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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
December 29, 1998
-----------------
Date of Report
(Date of earliest event reported)
INTERLINQ SOFTWARE CORPORATION
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(Exact name of registrant as specified in its charter)
Washington 0-25186 91-1187540
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(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
11980 N.E. 24th Street
Bellevue, Washington 98005
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(Address of principal executive offices, including zip code)
(425) 827-1112
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(Registrant's telephone number, including area code)
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Exhibit Index on Page 5
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ITEM 5. OTHER EVENTS
INTERLINQ Software Corporation (the "Company") and Terlin, Inc.
("Terlin"), an affiliate of W.R. Hambrecht + Co., LLC ("WRH"), have entered into
an Agreement and Plan of Merger, dated December 29, 1998 (the "Agreement"),
relating to a leveraged recapitalization of the Company. Under the Agreement,
Terlin will merge into the Company (the "Merger"). The Agreement is subject to
approval by the Company's shareholders. If approved, the Merger may result in
the Company ceasing to be publicly traded. The current directors and management
of the Company are expected to remain with the Company, with the addition of one
director to be nominated by WRH.
Pursuant to the Merger Agreement, 1,250,000 shares of the Company's
Common Stock outstanding prior to the Merger will remain outstanding following
the Merger (each, a "Retained Share") and all other outstanding shares of the
Company's Common Stock (except for any shares held by Terlin or by shareholders
who have exercised dissenters' rights) will be converted into the right to
receive a cash payment of $9.25 per share (the "Cash Out Amount"). Each
shareholder will be given the opportunity to elect, as to all or a part of his
or her shares, to retain such shares. Shareholders who do not so elect will
receive the Cash Out Amount. If holders of more than 1,250,000 shares elect to
retain their shares, shareholders making that election will receive Retained
Shares pro rata based on the number of shares they initially requested to
retain, and will receive the Cash Out Amount for their remaining shares. If
holders of fewer than 1,250,000 shares elect to retain their shares,
shareholders who would otherwise receive the Cash Out Amount for all of their
shares will instead receive a pro rata portion of Retained Shares.
Each of the approximately 2,150,000 shares of Terlin that will be
outstanding immediately prior to the effective time of the Merger will be
converted into one share of Company Common Stock in the Merger. Terlin will be
capitalized with at least $11,100,000 in equity prior to the Merger, which
amount, together with proceeds of borrowings and cash on the Company's balance
sheet, will be used to pay the Cash Out Amount to the Company's shareholders.
Following the Merger, the Company may effect a reverse stock split to
facilitate the Company going private by reducing the number of shareholders to
less than 300.
In accordance with the terms of the Company's stock option plans,
immediately prior to the Merger all outstanding options to purchase shares of
Common Stock will be exercisable in full and then, to the extent not exercised,
terminate. The Company intends to offer optionees the opportunity to cancel
their outstanding options immediately prior to the Merger in exchange for a cash
payment based on the spread between the Cash Out Amount and the exercise price
of the options. The Company's senior executive officers, however, will be cashed
out of only 75% of their options, and the cashout payment for Jiri
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Nechleba will be based on the difference between $9.00 per share (rather than
the Cash Out Amount) and the option exercise price.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) EXHIBITS
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Exhibit Number Description
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2.1 Agreement and Plan of Merger, dated December 29,
1998, by and among INTERLINQ Software Corporation
and Terlin, Inc.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
INTERLINQ SOFTWARE CORPORATION
Dated: December 29, 1998
By /s/ STEVE YOUNT
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Steve Yount
Executive Vice President,
Chief Financial Officer and
Secretary
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INDEX TO EXHIBITS
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Exhibit Number Description
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2.1 Agreement and Plan of Merger, dated December 29,
1998, by and among INTERLINQ Software Corporation
and Terlin, Inc.
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AGREEMENT AND PLAN OF MERGER
between:
INTERLINQ SOFTWARE CORPORATION,
a Washington corporation;
and
TERLIN, INC.,
a Washington corporation
Dated as of December 29, 1998
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TABLE OF CONTENTS
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SECTION 1. DESCRIPTION OF THE TRANSACTION............................................... 1
1.1 Merger of MergerCo into the Company.......................................... 1
1.2 Effect of the Merger......................................................... 1
1.3 Closing; Effective Time...................................................... 1
1.4 Articles of Incorporation and Bylaws; Directors and Officers................. 2
1.5 Conversion of Shares......................................................... 2
1.6 Closing of the Company's Transfer Books...................................... 6
1.7 Exchange of Certificates..................................................... 6
1.8 Dissenter's Rights........................................................... 8
1.9 Accounting Consequences...................................................... 9
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................ 9
2.1 Due Organization; Subsidiaries; Etc.......................................... 9
2.2 Articles of Incorporation and Bylaws; Records................................ 10
2.3 Capitalization, Etc.......................................................... 10
2.4 SEC Filings; Financial Statements............................................ 11
2.5 Absence of Changes........................................................... 12
2.6 Title to Assets.............................................................. 13
2.7 Receivables; Major Customers................................................. 14
2.8 Leasehold; Equipment......................................................... 14
2.9 Proprietary Assets........................................................... 15
2.10 Contracts.................................................................... 17
2.11 Liabilities.................................................................. 17
2.12 Compliance With Legal Requirements........................................... 18
2.13 Governmental Authorizations.................................................. 18
2.14 Tax Matters.................................................................. 18
2.15 Employee and Labor Matters................................................... 19
2.16 Benefit Plans; ERISA......................................................... 20
2.17 Environmental Matters........................................................ 21
2.18 Sale of Products; Performance of Services.................................... 22
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2.19 Insurance.................................................................... 22
2.20 Related Party Transactions................................................... 22
2.21 Proceedings; Orders.......................................................... 22
2.22 Authority; Binding Nature of Agreements...................................... 23
2.23 Non-Contravention; Consents.................................................. 23
2.24 No Existing Discussions...................................................... 24
2.25 Vote Required................................................................ 24
2.26 Fairness Opinion............................................................. 24
2.27 Brokers...................................................................... 24
2.28 Full Disclosure.............................................................. 24
2.29 State Takeover Statutes...................................................... 25
SECTION 3. REPRESENTATIONS AND WARRANTIES OF MERGERCO................................... 25
3.1 Organization, Standing and Power............................................. 25
3.2 Authority; Binding Nature of Agreements...................................... 25
3.3 Non-Contravention; Consents.................................................. 25
3.4 Capitalization and Assets.................................................... 26
3.5 Brokers...................................................................... 26
3.6 Liabilities.................................................................. 27
3.7 Compliance With Legal Requirements........................................... 27
3.8 Governmental Authorizations.................................................. 27
3.9 Proceedings; Orders.......................................................... 27
3.10 Acquiring Person............................................................. 28
SECTION 4. CERTAIN COVENANTS OF THE COMPANY............................................. 28
4.1 Access and Investigation..................................................... 28
4.2 Operation of Business........................................................ 28
4.3 No Solicitation.............................................................. 31
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES.......................................... 32
5.1 Proxy Statement.............................................................. 32
5.2 Company Shareholders' Meeting................................................ 33
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5.3 Regulatory Approvals......................................................... 34
5.4 Stock Options................................................................ 34
5.5 Indemnification of Officers and Directors.................................... 35
5.6 Company Board of Directors................................................... 36
5.7 Recapitalization Accounting Treatment........................................ 36
5.8 All Reasonable Efforts....................................................... 36
5.9 Disclosure................................................................... 37
5.10 Nasdaq Delisting............................................................. 37
5.11 Additional Securities Filings................................................ 37
5.12 Effecting Reverse Stock Split................................................ 37
5.13 Financing.................................................................... 37
SECTION 6. CONDITIONS PRECEDENT TO MERGERCO'S OBLIGATION TO CLOSE....................... 38
6.1 Accuracy of Representations.................................................. 38
6.2 Performance of Obligations................................................... 38
6.3 Shareholder Approval; Dissenting Shares...................................... 38
6.4 Consents..................................................................... 38
6.5 No Material Adverse Change................................................... 39
6.6 Financing.................................................................... 39
6.7 Additional Documents......................................................... 39
6.8 No Prohibition............................................................... 39
SECTION 7. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATION TO CLOSE.................... 39
7.1 Accuracy of Representations.................................................. 40
7.2 Performance of Obligations................................................... 40
7.3 Shareholder Approval......................................................... 40
7.4 No Prohibition............................................................... 40
7.5 Additional Documents......................................................... 40
SECTION 8. TERMINATION.................................................................. 40
8.1 Termination Events........................................................... 40
8.2 Termination Procedures....................................................... 42
8.3 Effect of Termination........................................................ 42
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8.4 Expenses; Termination Fees................................................... 42
8.5 Nonexclusivity of Termination Rights......................................... 43
SECTION 9. MISCELLANEOUS PROVISIONS..................................................... 43
9.1 No Survival of Representations and Warranties................................ 43
9.2 Attorneys' Fees.............................................................. 43
9.3 Assignability................................................................ 43
9.4 Notices...................................................................... 44
9.5 Cooperation.................................................................. 44
9.6 Headings..................................................................... 45
9.7 Counterparts................................................................. 45
9.8 Governing Law; Venue......................................................... 45
9.9 Waiver....................................................................... 45
9.10 Amendments................................................................... 45
9.11 Severability................................................................. 46
9.12 Entire Agreement............................................................. 46
9.13 Construction................................................................. 46
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "AGREEMENT") is entered into as
of December 29, 1998, by and among INTERLINQ SOFTWARE CORPORATION, a Washington
corporation (the "COMPANY"), and TERLIN, INC., a Washington corporation
("MERGERCO"). The Company and MergerCo are referred to collectively herein as
the "PARTIES". Certain capitalized terms used in this Agreement are defined in
Exhibit A to this Agreement.
RECITALS
A. The Company and MergerCo intend to effect a merger of MergerCo with
and into the Company in accordance with this Agreement and the Washington
Business Corporation Act (the "WBCA") with the Company as the surviving
corporation (the "SURVIVING CORPORATION") in the merger (the "MERGER").
B. It is intended that the Merger and all other transactions
contemplated by this Agreement be recorded as a Leveraged Recapitalization for
financial reporting purposes.
C. The respective boards of directors of the Company and MergerCo have
approved (i) this Agreement; (ii) the Articles of Merger (as defined in Section
1.3); and (iii) the Merger.
D. In order to induce MergerCo to enter into this Agreement and to
consummate the Merger, certain shareholders of the Company are entering into
Voting Agreements pursuant to which they are agreeing to vote in favor of the
adoption and approval of this Agreement and the approval of the Merger.
AGREEMENT
The Parties, intending to be legally bound, agree as follows:
SECTION 1. DESCRIPTION OF THE TRANSACTION
1.1 MERGER OF MERGERCO INTO THE COMPANY. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), MergerCo shall be merged with and into the Company, and the
separate existence of MergerCo shall cease. The Company will continue as the
Surviving Corporation in the Merger.
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the WBCA.
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "CLOSING") shall take place at the offices
of Cooley Godward LLP, located at 4205 Carillon Point, Kirkland, Washington, at
10:00 a.m. on a date to be mutually agreed by MergerCo and the Company (the
"CLOSING DATE"), which shall be shall be no later than the fifth business day
after the satisfaction or waiver of the conditions set forth in Sections 6 and
7.
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Contemporaneously with or as promptly as practicable after the Closing, the
parties hereto shall cause properly executed articles of merger in the form
attached hereto as Exhibit B (the "ARTICLES OF MERGER") to be filed with the
Secretary of State of the State of Washington. The Merger shall take effect at
the time the Articles of Merger are filed with the Secretary of State of the
State of Washington (the "EFFECTIVE TIME").
1.4 ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.
(a) The Articles of Incorporation of the Surviving Corporation
shall be amended and restated as of the Effective Time to conform to Exhibit C.
(b) The Bylaws of the Surviving Corporation shall be the Bylaws
of the Company as in effect immediately prior to the Effective Time (except that
certain sections shall be amended in their entirety to read as set forth on
Exhibit D; and
(c) The directors and officers of the Surviving Corporation
immediately after the Effective Time shall be respective individuals who are
directors and officers of the Company immediately prior to the Effective Time,
with the addition of J. D. Delafield, who shall serve as a director.
1.5 CONVERSION OF SHARES
(a) EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue
of the Merger and without any action on the part of the Company, MergerCo or any
holder of any shares of Company Common Stock or any shares of common stock of
MergerCo:
(i) Each share of common stock of MergerCo issued and
outstanding immediately prior to the Effective Time shall be converted into one
share of Company Common Stock following the Merger.
(ii) Each share of Company Common Stock that is owned by
MergerCo shall automatically be canceled and retired and shall cease to exist,
and no cash, Company Common Stock or other consideration shall be delivered or
deliverable in exchange therefor.
(iii) Except as otherwise provided herein and subject to
Section 1.5(c), each issued and outstanding share of Company Common Stock (other
than shares canceled pursuant to Section 1.5(a)(ii) and Dissenting Shares) shall
be converted into the following (the "MERGER CONSIDERATION"):
(1) for each such share of Company Common Stock with
respect to which an election to retain Company Common Stock has been effectively
made and not revoked or lost, pursuant to Sections 1.5(b)(iii), (iv) and (v)
("ELECTING SHARES"), the right to retain one fully paid and nonassessable share
of Company Common Stock (a "NON-CASH ELECTION SHARE"); and
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(2) for each such share of Company Common Stock
(other than Electing Shares), the right to receive in cash from the Company
following the Merger an amount equal to $9.25 (the "CASH ELECTION PRICE").
(iv) As of the Effective Time, all shares of Company
Common Stock (other than shares referred to in Section 1.5(a)(iii)(1) and
Section 1.8) issued and outstanding immediately prior to the Effective Time,
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate representing any such
shares of Company Common Stock shall, to the extent such certificate represents
such shares, cease to have any rights with respect thereto, except the right to
receive cash to be paid in consideration therefor upon surrender of such
certificate in accordance with Section 1.7.
(b) COMPANY COMMON STOCK ELECTIONS
(i) Each person who, on or prior to the Election Date (as
defined in Section 1.5(b)(iii)) is a record holder of shares of Company Common
Stock will be entitled, with respect to all or any portion of his or her shares,
to make an unconditional election (a "NON-CASH ELECTION") on or prior to such
Election Date to retain Non-Cash Election Shares, on the basis hereinafter set
forth.
(ii) Prior to the mailing of the Proxy Statement, MergerCo
shall appoint Chase Mellon Shareholder Services LLC to act as exchange agent
(the "EXCHANGE Agent") for the payment of the Merger Consideration.
(iii) The Company shall prepare a form of election, which
form shall be subject to the reasonable approval of MergerCo (the "FORM OF
ELECTION"), to be mailed by the Company with the Proxy Statement to the record
holders of Company Common Stock as of the record date for the Company's
Shareholders Meeting (as defined in Section 5.2), which Form of Election shall
be used by each record holder of shares of Company Common Stock who wishes to
elect to retain Non-Cash Election Shares for any or all shares of Company Common
Stock held, subject to the provisions of Section 1.5(c) hereof, by such holder.
The Company will use its reasonable best efforts to make the Form of Election
and the Proxy Statement available to all persons who become holders of Company
Common Stock during the period between such record date and the Election Date
referred to below. Any such holder's election to retain Non-Cash Election Shares
shall have been properly made only if the Exchange Agent shall have received at
its designated office, by 5:00 p.m., Eastern Standard time on the business day
next preceding the date of the Shareholders Meeting (the "ELECTION DATE"), a
Form of Election properly completed and signed and accompanied by certificates
representing the shares of Company Common Stock to which such Form of Election
relates, duly endorsed in blank or otherwise in form acceptable for transfer on
the books of the Company (or by an appropriate guarantee of delivery of such
certificates as set forth in such Form of Election from a firm which is a member
of a registered national securities exchange or of the NASD or a commercial bank
or trust company having an office or correspondent in the United States,
provided such certificates are in fact delivered to the Exchange Agent within
five (5) Nasdaq National Market trading days after the date of execution of such
guarantee of delivery).
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(iv) Any Form of Election may be revoked by the holder by
written notice received by the Exchange Agent prior to 5:00 p.m., Eastern
Standard time on the Election Date (unless MergerCo and the Company determine
not less than two (2) business days prior to the Election Date that the Closing
Date is not likely to occur within five (5) business days following the date of
the Shareholders Meeting (which they may do or not do in their sole and absolute
discretion), in which case any Form of Election will remain revocable until a
subsequent date which shall be a date prior to the Closing Date determined by
MergerCo and the Company). In addition, all Forms of Election shall
automatically be revoked if the Exchange Agent is notified in writing by
MergerCo and the Company that the Merger has been abandoned. If a Form of
Election is revoked, the certificate or certificates (or guarantees of delivery,
as appropriate) for the shares of Company Common Stock to which such Form of
Election relates shall be promptly returned by the Exchange Agent to the
shareholder submitting the same.
(v) The determination of the Exchange Agent shall be
binding whether or not elections to retain Non-Cash Election Shares have been
properly made or revoked pursuant to this Section 1.5(b) with respect to shares
of Company Common Stock and when elections and revocations were received by it.
If the Exchange Agent reasonably determines in good faith that any election to
retain Non-Cash Election Shares was not properly made with respect to shares of
Company Common Stock, such shares shall be treated by the Exchange Agent as
shares which were not Electing Shares at the Effective Time, and such shares
shall be exchanged in the Merger for cash pursuant to Section 1.5(a)(iii)(2).
The Exchange Agent shall also make all computations as to the allocation and the
proration contemplated by Section 1.5(c), and any such computation shall be
conclusive and binding on the holders of shares of Company Common Stock. The
Exchange Agent may, with the mutual written agreement of MergerCo and the
Company, make such rules as are consistent with this Section 1.5(b) for the
implementation of the elections provided for herein as shall be necessary or
desirable fully to effect such elections.
(c) PRORATION
(i) Notwithstanding anything in this Agreement to the
contrary, the aggregate number of shares of Company Common Stock to be converted
into the right to retain Company Common Stock at the Effective Time (the
"NON-CASH ELECTION NUMBER") shall be 1,250,000.
(ii) If the number of Electing Shares exceeds the Non-Cash
Election Number, then each Electing Share shall be converted into the right to
retain Non-Cash Election Shares and receive cash in accordance with the terms of
Section 1.5(a)(iii) in the following manner:
(1) A proration factor (the "NON-CASH PRORATION
FACTOR") shall be determined by dividing the Non-Cash Election Number by the
total number of Electing Shares.
(2) The number of Electing Shares covered by each
Non-Cash Election to be converted into the right to retain Non-Cash Election
Shares shall be determined by
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multiplying the Non-Cash Proration Factor by the total number of Electing Shares
covered by such Non-Cash Election and rounding the result of such multiplication
to the nearest whole number.
(3) All Electing Shares, other than those shares
converted into the right to receive Non-Cash Election Shares in accordance with
Section 1.5(c)(ii)(2), shall be converted into cash on a consistent basis among
shareholders who made the election referred to in Section 1.5(a)(ii)(1), pro
rata to the number of shares as to which they made such election as if such
shares were not Electing Shares in accordance with the terms of Section
1.5(a)(iii)(2).
(iii) If the number of Electing Shares is less than the
Non-Cash Election Number, then:
(1) all Electing Shares shall be converted into the
right to retain Company Common Stock in accordance with the terms of Section
1.5(a)(iii)(1);
(2) in addition, shares of Company Common Stock other
than Electing Shares and Dissenting Shares ("NON-ELECTING SHARES") shall be
converted into the right to retain Non-Cash Election Shares in accordance with
the terms of Section 1.5(a)(iii) in the following manner:
a. the number of shares of Company Common Stock
in addition to Electing Shares to be converted into the right to retain Non-Cash
Election Shares shall be determined by subtracting the number of Electing Shares
from the Non-Cash Election Number; and
b. a proration factor (the "CASH PRORATION
FACTOR") shall be determined by dividing (x) the difference between the Non-Cash
Election Number and the number of Electing Shares, by (y) the total number of
outstanding shares of Company Common Stock other than Electing Shares and
Dissenting Shares.
(3) Non-Electing Shares shall be converted into the
right to retain Non-Cash Election Shares in accordance with Section
1.5(a)(iii)(1) (on a consistent basis among shareholders who held shares of
Company Common Stock as to which they did not make the election referred to in
Section 1.5(a)(iii)(1) or otherwise dissent in accordance with Section 1.8, pro
rata to the number of shares as to which they did not make such election or
otherwise dissent in accordance with Section 1.8 but rounding the result from
such conversion to the nearest whole number).
(d) CHANGES IN CAPITALIZATION. If, between the date of this
Agreement and the Effective Time, the outstanding shares of Company Common Stock
are changed into a different number or class of shares by means of any stock
split, division or subdivision of shares, stock dividend, reverse stock split,
consolidation of shares, reclassification, recapitalization or other similar
transaction, then the Merger Consideration shall be appropriately adjusted
(provided that no adjustment shall be made under this Section 1.5(d) if the
number of outstanding shares of Company Common Stock increases as a result of
the exercise of Company stock options).
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1.6 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time: (a)
all shares of Company Common Stock outstanding immediately prior to the
Effective Time (other than Non-Cash Election Shares) shall automatically be
canceled and retired and shall cease to exist, and all holders of certificates
representing such shares of Company Common Stock (other than Non-Cash Election
Shares) that were outstanding immediately prior to the Effective Time shall
cease to have any rights as shareholders of the Company; and (b) the stock
transfer books of the Company shall be closed with respect to all shares of the
Company Common Stock outstanding immediately prior to the Effective Time (other
than Non-Cash Election Shares). No further transfer of any such shares of
Company Common Stock (other than Non-Cash Election Shares) shall be made on such
stock transfer books after the Effective Time. If, after the Effective Time, a
valid certificate previously representing any shares of Company Common Stock (a
"COMPANY SHARE CERTIFICATE") is presented to the Exchange Agent (as defined in
Section 1.7) or to the Surviving Corporation, such Company Share Certificate
shall be canceled and shall be exchanged as provided in Section 1.7.
1.7 EXCHANGE OF CERTIFICATES
(a) DEPOSIT OF EXCHANGE FUNDS. As soon as practicable after the
Effective Time, the Surviving Corporation shall deposit with the Exchange Agent
cash sufficient to make cash payments of Merger Consideration in accordance with
Section 1.5. The cash so deposited with the Exchange Agent is referred to as the
"EXCHANGE FUND."
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after
the Effective Time, the Exchange Agent will mail to the record holders of
Company Share Certificates (i) a letter of transmittal in customary form and
containing such provisions as MergerCo and the Company shall have agreed upon
before the Effective Time (including a provision confirming that delivery of
Company Share Certificates shall be effected, and risk of loss and title to
Company Share Certificates shall pass, only upon delivery of such Company Share
Certificates to the Exchange Agent); and (ii) instructions for use in effecting
the surrender of Company Share Certificates in exchange for the Merger
Consideration. Upon surrender of Company Share Certificates to the Exchange
Agent for exchange, together with a duly executed letter of transmittal and such
other documents as may be reasonably required by the Exchange Agent or the
Surviving Corporation, the holder of such Company Share Certificate shall, upon
acceptance of the Company Share Certificate by the Exchange Agent, be entitled
to a certificate representing the number of full shares of Company Common Stock,
if any, to be retained by the holder thereof pursuant to this Agreement and the
amount of cash, if any, into which the number of shares of Company Common Stock
previously represented by such Company Share Certificate surrendered shall have
been converted pursuant to this Agreement, including after giving effect to the
Reverse Stock Split, if applicable. If any certificate for such retained Company
Common Stock is to be issued in, or if cash is to be remitted to, a name other
than that in which the Company Share Certificate is registered, it shall be a
condition of such exchange that the Company Share Certificate shall be
accompanied by all documents required by the Exchange Agent or Surviving
Corporation to evidence and effect such transfer and that the person requesting
such exchange shall pay to the Company or its transfer agent any transfer or
other taxes required by reason of the issuance of certificates for such retained
Company Common
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Stock in a name other than that of the registered holder of the certificate
surrendered, or establish to the satisfaction of the Company or its transfer
agent that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 1.7(b), each certificate for shares of Company
Common Stock shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration as
contemplated by Section 1.5(a)(iii), as adjusted by the Reverse Stock Split, if
applicable. No interest will be paid or will accrue on any cash payable as
Merger Consideration. If any Company Share Certificate shall have been lost,
stolen or destroyed, the Surviving Corporation may, in its discretion and as a
condition precedent to any issuance or payment, require the owner of such lost,
stolen or destroyed Company Share Certificate to provide an appropriate
affidavit and to deliver a bond (in such sum as the Surviving Corporation may
reasonably direct) as indemnity against any claim that may be made against the
Exchange Agent, the Company, MergerCo or the Surviving Corporation with respect
to such Company Share Certificate.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions with respect to retained Company Common Stock
with a record date after the Effective Time shall be paid to the holder of any
unsurrendered Company Stock Certificate with respect to the shares of retained
Company Common Stock represented thereby until the surrender of such certificate
in accordance with this Section 1.7. Subject to the effect of applicable laws,
following surrender of any such certificate, there shall be paid to the holder
of the certificate representing whole shares of retained Company Common Stock
issued in connection therewith, without interest, (i) at the time of such
surrender, the amount of any cash payable in lieu of a fractional share of
retained Company Common Stock to which such holder is entitled pursuant to
Section 1.7(e) and the proportionate amount of any dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of retained Company Common Stock, and (ii) at the
appropriate payment date, the proportionate amount of any dividends or other
distributions with a record date after the Effective Time but prior to such
surrender and a payment date subsequent to such surrender payable with respect
to such whole shares of retained Company Common Stock.
(d) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK EXCHANGED
FOR CASH. All cash paid upon the surrender for exchange of certificates
representing shares of Company Common Stock in accordance with the terms of this
Section 1 (including any cash paid pursuant to Section 1.7(e)) shall be deemed
to have been issued (and paid) in full satisfaction of all rights pertaining to
the shares of Company Common Stock exchanged for cash theretofore represented by
such certificates.
(e) NO FRACTIONAL SHARES. No certificates or scrip representing
fractional shares of retained Company Common Stock shall be issued in connection
with the Merger or the Reverse Stock Split, and such fractional share interests
will not entitle the owner thereof to vote or to any rights of a shareholder of
the Company after the Merger or the Reverse Stock Split. Notwithstanding any
other provision of this Agreement, each holder of shares of Company Common Stock
exchanged pursuant to the Merger or split through the Reverse Stock Split who
would otherwise have been entitled to receive a fraction of a share of retained
Company Common Stock (after taking into account all shares of Company Common
Stock delivered by
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such holder) shall receive, in lieu thereof, a cash payment (without interest)
in the dollar amount (rounded to the nearest whole cent) determined by
multiplying such fraction by the Cash Election Price.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange
Fund that remains undistributed to holders of Company Share Certificates as of
the date 180 days after the date on which the Merger becomes effective shall be
delivered to the Surviving Corporation upon demand, and any holders of Company
Share Certificates who have not theretofore surrendered their Company Share
Certificates in accordance with this Section 1.7 shall thereafter look only to
the Surviving Corporation for satisfaction of their claims for Merger
Consideration.
(g) WITHHOLDING. Each of the Exchange Agent, the Company,
MergerCo and the Surviving Corporation shall be entitled to deduct and withhold
from any consideration payable pursuant to this Agreement to any holder or
former holder of Company Common Stock such amounts as may be required to be
deducted or withheld therefrom under the Code, or any provision of state, local
or foreign tax law or under any other applicable Legal Requirement. To the
extent such amounts are so deducted or withheld, such amounts shall be treated
for all purposes under this Agreement as having been paid to the Person to whom
such amounts would otherwise have been paid.
(h) NO LIABILITY. None of MergerCo or the Company or the Exchange
Agent shall be liable to any Person in respect of any shares of retained Company
Common Stock (or dividends or distributions with respect thereto) or cash from
the Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any certificates representing
shares of Company Common Stock shall not have been surrendered prior to one year
after the Effective Time (or immediately prior to such earlier date on which any
cash, if any, any cash in lieu of fractional shares of retained Company Common
Stock or any dividends or distributions with respect to retained Company Common
Stock in respect of such certificate would otherwise escheat to or become the
property of any Governmental Body), any such cash, dividends or distributions in
respect of such certificate shall, to the extent permitted by applicable law,
become the property of the Company, free and clear of all claims or interest of
any person previously entitled thereto.
1.8 DISSENTER'S RIGHTS. Any Dissenting Shareholder shall not be entitled
to the Merger Consideration as set forth in Section 1.5 in respect of his or her
Dissenting Shares unless and until such Dissenting Shareholder shall have failed
to perfect or shall have effectively withdrawn or lost such Dissenting
Shareholder's right to dissent from the Merger under the WBCA and shall be
entitled to receive only the payment provided for by Chapter 23B.13 of the WBCA
with respect to such Dissenting Shares. Upon the payment by the Surviving
Corporation of the "fair value" of any Dissenting Shares in accordance with
Chapter 23B.13 of the WBCA, such Dissenting Shares shall be canceled and retired
and shall cease to exist, and no exchange or further payment shall be made with
respect thereto. If any Dissenting Shareholder shall fail to perfect or shall
have effectively withdrawn or lost such right to dissent, the Dissenting Shares
held by such Dissenting Shareholder shall thereupon be treated as though such
Dissenting Shares
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had been converted into the right to receive the Merger Consideration as set
forth in the applicable provision of Section 1.5.
1.9 ACCOUNTING CONSEQUENCES. The Merger and all other transactions
contemplated by this Agreement are intended to be accounted for as a Leveraged
Recapitalization for financial reporting purposes.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants, to and for the benefit of MergerCo,
as follows:
2.1 DUE ORGANIZATION; SUBSIDIARIES; ETC.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Washington and has all
necessary power and authority:
(i) to conduct its business in the manner in which its
business is currently being conducted;
(ii) to own and use its assets in the manner in which its
assets are currently owned and used; and
(iii) to perform its obligations under all Company
Contracts.
(b) The Company is not conducting any business under or otherwise
using, for any purpose or in any jurisdiction, any fictitious name, assumed
name, trade name or other name, other than the names listed on Part 2.1 of the
Company Disclosure Schedule.
(c) Except where the failure to be so qualified or in good
standing would not have a Material Adverse Effect on the Company, the Company is
not required to be qualified, authorized, registered or licensed to do business
as a foreign corporation in any jurisdiction other than the jurisdictions
identified in Part 2.1 of the Company Disclosure Schedule, and the Company is in
good standing as a foreign corporation in each of the jurisdictions identified
in Part 2.1 of the Company Disclosure Schedule.
(d) Part 2.1 of the Company Disclosure Schedule sets forth as of
the date hereof (i) the names of the members of the board of directors of the
Company, (ii) the names of the members of each committee of the board of
directors of the Company, and (iii) the names and titles of the officers of the
Company.
(e) The Company has never approved, or commenced any proceeding
or made any election contemplating, its dissolution or liquidation or the
winding up or cessation of its business or affairs, except for any such
approvals, proceedings and elections that have no continuing validity or effect.
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(f) The Company has no Subsidiaries, and the Company does not
own, beneficially or otherwise, any shares or other securities of, or any direct
or indirect interest of any nature in, any Entity. The Company is not a general
partner of, and is not otherwise liable for any of the debts or obligations of,
any general partnership, limited partnership or any other Entity.
2.2 ARTICLES OF INCORPORATION AND BYLAWS; RECORDS
(a) The Company has delivered to MergerCo accurate and complete
copies of:
(i) the articles of incorporation and bylaws, including
all amendments thereto, of the Company;
(ii) the stock records of the Company; and
(iii) the minutes and other records of the meetings and
other proceedings (including any actions taken by written consent or otherwise
without a meeting) of the shareholders of the Company, the board of directors of
the Company and all committees of the board of directors of the Company.
(b) There has not been any material violation of any of the
provisions of the articles of incorporation or bylaws of the Company or of any
resolution adopted by any of the shareholders, boards of directors or any
committee of such boards of directors of the Company; and no event has occurred,
and no condition or circumstance exists, that might (with or without notice or
lapse of time) constitute or result in such a violation, in any such case where
such violation would have a Material Adverse Effect on the Company.
(c) The books of account, stock records, minute books and other
records of the Company are accurate, up-to-date and complete in all material
respects. The Company has in place, and since April 23, 1993 has had in place,
an adequate and appropriate system of internal controls.
2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of the Company consists of: (i)
5,000,000 shares of Company Preferred Stock, 2,500,000 of which have been
designated "Series A Preferred Stock" and none of which is issued or outstanding
as of the date of this Agreement; and (ii) 30,000,000 shares of Company Common
Stock, of which 5,126,190 are issued and outstanding as of the date of this
Agreement. All of the outstanding shares of Company Common Stock have been duly
authorized and validly issued, and are fully paid and nonassessable. Except as
set forth in Part 2.3(a) of the Company Disclosure Schedule: (i) none of the
outstanding shares of Company Common Stock is entitled or subject to any
preemptive right, right of participation, right of maintenance or any similar
right created by the Company or imposed under applicable law with respect to
capital stock of the Company; (ii) none of the outstanding shares of Company
Common Stock is subject to any right of first refusal in favor of the Company;
and (iii) there is no Company Contract relating to the voting or registration
of, or
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<PAGE> 16
restricting any Person from purchasing, selling, pledging or otherwise disposing
of any shares of Company Common Stock. The Company is not under any obligation,
or bound by any Contract pursuant to which it may become obligated, to
repurchase, redeem or otherwise acquire any outstanding shares of Company Common
Stock.
(b) As of the date of this Agreement, 1,141,522 shares of Company
Common Stock are subject to issuance pursuant to outstanding options to purchase
shares of Company Common Stock. Part 2.3(b) of the Company Disclosure Schedule
sets forth the following information with respect to each outstanding stock
option granted by the Company pursuant to the Company's stock option plans (the
"COMPANY OPTIONS"): (i) the plan under which the Company Option is granted; (ii)
the name of the optionee; (iii) the number of shares of Company Common Stock
subject to the option; (iv) the exercise price of the Company Option; (v) the
date on which the Company Option was granted; (vi) the applicable vesting
schedules; and (vii) the date on which the Company Option expires. The Company
has delivered to MergerCo accurate and complete copies of all stock option plans
pursuant to which the Company has granted outstanding stock options and the
forms of all stock option agreements evidencing such outstanding options.
(c) Except as set forth in Part 2.3 of the Company Disclosure
Schedule, there is no:
(i) outstanding subscription, option, call, warrant or
right (whether or not currently exercisable) to acquire any shares of the
capital stock or other securities of the Company issued by the Company;
(ii) outstanding security, instrument or obligation that
is or may become convertible into or exchangeable for any shares of the capital
stock or other securities of the Company issued by the Company; or
(iii) Contract under which the Company is or may become
obligated to sell or otherwise issue any shares of its capital stock or any
other securities.
(d) Except as set forth in Part 2.3(d) of the Company Disclosure
Schedule, since June 30, 1996, the Company has not repurchased, redeemed or
otherwise reacquired any shares of capital stock or other securities. All
securities so reacquired were reacquired in full compliance with applicable
Legal Requirements.
2.4 SEC FILINGS; FINANCIAL STATEMENTS
(a) Since June 30, 1996, all documents required to have been
filed by the Company with the SEC have been so filed. As of the time it was
filed with the SEC (or, if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing) and except as set forth in
Part 2.4 of the Company Disclosure Schedule; (i) each of the Company SEC
Documents complied in all material respects with the applicable requirements of
the Securities Act or the Exchange Act (as the case may be); and (ii) none of
the Company SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact
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<PAGE> 17
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) The financial statements (including any related notes)
contained in the Company SEC Documents: (i) complied as to form in all material
respects with the published rules and regulations of the SEC applicable thereto;
(ii) were prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered (except as may be
indicated in the notes to such financial statements or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC, and except that the unaudited
financial statements may not contain footnotes and are subject to normal and
recurring year-end adjustments which will not, individually or in the aggregate,
be material in amount), and (iii) fairly present the financial position of the
Company as of the respective dates thereof and the results of operations and
cash flows of the Company for the periods covered thereby.
2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the Company
Disclosure Schedule, since September 30, 1998:
(a) the Company has conducted its business in the Ordinary Course
of Business;
(b) there has not been any Material Adverse Effect on the
Company;
(c) there has not been any material loss, damage or destruction
to, or any interruption in the use of, any of the assets of the Company (whether
or not covered by insurance);
(d) the Company has not (i) declared, accrued, set aside or paid
any dividend or made any other distribution in respect of any shares of capital
stock, or (ii) repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(e) the Company has not sold, issued or granted, or authorized
the issuance of, (i) any capital stock or other security (except for Company
Common Stock issued upon exercise of outstanding Company Options), (ii) any
option, warrant or right to acquire any capital stock or any other security
(except for Company Options described in Part 2.3 of the Company Disclosure
Schedule), or (iii) any instrument convertible into or exchangeable for any
capital stock or other security;
(f) the Company has not amended its articles of incorporation or
bylaws or other organizational documents, and has not effected or been a party
to any Acquisition Transaction, recapitalization, reclassification of shares,
stock split, reverse stock split or similar transaction;
(g) the Company has not made any capital expenditure which, when
added to all other capital expenditures made on behalf of the Company since
September 30, 1998, exceeds $500,000 in the aggregate;
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(h) the Company has not made any pledge of any of its assets with
a fair market value of greater than $10,000 or otherwise permitted any of such
assets to become subject to any material Encumbrance, except for: (i) any liens
for current Taxes not yet due and payable; (ii) liens that have arisen in the
Ordinary Course of Business and that do not (in any case or in the aggregate)
materially detract from the value of any such asset or materially impair the
operations of the Company; and (iii) liens described in Part 2.6 of the Company
Disclosure Schedule;
(i) the Company has not (i) lent money to any Person; or (ii)
incurred or guaranteed any indebtedness for borrowed money (except for (A)
routine borrowings, in the Ordinary Course of Business and consistent with past
practices under its current line of credit, or (B) in the Ordinary Course of
Business and consistent with past practices, advances to employees for valid
business purposes);
(j) the Company has not (i) established or adopted any Employee
Benefit Plan; or (ii) paid any bonus or made any profit-sharing or similar
payment to, or increased the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its directors,
officers or employees (except that the Company may have in the Ordinary Course
of Business (A) made routine, reasonable salary increases in connection with the
Company's customary employee review process; or (B) paid customary bonuses in
accordance with existing bonus plans disclosed in Part 2.16 of the Company
Disclosure Schedule and consistent with past practice);
(k) the Company has not commenced or settled any Legal
Proceeding;
(l) the Company has not made any material Tax election;
(m) no Material Contract has been amended or terminated by
agreement or after acceleration of any right of termination;
(n) the Company has not incurred, assumed or otherwise become
subject to any material Liability, other than accounts payable (of the type
required to be reflected as current Liabilities in the "liabilities" column of a
balance sheet prepared in accordance with GAAP) incurred in the Ordinary Course
of Business and Liabilities incurred in connection with the transactions
contemplated hereby;
(o) the Company has not changed any of its methods of accounting
or accounting practices in any material respect; and
(p) the Company has not agreed or committed (in writing or
otherwise) to take any of the actions referred to in clauses "(c)" through "(p)"
above.
2.6 TITLE TO ASSETS. The Company owns, and has good, valid and
marketable title to, each asset with a fair market value of greater than $10,000
reflected on the Unaudited Interim Balance Sheet (except for inventory sold or
otherwise disposed of in the Ordinary Course of Business since the date of the
Unaudited Interim Balance Sheet). All of said assets are owned by the Company
free and clear of any Encumbrances, except for: (i) any liens for current Taxes
not
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yet due and payable; (ii) liens that have arisen in the Ordinary Course of
Business and that do not (in any case or in the aggregate) materially detract
from the value of any such asset, or materially impair the operations of the
Company; and (iii) liens described in Part 2.6 of the Company Disclosure
Schedule.
2.7 RECEIVABLES; MAJOR CUSTOMERS
(a) Part 2.7 of the Company Disclosure Schedule provides an
accurate and complete breakdown and aging of all accounts receivable, notes
receivable and other receivables of the Company as of September 30, 1998.
(b) Except as set forth in Part 2.7 of the Company Disclosure
Schedule, all existing accounts receivable of the Company (including those
accounts receivable reflected on the Unaudited Interim Balance Sheet that have
not yet been collected and those accounts receivable that have arisen since
September 30, 1998 and have not yet been collected):
(i) represent valid obligations of customers of the
Company arising from bona fide transactions entered into in the Ordinary Course
of Business; and
(ii) are, to the Company's Knowledge, collectible in the
Ordinary Course of Business.
(c) Part 2.7 of the Company Disclosure Schedule accurately
identifies and states the revenues received from, each customer or other Person
that accounted for (i) more than $500,000 of the gross revenues of the Company
in fiscal 1997 or 1998; (ii) more than $125,000 of the gross revenues of the
Company in the first quarter of fiscal 1999. The Company has not received any
notice or other communication (in writing or otherwise), and has not received
any other information, indicating that any customer or other Person identified
in Part 2.7 of the Company Disclosure Schedule may cease dealing with the
Company or may otherwise reduce the volume of business transacted by such Person
with the Company below historical levels.
2.8 LEASEHOLD; EQUIPMENT. The Company does not own any real property or
any interest in real property, except for the leaseholds created under the real
property leases identified in Part 2.8 of the Company Disclosure Schedule. All
such real property is being leased pursuant to lease agreements that are in full
force and effect, are valid and effective in accordance with their respective
terms, and there is not, under any of such leases, any existing default or event
of default (or event which with notice or lapse of time, or both, would
constitute a default) that would result in a Material Adverse Effect on the
Company. All material items of equipment and other tangible assets owned by or
leased to the Company are adequate for the uses to which they are being put, are
in good condition and repair (ordinary wear and tear excepted) and are adequate
for the conduct of the business of the Company in the manner in which such
business is currently being conducted.
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2.9 PROPRIETARY ASSETS
(a) Part 2.9(a) of the Company Disclosure Schedule sets forth,
with respect to each Proprietary Asset owned by the Company and registered with
any Governmental Body or for which an application has been registered or filed
with any Governmental Body, (i) a brief description of such Proprietary Asset,
and (ii) the names of the jurisdictions covered by the applicable registration
or application. Part 2.9(a) of the Company Disclosure Schedule identifies
Contracts that grant to the Company rights to Proprietary Assets that are
incorporated into the Company's present or planned products. The Company has
good, valid and marketable title to all of the Proprietary Assets owned by the
Company and a good, valid and enforceable license to all the Proprietary Assets
licensed by the Company, free and clear of all Encumbrances, except for (A) any
lien for current taxes not yet due and payable, (B) any Encumbrances that have
arisen in the Ordinary Course of Business and that do not (individually or in
the aggregate) materially detract from the value of the assets subject thereto
or materially impair the operations of the Company, (C) any Contract to which
the Company is a party and pursuant to which the Company has licensed or
transferred any right (whether or not currently exercisable) to use, license or
otherwise exploit any Company Proprietary Asset to any Person and (D) any
Contract to which the Company is a party and pursuant to which the Company has
inlicensed any Proprietary Asset. The Company has a valid right to use, license
and otherwise exploit all Proprietary Assets to the extent necessary to the
conduct of the business of the Company as currently conducted. Part 2.9(a) of
the Company Disclosure Schedule sets forth a list of each Contract providing for
the joint development of any Company Proprietary Asset.
(b) The Company has taken reasonable measures and precautions to
protect and maintain the confidentiality and secrecy of all material Company
Proprietary Assets (except Company Proprietary Assets whose value would be
unimpaired in any material respect by disclosure). Without limiting the
generality of the foregoing, (i) to the Company's Knowledge, all current
employees of the Company who are or were involved in, or who have contributed
to, the creation or development of any material Company Proprietary Asset have
executed and delivered to the Company an agreement that at the time of execution
was in the form of the Company's then existing confidential information and
invention assignment agreement, and (ii) all current consultants and independent
contractors to the Company who are or were involved in, or who have contributed
to, the creation or development of any material Company Proprietary Asset have
executed and delivered to the Company an agreement that at the time of execution
was in the form of the Company's then existing consultant confidential
information and invention assignment agreement. The Company has made available
to MergerCo the current forms of the Company's confidential information and
inventions agreements for employees and consultants. No current or former
employee, officer, director, shareholder, consultant or independent contractor
has any right, claim or interest, including, without limitation, any moral
rights, in or with respect to any Company Proprietary Asset.
(c) Except as set forth in Part 2.9 (c) of the Company Disclosure
Schedule, to the Knowledge of the Company: (i) all patents, trademarks, trade
names, service marks, maskwork rights and copyrights held by the Company are
valid, enforceable and subsisting; (ii) none of the Company Proprietary Assets
and no Proprietary Asset that is currently being
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developed by the Company (either by itself or with any other Person) infringes,
misappropriates or conflicts with any Proprietary Asset owned or used by any
other Person; (iii) none of the products that are or have been designed,
created, developed, assembled, manufactured or sold by the Company is
infringing, misappropriating or making any unlawful or unauthorized use of any
Proprietary Asset owned or used by any other Person, and none of such products
has at any time infringed, misappropriated or made any unlawful or unauthorized
use of, and neither the Company nor any of its Representatives has received any
notice or other communication (in writing or otherwise) of any actual, alleged,
possible or potential infringement, misappropriation or unlawful or unauthorized
use of, any Proprietary Asset owned or used by any other Person; and (iv) no
other Person is infringing, misappropriating or making any unlawful or
unauthorized use of, and no Proprietary Asset owned or used by any other Person
infringes or conflicts with, any material Company Proprietary Asset.
(d) The Company Proprietary Assets constitute all the Proprietary
Assets necessary to enable the Company to conduct its business in the manner in
which such business has been and is being conducted. Except as set forth in Part
2.9(d) of the Company Disclosure Schedule, the Company has not (i) licensed any
of the Company Proprietary Assets to any Person on an exclusive basis, (ii)
entered into any covenant not to compete or (iii) entered into any Contract
limiting its ability to transact business in any market or geographical area or
with any Person.
(e) No event has occurred, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or would reasonably
be expected to, result in the required disclosure or delivery by the Company or
any of its escrow agents to any Person of the source code, or any portion or
aspect of the source code, or any proprietary information or algorithm contained
in any source code, of any Company Proprietary Asset. Neither the execution of
this Agreement nor the consummation of any of the transactions contemplated
hereby would reasonably be expected to result in the required release or
disclosure by the Company or any of its escrow agents of the source code, or any
portion or aspect of the source code, or any proprietary information or
algorithm contained in or relating to any source code, of any Company
Proprietary Asset.
(f) Except as disclosed in Part 2.9(f) of the Company Disclosure
Schedule, all software and related Company Proprietary Assets that are being
sold, licensed or transferred by the Company to any Person ("PRODUCTS") are
designed to be used prior to, during and after the year 2000 ("YEAR 2000"), and
are Year 2000 Compliant (as defined below). The Company has taken adequate steps
to ensure that all software and related Proprietary Assets used in its
operations are Year 2000 Compliant (as defined below). For purposes of this
Agreement, "YEAR 2000 COMPLIANT" shall mean that the Products can individually
continue to be used normally and to operate successfully (both in functionality
and performance in all material respects) over the transition into the twenty
first century when used in accordance with the documentation relating to the
Products, including being able to, before, on and after January 1, 2000
substantially conform to the following: (i) use logic pertaining to dates which
allow users to identify and/or use the century portion of any date fields
without special processing; and (ii) respond to all date elements and date input
so as to resolve any ambiguity as to century in a disclosed, defined and
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pre-determined manner and provide date information in ways which are unambiguous
as to century, either by permitting or requiring the century to be specified or
where the data element is represented without a century, the correct century is
unambiguous for all manipulations involving that element.
2.10 CONTRACTS.
(a) Part 2.10(a) of the Company Disclosure Schedule identifies
each Company Contract that as of the date hereof is a Material Contract.
(b) Except as set forth in Part 2.10 of the Company Disclosure
Schedule:
(i) The Company has not and, to the Company's Knowledge,
no other Person has materially violated or breached, or declared or committed
any material default under, any Material Contract.
(ii) To the Company's Knowledge, no event has occurred,
and no circumstance or condition exists, that has or could be reasonably
expected to (with or without notice or lapse of time): (A) result in a material
violation or breach of any of the provisions of any Material Contract; (B) give
any Person the right to declare a default or exercise any remedy under any
Material Contract; (C) give any Person the right to accelerate the maturity or
performance of any Material Contract; or (D) give any Person the right to
cancel, terminate or modify any Material Contract.
(iii) The Company has not received any notice or other
communication (in writing or otherwise) regarding any actual, alleged, possible
or potential material violation or breach of, or material default under, any
Material Contract.
(iv) The Company has not waived any of its rights under
any Material Contract.
(v) Each Material Contract is valid and in full force and
effect, and is enforceable by the Company in accordance with its terms, subject
to: (i) laws of general application relating to bankruptcy, insolvency and the
relief of debtors; and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
(vi) No Person is renegotiating, or has the right to
renegotiate, any amount paid or payable to the Company under any Material
Contract or any other term or provision of any Material Contract.
(vii) The Company does not have any Material Contract with
any Governmental Body for the delivery of products or the performance of
services.
2.11 LIABILITIES. The Company has no Liabilities of any nature, except
for: (a) Liabilities identified as such in the "liabilities" column of the
Unaudited Interim Balance Sheet; and (b) Liabilities that have been incurred by
the Company since September 30, 1998 in the
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Ordinary Course of Business; and (c) Liabilities incurred in connection with the
transactions contemplated hereby.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS
(a) The Company is, and has at all times since June 30, 1996,
been, in material compliance with all material applicable Legal Requirements.
(b) The Company has not received, since June 30, 1996, any notice
or other communication (in writing or otherwise) from any Governmental Body or
any other Person regarding any actual, alleged, possible or potential violation
of, or failure to comply with, any Legal Requirement.
2.13 GOVERNMENTAL AUTHORIZATIONS. Except as set forth in Part 2.13 of
the Company Disclosure Schedule:
(a) the Company and to its Knowledge its employees are, and since
June 30, 1996 have been, in compliance in all material respects with all of the
terms and requirements of each Governmental Authorization that is held, or is
required to be held, by the Company;
(b) since June 30, 1996, the Company has not received, and, to
the Knowledge of the Company, no employee of the Company has received, any
notice or other communication (in writing or otherwise) from any Governmental
Body or any other Person regarding (A) any actual, alleged, possible or
potential violation of or failure to comply with any term or requirement of any
Governmental Authorization, or (B) any actual, proposed, possible or potential
revocation, withdrawal, suspension, cancellation, termination or modification of
any Governmental Authorization;
(c) all applications required to have been filed for the renewal
of the Governmental Authorizations held by the Company have been duly filed on a
timely basis with the appropriate Governmental Bodies, and each other notice or
filing required to have been given or made with respect to such Governmental
Authorizations has been duly given or made on a timely basis with the
appropriate Governmental Body; and
(d) The Company holds all of the Governmental Authorizations
necessary (i) to enable the Company to conduct its business in the manner in
which such business is currently being conducted; and (ii) to permit the Company
to own and use its assets in the manner in which they are currently owned.
2.14 TAX MATTERS
(a) All Tax Returns required to be filed by or on behalf of the
Company with any Governmental Body with respect to any taxable period ending on
or before the Closing Date (the "COMPANY RETURNS") (i) have been or will be
filed on or before the applicable due date (including any extensions of such due
date), and (ii) have been, or will be when filed, prepared in all material
respects in compliance with all applicable Legal Requirements. All amounts shown
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on the Company Returns to be due on or before the Closing Date have been or will
be paid on or before the Closing Date.
(b) The financial statements referenced in Section 2.4(b) fully
accrue all Liabilities for Taxes with respect to all periods through the dates
thereof in accordance with generally accepted accounting principles. The Company
will establish reserves reasonably adequate for all Liabilities for all Taxes
for the period from September 30, 1998 through the Closing Date.
(c) No claim or Legal Proceeding is pending or, to the Knowledge
of the Company, has been threatened against or with respect to the Company in
respect of any material Tax. There are no unsatisfied Liabilities for material
Taxes (including Liabilities for interest, additions to tax and penalties
thereon and related expenses) with respect to any notice of deficiency or
similar document which are being contested in good faith by the Company for
which adequate reserves for payment have not been established. The Company has
not entered into or become bound by any agreement or consent pursuant to Section
341(f) of the Code. The Company has not been, and will not be, required to
include any adjustment in taxable income for any tax period (or portion thereof)
pursuant to Section 481 or 263A of the Code or any comparable provision under
state or foreign Tax laws as a result of transactions or events occurring, or
accounting methods employed, prior to the Closing.
(d) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of the Company that, considered individually or
considered collectively with any other such Contracts, will, or could reasonably
be expected to, in connection with the Merger give rise directly or indirectly
to the payment of any amount that would not be deductible pursuant to Section
280G or Section 162 of the Code. The Company has provided to MergerCo a copy of
any tax indemnity agreement, tax sharing agreement, tax allocation agreement or
similar Contract to which the Company is a party or by which it is otherwise
bound.
2.15 EMPLOYEE AND LABOR MATTERS
(a) Part 2.15 of the Company Disclosure Schedule accurately lists
all employees of the Company as of November 30, 1998, including the title and
salary for each such employee.
(b) There are no former employees of the Company who are
receiving or are scheduled to receive (or whose spouse or other dependent is
receiving or is scheduled to receive) any material benefits from the Company
relating to such former employee's employment with the Company, other than
exercise of options in accordance with post-termination exercise provisions; and
Part 2.15 of the Company Disclosure Schedule accurately describes such benefits.
(c) Except as set forth in Part 2.15 of the Disclosure Schedule
or the Company SEC Documents, the Company is not a party to or bound by any
employment agreement or any union contract, collective bargaining agreement or
similar Contract.
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(d) The employment of the employees of the Company is terminable
by the Company at will.
(e) To the Knowledge of the Company, no officer, manager or key
developer or programmer of the Company intends to terminate his employment with
the Company;
(f) The Company is in compliance in all material respects with
all applicable Legal Requirements and Contracts relating to employment,
employment practices, wages, bonuses and terms and conditions of employment,
including employee compensation matters. There is not now pending, and to the
Knowledge of the Company, no Person has threatened to commence, any such
slowdown, work stoppage, labor dispute or union organizing activity or any
similar activity or dispute.
2.16 BENEFIT PLANS; ERISA
(a) Part 2.16 of the Company Disclosure Schedule identifies each
Current Benefit Plan.
(b) Except as set forth in Part 2.16 of the Disclosure Schedule,
none of the Company Plans provides for continuing welfare benefits or coverage
for any participant or any beneficiary of a participant following termination of
employment, except as may be required by law, including, but not limited to,
Section 498B of the Code, Sections 601 to 609 of ERISA and COBRA, or except at
the expense of the participant or the participant's beneficiary.
(c) No Current Benefit Plan or Past Benefit Plan:
(i) provides or provided any benefit guaranteed by the
Pension Benefit Guaranty Corporation;
(ii) is or was a "multi-employer plan" as defined in
Section 4001(a)(3) of ERISA; or
(iii) is or was subject to the minimum funding standards
of Section 412 of the Code or Section 302 of ERISA.
There is no Person that (by reason of common control or otherwise) is or
has at any time been treated together with the Company as a single employer
within the meaning of Section 414 of the Code.
(d) Each Current Benefit Plan complies and is being operated and
administered in compliance in all material respects with, and each Company Plan
has at all times complied and been operated and administered in compliance in
all material respects with, the provisions thereof and all applicable reporting,
disclosure and other requirements of ERISA and the Code and all other applicable
Legal Requirements. Each contribution or other payment that is required to have
been accrued or made under or with respect to any Company Plan has been duly
accrued and made on a timely basis. To the Knowledge of the Company, (1) the
Company has
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never incurred any Liability to the Internal Revenue Service or any other
Governmental Body with respect to any Company Plan; and (2) no event has
occurred and no condition or circumstance exists, that might (with or without
notice or lapse of time) give rise directly or indirectly to any such Liability.
(e) Each Company Plan intended to qualify under Section 401 of
the Code has been determined by the Internal Revenue Service to be so qualified,
and no event has occurred and no condition exists with respect to the form or
operation of such Company Plan that would cause the loss of such qualification
or the imposition of any material Liability, penalty or tax under ERISA or the
Code, other than amendments to such Company Plan and changes in applicable law
for which the remedial amendment period has not yet expired.
(f) Except as set forth in Part 2.16 of the Company Disclosure
Schedule, the Company has not advised any of its employees (in writing or
otherwise) that it intends or expects to establish or sponsor any Employee
Benefit Plan or to provide or make available any fringe benefit or other benefit
of any nature in the future.
(g) Except as contemplated by Section 5.4, no benefit under any
Company Plan will be materially increased and no vesting of any benefit under
any Company Plan will be materially accelerated by the occurrence of the Merger
or any of the other transactions contemplated by and ancillary to this
Agreement, nor will the value of any benefit under any Company Plan be
calculated on the basis of any such transactions.
2.17 ENVIRONMENTAL MATTERS. The Company is in compliance in all material
respects with all applicable Environmental Laws, which compliance includes the
possession by the Company of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof. The Company has not received any written notice whether from
a Governmental Body, citizens group, employee or otherwise, that alleges that
the Company is not in compliance with any Environmental Law, and, to the
Knowledge of the Company, there are no circumstances that will prevent or
interfere with the compliance by the Company with any Environmental Law in the
future. To the Knowledge of the Company, no current or prior owner of any
property leased or controlled by the Company has received any written notice
whether from a Government Body, citizens group, employee or otherwise, that
alleges that such current or prior owner or the Company is not in compliance
with any Environmental Law. To the Knowledge of the Company, all property that
is leased to, controlled by or used by the Company, and all surface water,
groundwater and soil associated with or adjacent to such property is free of any
material illegal environmental contamination. (For purposes of this Section
2.17: (i) "ENVIRONMENTAL LAW" means any federal, state, local or foreign Legal
Requirement relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata), including any law or regulation relating to emissions,
discharges, releases or threatened releases of Materials of Environmental
Concern, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environmental Concern; and (ii) "MATERIALS OF ENVIRONMENTAL CONCERN" include
chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and
petroleum products and any
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other substance that is now or hereafter regulated by any Environmental Law or
that is otherwise a danger to health, reproduction or the environment.)
2.18 SALE OF PRODUCTS; PERFORMANCE OF SERVICES
(a) Excluding Liabilities under an express written warranty
issued in the sale by the Company of a product, the Company is not, and prior to
the Closing Date will not incur or otherwise become subject to, any Liability
arising directly or indirectly from any product manufactured or sold by, or any
maintenance services or other services performed by, the Company.
(b) Except in the Ordinary Course of Business and in aggregate
amounts consistent with the historical warranty expenses recorded by the Company
during fiscal 1997 and 1998, no customer or other Person has ever asserted or,
to the Knowledge of the Company, threatened to assert any claim against the
Company (i) under or based upon any warranty provided by or on behalf of the
Company, or (ii) under or based upon any other warranty relating to any product
sold by the Company or any services performed by the Company.
(c) The Company has in place, and since June 30, 1996 has had in
place, adequate and appropriate quality control processes and methodologies
relating to its products and services.
2.19 INSURANCE. The Company maintains insurance against such risks and
in such amounts as the Company reasonably believes is necessary to conduct its
business. The Company has made copies of its insurance policies available to
MergerCo. The Company is not in material default with respect to any provisions
or requirements of any such policy, nor has it failed to give notice or present
any material claim thereunder in a due and timely fashion. The Company has not
received any notice or communication of actual or possible cancellation,
termination, refusal of coverage or rejection of claim in respect of any of its
insurance policies.
2.20 RELATED PARTY TRANSACTIONS. Except as set forth in the Company SEC
Reports and except for any transaction contemplated by this Agreement, since the
date of the Company's last proxy statement filed with the SEC, no event has
occurred that would be required to be reported by the Company in a filing with
the SEC pursuant to Item 404 of Regulation S-K promulgated by the SEC.
2.21 PROCEEDINGS; ORDERS
(a) Except as set forth in Part 2.21 of the Company Disclosure
Schedule, there is no pending Proceeding, and, to the Knowledge of the Company,
no Person has threatened to commence any Proceeding:
(i) that involves the Company or any of the assets owned
or used by it; or
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(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any of the
transactions contemplated herein.
Except as set forth in Part 2.21 of the Company Disclosure Schedule, to
the Knowledge of the Company, no event has occurred, and no claim, dispute or
other condition or circumstance exists, that is reasonably likely to give rise
to the commencement of any such Proceeding.
(b) The Company has delivered to MergerCo accurate and complete
copies of all material pleadings, correspondence and other written materials to
which the Company has access that relate to the Proceedings identified in Part
2.21 of the Company Disclosure Schedule.
(c) There is no Order to which the Company, or any of the assets
owned or used by the Company, is subject.
(d) To the Knowledge of the Company, no officer or employee of
the Company is subject to any Order that prohibits such officer or employee from
engaging in or continuing any conduct, activity or practice relating to the
business of the Company.
2.22 AUTHORITY; BINDING NATURE OF AGREEMENTS. The Company has the
absolute and unrestricted right, power and authority to enter into and to
perform its obligations under this Agreement. The Board of Directors of the
Company (at a meeting duly called and held) has (a) unanimously determined that
the Merger is advisable and fair and in the best interests of the Company and
its shareholders; (b) unanimously authorized and approved the execution,
delivery and performance of this Agreement and the Articles of Merger by the
Company and unanimously approved the Merger; and (c) unanimously recommended the
adoption and approval of this Agreement and the approval of the Merger and the
Reverse Stock Split by the holders of Company Common Stock and directed that
this Agreement, the Merger and the Reverse Stock Split be submitted for
consideration by the Company's shareholders at the Company Shareholders'
Meeting. This Agreement constitutes the legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
2.23 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.23 of
the Company Disclosure Schedule, neither the execution and delivery of any of
this Agreement, nor the consummation or performance of any of the transactions
contemplated herein, will directly or indirectly (with or without notice or
lapse of time):
(a) contravene, conflict with or result in a violation of (i) any
of the provisions of the articles of incorporation or bylaws of the Company; or
(ii) any resolution adopted by the shareholders, boards of directors or any
committee of such boards of directors of the Company;
(b) contravene, conflict with or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
transactions contemplated herein or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which the Company, or any of the
assets owned or used by the Company, is subject;
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(c) contravene, conflict with or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any material Governmental
Authorization that is held by the Company or that otherwise relates to any of
the assets owned or used by the Company;
(d) contravene, conflict with or result in a material violation
or breach of, or result in a material default under, any provision of any
Material Contract;
(e) give any Person the right to (i) declare a default or
exercise any remedy under any Material Contract; (ii) accelerate the maturity or
performance of any Material Contract, or (iii) cancel, terminate or modify any
Material Contract; or
(f) result in the imposition or creation of any material
Encumbrance upon or with respect to any material asset owned or used by the
Company.
Except for shareholder approval, the filing of Articles of Merger as
required by the laws of the State of Washington, and as set forth in Part 2.23
of the Company Disclosure Schedule, the Company is not and will not be required
to make any filing with or give any notice to, or to obtain any Consent from,
any Person in connection with the execution and delivery of this Agreement or
the consummation or performance of any of the transactions contemplated herein.
2.24 NO EXISTING DISCUSSIONS. As of the date of this Agreement, neither
the Company nor any Representative of the Company, is engaged, directly or
indirectly, in any discussions or negotiations with any other Person relating to
any Acquisition Proposal.
2.25 VOTE REQUIRED. The affirmative vote of the holders of a majority of
the shares of Company Common Stock outstanding on the record date for the
Company Shareholders' Meeting (the "REQUIRED COMPANY SHAREHOLDER VOTE") is the
only vote of the holders of any class or series of the Company's capital stock
necessary to adopt and approve this Agreement and approve the Merger and the
Reverse Stock Split.
2.26 FAIRNESS OPINION. The Company's board of directors has received the
written opinion of Broadview International LLC ("Broadview"), financial advisor
to the Company, dated as of the date of this Agreement, to the effect that the
consideration to be received by the shareholders of the Company in the Merger is
fair to the shareholders of the Company from a financial point of view. The
Company has furnished an accurate and complete copy of said written opinion to
MergerCo.
2.27 BROKERS. Except for $300,000 to be paid to Broadview, the Company
has not agreed or become obligated to pay, or has taken any action that might
result in any Person claiming to be entitled to receive, any brokerage
commission, finder's fee or similar commission or fee in connection with any of
the transactions contemplated herein.
2.28 FULL DISCLOSURE. This Agreement and the Company Disclosure Schedule
do not and will not, (i) contain any representation, warranty or information
that is false or misleading with respect to any material fact, or (ii) omit to
state any material fact necessary in order to make
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the representations, warranties and information contained and to be contained
herein and therein (in light of the circumstances under which such
representations, warranties and information are being or will be made or
provided) not false or misleading.
2.29 STATE TAKEOVER STATUTES. The action of the Board of Directors of
the Company in approving the Merger, this Agreement and the transactions
contemplated by this Agreement (including the voting agreements referenced in
Recital D) constitutes approval under Chapter 23B.19.040(1)(a) of the WBCA and,
assuming the accuracy of the representation made by MergerCo in Section 3.10, is
sufficient to render inapplicable to the Merger and this Agreement and such
voting agreements the provisions of Chapter 23B.19 of the WBCA.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF MERGERCO
MergerCo represents and warrants, to and for the benefit of the Company,
as follows:
3.1 ORGANIZATION, STANDING AND POWER. MergerCo is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Washington and has all necessary power and authority: (a) to conduct its
business in the manner in which its business is currently being conducted; (b)
to own and use its assets in the manner in which its assets are currently owned
and used; and (c) to perform its obligations under all Contracts by which it is
bound. MergerCo was organized for the transactions contemplated by this
Agreement, has not had operations except in connection therewith and has never
employed any Person.
3.2 AUTHORITY; BINDING NATURE OF AGREEMENTS. MergerCo has the absolute
and unrestricted right, power and authority to enter into and to perform its
obligations under this Agreement. The Board of Directors of MergerCo has (a)
unanimously determined that the Merger is advisable and fair and in the best
interests of MergerCo and its shareholders, (b) unanimously authorized and
approved the execution, delivery and performance of this Agreement and the
Articles of Merger by MergerCo and unanimously approved the Merger, and (c)
unanimously recommended the adoption and approval of this Agreement and the
Articles of Merger and the approval of the Merger. This Agreement constitutes
the legal, valid and binding obligation of MergerCo, enforceable against
MergerCo in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies.
3.3 NON-CONTRAVENTION; CONSENTS. Neither the execution and delivery of
any of this Agreement, nor the consummation or performance of any of the
transactions contemplated herein, will directly or indirectly (with or without
notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any
of the provisions of the articles of incorporation or bylaws of MergerCo, or
(ii) any resolution adopted by the shareholders, boards of directors or any
committee of such boards of directors of MergerCo;
(b) contravene, conflict with or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
transactions contemplated
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herein or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which MergerCo, or any of the assets owned or used
by MergerCo, is subject;
(c) contravene, conflict with or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by MergerCo;
(d) contravene, conflict with or result in a violation or breach
of, or result in a default under, any provision of any material Contract to
which MergerCo is a party;
(e) give any Person the right to (i) declare a default or
exercise any remedy under any material Contract by which MergerCo is bound, (ii)
accelerate the maturity or performance of any such material Contract or (iii)
cancel, terminate or modify any such material Contract;
(f) result in the imposition or creation of any Encumbrance upon
or with respect to any material asset owned or used by MergerCo;
Except for the filing of Articles of Merger as required by the laws of
the State of Washington and other than shareholder approval (which will occur
prior to Closing), MergerCo is not and will not be required to make any filing
with or give any notice to, or to obtain any Consent from, any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the transactions contemplated herein.
3.4 CAPITALIZATION AND ASSETS. Subject to and based upon the Company's
representations set forth in Article 2 regarding the number of outstanding
shares of Company Common Stock, the number of shares subject to Options, the
exercise price of Options and subject to and based upon the contemplated funds
to be borrowed by the Company and used from the Company's cash resources,
2,153,439 shares of common stock of MergerCo will be outstanding immediately
prior to the Effective Time, subject to adjustment in respect of rounding errors
(without giving effect to any warrants that may be issued by MergerCo or the
Company in connection with the satisfaction of obligations to pay or reimburse
Transaction Expenses (as hereinafter defined) or in connection with the
borrowing of funds by the Company). Immediately prior to the Effective Time,
subject to the availability of the contemplated funds to be borrowed by the
Company and used from the Company's cash resources, MergerCo's cash balances
shall be at least $11,100,000 and in any event sufficient to consummate the
Merger in a manner permitted under this Agreement when combined with the
contemplated funds to be borrowed by the Company and used from the Company's
cash resources. The amount to be used from the Company's cash resources will not
exceed $6,900,000 unless otherwise approved by the Board of Directors of the
Company and in any event will not exceed $8,100,000. The foregoing
representation assumes no outstanding options of the Company are exercised or
granted after the date hereof; MergerCo and the Company shall agree on
appropriate adjustments in the event of option exercises or grants.
3.5 BROKERS. Except pursuant to a letter agreement between MergerCo and
W.R. Hambrecht + Co., LLC dated December 29, 1998, MergerCo has not agreed or
become obligated
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to pay, and has not taken any action that might result in any Person claiming to
be entitled to receive, any brokerage commission, finder's fee or similar
commission or fee in connection with any of the transactions contemplated
herein.
3.6 LIABILITIES. Other than pursuant to a letter agreement between
MergerCo and W.R. Hambrecht + Co., LLC dated December 29, 1998, MergerCo. has no
material Liabilities.
3.7 COMPLIANCE WITH LEGAL REQUIREMENTS
(a) MergerCo is, and has at all times since its incorporation
been, in material compliance with all applicable Legal Requirements.
(b) MergerCo has not received, at any time, any notice or other
communication (in writing or otherwise) from any Governmental Body or any other
Person regarding any actual, alleged, possible or potential violation of, or
failure to comply with, any Legal Requirement.
3.8 GOVERNMENTAL AUTHORIZATIONS
(a) MergerCo is, and has at all times been, in compliance in all
material respects with all of the terms and requirements of each Governmental
Authorization that is held, or is required to be held, by it;
(b) since its formation, MergerCo has never received, any notice
or other communication (in writing or otherwise) from any Governmental Body or
any other Person regarding (A) any actual, alleged, possible or potential
violation of or failure to comply with any term or requirement of any
Governmental Authorization, or (B) any actual, proposed, possible or potential
revocation, withdrawal, suspension, cancellation, termination or modification of
any Governmental Authorization;
(c) all applications required to have been filed for the renewal
of the Governmental Authorizations held by MergerCo have been duly filed on a
timely basis with the appropriate Governmental Bodies, and each other notice or
filing required to have been given or made with respect to such Governmental
Authorizations has been duly given or made on a timely basis with the
appropriate Governmental Body; and
(d) other than the filing of the Articles of Merger as required
by the laws of the state of Washington, MergerCo has obtained all Governmental
Authorizations necessary to consummate the transactions as contemplated by this
Agreement.
3.9 PROCEEDINGS; ORDERS
(a) There is no pending Proceeding, and, to the Knowledge of
MergerCo, no Person has threatened to commence any Proceeding:
(i) that involves MergerCo or any of the assets owned or
used by it; or
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(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any of the
transactions contemplated herein.
To the Knowledge of MergerCo, no event has occurred, and no claim,
dispute or other condition or circumstance exists, that is reasonably likely to
give rise to or serve as a basis for the commencement of any such Proceeding.
(b) There is no Order to which MergerCo, or any of the assets
owned or used by the MergerCo, is subject.
(c) To the Knowledge of MergerCo, no officer of MergerCo is
subject to any Order that prohibits such officer from engaging in or continuing
any conduct, activity or practice relating to the business of MergerCo.
3.10 ACQUIRING PERSON. Subject to the accuracy and completeness of
information provided by the Company regarding the number of shares of
outstanding Company Common Stock and without giving effect to the transactions
contemplated by the Agreement, MergerCo is not, individually or as part of a
group including W.R. Hambrecht + Co., LLC, an "acquiring person," as such term
is defined in Washington Revised Code Section 23B.19.020(1).
SECTION 4. CERTAIN COVENANTS OF THE COMPANY
4.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the Effective Time (the "PRE-CLOSING PERIOD"), the Company
shall, and shall cause its Representatives to: (a) provide MergerCo and
MergerCo's Representatives with reasonable access to the Company's
Representatives, personnel and assets and to all existing books, records, Tax
Returns, work papers and other documents and information relating to the
Company; and (b) provide MergerCo and MergerCo's Representatives with such
copies of the existing books, records, Tax Returns, work papers and other
documents and information relating to the Company, and with such additional
financial, operating and other data and information regarding the Company, as
MergerCo may reasonably request.
4.2 OPERATION OF BUSINESS. During the Pre-Closing Period:
(a) the Company shall conduct its business and operations (i)
only in the ordinary course and in substantially the same manner as such
business and operations have been conducted prior to the date of this Agreement;
(ii) the Company shall use all reasonable efforts to ensure that the Company
preserves intact its current business organization, keeps available the services
of its current officers and other employees and maintains its relations and
goodwill with all suppliers, customers, landlords, creditors, licensors,
licensees, employees and other Persons having business relationships with the
Company; and (iii) the Company shall keep in full force or renew all insurance
policies referred to in Section 2.19.
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(b) During the Pre-Closing Period, the Company shall not (without
the prior written consent of MergerCo):
(i) declare, accrue, set aside or pay any dividend or make
any other distribution in respect of any shares of capital stock, and shall not
repurchase, redeem or otherwise reacquire any shares of capital stock or other
securities;
(ii) sell, issue or authorize the issuance of (A) any
capital stock or other security, (B) other than option grants to new hires in
accordance with prior practice with an exercise price at fair market value and
in an aggregate amount not to exceed 50,000 shares, any option, call, warrant or
right to acquire any capital stock or other security, or (C) any instrument
convertible into or exchangeable for any capital stock or other security (except
that the Company may issue shares of Company Common Stock upon the valid
exercise of Company Options outstanding as of the date of this Agreement) and;
(iii) except as contemplated by this Agreement, amend or
waive any of its rights under, or accelerate the vesting under, any provision of
any of the Company's stock option plans, any provision of any agreement
evidencing any outstanding stock option or any restricted stock purchase
agreement, or otherwise modify any of the terms of any outstanding option,
warrant or other security or any related Contract;
(iv) amend or permit the adoption or amendment to its
articles of incorporation or bylaws or other charter or organizational
documents, or effect or become a party to any merger, consolidation,
amalgamation, share exchange, business combination, recapitalization,
reclassification of shares, stock split, division or subdivision of shares,
reverse stock split, consolidation of shares or similar transaction;
(v) form any Subsidiary or acquire any equity interest or
other interest in any other Entity;
(vi) make any capital expenditure (except that the Company
may make capital expenditures in the Ordinary Course of Business that when added
to all other capital expenditures made on behalf of the Company during the
Pre-Closing Period, do not exceed $250,000 in the aggregate);
(vii) enter into or become bound by, or permit any of the
assets owned or used by it to become bound by, or amend or terminate, or waive
any material right or remedy under, any Contract that contemplates or involves
payment or delivery of cash or other consideration in an amount or having a
value in excess of $250,000;
(viii) lend money to any Person, or incur or guarantee any
indebtedness (except that the Company may (A) make routine borrowings, in the
Ordinary Course of Business under its current line of credit, or (B) in the
Ordinary Course of Business, make advances to employees for valid business
purposes);
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(ix) establish, adopt or amend any employee benefit plan,
pay any bonus or make any profit-sharing or similar payment to, grant any
severance or termination pay to, or increase the amount of the wages, salary,
commissions, fringe benefits or other compensation or remuneration payable to,
any of its directors, officers of employees, or hire any new employee whose
aggregate annual compensation is expected to exceed $125,000 (except that the
Company may in the Ordinary Course of Business (A) make routine, reasonable
salary increases in connection with the Company's customary employee review
process, and (B) pay customary bonuses in accordance with existing bonus plans);
(x) change any of its methods of accounting or accounting
practices in any respect;
(xi) make any Tax election adverse to the Company;
(xii) settle any material Legal Proceeding;
(xiii) acquire the business of any Entity;
(xiv) transfer or license to any Person or amend or modify
in any material adverse respect any rights (including without limitation
distribution rights) to the Proprietary Assets of the Company, or enter into
assignments of future patent rights, other than non-exclusive licenses and
distribution rights in the Ordinary Course of Business;
(xv) enter into any agreement requiring the consent or
approval of any third party with respect to the Merger; or
(xvi) agree or commit to take any of the actions described
in clauses "(i)" through "(xv)" of this Section 4.2(b).
(c) During the Pre-Closing Period, the Company shall promptly
notify MergerCo in writing of:
(i) the discovery by the Company of any event, condition,
fact or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes a material inaccuracy in any
representation or warranty made by the Company in this Agreement;
(ii) any event, condition, fact or circumstance that
occurs, arises or exists after the date of this Agreement and that would cause
or constitute a material inaccuracy in any representation or warranty made by
the Company in this Agreement (excluding any representation or warranty that
speaks as of a specific date) if such representation or warranty had been made
as of the time of the occurrence, existence or discovery of such event,
condition, fact or circumstance;
(iii) any material breach of any covenant or obligation of
the Company; and
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(iv) any event, condition, fact or circumstance that would
make the timely satisfaction of any of the conditions set forth in Section 6 or
Section 7 impossible or unlikely or that has had or could reasonably be expected
to have a Material Adverse Effect on the Company. Without limiting the
generality of the foregoing, the Company shall promptly advise MergerCo in
writing of any Legal Proceeding or material claim threatened, commenced or
asserted against or with respect to the Company. No notification given to
MergerCo pursuant to this Section 4.2(c) shall limit or otherwise affect any of
the representations, warranties, covenants or obligations of the Company
contained in this Agreement.
4.3 NO SOLICITATION
(a) The Company shall not, and shall not authorize or permit any
of its Representatives, to (i) solicit, initiate, encourage or induce the
making, submission or announcement of any Acquisition Proposal, (ii) furnish any
non-public information regarding the Company to any Person in connection with an
Acquisition Proposal, or provide access to the properties of the Company, to any
Person in connection with an Acquisition Proposal, (iii) engage in discussions
or negotiations with any Person with respect to any Acquisition Proposal, (iv)
approve, endorse or recommend any Acquisition Proposal or (v) enter into any
letter of intent or similar document or any Contract relating to any Acquisition
Transaction (other than a confidentiality agreement as contemplated below or
Contracts with advisors or consultants to the Company); provided, however, that
prior to the adoption and approval of this Agreement by the Required Company
Shareholder Vote, the Company shall not be prohibited by this Section 4.3(a)
from taking the actions described in clauses (ii) and (iii), if (A) neither the
Company nor any of its Representatives shall have violated any of the
restrictions set forth in this Section 4.3, (B) the board of directors of the
Company concludes in good faith, based upon the advice of its outside legal
counsel, that such action is required in order for the board of directors of the
Company to comply with its fiduciary obligations to the Company's shareholders
under applicable law, (C) prior to furnishing any such non-public information
to, or providing such access to, or entering into discussions or negotiations
with, such Person, the Company gives MergerCo written notice of the identity of
such Person and of the Company's intention to furnish non-public information to,
provide access to, or enter into discussions or negotiations with, such Person,
and the Company receives from such Person an executed confidentiality agreement
containing customary limitations on the use and disclosure of all nonpublic
written and oral information furnished to such Person by or on behalf of the
Company, and (D) prior to furnishing any such nonpublic information to or
providing any such access to such Person, the Company furnishes such nonpublic
information to MergerCo (to the extent such nonpublic information has not been
previously furnished by the Company to MergerCo). Without limiting the
generality of the foregoing, the Company acknowledges and agrees that any
violation of any of the restrictions set forth in the preceding sentence by any
Representatives of the Company, whether or not such Representative is purporting
to act on behalf of the Company, shall be deemed to constitute a breach of this
Section 4.3 by the Company.
(b) The Company shall promptly advise MergerCo orally and in
writing of any Acquisition Proposal (including the identity of the Person making
or submitting such Acquisition Proposal and the terms thereof) that is made or
submitted by any Person during the
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Pre-Closing Period. The Company shall keep MergerCo fully informed with respect
to the status of any such Acquisition Proposal and any modification or proposed
modification thereto.
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES
5.1 PROXY STATEMENT.
(a) As promptly as practicable after the date of this Agreement,
the Company shall prepare and cause to be filed with the SEC the Proxy Statement
and any other documents required by the Securities Act, the Exchange Act or any
other Federal, foreign or Blue Sky or related laws in connection with the Merger
and the transactions contemplated by this Agreement ("OTHER FILINGS"). The
Company shall use all reasonable efforts to cause the Proxy Statement and any
Other Filings to comply with the rules and regulations promulgated by the SEC,
to respond promptly to any comments of the SEC or its staff and to cause the
Proxy Statement to be mailed to the Company's shareholders, as promptly as
practicable after the SEC indicates that it has no further comments. The Company
shall promptly furnish all information concerning the Company and the Company's
shareholders that may be required or reasonably requested in connection with any
action contemplated by this Section 5.1. The Company shall notify MergerCo
promptly of the receipt of any comments from the SEC or its staff and of any
request by the SEC or its staff for any amendment or supplement to the Proxy
Statement or for any other information and shall supply MergerCo with copies of
all correspondence between the Company and the SEC or its staff or other
governmental officials with respect to the Proxy Statement and the other
filings.
(b) The information supplied by or on behalf of each of MergerCo
and the Company for inclusion in the Proxy Statement shall not (i) at the time
Proxy Statement is filed with the SEC, (ii) at the time the Proxy Statement is
first mailed to the shareholders of the Company, (iii) at the time of the
Company Shareholder's Meeting, and (iv) at the Effective Time, 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 were made, not misleading. If
MergerCo or the Company becomes aware of any information that should be
disclosed in an amendment or supplement to the Proxy Statement, then MergerCo or
the Company, as the case may be, shall promptly inform the Company or MergerCo
thereof and shall cooperate with the other in filing such amendment or
supplement with the SEC and, if appropriate, in mailing such amendment or
supplement to the shareholders of the Company and MergerCo.
(c) The Company shall use all reasonable efforts to ensure that
the Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations promulgated by the
SEC thereunder, except that no representation or warranty is made by the Company
with respect to statements made or incorporated by reference therein based on
information supplied by MergerCo for inclusion or incorporation by reference in
the Proxy Statement.
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5.2 COMPANY SHAREHOLDERS' MEETING
(a) The Company shall take all action necessary under all
applicable Legal Requirements to call, give notice of, convene and hold a
meeting of the holders of Company Common Stock (the "COMPANY SHAREHOLDERS'
MEETING") to consider, act upon and vote upon the adoption and approval of this
Agreement and approval of the Merger and the approval of a reverse stock split
of the Company Common Stock, to be implemented following the Effective Time, in
such ratio as shall be determined by the Company in order to cause the Company
to have fewer than 300 but not less than 275 holders of record after such
reverse stock split (the "REVERSE STOCK SPLIT"). The Company Shareholders'
Meeting will be held as promptly as practicable and in any event commence within
45 days and end no more than 60 days after the Proxy Statement may first be
mailed in compliance with the rules and regulations promulgated by the SEC. The
Company shall ensure that the Company Shareholders' Meeting is called, noticed,
convened, held and conducted, and that all proxies solicited in connection with
the Company Shareholders' Meeting are solicited, in compliance with all
applicable Legal Requirements. The Company's obligation to call, give notice of,
convene and hold the Company Shareholders' Meeting in accordance with this
Section 5.2(a) shall not be limited or otherwise affected by the commencement,
disclosure, announcement or submission of any Superior Offer or other
Acquisition Proposal, or by any withdrawal, amendment or modification of the
recommendation of the board of directors of the Company with respect to the
Merger.
(b) Subject to Section 5.2(c): (i) the board of directors of the
Company shall unanimously recommend that the Company shareholders vote in favor
of and adopt and approve this Agreement and approve the Merger at the Company
Shareholders' Meeting; (ii) the Proxy Statement shall include a statement to the
effect that the board of directors of the Company has unanimously recommended
that the Company's shareholders vote in favor of and adopt and approve this
Agreement and approve the Merger and the Reverse Stock Split at the Company
Shareholders' Meeting; and (iii) neither the board of directors of the Company
nor any committee thereof shall withdraw, amend or modify, or propose or resolve
to withdraw, amend or modify, the unanimous recommendation of the board of
directors of the Company that the Company's shareholders vote in favor of and
adopt and approve this Agreement and approve the Merger and the Reverse Stock
Split.
(c) Nothing in Section 5.2(b) shall prevent the board of
directors of the Company from withdrawing, amending or modifying its unanimous
recommendation in favor of the Merger (and so informing its shareholders in the
Proxy Statement or supplement thereto or otherwise) at any time prior to the
adoption and approval of this Agreement by the Required Company Shareholder Vote
if (i) a Superior Offer is made to the Company and is not withdrawn, (ii)
neither the Company nor any of its Representative shall have violated any of the
restrictions set forth in Section 4.3, (iii) the board of directors of the
Company concludes in good faith, based upon advice of its outside counsel, that,
in light of such Superior Offer, the withdrawal, amendment or modification of
such recommendation is required in order for the board of directors of the
Company to comply with its fiduciary obligations to the Company's shareholders
under applicable law, and (iv) the Company's board of directors does not
withdraw, amend or modify its unanimous recommendation in favor of the Merger
for at least 96 hours after the
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Company provides MergerCo with the name of the Person making such Superior Offer
and advises MergerCo of the terms of such Superior Offer; provided, however,
that this clause (iv) shall not apply within the 96 hours prior to the
commencement of the Company Shareholders' Meeting. Nothing contained in this
Section 5.2 shall limit the Company's obligation to call, give notice of,
convene and hold the Company Shareholders' Meeting (regardless of whether the
unanimous recommendation of the board of directors of the Company has been
withdrawn, amended or modified).
5.3 REGULATORY APPROVALS. Each party shall use all reasonable efforts to
file, as promptly as practicable after the date of this Agreement, all notices,
reports and other documents required to be filed by such party with any
Governmental Body with respect to the Merger and the other transactions
contemplated by this Agreement, and to submit promptly any additional
information requested by any such Governmental Body. The Company and MergerCo
shall respond as promptly as practicable to (a) any inquiries or requests
received from the Federal Trade Commission or the Department of Justice for
information or documentation and (b) any inquiries or requests received from any
state attorney general or other Governmental Body in connection with antitrust
or related matters. Each of the Company and MergerCo shall (i) give the other
party prompt notice of the commencement of any material Legal Proceeding by or
before any court or other Governmental Body with respect to the Merger or any of
the other transactions contemplated by this Agreement, (ii)keep the other party
informed as to the status of any such Legal Proceeding and (iii) except as may
be prohibited by any Governmental Body or by any Legal Requirement, permit the
other party to be present at each meeting or conference relating to any such
Legal Proceeding and to have access to and be consulted in connection with any
document filed with or provided to any Governmental Body in connection with any
such Legal Proceeding.
5.4 STOCK OPTIONS
(a) The Company's board of directors shall take all actions
necessary or appropriate to cause all options to purchase Company Common Stock
(individually, a "COMPANY STOCK OPTION" and collectively, the "COMPANY STOCK
OPTIONS") granted to any current or former employee or director of the Company
under any of the Company's 1993 Stock Option Plan, 1985 Restated Stock Option
Plan or Stock Option Plan for Non-Employee Directors, as amended, prior to the
date hereof or in accordance with Section 4.2 (collectively, the "COMPANY STOCK
PLANS") and that are outstanding immediately prior to the Effective Time,
whether or not then exercisable or vested, to terminate prior to the Effective
Time. In lieu of the exercise of any such Company Stock Option, the Company may,
upon receipt of the written acceptance of such terms by a holder of a Company
Stock Option, pay to any such holder of a Company Stock Option, an amount in
respect thereof equal to the product of (i) the excess, if any, of the (A) Cash
Election Price over (B) the exercise price of each such Company Stock Option and
(ii) the number of shares of Company Common Stock previously subject to such
Company Stock Option immediately prior to its cancellation (such payment to be
net of withholding taxes).
(b) Notwithstanding the provisions of Section 5.4(a), the Company
shall use all reasonable best efforts to obtain the agreement of each of Jiri M.
Nechleba, Stephen A. Yount
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and Patricia R. Graham (i) not, in the aggregate, to exercise Company Stock
Options for twenty-five percent (25%) of the shares of Company Common Stock
subject thereto, (ii) to the extent not exercised, to cancel such Company Stock
Options and release any and all rights such holder had or may have had in
respect of such Company Stock Options and (iii) for Jiri M. Nechleba only, in
respect of clause (i)(A) of Section 5.4(a), to substitute $9.00 per share for
the Cash Election Price.
(c) Promptly following the Effective Time, the Company's board of
directors shall take all actions necessary or appropriate to cause to be granted
to the Company's optionees (other than the Company's executive officers) options
to purchase that number of shares of Company Common Stock following the Merger
(the "Reload Options") such that the percentage interest in the Company
following the Merger represented by the Company Common Stock subject to the
Reload Options equals the percentage interest in the Company currently
represented by the Company Common Stock subject to the Company Stock Options.
This Section 5.4(c) is intended to establish the aggregate number of Reload
Options only, and the determination of the individuals who will receive Reload
Options, and the number of options they will receive, will be determined by the
Company and MergerCo and will not necessarily be equal to the number of options
such individuals held prior to the Merger. The Reload Options shall be granted
with an exercise price per share equal to the fair market value of a share of
Company Common Stock at the time of grant.
(d) Promptly following the Effective Time, the Company's board of
directors shall take all actions necessary or appropriate to cause to be granted
to each of the Company's executive officers options to purchase that number of
shares of Company Common Stock following the Merger (a "Management Reload
Option") such that such management optionholder's percentage interest in the
Company following the Merger represented by the Company Common Stock subject to
such Management Reload Option equals the sum of the management optionholder's
percentage interest in the Company represented by the Company Common Stock
previously subject to the Company Stock Option immediately prior to the
Effective Time (the "Pre-Merger Option Interest") plus twenty-five percent (25%)
of the Pre-Merger Option Interest. The Management Reload Options shall be
granted with an exercise price per share equal to the fair market value of a
share of Company Common Stock at the time of grant.
5.5 INDEMNIFICATION OF OFFICERS AND DIRECTORS
(a) All rights to indemnification existing in favor of those
Persons who are directors and officers of the Company as of the date of this
Agreement (the "INDEMNIFIED PERSONS") for acts and omissions occurring prior to
the Effective Time as provided in the Company's bylaws (as in effect as of the
date of this Agreement) and as provided in the indemnification agreements
between the Company and said Indemnified Persons (as in effect as of the date of
this Agreement), shall survive the Merger and shall be observed by the Surviving
Corporation to the fullest extent available under Washington law for a period of
six (6) years from the Effective Time.
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(b) From the Effective Time until the sixth (6th) anniversary of
the Effective Time, the Surviving Corporation shall maintain in effect, for the
benefit of the Indemnified Persons with respect to acts or omissions occurring
prior to the Effective Time, the existing policy of directors' and officers'
liability insurance maintained by the Company as of the date of this Agreement
(the "EXISTING POLICY"); provided, however, that (i) the Surviving Corporation
may substitute for the Existing Policy a policy or policies of comparable
coverage, and (ii) the Surviving Corporation shall not be required to pay an
annual premium for the Existing Policy (or for any substitute policies) in
excess of one hundred and fifty percent (150%) of the current annual premium. In
the event any future annual premium for the Existing Policy (or any substitute
policies) exceeds one hundred fifty percent (150%) of the current annual
premium, the Surviving Corporation shall be entitled to reduce the amount of
coverage of the Existing Policy (or any substitute policies) to the amount of
coverage that can be obtained for a premium equal to one hundred and fifty
percent (150%) of the current annual premium.
5.6 COMPANY BOARD OF DIRECTORS. The Company shall use all reasonable
best efforts to cause J.D. Delafield or such other nominee designated by
MergerCo and reasonably acceptable to the Company to be appointed to the
Company's board of directors effective as of the Effective Time to serve until
the next annual meeting of shareholders or until his or her successor shall be
duly elected and qualified.
5.7 RECAPITALIZATION ACCOUNTING TREATMENT. The Company and MergerCo
agree to use their reasonable best efforts not to take any action during the
Pre-Closing Period that would adversely affect the ability of the Surviving
Corporation to account for the Merger and all other transactions contemplated by
this Agreement as a Leveraged Recapitalization for financial reporting purposes.
The Company shall cooperate with any reasonable requests of MergerCo or the SEC
related to the recording of the Merger as a Leveraged Recapitalization for
financial reporting purposes, including, without limitation, to assist MergerCo
with any presentation to the SEC with respect to such recording.
5.8 ALL REASONABLE EFFORTS. The Company and MergerCo shall use all
reasonable efforts to take, or cause to be taken, all actions necessary to
effectuate the Merger and make effective the other transactions contemplated by
this Agreement. Without limiting the generality of the foregoing, each Party (a)
shall make all filings (if any) and give all notices (if any) required to be
made and given by such party in connection with the Merger and the other
transactions contemplated by this Agreement, and (ii) shall use all reasonable
efforts to obtain each Consent (if any) required to be obtained (pursuant to any
applicable Legal Requirement or Contract or otherwise) by such party in
connection with the Merger or any of the other transactions contemplated by this
Agreement, and (iii) shall use all reasonable efforts to lift any restraint,
injunction or other legal bar to the Merger.
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5.9 DISCLOSURE. MergerCo and the Company shall consult with each other
before issuing any press release or otherwise making any public statement with
respect to the Merger or any of the other transactions contemplated by this
Agreement. Without limiting the generality of the foregoing the Company shall
not, and shall not permit any of its Representatives to, make any disclosure
regarding the Merger or any of the transactions contemplated by this Agreement
unless (a) MergerCo shall have approved such disclosure (which approval will not
be unreasonably withheld), or (b) the Company shall been advised by its outside
legal counsel that such disclosure is required by applicable law.
5.10 NASDAQ DELISTING. At MergerCo's request, the Company shall
cooperate with MergerCo in taking, or causing to be taken, all actions necessary
to delist the Company Common Stock from the Nasdaq National Market, providing
that such delisting shall not be effective until after the Effective Time and
provided further that if pro rations were made under Section 1.5(c)(iii), then
the Company shall not voluntarily delist the Company Common Stock from the
Nasdaq National Market for a period of six months following the Effective Time.
5.11 ADDITIONAL SECURITIES FILINGS. If, in the opinion of counsel to
MergerCo, the filing with the SEC of a Transaction Statement on Schedule 13E-3
(the "SCHEDULE 13E-3") in connection with the Merger is required by Rule 13e-3
under the Exchange Act, the Company will file the Schedule 13E-3 with the SEC at
the time of filing of the Proxy Statement. If, in the opinion of counsel to
MergerCo, the filing with the SEC of an S-4 Registration Statement in connection
with the Merger is required under the Securities Act, the Company will file the
S-4 Registration Statement with the SEC at the time of filing of the Proxy
Statement. If either or both of the Schedule 13E-3 or the S-4 Registration
Statement is filed, at the time of any amendment to the Proxy Statement, the
parties will cause to be filed with the SEC an appropriate amendment to the
Schedule 13E3 and/or the S-4 Registration Statement.
5.12 EFFECTING REVERSE STOCK SPLIT. The Surviving Corporation shall
promptly after the Effective Time amend its articles of incorporation to effect
the Reverse Stock Split only if, prior to the Merger, MergerCo requests the
Company to effect the Reverse Stock Split. The Reverse Stock Split, if effected,
shall be applicable to all shares of Company Common Stock outstanding following
the Merger, including those shares issued to MergerCo pursuant to Section
1.5(a)(i).
5.13 FINANCING
(a) The Company agrees to provide, and will cause its officers,
employees and advisors to provide, all necessary cooperation in connection with
the arrangement of any financing to be consummated contemporaneous with or at or
after the Closing in respect of the transactions contemplated by this Agreement,
including, (i) participation in meetings and due diligence sessions, and (ii)
the execution and delivery of any commitment letters, loan agreements, pledge
and security documents, other definitive financing documents, or other requested
certificates or documents, including a certificate of the chief financial
officer of the Company with respect to solvency matters, comfort letters of
accountants and legal opinions as may be requested by MergerCo; provided,
however, that the terms of any such letter, documents, certificate, agreements
or instruments shall be reasonable and consistent with the amount of
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funding necessary to consummate the Merger and the other transactions
contemplated hereby; and
(b) MergerCo hereby agrees to use its reasonable best efforts to
assist the Company in arranging the financing in respect of the transactions
contemplated by this Agreement, including using its reasonable best efforts to
assist the Company in the negotiation of definitive agreements with respect
thereto. MergerCo will keep the Company informed of its efforts to assist the
Company in arranging such financing. Each of MergerCo and the Company shall
notify the other within 24 hours of receiving notice that such financing will
not be available on terms satisfactory to MergerCo.
SECTION 6. CONDITIONS PRECEDENT TO MERGERCO'S OBLIGATION TO CLOSE
MergerCo's obligations to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by MergerCo, in whole or in part):
6.1 ACCURACY OF REPRESENTATIONS. The representations and warranties of
the Company contained in this Agreement shall have been accurate in all material
respects as of the date of this Agreement, and shall be accurate in all respects
as of the Closing Date as if made at the Closing Date (except that any
representation or warranty that specifically refers to "the date of this
Agreement," "the date hereof" or any other date other than the Closing Date
speaks as of such date), and except that any inaccuracies in such
representations and warranties as of the Closing Date will be disregarded if the
circumstances giving rise to such inaccuracies (considered individually and
collectively) do not constitute, and could not reasonably be expected to result
in a Material Adverse Effect on the Company, it being understood that, for
purposes of determining the accuracy of such representations and warranties, (i)
all materiality qualifications contained in such representations and warranties
shall be disregarded, and (ii) any update of or modification to the Company
Disclosure Schedule made or purported to have been made after the date of this
Agreement shall be disregarded.
6.2 PERFORMANCE OF OBLIGATIONS. Each covenant or obligation that the
Company is required to comply with or perform at or prior to the Closing shall
have been complied with and performed in all material respects.
6.3 SHAREHOLDER APPROVAL; DISSENTING SHARES. This Agreement shall have
been duly adopted and approved, and the Merger shall have been duly approved, by
the Required Company Shareholder Vote, and the aggregate of all "Dissenting
Shares" shall represent no more than five percent (5%) of the number of shares
of Company Common Stock outstanding immediately prior to the Effective Time.
6.4 CONSENTS. The Consents set forth in Part 2.23 of the Company
Disclosure Schedule and all other Consents required to be obtained in connection
with the Merger and the other transactions contemplated by this Agreement shall
have been obtained and shall be in full force and effect.
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6.5 NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
shall have been no material adverse change in the business, financial condition,
operations or results of operations of the Company and no event shall have
occurred and no circumstance shall exist that could reasonably be expected to
have a Material Adverse Effect on the business, financial condition, operations,
results of operations of the Company.
6.6 FINANCING. MergerCo and the Company shall have received sufficient
funds to pay the Merger Consideration and otherwise enable MergerCo to
consummate the transactions contemplated hereby and to meet the working capital
requirements of the Surviving Corporation pursuant to financing arrangements and
definitive financing agreements completed to the reasonable satisfaction of
MergerCo.
6.7 ADDITIONAL DOCUMENTS. MergerCo shall have received the following
documents:
(a) an opinion letter from Perkins Coie, LLP , dated the Closing
Date, in the form of Exhibit E;
(b) a letter from KPMG Peat Marwick LLP, dated as of the Closing
Date and addressed to the Company, reasonably satisfactory in form and substance
to MergerCo, to the effect that, after reasonable investigation KPMG Peat
Marwick LLP is not aware of any fact that could preclude the transactions
contemplated in this Agreement from being accounted for as a Leveraged
Recapitalization for financial reporting purposes; and
(c) such other documents as MergerCo may request in good faith
for the purpose of (i) evidencing the accuracy of any representation or warranty
made by the Company, (ii) evidencing the compliance by the Company with, or the
performance by the Company of, any covenant or obligation set forth in this
Agreement, (iii) evidencing the satisfaction of any condition set forth in this
Section 6, or (iv) otherwise facilitating the consummation or performance of any
of the Transactions, including, but not limited to, a certificate executed on
behalf of the Company by its Chief Executive Officer confirming that the
conditions set forth in Sections 6.1, 6.2, 6.3, 6.4 and 6.5 have been duly
satisfied.
6.8 NO PROHIBITION. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
SECTION 7. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATION TO CLOSE
The Company's obligations to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by the Company, in whole or in part):
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7.1 ACCURACY OF REPRESENTATIONS. The representations and warranties of
MergerCo contained in this Agreement shall have been accurate in all material
respects as of the date of this Agreement, and shall be accurate in all respects
as of the Closing Date as if made at the Closing Date (except that any
representation or warranty that specifically refers to "the date of this
Agreement," "the date hereof" or any other date other than the Closing Date
speaks as of such date), and except that any inaccuracies in such
representations and warranties as of the Closing Date will be disregarded if the
circumstances giving rise to such inaccuracies (considered individually and
collectively) do not constitute, and could not reasonably be expected to result
in a Material Adverse Effect on MergerCo, it being understood that, for purposes
of determining the accuracy of such representations and warranties, (i) all
materiality qualifications contained in such representations and warranties
shall be disregarded, and (ii) any update of or modification to the MergerCo
Disclosure Schedule made or purported to have been made after the date of this
Agreement shall be disregarded.
7.2 PERFORMANCE OF OBLIGATIONS. Each covenant or obligation that
MergerCo is required to comply with or perform at or prior to the Closing shall
have been complied with and performed in all material respects.
7.3 SHAREHOLDER APPROVAL. This Agreement shall have been duly adopted
and approved, and the Merger shall have been duly approved, by the Required
Company Shareholder Vote.
7.4 NO PROHIBITION. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
7.5 ADDITIONAL DOCUMENTS. The Company shall have received the following
documents:
(a) an opinion letter from Cooley Godward, LLP , dated the
Closing Date, in the form of Exhibit F; and
(b) a letter from KPMG Peat Marwick LLP, dated as of the Closing
Date and addressed to the Company, reasonably satisfactory in form and substance
to the Company, to the effect that, after reasonable investigation KPMG Peat
Marwick LLP is not aware of any fact that could preclude the transactions
contemplated in this Agreement from being accounted for as a Leveraged
Recapitalization for financial reporting purposes.
SECTION 8. TERMINATION
8.1 TERMINATION EVENTS. This Agreement may be terminated prior to the
Effective Time:
(a) by mutual written consent of the Company and MergerCo;
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<PAGE> 46
(b) by either the Company or MergerCo if the Merger shall not
have been consummated by May 31, 1999 (unless the failure to consummate the
Merger is attributable to a failure on the part of the party seeking to
terminate this Agreement to perform any material obligation required to be
performed by such party at or prior to the Effective Time);
(c) by either the Company or MergerCo if a court of competent
jurisdiction or other Governmental Body shall have issued a final and
nonappealable order, decree or ruling, or shall have taken any other action,
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger;
(d) by either the Company or MergerCo if (i) the Company
Shareholders' Meeting shall have been held and (ii) this Agreement and the
Merger shall not have been approved at such meeting by the Required Company
Shareholder Vote; provided, however, that the Company shall not be permitted to
terminate this Agreement pursuant to this Section 8.1(d) unless the Company
shall have paid to MergerCo the fees and expenses required to be paid to
MergerCo pursuant to Section 8.4(b), if any;
(e) by MergerCo (at any time prior to the adoption and approval
of this Agreement and the Merger by the Required Company Shareholder Vote) if a
Triggering Event shall have occurred;
(f) by the Company, if the Board of Directors of the Company has
withdrawn, amended or modified its recommendation referred to in Section 5.2(c)
in compliance with Section 5.2(c); provided, however, that the Company shall not
be permitted to terminate this Agreement pursuant to this Section 8.1(f) unless
the Company shall have paid to MergerCo any fee and expenses required to be paid
to MergerCo pursuant to Section 8.4(b);
(g) by MergerCo if any of the Company's representations and
warranties contained in this Agreement shall have been materially inaccurate as
of the date of this Agreement, or if any of the Company's covenants contained in
this Agreement shall have been breached in any material respect and has not been
cured within 15 business days of notice by MergerCo thereof; provided, however,
that MergerCo may not terminate this Agreement under this Section 8.1(g) if such
inaccuracy or breach (considered in the aggregate with all other inaccuracies of
breaches) would not result in a failure of the conditions set forth in Section
6.1 hereof; or
(h) by the Company if any of MergerCo's representations and
warranties contained in this Agreement shall have been materially inaccurate as
of the date of this Agreement or shall have become materially inaccurate as of
any subsequent date (as if made on such subsequent date), or if any of
MergerCo's covenants contained in this Agreement shall have been breached in any
material respect and has not been cured within 15 business days of notice by
MergerCo thereof; provided, however, that the Company may not terminate this
Agreement under this Section 8.1(h) if such inaccuracy or breach (considered in
the aggregate with all other inaccuracies or breaches) would not result in a
failure of the conditions set forth in Section 7.1 hereof.
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<PAGE> 47
8.2 TERMINATION PROCEDURES. If MergerCo wishes to terminate this
Agreement pursuant to Sections 8.1(b), 8.1(c), 8.1(d), 8.1(e) or 8.1(g),
MergerCo shall deliver to the Company a written notice stating that MergerCo is
terminating this Agreement and setting forth a brief description of the basis on
which MergerCo is terminating this Agreement. If the Company wishes to terminate
this Agreement pursuant to Sections 8.1(b), 8.1(c), 8.1(d), 8.1(f) or 8.1(h),
the Company shall deliver to MergerCo a written notice stating that the Company
is terminating this Agreement and setting forth a brief description of the basis
on which the Company is terminating this Agreement.
8.3 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 8.1, all further obligations of the parties under this Agreement shall
terminate and this Agreement shall be of no further force or effect; provided,
however, that:
(a) no party shall be relieved of any obligation or other
Liability arising from any material breach by such party of any provision of
this Agreement;
(b) the parties shall, in all events, remain bound by and
continue to be subject to the provisions set forth in Sections 8.4 and 9; and
(c) such termination shall have no effect on the Confidentiality
Agreement dated November 11, 1998 between the Company and W.R. Hambrecht + Co.,
LLC.
8.4 EXPENSES; TERMINATION FEES
(a) Except as set forth in this Section 8.4, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses, whether or not the Merger is consummated.
(b) If (i) this Agreement is terminated by MergerCo pursuant to
Section 8.1(e), or (ii) this Agreement is terminated by the Company pursuant to
Section 8.1(f), then, in either such case, the Company shall pay to MergerCo in
cash at the times specified herein (A) a nonrefundable fee in the amount of
$625,000 (the "TERMINATION FEE") and (B) reimbursements for all reasonable
out-of-pocket expenses and fees (including fees and expenses payable to all
banks and other financial institutions, and their respective Agents and counsel,
and all fees and expenses of counsel, accountants, financial printers, experts
and consultants to MergerCo and its affiliates (including W.R. Hambrecht + Co.,
LLC) and all fees and expenses payable to any Governmental Body), whether
incurred prior to or after the date hereof, in connection with this Agreement,
the Merger, the transactions contemplated by this Agreement or any actual or
proposed financing (whether in the form of equity or debt) in connection with
any such transaction ("TRANSACTION EXPENSES"). If (1) this Agreement is
terminated by the Company or MergerCo pursuant to Section 8.1(b) (excluding a
termination of this Agreement following a refusal by MergerCo to close solely
by virtue of a failure to satisfy the condition to Closing set forth in
Section 6.6), 8.1(c) or 8.1(d) or (2) this Agreement is terminated by MergerCo
pursuant to Section 8.1(g), then, in any such case, the Company shall pay to
MergerCo in cash at the times specified herein reimbursements for its
Transaction Expenses. In the case of termination of this Agreement by MergerCo
pursuant to Section 8.1(e), the Termination Fee shall be paid by the Company
within
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<PAGE> 48
two (2) business days after such termination. In the case of termination of this
Agreement by the Company pursuant to Section 8.1(f), the Termination Fee shall
be paid by the Company prior to such termination. If this Agreement is
terminated by the Company or MergerCo pursuant to Section 8.1(d) and at or prior
to the time of such termination an Acquisition Proposal shall have been
disclosed, announced, commenced, submitted or made (and shall not have been
publicly, absolutely and unconditionally withdrawn and abandoned prior to the
Company Shareholders' Meeting) (a "PENDING PROPOSAL"), in the event of the
closing, completion or consummation within one year after the date of
termination of this Agreement of an Acquisition Transaction relating to a
Pending Proposal (regardless of any amendments, modifications or alterations
that occur after the termination of this Agreement), a fee of $1,250,000 (the
"TOTAL FEE") shall be paid by the Company to MergerCo immediately after such
closing, completion or consummation. In addition to the other amounts payable
under this Section 8.4(b), if this Agreement is terminated by MergerCo pursuant
to Section 8.1(e) or by the Company pursuant to Section 8.1(f), in the event of
the closing, completion or consummation within one year after the date of
termination of this Agreement of an Acquisition Transaction relating to a
Pending Proposal (regardless of any amendments, modifications or alterations
that occur after the termination of this Agreement), an additional fee of
$625,000 (the "TOPPING FEE") shall be paid by the Company to MergerCo
immediately after such closing, completion or consummation. Reimbursements for
Transaction Expenses (which may occur on one or more occasions) shall be paid
within two (2) business days after delivery to the Company of a written request
therefor, including reasonable evidence of the expenses incurred. The
Termination Fee, Topping Fee, Total Fee and reimbursements for Transaction
Expenses shall be paid by the wire transfer of same day funds.
8.5 NONEXCLUSIVITY OF TERMINATION RIGHTS. The termination rights
provided in Section 8.1 shall not be deemed to be exclusive. Accordingly, the
exercise by any party of its right to terminate this Agreement pursuant to
Section 8.1 shall not be deemed to be an election of remedies and shall not be
deemed to prejudice, or to constitute or operate as a waiver of, any other right
or remedy that such party may be entitled to exercise (whether under this
Agreement, under any other Contract, under any statute, rule or other Legal
Requirement, at common law, in equity or otherwise).
SECTION 9. MISCELLANEOUS PROVISIONS
9.1 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties contained in this Agreement or in any certificate
delivered pursuant to this Agreement shall survive the Merger.
9.2 ATTORNEYS' FEES. In any action at law or suit in equity to enforce
this Agreement or the rights of any of the parties hereunder, the prevailing
party in such action or suit shall be entitled to receive a reasonable sum for
its attorneys' fees and all other reasonable costs and expenses incurred in such
action or suit.
9.3 ASSIGNABILITY. This Agreement shall be binding upon, and shall be
enforceable by and inure solely to the benefit of, the parties hereto and their
respective successors and assigns;
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provided, however, that neither this Agreement nor any of the Company's rights
hereunder may be assigned by the Company without the prior written consent of
MergerCo, and any attempted assignment of this Agreement or any of such rights
by the Company without such consent shall be void and of no effect. Nothing in
this Agreement, express or implied, is intended to or shall confer upon any
Person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
9.4 NOTICES. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by telecopier) to the
address or telecopier number set forth beneath the name of such party below (or
to such other address or telecopier number as such party shall have specified in
a written notice given to the other parties hereto):
if to the Company: Interlinq Software Company
11980 N.E. 24th Street
Bellevue, WA 98005
Attention: Jiri Nechleba
Telecopier: (425) 250-2001
and
Attention: Steve Yount
Telecopier: (425) 250-2101
with a copy to: Perkins Coie, LLP
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
Attention: Linda A. Schoemaker, Esq.
Telecopier: (206) 583-8500
if to MergerCo: W.R. Hambrecht + Co., LLC
550 - 15th Street
San Francisco, CA 94103
Attention: J. D. Delafield
Telecopier: (415) 551-8686
with a copy to: Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111-3580
Attention: Kenneth L. Guernsey, Esq.
Telecopier: (415) 951-3699
9.5 COOPERATION. The Company and MergerCo agree to cooperate fully with
each other and to execute and deliver such further documents, certificates,
agreements and instruments and to take such other actions as may be reasonably
requested by the other to evidence or reflect
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<PAGE> 50
the transactions contemplated by this Agreement and to carry out the intent and
purposes of this Agreement.
9.6 HEADINGS. The underlined headings contained in this Agreement are
for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
9.7 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
9.8 GOVERNING LAW; VENUE. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Washington, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof. In any action between the parties arising out of or relating to
this Agreement or any of the transactions contemplated by this Agreement: (a)
each of the parties irrevocably and unconditionally consents and submits to the
exclusive jurisdiction and venue of the state and federal courts located in the
City of Seattle, King County, State of Washington; (b) if any such action is
commenced in a state court, then, subject to applicable law, no party shall
object to the removal of such action to any federal court located in the Western
District of Washington; (c) each of the parties irrevocably waives the right to
trial by jury; and (d) each of the parties irrevocably consents to service of
process by first class certified mail, return receipt requested, postage prepaid
to the address at which such party is to receive notice in accordance with
Section 9.4.
9.9 WAIVER
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
9.10 AMENDMENTS. This Agreement may be amended with the approval of the
respective boards of directors of the Company and MergerCo at any time (whether
before or after the adoption and approval of this Agreement and the Articles of
Merger and the approval of the Merger by the shareholders of the Company);
provided, however, that after any such adoption and approval of this Agreement
and approval of the Merger by the Company's shareholders, no amendment shall be
made which by law requires further approval of the shareholders of the
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<PAGE> 51
Company without the further approval of the shareholders. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
9.11 SEVERABILITY. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
9.12 ENTIRE AGREEMENT. This Agreement, the other agreements referred to
herein and that certain letter agreement dated as of November 11, 1998, set
forth the entire understanding of the parties relating to the subject matter
hereof and thereof and supersede all prior agreements and understandings among
or between any of the parties relating to the subject matter hereof and thereof.
9.13 CONSTRUCTION
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this
Agreement and Exhibits to this Agreement.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
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<PAGE> 52
The parties hereto have caused this Agreement to be executed and
delivered as of the date set forth above.
"MERGERCO"
TERLIN, INC.,
a Washington corporation
By: /S/ JOHN D. DELAFIELD
___________________________________
Name: John D. Delafield
_________________________________
Title: President and Chief Executive
Officer
________________________________
"THE COMPANY"
INTERLINQ SOFTWARE CORPORATION,
a Washington corporation
By: /S/ JIRI NECHLEBA
___________________________________
Name: Jiri Nechleba
_________________________________
Title: President and Chief Executive
Officer
________________________________
<PAGE> 53
LIST OF EXHIBITS
Exhibit A: Certain Definitions
Exhibit B: Articles of Merger
Exhibit C: Articles of Incorporation of Surviving Corporation
Exhibit D: Form of Amendments to Bylaws of the Company
Exhibit E: Form of Legal Opinion of Perkins Coie, LLP
Exhibit F: Form of Legal Opinion of Cooley Godward, LLP
i.
<PAGE> 54
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUISITION PROPOSAL. "Acquisition Proposal" shall mean any offer,
proposal or inquiry (other than an offer or proposal by MergerCo) contemplating
or otherwise relating to any Acquisition Transaction.
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction involving:
(a) any merger, consolidation, amalgamation, share exchange,
business combination, issuance of securities, acquisition of securities, tender
offer, exchange offer or other similar transaction (i) in which the Company is a
constituent company, (ii) in which a Person or "group" (as defined in the
Exchange Act and the rules promulgated thereunder) of Persons directly or
indirectly acquires the Company or more than 20% of the Company's business or
directly or indirectly acquires beneficial or record ownership of securities
representing, or exchangeable for or convertible into, more than 20% of the
outstanding securities of any class of voting securities of the Company, or
(iii) in which the Company issues securities representing more than 20% of the
outstanding securities of any class of voting securities of the Company;
(b) any sale, lease, exchange, transfer, license, acquisition
or disposition of more than 20% of the assets of the Company; or
(c) any liquidation or dissolution of the Company.
CERCLA. "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act.
CLOSING. "Closing" shall have the meaning specified in Section 1.3 of
the Agreement.
CLOSING DATE. "Closing Date" shall have the meaning specified in
Section 1.3 of the Agreement.
COBRA. "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended.
COMPANY. The "Company" shall mean Interlinq Software Corporation, a
Washington corporation.
COMPANY COMMON STOCK. "Company Common Stock" shall mean shares of the
common stock of the Company, $0.01 par value per share.
<PAGE> 55
COMPANY CONTRACT. "Company Contract" shall mean any Contract:
(a) to which the Company is a party;
(b) by which the Company or any of its assets is or may become
bound or under which the Company has, or may become subject to, any obligation;
or
(c) under which the Company has or may acquire any right or
interest.
COMPANY DISCLOSURE SCHEDULE. "Company Disclosure Schedule" shall mean
the schedule (dated as of the date of the Agreement) delivered to MergerCo on
behalf of the Company and signed by an officer of the Company.
COMPANY PLAN. "Company Plan" shall mean any Current Benefit Plan or
Past Benefit Plan.
COMPANY PREFERRED STOCK. "Company Preferred Stock" shall mean shares of
convertible preferred stock of the Company, $0.01 par value per share.
COMPANY PROPRIETARY ASSETS. "Company Proprietary Assets" shall mean all
of the Proprietary Assets owned by or licensed to the Company.
COMPANY SEC DOCUMENTS. "Company SEC Documents" shall mean all documents
filed by the Company with the SEC since June 30, 1996, and all amendments
thereto.
COMPANY SHARE CERTIFICATE. "Company Share Certificate" shall mean a
valid certificate representing ownership of shares of Company Common Stock.
COMPANY SHAREHOLDERS' MEETING. "Company Shareholders' Meeting" shall
mean the meeting of the holders of Company Common Stock to consider and vote
upon the adoption and approval of the Agreement, the approval of the Merger and
the approval of the Reverse Stock Split.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written, oral, implied or other
agreement, contract, understanding, arrangement, instrument, note, guaranty,
indemnity, representation, warranty, deed, assignment, power of attorney,
certificate, purchase order, work order, insurance policy, benefit plan,
commitment, covenant, assurance or undertaking of any nature.
CURRENT BENEFIT PLAN. "Current Benefit Plan" shall mean any Employee
Benefit Plan that is currently in effect and:
(a) that was established or adopted by the Company or any
ERISA Affiliate;
(b) in which the Company participates;
2.
<PAGE> 56
(c) with respect to which the Company or any ERISA Affiliate
is or may be required or permitted to make any contribution; or
(d) with respect to which the Company or any ERISA Affiliate
is or may become subject to any Liability.
DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, Liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including any legal fee, expert fee, accounting fee or
advisory fee), charge, cost (including any cost of investigation) or expense of
any nature.
DISSENTING SHARES. "Dissenting Shares" means shares of Company Common
Stock with respect to which the holder or holders thereof perfect their rights
to dissent under Chapter 23B.13 of the WBCA.
DISSENTING SHAREHOLDERS. "Dissenting Shareholders" means holders of
shares of Company Common Stock who perfect their rights to dissent under Chapter
23B.13 of the WBCA.
EMPLOYEE BENEFIT PLAN. "Employee Benefit Plan" shall mean all "employee
pension benefit plans" as defined in Section 3(2) of ERISA; all "welfare benefit
plans" as defined in Section 3(1) of ERISA; and all stock bonus, stock option,
restricted stock, stock appreciation right, stock purchase, bonus, incentive,
deferred compensation, severance, holiday, or vacation plans, or any other
employee benefit plan, program, policy or arrangement, whether or not subject to
ERISA and whether or not in writing.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, equity, trust, equitable
interest, claim, preference, right of possession, lease, tenancy, license,
encroachment, covenant, infringement, interference, Order, proxy, option, right
of first refusal, preemptive right, community property interest, legend, defect,
impediment, exception, reservation, limitation, impairment, imperfection of
title, condition or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, cooperative, foundation, society,
political party, union, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization or
entity.
ERISA. "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
ERISA AFFILIATE. "ERISA Affiliate" shall mean any Person that is, was
or would be treated as a single employer with the Company under Section 414 of
the Code.
3.
<PAGE> 57
EXCHANGE AGENT. "Exchange Agent" shall mean Chase Mellon Shareholder
Services LLC or such other reputable bank or trust company selected by MergerCo
and approved by the Company prior to the Closing Date.
GAAP. "GAAP" shall mean generally accepted accounting principles,
applied on a basis consistent with the basis on which the Company Financial
Statements were prepared.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any
permit, license, certificate, franchise, concession, approval, consent,
ratification, permission, clearance, confirmation, endorsement, waiver,
certification, designation, rating, registration, qualification or authorization
that is, has been or may in the future be issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement.
GOVERNMENTAL BODY. "Governmental Body" shall mean any:
(a) nation, principality, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other
government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental division, subdivision, department, agency, bureau,
branch, office, commission, council, board, instrumentality, officer, official,
representative, organization, unit, body or Entity and any court or other
tribunal);
(d) multi-national organization or body; or
(e) individual, Entity or body exercising, or entitled to
exercise, any executive, legislative, judicial, administrative, regulatory,
police, military or taxing authority or power of any nature.
HAZARDOUS MATERIAL. "Hazardous Material" shall include:
(a) any petroleum, waste oil, crude oil, asbestos, urea
formaldehyde or polychlorinated biphenyl;
(b) any waste, gas or other substance or material that is
explosive or radioactive;
(c) any "hazardous substance," "pollutant," "contaminant,"
"hazardous waste," "regulated substance," "hazardous chemical" or "toxic
chemical" as designated, listed or defined (whether expressly or by reference)
in any statute, regulation or other Legal Requirement (including CERCLA, any
other so-called "superfund" or "superlien" law, the Resource Conservation
Recovery Act, the Federal Water Pollution Control Act, the Toxic Substances
Control Act, the Emergency Planning and Community Right-to-Know Act and the
respective regulations promulgated thereunder);
4.
<PAGE> 58
(d) any other substance or material (regardless of physical
form) or form of energy that is subject to any Legal Requirement which regulates
or establishes standards of conduct in connection with, or which otherwise
relates to, the protection of human health, plant life, animal life, natural
resources, property or the enjoyment of life or property from the presence in
the environment of any solid, liquid, gas, odor, noise or form of energy; and
(e) any compound, mixture, solution, product or other
substance or material that contains any substance or material referred to in
clause "(a)", "(b)", "(c)" or "(d)" above.
KNOWLEDGE. An Entity shall be deemed to have the "Knowledge" of its
officers and directors. An individual shall be deemed to have "Knowledge" of a
particular fact or other matter if such individual is actually aware of such
fact or other matter.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, legislation, constitution,
principle of common law, resolution, ordinance, code, edict, decree,
proclamation, treaty, convention, rule, regulation, ruling, directive,
pronouncement, requirement, specification, determination, decision, opinion or
interpretation that is, has been or may in the future be issued, enacted,
adopted, passed, approved, promulgated, made, implemented or otherwise put into
effect by or under the authority of any Governmental Body.
LEVERAGED RECAPITALIZATION. "Leveraged Recapitalization" shall mean a
transaction structured to transfer the controlling interest of an operating
entity to a new investor without a change in accounting basis of the assets and
liabilities presented in the separate stand-alone financial statements of the
operating entity.
LIABILITY. "Liability" shall mean any debt, obligation, duty or
liability of any nature (including any unknown, undisclosed, unmatured,
unaccrued, unasserted, contingent, indirect, conditional, implied, vicarious,
derivative, joint, several or secondary liability), regardless of whether such
debt, obligation, duty or liability would be required to be disclosed on a
balance sheet prepared in accordance with generally accepted accounting
principles and regardless of whether such debt, obligation, duty or liability is
immediately due and payable.
MATERIAL ADVERSE EFFECT. "Material Adverse Effect," when used in
connection with the Company, means any change, event, circumstance or effect (i)
that is or could reasonably be expected to be materially adverse to the
properties, business, results of operations or condition (financial or
otherwise) of the Company, other than any change, event, circumstance or effect
arising out of general economic conditions generally affecting the mortgage
software or enterprise application integration market or (ii) that does or could
reasonably be expected to impair the ability of the Company to consummate the
transactions contemplated hereby.
"Material Adverse Effect," when used in connection with MergerCo, means
any change, event, circumstance or effect (i) that is or could reasonably be
expected to be materially adverse to the properties, business, results of
operations or condition (financial or otherwise) of MergerCo, other than any
change, event, circumstance or effect arising out of general economic
5.
<PAGE> 59
conditions generally affecting the financial markets or (ii) that does or could
reasonably be expected to impair the ability of MergerCo to consummate the
transactions contemplated hereby.
MATERIAL CONTRACT. "Material Contract" shall mean any of the following:
(a) any Contract relating to the employment of, or the
performance of services by, any employee or consultant involving compensation in
excess of $100,000 per annum, and any Contract pursuant to which the Company is
or may become obligated to make any severance, termination or similar payment
(other than payments of salary) in excess of $75,000, to any current or former
employee or director;
(b) any Contract (i) with any customer of the Company
involving future payments to the Company in excess of $100,000 and (ii) with
respect to the distribution or marketing of any product of the Company involving
future payments to or from the Company in excess of $100,000;
(c) any Contract which provides for indemnification of any
officer, director, employee or agent;
(d) any Contract imposing any restriction on the right or
ability of the Company (i) to compete with any other Person; (ii) to acquire any
product or other asset or any services from any other Person, to sell any
product or other asset to or perform any services for any other Person or to
transact business or deal in any other manner with any other Person; or (iii)
develop or distribute any product, except in each case where such restriction is
not material to the business of the Company;
(e) any Contract (i) relating to the acquisition, issuance,
voting, registration, sale or transfer of any securities; (ii) providing any
Person with any preemptive right, right of participation, right of maintenance
or any similar right with respect to any securities; or (iii) providing the
Company with any right of first refusal with respect to, or right to repurchase
or redeem, any securities;
(f) any joint venture agreement, partnership agreement,
profit-sharing agreement, cost-sharing agreement, loss-sharing agreement or
similar Contract, or any Contract that creates or grants to any Person any stock
appreciation right, phantom stock right or similar right or interest;
(g) any Contract requiring that the Company give any notice or
provide any information to any Person prior to accepting any Acquisition
Proposal; and
(h) any Contract that contemplates or involves the payment or
delivery of cash or other consideration in an amount or having a value in excess
of $100,000 in the aggregate, or contemplates or involves the delivery of
products or performance of services having a value in excess of $100,000 in the
aggregate.
6.
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MERGER CONSIDERATION. "Merger Consideration" shall have the meaning set
forth in Section 1.5(a)(iii).
MERGERCO. "MergerCo" shall mean Terlin, Inc., a Washington corporation.
NASD. "NASD" shall mean the National Association of Securities Dealers,
Inc.
ORDER. "Order" shall mean any:
(a) order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, verdict, sentence, subpoena,
writ or award that is, has been or may in the future be issued, made, entered,
rendered or otherwise put into effect by or under the authority of any court,
administrative agency or other Governmental Body or any arbitrator or
arbitration panel; or
(b) Contract with any Governmental Body that is, has been or
may in the future be entered into in connection with any Proceeding.
ORDINARY COURSE OF BUSINESS. An action taken by or on behalf of the
Company shall not be deemed to have been taken in the "Ordinary Course of
Business" unless:
(a) such action is recurring in nature, is consistent with the
Company's past practices and is taken in the ordinary course of the Company's
normal day-to-day operations; and
(b) such action is not required to be authorized by the
Company's shareholders, board of directors or any committee of such board of
directors and does not require any other separate or special authorization of
any nature, it being understood that approval by the Company's board of
directors in and of itself shall not be indicative that an action by or on
behalf of the Company was not in the "Ordinary Course of Business."
PAST BENEFIT PLAN. "Past Benefit Plan" shall mean any Employee Benefit
Plan (other than a Current Benefit Plan):
(a) of which the Company or any ERISA Affiliate has ever been
a "plan sponsor" (as defined in Section 3(16)(B) of ERISA) or that otherwise has
at any time been established, adopted, maintained or sponsored by the Company or
by any ERISA Affiliate;
(b) in which the Company or any ERISA Affiliate has ever
participated;
(c) with respect to which the Company or any ERISA Affiliate
has ever made, or has ever been required or permitted to make, any contribution;
or
(d) with respect to which the Company or any ERISA Affiliate
has ever been subject to any Liability.
PERSON. "Person" shall mean any individual, Entity or Governmental
Body.
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PRE-CLOSING PERIOD. "Pre-Closing Period" shall mean the period
commencing as of the date of the Agreement and ending on the Effective Time.
PROCEEDING. "Proceeding" shall mean any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding and any informal proceeding), prosecution,
contest, hearing, inquiry, inquest, audit, examination or investigation that is,
has been or may in the future be commenced, brought, conducted or heard by or
before, or that otherwise has involved or may involve, any Governmental Body or
any arbitrator or arbitration panel.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any patent, patent
application, trademark (whether registered or unregistered and whether or not
relating to a published work), trademark application, trade name, fictitious
business name, service mark (whether registered or unregistered), service mark
application, copyright (whether registered or unregistered), copyright
application, maskwork, maskwork application, trade secret, know-how, franchise,
system, computer software, invention, design, blueprint, proprietary product,
technology, proprietary right or other intellectual property right or intangible
asset.
PROXY STATEMENT. "Proxy Statement" shall mean the proxy statement filed
with the SEC and to be sent to the Company's shareholders in connection with the
Company Shareholders' Meeting.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
REQUIRED COMPANY SHAREHOLDER VOTE. "Required Company Shareholder Vote"
shall have the meaning set forth in Section 2.26.
REVERSE STOCK SPLIT. "Reverse Stock Split" shall have a meaning set
forth in Section 5.2.
S-4 REGISTRATION STATEMENT. "S-4 Registration Statement" shall mean the
registration statement on Form S-4 to be filed with the SEC by the Company in
connection with an issuance of Company Common Stock in the Merger if necessary
in the opinion of counsel to MergerCo.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933,
as amended.
SUBSIDIARY. An entity shall be deemed to be a "Subsidiary" of another
Person if such Person directly or indirectly owns, beneficially or of record, an
amount of voting securities or other interests in such Entity that is sufficient
to enable such Person to elect at least a majority of the members of such
Entity's board of directors or other governing body.
SUPERIOR OFFER. "Superior Offer" shall mean an unsolicited, bona fide
written offer made by a third party to acquire (by means of merger,
consolidation, share exchange, tender offer, exchange offer or otherwise) more
than 50% of the outstanding equity or voting securities of the Company or
substantially all of the assets of the Company on terms that the board of
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directors of the Company determines, in its good faith judgment, based upon the
written advice of its financial adviser, to be more favorable to the Company's
shareholders than the terms of the Merger; provided, however, that any such
offer shall not be deemed to be a "Superior Offer" unless any financing required
to consummate the transaction contemplated by such offer is either committed or
is reasonably capable of being obtained by such third party.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, estimated tax, gross receipts tax, value-added tax, surtax,
excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax,
property tax, business tax, occupation tax, inventory tax, occupancy tax,
withholding tax or payroll tax), levy, assessment, tariff, impost, imposition,
toll, duty (including any customs duty), deficiency or fee, and any related
charge or amount (including any fine, penalty or interest), that is, has been or
may in the future be (a) imposed, assessed or collected by or under the
authority of any Governmental Body, or (b) payable pursuant to any tax-sharing
agreement or similar Contract.
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information that
is, has been or may in the future be filed with or submitted to, or required to
be filed with or submitted to, any Governmental Body in connection with the
determination, assessment, collection or payment of any Tax or in connection
with the administration, implementation or enforcement of or compliance with any
Legal Requirement relating to any Tax.
TRIGGERING EVENT. A "Triggering Event" shall be deemed to have occurred
if: (i) the board of directors of the Company shall have failed to recommend, or
shall for any reason have withdrawn or shall have amended or modified in a
manner adverse to MergerCo its unanimous recommendation in favor of, the Merger
or approval of the Agreement; (ii) the Company shall have failed to include in
the Proxy Statement the unanimous recommendation of the board of directors of
the Company in favor of the approval of the Agreement and the Merger; (iii) the
board of directors of the Company fails to unanimously reaffirm its
recommendation in favor of approval of the Agreement and the Merger within five
(5) business days after MergerCo requests in writing that such recommendation be
reaffirmed; (iv) the board of directors of the Company shall have approved,
endorsed or recommended any Acquisition Proposal; (v) the Company shall have
entered into any letter of intent or similar document or any Contract relating
to any Acquisition Proposal (other than a confidentiality agreement as
contemplated in Section 4.3 of this Agreement or Contracts with advisors or
consultants to the Company); (vi) the Company shall have failed to hold the
Company Shareholders' Meeting as promptly as practicable and in any event to
commence such meeting within 45 days and end such meeting within 60 days after
the Proxy Statement is mailed to the Company's Shareholders; (vii) a tender or
exchange offer relating to securities of the Company shall have been commenced
and the Company shall not have sent to its security holders, within ten (10)
business days after the commencement of such tender or exchange offer, a
statement that the Company recommends rejection of such tender or exchange
offer, or (viii) an Acquisition Proposal is publicly announced, and the Company
(A) fails to issue a press release announcing its opposition to such Acquisition
Proposal within five (5) business days (but in any event prior to the Company
Shareholders' Meeting) after such
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Acquisition Proposal is announced or (B) otherwise fails to actively oppose such
Acquisition Proposal.
UNAUDITED INTERIM BALANCE SHEET. "Unaudited Interim Balance Sheet"
shall mean the unaudited balance sheet of the Company and its subsidiaries as of
September 30, 1998 included in the Company's Form 10-Q for the quarter then
ended.
10.
