF THE PROPOSAL TO APPROVE THE MERGER
AGREEMENT, OR (II) CHECK EITHER THE "AGAINST" OR THE "ABSTAIN" BOX NEXT TO THE
PROPOSAL ON THE PROXY CARD OR AFFIRMATIVELY VOTE IN PERSON AGAINST THE PROPOSAL
OR REGISTER IN PERSON AN ABSTENTION WITH RESPECT THERETO. A VOTE OR PROXY
AGAINST THE MERGER AGREEMENT SHALL NOT, IN AND OF ITSELF, CONSTITUTE A DEMAND
FOR APPRAISAL.
A demand for appraisal will be sufficient if it reasonably informs us of
the identity of the stockholder and that the stockholder intends thereby to
demand appraisal of the stockholder's shares of common stock. This written
demand for appraisal must be separate from any proxy or vote abstaining from or
voting against the approval and adoption of the Merger Agreement. A stockholder
wishing to exercise appraisal rights must be the record holder of the shares of
common stock on the date the written demand for appraisal is made and must
continue to hold those shares through the effective time of the Merger.
Accordingly, a stockholder who is the record holder of shares of common stock on
the date the written demand for appraisal is made, but who thereafter transfers
those shares prior to the effective time of the Merger, will lose any right to
appraisal in respect of those shares.
Only a holder of record of shares of common stock is entitled to assert
appraisal rights for the shares of common stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder of
record, fully and correctly, as the holder's name appears on that holder's stock
certificates and must state that the person intends thereby to demand appraisal
of his, her or its shares of common stock. If the shares are owned of record in
a fiduciary capacity, such as by a trustee, guardian or custodian, execution of
the demand for appraisal should be made in that capacity, and if the shares are
owned of record by more than one person, as in a joint tenancy or tenancy in
common, the demand should be executed by or on behalf of all joint owners. An
authorized agent, including one for two or more joint owners, may execute the
demand for appraisal on behalf of a holder of record; however, the agent must
identify the record owner or owners and expressly disclose the fact that, in
executing the demand, he or she is acting as agent for the owner or owners.
A record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares of
common stock held for one or more beneficial owners while not exercising those
rights with respect to the shares held for other beneficial owners; in that
case, the written demand should set forth the number of shares as to which
appraisal is sought. Where the number of shares of common stock is not expressly
stated, the demand will be presumed to cover all shares held in the name of the
record owner. Stockholders who hold their shares in brokerage accounts or other
nominee forms and who wish to exercise appraisal rights are urged to consult
with their brokers to determine the appropriate procedures for the making of a
demand for appraisal by the nominee.
Page 25
ALL WRITTEN DEMANDS FOR APPRAISAL OF SHARES MUST BE MAILED OR DELIVERED TO:
IWERKS ENTERTAINMENT, INC., ATTENTION: SECRETARY/CHIEF FINANCIAL OFFICER, 4520
WEST VALERIO STREET, BURBANK, CALIFORNIA 91505-1045, OR SHOULD BE DELIVERED TO
THE SECRETARY/CHIEF FINANCIAL OFFICER AT THE SPECIAL MEETING, PRIOR TO THE VOTE
ON THE MERGER AGREEMENT.
Within ten days after the effective time of the Merger, the Surviving
Company will notify each stockholder who properly asserted appraisal rights
under Section 262 and has not voted for the approval and adoption of the Merger
Agreement as of the effective time of the Merger.
Within 120 days after the effective time of the Merger, but not thereafter,
either the Surviving Company or any stockholder who has complied with, and is
entitled to appraisal rights under, Section 262 may file a petition in the
Delaware Court demanding a determination of the fair value of the shares held by
that stockholder. If no petition is filed, appraisal rights will be lost for all
stockholders who had previously demanded appraisal of their shares. The
Surviving Company is not under any obligation, and has no present intention, to
file a petition with respect to appraisal of the value of the shares.
Accordingly, stockholders who wish to exercise their appraisal rights should
regard it as their obligation to take all steps necessary to perfect their
appraisal rights in the manner prescribed in Section 262.
Within 120 days after the effective time of the Merger, any stockholder who
has complied with the provisions of Section 262 will be entitled, upon written
request, to receive from the Surviving Company a statement setting forth the
aggregate number of shares of common stock not voted in favor of the approval
and adoption of the Merger Agreement and with respect to which demands for
appraisal were received by the Surviving Company, and the aggregate number of
holders of those shares. That statement must be mailed within ten days after the
written request therefore has been received by the Surviving Company, or within
ten days after the expiration of the period for delivery of demands for
appraisal, whichever is later.
If a petition for an appraisal is timely filed and a copy thereof served
upon us, we will then be obligated within 20 days to file with the Delaware
Register in Chancery a duly verified list containing the names and addresses of
the stockholders who have demanded appraisal of their shares and with whom
agreements as to the value of their shares have not been reached. After notice
to the stockholders as required by the Delaware Court, the Delaware Court is
empowered to conduct a hearing on the petition to determine those stockholders
who have complied with Section 262 and who have become entitled to appraisal
rights thereunder. The Delaware Court may require the stockholders who demanded
appraisal rights of their shares of common stock to submit their stock
certificates to the Delaware Register in Chancery for notation thereon of the
pendency of the appraisal proceeding; and if any stockholder fails to comply
with that direction, the Delaware Court may dismiss the proceedings as to that
stockholder.
After determining which stockholders are entitled to appraisal, the
Delaware Court will appraise the "fair value" of their shares of common stock,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. Stockholders considering seeking
appraisal should be aware that the fair value of their shares as determined
under Section 262 could be more than, the same as or less than the consideration
they are entitled to receive pursuant to the Merger Agreement if they did not
seek appraisal of their shares. In determining "fair value" of shares, the
Delaware Court will take into account all relevant factors. In Weinberger v.
UOP, Inc., the Delaware Supreme Court has stated that the factors include
"market value, asset value, dividends, earnings prospects, the nature of the
enterprise and any other facts which were known or which could be ascertained as
of the date of the Merger which throw any light on future prospects of the
merged corporation." In Weinberger, the Delaware Supreme Court stated, among
other things, that "proof of value by any techniques or methods generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered in an appraisal proceeding. In addition, the
Delaware Court has decided that the statutory appraisal remedy, depending on
factual circumstances, may or may not be a dissenter's exclusive remedy.
The Delaware Court will also determine the amount of interest, if any, to
be paid on the amounts to be received by persons whose shares of common stock
have been appraised. The costs of the action may be determined by the Delaware
Court and taxed upon the parties as the Delaware Court deems equitable. The
Delaware Court may
Page 26
also order that all or a portion of the expenses incurred by any stockholder in
connection with an appraisal, including without limitation, reasonable
attorneys' fees and the fees and expenses of experts utilized in the appraisal
proceeding, be charged pro rata against the value of all of the shares entitled
to appraisal. In the absence of that determination or assessment, each party
bears its own expenses.
Any stockholder who has duly demanded and perfected an appraisal in
compliance with Section 262 will not, after the effective time of the Merger, be
entitled to vote his or her shares for any purpose or be entitled to the payment
of dividends or other distributions thereon, except dividends or other
distributions payable to holders of record of shares of common stock as of a
date prior to the effective time of the Merger.
At any time within 60 days after the effective time of the Merger, any
stockholder will have the right to withdraw his or her demand for appraisal and
to accept the same per share consideration to be received by all stockholders.
After this period, a stockholder may withdraw his or her demand for appraisal
only with our written consent. If no petition for appraisal is filed with the
Delaware Court within 120 days after the effective time of the Merger, a
stockholder's right to appraisal will cease and he or she will be entitled to
receive the Per Share Consideration, without interest, as if he or she had not
demanded appraisal of his or her shares. No petition timely filed in the
Delaware Court demanding appraisal will be dismissed as to any stockholder
without the approval of the Delaware Court, and that approval may be conditioned
on terms as the Delaware Court deems just.
If any stockholder who properly demands appraisal of his or her shares of
common stock under Section 262 fails to perfect, or effectively withdraws or
loses, his right to appraisal, as provided in the DGCL, the shares of that
stockholder will be deemed to have been converted at the effective time into the
right to receive the per share consideration receivable with respect to those
shares in accordance with the Merger Agreement. A stockholder will fail to
perfect, or effectively lose or withdraw, that stockholder's right to appraisal
if, among other things, no petition for appraisal is filed within 120 days after
the effective time of the Merger, or if the stockholder delivers to the
Surviving Company a written withdrawal of his demand for appraisal. Any attempt
to withdraw an appraisal demand more than 60 days after the effective time of
the Merger will require the Surviving Company's written approval, and once a
petition for appraisal is filed, the appraisal proceeding may not be dismissed
as to any holder absent court approval.
STOCKHOLDERS DESIRING TO EXERCISE THEIR APPRAISAL RIGHTS MUST NOT VOTE FOR
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND MUST STRICTLY COMPLY WITH
THE PROCEDURES SET FORTH IN SECTION 262 OF THE DGCL.
FAILURE TO FOLLOW THE REQUIREMENTS OF SECTION 262 IN CONNECTION WITH THE
EXERCISE OF APPRAISAL RIGHTS MAY RESULT IN THE TERMINATION OR WAIVER OF THOSE
RIGHTS.
THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement, a
copy of which is attached as Annex A to this proxy statement and is incorporated
herein by reference. This summary is qualified in its entirety by reference to
the Merger Agreement. Stockholders are urged to read the Merger Agreement in its
entirety for a more complete description of the terms and conditions of the
Merger.
STRUCTURE, TIMING
Pursuant to the Merger Agreement, Acquisition Co. will be merged with and
into Iwerks. Iwerks will survive the Merger and continue to exist after the
Merger as a wholly owned subsidiary of SimEx. The Merger will become effective
at the time a certificate of merger is filed with the Secretary of State of
Delaware, or at a later time as agreed to by us and SimEx and as specified in
the certificate of merger. The Merger is expected to occur as soon as
practicable after all conditions of the Merger have been satisfied or waived.
The filing of the certificate of merger is expected to occur as soon as
practicable following the Merger.
Page 27
CONSIDERATION TO BE RECEIVED IN THE MERGER
CONSIDERATION AND APPRAISAL RIGHTS. Pursuant to the Merger Agreement, at
the effective time of the Merger:
o each share of common stock issued and outstanding immediately prior to
the effective time of the Merger (other than shares held in our
treasury or shares held by stockholders who properly perfect their
appraisal rights under Delaware Law) will be cancelled and
automatically converted into the right to receive a cash payment per
share, without interest, of a ratable portion of $2.25 million. The
per share consideration will be equal to the quotient obtained by
dividing:
o $2.25 million by
o the number of shares of our common stock outstanding immediately
prior to the effective time of the Merger. At September 10, 2001,
we had 3,449,303 shares of common stock issued and outstanding
(not including shares of common stock held in treasury), 105,000
shares of common stock underlying "in-the-money" options or
warrants, and 1,199,628 shares of common stock underlying "at- or
out-of-the-money" options, warrants or other convertible
securities. Assuming the exercise or conversion of all
"in-the-money" securities prior to the effective time of the
Merger, the per share consideration to be offered to our
stockholders will be approximately $0.63.
o each share held in our treasury immediately prior to the effective
time of the Merger, will be automatically canceled and will cease to
exist and no payment or distribution will be made with respect to
those shares.
The Merger Agreement further provides that any shares of common stock which
are issued and outstanding immediately prior to the effective time of the Merger
and held by a stockholder who has not voted in favor of the Merger in writing
and who complies with all the provisions of the Section 262 of the DGCL,
concerning the right of holders of shares of capital stock to dissent from the
Merger and require appraisal of their shares, will not be converted into or
represent the right to receive the per share consideration, as described above.
Instead, those shares will be converted at the effective time of the Merger,
into a right to receive payment of the fair value of those shares in accordance
with the provisions of Section 262 of the DGCL.
TREATMENT OF OPTIONS AND WARRANTS. The Merger Agreement provides that at
the effective time of the Merger, each option issued pursuant to our Amended and
Restated 1987 Stock Option, Purchase and Appreciation Rights Plan, 1993 Stock
Incentive Plan, 1994 Stock Incentive Plan, 1998 Non-Employee Directors Stock
Option Plan, 0001 Stock Option Plan and those options issued outside of a plan
and each warrant issued by us will (except specified warrants identified in the
Merger Agreement), unless exercised prior to the effective time of the Merger,
be cancelled at the effective time of the Merger without any payment or
consideration therefore and the holders of those options and warrants will not
have any rights with respect to those options and warrants. The specified
warrants identified in the Merger Agreement will be assumed by the Surviving
Company, but upon exercise will only have the right to receive in cash an amount
equal to the per share consideration to be received by each other stockholder.
EXCHANGE OF STOCK CERTIFICATES
YOUR SUBMISSION OF STOCK CERTIFICATES. Prior to the effective time of the
Merger, SimEx will designate a bank or trust company to act as the paying agent
in the Merger (the "Paying Agent"). As soon as practicable after the effective
time of the Merger, the Paying Agent will mail to each record holder of our
common stock, a letter of transmittal and instructions for use in effecting the
surrender of certificates in exchange for the per share consideration, subject
to any required back-up withholding taxes. Upon surrender of a certificate for
cancellation to the Paying Agent, together with the letter of transmittal, duly
completed and executed, the holder of that certificate will be entitled to
receive the per share consideration, subject to any withholding taxes, without
any interest thereon, and the certificates so surrendered will promptly be
canceled.
Page 28
NO FURTHER OWNERSHIP RIGHTS IN IWERKS. At and after the effective time of
the Merger, each holder of a certificate that represented outstanding shares of
our common stock immediately prior to the effective time of the Merger will
cease to have any rights as a stockholder of Iwerks, except for the right to
surrender his or her certificates in exchange for the per share consideration or
to perfect his or her right to receive payment for his or her shares pursuant to
Section 262 of the DGCL. All cash paid to stockholders upon surrender of their
certificates in the manner described above will be deemed to have been paid in
full satisfaction of all rights pertaining to those shares. At the close of
business on the effective time of the Merger, there will be no further transfers
on our stock transfer books of the shares that were outstanding immediately
prior to the effective time of the Merger. If, after the effective time of the
Merger, certificates that formerly represented shares of common stock are
presented to the Surviving Company or the Paying Agent, those certificates will
be cancelled and exchanged for cash in the manner described above.
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, we made to SimEx various customary representations
and warranties, subject to identified exceptions, with respect to, among other
things:
o due organization, valid existence and good standing of Iwerks and its
subsidiaries;
o the capital structure of Iwerks and its subsidiaries;
o the authorization, execution, delivery and enforceability of the
Merger Agreement;
o all necessary consents and approvals for the consummation of the
Merger Agreement;
o compliance of the Merger Agreement with the certificates of
incorporation, by-laws, or contracts of Iwerks and its subsidiaries;
o documents and financial statements filed by Iwerks with the SEC since
July 1, 1996, and the accuracy of information contained therein;
o the absence of certain facts or circumstances related to Iwerks and
its subsidiaries since March 31, 2001;
o compliance by Iwerks and its subsidiaries with all applicable laws;
o the disclosure of all material contracts of Iwerks and its
subsidiaries and the absence of any breach or violation of any
contract that would be reasonably expected to have a material adverse
effect on Iwerks;
o the absence of any material amendments to Iwerks' and its
subsidiaries' benefit plans since March 31, 2001; and
o certain additional customary representations and warranties with
respect to, among others, Iwerks' and its subsidiaries' ERISA
compliance, taxes, labor matters, title to properties, intellectual
property and software, and environmental matters.
In the Merger Agreement, SimEx has made to us various customary
representations and warranties, subject to identified exceptions, with respect
to, among other things:
o due organization, valid existence and good standing and certain
similar corporate matters;
o the authorization, execution, delivery and enforceability of the
Merger Agreement;
o all necessary consents and approvals for the consummation of the
Merger Agreement;
Page 29
o the interim operations of SimEx Acquisition Corporation; and
o the financial ability to consummate the Merger and the transactions
contemplated by the Merger Agreement.
None of the representations and warranties in the Merger Agreement will
survive after the effective time of the Merger.
CERTAIN COVENANTS
CONDUCT OF BUSINESS. Pursuant to the Merger Agreement, we agreed that,
during the period from the date of the Merger Agreement to the effective time of
the Merger, except as contemplated by the Merger Agreement or as otherwise
consented to in writing by SimEx, we will, and will cause our subsidiaries to,
among other things:
o carry on our respective businesses in the ordinary course of business
and consistent with past practices;
o comply with all applicable laws, rules and regulations;
o use all commercially reasonable efforts to preserve intact our
respective assets, properties and licenses, keep the services of our
respective current officers and employees available, preserve our
respective relationships with customers, suppliers and others with
whom we do business, and preserve our respective goodwill;
o not declare, set aside or pay any dividends or make any distributions
of our capital stock;
o not purchase, redeem or otherwise acquire any of our securities;
o not split, combine or reclassify our outstanding capital stock or
other securities, or issue or authorize the issuance of any securities
in substitution of our capital stock;
o not issue, deliver, sell, pledge or otherwise encumber any shares of
our capital stock or other securities;
o not amend or propose to amend our existing Certificate of
Incorporation or Bylaws;
o not purchase all or any substantial part of the assets of another
party by merger or consolidation, or otherwise acquire any assets of
any other party;
o not adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization;
o not sell, lease, license, transfer, mortgage, assign or otherwise
encumber or dispose of any of our assets;
o not repurchase, prepay, incur or guarantee any indebtedness or issue
any debt securities except in the ordinary course of business, or make
any loans or advances, capital contributions to or other investments
in any person other than to us or our subsidiaries;
o not incur or commit to incur any capital expenditures, except in the
ordinary course of business;
o not pay, discharge or settle any claims, liabilities or obligations
other than in the ordinary course of business as required by law or
the Merger Agreement and reserved against in our financial statements;
Page 30
o not enter into, amend or terminate the terms of any current agreements
entered into by us that may materially adversely effect us or
materially effect our ability to proceed with the Merger Agreement or
the transactions contemplated thereby;
o not hire additional employees or consultants or materially increase
the compensation of any of our employees or consultants, provided we
may hire employees in order to replace positions held by former
employees on the same terms;
o not change our accounting principles, methods or practices;
o not enter into any agreement containing any restriction on the ability
of us or our subsidiaries to assign our rights, interests or
obligations under that agreement, unless that restriction specifically
excludes any assignment to SimEx or any of its subsidiaries in
connection with or following the Merger;
o not commence any suit, action or proceeding, other than a suit, action
or proceeding in connection with the collection of accounts receivable
or to enforce the terms of the Merger Agreement, or as a result of a
suit, action or proceeding commenced against us or our subsidiaries;
and
o not take any action that would result in a breach of any covenants or
representations or warranties contained in the Merger Agreement.
Notwithstanding the covenants described above, we may in our sole
discretion comply with our legally binding obligations outstanding as of date of
the Merger Agreement which have been disclosed to SimEx and operate our business
in accordance with our budget.
NO SOLICITATION. The Merger Agreement provides that we will not, nor will
we permit our subsidiaries or our officers, directors, employees, advisors or
representatives to, directly or indirectly:
o solicit, initiate or knowingly encourage, or take any action knowingly
to facilitate any Takeover Proposal or any inquiries or the making of
any proposal that constitutes or would reasonably be expected to lead
to a Takeover Proposal; or
o enter into, continue or otherwise participate in any discussions or
negotiations, regarding, or furnish any information with respect to,
or cooperate in any way with, any Takeover Proposal.
A "Takeover Proposal" is defined in the Merger Agreement in substance as
any inquiry, proposal or offer from any person relating to, or that is
reasonably likely to lead to, any direct or indirect acquisition, in one
transaction or a series of transactions of:
o all or any part of our or our subsidiaries' material assets,
properties or business; or
o all or any part of the outstanding shares of our common stock, or
capital stock of, or other equity or voting interests in, us or our
subsidiaries.
However, nothing contained in the Merger Agreement will prevent us or our
board of directors from:
o complying with Rule 14d-9 or Rule 14e-2(a) promulgated under the
Securities Exchange Act of 1934, as amended; or
o making any disclosure to our stockholders, provided that the board of
directors, acting in good faith and after consulting with legal
counsel, determines that the failure to do so would constitute a
breach of its fiduciary duty to our stockholders under applicable law;
or
Page 31
o furnishing non-public information to, or participating in discussions
or negotiations with, any person or entity in response to a bona fide
unsolicited Takeover Proposal, provided that the board of directors,
acting in good faith and after consulting with legal counsel,
determines that the failure to do so would constitute a breach of its
fiduciary duty to our stockholders under applicable law.
Pursuant to the Merger Agreement, the board of directors, in response to a
bona fide unsolicited Takeover Proposal, may withdraw its recommendation of the
Merger Agreement, or approve, recommend or cause us to enter into any agreement
with respect to any Takeover Proposal, if, after consulting with legal counsel,
the board of directors determines that the failure to do so would constitute a
breach of its fiduciary duty to our stockholders under applicable law.
If we receive a bona fide unsolicited Takeover Proposal, we must provide
written notice to SimEx advising SimEx that the board of directors has received
a bona fide unsolicited Takeover Proposal. The notice must specify the terms and
conditions and identify the party making the bona fide unsolicited Takeover
Proposal. We may enter into any agreement pursuant to a bona fide unsolicited
Takeover Proposal, provided:
o that during the three business days following our notice to SimEx, we
negotiate with SimEx to make commercially reasonable adjustments to
the Merger Agreement so as to permit us to proceed with the Merger;
and
o after that negotiation, we conclude that the bona fide unsolicited
Takeover Proposal continues to be superior to the Merger.
In addition, if we terminate the Merger Agreement following our approval of
a bona fide unsolicited Takeover Proposal, we must pay SimEx a termination fee
in the amount of $175,000, together with reasonable costs and expenses not to
exceed $100,000.
STOCKHOLDERS' MEETINGS. The Merger Agreement provides for us to call a
special meeting of our stockholders to be held as promptly as practicable for
the purpose of voting upon the Merger Agreement. Except under circumstances
involving a bona fide unsolicited Takeover Proposal as described above in the
section entitled "The Merger Agreement - No Solicitation," we agreed that the
board of directors will recommend to our stockholders at the special meeting the
adoption of the Merger Agreement and the transactions contemplated thereby.
PROXY STATEMENT. We also agreed to, as soon as reasonably practicable after
execution of the Merger Agreement to file this proxy statement relating to the
special meeting with the SEC and to respond to any comments made by the SEC. In
addition, we agreed to mail this proxy statement to our stockholders at the
earliest practicable time.
DIRECTOR AND OFFICERS INDEMNIFICATION AND INSURANCE. The Merger Agreement
provides that, all rights to indemnification and exculpation from liability for
any acts and omissions occurring at or prior to the effective time of the Merger
existing on the date of the Merger Agreement in favor of our current or former
directors or officers, as provided for in our certificate of incorporation and
by-laws and in indemnification agreements between our company and each of our
directors and officers, will be assumed by the Surviving Company at the
effective time of the Merger. The Merger Agreement further provides that for a
period of six years after the effective time of the Merger, SimEx will maintain
officers' and directors' liability insurance covering the persons who, on the
date of the Merger Agreement, were covered by our officers' and directors'
liability insurance policies with respect to acts and omissions occurring prior
to the effective time of the Merger, subject to certain limitations. The persons
benefiting from these provisions include all of our current directors and
executive officers.
FINANCING. SimEx represented that based on its cash on hand and existing
financing commitments, it has all of the financing necessary to consummate the
transactions contemplated by the Merger Agreement.
OPTIONS AND WARRANTS. At the effective time of the Merger, all issued and
outstanding options and warrants (except specified warrants identified in the
Merger Agreement) not exercised prior to the effective time of the Merger will
be cancelled at the effective time of the Merger without any payment or other
consideration, and all
Page 32
holders of those options and warrants will cease to have any rights or
privileges arising therefrom. The specified warrants identified in the Merger
Agreement will be assumed by the Surviving Company, but upon exercise will only
represent the right to receive in cash an amount equal to the per share
consideration to be received by each other stockholder.
REGULATORY APPLICATIONS. We and SimEx will cooperate and use our
commercially reasonable efforts to prepare all documentation, to effect all
filings and to obtain all waivers, consents, approvals and authorizations from
all third parties and governmental agencies necessary to consummate the
transactions contemplated by the Merger Agreement.
CONDITIONS TO OBLIGATIONS TO EFFECT THE MERGER
The obligations of the parties to effect the Merger are subject to the
satisfaction or waiver, on or prior to the closing date of the Merger, of the
following conditions:
o stockholder approval of the Merger Agreement must have been obtained;
o any waiting period applicable to the Merger under any applicable
competition, merger control, antitrust or similar law must have been
terminated or expired; and
o no temporary restraining order, injunction, or other judgment, order,
or decree or other legal restraint or prohibition which prevents the
consummation of the Merger be in effect.
The obligations of SimEx to effect the Merger are subject to the
satisfaction or waiver, on or prior to the closing date of the Merger, of the
following conditions, among others:
o our representations and warranties set forth in the Merger Agreement
must be true and correct in all material respects on the date when
made and as of the closing date of the Merger Agreement;
o we must have performed or complied with all covenants or obligations
contained in the Merger Agreement;
o we must have obtained all regulatory or governmental consents,
approvals or orders required to consummate the Merger and the
transactions contemplated thereby, except for those that would not
reasonably be expected to restrain or prohibit the consummation of the
Merger, or limit SimEx from owning or operating or obtaining effective
control of any portion of our business, operations, or assets;
o there must not have occurred after the execution date of the Merger
Agreement any events, changes or effects which individually or in the
aggregate have had or would reasonably expected to have a material
adverse effect on us;
o our net tangible worth as of the closing date of the Merger Agreement,
based on our financial statements filed for the year ended June 30,
2001, shall not be less than $1.5 million, without giving effect to
the Merger;
o the aggregate number of shares of our common stock where the holder
did not vote in favor of the Merger and who has delivered a written
demand for appraisal of shares in the manner provided for in the DGCL
must not equal 10% or more of our shares outstanding as of the record
date for the special meeting; and
o all of our outstanding options and warrants, other than the specified
warrants identified in the Merger Agreement, shall have been duly
exercised or cancelled.
Page 33
Our obligation to effect the Merger is subject to the satisfaction or
waiver, on prior to the closing date of the Merger Agreement, of the following
conditions:
o The representations and warranties of SimEx set forth in the Merger
Agreement are true and correct in all material respects on the date
when made and as of the closing date of the Merger;
o SimEx must have performed or complied in all material respects with
all covenants or obligations contained in the Merger Agreement; and
o SimEx must have obtained all regulatory or governmental consents,
approvals or orders required to consummate the Merger and the
transactions contemplated thereby, except for those that would not
reasonably be expected to restrain or prohibit the consummation of the
Merger.
TERMINATION; TERMINATION FEES AND EXPENSES
The Merger Agreement may be terminated and the Merger contemplated may be
abandoned at any time prior to the effective time of the Merger, whether before
or after stockholder approval, for the following reasons:
o by mutual written consent of both us and SimEx;
o by either us or SimEx (provided that neither party may terminate for
the reasons stated below if that party's actions are the principal
reasons for which the Merger cannot be consummated):
o if the Merger is not consummated by December 31, 2001, provided,
however, that if on December 31, 2001, SimEx provides evidence to
Iwerks of legally binding financial commitments totaling in the
aggregate not less than $5.0 million, then neither party will be
permitted to terminate the agreement prior to February 28, 2001;
o if any court of competent jurisdiction issues a final and
nonappealable temporary restraining order, injunction, or other
judgment, order, or decree or other legal restraint or
prohibition that prevents the consummation of the Merger; or
o if stockholder approval is not obtained at the special meeting;
o by SimEx, if we have materially breached or failed to perform on any
representation, warranty, covenant or other agreement or if any
representation or warranty has become materially untrue and the breach
or failure to perform or untrue representation or warranty would give
rise to a failure of a condition of the Merger set forth in Sections
6.2(a) and 6.2(b) of the Merger Agreement and if that breach or
failure to perform or untrue representation or warranty is not cured
after 20 days of SimEx's giving written notice to us, provided that
SimEx is not then also in material breach of its representations,
warranties and covenants in the Merger Agreement; or
o by SimEx, if we fail to comply with the provisions regarding a bona
fide unsolicited Takeover Proposal provided in Section 4.2(a) of the
Merger Agreement or if the board of directors takes any action with
respect to a bona fide unsolicited Takeover Proposal contemplated by
Section 4.2(b) of the Merger Agreement or otherwise withdraws its
approval or recommendations of the Merger or the Merger Agreement or
approves or recommends any Takeover Proposal; or
o by us, if SimEx has materially breached or failed to perform on any
representation, warranty, covenant or other agreement or if any
representation or warranty has become materially untrue and the breach
or failure to perform or untrue representation or warranty would give
rise to a failure of a condition of the Merger set forth in Sections
6.3(a) and 6.3(b) of the Merger Agreement and if that breach or
failure to perform or untrue representation or warranty is not cured
after 20 days of us giving written notice to SimEx, provided that we
are not then also in material breach of our representations,
warranties and covenants in the Merger Agreement; or
Page 34
o by us, in accordance with and subject to specified terms regarding a
bona fide unsolicited Takeover Proposal.
In the event:
o SimEx terminates the Merger Agreement because we fail to comply with
the provisions regarding a bona fide unsolicited Takeover Proposal
provided in Section 4.2(a) of the Merger Agreement or if our board of
directors takes any action with respect to a bona fide unsolicited
Takeover Proposal contemplated by Section 4.2(b) of the Merger
Agreement or otherwise withdraws its approval or recommendations of
the Merger or the Merger Agreement or approves or recommends any
Takeover Proposal, or
o if we terminate the Merger Agreement in accordance with and subject to
its specified terms regarding a bona fide unsolicited Takeover
Proposal,
we will be required to pay SimEx a termination fee in the amount of $175,000,
plus reasonable costs and expenses not exceeding $100,000.
AMENDMENT AND WAIVER
The Merger Agreement may be amended at any time, whether before or after
stockholder approval, only with written consent of all parties to the Merger
Agreement. However, following stockholder approval, the Merger Agreement may not
be amended absent stockholder approval if that approval is required by
applicable law, rule, or regulation. No waiver by any party to the Merger
Agreement of any provision of Merger Agreement shall be effective unless set
forth in writing and executed by the party so waiving.
RIGHTS AGREEMENT AMENDMENT
Pursuant to the Merger Agreement, Iwerks and U.S. Stock Transfer
Corporation entered into a Rights Agreement Amendment dated as of August 31,
2001 (the "Amendment") to the Rights Agreement dated as of May 22, 1995, as
amended (the "Rights Agreement").
On May 22, 1995, our board of directors authorized and declared a dividend
of one preferred stock purchase right for each issued and outstanding share of
our common stock (the "Right"), and authorized the issuance of one Right for
each share of common stock issued after that date. Pursuant to the Rights
Agreement, each Right entitles the registered holder of common stock to purchase
1/100th of a share of our Series A Preferred Stock at a purchase price of $25.00
per 1/100th of a share of our Series A Preferred Stock, subject to certain
adjustments. The Right may be exercisable upon certain conditions, including
upon the acquisition by a person or group of affiliated or associated persons
(an "Acquiring Person") of a beneficial ownership of 15% or more of the
outstanding common stock of Iwerks (the date of any acquisition, the
"Distribution Date"), subject to certain conditions. The Rights expire on May
30, 2005.
The amendment provides that no Person (as defined in the Rights Agreement)
will become an Acquiring Person as a result of entering into, performing the
terms of, or consummating the transactions contemplated by:
o the Merger Agreement, or
o the voting agreements entered into in connection with the Merger
Agreement.
The amendment also provides that the Distribution Date will not be deemed
to have occurred solely as a result of:
o the approval, execution and delivery of the Merger Agreement or the
voting agreements entered into in connection with the Merger
Agreement, or
Page 35
o the consummation of the Merger or the performance of the terms of the
voting agreements entered into in connection with the Merger
Agreement.
The Right applicable to each share of common stock surrendered in the
Merger will also be surrendered with that share.
EXPENSES
It is estimated that, if the Merger is completed, expenses incurred in
connection with the Merger will be approximately as follows:
IWERKS
------------
Financial advisory fees and expenses. $ 304,000
SEC filing fees...................... 450
Legal fees and expenses.............. 75,000
Printing costs....................... 10,000
Proxy solicitation,
distribution and exchange
agent fees and expenses.............. 7,500
Miscellaneous........................ 5,000
-----------
Total............................. $ 401,950
===========
All fees, costs and expenses incurred by the parties to the Merger
Agreement in connection with the Merger and the transactions contemplated by the
Merger Agreement will be paid by the party incurring those expenses.
Page 36
PRICE RANGE OF COMMON STOCK
Our common stock is quoted on the Over The Counter Bulletin Board under the
symbol "IWRK.OB" The common stock previously has been listed on The Nasdaq Stock
Market. The following table sets forth, for the fiscal quarters indicated, the
range of high and low closing sale prices of the common stock as reported by
Nasdaq and the Over The Counter Bulletin Board.
HIGH LOW
----------- -----------
Fiscal 1999 by Quarter
First.......................... $ 9 3/16 $ 4 5/32
Second......................... 6 25/32 2 3/16
Third.......................... 5 1/4 3 1/16
Fourth......................... 4 13/16 2 27/32
Fiscal 2000 by Quarter
First.......................... 4 19/32 2 26/32
Second......................... 3 1/2 2 33/64
Third.......................... 3 9/16 1 9/16
Fourth......................... 1 7/8 13/16
Fiscal 2001 by Quarter
First.......................... $ 1 5/16 7/16
Second......................... 5/8 5/32
Third.......................... 9/16 5/32
Fourth......................... 33/64 19/64
Fiscal 2002 by Quarter
First (through September 21,
2001)....................... 3/5 31/100
The closing price of the common stock on August 31, 2001, the last trading
day prior to the public announcement of Iwerks' execution of the Merger
Agreement, was $0.32. On [DAY BEFORE DEFINITIVE PROXY IS FILED] the closing
price of the common stock was $___ per share. On [DAY BEFORE DEFINITIVE PROXY IS
FILED] there were approximately __________ record holders of common stock. The
market price for Iwerks' common stock is subject to fluctuations and we urge you
to obtain current market quotations.
DIVIDENDS
We have never declared or paid any dividends with respect to the common
stock. Any determination to pay dividends in the future will be at the
discretion of the board of directors, will require the consent of SimEx (unless
the Merger Agreement is terminated), and will be dependent upon our results of
operations, financial condition, capital expenditures, working capital
requirements, any contractual restrictions and other factors deemed relevant by
our board of directors. We do not anticipate that any cash dividends will be
paid on the common stock in the foreseeable future if, for any reason, the
Merger is not completed.
COMMON STOCK PURCHASE INFORMATION
None of Iwerks, its directors or executive officers, or SimEx has engaged
in any transaction with respect to the common stock within the past 60 days,
other than the promissory note described below.
We issued a $200,000 promissory note to SimEx on August 21, 2001, in
exchange for a $200,000 loan. The note does not bear interest and is payable in
full on the fourth anniversary of the date of issuance. We may prepay the note
at any time without penalty. The note is secured by one portable ride simulation
unit. SimEx has
Page 37
the right to convert, in whole or in part, at any time the entire unpaid and
unconverted balance of the note, into shares of our common stock at a conversion
price equal to $0.63 per share.
In the previous three fiscal years, Iwerks has purchased Iwerks common
stock as described below.
Aggregate(1)
Shares Avg. $/SH Value High Low
------- --------- ------------- ---------- ----------
FISCAL 1999
Third quarter 9,257 $ 3.50 $ 32,443 $ 3.99 $ 3.06
Fourth quarter 82,343 3.75 308,868 4.37 2.90
------- --------
91,600 $341,311
======= ========
<FN>
(1) Share figures adjusted to reflect our 3.5-for-1 reverse stock split
effective January 18, 2000.
</FN>
DIRECTORS AND EXECUTIVE OFFICERS OF IWERKS ENTERTAINMENT, INC.
DIRECTORS
DONALD W. IWERKS is a co-founder of Iwerks and has been a director since
Iwerks' inception and has served as Chairman of the Board since February 2000.
Mr. Iwerks served as Chief Technical Officer of Iwerks until his retirement in
December 1995 and as Vice Chairman of the Board until September 1999. From 1950
to 1985, Mr. Iwerks was employed by the Walt Disney Studios, where from 1965 to
1985 he was head of the Technical Engineering and Manufacturing Division, which
was responsible for the design and manufacture of all film projection systems
used in the Disney theme parks.
GARY J. MATUS has been a director of Iwerks since July 1996 and has served
as Chief Executive Officer since February 2000. He also is a general partner of
Beneventure Capital, a high technology venture capital and merchant bank
headquartered in San Francisco. From December 1989 to May 1998, Mr. Matus served
as Executive Vice President of Bank of America, N.T. & S.A., and served as Chief
Marketing Officer. From 1989 to 1995, Mr. Matus served as Head of the
Entertainment and Media Industries Group at Bank of America, N.T. & S.A. Mr.
Matus launched and managed the first California-based office for the worldwide
consulting firm of Egon Zehnder International, and early in his career worked
for the Colgate Palmolive Company.
PETER HANELT has been a director of Iwerks since July 1998. On October 1998
Mr. Hanelt was appointed Chief Executive Officer of Natural Wonders, Inc., a
specialty retailer of affordable family gifts inspired by the wonders of science
and nature. On December 17, 2000, Natural Wonders filed a petition for relief
under Chapter 11 in the United States Bankruptcy Court. Prior thereto, from
April 1997 to February 1998, Mr. Hanelt was a principal of Regent Pacific
Management Corporation, a consulting firm. Mr. Hanelt served as Chief Operating
Officer and Chief Financial Officer of Esprit de Corp, an apparel manufacturer,
wholesaler and retailer, from October 1993 to February 1997, and as President,
Retail Division of Espirit De Corp from August 1995 to April 1996. Also, Mr.
Hanelt served as Vice President, Finance and Operations of Saint Francis
Memorial Hospital, a private hospital, from September 1992 to October 1993, and
Acting Chief Operating Officer and Chief Financial Officer of Post Tool, Inc.,
the multi-state retailer of power and hand tools, from August 1990 to September
1992. Mr. Hanelt also serves on the boards of directors of Shoe Pavilion, Inc.,
the largest independent off-price footwear retailer on the West Coast, Patelco
Credit Union, and Interhealth Nutraceuticals.
BRUCE BEDA has been a director of Iwerks since July 1998. Since February
1995, Mr. Beda has served as President and Chief Executive Officer of Orion
Partners LLC, a private investment and consulting company. From December 1986 to
January 1995, Mr. Beda served as Chief Financial Officer of Venturedyne Ltd., a
private manufacturing conglomerate. Mr. Beda presently serves on the board of
directors of Stifel Financial Corp., a financial services company.
Page 38
EXECUTIVE OFFICERS
JEFFREY M. DAHL, C.P.A. has served as Iwerks' Senior Vice President, Chief
Financial Officer and Secretary since February 1999. From October 1996 to
February 1999, Mr. Dahl served as Vice President and Controller of Iwerks. Prior
thereto, from January 1994 to October 1996, Mr. Dahl served as Controller of ACT
III Broadcasting Inc.
DONALD STULTS has been with Iwerks since March 1997 and in March 2000 was
appointed Chief Operating Officer. Mr. Stults was Founder and President of
Pioneer Technology Corp. which was acquired by Iwerks in March 1997. Prior to
founding Pioneer, Mr. Stults was with Klynveld, Peat, Marwick & Goerdeler (KPMG
International) as a Management Consultant, and DataGraphix, Inc., a manufacturer
of computer graphics equipment where he was a Product Manager.
PRINCIPAL STOCKHOLDERS
The following table sets forth as of August 31, 2001 certain information
relating to the ownership of Common Stock by (a) each person known by Iwerks to
be the beneficial owner of more than 5% of the outstanding shares of the Common
Stock, (b) each of our directors, (c) each of the named executive officers and
(d) all of our executive officers and directors as a group. Except as may be
indicated in the footnotes to the table and subject to applicable community
property laws, each of these persons has the sole voting and investment power
with respect to the shares owned. Beneficial ownership has been determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended. Under this Rule, certain shares may be deemed to be beneficially owned
by more than one person (as where persons share voting power or investment
powers). In addition, shares are deemed to be beneficially owned by a person if
the person has the right to acquire the shares (for example, upon exercise of an
option) within 60 days of the date as of which the information is provided; in
computing the percentage ownership of any person, the amount of shares
outstanding is deemed to include the amount of shares beneficially owned by that
person (and only that person) by reason of these acquisition rights on or before
October 29, 2001, regardless of whether the market price for the shares
underlying those acquisition rights is substantially lower than the price at
which the shares may be acquired. As a result, the percentage of outstanding
shares of any person as shown in the following table does not necessarily
reflect the person's actual voting power at any particular date. Unless
otherwise indicated, the address of each person is c/o Iwerks Entertainment,
Inc., 4520 West Valerio Street, Burbank, California 91505-1046.
Number Percent
of of Class
Name and Address Shares Owned
----------------------------------------- ----------- ---------
Donald W. Iwerks (1)..................... 226,818 6.6%
Gary J. Matus (2)........................ 117,494 3.4%
Peter Hanelt (3)......................... 9,470 *
Jeffrey M. Dahl (4)...................... 26,418 *
Bruce Beda (5)........................... 13,756 *
Donald Stults (6)........................ 14,286 *
S. Kumars Limited (7).................... 700,479 20.3%
All executive officers and directors
as a group (6 persons)................... 408,242 11.8%
-------------------------
<FN>
* Less than one percent.
Page 39
(1) Includes 217,420 shares of Common Stock held by the Donald and Betty Iwerks
1995 Family Trust and 9,298 shares of Common Stock underlying options which are
or will become exercisable on or before October 29, 2001. Mr. Iwerks currently
serves as Chairman of the Board and is a consultant to Iwerks.
(2) Includes 116,066 shares of Common Stock underlying options which are or will
become exercisable on or before October 29, 2001.
(3) Includes 5,185 shares of Common Stock underlying options which are or will
become exercisable on or before October 29, 2001.
(4) Includes 23,561 shares of Common Stock underlying options which are or will
become exercisable on or before October 29, 2001.
(5) Includes 5,185 shares of Common Stock underlying options which are or will
become exercisable on or before October 29, 2001.
(6) Consists of options to purchase shares of Common Stock which are will become
exercisable on or before October 29, 2001.
(7) Based on a report of non-objecting beneficial owners provided by ADP
Investor Communication Services as of April 10, 2001.
</FN>
OTHER MATTERS
As of the date of this proxy statement, the board of directors is not aware
of any matters to be presented at the special meeting other than those described
in this proxy statement. If other matters should properly come before the
special meeting or any adjournments or postponements thereof and be voted upon,
the enclosed proxies will be deemed to confer discretionary authority on the
individuals named as proxies therein to vote the shares represented by those
proxies as to any proper matters. The persons named as proxies intend to vote or
not to vote in accordance with the recommendations of our management.
FUTURE STOCKHOLDER PROPOSALS
If the Merger is completed there will be no public stockholders of Iwerks
and no public participation in any future meetings of stockholders of Iwerks.
However, if the Merger is not completed, our stockholders will continue to be
entitled to attend and participate in our stockholders' meetings. Pursuant to
Rule 14a-8 under the Securities Exchange Act of 1934, as amended, promulgated by
the SEC, any of our stockholders who wish to present a proposal at the next
Annual Meeting (in the event that the Merger is not completed), and who wish to
have that proposal included in our proxy statement for that meeting, must have
delivered a copy of that proposal to Iwerks Entertainment, Inc. at 4520 West
Valerio Street, Burbank, California 91505-1045, Attention: Secretary/Chief
Financial Officer, so that it is received no later than ______, 2002. In order
for proposals by stockholders not submitted in accordance with Rule 14a-8 to
have been timely within the meaning of Rule 14a-4(c) under the Securities
Exchange Act of 1934, as amended, that proposal must have been submitted so that
it is received no later than _____, 2002.
WHERE YOU CAN FIND MORE INFORMATION
We filed a Rule 13e-3 Transaction Statement (including any amendments
thereto, the "Schedule 13e-3") under the Securities Exchange Act of 1934, as
amended, concurrently with the filing of this proxy statement. This proxy
statement does not contain all of the information set forth in the Schedule
13e-3 and the exhibits thereto.
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any of these reports, statements
or other information, including the Schedule 13e-3, we file at the
Page 40
SEC's public reference rooms in Washington, D.C. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC at "http://www.sec.gov."
Shares of our common stock are presently traded on the Over The Counter
Bulletin Board under the symbol "IWRK.OB"
The SEC allows us to "incorporate by reference" information into this proxy
statement, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this proxy statement, except
for any information superseded by information in this proxy statement. This
proxy statement incorporates by reference the documents set forth below that we
have previously filed with the SEC. These documents contain important
information about our company and its finances.
IWERKS SEC FILINGS PERIOD ENDED
------------------ ------------
1. Annual Report on Form 10-K filed on June 30, 2001
September 24, 2001.
2. Current Report on Form 8K filed on September 30, 2001
September 10, 2001.
In addition, each document filed by us pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, as amended, subsequent to
the date of this proxy statement and prior to the date of the special meeting
shall be deemed to be incorporated by reference in this proxy statement and to
be a part hereof from the date that document is filed with the SEC.
We have supplied all information contained or incorporated by reference in
this proxy statement relating to us and SimEx has supplied all information
contained in this proxy statement relating to SimEx.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the SEC.
Documents incorporated by reference are available from us without charge,
excluding all exhibits, unless we have specifically incorporated by reference an
exhibit in this proxy statement. Stockholders may obtain documents incorporated
by reference in this proxy statement by requesting them in writing or by
telephone at the following address:
Iwerks Entertainment, Inc.
4520 West Valerio Street
Burbank, California 91505-1045
Attn: Secretary/Chief Financial Officer
If you would like to request documents from us, please do so by November 1,
2001 in order to ensure timely receipt before the special meeting.
You should rely only on the information contained or incorporated by
reference in this proxy statement to vote on the Merger Agreement and the
transactions contemplated thereby. We have not authorized anyone to provide you
with information that is different from what is contained in this proxy
statement. This proxy statement is dated __________, 2001. You should not assume
that the information contained in this proxy statement is accurate as of any
date other than __________, 2001, and the mailing of this proxy statement to
stockholders shall not create any implication to the contrary.
Page 41
IWERKS ENTERTAINMENT, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER __, 2001
The undersigned, a stockholder of IWERKS ENTERTAINMENT, INC. a Delaware
corporation, (the "Company") hereby appoints Gary J. Matus and Jeffrey M. Dahl,
and each of them, the proxies of the undersigned, each with full power of
substitution, to attend, vote and act for the undersigned at the special meeting
of stockholders of the Company, to be held at the Company's offices at 4520 West
Valerio Street, Burbank, California 91505-1045, on December __, 2001 at 10:00
a.m., Los Angeles time, and any postponements or adjournments thereof, and in
connection herewith, to vote and represent all of the shares of the Company
which the undersigned would be entitled to vote, as follows:
The Board of Directors recommends a FOR vote on the following proposal.
The proposal to approve and adopt the Agreement and Plan of Merger dated
August 31, 2001, by and among the Company, SimEx Inc., and SimEx Acquisition
Corporation, a wholly owned subsidiary of SimEx, Inc.:
___ FOR ___ AGAINST ___ ABSTAIN
The undersigned hereby revokes any other proxy to vote at the special
meeting, and hereby ratifies and confirms all that said attorneys and proxies,
and each of them, may lawfully do by virtue hereof. WITH RESPECT TO MATTERS NOT
KNOWN AT THE TIME OF THE SOLICITATION HEREOF, SAID PROXIES ARE AUTHORIZED TO
VOTE IN ACCORDANCE WITH THEIR BEST JUDGMENT.
This Proxy will be voted in accordance with the instructions set forth
above. THIS PROXY WILL BE TREATED AS A GRANT OF AUTHORITY TO VOTE FOR THE
PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT, AND AS SAID PROXY SHALL DEEM
ADVISABLE ON ANY OTHER BUSINESS AS MAY COME BEFORE THE SPECIAL MEETING, UNLESS
OTHERWISE DIRECTED.
Page 42
The undersigned acknowledges receipt of a copy of the Notice of Special
Meeting and accompanying proxy statement dated __________, 2001 relating to the
Meeting.
Date: __________, 2001
-------------------------------------------
-------------------------------------------
Signature(s) of Stockholder(s)
(See Instructions Below)
The signature(s) hereon should correspond exactly with the
name(s) of the stockholder(s) appearing on the Stock
Certificate. If stock is jointly held, all joint owners
should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title
as such. If signer is a corporation, please sign the full
corporation name, and give title of signing officer.
Whether or not you plan to attend the special meeting, we
urge you to sign, date and promptly return this proxy.
THIS PROXY IS SOLICITED BY
THE BOARD OF DIRECTORS OF IWERKS ENTERTAINMENT, INC.
Page 43
ANNEX A
-------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BETWEEN
SIMEX INC.,
SIMEX ACQUISITION CO.
AND
IWERKS ENTERTAINMENT, INC.
-------------------------------------------------------------------------------
AUGUST 31, 2001
TABLE OF CONTENTS
PAGE
Article 1. THE MERGER..........................................................1
1.1 The Merger.......................................................1
1.2 Closing..........................................................1
1.3 Effective Time...................................................2
1.4 Effects of the Merger............................................3
1.5 Certificate of Incorporation and By-Laws.........................3
1.6 Directors and Officers...........................................3
Article 2. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE COMPANY
AND ACQUISITION CO.; EXCHANGE OF CERTIFICATES.......................3
2.1 Effect on Capital Stock..........................................3
2.2 Exchange of Certificates.........................................5
Article 3. REPRESENTATIONS AND WARRANTIES......................................7
3.1 Representations and Warranties of the Company....................7
3.2 Representations and Warranties of the Parent and
Acquisition Co..................................................24
Article 4. COVENANTS RELATING TO CONDUCT OF BUSINESS..........................26
4.1 Conduct of Business.............................................26
4.2 No Solicitation by the Company..................................30
Article 5. ADDITIONAL AGREEMENTS..............................................32
5.1 Preparation of the Proxy Statement; Stockholders Meeting........32
5.2 Access to Information; Confidentiality..........................33
5.3 Commercially Reasonable Efforts.................................33
5.4 Fees and Expenses...............................................34
5.5 Public Announcements............................................34
5.6 Rights Agreement................................................35
5.7 Director's and Officer's Insurance and Indemnification..........35
Article 6. CONDITIONS PRECEDENT...............................................36
6.1 Conditions to each Party's Obligation to Effect the Merger......36
6.2 Conditions to Obligation of the Parent and Acquisition Co.......36
6.3 Conditions to Obligation of the Company.........................37
Article 7. TERMINATION, AMENDMENT AND WAIVER..................................38
7.1 Termination.....................................................38
7.2 Effect of Termination...........................................39
7.3 Amendment.......................................................40
7.4 Extension; Waiver...............................................40
Article 8. GENERAL PROVISIONS.................................................40
8.1 Nonsurvival of Representations and Warranties...................40
8.2 Notices.........................................................40
8.3 Definitions.....................................................41
8.4 Interpretation..................................................44
8.5 Counterparts....................................................44
8.6 Entire Agreement; No Third-Party Beneficiaries..................44
8.7 Governing Law...................................................45
8.8 Assignment......................................................45
8.9 Consent to Jurisdiction.........................................45
8.10 Waiver of Jury Trial............................................45
8.11 Attorney's Fees.................................................46
8.12 Enforcement.....................................................46
8.13 Severability....................................................46
Page ii
AGREEMENT AND PLAN OF MERGER dated as of August 31, 2001, between SimEx
Inc., an Ontario corporation (the "PARENT"), SimEx Acquisition Co., a Delaware
corporation ("ACQUISITION CO."), and Iwerks Entertainment, Inc., a Delaware
corporation (the "COMPANY").
WHEREAS, upon the terms and subject to the conditions of this Agreement
and in accordance with the Delaware General Corporation Law ("DGCL"), the Parent
and the Company will enter into a business combination transaction pursuant to
which Acquisition Co. will merge with and into the Company (the "MERGER");
AND WHEREAS, the Board of Directors of the Parent (i) has determined
that the Merger is consistent with and in furtherance of the long-term business
strategy of the Parent and fair to, and in the best interest of, the Parent and
its stockholders and (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement;
AND WHEREAS, the Board of Directors of the Company (i) has determined
that the Merger is consistent with and in furtherance of the long-term business
strategy of the Company and fair to, and in the best interest of, the Company
and its stockholders and (ii) has approved this Agreement, the Merger and the
other transactions contemplated by this Agreement;
AND WHEREAS, the Parent, Acquisition Co. and the Company desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Parent, Acquisition Co. and the Company hereby agree as follows:
ARTICLE 1.
THE MERGER
1.1 THE MERGER
Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the DGCL, Acquisition Co. shall be merged with
and into the Company at the Effective Time (as defined in Section 1.3).
Following the Effective Time, the separate corporate existence of Acquisition
Co. shall cease and the Company shall continue as the surviving corporation (the
"SURVIVING CORPORATION") and shall succeed to and assume all the rights and
obligations of Acquisition Co. in accordance with the DGCL.
1.2 CLOSING
(a) Upon the terms and subject to the conditions set forth in this
Agreement, the closing of the Merger (the "CLOSING") shall take place at the
offices of Torys, 237 Park Avenue, New York, New York, 10017 at 10:00 a.m., New
York time, on a date to be specified by the parties to this Agreement (the
"PARTIES"), which (subject to satisfaction or waiver of the conditions set forth
in Article 6) shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article 6 or such other date and time
as mutually agreed to by the Parties to the Agreement (the "CLOSING DATE").
(b) At the Closing, the Company shall have delivered or caused to be
delivered to the Parent and Acquisition Co., in each case in form and substance
acceptable to the Parent acting reasonably and in good faith:
(i) the Certificate of Merger (as hereinafter defined), duly
executed by the Company;
(ii) a certificate of the Secretary of the Company certifying as
of the Closing Date (A) a true and complete copy of the organizational
documents of the Company certified as of a recent date by the Office of
the Secretary of State of the State of Delaware (the "DELAWARE SECRETARY
OF STATE"), (B) a certificate of each appropriate Secretary of State or
other officer certifying the good standing of the Company in its state
of incorporation and all states in which it is qualified to do business,
(C) a true and complete copy of the resolutions constituting the Board
Approval and the Stockholder Approval (each as hereinafter defined) and
(D) incumbency matters;
(iii) a resignation letter of each of the directors of the
Company, resigning solely in their capacity as directors of the Company,
each dated effective as of the Closing;
(iv) (A) a consent and/or agreement executed by each holder of
an outstanding Option granted under the 0001 Plan (as defined in Section
3.1(c)) or outside the option plans of the Company which shall give
effect to the requirements of Section 2.1(e), (B) a resolution by the
plan administrator under the 1994 Plan (as defined in Section 3.1(c))
which shall give effect to the requirements of Section 2.1(e) and (C) a
certificate that the Company shall have taken all steps necessary to
duly terminate the other outstanding Options and the outstanding
Warrants (other than the Trust Warrants, as defined in Section 2.1(e))
according to their terms and shall have complied with the terms of the
Trust Warrants to give effect to the requirements of Section 2.1(e); and
(v) such other documents as the Parent or its counsel may
reasonably request for the purpose of facilitating the consummation of
the transactions contemplated herein.
1.3 EFFECTIVE TIME
Upon the terms and subject to the conditions set forth in this
Agreement, as soon as practicable after the Closing and on the Closing Date, the
Parties shall file with the Delaware Secretary of State a certificate of merger
and such other documents as may be required by the DGCL in order for the merger
to become effective (in any such case, the "CERTIFICATE OF MERGER") duly
prepared, executed and acknowledged by the Parties, as applicable. The Merger
Page 2
shall become effective upon the filing of the Certificate of Merger with the
Delaware Secretary of State unless the Parent and the Company agree to a
subsequent date or time and specify such date and time in the Certificate of
Merger (the time the Merger becomes effective being hereinafter referred to as
the "EFFECTIVE TIME").
1.4 EFFECTS OF THE MERGER
The Merger shall have the effects set forth in Section 259 of the DGCL.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Company and Acquisition Co. shall be vested in the Surviving Corporation,
and all debts, liabilities and duties of the Company and Acquisition Co. shall
become the debts, liabilities and duties of the Surviving Corporation.
1.5 CERTIFICATE OF INCORPORATION AND BY-LAWS
(a) The Certificate of Incorporation of Acquisition Co., as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law, except that Article I thereof shall be
amended to read in its entirety as follows: "The name of the Corporation is
Iwerks Entertainment, Inc.".
(b) The By-laws of Acquisition Co., as in effect immediately prior to
the Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law, except
that the By-laws shall be amended to reflect that the name of the Surviving
Corporation shall be "Iwerks Entertainment, Inc.".
1.6 DIRECTORS AND OFFICERS
The directors of Acquisition Co. immediately prior to the Effective Time
shall be the initial directors of the Surviving Corporation, to serve until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified. The officers of Acquisition Co. immediately prior to
the Effective Time shall be the initial officers of the Surviving Corporation,
to serve until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified.
ARTICLE 2.
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE COMPANY
AND ACQUISITION CO.; EXCHANGE OF CERTIFICATES
2.1 EFFECT ON CAPITAL STOCK
As of the Effective Time, by virtue of the Merger and without any
further action on the part of the holder of any shares of capital stock of the
Company, the Parent or Acquisition Co.:
(a) CANCELLATION OF TREASURY STOCK. Each share of common stock, par
value $0.001 per share, of the Company ("COMPANY COMMON STOCK") that is directly
owned by the
Page 3
Company (as treasury stock) immediately prior to the Effective Time shall
automatically be canceled and shall cease to exist, and no consideration shall
be delivered in exchange therefor.
(b) CONVERSION OF ACQUISITION CO. COMMON STOCK. Each issued and
outstanding share of common stock of Acquisition Co. shall remain outstanding as
one fully paid and non-assessable share of common stock of the Surviving
Corporation.
(c) CONVERSION OF COMPANY COMMON STOCK. Subject to Section 2.1(d), each
issued and outstanding share of Company Common Stock (other than shares to be
canceled in accordance with Section 2.1(a)) shall be converted into the right to
receive, immediately prior to the Effective Time, a ratable portion of
$2,250,000 (the "MERGER CONSIDERATION") to be equal to the quotient obtained by
dividing (i) $2,250,000 by (ii) the number of outstanding shares of Company
Common Stock immediately prior to the Effective Time; by way of example,
assuming that a total of 3,554,903 shares of Company Common Stock are
outstanding and including the due exercise of "in-the-money" Options to purchase
105,000 shares of Company Common Stock and the termination of all other
outstanding Options and Warrants (other than the Trust Warrants, as defined in
Section 2.1(e)), such ratable portion would be $0.633034 per share. At the
Effective Time, all such shares of Company Common Stock shall no longer be
outstanding and shall automatically be canceled and shall cease to exist, and
each holder of a certificate representing any such shares shall cease to have
any rights with respect thereto, except the right to receive such holder's
ratable portion of the Merger Consideration.
(d) APPRAISAL RIGHTS. Notwithstanding anything in this Agreement to the
contrary, shares of Company Common Stock issued and outstanding immediately
prior to the Effective Time that are held by any holder who (i) has not voted
such shares of Company Common Stock in favor of the Merger at the Stockholders
Meeting (as defined in Section 5.1(b)), (ii) is entitled to demand and properly
demands appraisal of such shares pursuant to Section 262 of the DGCL ("SECTION
262") and complies in all respects with the provisions of Section 262 and (iii)
has not effectively withdrawn or lost the right to demand relief as a dissenting
stockholder under the DGCL as of the Effective Time (the "APPRAISAL SHARES"),
shall not be converted into the right to receive the Merger Consideration as
provided in Section 2.1(c), but instead such holder of Appraisal Shares shall
only be entitled to payment of the fair value of such shares in accordance with
the provisions of Section 262. At the Effective Time, all Appraisal Shares shall
automatically be canceled and shall cease to exist or be outstanding, and each
holder of Appraisal Shares shall cease to have any rights with respect thereto,
except such rights as are granted under Section 262. Notwithstanding the
foregoing, if any such holder shall fail to perfect or otherwise shall waive,
withdraw or lose the right to appraisal under Section 262 or a court of
competent jurisdiction shall determine that such holder is not entitled to the
relief provided by Section 262, then the rights of such holder under Section 262
shall cease to exist and such Appraisal Shares shall be deemed to have been
converted at the Effective Time into, and shall have become, the right to
receive such holder's ratable portion of the Merger Consideration as provided in
Section 2.1(c). The Company shall serve prompt notice to the Parent of any
demands for appraisal of any shares of Company Common Stock, and the Parent
shall have the right to participate in and, subject to applicable law, direct
all negotiations and proceedings with respect to such demands. The Company shall
not, without the prior written consent of Parent,
Page 4
make any payment with respect to, or settle or offer to settle, any such
demands, or agree to do any of the foregoing.
(e) OPTIONS AND WARRANTS. Each outstanding Option or Warrant (other than
the Warrants issued to the Guber Family Trust and the Paul and Judy Schaeffer
Living Trust (collectively, the "TRUST WARRANTS")), shall, immediately prior to
the Effective Time, automatically be exercised or terminated pursuant to the
terms of the applicable Option or Warrant and, at the Effective Time, shall
cease to exist, and each holder thereof shall cease to have any rights with
respect thereto, except the right to receive such holder's ratable portion of
the Merger Consideration provided that any such Option or Warrant was duly
exercised (including payment to the Company of the applicable exercise price)
prior to the Closing Date. Each outstanding Trust Warrant shall, at the
Effective Time, automatically be converted into the right to receive, upon
exercise thereof in accordance with its terms, such ratable portion of the
Merger Consideration that a holder of that number of shares of Company Common
Stock issuable upon exercise of such Trust Warrants immediately prior to the
Merger would be entitled to receive.
2.2 EXCHANGE OF CERTIFICATES
(a) PAYING AGENT. Prior to the Effective Time, the Parent shall
designate a bank or trust company to act as paying agent for payment of the
Merger Consideration (the "PAYING AGENT"); and on or prior to the Effective
Time, the Parent shall, or cause the Surviving Corporation to, deposit with the
Paying Agent cash in the amount of the Merger Consideration. Subject to Section
2.2(d) hereof, pending distribution pursuant to Section 2.2(b) hereof of the
cash deposited with the Paying Agent, such cash shall be held in trust for the
benefit of the holders of shares of Company Common Stock issued and outstanding
prior to the Effective Time cancelled in the Merger and such cash shall not be
used for any other purposes; provided, however, that any cash deposited with the
Paying Agent which has not been distributed pursuant to Section 2.2(b) hereof
two years after the Effective Time shall be turned over to the Parent and
provided, further, that any and all interest earned at any time on the cash
deposited with the Paying Agent shall be turned over to the Parent.
(b) EXCHANGE PROCEDURE. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock whose shares were
converted into the right to receive such holder's ratable portion of the Merger
Consideration (the "CERTIFICATES"), (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates held by such person shall pass, only upon the proper delivery of
the Certificates to the Paying Agent and shall be in a form and have such other
provisions as the Parent may reasonably specify) and (ii) instructions as
specified by the Paying Agent or the Parent for use in effecting the surrender
of the Certificates in exchange for the Merger Consideration. Upon surrender of
a Certificate for cancellation to the Paying Agent or to such other agent or
agents as may be appointed by the Parent, together with such letter of
transmittal, duly completed and executed, and such other instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor,
and the Paying Agent shall promptly distribute to such holder, the amount of
cash into which the
Page 5
shares of Company Common Stock theretofore represented by such Certificate shall
have been converted pursuant to Section 2.1(c), and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of shares of Company Common Stock that is not registered in the transfer records
of the Company, payment may be made to a person other than the person in whose
name the Certificate so surrendered is registered, if such Certificate shall be
properly endorsed or otherwise be in proper form for transfer and the person
requesting such payment shall pay any transfer or other taxes required by reason
of the payment to a person other than the registered holder of such Certificate
or establish to the satisfaction of the Parent that such tax has been paid or is
not applicable. Until surrendered as contemplated by this Section 2.2(b), each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender a ratable portion of the Merger
Consideration, without interest, into which the shares of Company Common Stock
theretofore represented by such Certificate shall have been converted pursuant
to Section 2.1(c). No interest will be paid or will accrue on the cash payable
upon the surrender of any Certificate.
(c) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All cash paid
upon the surrender of Certificates in accordance with the terms of this Article
2 shall be deemed to have been paid in full satisfaction of all rights
pertaining to the shares of Company Common Stock theretofore represented by such
Certificates. At the close of business on the day of the Effective Time, the
stock transfer books of the Company shall be closed, and there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Paying Agent for
any reason, they shall be canceled and exchanged as provided in this Article 2.
(d) NO LIABILITY. None of the Parent, Acquisition Co., the Company or
the Paying Agent shall be liable to any person in respect of any cash delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law. If any Certificate shall not have been surrendered prior to seven
years after the Effective Time (or immediately prior to such earlier date on
which any Merger Consideration would otherwise escheat to or become the property
of any Governmental Entity (as defined in Section 3.1(d)), the Merger
Consideration shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.
(e) LOST CERTIFICATES. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Parent, the posting by such person of a bond in such reasonable amount as
the Parent may direct as indemnity against any claim that may be made against it
with respect to such Certificate, the Paying Agent will pay to the holder of
such lost, stolen or destroyed Certificate, such holder's ratable portion of the
Merger Consideration.
Page 6
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent and Acquisition Co. as
follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Each of the Company and
its subsidiaries (as defined in Section 8.3(a)) is a corporation or other legal
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction in which it is organized and has the requisite corporate or
other power, as the case may be, and authority to carry on its business as now
being conducted. Each of the Company and its subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties or
operations makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed or to be in good
standing, individually or in the aggregate, would not reasonably be expected to
have a material adverse effect (as defined in Section 8.3(a)) on the Company.
The Company has delivered to the Parent, prior to the execution of this
Agreement, complete and correct copies of (i) its Certificate of Incorporation
and By-laws, in each case as amended to the date hereof and (ii) all the
existing minutes of the meetings of its stockholders, its Board of Directors and
each committee of its Board of Directors held since its incorporation or
organization. No other decisions or resolutions of the stockholders, Board of
Directors or committees of the Board of Directors of the Company, other than as
disclosed in the minutes that have been delivered to the Parent or that are
reflected in the Company SEC Documents (as defined in Section 3.1(e)), would
reasonably be expected to be material to an intending purchaser of the Company.
(b) SUBSIDIARIES. Section 3.1(b) of the Disclosure Letter delivered by
the Company to the Parent prior to the execution of this Agreement (the
"Disclosure Letter") sets forth (i) a list of the subsidiaries of the Company,
(ii) to the knowledge of the Company, the issued and outstanding shares of
capital stock of, or other equity or voting interests in, each such subsidiary
and (iii) to the knowledge of the Company, the registered and beneficial holders
of such shares or other equity or voting interests. All the outstanding shares
of capital stock of, or other equity or voting interests in, each such
subsidiary have been validly issued and are fully paid and nonassessable and are
owned, directly or indirectly, by the Company, free and clear of all mortgages,
pledges, assessments, claims, liens, charges, security interests and other
encumbrances of any kind or nature whatsoever (collectively, "LIENS"). Except
for the capital stock of, or other equity or voting interests in, its
subsidiaries, the Company does not own, directly or indirectly, any capital
stock of, or other equity or voting interests in, any person. No subsidiaries of
the Company carry on an active business, other than Discovery Theatre Limited
Partnership, a California limited partnership, and the partners of such
partnership which are Discovery Theatres San Francisco Corp., a California
corporation, and Cinetropolis Management, Inc., a California corporation. None
of the Company's subsidiaries have any material liabilities or obligations.
Neither the Certificate of Incorporation and By-Laws (or other organizational
documents), nor the minutes of the meetings of the stockholders and Board of
Page 7
Directors of any subsidiary of the Company would reasonably be expected to be
material to an intending purchaser of the Company.
(c) CAPITAL STRUCTURE.
(i) The authorized capital stock of the Company consists of
50,000,000 shares of Company Common Stock and 1,000,000 shares of
preferred stock, par value $0.001 per share ("COMPANY PREFERRED STOCK").
As of the date hereof, (A) 3,540,911 shares of Company Common Stock are
issued and outstanding, (B) 91,600 shares of Company Common Stock are
issued and held by the Company in its treasury and (C) no shares of
Company Preferred Stock are issued and outstanding, or issued and held
by the Company in its treasury. Section 3.1(c)(i) of the Disclosure
Letter which will be delivered to the Parent within 5 business days
hereof sets forth the number of shares of Company Common Stock held by
each registered holder thereof as of August 31, 2001.
(ii) As of the date of this Agreement and regarding options or
stock appreciation rights to purchase shares of Company Common Stock
("OPTIONS"):
(A) Options to purchase 6,718 shares of Company Common
Stock, and no stock appreciation rights, are issued and
outstanding pursuant to the Amended and Restated 1987
Stock Option, Purchase and Appreciation Rights Plan (the
"1987 STOCK PLAN");
(B) Options to purchase 35,397 shares of Company Common
Stock, and no stock purchase rights, are issued and
outstanding pursuant to the 1993 Stock Incentive Plan
(the "1993 STOCK PLAN");
(C) Options to purchase 257,706 shares of Company Common
Stock are issued and outstanding pursuant to the 1994
Stock Incentive Plan (the "1994 STOCK Plan");
(D) Options to purchase 71,250 shares of Company Common
Stock are issued and outstanding pursuant to the 1998
Non-Employee Directors Stock Option Plan (the "1998
NON-EMPLOYEE DIRECTORS STOCK PLAN");
(E) Options to purchase 2,858 shares of Company Common
Stock are issued and outstanding pursuant to the 0001
Stock Option Plan (the "0001 STOCK PLAN");
(F) no options are issued and outstanding pursuant to
the Omni Stock Option Plan; and
(G) Options to purchase 18,096 shares of Company Common
Stock are issued and outstanding on a stand alone basis
and not pursuant to any stock option plan.
Page 8
Section 3.1(c)(ii) of the Disclosure Letter which will be delivered to
the Parent within 5 business days hereof sets forth, as of August 31,
2001, for each issued and outstanding Option, the grant date, the number
of shares of Company Common Stock purchasable thereunder, the vesting
schedule, the exercise price, and the holder thereof.
(iii) As of the date of this Agreement and regarding warrants to
purchase shares of Company Common Stock ("WARRANTS"), warrants to
purchase 451,429 shares of Company Common Stock are issued and
outstanding. Section 3.1(c)(iii) of the Disclosure Letter sets forth,
for each issued and outstanding Warrant, the issue date, the number of
shares of Company Common Stock purchasable thereunder, the exercise
price, and the holder thereof.
(iv) Each outstanding share of Company Common Stock has attached
to it a right ("RIGHT") entitling the holder to purchase 1/100th of a
share of Series A Company Preferred Stock pursuant to the Rights
Agreement dated as of May 22, 1995, as amended on July 15, 1997, July
16, 1999, September 12, 2000 and October 24, 2000 and as will be amended
as provided by this clause (iv) (the "RIGHTS AGREEMENT") between the
Company and U.S. Stock Transfer Corporation, the Rights Agent. The
Company shall enter into an amendment to the Rights Agreement within two
business days of the date hereof. Such amendment will provide that (A)
no "Distribution Date" (as such term is defined in the Rights Agreement)
will occur as a result of the approval, execution or delivery of this
Agreement or the consummation of the Merger and the other transactions
contemplated hereby, (B) neither the Parent nor Acquisition Co. will be
an "Acquiring Person" (as such term is defined in the Rights Agreement)
as a result of entering into, performing the terms of or consummating
the transactions contemplated by this Agreement and (C) the Rights
Agreement will otherwise be inapplicable to the Parent and Acquisition
Co. while this Agreement is in effect.
(v) All outstanding shares of Company Common Stock are, and all
shares that may be issued pursuant to the exercise of Options or
Warrants or otherwise prior to the Effective Time will be, when issued
in accordance with the terms thereof, duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights.
Except as set forth in Section 3.1(c)(v) of the Disclosure Letter, there
are no agreements to which the Company is a party or by which it is
bound with respect to the voting (including voting trusts or proxies),
registration under the Securities Act, or sale or transfer (including
agreements relating to pre-emptive rights, rights of first refusal,
co-sale rights or "drag-along" rights) of any securities of the Company
or its subsidiaries. To the actual knowledge of the officers and
directors of the Company, there are no agreements among other parties,
to which the Company is not a party and by which it is not bound, with
respect to the voting (including voting trusts or proxies) or sale or
transfer (including agreements relating to rights of first refusal,
co-sale rights or "drag-along" rights) of any securities of the Company
or its subsidiaries.
Page 9
(vi) Except as set forth in Section 3.1(c)(vi) of the Disclosure
Letter, there are no Contracts (as defined in Section 3.1(d)) of any
kind to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound obligating the
Company or any of its subsidiaries to (A) issue, grant, deliver or sell,
or cause to be issued, granted, delivered or sold, additional shares of
capital stock of, or securities convertible into, or exchangeable or
exercisable for, shares of capital stock of, or other equity or voting
interests in, the Company or any of its subsidiaries, (B) repurchase,
redeem or otherwise acquire any shares of capital stock of, or other
equity or voting interests in, the Company or any of its subsidiaries or
(C) vote or dispose of any shares of the capital stock of, or other
equity or voting interests in, any of its subsidiaries.
(vii) As of the date of this Agreement and except as disclosed
in the March Financial Statements (as defined in Section 3.1(e)), there
is no outstanding indebtedness for borrowed money of the Company and its
subsidiaries and there are no guarantees by the Company or any of its
subsidiaries of indebtedness of third parties for borrowed money.
(d) AUTHORITY; NONCONTRAVENTION.
(i) The Company has the requisite corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated by this Agreement, subject, in the case of approving this
Agreement and the consummation of the transactions contemplated by this
Agreement, including the Merger, to obtaining the Stockholder Approval
(as defined in (ii) below). The execution and delivery of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of the Company and no other
corporate authorizations or approvals on the part of the Company are
necessary to approve this Agreement or to consummate the transactions
contemplated by this Agreement, subject, in the case of approving this
Agreement and the consummation of the transactions contemplated by this
Agreement, including the Merger, to obtaining the Stockholder Approval.
This Agreement has been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms subject to
(A) applicable bankruptcy, insolvency, fraudulent transfer and
conveyance, moratorium, reorganization, receivership and similar laws
relating to or affecting the enforcement of the rights and remedies of
creditors generally and (B) principles of equity (regardless of whether
considered and applied in a proceeding in equity or at law).
(ii) The affirmative vote of the holders of a majority of the
outstanding shares of Company Common Stock as of the record date
established for the Stockholders Meeting, voting as a single class, at
the Stockholders Meeting in favor of adopting this Agreement (the
"STOCKHOLDER APPROVAL") is the only vote of
Page 10
the holders of any class or series of the Company's capital stock
necessary to approve and adopt this Agreement or the Merger. The
affirmative vote of the holders of any class or series of the Company's
capital stock, voting as a single class or otherwise, is not necessary
to approve any transaction contemplated by this Agreement (other than
the adoption of this Agreement).
(iii) The Board of Directors of the Company, at a meeting duly
called and held at which all directors of the Company were present, duly
and unanimously adopted resolutions (the "BOARD APPROVAL") including (A)
approving and declaring advisable this Agreement, the Merger and the
other transactions contemplated hereby, (B) declaring that it is in the
best interests of the Company and its stockholders that the Company
enter into this Agreement and consummate the Merger on the terms and
subject to the conditions set forth in this Agreement, (C) declaring
that this Agreement is fair to the Company and its stockholders, (D)
directing that this Agreement be submitted to a vote at a meeting of the
Company's stockholders to be held as promptly as practicable and (E)
recommending that the Company's stockholders adopt this Agreement, which
resolutions have not been subsequently rescinded, modified or withdrawn
in any way except as permitted by Section 4.2(b).
(iv) Except as set forth in Section 3.1(d)(iv) of the Disclosure
Letter, the execution and delivery of this Agreement by the Company and
the consummation of the transactions contemplated hereby and compliance
by the Company with the provisions hereof, do not and will not conflict
with, or result in any violation or breach of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right
of, or result in, termination, cancellation or acceleration of any
obligation or to a loss of a material benefit under, or result in the
creation of any Lien in or upon any of the properties or assets of the
Company or any of its subsidiaries under, or give rise to any increased,
additional, accelerated or guaranteed rights or entitlements under, any
provision of (A) the Certificate of Incorporation or By-laws of the
Company or the Certificate of Incorporation or By-laws (or similar
organizational documents) of any of its subsidiaries, (B) any loan or
credit agreement, bond, debenture, note, mortgage, indenture, guarantee,
lease or other contract, commitment, agreement, instrument, obligation,
binding arrangement, binding understanding, binding undertaking, permit,
franchise or license, whether oral or written (each, including all
amendments thereto, a "CONTRACT"), to which the Company or any of its
subsidiaries is a party or any of their respective properties or assets
is subject or (C) subject to the governmental filings and other matters
referred to in the following paragraph, any statute, law, ordinance,
rule, regulation, judgment, order or decree, in each case, applicable to
the Company or any of its subsidiaries or their respective properties or
assets; OTHER THAN, in the case of clauses (B) and (C), any such
conflicts, violations, breaches, defaults, rights, results, losses,
Liens or entitlements that, individually or in the aggregate, would not
reasonably be expected to have a material adverse effect on the Company.
Page 11
(v) No consent, approval, order or authorization of, or
registration, declaration or filing with, or notice to, any domestic or
foreign (whether national, federal, state, provincial, local or
otherwise) government or any court, administrative agency or commission
or other governmental or regulatory authority or agency, domestic or
foreign (each, a "GOVERNMENTAL ENTITY"), is required to be made or
obtained by the Company or any of its subsidiaries in connection with
the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated hereby or
compliance with the provisions hereof, except for (A) the filing with
the Securities and Exchange Commission (the "SEC") of a proxy statement
relating to the approval by the Company's stockholders of this Agreement
(as amended or supplemented from time to time, the "PROXY STATEMENT")
and such other filings, notices or reports under the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT"), as may be required in
connection with this Agreement, the Merger and the other transactions
contemplated hereby, (B) the notifying of the Over the Counter Bulletin
Board of the transactions contemplated hereby, (C) the filing of the
Certificate of Merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in
which the Company or any of its subsidiaries is qualified to do business
and (D) such other consents, approvals, orders, authorizations,
registrations, declarations, filings or notices the failure of which to
be obtained or made, individually or in the aggregate, would not
reasonably be expected to have a material adverse effect on the Company.
(vi) The approval of the Merger by the Board of Directors of the
Company referred to in paragraph (iii) above constitutes approval of the
Merger for purposes of Section 203 of the DGCL and represents the only
action necessary to ensure that the restrictions on business
combinations (as such term is defined therein) set forth in Section 203
of the DGCL does not and will not apply to the execution or delivery of
this Agreement or the consummation of the Merger and the other
transactions contemplated hereby. To the knowledge of the Company, no
other state takeover or similar statute or regulation is applicable to
this Agreement, the Merger or the other transactions contemplated
hereby.
(e) SEC DOCUMENTS. The Company has filed with the SEC on a timely basis
all reports, schedules, forms, statements and other documents required to be
filed by it since July 1, 1996 as such documents since the time of filing may
have been amended or supplemented (the "COMPANY SEC DOCUMENTS"). No subsidiary
of the Company is required to file with the SEC any report, schedule, form,
statement or other document. As of their respective dates, the Company SEC
Documents complied as to form in all material respects with the requirements of
the Securities Act of 1933, as amended (the "SECURITIES ACT"), or the Exchange
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Company SEC Documents, and none of the Company SEC
Documents when filed contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company for the fiscal
quarter ended
Page 12
March 31, 2001 filed with the SEC (the "MARCH FINANCIAL STATEMENTS") and all
other financial statements of the Company included in the Company SEC Documents,
including in each case the notes thereto (collectively with the March Financial
Statements, the "SEC FINANCIAL STATEMENTS") comply as to form, as of their
respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except as may be indicated therein or in the notes thereto)
and fairly present in all material respects the consolidated financial position
of the Company as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal recurring year-end audit adjustments and other
adjustments described therein). Except as set forth in the March Financial
Statements and except as arising hereunder, the Company and its subsidiaries
have no liabilities or obligations of any nature (whether absolute, accrued,
asserted or unasserted, contingent or otherwise) that would be required to be
reflected on or reserved against in any SEC Financial Statements that are not
disclosed, reflected or reserved against in such SEC Financial Statements,
except for such liabilities and obligations (i) that have been incurred since
March 31, 2001 in the ordinary course of business, (ii) that, individually or in
the aggregate, would not reasonably be expected to have a material adverse
effect on the Company or (iii) arising as a result of the consummation of the
transactions contemplated by this Agreement.
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Since March 31, 2001 and
except as set forth in Section 3.1(f) of the Disclosure Letter and for the
transactions provided for herein, (i) the Company and its subsidiaries have
conducted their respective businesses only in the ordinary course of business
and (ii) there has not been: (A) any state of facts, change, development,
effect, condition or occurrence that, individually or in the aggregate,
constitutes, has had, or would reasonably be expected to have a material adverse
effect on the Company; (B) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with respect
to any of the Company's or any of its subsidiaries' capital stock; (C) any
purchase, redemption or other acquisition of any shares of capital stock or
other securities of the Company or its subsidiaries or any options, warrants,
calls, or rights to acquire such shares or securities; (D) any split,
combination or reclassification of any of the Company's or any of its
subsidiaries' capital stock or any issuance or the authorization of any issuance
of any other securities in respect of, in lieu of or in substitution for shares
of the Company's capital stock or other securities of the Company or any of its
subsidiaries (other than shares of Company Common Stock issuable upon exercise
of outstanding Options or Warrants); (E) any granting by the Company or any of
its subsidiaries to any current or former director, officer, employee or
consultant (1) of any increase in compensation, bonus or other benefits
(including grants of stock options, stock appreciation rights or other
stock-based awards) or any such granting of any type of compensation or benefits
to any current or former director, officer, employee or consultant not
previously receiving or entitled to receive such type of compensation or
benefit, or (2) of the right to receive any severance or termination pay, or
increases therein (other than in both instances (1) and (2) increases made as
required by law); (F) any material change in financial or tax accounting
methods, principles or practices by the Company or any of its subsidiaries,
except insofar as may have been required by a change in GAAP or applicable law;
(G) any material
Page 13
election with respect to taxes by the Company or any of its subsidiaries or any
settlement or compromise of any material tax liability or refund; or (H) any
revaluation of the Company's or any of its subsidiaries' material assets.
(g) LITIGATION. Except as set forth in Section 3.1(g) of the Disclosure
Letter, there is no suit, claim, action, investigation or proceeding pending or,
to the knowledge of the Company, threatened against or affecting the Company or
any of its subsidiaries or any of their respective assets or properties before
or by any Governmental Entity that, individually or in the aggregate, would
reasonably be expected to have a material adverse effect on the Company, nor is
there any judgment, order or decree of any Governmental Entity or arbitrator
outstanding against the Company or any of its subsidiaries that, individually or
in the aggregate, would reasonably be expected to have a material adverse effect
on the Company.
(h) COMPLIANCE WITH APPLICABLE LAWS. The Company and its subsidiaries
hold all permits, licenses, variances, exemptions, certificates, authorizations,
orders and approvals of all Governmental Entities which are necessary or
advisable to the lawful operation of the respective business of the Company and
its subsidiaries (the "PERMITS"), except where the failure to hold such Permits,
individually or in the aggregate, would not reasonably be expected to have a
material adverse effect on the Company. All such Permits are in full force and
effect and the Company and its subsidiaries are in compliance with the terms of
the Permits and all applicable statutes, laws, ordinances, rules and
regulations, except where the failure so to maintain such Permits or so to
comply, individually or in the aggregate, would not reasonably be expected to
have a material adverse effect on the Company. The Company has not received any
notice to the effect that the Company or any of its subsidiaries is not in
compliance with the terms of the Permits or any such statutes, laws, ordinances,
rules, or regulations.
(i) CONTRACTS. Except for Contracts filed as exhibits to the Company SEC
Documents, there are no Contracts that were required to be filed as an exhibit
to those Company SEC Documents under the Exchange Act and the rules and
regulations promulgated thereunder. The Company has delivered to the Parent true
and complete copies, of:
(i) all Contracts of the Company or any of its subsidiaries made
in the ordinary course of business having an aggregate value over the
term of the Contract, or involving payments by or to the Company and its
subsidiaries, of more than $50,000, except for purchase and sales orders
in the ordinary course of business;
(ii) all Contracts of the Company or any of its subsidiaries
made outside the ordinary course of business which have not been
performed in full;
(iii) all Contracts or legally binding commitments of the
Company, any of its subsidiaries or any of its affiliates, that contain
a covenant restricting the ability of the Company or any of its
subsidiaries (or which, following the consummation of the Merger, could
restrict the ability of the Parent or any of its subsidiaries, including
the Company and its subsidiaries) to compete in any
Page 14
business or with any person or in any geographic area and a description
of all such Contracts is set forth in Section 3.1(i)(iii) of the
Disclosure Letter;
(iv) all Contracts of the Company or any of its subsidiaries
with any affiliate of the Company (other than any of its subsidiaries)
which have not been performed in full;
(v) all employment, consulting, bonus, severance, or retention
agreements or similar agreements or understandings of the Company or any
of its subsidiaries which have not been performed in full and a list of
all such Contracts is set forth in Section 3.1(i)(v) of the Disclosure
Letter;
(vi) all Contracts which, individually or in the aggregate,
would reasonably be expected to have a material adverse effect on the
Company to which the Company or any of its subsidiaries is a party
granting any license to any property, asset or right of the Company or
any of its subsidiaries, or right of first refusal with respect to the
Company, any of its subsidiaries or the assets and properties of the
Company or any of its subsidiaries;
(vii) all confidentiality, standstill or other similar Contracts
to which the Company or any of its subsidiaries is a party which have
not been performed in full and a list of all such Contracts is set forth
in Section 3.1(i)(vii) of the Disclosure Letter;
(viii) all joint venture, partnership or other similar Contracts
to which the Company or any of its subsidiaries is a party and a list of
all such Contracts is set forth in Section 3.1(i)(viii) of the
Disclosure Letter; and
(ix) all loan agreements, credit agreements, notes, debentures,
bonds, mortgages, indentures and other Contracts (collectively, "DEBT
OBLIGATIONS") pursuant to which any indebtedness of the Company or any
of its subsidiaries is outstanding or may be incurred and all guarantees
of or by the Company or any of its subsidiaries of any debt obligations
of any other person.
Each such Contract or agreement and each Contract or agreement disclosed in the
Disclosure Letter is in full force and effect and constitutes a legal, valid and
binding agreement, enforceable in accordance with its terms, of the Company or
its subsidiaries, as applicable, and the Company or its subsidiaries, as
applicable, has performed in all material respects all of its obligations under,
and is not in violation or breach of or default under, any such Contract or
agreement except for such violation or breach which would not reasonably be
expected to have a material adverse effect on the Company. To the knowledge of
the Company, the other parties to any such Contract or agreement have performed
in all material respects all of their obligations under, and are not in
violation or breach of or default under, any such Contract or agreement.
(j) ABSENCE OF CHANGES IN BENEFIT PLANS; EMPLOYMENT AGREEMENTS. Since
March 31, 2001, there has not been any adoption or amendment in any material
respect by the
Page 15
Company or any of its subsidiaries of any bonus, pension, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock purchase,
stock appreciation, stock option, phantom stock, performance or retirement plan,
savings, stock bonus, cafeteria, vacation, severance, disability, death benefit,
medical, welfare or other benefit plan or program providing benefits to any
current or former employee, officer or director of the Company or any of its
subsidiaries. Except as set forth in Section 3.1(j) of the Disclosure Letter,
(i) each of the employees of the Company and its subsidiaries is employed at
will, (ii) there exist no employment (except employment at will), consulting,
deferred compensation, severance, termination or indemnification agreements or
arrangements between the Company or any of its subsidiaries, on the one hand,
and any current or former director, officer, employee or consultant of the
Company or any of its subsidiaries, on the other hand, or (iii) there exist no
agreements or arrangements between the Company or any of its subsidiaries, on
the one hand, and any current or former director, officer, employee or
consultant of the Company or any of its subsidiaries, on the other hand, the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving the Company of the nature
contemplated by this Agreement.
(k) LABOR MATTERS. Neither the Company nor any of its subsidiaries is a
party to or bound by any collective bargaining agreement with any labor
organization, group or association covering any of its employees and, to the
knowledge of the Company, there are no attempts to organize any of the Company's
or any of its subsidiaries' employees by any person, unit or group seeking to
act as their bargaining agent. The Company has complied in all material respects
with all applicable laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining, discrimination against race, color, national origin, religious
creed, physical or mental disability, sex, age, ancestry, medical condition,
marital status or sexual orientation, and the withholding and payment of social
security and other Taxes (as hereinafter defined). There are no pending or, to
the knowledge of the Company, threatened charges of unfair labor practices or of
employment discrimination or of any other wrongful action with respect to any
aspect of employment of any person employed or formerly employed by the Company
or any of its subsidiaries. To the knowledge of the Company, no union
representation elections relating to the Company's employees have been scheduled
by any Governmental Entity and no investigation of the employment policies or
practices of the Company by any Governmental Entity is pending or threatened.
(l) ERISA COMPLIANCE. Set forth in Section 3.1(l) of the Disclosure
Letter is a list of each "employee benefit plan" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and any other bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock appreciation,
stock option, phantom stock, performance or retirement plan, savings, stock
bonus, cafeteria, vacation, severance, disability, death benefit, medical,
welfare or other benefit plan or program sponsored or maintained by the Company
or any of its subsidiaries or to which the Company or any of its subsidiaries is
required to make contributions (such plans and related trusts and related
agreements and arrangements being hereinafter referred to as the "BENEFIT
PLANS"). The Company has delivered to the Parent true and complete copies of all
Benefit Plans and all financial statements, actuarial reports and annual reports
and returns filed with the
Page 16
Internal Revenue Service or Department of Labor with respect to such Benefit
Plans for a period of three years prior to the date hereof. In addition:
(i) each Benefit Plan has been operated and administered in
compliance with its terms in all material respects;
(ii) each Benefit Plan complies in all respects with all
requirements of ERISA and the Internal Revenue Code of 1986, as amended
(the "Code") and with all other applicable law except where the failure
to so comply, individually or in the aggregate, would not have a
material adverse effect on the Company;
(iii) each Benefit Plan intended to qualify under Section 401(a)
of the Code has received a favorable determination letter from the
Internal Revenue Service as to its qualification under Section 401(a) of
the Code;
(iv) neither the Company, nor any of its subsidiaries maintains,
sponsors or contributes to, and has maintained, sponsored or contributed
in the past six years to, any "defined benefit plan" (within the meaning
of Section 3(35) of ERISA) or any multiemployer plan (within the meaning
of Section 3(37) of ERISA);
(v) no "prohibited transaction" (within the meaning of Section
406 of ERISA or Section 4975(c) of the Code) has occurred with respect
to any Benefit Plan;
(vi) no provision of any Benefit Plan limits the right of the
Company or any of its subsidiaries to amend or terminate any Benefit
Plan on no more than 90 days notice, subject to the requirements of
applicable law;
(vii) all contributions required to have been made to trusts in
connection with any Benefit Plan that would constitute a "defined
contribution plan" (within the meaning of Section 3(34) of ERISA)
through the date hereof have been made;
(viii) other than claims in the ordinary course for benefits
with respect to the Benefit Plans, there are no actions, suits or claims
pending with respect to any Benefit Plan, or, to the Company's
knowledge, any circumstances which might give rise to any such action,
suit or claim;
(ix) all reports, returns and similar documents with respect to
the Benefit Plans required to be filed with any Governmental Entity have
been so filed; and
(x) neither the Company, nor any of its subsidiaries has any
obligation to provide health or other welfare benefits to former,
retired or terminated employees, except as specifically required under
Section 4980B of the Code or Section 601 of ERISA, and the Company and
its subsidiaries have complied in all
Page 17
material respects with the notice and continuation requirements of
Section 4980B of the Code and Section 601 of ERISA and the regulations
thereunder.
(m) TAXES.
(i) Each of the Company and its subsidiaries has filed or caused
to be filed on a timely basis all local, foreign and other tax returns,
reports and declarations (collectively, "TAX RETURNS") required to be
filed by it and has paid all taxes, including income, gross receipts,
capital stock, profits, stamp, occupation, transfer, value added,
excise, franchise, sales, use, property (whether real, personal or
mixed), employment, unemployment, disability, withholding, social
security and workers' compensation taxes and estimated income and
franchise tax payments, and interest, penalties, fines, costs and
assessments ("TAXES") with respect to the periods covered by such Tax
Returns (whether or not reflected thereon or yet due and payable or
assessed). All Tax Returns filed by or on behalf of the Company and its
subsidiaries are true, complete and correct. There are no tax Liens on
any of the properties or assets, real, personal or mixed, tangible or
intangible, of the Company or any of its subsidiaries, other than for
Taxes not yet due and payable.
(ii) Except as set forth in Section 3.1(m)(ii) of the Disclosure
Letter, since March 31, 2001, neither the Company nor any of its
subsidiaries has incurred any material Tax liability other than in the
ordinary course of business. No deficiency in Taxes of the Company or
any of its subsidiaries for any period has been asserted by any taxing
authority which remains unpaid at the date hereof. No Tax Returns of the
Company or any of its subsidiaries have ever been audited. No inquiries
or notices have been received by the Company or any of its subsidiaries
from a taxing authority with respect to possible claims for Taxes which
have not been resolved and paid prior to the date hereof, and neither
the Company nor any of its subsidiaries has any reason to believe that
such an inquiry or notice is pending or threatened, and there is no
basis for any additional claims or assessments for Taxes. Neither the
Company nor any of its subsidiaries has agreed to the extension of the
statute of limitations with respect to any Tax Returns or Tax periods.
There are no assessments relating to the Company's or any of its
subsidiaries' Tax Returns pending or, to the knowledge of the Company,
threatened. The Company has delivered to the Parent true and complete
copies of all income (or franchise) Tax Returns filed by it and any of
its subsidiaries for the past five financial years. Neither the Company
nor any of its subsidiaries is, or has been, the common parent or a
member of any affiliated group of corporations filing a consolidated
income tax return, (other than a group the common parent of which was
the Company) and is not a party to any tax sharing agreement or other
arrangement pursuant to which it could be liable for the Taxes of any
third party.
(iii) Adequate accruals and reserves have been made in the March
Financial Statements and the books and records of the Company and its
Page 18
subsidiaries for the payment of all unpaid local, foreign and other
Taxes of the Company and its subsidiaries for all periods through the
respective dates thereof, whether or not yet due and payable and whether
or not disputed by the Company or any of its subsidiaries, and nothing
has occurred subsequent to the dates of such March Financial Statements
or such accruals or reserves in such books and records which make such
accruals and reserves inadequate.
(iv) Except as set forth in Section 3.1(m)(iv) of the Disclosure
Letter, the Company has not been liable for the payment of interest,
penalties, or fines in relation to Taxes during the past five years.
(n) TITLE TO PROPERTIES. Each of the Company and its subsidiaries has
marketable and legal title to, or valid leasehold interests in, all of its
properties and assets except for such as are no longer used in the conduct of
its businesses or as have been disposed of in the ordinary course of business
and except for defects in title, easements, restrictive covenants and similar
encumbrances that, individually or in the aggregate, would not reasonably be
expected to have a material adverse effect on the Company. Except as set forth
in Section 3.1(n) of the Disclosure Letter, all such properties and assets,
other than properties and assets in which the Company or any of its subsidiaries
has a leasehold interest, are free and clear of all Liens, except for Liens
that, individually or in the aggregate, would not reasonably be expected to have
a material adverse effect on the Company. With respect to the Company's leased
property located at 4540 Valerio Street, Burbank, California, there are no above
ground storage drums located thereon.
Each of the Company and its subsidiaries has complied with the terms of
all leases to which it is a party and under which it is in occupancy, and all
such leases are in full force and effect, except for such noncompliances or
failures to be in full force and effect that, individually or in the aggregate,
would not reasonably be expected to have a material adverse effect on the
Company. The Company and its subsidiaries enjoy peaceful and undisturbed
possession under all such leases.
(o) INTELLECTUAL PROPERTY.
(i) Section 3.1(o)(i) of the Disclosure Letter lists all
registered and material unregistered trademarks and applications
therefor, trade names, service marks, registered copyrights and
applications therefor, patents and patent applications, if owned by or
licensed to the Company or any of its subsidiaries and indicating
whether owned by or licensed to the Company or any of its subsidiaries.
Each of the Company and its subsidiaries owns, or is validly licensed or
otherwise has the right to use, in each case free and clear of any Liens
(including any performer's rights, third party distribution rights and
mechanical and other reproduction rights), all Intellectual Property (as
defined in (iv) below) used or necessary to carry on its business as now
being conducted.
(ii) Except with respect to Patents and unregistered trademarks,
in respect of which the Company represents and warrants only to its
knowledge,
Page 19
none of the Company or any of its subsidiaries has infringed upon,
misappropriated or otherwise come into conflict with any Intellectual
Property or other proprietary information of any other person, except
for any such infringement, misappropriation or other conflict that,
individually or in the aggregate, would not reasonably be expected to
have a material adverse effect on the Company. Except as disclosed in
Section 3.1(o)(ii) of the Disclosure Letter, (A) none of the Company or
any of its subsidiaries has received any charge, complaint, claim,
demand or notice alleging any such infringement, misappropriation or
other conflict or challenging the ownership, use, validity or
enforceability of any Intellectual Property owned by, licensed to or
otherwise used by the Company or any of its subsidiaries nor, to the
knowledge of the Company, is there a reasonable basis for any such
claim, (B) none of the Company or any of its subsidiaries is party to or
the subject of any pending or, to the knowledge of the Company,
threatened, suit, claim, action, investigation or proceeding with
respect to any such infringement, misappropriation or conflict, that has
not been settled or otherwise fully resolved and (C) to the knowledge of
the Company, no other person has infringed upon, misappropriated or
otherwise come into conflict with any Intellectual Property owned by,
licensed to or otherwise used by the Company or any of its subsidiaries.
(iii) Section 3.1(o)(iii) of the Disclosure Letter contains a
list of each current employee or consultant of the Company and its
subsidiaries who has not executed the Company's standard form
confidentiality agreement in the form delivered to the Parent. Each of
the Company and its subsidiaries has taken all reasonable and necessary
steps (based on standard industry practices) to protect its Intellectual
Property and rights thereunder and, to the knowledge of the Company, no
such rights to Intellectual Property have been lost or are in jeopardy
of being lost as a result of any act or omission by the Company or any
of its subsidiaries.
(iv) "INTELLECTUAL PROPERTY" shall mean (A) inventions (whether
patentable or unpatentable and whether or not reduced to practice),
ideas, research and techniques, technical designs, discoveries and
specifications, improvements, modifications, adaptations, and
derivations thereto, and patents, patent applications, models,
industrial designs, inventor's certificates, and patent disclosures,
together with reissuances, continuations, continuations-in-part,
revisions, extensions and reexaminations thereof (the "PATENTS"), (B)
trademarks, all service marks, logos, trade dress, brand names and trade
names, assumed names, corporate names and other indications of origin
(whether registered or unregistered), (C) copyrights (whether registered
or unregistered and any applications for registration therefor,
including any modifications, extensions or renewals thereof), (D) trade
secrets, know-how and confidential business information and rights in
any jurisdiction to limit the use or disclosure thereof by any person,
(E) Software, (F) internet domain names, and (G) moral rights, publicity
rights, customer lists.
Page 20
(p) SOFTWARE. The Software (as defined below) owned or purported to be
owned by the Company or any of its subsidiaries, was either (i) developed by
employees of the Company or its subsidiaries within the scope of their
employment, (ii) developed by independent contractors who have assigned their
rights to the Company or its subsidiaries pursuant to written agreements or
(iii) otherwise lawfully acquired by the Company or its subsidiaries from a
third party pursuant to written agreements. Such Software does not contain any
programming code, documentation or other material or development environments
that embody Intellectual Property rights of any person other than the Company or
its subsidiaries, except for such materials or development environments obtained
by the Company or its subsidiaries from (i) third parties pursuant to valid
licenses or other agreements or (ii) other persons who make such materials or
development environments generally available to all interested purchasers or
end-users on standard commercial terms. The source code of any of the Company's
Software and the data associated therewith have not been licensed or otherwise
provided to another person, other than the source code of the Company's Software
in its hardware sales contracts which have been licensed to certain purchasers
in conjunction with the operation of theaters by such purchasers, and have been
safeguarded and protected as confidential and proprietary Company information.
"SOFTWARE" means any and all (i) computer programs, including any and all
software implementations of algorithms, models and methodologies, whether in
source code or object code, (ii) databases and compilations, including any and
all data and collections of data, whether machine readable or otherwise, (iii)
descriptions, schematics, flow-charts and other work product used to design,
plan, organize and develop any of the foregoing and (iv) all documentation,
including user manuals and training materials, relating to any of the foregoing.
(q) ENVIRONMENTAL MATTERS.
(i) Each of the Company and its subsidiaries possesses in full
force and effect all material Environmental Permits (as defined below)
necessary to conduct its businesses and operations as now being
conducted. None of the Company or its subsidiaries has been notified by
any Governmental Entity that any Environmental Permits will be modified,
suspended or revoked.
(ii) Each of the Company and its subsidiaries is in compliance
with all applicable Environmental Laws (as defined below) and the terms
and conditions of all Environmental Permits except for failures to be in
compliance that, individually or in the aggregate, would not reasonably
be expected to have a material adverse effect on the Company. None of
the Company or its subsidiaries has received any communication from any
Governmental Entity or other person that alleges that the Company or any
of its subsidiaries has violated or is, or may be, liable under any
Environmental Law.
(iii) There are no past or pending or, to the knowledge of the
Company, threatened material Environmental Claims (as defined below) (A)
against the Company or any of its subsidiaries or (B) against any person
whose liability for any Environmental Claim the Company or any of its
subsidiaries has retained or assumed, either contractually or by
operation of law, and none of the Company or any of its subsidiaries has
contractually retained or assumed any liabilities or
Page 21
obligations that would reasonably be expected to provide the basis for
any material Environmental Claim.
(iv) There have been no Releases (as defined below) of any
Hazardous Materials (as defined below) at, from, in, to, on or under any
real properties currently or previously owned, leased, or utilized by
the Company or any of its subsidiaries, predecessors, or affiliates that
would reasonably be expected to form the basis of any material
Environmental Claim against the Company or any of its subsidiaries.
(v) Neither the Company nor any of its subsidiaries,
predecessors or affiliates transported or arranged for the
transportation, treatment, storage, handling or disposal of any
Hazardous Materials to any off-site location that would reasonably be
anticipated to result in a material Environmental Claim.
(vi) There are no (A) underground storage tanks, active or
abandoned, (B) polychlorinated biphenyl containing equipment or (C)
asbestos containing material within the leasehold of any site or
building utilized by the Company or any of its subsidiaries.
(vii) There have been no environmental investigations, studies,
tests, audits, reviews or other analyses conducted by, on behalf of, or
which are in the possession of, the Company or any of its subsidiaries
which have not been delivered to the Parent.
(viii) (A) "ENVIRONMENTAL CLAIMS" means any and all actions,
orders, decrees, suits, demands, directives, claims, Liens,
investigations, proceedings or notices of violation by any Governmental
Entity or other person alleging potential responsibility or liability
arising out of, based on or related to (1) the presence, Release or
threatened Release of, or exposure to, any Hazardous Materials at any
location or (2) circumstances forming the basis of any violation or
alleged violation of any Environmental Law;
(B) "ENVIRONMENTAL LAWS" means all laws, rules,
regulations, orders, decrees, common law, judgments or
binding agreements issued, promulgated or entered into
by or with any Governmental Entity with applicable
authority over such matters relating to pollution or
protection of the environment or human health;
(C) "ENVIRONMENTAL PERMITS" means all permits, licenses,
registrations and other authorizations required under
applicable Environmental Laws;
(D) "HAZARDOUS MATERIALS" means all hazardous, toxic,
explosive or radioactive substances, wastes or other
pollutants, including petroleum or petroleum
distillates, asbestos, polychlorinated biphenyls, radon
gas and
Page 22
all other substances or wastes of any nature regulated
pursuant to any Environmental Law; and
(E) "RELEASE" means any release, spill, emission,
leaking, dumping, injection, pouring, deposit, disposal,
discharge, dispersal, leaching or migration into the
environment or within any building, structure, facility
or fixture.
(r) ASSETS IN GOOD CONDITION. All physical assets of the Company and its
subsidiaries carried for value on the SEC Financial Statements (other than the
11 portable ride simulation theatres of the Company pertaining to its Touring
Division which are in the process of being sold or used for other purposes) are
in good operating condition and in a state of good maintenance and repair having
regard to the use to which such assets are put and the age thereof.
(s) INSURANCE. All physical assets of the Company and its subsidiaries
carried for value on the SEC Financial Statements are covered by fire and other
insurance with responsible insurers against such risks and in such amounts as
are reasonable for prudent owners of comparable assets. Section 3.1(s) of the
Disclosure Letter lists all the insurance policies held by the Company or any of
its subsidiaries. Neither the Company nor any of its subsidiaries is in default
with respect to any of the provisions contained in any such policies of
insurance or has failed to give any notice or pay any premium or present any
claim under any such insurance policy, other than such defaults or failures
which would not reasonably be expected to have a material adverse effect on the
Company. The Company has no reason to believe that any of the insurance policies
listed in Section 3.1(s) of the Disclosure Letter will not be renewed by the
insurer upon the scheduled expiry of the policy or will be renewed by the
insurer only on the basis that there will be a material increase in the premiums
payable in respect of the policy. The Company has delivered to the Parent true
and complete copies of all of such insurance policies.
(t) NON-ARM'S LENGTH TRANSACTIONS.
Except as disclosed in the Proxy Statements of the Company included in
the Company SEC Documents during the preceding five years:
(i) Neither the Company nor any of its subsidiaries has made any
payment or loan to, or borrowed any monies from or is or has become
otherwise indebted to, any officer, director, employee, stockholder or
any other person with whom the Company or any of its subsidiaries is not
dealing at arm's length or any affiliate of any of the foregoing, except
for usual compensation paid in the ordinary course of business.
(ii) Except for Contracts made solely between the Company and
any of its subsidiaries or between any of the subsidiaries of the
Company and except for Contracts of employment or relating to severance
or change of control payments, neither the Company nor any of its
subsidiaries is a party to any Contract with any officer, director,
employee, stockholder or any other person with whom the
Page 23
Company or any of its subsidiaries is not dealing at arm's length or any
affiliate of any of the foregoing.
(u) BROKERS. Except for a fee owing by the Company to Resource Financial
Corporation not exceeding $300,000 (plus expenses), pursuant to an Engagement
Letter dated as of November 3, 1999, no broker, investment banker, financial
advisor or other person has been retained by, or is authorized to act on behalf
of the Company or any of its subsidiaries, and is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement.
(v) CURRENT LIABILITIES. Section 3.1(v) of the Disclosure Letter sets
forth those current liabilities reflected on the SEC Financial Statements of the
Company for the fiscal year ended June 30, 2000 which have been reduced through
forgiveness of debt by the Company's creditors, which reduction in the aggregate
is not less than $650,000.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PARENT AND ACQUISITION CO.
The Parent and Acquisition Co. represent and warrant to the Company as
follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Each of the Parent and
Acquisition Co. is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized and has the
requisite corporate power and authority to carry on its business as now being
conducted. Each of the Parent and Acquisition Co. is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties or operations
makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed or to be in good
standing, individually or in the aggregate, would not reasonably be expected to
have a material adverse effect on the Parent.
(b) AUTHORITY; NONCONTRAVENTION.
(i) The Parent and Acquisition Co. have the requisite corporate
power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement by the Parent and Acquisition
Co. and the consummation by the Parent and Acquisition Co. of the
transactions contemplated by this Agreement have been duly authorized by
all necessary corporate action on the part of the Parent and Acquisition
Co. and no other corporate proceedings on the part of the Parent or
Acquisition Co. are necessary to approve this Agreement or to consummate
the transactions contemplated by this Agreement. This Agreement has been
duly executed and delivered by the Parent and Acquisition Co. and
constitutes a legal, valid and binding obligation of the Parent and
Acquisition Co., enforceable against the Parent and Acquisition Co. in
accordance with its terms subject to (A) applicable bankruptcy,
insolvency, fraudulent transfer and conveyance, moratorium,
reorganization, receivership and similar laws relating to or affecting
the enforcement of the rights and remedies of creditors generally and
Page 24
(B) principles of equity (regardless of whether considered and applied
in a proceeding in equity or at law).
(ii) The execution and delivery of this Agreement by the Parent
and Acquisition Co. and the consummation of the transactions
contemplated hereby and compliance by the Parent and Acquisition Co.
with the provisions hereof, do not and will not conflict with, or result
in any violation or breach of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of, or result in,
termination, cancellation or acceleration of any obligation or to a loss
of a material benefit under, or result in the creation of any Lien in or
upon any of the properties or assets of the Parent or Acquisition Co.
under, or give rise to any increased, additional, accelerated or
guaranteed rights or entitlements under, any provision of (A) the
Articles of Incorporation or By-laws of the Parent or the Certificate of
Incorporation or By-laws of Acquisition Co., (B) any Contract to which
the Parent or Acquisition Co. is a party or any of their respective
properties or assets is subject or (C) subject to the governmental
filings and other matters referred to in the following paragraph, any
statute, law, ordinance, rule, regulation, judgment, order or decree, in
each case, applicable to the Parent or Acquisition Co. or their
respective properties or assets; OTHER THAN, in the case of clauses (B)
and (C), any such conflicts, violations, breaches, defaults, rights,
results, losses, Liens or entitlements that, individually or in the
aggregate, would not reasonably be expected to prevent or materially
impede or delay the consummation of the Merger or the other transactions
contemplated by this Agreement.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, or notice to, any Governmental
Entity is required by or with respect to the Parent or Acquisition Co.
in connection with the execution and delivery of this Agreement by the
Parent and Acquisition Co. or the consummation by the Parent and
Acquisition Co. of the transactions contemplated hereby or the
compliance with the provisions hereof, except for (A) the filing of the
Certificate of Merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in
which the Company is qualified to do business and (B) such other
consents, approvals, orders, authorizations, registrations,
declarations, filings or notices the failure of which to be obtained or
made, individually or in the aggregate, would not reasonably be expected
to prevent or materially impede or delay the consummation of the Merger
or the other transactions contemplated by this Agreement.
(c) LITIGATION. There is no suit, claim, action, investigation or
proceeding pending or, to the knowledge of the Parent or Acquisition Co.,
threatened against or affecting the Parent or Acquisition Co. or any of their
respective assets or properties before or by any Governmental Entity that,
individually or in the aggregate, would reasonably be expected to prevent or
materially impede or delay the consummation of the Merger and the other
transactions contemplated by this Agreement, nor is there any judgment, order or
decree of any Governmental Entity or arbitrator outstanding against the Parent
or Acquisition Co. that,
Page 25
individually or in the aggregate, would reasonably be expected to prevent or
materially impede or delay the consummation of the Merger and the other
transactions contemplated by this Agreement.
(d) BROKERS. No broker, investment banker, financial advisor or other
person has been retained by, or is authorized to act on behalf of, the Parent or
any of its subsidiaries and is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement.
(e) OWNERSHIP OF COMPANY COMMON STOCK. Each of the Parent and
Acquisition Co. is not, nor at any time during the last three years has either
been, an "interested stockholder" of the Company as defined in Section 203 of
the DGCL. Other than by virtue of the convertible note in the aggregate
principal amount of $200,000 purchased by the Parent from the Company (the
"SimEx Note"), neither the Parent nor Acquisition Co. owns, directly or
indirectly, beneficially or of record, nor is either a party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of, any shares of capital stock of the Company (other than as
contemplated by this Agreement).
(f) INTERIM OPERATIONS OF ACQUISITION CO. Acquisition Co. was formed
solely for the purpose of engaging in the transactions contemplated hereby and
has not engaged in any other business activities and has conducted its
operations only as contemplated hereby. Acquisition Co. has not incurred,
directly or indirectly, any material liabilities or obligations except those in
connection with its organization or with the negotiation and execution of this
Agreement and the performance of the transactions contemplated hereby.
(g) FINANCING. Based on existing cash on hand and financing commitments,
the Parent has all the funds necessary to consummate the Merger and the
transactions contemplated hereby, including payment in full for all the shares
of Company Common Stock validly surrendered pursuant to Article 2 hereof.
ARTICLE 4.
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 CONDUCT OF BUSINESS
(a) Except as otherwise expressly provided in this Agreement, between
the date hereof and the Effective Time, the Company shall, and shall cause its
subsidiaries, (i) to operate their respective businesses in the ordinary course
of business and, to the extent consistent therewith, with no less diligence and
effort than would be applied in the absence of this Agreement, (ii) to comply
with all applicable laws, rules and regulations, in all material respects, and
(iii) to use all commercially reasonable efforts to preserve intact their
assets, properties and licenses of their current business organization, keep
available the service of their current officers and employees and preserve their
relationships with customers, suppliers, distributors, lessors, licensors,
licensees, creditors, employees, contractors and others having business dealings
with them with the intention that their goodwill and ongoing businesses shall be
unimpaired at the Effective Time. Subject to Section 4.1(b) and without limiting
the generality of the foregoing
Page 26
and except as otherwise expressly provided in this Agreement (including in the
Disclosure Letter) or consented to in writing by the Parent (which consent shall
not be unreasonably withheld, conditioned or delayed), prior to the Effective
Time the Company shall not, and shall not permit any of its subsidiaries to:
(i) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, stock or property) in respect of,
any of its capital stock;
(ii) purchase, redeem or otherwise acquire any shares of capital
stock or any other securities of the Company or its subsidiaries or any
options, warrants, calls or rights to acquire any such shares or other
securities;
(iii) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of,
in lieu of, or in substitution for shares of its capital stock or any of
its other securities;
(iv) issue, deliver, sell, pledge or otherwise encumber any
shares of its capital stock, any other equity or voting interests or any
securities convertible into, or exchangeable for, or any options,
warrants, calls or rights to acquire, any such shares, voting securities
or convertible or exchangeable securities or any stock appreciation
rights or other rights that are linked in any way to the price of
Company Common Stock (other than the issuance of shares of Company
Common Stock upon the exercise of Options or Warrants outstanding on the
date of this Agreement pursuant to their terms as in effect on the date
of this Agreement or as a result of the transactions contemplated hereby
or the SimEx Note);
(v) amend or propose to amend its Certificate of Incorporation
or By-laws (or similar organizational documents);
(vi) directly or indirectly, acquire or agree to acquire (A) by
merging or consolidating with, or by purchasing all or a substantial
portion of the assets of, or by any other manner, any assets
constituting a business or any corporation, partnership, limited
liability company, joint venture or association or other entity or
division thereof, or any direct or indirect interest in any of the
foregoing, or (B) any assets, other than inventory or immaterial assets
in each case in the ordinary course of business;
(vii) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of the Company or any of its subsidiaries or
otherwise permit the corporate existence of the Company or any of its
subsidiaries to be suspended, lapsed or revoked;
(viii) directly or indirectly, sell, lease, license, sell and
leaseback, mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of
Page 27
any of its properties or assets or any interest therein, except in the
ordinary course of business;
(ix) (A) repurchase, prepay or incur any indebtedness or assume,
guarantee or endorse any indebtedness of another person or issue or sell
any debt securities or options, warrants, calls or other rights to
acquire any debt securities of the Company or any of its subsidiaries,
except for borrowings incurred in the ordinary course of business or
transactions between the Company and the Parent or (B) make any loans,
advances or capital contributions to, or investments in, any other
person, other than the Company or any direct or indirect wholly-owned
subsidiary of the Company;
(x) incur or commit to incur any capital expenditures, or any
obligations or liabilities in connection therewith, except in the
ordinary course of business;
(xi) pay, discharge, settle or satisfy any claims (including
claims of stockholders), liabilities or obligations (whether absolute,
accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of
business as required by applicable law, rule, regulation, order or
decision or as required by their terms as in effect on the date of this
Agreement (including, any payments to be made pursuant to the settlement
agreement between the Company and Ex Machina which has been provided to
the Parent) of claims, liabilities or obligations reflected or reserved
against in the March Financial Statements (for amounts not in excess of
such reserves) or incurred since the date of such March Financial
Statements in the ordinary course of business, or waive, release, grant
or transfer any right of material value, other than in the ordinary
course of business, or waive any material benefits of, or agree to
modify in any adverse respect, or, subject to the terms hereof, fail to
enforce, or consent to any matter with respect to which its consent is
required under, any confidentiality, standstill or similar agreement to
which the Company or any of its subsidiaries is a party, provided,
however, that notwithstanding this clause (xi), the Company shall not,
without the prior written consent of the Parent pay, discharge, settle
or satisfy any liabilities or obligations (whether absolute, accrued,
asserted or unasserted, contingent or otherwise) owing to Disney;
(xii) enter into, modify, amend or terminate (A) any Contract
which if so entered into, modified, amended or terminated would be
reasonably likely to (x) have a material adverse effect on the Company,
(y) impair in any material respect the ability of the Company to perform
its obligations under this Agreement or (z) prevent or materially delay
the consummation of the transactions contemplated by this Agreement or
(B) except in the ordinary course of business, any material Contract to
which the Company or any subsidiary thereof is a party;
Page 28
(xiii) enter into any Contract containing any restriction on the
ability of the Company or any of its subsidiaries to assign its rights,
interests or obligations thereunder, unless such restriction expressly
excludes any assignment to the Parent or any of its subsidiaries in
connection with or following the consummation of the Merger and the
other transactions contemplated by this Agreement;
(xiv) (A) except as otherwise contemplated by this Agreement or
as required to comply with applicable law, rule or regulation or any
Contract or Benefit Plans existing on the date of this Agreement, pay
any material benefit not provided for as of the date of this Agreement
under any Contract or Benefit Plan or (B) adopt or enter into any
collective bargaining agreement or other labor union contract applicable
to the employees of the Company or any subsidiary thereof;
(xv) hire any additional employees or retain any additional
consultants, materially increase the compensation of any employees or
consultants or enter into any employment or consulting agreements;
provided, however, that the Company may hire employees for the sole
purpose of replacing employees who have been terminated or have
terminated their employment on terms and conditions (including
compensation) which are the same, in all material respects, as the terms
and conditions of the employees being replaced;
(xvi) maintain insurance at less than current levels or
otherwise in a manner inconsistent with past practice;
(xvii) take any action (or omit to take any action) if such
action (or omission) would reasonably be expected to result in (A) any
representation and warranty of the Company set forth in this Agreement
that is qualified as to materiality becoming untrue, (B) any such
representation and warranty that is not so qualified becoming untrue in
any material respect or (C) any condition to the Merger set forth in
Article 6 not being satisfied; PROVIDED, HOWEVER, nothing contained in
this clause (xvii) shall preclude or prohibit the Company from
exercising its rights under Section 4.2;
(xviii) commence any suit, action or proceeding (other than a
suit, action or proceeding in connection with the collection of accounts
receivable, to enforce the terms of this Agreement or as a result of a
suit, action or proceeding commenced against the Company or any of its
subsidiaries);
(xix) change its fiscal year, revalue any of its material assets
or, except as required by GAAP, make any changes in accounting methods,
principles or practices; and
(xx) authorize any of, or commit, resolve or agree to take any
of, the foregoing actions.
Page 29
(b) Notwithstanding Section 4.1(a) hereof, between the date hereof and
the Effective Time, the Company may, after providing notice to the Parent in the
Company's sole discretion and without the consent of the Parent, (i) comply with
its legally binding obligations outstanding as of the date hereof which have
been either provided to the Parent or disclosed in the Company SEC Documents in
accordance with the terms of such agreements, and (ii) operate its business in
accordance with the Budget attached as Section 4.1(b) to the Disclosure Letter,
which the Company agrees and covenants to do.
4.2 NO SOLICITATION BY THE COMPANY
(a) The Company shall not, nor shall it permit any of its subsidiaries
to, or authorize or permit any director, officer or employee of the Company or
any of its subsidiaries or any investment banker, attorney, accountant or other
advisor or representative of the Company or any of its subsidiaries to, directly
or indirectly:
(A) solicit, initiate or knowingly encourage, or take any other
action knowingly to facilitate, any Takeover Proposal (as defined below)
or any inquiries or the making of any proposal that constitutes or would
reasonably be expected to lead to a Takeover Proposal; or
(B) enter into, continue or otherwise participate in any
discussions or negotiations regarding, or furnish to any person any
information with respect to, or otherwise cooperate in any way with, any
Takeover Proposal;
PROVIDED, HOWEVER, that at any time prior to obtaining Stockholder Approval, the
Board of Directors of the Company may, in response to a bona fide unsolicited
Takeover Proposal that did not otherwise result from a breach of this Section
4.2(a), and subject to compliance with Sections 4.2(b) and (c):
(X) furnish information with respect to the Company and its
subsidiaries to the person making such Takeover Proposal (and
its representatives) pursuant to a customary confidentiality
agreement, provided that all such information is provided or
made available on a prior or substantially concurrent basis to
the Parent; and
(Y) participate in discussions or negotiations with the person
making such Takeover Proposal (and its representatives)
regarding such Takeover Proposal,
if the Board of Directors of the Company determines in good faith, after
consultation with outside counsel, that it is reasonably likely that the failure
to do so would constitute a breach of its fiduciary duty to the Company's
stockholders under applicable law and provides the Parent with reasonable prior
notice of its intention to engage in any of the actions contemplated in clauses
(X) and (Y) above and other details with respect to such Takeover Proposal as
the Parent may reasonably request. In addition, if the Board of Directors
authorizes the Company, subject to complying with the terms of this Agreement,
to take any of the actions referred to in Section
Page 30
4.2(b) in response to a bona fide unsolicited Takeover Proposal, the Board of
Directors in good faith in accordance with its fiduciary duties shall direct the
Company to notify the Parent and before taking such action and during the three
business day period after such notice (i) to negotiate with, and shall have
caused the legal counsel of the Company to negotiate with, the Parent to attempt
to make such commercially reasonable adjustments to the terms and conditions of
this Agreement as would enable the Company to proceed with the transactions
contemplated hereby and (ii) the Board of Directors of the Company shall have
concluded, after considering the results of such negotiations, that the Takeover
Proposal giving rise to the Company's notice continues to be superior. Without
limiting the foregoing, it is understood that any violation of the restrictions
set forth in this Section 4.2(a) by any director, officer or employee of the
Company or any of its subsidiaries or any investment banker, attorney,
accountant or other advisor or representative of the Company or any of its
subsidiaries shall be deemed to be a breach of this Section 4.2(a) by the
Company. The term "TAKEOVER PROPOSAL" means any inquiry, proposal or offer from
any person relating to, or that is reasonably likely to lead to, any direct or
indirect acquisition, in one transaction or a series of transactions, including
any merger, consolidation, tender offer, exchange offer, stock acquisition,
asset acquisition, binding share exchange, business combination,
recapitalization, liquidation, dissolution, joint venture or similar
transaction, of (i) all or any part of the material assets, properties or
business (other than the sale of portable ride simulator theatres as described
in the Company SEC Documents) of the Company or its subsidiaries or (ii) all or
any part of the outstanding shares of Company Common Stock or capital stock of,
or other equity or voting interests in, the Company or any of its subsidiaries.
(b) If at any time prior to obtaining the Stockholder Approval, the
Board of Directors of the Company, in response to a bona fide unsolicited
Takeover Proposal (i) withdraws the recommendation by the Board of Directors to
this Agreement or the Merger, (ii) determines that this Agreement or the Merger
is no longer advisable, (iii) recommends that the stockholders of the Company
reject this Agreement or the Merger, (iv) recommends the approval or adoption of
such Takeover Proposal, (v) causes or permits the Company to enter into any
letter of intent, memorandum of understanding, agreement in principle,
acquisition agreement, merger agreement, option agreement, joint venture
agreement, partnership agreement or other agreement constituting or related to,
or which is intended to or is reasonably likely to lead to, any Takeover
Proposal or (vi) resolves, agrees or proposes publicly to take any such actions
in response to such Takeover Proposal that do not otherwise result from a breach
of Section 4.2(a), this Agreement may be terminated pursuant to Sections 7.1(d)
and 7.1(f); PROVIDED, HOWEVER, that the Company shall not terminate this
Agreement pursuant to Section 7.1(f) and any purported termination pursuant to
Section 7.1(f) shall be void and of no force or effect, unless the Company shall
have complied with all provisions of Section 4.2(a), and with all applicable
requirements of Section 5.4(b) prior to or simultaneously with such termination.
(c) In addition to the obligations of the Company set forth in Sections
4.2(a) and 4.2(b), the Company shall promptly advise the Parent in writing of
any request for information that the Company reasonably believes could lead to
or contemplates a Takeover Proposal or of any Takeover Proposal, or any inquiry
the Company reasonably believes could lead to any Takeover Proposal, the terms
and conditions of such request, Takeover Proposal or inquiry (including any
subsequent material amendment or modification to such terms and
Page 31
conditions) and the identity of the person making any such request, Takeover
Proposal or inquiry. The Company shall keep the Parent informed in all material
respects on a timely basis of the status and details (including material
amendments or proposed amendments) of any such request, Takeover Proposal or
inquiry.
(d) Nothing contained in this Section 4.2 shall prohibit the Company
from taking and disclosing to its stockholders a position contemplated by Rule
14d-9 or Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to the Company's stockholders if, in the good faith judgment of the
Board of Directors of the Company, after consultation with outside counsel,
failure so to disclose would be inconsistent with its fiduciary duties to the
Company's stockholders under applicable law.
ARTICLE 5.
ADDITIONAL AGREEMENTS
5.1 PREPARATION OF THE PROXY STATEMENT; STOCKHOLDERS MEETING
(a) As promptly as practicable following the date of this Agreement, the
Company shall prepare and file with the SEC the Proxy Statement. The Company
shall promptly notify the Parent of any comments from the SEC or its staff or
any request from the SEC or its staff for amendments or supplements to the Proxy
Statement and shall promptly provide copies of all correspondence between it and
its representatives, on the one hand, and the SEC and its staff, on the other
hand. Each of the Company and the Parent shall use all commercially reasonable
efforts to respond as promptly as practicable to any comments of the SEC with
respect thereto and to cause the Proxy Statement to be mailed to the Company's
stockholders as promptly as practicable after all such SEC comments have been
resolved. Notwithstanding the foregoing, prior to filing or mailing the Proxy
Statement (or any amendment or supplement thereto) or responding to any comments
of the SEC with respect thereto, the Company (i) shall provide the Parent with a
reasonable opportunity to review and comment on such document or response, (ii)
shall include in such document or response all comments reasonably proposed by
the Parent and (iii) shall not file or mail such document or respond to the SEC
prior to receiving the Parent's approval, which approval shall not be
unreasonably withheld, delayed or conditioned.
(b) The Company shall, as promptly as practicable following the date of
this Agreement, establish a record date for, duly call, give notice of, convene
and hold a meeting of its stockholders (the "STOCKHOLDERS MEETING") for the
purpose of obtaining Stockholder Approval, regardless of whether the Board of
Directors of the Company determines at any time that this Agreement or the
Merger is no longer advisable or recommends that the stockholders of the Company
reject this Agreement or the Merger, in all cases subject to its rights under
Section 4.2(b). The Company shall cause the Stockholders Meeting to be held as
promptly as practicable following the date of this Agreement. The Company shall,
through its Board of Directors, recommend to its stockholders that they adopt
this Agreement, and shall include such recommendation in the Proxy Statement, in
each case subject to its rights under Section 4.2(b). Without limiting the
generality of the foregoing, the Company agrees that its obligations pursuant to
this Section 5.1(b) to take actions to and hold the Stockholders Meeting for the
Page 32
purpose of obtaining Stockholder Approval shall not be affected by the
commencement, public proposal, public disclosure or communication to the Company
or any other person of any Takeover Proposal.
(c) The Company agrees that none of the information included or
incorporated by reference in the Proxy Statement will (except to the extent
revised or superseded by amendments or supplements contemplated hereby), at the
date the Proxy Statement is filed with the SEC or mailed to the Company's
stockholders or at the time of the Stockholders Meeting, or at the time of any
amendment or supplement thereof, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange Act and the rules and
regulations promulgated thereunder.
(d) The Company shall retain an agent, on terms or conditions acceptable
to the Parent, for the purpose of soliciting proxies on behalf of the Company
for the Stockholders Meeting.
5.2 ACCESS TO INFORMATION; CONFIDENTIALITY
The Company shall, and shall cause each of its subsidiaries to, afford
to the Parent and to the officers, employees, attorneys, accountants and other
representatives of the Parent, reasonable access during normal business hours
during the period prior to the Effective Time or termination of this Agreement,
and without undue disruption of their respective businesses, to all their
respective properties, books, contracts, commitments, personnel and records and,
during such period, the Company shall, and shall cause each of its subsidiaries
to, furnish promptly to the Parent (i) a copy of each report, schedule, form,
statement and other document filed by it or received by it during such period
pursuant to the requirements of federal or state securities laws and (ii) all
other information concerning its business, properties and personnel as the
Parent may reasonably request. The Parent will hold, and will cause its
respective officers, employees, attorneys, accountants and other representatives
to hold, any nonpublic information in accordance with the terms of that certain
Confidentiality Agreement dated as of May 4, 2000 (the "CONFIDENTIALITY
AGREEMENT").
5.3 COMMERCIALLY REASONABLE EFFORTS
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the Parties agrees to use all commercially reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other Parties in doing, all things that are
necessary or advisable to consummate and make effective the Merger and the other
transactions contemplated by this Agreement, including (i) the taking of all
commercially reasonable acts necessary to cause the conditions in Article 6 to
be satisfied and the Closing to occur within 75 days hereof, but in any event
not later than 150 days hereof, (ii) the obtaining of all necessary actions or
nonactions, waivers, consents and approvals from Governmental Entities and the
making of all necessary registrations, filings and notices and the taking of all
reasonable steps as may be necessary to obtain an approval or waiver from, or to
Page 33
avoid an action or proceeding by, any Governmental Entity, (iii) the obtaining
of all necessary consents, approvals or waivers from third parties and (iv) the
execution and delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement. Nothing set forth in this Section 5.3(a) will limit or affect actions
permitted to be taken pursuant to Section 4.2.
(b) The Company and its Board of Directors shall (i) take all
commercially reasonable actions necessary to ensure that no state takeover
statute or similar statute or regulation is or becomes applicable to the Merger,
this Agreement or any of the other transactions contemplated by this Agreement
and (ii) if any state takeover statute or similar statute or regulation becomes
applicable to the Merger, this Agreement or any other transaction contemplated
by this Agreement, take all commercially reasonable actions necessary to ensure
that the Merger and the other transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger and the other transactions contemplated by this Agreement.
5.4 FEES AND EXPENSES
(a) All fees, costs and expenses incurred in connection with this
Agreement, the Merger and the other transactions contemplated hereby shall be
paid by the Party incurring such fees or expenses, whether or not the Merger is
consummated. For greater certainty, all fees, costs and expenses incurred in
connection with filing, printing and mailing the Proxy Statement shall be paid
by the Company.
(b) In the event the Parent terminates this Agreement pursuant to
Section 4.2(b) and 7.1(d), or the Company terminates this Agreement pursuant to
Section 4.2(b) and 7.1(f), then the Company shall forthwith pay to the Parent a
fee in the amount of $175,000, together with reasonable costs and expenses not
to exceed $100,000 (the "TERMINATION FEE") by wire transfer of same day funds to
an account designated by the Parent. The Company acknowledges that the
agreements contained in this Section 5.4(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
the Parent would not enter into this Agreement; accordingly, if the Company
fails to pay the amounts due pursuant to this Section 5.4(b) forthwith, and, in
order to obtain such payment, the Parent commences a suit that results in a
judgment against the Company for the amounts set forth in this Section 5.4(b),
the Company shall pay to the Parent interest on the amounts set forth in this
Section 5.4(b) at a rate per annum equal to 3%, compounded monthly.
5.5 PUBLIC ANNOUNCEMENTS
Unless otherwise required by applicable law, rule or regulation, the
Parent and Acquisition Co., on the one hand, and the Company, on the other hand,
shall, to the extent reasonably practicable, consult with each other before
issuing, and give each other a reasonable opportunity to review and comment
upon, any press release or other public statements with respect to this
Agreement, the Merger and the other transactions contemplated hereby. The
Page 34
Parties agree that the initial press release to be issued with respect to the
entering into of this Agreement shall be in a form mutually agreeable to the
Parties.
5.6 RIGHTS AGREEMENT
The Board of Directors of the Company shall take all further action (in
addition to that referred to in Section 3.1(c)) necessary or desirable
(including redeeming the Rights immediately prior to the Effective Time or
amending the Rights Agreement) as reasonably required by the Parent in order to
render the Rights inapplicable to the Merger and the other transactions
contemplated by this Agreement. If any "Distribution Date" occurs under the
Rights Agreement at any time during the period from the date of this Agreement
to the Effective Time, the Company and the Parent shall make such adjustment to
the Merger Consideration as the Company and the Parent shall mutually agree so
as to preserve the economic benefits that the Company and the Parent each
reasonably expected on the date of this Agreement to receive as a result of the
consummation of the Merger and the other transactions contemplated hereby.
Except as provided in this Section 5.6, the Company shall not (i) amend, modify
or waive any provision of the Rights Agreement or (ii) take any action to redeem
the Rights or render the Rights inapplicable to any transaction.
5.7 DIRECTOR'S AND OFFICER'S INSURANCE AND INDEMNIFICATION
(a) The Parent and Acquisition Co. agree that all rights to
indemnification and exculpation from liabilities for acts or omissions occurring
at or prior to the Effective Time now existing in favor of the current or former
directors or officers of the Company and its subsidiaries as provided in their
respective Certificates of Incorporation or By-laws (or comparable
organizational documents) and in indemnification agreements entered into between
each officer and director and the Company, shall be and are hereby assumed, as
of the Effective Time, by the Surviving Corporation without further action and
shall survive the Merger and shall continue in full force and effect in
accordance with their terms.
(b) The Parent shall, without any lapse in coverage, for six years after
the Effective Time, provide officers' and directors' liability insurance in
respect of acts or omissions occurring at or prior to the Effective Time
covering each such person currently covered by the Company's officers' and
directors' liability insurance policy on terms with respect to coverage and
amount no less favorable in any material respect than those of such policy in
effect on the date hereof, provided that in no event will the Parent be required
to pay more than 200% per annum of the last premium (annualized) paid by the
Company for such policy prior to the date hereof.
(c) The provisions of this Section 5.7 are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her heirs
and his or her representatives, and are in addition to, and not in substitution
for, any other rights to indemnification or contribution that any such person
may have by contract or otherwise; provided however, that no director or officer
shall be entitled to any of the benefits provided under this Section 5.7 in the
event that, in a final, non appealable judgment, a court of competent
jurisdiction determines that
Page 35
such director or officer engaged in fraud or other willful misconduct in
negotiating, executing or delivering this Agreement.
ARTICLE 6.
CONDITIONS PRECEDENT
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER
The respective obligation of each Party to effect the Merger is subject
to the satisfaction or waiver, on or prior to the Closing Date, of the following
conditions:
(a) STOCKHOLDER APPROVAL. Stockholder Approval shall have been obtained.
(b) ANTITRUST. Any waiting period (and any extension thereof) applicable
to the Merger under any applicable competition, merger control, antitrust or
similar law or regulation shall have been terminated or shall have expired.
(c) NO LEGAL RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other judgment, order or decree issued by any court of
competent jurisdiction or other legal restraint or prohibition (collectively,
"LEGAL RESTRAINTS") that has the effect of preventing the consummation of the
Merger shall be in effect.
6.2 CONDITIONS TO OBLIGATION OF THE PARENT AND ACQUISITION CO.
The obligations of the Parent and Acquisition Co. to effect the Merger
are further subject to the satisfaction or waiver, on or prior to the Closing
Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained herein that are qualified as to materiality or material
adverse effect shall be true and correct, and the representations and warranties
of the Company contained herein that are not so qualified shall be true and
correct in all material respects, in each case as of the date of this Agreement
and as of the Closing Date with the same effect as though made as of the Closing
Date, except that the accuracy of representations and warranties that by their
terms speak as of a specified date will be determined as of such date. In
addition, at the request of the Parent acting in its sole discretion prior to
the Closing, the Company shall cause certain officers and certain
employee-directors of the Company, as reasonably designated by the Parent, to
attend a meeting or participate in a telephonic conference call, with counsel to
the Company, at a time, date and place as mutually agreed by the Parties, for
the purpose of permitting the Parent, with its counsel, to confirm the
representations and warranties of the Company contained herein. The Parent shall
have received a certificate signed on behalf of the Company by the chief
executive officer or chief financial officer of the Company to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
duly performed any covenants or obligations required to be performed by it under
this Agreement at or prior to the Closing Date in all material respects, and the
Parent shall have received a certificate signed on behalf of the Company by the
chief executive officer or the chief financial officer of the Company to such
effect.
Page 36
(c) CONSENTS. The Parent shall have received evidence, in form and
substance reasonably satisfactory to it, that the Company shall have obtained
all consents, approvals, authorizations, qualifications and orders of
Governmental Entities required in connection with this Agreement and the
transactions contemplated by this Agreement (including consents to assignments
of material contracts and material Intellectual Property) except for those the
failure of which to be obtained, individually or in the aggregate, would not
reasonably be expected to (i) restrain or prohibit the consummation of the
Merger or (ii) prohibit or limit in any material respect the ownership or
operation or effective control by the Parent of any portion of the business,
operations or assets of the Company and its subsidiaries.
(d) NO MATERIAL ADVERSE EFFECT. No event, change or effect, individually
or in the aggregate, with respect to the Company or its subsidiaries, has
occurred which would have or would reasonably be expected to have, a material
adverse effect on the Company.
(e) NO PENDING OR THREATENED LEGAL RESTRAINTS. No Legal Restraints that
would reasonably be expected to have the effect of preventing the consummation
of the Merger shall be pending or threatened in writing.
(f) APPRAISAL SHARES. No more than 10% of the outstanding shares of
Company Common Stock shall be Appraisal Shares.
(g) CONVERTIBLE SECURITIES. All outstanding Options and Warrants (other
than the Trust Warrants) shall have been duly exercised or terminated.
(h) NET TANGIBLE WORTH. The net tangible worth of the Company as of the
Closing Date based on the financial statements of the Company filed with the SEC
for the fiscal year ended June 30, 2001 shall be not less than $1,500,000
without giving effect to the transactions contemplated by this Agreement.
(i) OTHER DELIVERIES. The Company and others contemplated by Section
1.2(b), as the case may be, shall have delivered all of the required Closing
deliveries set forth in Section 1.2(b).
6.3 CONDITIONS TO OBLIGATION OF THE COMPANY
The obligation of the Company to effect the Merger is further subject to
the satisfaction or waiver on, or prior to the Closing Date, of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Parent and Acquisition Co. contained herein that are qualified as to
materiality or material adverse effect shall be true and correct, and the
representations and warranties of the Parent and Acquisition Co. contained
herein that are not so qualified shall be true and correct in all material
respects, in each case as of the date of this Agreement and as of the Closing
Date with the same effect as though made as of the Closing Date, except that the
accuracy of representations and warranties that by their terms speak as of a
specified date will be determined as of such date. The Company shall have
received a certificate signed on behalf of the Parent by the chief executive
officer or chief financial officer of the Parent to such effect.
Page 37
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND ACQUISITION CO. The Parent
and Acquisition Co. shall have duly performed any covenants or obligations
required to be performed by them under this Agreement at or prior to the Closing
Date in all material respects, and the Company shall have received a certificate
signed on behalf of the Parent by the chief executive officer or chief financial
officer of the Parent to such effect.
(c) CONSENTS. The Parent shall have obtained all consents, approvals,
authorizations, qualifications and orders of Governmental Entities required in
connection with this Agreement and the transactions contemplated by this
Agreement except for those the failure of which to be obtained, individually or
in the aggregate, would not reasonably be expected to restrain or prohibit the
consummation of the Merger.
ARTICLE 7.
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION
This Agreement may be terminated, and the Merger contemplated hereby may
be abandoned, at any time prior to the Effective Time, whether before or after
Stockholder Approval has been obtained and notwithstanding adoption of this
Agreement by the stockholder of Acquisition Co.:
(a) by mutual written consent of the Parent and the Company;
(b) by either the Parent or the Company:
(i) if the Merger shall not have been consummated by December
31, 2001; provided, however, if on December 31, 2001, the Parent
provides evidence to the Company demonstrating to the Company's
reasonable satisfaction that the Parent has obtained legally binding
financial commitments from third parties, including, without limitation,
individual investors and/or banks, in an amount, in the aggregate, of at
least Five Million U.S. dollars (US$5,000,000) which sums are to be used
to consummate the Merger and the transactions contemplated hereby,
including payment in full for all the shares of Company Common Stock
validly surrendered pursuant to Article 2 hereof, then neither the
Parent nor the Company shall be permitted to terminate this Agreement
pursuant to this Section 7.1(b)(i) prior to February 28, 2002;
(ii) if any Legal Restraint set forth in Section 6.1(c) shall be
in effect and shall have become final and nonappealable; or
(iii) if Stockholder Approval shall not have been obtained at
the Stockholders Meeting duly convened therefor;
provided that no Party may terminate this Agreement pursuant to this
Section 7.1(b) if such Party's failure to fulfill any of its obligations
under this Agreement
Page 38
shall have been a principal reason that the Effective Time shall not have
occurred on or before said date;
(c) by the Parent (i) if the Company shall have breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements set forth in this Agreement or if any
representations or warranties of the Company shall have become untrue in any
material respect, which breach or failure to perform or untrue representation or
warranty (A) would give rise to the failure of a condition set forth in Sections
6.2(a) or 6.2(b) and (B) cannot be or has not been cured within 20 days after
the Parent's giving written notice to the Company of such breach (a "COMPANY
MATERIAL BREACH") (provided that the Parent is not then in Parent Material
Breach (as defined in Section 7.1(e)) of any representation, warranty, covenant
or other agreement set forth in this Agreement);
(d) by the Parent if (i) the Company fails to comply with Section 4.2(a)
or (ii) the Board of Directors of the Company takes any of the actions
contemplated by Section 4.2(b) or otherwise withdraws its approval or
recommendation of the Merger or this Agreement or approves or recommends any
Takeover Proposal or resolves to take any of the foregoing actions;
(e) by the Company, if the Parent or Acquisition Co. shall have breached
or failed to perform in any material respect any of its representations,
warranties, covenants or other agreements set forth in this Agreement or if any
representations or warranties of the Parent or Acquisition Co. shall have become
untrue in any material respect, which breach or failure to perform (A) would
give rise to the failure of a condition set forth in Sections 6.3(a) or 6.3(b)
and (B) cannot be or has not been cured within 20 days after the Company's
giving written notice to the Parent of such breach (a "PARENT MATERIAL BREACH")
(provided that the Company is not then in Company Material Breach of any
representation, warranty, covenant or other agreement set forth in this
Agreement); or
(f) by the Company in accordance with, and subject to the terms of,
Section 4.2(b).
7.2 EFFECT OF TERMINATION
In the event of termination of this Agreement by either the Company or
the Parent as provided in Section 7.1, this Agreement shall forthwith become
void and have no effect, without any liability or obligation on the part of the
Parent, Acquisition Co. or the Company, other than Sections 3.1(u) and 5.4(b),
this Section 7.2 and Article 8; provided, HOWEVER, that no such termination
shall relieve any Party from any liability or damages resulting from a breach or
failure to perform by a Party of any of its representations, warranties,
covenants or other agreements set forth in this Agreement; and PROVIDED, FURTHER
that the payment by the Company of the Termination Fee pursuant to Section
5.4(b) shall constitute the exclusive remedy of the Parent in the event the
Company accepts a Takeover Proposal or takes any other of the actions
contemplated in Section 4.2(b) hereof, without breaching or failing to perform,
in any material respect, any of the representations, warranties or other
agreements set forth in this Agreement.
Page 39
7.3 AMENDMENT
This Agreement may be amended by the Parties at any time before or after
Stockholder Approval and whether before or after adoption of this Agreement by
the stockholder of Acquisition Co.; PROVIDED, HOWEVER, that after any such
approval, there shall not be made any amendment that by law, rule or regulation
requires further approval by the stockholders without the further approval of
such stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the Parties.
7.4 EXTENSION; WAIVER
At any time prior to the Effective Time, a Party may (i) extend the time
for the performance of any of the obligations or other acts of the other
Parties, (ii) waive any inaccuracies in the representations and warranties of
the other Parties contained in this Agreement or in any document delivered
pursuant to this Agreement or (iii) subject to the proviso of Section 7.3, waive
compliance by the other Party with any of the agreements or conditions set forth
in this Agreement. Any agreement on the part of a Party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such Party. Any waiver or failure to insist upon strict compliance
with any obligation, covenant, agreement, provision, term or condition of this
Agreement shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure to comply. The failure or delay of any Party to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights.
ARTICLE 8.
GENERAL PROVISIONS
8.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES
None of the representations and warranties in this Agreement or in any
certificate or instrument delivered pursuant to this Agreement shall survive the
Effective Time. This Section 8.1 shall not limit any covenant or agreement of
the Parties which by its express terms contemplates performance, in whole or in
part, after the Effective Time.
8.2 NOTICES
All notices, requests, claims, demands and other communications under
this Agreement shall be in writing and shall be deemed given if delivered
personally, telecopied (which is confirmed) or sent by overnight courier
(providing proof of delivery) to the Parties at the following addresses (or at
such other address for a Party as shall be specified by like notice):
(a) if to the Parent or Acquisition Co., to:
Page 40
SimEx Inc.
511 King Street West, Suite 130
Toronto, Ontario M5V 1K4
Telecopy No.: (416) 597-0350
Attention:. Michael J. Needham
with a copy to:
Torys
237 Park Avenue
New York, New York 10017
Telecopy No.: (212) 682-0200
Attention: Richard G. Willoughby, Esq.
(b) if to the Company, to:
Iwerks Entertainment, Inc.
4520 West Valerio Street
Burbank, California 91505-1046
Telecopy No.: (818) 840-6110
Attention: Gary Matus
with a copy to:
Akin, Gump, Strauss, Hauer & Feld LLP
2029 Century Park East
Los Angeles, California 90067
Telecopy No.: (310) 728-2313
Attention: Julie M. Kaufer, Esq.
8.3 DEFINITIONS
(a) For purposes of this Agreement:
An "AFFILIATE" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person.
"MATERIAL ADVERSE EFFECT" means, when used in connection with the
Company or the Parent, as the case may be, any state of facts, change,
development, event, effect, condition or occurrence that would reasonably be
expected to be material and adverse to the business, assets, properties,
condition (financial or otherwise) or results of operations of such Party and
its subsidiaries, taken as a whole, or to prevent or materially impede or delay
the consummation of the Merger or the other transactions contemplated by this
Agreement, other than, in any case, any state of facts, change, development,
event, effect, condition or occurrence
Page 41
resulting from (i) changes in the United States economy or the United States
securities markets in general, (ii) changes in the industries in which the
Company or the Parent, as the case may be, operates and not specifically
relating to the Company or the Parent, as the case may be or (iii) this
Agreement or the transactions contemplated hereby or any public announcement of
this Agreement or the Merger.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business,
consistent with past practice.
"PERSON" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
"SUBSIDIARY" of any person means another person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests of which) is owned directly or indirectly by such first person.
"KNOWLEDGE OF THE COMPANY" means the actual knowledge of the
non-employee directors and the knowledge of the executive officers and
employee-directors of the Company or any of its subsidiaries after reasonable
inquiry and investigation.
(b) The following capitalized terms are defined in the following
Sections of this Agreement:
TERM SECTION
---- -------
0001 Stock Plan 3.1(c)(ii)(E)
1998 Non-Employee 3.1(c)(ii)(D)
Directors Stock Plan
1987 Stock Plan 3.1(c)(ii)(A)
1993 Stock Plan 3.1(c)(ii)(B)
1994 Stock Plan 3.1(c)(ii)(C)
Acquisition Co. First Paragraph
Appraisal Shares 2.1(d)
Benefit Plans 3.1(l)
Board Approval 3.1(d)(iii)
Certificates 2.2(b)
Certificate of Merger 1.3
Closing 1.2(a)
Closing Date 1.2(a)
Code 3.1(l)(ii)
Company First Paragraph
Company Common Stock 2.1(a)
Company Material Breach 7.1(c)
Company Preferred Stock 3.1(c)(i)
Company SEC Documents 3.1(e)
Page 42
TERM SECTION
---- -------
Confidentiality Agreement 5.2
Contract 3.1(d)(iv)(B)
Delaware Secretary of State 1.2(b)(ii)(A)
DGCL Recitals
Disclosure Letter 3.1(b)
Effective Time 1.3
Environmental Claims 3.1(q)(viii)(A)
Environmental Laws 3.1(q)(viii)(B)
Environmental Permits 3.1(q)(viii)(C)
ERISA 3.1(l)
Exchange Act 3.1(d)(v)
GAAP 3.1(e)
Government Entity 3.1(d)(v)
Hazardous Materials 3.1(q)(viii)(D)
Intellectual Property 3.1(o)(iv)
Legal Restraints 6.1(c)
Liens 3.1(b)
March Financial Statements 3.1(e)
Merger Recitals
Merger Consideration 2.1(c)
Options 3.1(c)(ii)
Parent First Paragraph
Parent Material Breach 7.1(e)
Parties 1.2
Patents 3.1(o)(iv)(A)
Paying Agent 2.2(a)
Permits 3.1(h)
Proxy Statement 3.1(d)(v)
Release 3.1(q)(viii)(E)
Right 3.1(c)(iv)
Rights Agreement 3.1(c)(iv)
SEC 3.1(d)(v)(A)
SEC Financial Statements 3.1(e)
Section 262 2.1(d)(ii)
Securities Act 3.1(e)
SimEx Note 3.2(e)
Software 3.1(p)
Stockholder Approval 3.1(d)(ii)
Stockholders Meeting 5.1(b)
Surviving Corporation 1.1
Takeover Proposal 4.2
Taxes 3.1(m)(i)
Tax Returns 3.1(m)(i)
Termination Fee 5.4(b)
Page 43
TERM SECTION
---- -------
Trust Warrants 2.1(e)
Warrants 3.1(c)(iii)
8.4 INTERPRETATION
When a reference is made in this Agreement to an Article or Section or
the Disclosure Letter, such reference shall be to an Article or Section of, or
the Disclosure Letter to, this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". The term "or" has, except where otherwise indicated, the inclusive
meaning represented by the phrase "and/or". The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein. The definitions contained in this Agreement
are applicable to the singular as well as the plural forms of such terms and to
the masculine as well as to the feminine and neuter genders of such term. Any
agreement, instrument or statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statutes and
references to all attachments thereto and instruments incorporated therein.
References to a person are also to its permitted successors and assigns.
8.5 COUNTERPARTS
This Agreement may be executed by facsimile signature and in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the Parties and delivered to the other Parties.
8.6 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES
This Agreement (including the documents and instruments referred to
herein), the Confidentiality Agreement and that certain Confidentiality
Agreement dated as of December 13, 2000 between the Company and the Parent (i)
constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the Parties with respect to the
subject matter of this Agreement and (ii) except for the provisions of Article
2, and Sections 3.1(u) and 5.7, are not intended to confer upon any person other
than the Parties any rights or remedies.
Page 44
8.7 GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflict of laws thereof.
8.8 ASSIGNMENT
Neither this Agreement nor any of the rights, interests or obligations
under this Agreement shall be assigned, in whole or in part, by operation of law
or otherwise by any Party without the prior written consent of the other
Parties. Any assignment in violation of the preceding sentence shall be void.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of, and be enforceable by, the Parties and their respective
successors and assigns.
8.9 CONSENT TO JURISDICTION
Each of the Parties hereto irrevocably and unconditionally submits to
the exclusive jurisdiction of (i) any Delaware State court and (ii) any Federal
court of the United States of America sitting in the State of Delaware, for the
purposes of any suit, action or other proceeding arising out of this Agreement
or any transaction contemplated hereby (and each agrees that no such action,
suit or proceeding relating to this Agreement shall be brought by it or any of
its affiliates except in such courts). Each of the Parties further agrees that,
to the fullest extent permitted by applicable law, service of any process,
summons, notice or document by U.S. registered mail to such person's respective
address set forth above shall be effective service of process for any action,
suit or proceeding in Delaware with respect to any matters to which it has
submitted to jurisdiction as set forth above in the immediately preceding
sentence. Each of the Parties irrevocably and unconditionally waives (and agrees
not to plead or claim) any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (i) any Delaware State court or (ii) any Federal court of the United
State of America sitting in the State of Delaware, or that any such action, suit
or proceeding brought in any such court has been brought in an inconvenient
forum.
8.10 WAIVER OF JURY TRIAL
Each Party hereby waives, to the fullest extent permitted by applicable
law, any right it may have to a trial by jury in respect of any suit, action or
other proceeding directly or indirectly arising out of, under or in connection
with this Agreement. Each Party (i) certifies that no representative, agent or
attorney of any other Party has represented, expressly or otherwise, that such
Party would not, in the event of any action, suit or proceeding, seek to enforce
the foregoing waiver and (ii) acknowledges that it and the other Parties have
been induced to enter into this Agreement, by, among other things, the mutual
waiver and certifications in this Section 8.10.
Page 45
8.11 ATTORNEY'S FEES
In any suit or proceeding arising out of this Agreement or to interpret
or enforce any provision of this Agreement, the prevailing Party shall be
entitled to all reasonable out-of-pocket expenses and reasonable attorney's fees
incurred by such Party in connection with such suit or proceeding.
8.12 ENFORCEMENT
The Parties agree that irreparable damage would occur in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the Parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement, this being in addition to any other remedy in any Delaware
State court or any Federal court of the United States of America sitting in the
State of Delaware to which they are entitled at law or in equity.
8.13 SEVERABILITY
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to either
Party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
Parties as closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the greatest extent possible.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Page 46
IN WITNESS WHEREOF, the Parent, Acquisition Co. and the Company have
caused this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
SIMEX INC.
By: /S/ MICHAEL NEEDHAM
-------------------------------
Name: Michael Needham
Title: Chief Executive Officer
SIMEX ACQUISITION CO.
By: /S/ MICHAEL NEEDHAM
-------------------------------
Name: Michael Needham
Title: Chief Executive Officer
IWERKS ENTERTAINMENT, INC.
By: /S/ GARY J. MATUS
-------------------------------
Name: Gary J. Matus
Title: Chief Executive Officer
Page 47
ANNEX B
EXHIBIT 10.1
VOTING AGREEMENT
This Voting Agreement (this "AGREEMENT") is made and entered into as of
August 31, 2001, by and between SimEx Inc., an Ontario corporation ("SIMEX"),
and the undersigned shareholder ("SHAREHOLDER") of Iwerks Entertainment, Inc., a
Delaware corporation (the "COMPANY").
RECITALS
WHEREAS, concurrent with the execution of this Agreement, SimEx, SimEx
Acquisition Co., a Delaware corporation and the Company are entering into an
Agreement and Plan of Merger (the "Merger Agreement"), which provides for the
acquisition by SimEx of the Company, subject to certain conditions, through a
reverse triangular merger whereby holders of the outstanding shares of common
stock of the Company (and securities convertible into such shares) will be
entitled to receive their pro rata portion of the purchase price (the
"TRANSACTION"); and
WHEREAS, Shareholder is the beneficial holder of the Shares (as defined
below) indicated on the signature page of this Agreement; and
WHEREAS, SimEx and Shareholder wish to provide for the voting of the Shares
beneficially held by Shareholder with respect to the approval of the Merger
Agreement and the transactions contemplated thereby.
NOW, THEREFORE, as an inducement to SimEx to enter into the Merger
Agreement and for other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged by each of the parties hereto), and
intending to be legally bound hereby, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. For purposes of this Agreement:
1.1 "EXPIRATION DATE" shall mean the earlier to occur of (i) the
termination of the Merger Agreement in accordance with its terms and (ii) the
effective time of the Transaction.
1.2 "PERSON" shall mean any individual, corporation, limited liability
company, partnership, trust or other entity or governmental authority.
1.3 "SHARES" shall mean: (i) all equity securities of the Company
(including all shares of common stock or preferred stock, and all options,
warrants and other rights to acquire shares of common stock or preferred stock)
beneficially owned by Shareholder as of the date of this Agreement; and (ii) all
additional equity securities of the Company (including all additional shares of
common stock or preferred stock, and all additional options, warrants and other
rights to acquire shares of common stock or preferred stock) which Shareholder
acquires beneficial ownership of during the period from the date of this
Agreement through the Expiration Date.
1.4 A Person shall be deemed to have effected a "TRANSFER" of a security if
such person directly or indirectly: (i) sells, assigns, pledges, encumbers,
grants an option with respect to, transfers or disposes of such security or any
interest in such security; or (ii) enters into an agreement or commitment
providing for the sale of, assignment of, pledge of, encumbrance of, grant of an
option with respect to, transfer of or disposition of such security or any
interest therein.
2. TRANSFER AND VOTING OF SHARES.
2.1 TRANSFEREE OF SHARES TO BE BOUND BY THIS AGREEMENT. Shareholder agrees
that, during the period from the date of this Agreement through the Expiration
Date, Shareholder shall not direct, cause or permit any Transfer of any of the
Shares to be effected unless the proposed transferee agrees to be bound to the
terms hereof and executes a voting agreement to that effect.
2.2 TRANSFER OF VOTING RIGHTS. Shareholder agrees that, during the period
from the date of this Agreement through the Expiration Date, Shareholder shall
not deposit (or permit the deposit of) any Shares in a voting trust or grant any
proxy or enter into any voting agreement or similar agreement in contravention
of the obligations of Shareholder under this Agreement with respect to any of
the Shares.
3. AGREEMENT TO VOTE SHARES. Shareholder agrees that, during the period
from the date of this Agreement through the Expiration Date, at every meeting of
the shareholders of the Company called, and at every adjournment thereof, and on
every action or approval by written consent of the shareholders of the Company,
all the Shares beneficially owned by Shareholder on the date hereof, and all
additional Shares that Shareholder acquires after the date hereof, shall be
voted in favor of the approval of the Merger Agreement and the transactions
contemplated thereby and in favor of any matter that could reasonably be
expected to facilitate the Transaction (to the extent that such Shares have a
right to vote thereon).
4. SHAREHOLDER CAPACITY. SimEx acknowledges and agrees that Shareholder
executes and delivers this Agreement solely in his capacity as the record holder
and beneficial owner of his Shares and no provision of this Agreement shall
limit or otherwise restrict Shareholder with respect to any act or omission that
Shareholder may undertake or authorize in his capacity as an officer of the
Company or a member of the Board of Directors of the Company, including, without
limitation, any vote that Shareholder may make in his capacity as a director of
the Company with respect to any matter presented to the Board of Directors of
the Company.
5. IRREVOCABLE PROXY. Concurrently with the execution of this Agreement,
Shareholder shall deliver to SimEx an originally executed proxy in the form
attached hereto as SCHEDULE A (the "PROXY"), which shall be coupled with an
interest and shall therefore be
Page 2
irrevocable to the fullest extent permissible by law, with respect to the Shares
referred to therein. Shareholder agrees that to the extent Shareholder acquires
Shares after the date hereof and prior to the Expiration Date, Shareholder shall
deliver to SimEx an originally executed Proxy with respect to such Shares.
6. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER. Shareholder: (i) is
the beneficial owner of the shares of common stock and preferred stock and the
options, warrants and rights to acquire shares of common stock and preferred
stock indicated on the signature page of this Agreement, free and clear of any
liens, claims, options, rights of first refusal, co-sale rights, charges or
other encumbrances; (ii) does not beneficially own any securities of the Company
other than the securities indicated on the signature page of this Agreement; and
(iii) has full power and authority to make, enter into, and carry out the terms
of this Agreement and the Proxy.
7. ADDITIONAL DOCUMENTS. Shareholder hereby covenants and agrees to execute
and deliver any additional documents necessary or desirable, in the reasonable
opinion of SimEx, to carry out the intent of this Agreement.
8. CONSENT AND WAIVER. Shareholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Transaction under the
terms of any agreements to which Shareholder is a party or pursuant to any
rights Shareholder may have.
9. TERMINATION. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
10. MISCELLANEOUS.
10.1 INVALIDITY OF PROVISIONS. Each of the provisions contained in this
Agreement is distinct and severable and a declaration of invalidity or
unenforceability of any such provision or part hereof by a court of competent
jurisdiction shall not affect the validity or enforceability of any other
provision hereof. To the extent permitted by applicable law, the parties hereto
waive any provision of law which renders any provision of this Agreement invalid
or unenforceable in any respect. The parties shall endeavor in good faith
negotiations to replace any provision that is declared invalid or unenforceable
with a valid and enforceable provision, the effect of which comes as close as
possible to that of the invalid or unenforceable provision that it replaces.
10.2 BINDING EFFECT AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without the prior written consent of the other.
Page 3
10.3 AMENDMENTS AND MODIFICATION. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
10.4 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties hereto
acknowledge that SimEx will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
Shareholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to SimEx upon any such violation, SimEx
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to SimEx at law
or in equity.
10.5 NOTICES. All notices, requests and other communications hereunder
shall be in writing and shall be deemed to have been duly given only if
delivered personally against written receipt, or telecopied with answer back
confirmation, or mailed (postage prepaid by registered mail, return receipt
requested), or sent by overnight courier, to the parties at the following
addresses or facsimile numbers:
If to SimEx:
511 King Street West, Suite 130
Toronto, Ontario M5V 1K4
Facsimile: (416) 597-0350
Attention: President
with a copy to:
Torys
237 Park Avenue
New York, New York 10017
Facsimile: (212) 682-0200
Attention: Richard G. Willoughby, Esq.
If to Shareholder:
At the address and fax number specified on
the signature page of this Agreement
All such notices, requests and other communications shall (i) if delivered
personally, telecopied or couriered, be deemed given upon delivery and (ii) if
mailed, be deemed given seven days after mailing (in each case regardless of
whether such notice, request or other communication is received by any other
Person to whom a copy of such notice, request or other communication is to be
delivered pursuant to this Section). Any party from time to time
Page 4
may change its address, facsimile number or other information for the purpose of
notices to that party by giving notice specifying such change to the other
parties hereto.
10.6 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to any
choice or conflict of law provision or rule (whether of the State of Delaware or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
10.7 CONSENT TO JURISDICTION. Each of the parties hereto irrevocably and
unconditionally submits to the exclusive jurisdiction of (i) any Delaware State
court and (ii) any Federal court of the United States of America sitting in the
State of Delaware, for the purposes of any suit, action or other proceeding
arising out of this Agreement or any transaction contemplated hereby (and each
agrees that no such action, suit or proceeding relating to this Agreement shall
be brought by it or any of its affiliates except in such courts). Each of the
parties hereto further agrees that, to the fullest extent permitted by
applicable law, service of any process, summons, notice or document by
registered mail to such persons respective address set forth above shall be
effective service of process for any action, suit or proceeding in Delaware with
respect to any matters to which it has submitted to jurisdiction as set forth in
the immediately preceding sentence. Each of the parties hereto irrevocably and
unconditionally waives (and agrees not to plead or claim) any objection to the
laying of venue of any action, suit or proceeding arising out of this Agreement
or the transactions contemplated hereby in (i) any Delaware State court or (ii)
any Federal court of the United States of America sitting in the State of
Delaware, or that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
10.8 ENTIRE AGREEMENT. This Agreement and the Proxy contain the entire
understanding of the parties hereto in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
10.9 INTERPRETATION.
10.9.1 The headings used in this Agreement are for convenience only and are
not to be considered in construing or interpreting this Agreement.
10.9.2 Unless the context otherwise requires, words importing the singular
include the plural and vice versa, and words importing gender include all
genders.
10.9.3 "including" means "including, without limitation,".
10.10 COUNTERPARTS. This Agreement may be executed by facsimile signature
and in several counterparts, each of which shall be an original, but all of
which together shall constitute one and the same agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Page 5
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the day and year first above written.
SIMEX, INC.
By:
------------------------------- ------------------------------------
Name: Michael Needham [Shareholder - Print Name]
Title: President
By: ________________________________
Name: ______________________________
Address: ___________________________
Shares beneficially owned:
o ____________ shares of common
stock, including the right
attached to each such share
entitling the holder to
purchase 1/100th of a share of
Series A preferred stock (the
"RIGHTS").
o ___________ shares of preferred
stock.
o ___________ shares of common
stock issuable upon exercise of
outstanding options, warrants or
other rights.
o shares of preferred stock
issuable upon exercise of
outstanding options, warrants or
other rights (excluding the
Rights).
Page 6
SCHEDULE A
IRREVOCABLE PROXY
The undersigned shareholder of Iwerks Entertainment, Inc., a Delaware
corporation (the "COMPANY"), hereby irrevocably (to the fullest extent permitted
by law) appoints MICHAEL NEEDHAM and/or ROBERT RYAN of SimEx Inc., an Ontario
corporation ("SIMEX"), and each of them, as the sole and exclusive attorneys and
proxies of the undersigned, with full power of substitution and resubstitution,
to vote and exercise all voting rights (to the full extent that the undersigned
is entitled to do so) with respect to all of the outstanding shares of capital
stock of the Company that are owned of record by the undersigned as of the date
of this Proxy (collectively, the "SHARES") in accordance with the terms of this
Proxy. The Shares owned of record by the undersigned shareholder as of the date
of this Proxy are listed on the final page of this Proxy. Upon the undersigned's
execution of this Proxy, any and all prior proxies given by the undersigned with
respect to any Shares are hereby revoked and the undersigned agrees not to grant
any subsequent proxies with respect to the voting rights granted by this Proxy
until after the Expiration Date (as defined below).
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest in the Company and is granted pursuant to that certain
Voting Agreement of even date herewith by and between SimEx and the undersigned
shareholder and as an inducement to SimEx to enter into the Agreement and Plan
of Merger between SimEx, SimEx Acquisition Co., a Delaware corporation, and the
Company dated of even date herewith (the "Merger Agreement") which provides for
the acquisition by SimEx of the Company, subject to certain conditions, through
a reverse triangular merger whereby holders of the outstanding shares of common
stock of the Company (and securities convertible into such shares) will be
entitled to receive their pro rata portion of the purchase price (the
"TRANSACTION"). As used herein, the term "EXPIRATION DATE" shall mean the
earlier to occur of (i) the termination of the Merger Agreement in accordance
with its terms and (ii) the effective time of the Transaction.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the undersigned with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents) at every annual, special or adjourned meeting of shareholders
of the Company and in every written consent in lieu of such meeting in favor of
approval of the principal terms of the Transaction, the execution and delivery
by the Company of the Merger Agreement and the adoption and approval of the
terms thereof and in favor of each of the other actions contemplated by the
Merger Agreement and any action required in furtherance hereof and thereof.
The attorneys and proxies named above may not exercise this Proxy on any
other matter except as provided above. The undersigned shareholder may vote the
Shares on all other matters.
Page 7
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This Proxy shall terminate, and be of no further force and effect,
automatically upon the Expiration Date.
Page 8
Dated: August 31, 2001
------------------------------------
[Shareholder - Print Name]
By: ________________________________
Name: ______________________________
Address: ___________________________
Shares beneficially owned:
o ____________ shares of common
stock, including the right
attached to each such share
entitling the holder to
purchase 1/100th of a share of
Series A preferred stock (the
"RIGHTS").
o ___________ shares of preferred
stock.
o ___________ shares of common
stock issuable upon exercise of
outstanding options, warrants or
other rights.
o shares of preferred stock
issuable upon exercise of
outstanding options, warrants or
other rights (excluding the
Rights).
Page 9
ANNEX C
SS. 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to ss. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251 (other than a merger effected pursuant to ss.
251(g) of this title), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss. 264 of
this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders' thereof are required by the
terms of an agreement of merger or consolidation pursuant to ss.ss. 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, - or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national
Page 1
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder, electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to ss. 228 or ss.
253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series
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of stock of such constituent corporation who are entitled to appraisal rights of
the approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective date of
the merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of a
constituent corporation that are entitled to appraisal rights. Such notice may,
and, if given on or after the effective date of the merger or consolidation,
shall, also notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may, within 20 days
after the date of mailing of such notice, demand in writing from the surviving
or resulting corporation the appraisal of such holder's shares. Such demand will
be sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a -second notice to all such holders on or within,
10 days after such effective date; provided, however, that if such second notice
is sent more than 20 days following the sending of the first' notice, such
second notice need only be sent to each stockholder who is entitled to appraisal
rights and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
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(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery if so ordered
by the Court, shall give notice of the time and place fixed for the hearing of
such petition by registered or certified mail to the surviving or resulting
corporation and to the stockholders shown on the list at the addresses therein
stated. Such notice shall also be given by 1 or more publications at least 1
week before the day of the hearing, in a newspaper of general circulation
published in the City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by publication shall be
approved by the Court, and the costs thereof shall be borne by the surviving or
resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
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(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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