STOCK PURCHASE AGREEMENT
between
Pacific Aerospace & Electronics, Inc.
and
the Shareholders of NOVA-TECH Engineering, Inc.
Dated as of October 11, 1999
TABLE OF CONTENTS
Page
ARTICLE 1. STOCK PURCHASE.................................................... 1
1.1 Stock Purchase.................................................... 1
1.2 Certain Definitions............................................... 1
1.2.1 Agreement Amendments...................................... 1
1.2.2 Articles Amendments....................................... 2
1.2.3 Class A Common............................................ 2
1.2.4 Class B Common............................................ 2
1.2.5 Code...................................................... 2
1.2.6 Company Common Stock...................................... 2
1.2.7 Consideration............................................. 2
1.2.8 ESOP Debt................................................. 2
1.2.9 ESOP Shares............................................... 2
1.2.10 ESOP Valuation............................................ 2
1.2.11 Excise Tax................................................ 2
1.2.12 IRS Ruling................................................ 2
1.2.13 Knowledge................................................. 3
1.2.14 Material Adverse Change................................... 3
1.2.15 Material Adverse Effect................................... 3
1.2.16 ML Debt................................................... 3
1.2.17 Operating Agreement....................................... 3
1.2.18 Pledge Agreement.......................................... 3
1.3 Consideration for ESOP Shares..................................... 3
1.3.1 Cash Equal to the ESOP Debt............................... 3
1.3.2 Additional Cash to the ESOP............................... 3
1.4 Consideration to Class A Shareholders............................. 4
1.5 Delivery of Certificates.......................................... 4
1.6 Closing........................................................... 4
1.7 Subsequent Actions................................................ 4
ARTICLE 2. REPRESENTATIONS AND WARRANTIES.................................... 4
2.1 Representations and Warranties of the Individual Shareholders..... 4
2.1.1 Incorporation; Articles and Bylaws........................ 4
2.1.2 Capitalization and Outstanding Capital Stock.............. 5
2.1.3 No Subsidiaries........................................... 5
2.1.4 Authority; Noncontravention............................... 5
2.1.5 Financial Matters......................................... 6
2.1.6 Litigation................................................ 7
2.1.7 Absence of Changes........................................ 7
2.1.8 Taxes..................................................... 9
2.1.9 Compliance with Laws......................................10
2.1.10 Contracts.................................................10
2.1.11 Intellectual Property.....................................11
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2.1.12 Insurance.................................................11
2.1.13 Environmental Matters.....................................12
2.1.14 Labor Matters.............................................13
2.1.15 Employee Benefit Matters..................................13
2.1.16 Other Employee Matters....................................15
2.1.17 Property..................................................15
2.1.18 Permits and Licenses......................................16
2.1.19 Certain Interests.........................................16
2.1.20 Certain Payments..........................................16
2.1.21 Consents and Approvals....................................17
2.1.22 Records...................................................17
2.1.23 Warranties................................................17
2.1.24 Brokers and Finders.......................................17
2.1.25 Restrictive Covenants.....................................17
2.1.26 Reliance..................................................17
2.2 Representations and Warranties of PA&E............................17
2.2.1 Incorporation; Articles and Bylaws........................17
2.2.2 Authority; Authorization..................................18
2.2.3 Noncontravention..........................................18
2.2.4 Financial Statements......................................18
2.2.5 Litigation................................................18
2.2.6 Consents and Approvals....................................19
2.2.7 Brokers and Finders.......................................19
2.3 Representations and Warranties of the ESOP Trustee................19
2.3.1 Authority.................................................19
2.3.2 Noncontravention..........................................19
ARTICLE 3. PRE-CLOSING CONDUCT AND AGREEMENTS................................20
3.1 Conduct of the Parties............................................20
3.2 Access to Properties, Books and Records...........................20
3.2.1 PA&E......................................................20
3.2.2 The Shareholders..........................................20
3.3 Confidentiality...................................................20
3.4 Conduct of the Company's Business.................................20
3.4.1 Properties and Assets.....................................21
3.4.2 Compensation..............................................21
3.4.3 Indebtedness..............................................21
3.4.4 Leases....................................................22
3.4.5 Payments..................................................22
3.4.6 Contracts and Agreements..................................22
3.4.7 Shipments.................................................22
3.4.8 Insurance.................................................22
3.4.9 Governing Documents.......................................22
3.4.10 Capital Stock.............................................22
3.5 Public Announcements..............................................23
3.6 Notice of Breach..................................................23
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3.6.1 By the Shareholders.......................................23
3.6.2 By PA&E...................................................23
3.7 Company Shareholder Approval......................................23
3.8 Consents..........................................................23
3.9 Further Assurances................................................23
3.10 No Solicitation...................................................23
3.11 Updated ESOP Participant Information..............................24
ARTICLE 4. CONDITIONS TO CLOSING.............................................24
4.1 Conditions to the Obligations of PA&E.............................24
4.1.1 Corporate Actions. ......................................24
4.1.2 Representations and Warranties............................24
4.1.3 Performance of Obligations................................24
4.1.4 No Material Adverse Change................................25
4.1.5 Approvals; Consents.......................................25
4.1.6 Certificate...............................................25
4.1.7 Articles Amendments.......................................25
4.1.8 Audit.....................................................25
4.1.9 Environmental Assessment..................................25
4.1.10 Capital Stock.............................................25
4.1.11 IRS Letter Ruling.........................................25
4.1.12 Employment Agreements.....................................25
4.1.13 Lease Amendments..........................................26
4.1.14 Shareholders' Accounts....................................26
4.1.15 Agreement Amendments......................................26
4.1.16 ESOP Valuation............................................26
4.1.17 Further Documents.........................................26
4.2 Conditions to the Obligations of the Shareholders.................26
4.2.1 Corporate Actions. ......................................26
4.2.2 Representations and Warranties............................26
4.2.3 Performance of Obligations................................27
4.2.4 Certificate...............................................27
4.2.5 IRS Letter Ruling.........................................27
4.2.6 Employment Agreements.....................................27
4.2.7 Lease Amendments..........................................27
4.2.8 Further Documents.........................................27
4.3 Additional Condition to the Obligations of the ESOP...............27
4.3.1 ESOP Valuation............................................27
ARTICLE 5. INDEMNIFICATION...................................................27
5.1 Indemnification by the Individual Shareholders....................27
5.2 Indemnification by PA&E...........................................28
5.3 Limits on Indemnification.........................................28
5.3.1 Limits on Liability of the Individual Shareholders........28
5.3.2 Limits on Liability of PA&E...............................28
5.4 Indemnification Procedure.........................................29
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5.4.1 Third Party Claims........................................29
5.4.2 Non-Third Party Claims....................................30
5.5 Exclusivity.......................................................30
5.6 Waiver of Certain Indemnity Rights................................30
5.7 Actual Knowledge..................................................30
5.8 Insurance Recoveries..............................................31
ARTICLE 6. TERMINATION.......................................................31
6.1 Right to Terminate................................................31
6.1.1 Mutual Consent............................................31
6.1.2 Delay.....................................................31
6.1.3 Breach by PA&E............................................31
6.1.4 Breach by the Individual Shareholders.....................31
6.1.5 Failure of the Company Shareholders to Approve............31
6.2 Certain Obligations to Cease......................................31
ARTICLE 7. MISCELLANEOUS PROVISIONS..........................................32
7.1 Survival..........................................................32
7.2 Exhibits; Schedules...............................................32
7.3 Notices...........................................................32
7.4 No Assignment.....................................................33
7.5 Titles and Captions...............................................33
7.6 Waiver............................................................33
7.7 Amendment.........................................................33
7.8 Severability......................................................33
7.9 Rights and Remedies...............................................33
7.10 Attorney Fees.....................................................33
7.11 Expenses..........................................................34
7.12 Governing Law.....................................................34
7.13 Counterparts......................................................34
7.14 Entire Agreement..................................................34
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EXHIBITS:
Exhibit A - Agreement Amendments
Exhibit B - Employment Agreements
SCHEDULES:
Schedule 2.1.2 Capitalization
Schedule 2.1.3 Interests in Other Entities
Schedule 2.1.5(b) Absence of Undisclosed Liabilities
Schedule 2.1.5(c) Accounts Receivable
Schedule 2.1.6 Litigation
Schedule 2.1.7 Absence of Changes
Schedule 2.1.8 Taxes
Schedule 2.1.9 Compliance With Laws
Schedule 2.1.10 Contracts
Schedule 2.1.11 Intellectual Property
Schedule 2.1.12 Insurance Policies
Schedule 2.1.13 Environmental Matters
Schedule 2.1.14 Labor Matters
Schedule 2.1.15 Employee Benefit Matters
Schedule 2.1.16 Employee Matters
Schedule 2.1.17(a) Real Property
Schedule 2.1.17(c) Tangible Personal Property
Schedule 2.1.18 Permits and Licenses
Schedule 2.1.19 Certain Interests
Schedule 2.1.21 Consents and Approvals (Company)
Schedule 2.1.23 Warranties
Schedule 2.2.6 Consents and Approvals (PA&E)
vi
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of October 11, 1999, by and among PACIFIC AEROSPACE & ELECTRONICS, INC., a
Washington corporation ("PA&E"), Xxxx Xxxxxxxx and Xxxx Xxxxxxxx (together, the
"Individual Shareholders") and NOVA-TECH Engineering, Inc. Employee Stock
Ownership Plan and Trust (the "ESOP") (the Individual Shareholders and the ESOP
are collectively referred to herein as the "Shareholders").
RECITALS
A. NOVA-TECH Engineering, Inc., a Washington corporation (the "Company"),
is engaged in the business of professional engineering for the design and
manufacturing of highly specialized manufacturing equipment, primarily for the
aerospace industry.
B. The Individual Shareholders and the ESOP constitute all of the
shareholders of the Company.
C. PA&E is willing to purchase, and the Shareholders are willing to sell,
all of the outstanding stock of the Company on the terms and conditions set
forth in this Agreement.
AGREEMENT
For valuable consideration, the receipt and sufficiency of which the
parties acknowledge, the parties agree as follows:
ARTICLE 1.
STOCK PURCHASE
1.1 Stock Purchase. At the Closing (as defined in Section 1.6), PA&E agrees
to purchase, and the Shareholders agree to sell to PA&E, all of the outstanding
stock of the Company in exchange for the consideration provided in Sections 1.3
and 1.4, and upon the other terms and conditions set forth in this Agreement
(such transaction referred to herein as the "Stock Purchase").
1.2 Certain Definitions. The following terms shall have the respective
meanings set forth in this Section.
1.2.1 Agreement Amendments. The term "Agreement Amendments" shall mean
the amendments to and the waivers and consents under any agreements or documents
relating to the ESOP or to the ESOP Debt that are necessary to permit the
repayment of the ESOP Debt provided in Section 1.3.1 or any of the other
transactions contemplated by this Agreement. The
1
Agreement Amendments shall be listed on Exhibit A and shall include an amendment
to Section 2.3 of the Pledge Agreement to permit the ESOP to use funds obtained
from PA&E pursuant to Section 1.3.1(i) herein to repay the ESOP Debt as required
by Section 1.3.1(ii) herein.
1.2.2 Articles Amendments. The term "Articles Amendment" shall mean
the following amendments to the Articles of Incorporation of the Company: (i) an
amendment to delete Section 2(g)(7) of Article IV; and (ii) an amendment to
delete Section 3 of Article IV.
1.2.3 Class A Common. The term "Class A Common" shall mean the shares
of Class A Common Stock, $.01 par value per share, of the Company, all of which
are owned beneficially and of record by the Individual Shareholders.
1.2.4 Class B Common. The term "Class B Common" shall mean the shares
of Class B Super Common Stock, $.01 par value per share, of the Company.
1.2.5 Code. The term "Code" shall mean the Internal Revenue Code of
1986, as amended.
1.2.6 Company Common Stock. The term "Company Common Stock" shall mean
all shares of Class A Common and Class B Common.
1.2.7 Consideration. The term "Consideration" shall mean the amounts
payable by PA&E pursuant to Sections 1.3 and 1.4.
1.2.8 ESOP Debt. The term "ESOP Debt" shall mean all indebtedness owed
by the ESOP to the Company as of any relevant date.
1.2.9 ESOP Shares. The term "ESOP Shares" shall mean the outstanding
shares of Class B Common, all of which are owned of record by the ESOP, and
shall include any and all shares of Class A Common into which the foregoing
shares of Class B Common are automatically converted under Section 2(g)(2) of
Article IV of the Articles of Incorporation of the Company upon the payment in
full of the ESOP Debt at the Closing pursuant to Section 1.3.1 of this
Agreement.
1.2.10 ESOP Valuation. The term "ESOP Valuation" shall mean the
valuation of the ESOP Shares to be obtained pursuant to Section 4.1.16.
1.2.11 Excise Tax. The term "Excise Tax" shall mean the excise tax
payable by the Company to the Internal Revenue Service upon the repayment in
full of the ESOP Debt, as required by Section 1.3.1.
1.2.12 IRS Ruling. The term "IRS Ruling" shall have the meaning set
forth in Section 4.1.11.
1.2.13 Knowledge. The term "knowledge," whether or not such term is
capitalized, when used in reference to an Individual Shareholder or the ESOP
Trustee shall mean
2
such person's actual awareness of a fact after reasonable inquiry. Reasonable
inquiry by the Individual Shareholders shall be deemed to mean that the person
has made inquiry of Xxxx Xxxxxxxx, Xxxx Xxxxxxxx, Xxxxxx Xxxxxxx, Xxxx Xxxxxx,
Xxxxx Xxxxxxx, Xxxxx Xxxxxx, Xxx Xxxxx, and Xxxxx Xxxxxxx (or such other persons
who may replace them in the event they leave the Company between the date of
this Agreement and the Closing Date) and nothing has come to the person's
attention in the course of such inquiry or otherwise that would cause such
person to believe that a representation might not be true.
1.2.14 Material Adverse Change. The term "Material Adverse Change"
shall mean a material adverse change in the business, results of operations,
financial condition, assets or prospects of the Company.
1.2.15 Material Adverse Effect. The term "Material Adverse Effect"
shall mean a material adverse effect upon the business, results of operations,
financial condition, assets or prospects of the Company.
1.2.16 ML Debt. The term "ML Debt" shall mean all indebtedness owed by
the Company to Xxxxxxx Xxxxx Business Financial Services, Inc., or its
affiliates (collectively, "Xxxxxxx Xxxxx"), as of any relevant date.
1.2.17 Operating Agreement. The term "Operating Agreement" shall mean
the Operating Agreement, dated as of April 23, 1999, between PA&E and the
Company, including any amendments thereto.
1.2.18 Pledge Agreement. The term "Pledge Agreement" shall mean the
Amended ESOP Loan and Pledge Agreement, dated June 26, 1997, between the Company
and the NOVA-TECH Engineering, Inc. Employee Stock Ownership Trust.
1.3 Consideration for ESOP Shares. At the Closing, PA&E shall pay the ESOP
as consideration for its ESOP Shares the following:
1.3.1 Cash Equal to the ESOP Debt. As part of the Closing and in
consideration for the ESOP Shares, (i) PA&E will transfer to the ESOP in cash
the amount necessary for the ESOP to repay in full the ESOP Debt, (ii) the ESOP
will transfer those funds to the Company to repay in full the ESOP Debt, and
(iii) the Company will transfer those funds to Xxxxxxx Xxxxx to repay in full
the ML Debt; and
1.3.2 Additional Cash to the ESOP. As part of the Closing and in
consideration for the ESOP Shares, PA&E will pay the ESOP an additional $670,000
in cash.
The cash amounts described in the preceding Sections 1.3.1 and 1.3.2 will be in
full payment of and in exchange for all Company Common Stock owned by the ESOP.
1.4 Consideration to Class A Shareholders. At the Closing and in
consideration for the Class A Common, PA&E will pay to the holders of Class A
Common (pro rata according to their respective holdings of Class A Common) an
amount in cash equal to $781,600.
3
The consideration described in this Section 1.4 will be in full payment of
and in exchange for all shares of Company Common Stock outstanding on the
Closing Date (other than the shares owned by the ESOP).
1.5 Delivery of Certificates. At the Closing, each of the Shareholders
shall deliver to PA&E the certificates representing all of the Company Common
Stock owned by such Shareholder, duly indorsed to PA&E or in blank, in exchange
for the Consideration provided in this Agreement.
1.6 Closing. The closing of this transaction (the "Closing") shall take
place at the offices of Stoel Rives LLP, 3600 One Union Square, 000 Xxxxxxxxxx
Xxxxxx, Xxxxxxx, Xxxxxxxxxx, 00000 on a date to be mutually agreed by PA&E and
the Shareholders that is promptly after the meeting or written consent of the
Shareholders to approve the Articles Amendment, and upon satisfaction or waiver
of each other condition to the Closing set forth in this Agreement, or on such
other date or at such other place and time as PA&E and the Shareholders may
agree (the "Closing Date").
1.7 Subsequent Actions. If, at any time after the Closing, PA&E shall
consider or be advised that any deeds, bills of sale, assignments, assurances or
any other actions or things are necessary or desirable to vest, perfect or
confirm of record or otherwise in PA&E its right, title or interest in, to, or
under any Company Common Stock or any of the rights, properties or assets of the
Company or otherwise to carry out this Agreement, the Shareholders agree to
execute and deliver, all such deeds, bills of sale, assignments and assurances,
and to take and do, in the name and on behalf of the Company, or otherwise, all
such other actions and things as may be necessary or desirable to vest, perfect
or confirm any and all right, title and interest in, to and under such rights,
properties or assets in PA&E or otherwise to carry out the purposes of this
Agreement.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Individual Shareholders. The
Individual Shareholders jointly and severally represent and warrant to PA&E
that:
2.1.1 Incorporation; Articles and Bylaws. The Company is a corporation
duly organized and validly existing under the laws of the State of Washington.
The Company has all necessary corporate power and authority to own, operate, and
lease its assets and properties and to carry on its business as it is now being
conducted and as proposed to be conducted. The Company is qualified and in good
standing as a foreign corporation in each jurisdiction where its properties
(whether owned, leased or operated) are located or its business is conducted and
in which the failure to so qualify would have a Material Adverse Effect. The
Company has delivered to PA&E complete and accurate copies of the Company's
Articles of Incorporation and Bylaws, each as amended to the date of this
Agreement.
2.1.2 Capitalization and Outstanding Capital Stock. The Company has
authorized capital stock consisting of ten million (10,000,000) shares of Class
A Common, and
4
four million (4,000,000) shares of Class B Common. On the date of this
Agreement, 2,850,000 shares of the Class A Common are outstanding, and 1,520,000
shares of the Class B Common are outstanding. All of the outstanding shares of
capital stock of the Company have been duly authorized and are validly issued,
fully paid and nonassessable. No shares of capital stock of the Company have
been issued in violation of or are subject to any preemptive or similar rights
granted to any former or existing shareholder pursuant to law, the Company's
Articles of Incorporation, Bylaws, contract, federal or state securities laws,
or otherwise. Other than pursuant to this Agreement or as described in Schedule
2.1.2, (a) there is no subscription, option, warrant, call, right, agreement or
commitment granted or issued by or binding upon the Company or any shareholder
of the Company or any participant in the ESOP (i) relating to the issuance,
sale, delivery, voting, transfer, ownership or other rights to or affecting any
shares of the Company's capital stock or any other securities convertible into,
exchangeable for, or evidencing the right to subscribe for shares of the
Company's capital stock, or (ii) relating to the payment of amounts measured by
changes in the value or price of any capital stock of the Company, and (b) the
Company has no obligation of any kind to issue any additional securities. Except
as described on Schedule 2.1.2, the Company has no outstanding obligations to
repurchase, redeem or otherwise acquire any of its outstanding shares of capital
stock. Schedule 2.1.2 sets forth the amount of dividends required to be paid by
the Company on its Class B Common and the time when such dividends are required
to be paid. Schedule 2.1.2 sets forth (i) a complete and accurate list of all of
the shareholders of the Company as of the date hereof, indicating the number of
shares of the Company Common Stock held by each, and such shareholders shall
continue to be all of the shareholders of the Company until the Closing Date,
and (ii) a complete and accurate list of all participants in the ESOP, and a
complete and accurate summary of the account balance of each participant in the
ESOP, including the number of shares of Class B Common allocable to each such
account, such list and summary required by this subsection (ii) to be as of the
most recent date such information was prepared by the ESOP. Except as set forth
on Schedule 2.1.2, all of the outstanding shares of capital stock of the Company
are owned beneficially and of record as set forth on the Schedule 2.1.2, free
and clear of all pledges, security interests, liens, charges, encumbrances,
equities, claims, options or limitations.
2.1.3 No Subsidiaries. The Company does not own and has never owned,
directly or indirectly, any outstanding capital stock or other ownership
interest (or securities, rights or other interests convertible into capital
stock or other ownership interest) in any other entity, except as set forth on
Schedule 2.1.3.
2.1.4 Authority; Noncontravention.
a. Authority. Each Individual Shareholder has full power and
authority to execute and deliver this Agreement, to consummate the transactions
contemplated in this Agreement, and to carry out its obligations under this
Agreement. This Agreement has been duly and validly executed and delivered by
the Individual Shareholders. The Articles Amendments will be approved by the
Board of Directors of the Company and will be submitted to shareholders of the
Company for approval upon receipt of the IRS Ruling, and assuming that the
Articles Amendments are duly approved by the shareholders of the Company and
become effective, this Agreement constitutes the valid and binding obligation of
the Shareholders, enforceable in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy,
5
insolvency, reorganization, moratorium, or other laws of general application
affecting the enforcement of creditors' rights, and except that the availability
of the equitable remedies of specific performance and injunctive relief may be
subject to the discretion of the court before which any proceeding may be
brought. To the best knowledge of the Individual Shareholders, other than the
filing of the Articles Amendments with the Secretary of State, no declaration,
filing, or registration with, or notice to, or authorization, consent, or
approval of, any governmental or regulatory body or authority is necessary for
the execution and delivery of this Agreement by the Individual Shareholders or
the consummation by the Individual Shareholders of the transactions contemplated
by this Agreement.
b. Noncontravention. The execution and delivery of this Agreement
by the Individual Shareholders, and the consummation of the transactions
contemplated by this Agreement (i) will not conflict with the Articles of
Incorporation (after the filing and effectiveness of the Articles Amendments) or
the Bylaws of the Company, and (ii) except for consents required to be obtained
as set forth in Section 2.1.21, and after the effectiveness of the Agreement
Amendments, will not result in any violation of or a default or loss of a
material benefit under, or permit the acceleration of any obligation under any
mortgage, indenture, lease, agreement or other instrument, permit, concession,
grant, franchise, license, judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to the Company or the Individual Shareholders or
their respective properties that would have a Material Adverse Effect.
2.1.5 Financial Matters.
a. Financial Statements. The Individual Shareholders have
provided to PA&E true, correct and complete copies of the Company's (a) compiled
balance sheet, statement of income and statement of cash flow for the fiscal
year ended October 31, 1996, 1997 and 1998, including the related notes
(collectively, the "Historical Financial Statements"), and (b) balance sheet as
of June 30, 1999 (the "Current Balance Sheet") and the related statement of
income and statement of cash flow for the period then ended (collectively, the
"Current Financial Statements"). The Historical Financial Statements and the
Current Financial Statements are collectively referred to as the "the Company
Financial Statements." The Company Financial Statements are complete and
accurate and present fairly the financial position, results of operations, and
changes in financial position of the Company as of the dates and for the periods
indicated therein in accordance with GAAP applied on a consistent basis
throughout the periods indicated, except as otherwise indicated therein or in
the notes to the Company Financial Statements.
b. Absence of Undisclosed Liabilities. Except as set forth on
Schedule 2.1.5(b), and except for current liabilities incurred after the date of
the Current Balance Sheet in the ordinary course of business and of a type and
in an amount consistent with past practices, the Company does not have any
material liability or obligation that is not accrued, reserved against, or
disclosed in the Company Financial Statements.
c. Accounts Receivable. Schedule 2.1.5(c) contains a complete and
accurate list of all of the receivables of the Company (including accounts
receivable, notes receivable and advances) that are reflected in the Current
Balance Sheet or that have been billed
6
since the date of the Current Balance Sheet (collectively, the "Receivables").
Except as set forth on Schedule 2.1.5(c), all of the Receivables reflect actual
bona fide transactions and arose in the ordinary course of business. Each of the
Receivables can be fully collected when due and in any event within 120 days
after Closing, without resort to litigation and without offset, deduction or
counterclaim, except to the extent of the normal allowance for doubtful accounts
with respect to accounts receivable, consistent with the Company's prior
practices, as reflected in the Current Balance Sheet.
2.1.6 Litigation. Except as set forth on Schedule 2.1.6, there is no
claim, litigation, proceeding or investigation of any kind pending by the
Company or against the Company or the officers or directors of the Company in
their capacities as such, or against the properties or business of the Company,
and, to the knowledge of the Individual Shareholders, (i) no such claim,
litigation, proceeding or investigation has been threatened, and (ii) there is
no basis for any such claim, litigation, proceeding or investigation. There are
no actions, proceedings, suits, investigations, or inquiries pending, or to the
best knowledge of the Individual Shareholders, threatened, that question the
validity of this Agreement or any actions taken or to be taken pursuant to this
Agreement.
2.1.7 Absence of Changes. Except as set forth on Schedule 2.1.7, since
June 30, 1999, the Company has not:
a. Adverse Changes. Suffered or been threatened with any Material
Adverse Change;
b. Damage. Suffered any damage, destruction, requisition, taking
or casualty loss, whether or not covered by insurance, of or to any of its
assets or properties;
c. Dividends. Declared, set aside or paid any dividend or other
distribution (whether in cash, stock, property or any combination thereof) in
respect of its capital stock, or directly or indirectly repurchased, redeemed or
otherwise acquired any shares of its capital stock, or made any other payment to
or for the account of its shareholders;
d. Compensation. Increased the rate or terms of compensation
payable or to become payable to any director, officer or key employee; changed
the rate or terms of any bonus, insurance, pension or other employee benefit
plan, payment, severance or arrangement made to, for or with any employee; paid
any special bonus or remuneration; executed or amended any written employment
contract; or made any change in personnel policies;
e. Expenditures. Entered into any agreement, commitment or
transaction (including without limitation any borrowing, capital expenditure or
capital financing; any purchase, acquisition, sale or other disposition of
assets; any lease or sublease; any guaranty, assumption or endorsement of
payment or performance of any loan or obligation of another; or any amendment,
modification or termination of any existing agreement, commitment or
transaction), except agreements, commitments or transactions in the ordinary
course of business or as contemplated by this Agreement that will be performed
in less than one year and do not
7
involve the payment of, or obligation to pay, an amount greater than $50,000 in
respect of any such agreement, commitment or transaction;
f. Accounting Changes. Made any change in accounting methods,
principles or practices;
g. Sales of Stock. Issued or sold any capital stock or issued or
granted any option, warrant or right to purchase any capital stock or any
security exercisable for the purchase of or convertible into capital stock or
relating to the payment of amounts measured by changes in the value or price of
any capital stock, or made any commitment to do any of the foregoing;
h. Articles and Bylaws. Amended its Articles of Incorporation or
Bylaws;
i. Business Not in the Ordinary Course. Conducted any business
which is outside the ordinary course of business or not in the manner that it
previously conducted its businesses to the extent such business has had or
reasonably could be expected to have a Material Adverse Effect;
j. Liabilities. Except as set forth on Schedules 2.1.5(b) and
2.1.6, incurred any liability which, either individually or in the aggregate, is
material to its business, results of operations, financial condition,
properties, assets or prospects.
k. Encumbrances. Encumbered or consented to the encumbrance of
any of its property or assets, except in the ordinary course of business;
l. Labor. Experienced pending or threatened labor disputes,
organizational activities or disturbances affecting in an adverse manner its
business, results of operations, financial condition, properties, assets or
prospects; or
m. Further Adverse Changes. Experienced or been threatened with
any change in its assets, liabilities, licenses, permits or franchises, or any
change in any agreement to which it is a party or is bound, which, either
individually or in the aggregate, has had or reasonably could be expected to
have a Material Adverse Effect.
2.1.8 Taxes.
a. Tax. "Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
ss. 59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
8
b. Tax Return. "Tax Return" means any return, declaration,
report, claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
c. Tax Matters.
(1) The Company has filed all Tax Returns that it was
required to file, and all such Tax Returns were correct and complete. All Taxes
owed by the Company (whether or not shown on any Tax Return) have been paid. The
Company is not currently a beneficiary of any extension of time within which to
file any Tax Return. No claim has ever been made by a governmental authority in
a jurisdiction where the Company does not file Tax Returns that the Company is
or may be subject to taxation by that jurisdiction. There are no security
interests on any of the assets of the Company that arose in connection with any
failure (or alleged failure) to pay any Tax.
(2) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, shareholder, or other third party.
(3) No shareholder or director or officer (or employee
responsible for Tax matters) of the Company has any knowledge that any
governmental authority may assess, or has threatened to assess, any additional
Taxes for any period for which Tax Returns have been filed. There is no dispute
or claim concerning any Tax liability of the Company either (A) claimed or
raised by any governmental authority or (B) as to which any of the Individual
Shareholders or the directors and officers (or employees responsible for Tax
matters) of the Company has knowledge. Schedule 2.1.8 lists all federal, state,
local, and foreign income Tax Returns filed with respect to the Company for
taxable periods ended on or after November 1, 1995, indicates those Tax Returns
that have been audited, and indicates those Tax Returns that currently are the
subject of any audit. The Company has delivered to PA&E correct and complete
copies of all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by any of the Company since November
1, 1995.
(4) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(5) The Company: has not filed a consent under Codes ss.
341(f) concerning collapsible corporations; has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that could
obligate it to make any payments that will not be deductible under Code ss.
280G; has not been a United States real property holding corporation within the
meaning of Code ss. 897(c)(2) during the applicable period specified in Code ss.
897(c)(1)(A)(ii). The Company is not a party to any Tax allocation or sharing
agreement. The Company (A) has not been a member of an Affiliated Group filing a
consolidated federal income Tax Return (other than a group the common parent of
which was the Company) and (B) has no liability for the Taxes of any person
under Reg. ss. 1.1502-6 (or any similar provision of state, local or foreign
law), as a transferee or successor, or by contract or otherwise.
9
(6) Schedule 2.1.8 sets forth the following information with
respect to the Company as of the most recent practicable date (as well as on an
estimated pro forma basis as of the Closing giving effect to the consummation of
the transactions contemplated by this Agreement): (A) the basis of the Company
in its assets; and (B) the amount of any net operating loss, net capital loss,
unused investment or other credit, unused foreign tax, or excess charitable
contribution allocable to the Company.
(7) The unpaid Taxes of the Company do not, as of the close
of its October 31, 1998, taxable year, exceed the reserve for tax liability set
forth on the balance sheet dated October 31, 1998. The Company has paid or has
established a sufficient reserve for any Tax liability in respect of any fiscal
period which includes or ends on the Closing Date.
2.1.9 Compliance with Laws. Except as set forth on Schedule 2.1.9, the
Company has at all relevant times conducted its business in compliance in all
respects with the provisions of its Articles of Incorporation, Bylaws, and all
applicable laws and regulations to the extent that the failure to so comply
reasonably could be expected to have a Material Adverse Effect. The Company is
not in violation of any applicable laws or regulations in any material respect.
The Company is not subject to any outstanding judgment, order, writ, injunction
or decree and has not been charged with, or, to its knowledge, threatened with a
charge of, a violation of any provision of any applicable law or regulation.
2.1.10 Contracts.
a. Contracts and Commitments. Schedule 2.1.10 contains a list of
all of the contracts or agreements to which the Company is a party or by which
it or any of its property is subject or bound in the following categories: (i)
notes, mortgages, deeds of trust, loan agreements, security agreements,
guaranties, debentures, indentures, credit agreements and other evidences of
indebtedness with respect to any indebtedness the principal amount of which
exceeds $50,000; (ii) contracts or agreements with any director, officer or
shareholder of the Company; (iii) leases of real property and leases of
equipment or other personal property under which the Company is the lessee; (iv)
letters of intent, commitments, option agreements, xxxxxxx money agreements, or
other similar agreements pertaining to the lease, purchase or sale of any real
property; (v) licenses and sublicenses material to the Company; (vi) contracts
or agreements providing for payments to or by the Company in excess of $25,000
on an annual basis or any contract with a term exceeding one year; (vii)
contracts or agreements with agents, brokers, consignees, sales representatives
or distributors relating to the sale of products or services, and contracts or
agreements relating to the payment of any commission or finder's fee; (viii)
confidentiality or inventions assignment agreements with parties other than
employees of the Company; and (ix) any contract or agreement not falling within
any of the foregoing categories but nevertheless material to the Company
(collectively, the "Contracts").
b. Validity; Absence of Defaults. All of the Contracts are valid,
binding and enforceable in accordance with their terms. The Company is not in
default under or in violation of any provision of any Contract. No third party
has asserted any claim or engaged in any dispute or controversy with the Company
or withheld payments from or performance to the Company with respect to any
Contract that has not been resolved. The Company has received
10
no notice or warning of alleged nonperformance or other noncompliance with
respect to its obligations under any Contract or any notice that any such
Contract may be totally or partially terminated or suspended by the other party
or parties thereto. Except for the consents and approvals specified in Schedule
2.1.21, neither the execution and delivery of this Agreement by the Company nor
the consummation by it of the transactions contemplated by this Agreement will
conflict with, violate, result in a breach of, or constitute a default under any
of the Contracts or result in the creation of any lien or encumbrance upon the
assets of the Company. Complete and accurate copies of all Contracts have been
delivered to PA&E.
2.1.11 Intellectual Property. The Company owns, or has a valid and
binding license or licenses (as to which there are no defaults by any of the
parties thereto) to use, all patents, trademarks, service marks, trade names,
copyrights, trade secrets, technology, know-how and other intellectual property
(the "Intellectual Property") necessary to or used in the conduct of the
Company's business as now conducted and as proposed to be conducted. Schedule
2.1.11 contains a complete and accurate list of all patents, patent
applications, trademarks and service marks and related applications, trade names
and copyrights owned by or licensed to the Company. There are no licenses or
other agreements under which the Company has sold or granted a right to use any
Intellectual Property. All Intellectual Property owned by the Company is owned
by it free and clear of all liens, claims, encumbrances or adverse claims of any
third party. The conduct of the business of the Company does not conflict with
or infringe upon any Intellectual Property rights of any other person, and no
claims of conflict or infringement are pending or threatened against the
Company. The Company has made all necessary filings and recordations and has
paid all required fees and Taxes to maintain its ownership of Intellectual
Property that is patented or registered in the United States Patent and
Trademark Office and has made all necessary filings and recordations and has
paid all required fees and Taxes to maintain its ownership of Intellectual
Property that is patented or registered with applicable foreign agencies.
2.1.12 Insurance. Schedule 2.1.12 contains a complete and accurate
list of all insurance policies maintained by the Company covering any property
or asset of, or otherwise insuring, the Company. All such policies are in full
force and effect, all premiums covering all periods up to and including the date
as of which this representation is being made have been paid, and no notice of
cancellation or termination has been received with respect to any such policy.
Such insurance policies are valid and currently in force. Such insurance
policies are sufficient for compliance with all requirements of law and
agreements to which the Company is a party. The Company has not been refused any
insurance with respect to its assets or operations or had its coverage limited
by any insurance carrier during the past three-year period. Complete and
accurate copies of all policies and endorsements thereto have been delivered to
PA&E.
2.1.13 Environmental Matters.
a. Definitions. "Environmental Law" means any federal, state or
local statute, regulation or ordinance pertaining to the protection of human
health or the environment and any applicable orders, judgments, decrees,
permits, licenses or other authorizations or mandates under such laws.
"Hazardous Substance" means any hazardous, toxic, radioactive or infectious
substance, material or waste as defined, listed or regulated under any
Environmental Law, and includes without limitation petroleum oil and its
fractions. "Asbestos-Containing
11
Material" means any material containing more than one percent by weight of
asbestos. "Prior Property" means any real property previously owned, leased,
controlled, operated or occupied by the Company.
b. Hazardous Substances. Except as specifically described in
Schedule 2.1.13, no Hazardous Substance has been disposed of, spilled, leaked or
otherwise released in, on, under or from the Real Property (as defined in
Section 2.1.17(a) below) or the Prior Property by the Company, its employees or
agents, or to the knowledge of the Company, by any other party. Except as
described in Schedule 2.1.13, no Hazardous Substance (i) is or has been used,
treated, stored, generated, manufactured or otherwise handled on the Real
Property or the Prior Property, or (ii), to the knowledge of the Individual
Shareholders, has otherwise come to be located in, on or under the Real Property
or the Prior Property. To the knowledge of the Individual Shareholders, no
Hazardous Substance has been disposed of, spilled, leaked or otherwise released
in, on, under or from property adjacent to or in the immediate vicinity of the
Real Property or the Prior Property.
c. Asbestos; PCBs; Underground Storage Tanks. None of the
buildings, structures, fixtures or equipment on the Real Property contains any
Asbestos-Containing Material, urea formaldehyde foam insulation, polychlorinated
biphenyls in concentrations greater than 50 parts per million (including in any
electrical equipment located on the Real Property), or any other Hazardous
Substance which is prohibited or regulated when present in buildings,
structures, fixtures or equipment. Except as set forth on Schedule 2.1.13, there
are no underground storage tanks (whether or not excluded from regulation under
any Environmental Law) on the Real Property, including any underground storage
tanks in use, out of service, closed or decommissioned in place. Except as set
forth on Schedule 2.1.13, all underground storage tanks previously on the Real
Property or previously owned or operated by the Company have been properly
decommissioned in compliance with all applicable Environmental Laws.
d. Waste Disposal. All wastes generated by the business of the
Company have been properly transported off site and disposed of in compliance
with all applicable Environmental Laws. Except as described on Schedule 2.1.13,
the Company has not arranged for the disposal or treatment of Hazardous
Substances at, and has not transported or arranged for transportation on behalf
of itself or any third party any Hazardous Substances to, any facility listed or
proposed for listing on the National Priority List ("NPL") or the Comprehensive
Environmental Response, Compensation, Liability Information System list
("CERCLIS") compiled by the Environmental Protection Agency or any similar or
comparable list compiled or maintained by any state or local governmental
authority.
e. Site Lists. No portion of the Real Property or the Prior
Property is listed or proposed for listing on the CERCLIS or the NPL, or any
similar or comparable list compiled or maintained by any state or local
governmental authority. Except as described on Schedule 2.1.13, neither the
Company nor the Individual Shareholders have received notice, or have knowledge,
of any claim that the Company is a potentially responsible party under Section
107 of the Comprehensive Environmental Response, Compensation and Liability Act
or any similar or comparable state or local Environmental Law.
12
f. Environmental Reports. The Company has disclosed and made
available to PA&E true, complete and correct copies or results of any reports,
studies, analyses, tests or monitoring in the possession of or initiated by the
Company pertaining to the existence of Hazardous Substances and any other
environmental concerns relating to any of the Real Property, the Prior Property
or the business of the Company.
2.1.14 Labor Matters. Except as set forth on Schedule 2.1.14, the
Company has no collective bargaining agreement with any labor union. There has
not been any strike, slowdown, picketing or work stoppage by employees of the
Company, and no unfair labor practice charge, complaint or proceeding has been
brought against the Company. To the knowledge of the Individual Shareholders,
the Company has complied with all laws relating to the employment of labor,
including, without limitation, any provisions thereof relating to wages, hours,
collective bargaining, employment termination, occupational safety, equal
opportunity and discrimination, plant closures and layoffs and notice thereof,
hiring of non-U.S. citizens and the payment of social security and similar
taxes, and no person has asserted, and to the knowledge of the Individual
Shareholders there is no basis for any person to assert, that the Company is
liable for any arrears of wages or any taxes or penalties for failure to comply
with any of the foregoing.
2.1.15 Employee Benefit Matters. With respect to the employees of the
Company:
a. Plans. Schedule 2.1.15 contains a true and complete list of
each bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance or termination pay, hospitalization or other medical, life or
other insurance, supplemental unemployment benefit, profit-sharing, savings,
pension, or retirement plan, program, agreement or arrangement (collectively,
the "Plans"), sponsored, maintained or contributed to or required to be
contributed to by the Company or by any subsidiary of the Company or trade or
business (whether or not incorporated) that is a member of a "controlled group"
of which the Company is a member or under "common control" with the Company
(within the meaning of Section 414(b) and (c) of the Code) (an "ERISA"
Affiliate") for the benefit of any employee or former employee, including any
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) subject to
Title IV of ERISA (a "Multiemployer Plan") to which the Company or any ERISA
Affiliate contributes or is or was required to contribute;
b. Information Regarding Plans. With respect to each of the
Plans, the Company has heretofore delivered to PA&E true and complete copies of
each of the following documents: (i) a copy of such Plan (including all
amendments thereto); (ii) a copy of the annual report, if required under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), with
respect to such Plan for the last two years; (iii) a copy of the actuarial
report, if required under ERISA with respect to such Plan for the last two
years; (iv) a copy of the most recent Summary Plan Description, together with
each Summary of Material Modifications, if required under ERISA, with respect to
such Plan, and all material employee communications relating to such Plan; (v)
if such Plan is funded through a trust or any third party funding vehicle, a
copy of the trust or other funding agreement (including all amendments thereto)
and the latest financial statements thereof; (vi) all contracts relating to such
Plan, including without limitation service provider agreements, insurance
contracts, investment management agreements,
13
subscription and participation agreements and record keeping agreements; and
(vii) the most recent determination letter received from the IRS with respect to
such Plan if it is intended to be qualified under Section 401 of the Code.
c. New Plans; Modifications. The Company has no plan or
commitment, whether legally binding or not, to create any additional employee
welfare benefit plan (as defined in Section 3(1) of ERISA) or employee pension
benefit plan (as defined in Section 3(2) of ERISA), and has no plan or
commitment to modify or change any existing pension plan or welfare benefit
plan, other than changes to comply with applicable law, that would affect any
employee of the Company;
d. Continuing Benefits. Except as may be required under COBRA, no
Plan provides death, medical or health benefits (whether or not insured) with
respect to current or former employees of the Company after any such employee's
retirement or other termination of service (other than (i) benefit coverage
mandated by applicable law, including, without limitation, coverage provided
pursuant to COBRA, (ii) death benefits or retirement benefits under any pension
plan, (iii) deferred compensation benefits accrued as liabilities on the books
of the Company, or (iv) benefits the full cost of which is borne by the current
or former employee (or the employee's beneficiary). "COBRA" means the
continuation coverage requirements of Section 4980B of the Code and Part 6 of
Title I of ERISA.
e. Determinations. Each Plan of the Company and of any ERISA
Affiliates that is intended to be "qualified" within the meaning of Section
401(a) of the Code has been determined by the IRS to be so qualified, and there
is no fact or circumstance that would adversely affect such qualification or
result in the imposition of any federal income tax liability or penalty on any
member of the Company or any ERISA Affiliate.
f. Compliance. Each of the Plans has been and is maintained,
operated and administered in compliance with its terms and any related documents
or agreements and in accordance with all applicable laws, including but not
limited to applicable provisions of ERISA and the Code. Neither the Company nor
any ERISA Affiliate has engaged in a "prohibited transaction" (as such term is
defined in Section 4975 of the Code and Section 406 of ERISA) in connection with
any Plan that is subject to ERISA for which an exemption is not available.
g. Claims. There are no claims (other than claims for benefits in
the normal course), actions or lawsuits asserted or instituted against, and
neither the Company nor the Shareholders are aware of any pending or threatened
assessment, complaint, proceeding, investigation, litigation or claims against
the assets of any Benefit Plan (other than a Multiemployer Plan) or against any
fiduciary of such Benefit Plan with respect to the operation of such Benefit
Plan, which, if adversely determined, could have a material adverse effect on
the business, results of operations, financial condition, assets or prospects of
the Company or any ERISA Affiliate taken as a whole.
h. Withdrawal Liability. Neither the Company nor any ERISA
Affiliate has incurred any withdrawal liability (and no event has occurred
which, with the giving of notice under Section 4219 of ERISA, would result in
such liability) under Section 4201 of ERISA as a
14
result of a "complete withdrawal" or a "partial withdrawal" (within the meaning
of Section 4203 or 4205 of ERISA) from a Multiemployer Plan.
2.1.16 Other Employee Matters. Except as described on Schedule 2.1.16,
the Company is not bound by or subject to (and none of its properties is bound
by or subject to) any written or oral, express or implied, employment contract,
commitment or arrangement with any employee, including, without limitation any
"golden parachute" agreement, and all employees of the Company are employees at
will. The Company has provided PA&E with copies of all relevant information
regarding (i) vacation, holiday or sick leave policies or arrangements with
employees, and (ii) compensation arrangements with employees and consultants,
including compensation in the form of benefits, allowances, perquisites or
otherwise.
2.1.17 Property.
a. Title to Real Property. Schedule 2.1.17(a) contains a list of
all real property owned or leased by the Company (the "Real Property"),
including the dates of and parties to all leases and any amendments thereof.
Except as described on Schedule 2.1.17(a), the Company has good and marketable
fee simple title to any Real Property listed as owned by it on Schedule
2.1.17(a), free and clear of all liens, mortgages, pledges, covenants,
easements, restrictions, leases, charges, and other claims and encumbrances of
any nature, except covenants, easements and restrictions of record.
b. Condition of Real Property. All Real Property (including
improvements thereon) is in satisfactory condition and repair consistent with
its present use, and is available for immediate use in the conduct of the
business of the Company. To the knowledge of the Company, neither the operations
of the Company on any Real Property nor any improvements on the Real Property
violate any applicable building or zoning code or regulation of any governmental
authority having jurisdiction.
c. Title to Tangible Personal Property. Schedule 2.1.17(c)
contains a complete and accurate list of all tangible personal property with a
value in excess of $5,000 owned or leased by the Company (the "Tangible Personal
Property"), including the dates of and parties to all leases and any amendments
thereof and the address at which such Tangible Personal Property is currently
located. The Company has good and marketable title to all of the Tangible
Personal Property listed as owned by it on Schedule 2.1.17(c), free and clear of
all liens, mortgages, pledges, leases, restrictions and other claims and
encumbrances of any nature, except as set forth on Schedule 2.1.17(c).
d. Condition of Tangible Personal Property. Except as set forth
on Schedule 2.1.17(c), the Tangible Personal Property is in good operating
condition and repair (ordinary wear and tear excepted), is performing
satisfactorily, and is adequate for the conduct of the business of the Company.
To the knowledge of the Individual Shareholders, all Tangible Personal Property
and the state of maintenance thereof are in compliance with all applicable laws
and regulations.
15
2.1.18 Permits and Licenses. Schedule 2.1.18 contains a complete and
accurate list of all governmental licenses, permits and authorizations
(collectively, "Permits") held by the Company. Except as set forth on Schedule
2.1.18, to the knowledge of the Individual Shareholders, the Company (i) holds
all Permits necessary for the lawful conduct of its business pursuant to all
applicable statutes, laws, ordinances, rules and regulations of all governmental
bodies, agencies and other authorities having jurisdiction over it or any part
of its operations; and (ii) is in compliance with each of the terms of each of
the Permits, and there are no claims of violation by the Company of any Permit.
Complete and accurate copies of all Permits held by the Company have been
delivered to PA&E.
2.1.19 Certain Interests. Except as set forth on Schedule 2.1.19, no
current or former shareholder of the Company and no entity owned or controlled
by any of them (a) has any interest in any property, real or personal, tangible
or intangible, used in or pertaining to the business of the Company, (b) is
indebted to the Company, or (c) has any financial interest, direct or indirect,
in any supplier or customer of, or other outside business which has any
transactions with, the Company. Except as set forth on Schedule 2.1.19, the
Company is not indebted to any shareholder, director or officer of the Company
(or any entity owned or controlled by one or more of such parties), except for
amounts due under normal salary arrangements and for reimbursement of ordinary
business expenses. The consummation of the transactions contemplated by this
Agreement will not (either alone or upon the occurrence of any act or event, or
with the lapse of time, or both) result in any payment (severance or other)
becoming due from the Company to any shareholder, officer, director or employee
of the Company (or any entity owned or controlled by one or more of such
parties).
2.1.20 Certain Payments. Neither the Company nor any shareholder,
officer or director of the Company, nor any other person or entity has, directly
or indirectly, on behalf of or with respect to the Company or the business or
operations of the Company (a) made any payment outside the ordinary course of
business to any purchasing or selling agent or person charged with similar
duties of any entity to which the Company sells or from which the Company buys
products or services for the purpose of influencing such agent or person to buy
products or services from or sell products or services to the Company; (b)
otherwise made or received any payment that was not legal to make or receive
under any applicable law or regulation of the United States or any other country
or territory; or (c) engaged in any transaction, maintained any bank account, or
used any corporate funds or assets except for transactions, bank accounts,
funds, and assets which have been and are reflected in the normally maintained
books and records of the Company.
2.1.21 Consents and Approvals. Except as set forth on Schedule 2.1.21
(which includes a list of all consents, approvals, authorizations or filings to
be obtained or made), no consent, approval, or authorization of any entity or
person not a party to this Agreement is required for the consummation of the
transactions described in this Agreement by the Company or the Shareholders
except (i) filings by PA&E pursuant to the applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated under such Act (the "1934 Act"), and (ii) the filing of the Articles
Amendments with the Secretary of State.
16
2.1.22 Records. The books of account of the Company are complete and
accurate in all material respects. Complete and accurate copies of the books and
records of the Company have been made available for PA&E's review.
2.1.23 Warranties. Schedule 2.1.23 contains any standard forms of
warranties provided by the Company. The Company has not made any warranties or
guarantees with respect to its services other than those disclosed on Schedule
2.1.23.
2.1.24 Brokers and Finders. Neither the Company nor any Shareholder,
officer, director or employee of the Company has employed any broker, finder or
investment banker, or incurred any liability for any brokerage or investment
banking fees, commissions or finder's fees, in connection with the transactions
contemplated in this Agreement.
2.1.25 Restrictive Covenants. The Company is not a party to any
agreement, contract or covenant limiting the freedom of the Company to compete
in any line of business or with any person or other entity in any geographic
area.
2.1.26 Reliance. The Company and the Individual Shareholders recognize
and agree that, notwithstanding any investigation by PA&E, PA&E is relying upon
the representations and warranties made by the Individual Shareholders in this
Agreement.
2.2 Representations and Warranties of PA&E. PA&E represents and warrants to
the Individual Shareholders that:
2.2.1 Incorporation; Articles and Bylaws. PA&E is a corporation duly
organized and validly existing under the laws of the State of Washington. PA&E
has all necessary corporate power and authority to own, operate, and lease its
assets and properties and to carry on its business, including its business as
proposed to be conducted. True and correct copies of the Articles of
Incorporation and Bylaws of PA&E have been or prior to the Closing will be
delivered to the Company.
2.2.2 Authority; Authorization. PA&E has full corporate power and
corporate authority to execute and deliver this Agreement, to consummate the
transactions contemplated in this Agreement, and to carry out its obligations
under this Agreement. After approval by the Board of Directors of PA&E, this
Agreement will have been duly and validly authorized, executed and delivered by
PA&E, and will constitute the valid and binding obligation of PA&E, enforceable
in accordance with its terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other laws of general
application affecting the enforcement of creditors' rights, and except that the
availability of the equitable remedies of specific performance and injunctive
relief may be subject to the discretion of the court before which any proceeding
may be brought. To the knowledge of PA&E, assuming the accuracy of the
representations made by the Shareholders, other than reporting obligations of
PA&E under the 1934 Act, no declaration, filing, or registration with, or notice
to, or authorization, consent, or approval of, any governmental or regulatory
body or authority is necessary for the execution and delivery of this Agreement
by PA&E or the consummation by PA&E of the transactions contemplated in this
Agreement.
17
2.2.3 Noncontravention. The execution and delivery of this Agreement
by PA&E and the consummation of the transactions contemplated by this Agreement
(i) will not conflict with the Articles of Incorporation or the Bylaws of PA&E
and (ii) except for consents required to be obtained as set forth in Section
2.2.6, will not result in any violation of or a default or loss of a material
benefit under, or permit the acceleration of any obligation under any mortgage,
indenture, lease, agreement or other instrument, permit, concession, grant,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to PA&E or its properties that would have a material
adverse effect on the business or financial condition of PA&E.
2.2.4 Financial Statements. PA&E's annual report on Form 10-K (the
"Form 10-K") for the fiscal year ended May 31, 1999, contains true and correct
copies of PA&E's audited balance sheets, statements of income and statements of
cash flow for the fiscal years ended May 31, 1998 and 1999, including the
related notes, each consolidated with respect to PA&E's subsidiaries
(collectively, the "PA&E Financial Statements"). The PA&E Financial Statements
are complete and accurate and, as of their respective dates, present fairly the
consolidated financial position, results of operations, and changes in financial
position of PA&E and its subsidiaries as of the dates and for the periods
indicated therein in accordance with GAAP applied on a consistent basis
throughout the periods indicated, except as otherwise indicated therein or in
the notes thereto.
2.2.5 Litigation. There is no claim, litigation, proceeding or
investigation pending by PA&E or against PA&E or the officers or directors of
PA&E in their capacities as such, or against the properties or business of PA&E
that should have been reported on the Form 10-K, and, to the best knowledge of
PA&E, no such claim, litigation, proceeding or investigation has been threatened
and there is no basis for any such claim, litigation, proceeding or
investigation. There are no actions, proceedings, suits, investigations, or
inquiries pending, or to the best knowledge of PA&E, threatened, that question
the validity of this Agreement or any actions taken or to be taken pursuant to
this Agreement.
2.2.6 Consents and Approvals. Except as set forth on Schedule 2.2.6
(which includes a list of all consents, approvals, authorizations or filings to
be obtained or made), no consent, approval, or authorization of any entity or
person not a party to this Agreement is required for the consummation of the
transactions described in this Agreement by PA&E.
2.2.7 Brokers and Finders. Neither PA&E, nor any shareholder, officer,
director or employee of PA&E, has employed any broker, finder or investment
banker, or incurred any liability for any brokerage or investment banking fees,
commissions or finder's fees, in connection with the transactions contemplated
by this Agreement.
2.3 Representations and Warranties of the ESOP Trustee. The person or
entity executing this Agreement on behalf of the ESOP represents and warrants to
PA&E that:
2.3.1 Authority. The ESOP Trustee has full power and authority to
execute and deliver this Agreement, to consummate the transactions contemplated
in this Agreement, and to carry out its obligations and the obligations of the
ESOP under this Agreement. This Agreement
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constitutes the valid and binding obligation of the ESOP, enforceable in
accordance with its terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other laws of general
application affecting the enforcement of creditors' rights, and except that the
availability of the equitable remedies of specific performance and injunctive
relief may be subject to the discretion of the court before which any proceeding
may be brought. To the best knowledge of the ESOP Trustee, other than the filing
of the Articles Amendments with the Secretary of State, no declaration, filing,
or registration with, or notice to, or authorization, consent, or approval of,
any governmental or regulatory body or authority is necessary for the execution
and delivery of this Agreement by the ESOP Trustee or the consummation by the
ESOP of the transactions contemplated by this Agreement.
2.3.2 Noncontravention. The execution and delivery of this Agreement
by the ESOP Trustee, and the consummation of the transactions contemplated by
this Agreement (i) will not conflict with the documents governing the ESOP, and
(ii) except for consents required to be obtained as set forth in Section 2.1.21,
and after effectiveness of the Agreement Amendments, will not result in any
violation of or a default or loss of a material benefit under, or permit the
acceleration of any obligation under any indenture, agreements, or other
instrument, permit, concession, grant, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the ESOP or
the ESOP Trustee that would have a Material Adverse Effect.
ARTICLE 3.
PRE-CLOSING CONDUCT AND AGREEMENTS
From the date of this Agreement until the Closing, except to the extent
expressly permitted by this Agreement or otherwise consented to by an instrument
in writing signed by PA&E, the parties agree that:
3.1 Conduct of the Parties. Before Closing, each of the parties will fully
cooperate with the other party and its counsel and accountants in connection
with any steps required to be taken as part of the obligations of the parties
under this Agreement. PA&E and the Shareholders each agree not to take any
action, and the Shareholders agree not to cause the Company to take any action,
which would, as of the Closing Date, cause any warranties or representations
contained in this Agreement and applicable to them to be false or misleading.
PA&E and the Shareholders agree to use their best efforts, and the Shareholders
agree to cause the Company to use its best efforts, to (a) take all actions
necessary to render accurate as of the Closing Date their respective
representations and warranties contained in this Agreement, and (b) perform or
cause to be satisfied each covenant, obligation or condition to be performed or
satisfied by them prior to the Closing Date.
3.2 Access to Properties, Books and Records.
3.2.1 PA&E. To permit PA&E to conduct its due diligence investigation,
the Shareholders will permit PA&E and its agents to have reasonable access to
the premises in which the Company conducts its business and to all of its books,
records, and personnel files and will
19
furnish to PA&E such financial data, operating data, and other information as
they shall reasonably request, and the Shareholders will permit PA&E and its
agents to contact employees and customers of the Company.
3.2.2 The Shareholders. To permit the Shareholders to conduct their
due diligence investigation, PA&E will provide the Shareholders and their agents
with access to any of its public filings with the Securities and Exchange
Commission and will furnish to the Shareholders such financial data, operating
data, and other information as the Shareholders shall reasonably request.
3.3 Confidentiality. The parties each agree to comply with and be bound by
the terms of the confidentiality agreement between PA&E and the Company which
had been fully executed on August 10, 1998 (the "Confidentiality Agreement").
3.4 Conduct of the Company's Business. In addition to the provisions of
this Agreement, the Shareholders will cause the Company to conduct its business
in accordance with all of the provisions of the Operating Agreement. The
Shareholders will cause the Company to: (i) conduct the Company's business in a
reasonable and prudent manner in accordance with past practices and keep the
Company's business intact, (ii) not take or permit to be taken or do or suffer
to be done anything other than in the ordinary course of its business, and (iii)
use commercially reasonable efforts to preserve the Company's existing business
and relationships with its employees, customers, suppliers, directors, officers,
agents and others, to preserve and protect its properties, to conduct its
business in compliance with all applicable laws and regulations, and to maintain
the goodwill and reputation associated with its business. The parties understand
and agree that (a) PA&E must be consulted on every material issue and matter
which may affect the business or operations of the Company after the date of
this Agreement, and (b) no such issue or matter shall be acted on without the
prior written consent of PA&E. Subject to the foregoing, the Shareholders agree
to cause the Company to comply with the following covenants (except to the
extent that PA&E gives its prior written consent otherwise):
3.4.1 Properties and Assets.
a. Maintenance. The Company shall exercise commercially
reasonable efforts to maintain all of its properties and assets, tangible or
intangible, in good operating condition and repair, and take all steps necessary
to keep its operations functioning properly.
b. Liens and Encumbrances. The Company shall not further encumber
or permit to be further encumbered any of its properties or assets.
c. Disposition. The Company shall not purchase, sell, lease or
dispose of or make any contract for the purchase, sale, lease or disposition of
or subject to lien or security interest any properties or assets other than in
the ordinary and usual course of its business consistent with the
representations and warranties contained in this Agreement and not in breach of
any of the provisions of this Agreement.
20
3.4.2 Compensation. The Company shall not grant any salary increase
to, or increase the draw of, any of its officers, directors, or employees, or
enter into any new, or amend or alter any existing, bonus, incentive
compensation, deferred compensation, profit sharing, retirement, pension, stock
option, group insurance, death benefit or other fringe benefit plan, trust
agreement or other similar or dissimilar arrangement, or any agreements or
documents relating to the ESOP, or any employment or consulting agreement.
3.4.3 Indebtedness. The Company shall not create, agree to or incur:
(a) any liabilities or obligations, contingent or otherwise, (i) in respect of
borrowed money (other than borrowings pursuant to the Company's existing line of
credit) or pursuant to the Operating Agreement, (ii) evidenced by bonds, notes,
debentures or similar instruments, (iii) representing the balance deferred and
unpaid of the purchase price of any property or services, except those incurred
in the ordinary course of its business that would constitute ordinarily a trade
payable to trade creditors, which are paid not later than 60 days after their
original due date, (iv) evidenced by bankers' acceptances or similar instruments
issued or accepted by banks, (v) relating to any capitalized lease obligation,
or (vi) evidenced by a letter of credit or a reimbursement obligation of the
Company with respect to any letter of credit; (b) any interest swap or hedging
obligations; (c) any guarantee by the Company of, or any pledge by the Company
of any of its assets to secure, any liabilities or obligations of any other
person or entity; (d) any obligation of the Company to purchase, redeem or
acquire any of its stock or other equity interests; or (e) any deferrals,
renewals, extensions, refinancing or refundings (whether direct or indirect) of,
or amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (a), (b), (c), (d) or this clause (e)
(all of the foregoing collectively referred to as the "Designated
Indebtedness"). At all times after the date of this Agreement and on the Closing
Date, the outstanding balance on the Company's existing line of credit shall not
exceed $500,000 without the prior written consent of PA&E, and on the Closing
Date the Company shall not have any Designated Indebtedness, other than that
line of credit and borrowings pursuant to the Operating Agreement.
3.4.4 Leases. The Company shall not enter into any leases.
3.4.5 Payments. Except as otherwise specified in this Agreement, the
Company shall not pay any obligation or liability (fixed or contingent) or
discharge or satisfy any lien or encumbrance, or settle any claim, liability or
suit pending or threatened against it or any of its properties, except for
liabilities on the Current Balance Sheet or current liabilities incurred between
the date of the Current Balance Sheet and the Closing Date in the ordinary and
usual course of business consistent with the Company's representations and
warranties contained in this Agreement and not in breach of any of the
provisions of this Agreement.
3.4.6 Contracts and Agreements. The Company shall not enter into any
contract, agreement or commitment not in the ordinary course of business,
including without limiting the generality of the foregoing, any contract,
agreement or commitment for the purchase of any materials or supplies. The
Company shall not modify, amend, cancel or terminate any of the Contracts or
waive any rights under any of the Contracts or any other material contracts or
agreements. Except for the Agreement Amendments, the Company and the ESOP shall
not amend any agreement or documents relating to the ESOP or the ESOP Debt.
21
3.4.7 Shipments. The Company shall not, other than in the ordinary
course of business, curtail purchases or accelerate shipments beyond customer
requirements.
3.4.8 Insurance. The Company shall maintain in full force and effect
its policies of insurance.
3.4.9 Governing Documents. The Company will not make any change in its
Articles of Incorporation or Bylaws, other than the Articles Amendment.
3.4.10 Capital Stock. The Company will not (a) issue or cause to be
issued any additional shares of its capital stock, (b) effect any subdivision of
its outstanding capital stock, or purchase or redeem any capital stock, (c)
declare, make or pay any dividend, distribution or payment in respect of its
capital stock, other than dividends that are required to be paid by the terms of
the Class B Common as set forth on Schedule 2.1.2, or (d) grant or issue any
options, warrants or other rights to acquire any capital stock or other equity
securities, whether by conversion or otherwise, or make any commitment to do any
of the above.
3.5 Public Announcements. Promptly after the execution of this Agreement,
PA&E shall issue a press release in a form reasonably satisfactory to the
Shareholders. Thereafter, PA&E and the Shareholders will consult with each other
with respect to any news release or other announcement to the public concerning
the Stock Purchase, including without limitation announcements to mutual
customers or suppliers or potential customers or suppliers or any statement to
their employees generally concerning or relating to the Stock Purchase. Neither
the Shareholders, nor the Company nor PA&E, nor any person affiliated with any
of them, will issue or approve a news release or other announcement concerning
this transaction without the prior written consent of the other party, except
for announcements, reports or any other information which PA&E believes on the
advice of counsel to be required to be disclosed by applicable securities laws.
Except as otherwise required by applicable securities laws or other applicable
law or as agreed by the parties, the terms of this Agreement will be
confidential.
3.6 Notice of Breach.
3.6.1 By the Shareholders. The Shareholders will immediately give
written notice to PA&E of the occurrence of any event or the failure of any
event to occur that results in a breach of any representation or warranty by the
Shareholders, or a failure by the Shareholders to comply with any covenant,
condition or agreement contained in this Agreement.
3.6.2 By PA&E. PA&E will immediately give written notice to the
Shareholders of the occurrence of any event or the failure of any event to occur
that results in a breach of any representation or warranty by PA&E or a failure
by PA&E or to comply with any covenant, condition or agreement contained in this
Agreement.
3.7 Company Shareholder Approval. The Shareholders covenant and agree that
a meeting of the shareholders of the Company shall be held within 21 days after
receipt of the IRS Ruling, after proper notice to shareholders pursuant to the
Company's Articles of Incorporation, Bylaws and applicable law, or if practical,
a unanimous consent of the Shareholders shall be
22
signed promptly after receipt of the IRS Ruling, to consider and approve the
Articles Amendments and any other action necessary to authorize the transactions
contemplated by this Agreement.
3.8 Consents. The Shareholders and PA&E will cooperate and use their
respective best efforts, between the date of this Agreement and the Closing
Date, to obtain all consents, approvals, licenses or permits that may be
required in connection with this Agreement and the transactions contemplated
hereby.
3.9 Further Assurances. Subject to the terms and conditions of this
Agreement, each of the parties agrees to use their respective best efforts to
take, or cause to be taken all actions and to do, or cause to be done, all
things necessary, proper or advisable to consummate the Stock Purchase.
3.10 No Solicitation. The Shareholders shall not, directly or indirectly,
take any of the following actions, and the Shareholders shall not permit the
Company or its officers, directors or employees, or their respective investment
bankers, attorneys, accountants, or other agents or persons retained by any of
them, directly or indirectly, to take any of the following actions: encourage,
initiate, or solicit any inquiries or the making of any proposal with respect
to, or engage in negotiations concerning, or provide any confidential
information or data to, or respond to any inquiries or proposals by, or have any
discussions with, any person or entity other than PA&E relating to any
financing, merger, acquisition, business combination, or purchase of all or
substantially all or a substantial part of the business or assets of the Company
or the acquisition of any outstanding equity securities or the issuance of any
equity securities of the Company, and they will immediately cease any existing
activities, discussions or negotiations with any parties with respect to any of
the foregoing. The Shareholders will notify PA&E immediately if any such
inquiries or proposals are received by, any such information is required or
requested from or any negotiations or discussions are sought to be initiated or
continued with the Company or with any person on behalf of the Company, and the
Shareholders will inform PA&E of the identity of the offeror or party making any
proposal and provide PA&E with a copy of all written material relating to any
such offer or proposal.
3.11 Updated ESOP Participant Information. Prior to the Closing, the ESOP
Trustee shall deliver to PA&E a complete and accurate list of all participants
in the ESOP and a complete and accurate summary of the account balance of each
participant in the ESOP, including the number of shares of Class B Common
allocable to each such account, as of the last allocation date prior to the
Closing.
ARTICLE 4.
CONDITIONS TO CLOSING
4.1 Conditions to the Obligations of PA&E. All obligations of PA&E under
this Agreement are subject to the fulfillment and satisfaction, prior to or at
Closing, of each of the following conditions, any one or more of which may be
waived by PA&E in writing:
23
4.1.1 Corporate Actions. All actions required to be taken by, or on
the part of, the Company or the Shareholders to authorize the execution,
delivery and performance of this Agreement by the Shareholders, and the
consummation of the transactions contemplated by this Agreement (including
without limitation approval by the Shareholders as required by the Washington
Act of the Articles Amendments), shall have been duly and validly taken by the
Company and the Shareholders.
4.1.2 Representations and Warranties. The representations and
warranties of the Shareholders contained in this Agreement shall be true and
correct at and as of the Closing Date, with the same effect as though such
representations and warranties had been made at and as of the Closing Date.
4.1.3 Performance of Obligations. Each of the obligations of the
Shareholders required to be performed by them on or before the Closing Date
pursuant to the terms of this Agreement shall have been performed as required.
4.1.4 No Material Adverse Change. There shall have been, between the
date of this Agreement and the Closing, no Material Adverse Change.
4.1.5 Approvals; Consents. All required approvals, consents,
authorizations and waivers with regard to the transactions contemplated by this
Agreement, including those required by state and federal regulatory authorities,
approval of the Boards of Directors of PA&E and the Company, approval by the
shareholders of the Company, and, if PA&E shareholder approval is required by
law or PA&E elects to require such approval, by shareholders of PA&E, shall have
been obtained or waived, and all third-party consents and waivers required by,
or required to prevent a breach or default by the Company under, any contract,
lease, note or other document to which the Company is a party or any permit,
license or other governmental authorization held by the Company shall have been
obtained, and PA&E shall have received copies of such consents and waivers in a
form acceptable to PA&E.
4.1.6 Certificate. The Shareholders shall have delivered to PA&E a
certificate to the effect of Sections 4.1.1 through 4.1.5, signed by the
Shareholders.
4.1.7 Articles Amendments. The Articles Amendments shall have been
filed with the Secretary of State and shall have become effective.
4.1.8 Audit. If PA&E determines that it is necessary or appropriate,
the Company shall have permitted the audit of its financial statements for the
most recent three fiscal years, or for such shorter period as PA&E may
determine, by an independent accounting firm selected by PA&E.
4.1.9 Environmental Assessment. If PA&E elects to do so, PA&E shall
have obtained an environmental assessment of any real property leased by the
Company, and the results of the assessment shall be acceptable to PA&E in its
sole discretion.
24
4.1.10 Capital Stock. All of the outstanding capital stock of the
Company shall be owned beneficially and of record by the Individual Shareholders
and the ESOP, and there shall be no agreements or other rights, other than this
Agreement, pursuant to which any person or entity would have any right to
acquire any securities of the Company either from the Company or from the
Shareholders.
4.1.11 IRS Letter Ruling. A private letter ruling shall be requested
and obtained from the IRS that (i) the sale by the ESOP to PA&E for cash and the
immediate repayment of the ESOP Debt will not cause the ESOP Debt to fail to be
exempt from the prohibited transition rules of ERISA and the Code; and (ii) the
allocation of the net proceeds of the sale of unallocated shares to participant
accounts will not be treated as annual additions under Code section 415, or
alternatively, will not cause annual additions under the ESOP to exceed the
limits in Code section 415 (the "IRS Ruling").
4.1.12 Employment Agreements. PA&E shall have received fully executed
employment agreements substantially as attached hereto as Exhibit B between the
Company and each of Xxxx Xxxxxxxx and Xxxx Xxxxxxxx, which shall be for a period
of 3 years after the Closing (the "Employment Agreements"), and PA&E shall have
received fully executed employment contracts between the Company and such other
employees of the Company as PA&E shall designate.
4.1.13 Lease Amendments. The Company and HHD Associates shall have
executed and delivered mutually agreeable lease amendments (the "Lease
Amendments").
4.1.14 Shareholders' Accounts. Any amounts owed by Shareholders to the
Company, as set forth on Schedule 2.1.19, shall have been paid to the Company,
and any amounts owed by the Company to its shareholders, as set forth in
Schedule 2.1.19, shall have been canceled, and there shall be no other amounts
receivable from or payable to the Shareholders by the Company, other than for
compensation for the current pay period coming due in the ordinary course of
business.
4.1.15 Agreement Amendments. The Agreement Amendments shall have been
duly executed and delivered by the parties thereto and shall have become
effective.
4.1.16 ESOP Valuation. The ESOP shall engage a valuation expert who
shall provide a valuation of the respective interests of the ESOP and the
Individual Shareholders in Nova-Tech, such valuation to be as of a date
immediately prior to the Closing, and who shall render an opinion that the ESOP
is receiving adequate consideration within the meaning of section 3(18) of ERISA
for its ESOP Shares and that the transaction is fair to the ESOP from a
financial point of view (the foregoing valuation and opinion referred to herein
as the "ESOP Valuation").
4.1.17 Further Documents. The Company and the Shareholders shall have
executed and delivered any other documents and rendered any other performance
necessary to consummate the transactions contemplated by this Agreement.
25
4.2 Conditions to the Obligations of the Shareholders. All obligations of
the Shareholders under this Agreement are subject to the fulfillment and
satisfaction, prior to or at Closing, of each of the following conditions, any
one or more of which may be waived by the Shareholders in writing:
4.2.1 Corporate Actions. All actions required to be taken by, or on
the part of, PA&E to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated by this
Agreement shall have been duly and validly taken by PA&E.
4.2.2 Representations and Warranties. The representations and
warranties of PA&E contained in this Agreement shall be true and correct at and
as of the Closing Date, with the same effect as though such representations and
warranties had been made at and as of the Closing Date.
4.2.3 Performance of Obligations. Each of the obligations of PA&E
required to be performed by PA&E on or before the Closing Date pursuant to the
terms of this Agreement shall have been performed as required.
4.2.4 Certificate. PA&E shall have delivered to the Shareholders a
certificate to the effect of Sections 4.2.1 through 4.2.3, signed by the
President of PA&E.
4.2.5 IRS Letter Ruling. The IRS Ruling shall have been requested and
obtained.
4.2.6 Employment Agreements. The Company shall have executed and
delivered the Employment Agreements with each of Xxxx Xxxxxxxx and Xxxx
Xxxxxxxx.
4.2.7 Lease Amendments. The Company and HHD Associates shall have
executed and delivered the Lease Amendments.
4.2.8 Further Documents. PA&E shall have executed and delivered any
other documents and rendered any other performance necessary to consummate the
transactions contemplated by this Agreement.
4.3 Additional Condition to the Obligations of the ESOP. In addition to the
conditions of the Shareholders set forth in Section 4.2, all obligations of the
ESOP under this Agreement are subject to the fulfillment and satisfaction, prior
to or at Closing, of the following condition, which may be waived by the ESOP in
writing.
4.3.1 ESOP Valuation. The ESOP shall have received the ESOP Valuation,
and the ESOP Valuation shall be in form and substance reasonably acceptable to
the ESOP Trustee.
26
ARTICLE 5.
INDEMNIFICATION
5.1 Indemnification by the Individual Shareholders. Notwithstanding any
investigation by PA&E and subject to Section 5.3.1, from and after the Closing,
the Individual Shareholders, jointly and severally, shall indemnify, hold
harmless and defend PA&E and its subsidiaries, shareholders, affiliates,
officers, directors, employees, agents, successors and assigns (the "PA&E
Indemnified Persons") from and against, and reimburse each of them with respect
to, any and all losses, damages, liabilities, costs, and expenses, including
without limitation interest, penalties and reasonable attorneys' fees
(collectively, "Damages") incurred by any of them based on or arising out of:
(a) any breach or inaccuracy of any representation or warranty of the Individual
Shareholders made in this Agreement or any exhibit, schedule, certificate or
agreement delivered in accordance with this Agreement (collectively the "Related
Documents"), or (b) any failure by the Shareholders to perform any covenant
required to be performed by them pursuant to this Agreement or any of the
Related Documents.
5.2 Indemnification by PA&E. Notwithstanding any investigation by the
Individual Shareholders, and subject to Section 5.3.2, from and after the
Closing, PA&E shall indemnify, hold harmless and defend the Individual
Shareholders and their agents, successors, heirs and assigns from and against,
and reimburse each of them with respect to, any and all Damages incurred by any
of them based on or arising out of: (a) any breach or inaccuracy of any
representation or warranty of PA&E made in this Agreement or any Related
Document, or (b) any failure by PA&E to perform any covenant required to be
performed by it pursuant to this Agreement or any Related Document.
5.3 Limits on Indemnification.
5.3.1 Limits on Liability of the Individual Shareholders.
Notwithstanding the foregoing, the liability of the Individual Shareholders
under Section 5.1 shall be subject to the following limitations:
a. Indemnification Period. No claim for indemnity will be
effective unless written notice of such claim is given pursuant to this
Agreement to the Individual Shareholders within two years after the Closing Date
(the "Indemnification Period"), except that claims based upon Sections 2.1.8,
2.1.13, 2.1.15, 2.1.17(a) or 2.1.17(c) or upon the assertion that any of the
Individual Shareholders had actual knowledge that a representation or warranty
made by the Individual Shareholders was false when made or was made with the
intent to deceive may be made at any time until expiration of the applicable
statute of limitations.
b. Amount of Indemnification. The Individual Shareholders shall
not have any obligation to make any indemnification payments until the PA&E
Indemnified Persons have suffered Damages exceeding $25,000 in the aggregate
from all matters as to which they are entitled to indemnification pursuant to
this Article 5 (at which point the indemnification obligation of the Individual
Shareholders shall cover all Damages in excess of $25,000). The maximum
27
aggregate amount of liability of the Individual Shareholders for claims made on
or before the first anniversary of the Closing Date shall be limited to
$570,000. After the first anniversary of the Closing Date, the maximum aggregate
amount of liability of the Individual Shareholders will be automatically reduced
to $400,000. Notwithstanding the other provisions of this Section 5.3.1(b),
there shall be no limit on each Individual Shareholders' liability for claims
based upon the assertion that any of the Individual Shareholders had actual
knowledge that a representation or warranty made by the Individual Shareholders
was false when made or was made with the intent to deceive.
5.3.2 Limits on Liability of PA&E. The liability of PA&E pursuant to
Section 5.2 is limited as follows:
a. Indemnification Period. No claim for indemnity will be
effective unless written notice of such claim is given pursuant to this
Agreement to PA&E within two years after the Closing Date (the "Indemnification
Period"), except that claims based upon the assertion that PA&E had actual
knowledge that a representation or warranty made by PA&E was false when made or
was made with the intent to deceive, may be made at any time until expiration of
the applicable statute of limitations.
b. Amount of Indemnification. PA&E shall not have any obligation
to make any indemnification payments until the Individual Shareholders have
suffered Damages exceeding $25,000 in the aggregate from all matters as to which
they are entitled to indemnification pursuant to this Article 5 (at which point
the indemnification obligation of PA&E shall cover all Damages in excess of
$25,000). The maximum aggregate amount of PA&E's liability for claims made on or
before the first anniversary of the Closing Date shall be limited to $570,000.
After the first anniversary of the Closing Date, the maximum aggregate amount of
liability of PA&E will be automatically reduced to $400,000. Notwithstanding the
other provisions of this Section 5.3.2(b), there shall be no limit on PA&E's
liability for claims based upon the assertion that PA&E had actual knowledge
that a representation or warranty made by PA&E was false when made or was made
with the intent to deceive.
5.4 Indemnification Procedure.
5.4.1 Third Party Claims.
a. Each indemnified party will, promptly after obtaining
knowledge of a claim, provide the indemnifying party with written notice of all
third party actions, suits, proceedings, claims, demands or assessments that may
be subject to the indemnification provisions of this Article 5 (collectively,
"Third Party Claims"), including, in reasonable detail, the basis for the claim,
the nature of Damages and a good faith estimate of the amount of Damages.
b. The indemnifying party shall have 15 days after its receipt of
the claim notice to notify the indemnified party in writing whether the
indemnifying party agrees that the claim is subject to this indemnification
under this Article 5 and, if so, whether the indemnifying party elects to
undertake, conduct and control, through counsel of its choosing
28
(subject to the consent of the indemnified party, such consent not to be
withheld unreasonably), and at its sole risk and expense, the good faith
settlement or defense of the Third Party Claim.
c. If, within 15 days after its receipt of the claim notice, the
indemnifying party notifies the indemnified party that it elects to undertake
the good faith settlement or defense of a Third Party Claim, the indemnified
party shall reasonably cooperate with the indemnifying party, including, without
limitation, by making available to the indemnifying party all relevant
information material to the defense of the Third Party Claim. The indemnified
party shall be entitled to participate in the settlement or defense of the Third
Party Claim through counsel chosen by the indemnified party, at its expense, and
to approve any proposed settlement that would impose any obligation or duty on
the indemnified party, which approval may, in the sole discretion of the
indemnified party, be withheld. So long as the indemnifying party is contesting
the Third Party Claim in good faith and with reasonable diligence, the
indemnified party shall not pay or settle the Third Party Claim. Notwithstanding
the foregoing, the indemnified party shall have the right to pay or settle any
Third Party Claim at any time, if it waives any right to indemnification
therefor by the indemnifying party.
d. If the indemnifying party does not provide notice that it
elects to undertake the good faith settlement or defense of a Third Party Claim,
or if the indemnifying party fails to contest the Third Party Claim or undertake
or approve settlement, in good faith and with reasonable diligence, the
indemnified party shall thereafter have the right to contest, settle or
compromise the Third Party Claim at its exclusive discretion, at the risk and
expense of the indemnifying party.
5.4.2 Non-Third Party Claims.
a. Each indemnified party will, with reasonable promptness,
deliver to the indemnifying party written notice of all claims for
indemnification under this Article 5, other than Third Party Claims, including,
in reasonable detail, the basis for the claim, the nature of Damages and a good
faith estimate of the amount of Damages.
b. The indemnifying party shall have 30 days after its receipt of
the claim notice to notify the indemnified party in writing whether the
indemnifying party accepts liability for all or any part of the Damages
described in the claim notice. If the indemnifying party does not so notify the
indemnified party, the indemnifying party shall be deemed to accept liability
for all the Damages described in the claim notice.
5.5 Exclusivity. The exclusive remedy of either party for damages or other
monetary relief based on claims arising under this Agreement shall be the
indemnification provisions set forth herein; provided that, notwithstanding the
foregoing, (i) each party shall retain the right to pursue any claims in equity
that may be available (whether for specific performance, injunction or other
equitable remedy) with respect to the nonperformance or breach of any obligation
required to be performed hereunder, and (ii) each party shall further retain the
right to obtain damages or other monetary relief against the other party or
parties based upon an assertion that any of the other parties had actual
knowledge that a representation or warranty made by the other parties was false
when made or was made with the intent to deceive. A party's failure to give
29
timely notice of a claim relating to the indemnity will not constitute a defense
(in part or in whole) to any claim for indemnification by such party, unless,
and only to the extent that, such failure results in any material prejudice to
the indemnifying party.
5.6 Waiver of Certain Indemnity Rights. Effective upon the Closing, Xxxx
Xxxxxxxx in his capacity as a current or former trustee of the ESOP, and Xxxx
Xxxxxxxx in his capacity as a current or former trustee of the ESOP (each a
"Trustee"), each hereby irrevocably waives any right either Trustee or both
Trustees may now or hereafter have to indemnity from the Company for any acts or
omissions of such Trustees or either of them that (i) relate to the Stock
Purchase or any of the actions contemplated by this Agreement, or (ii) occurred
prior to the Closing Date.
5.7 Actual Knowledge. To the extent that any party has actual knowledge
prior to the Closing, without having any obligation to undertake any factual
inquiry or investigation, that any representation or warranty made by another
party in this Agreement is untrue, the representing or warranting party shall
have no liability with respect to specific facts that were known to be untrue.
5.8 Insurance Recoveries. In the event that any party actually receives
insurance proceeds with respect to an event or condition that would be subject
to a claim for indemnification under this Article 5, the amount of such recovery
will be deducted from the Damages claimed hereunder.
ARTICLE 6.
TERMINATION
6.1 Right to Terminate. Notwithstanding anything to the contrary in this
Agreement, this Agreement may be terminated and the transactions contemplated in
this Agreement abandoned at any time prior to the Closing:
6.1.1 Mutual Consent. By mutual consent of PA&E and the Shareholders.
6.1.2 Delay. By either PA&E or the Shareholders, if the Closing shall
not have occurred by May 31, 2000. However, the right to terminate this
Agreement under this Section 6.1.2 shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Closing to occur on or before such date.
6.1.3 Breach by PA&E. By the Shareholders (if they are not in breach
of this Agreement), if PA&E breaches any of its representations and warranties
in any material respect or fails to comply in any material respect with any of
its obligations or agreements contained in this Agreement.
6.1.4 Breach by the Individual Shareholders. By PA&E (if it is not in
breach of this Agreement), if any of the Individual Shareholders breach any of
their representations and
30
warranties in any material respect or fail to comply in any material respect
with any of their obligations or agreements contained in this Agreement.
6.1.5 Failure of the Company Shareholders to Approve. By PA&E, if a
unanimous consent or a meeting of shareholders of the Company has not occurred
as required by Section 3.7, or a meeting having been duly held, if the
shareholders of the Company fail to approve the Articles Amendment and any other
action necessary to authorize the transactions contemplated by this Agreement,
within 21 days after the receipt of the IRS Ruling.
6.2 Certain Obligations to Cease. If this Agreement is terminated pursuant
to Section 6.1, all obligations of the parties to this Agreement shall terminate
and there shall be no liability of any party to this Agreement to any other
party, except: (a) for breaches of Section 3.3 or 3.10, and (b) that nothing in
this Agreement will relieve any party from liability for any willful breach of
this Agreement.
ARTICLE 7.
MISCELLANEOUS PROVISIONS
7.1 Survival. Except as stated below, the representations and warranties
contained in this Agreement shall survive for a period of two years after the
Closing Date. The representations and warranties in Sections 2.1.8, 2.1.13,
2.1.15, 2.1.17(a) or 2.1.17(c) shall survive for the applicable statute of
limitations.
7.2 Exhibits; Schedules. Each Exhibit to this Agreement and each Schedule
delivered pursuant to the terms of this Agreement is incorporated into this
Agreement by reference.
7.3 Notices. Any notice or other communications required or permitted under
this Agreement shall be sufficiently given if in writing and shall be deemed
given or made when delivered personally, by facsimile, or by courier (with
signed receipt), or three days after sent by certified or registered mail,
return receipt requested, to the following addresses or to such other address as
a party may designate in writing to the others:
To PA&E: With a copy to:
Pacific Aerospace & Electronics, Inc. Stoel Rives LLP
000 Xxxx Xxxxxx, Xxxxx 000 000 Xxxxxxxxxx Xx., Xxxxx 0000
Xxxxxxx, XX 00000 Xxxxxxx, XX 00000-0000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxx, Attention: L. Xxxx Xxxxxxxxx, Jr.
General Counsel
To the Individual Shareholders: With a copy to:
31
Mr. Xxxx Xxxxxxxx Xxxx Xxxxxx Xxxxxxxx
000 X.X. 000xx 0000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, XX 00000 Xxxxxxx, XX 00000-0000
Facsimile: (000) 000-0000
Xx. Xxxx Xxxxxxxx Attention: Xxxxxx X. Xxxx III
7200 - 34th N.W.
Xxxxxxx, XX 00000
To the ESOP: With a copy to:
NOVA-TECH Engineering, Inc. Xxxxxx & Xxxxx, X.X.
Employee Stock Ownership Trust 0000 Xxxxxxxxxx Xxxxx
Xxxxxx Trust Company, Trustee Financial Center
0000 - 0xx Xxx., Xxxxx 000 West 000 Xxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxx 00000-0000 Xxxxxxx, XX 00000-0000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxxxx Attention: Xxxxxx X. Xxxxxxxx, Xx.
7.4 No Assignment. Neither this Agreement nor any rights or obligations
hereunder may be assigned by operation of law or otherwise.
7.5 Titles and Captions. The section titles, captions and headings in this
Agreement are for convenience only and shall not be deemed part of this
Agreement or in any way intended to define, limit, extend or define the scope or
intent of any provisions of this Agreement.
7.6 Waiver. No failure by any party to this Agreement to insist upon the
strict performance of any covenant, duty, agreement, or condition of this
Agreement or to exercise any right or remedy consequent upon a breach thereof
shall constitute a waiver of any such breach or of such or any other covenant,
agreement, term or condition. Any party by notice pursuant to this Agreement
may, but shall be under no obligation to, waive any of its rights or any
conditions to its obligations under this Agreement, or any duty, obligation or
covenant of any other party. No waiver shall affect or alter the remainder of
this Agreement but each and every other covenant, agreement, term and condition
of this Agreement shall continue in full force and effect with respect to any
other then existing or subsequently occurring breach.
7.7 Amendment. This Agreement may be amended with respect to any provision
contained in this Agreement by a written instrument duly executed on behalf of
each party to this Agreement.
7.8 Severability. If any condition, covenant or other provision in this
Agreement is held to be invalid, void or unenforceable by a court of competent
jurisdiction, the same shall be deemed severable from the remainder of this
Agreement and shall in no way affect any other covenant, condition or provision
of this Agreement. If such condition, covenant or other provision shall be
deemed invalid due to its scope or breadth, such provision shall be deemed
reformed and valid to the extent of the scope or breadth permitted by law.
32
7.9 Rights and Remedies. The rights and remedies of the parties under this
Agreement shall not be mutually exclusive and the exercise of one or more of the
provisions of this Agreement shall not preclude the exercise of any other
provision.
7.10 Attorney Fees. In the event of any legal action arising from or
relating to this Agreement, the non-prevailing party shall reimburse the
prevailing party for all of the prevailing party's costs and expenses, including
reasonable attorney fees, incurred in legal action.
7.11 Expenses. PA&E shall pay all fees and expenses (including attorney
fees) incurred by PA&E, and the Shareholders shall pay all fees and expenses
(including attorney fees) incurred by the Shareholders and the Company, with
respect to the negotiation and execution of this Agreement and the closing of
the transactions contemplated by this Agreement, except that: (i) the costs of
requesting and obtaining the IRS Ruling shall be borne 50% by PA&E and 50% by
the Shareholders; (ii) the Excise Tax shall be borne 50% by PA&E and 50% by the
Shareholders; and (iii) the costs of any audit required by PA&E pursuant to
Section 4.1.8 shall be paid by PA&E.
7.12 Governing Law. This Agreement and the Stock Purchase shall be governed
by and construed in accordance with the laws of the State of Washington, without
giving effect to conflicts of laws principles.
7.13 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement.
7.14 Entire Agreement. This Agreement, including the attached Schedules and
Exhibits, and the Confidentiality Agreement, constitute the entire agreement
between the parties and supersede all prior agreements or understandings between
parties, written or oral, as to the subject matter of this Agreement.
33
Executed as of the date first written above.
SHAREHOLDERS:
/s/ XXXX XXXXXXXX
-----------------------------------------
Xxxx Xxxxxxxx
/s/ XXXX XXXXXXXX
-----------------------------------------
Xxxx Xxxxxxxx
NOVA-TECH Engineering, Inc. Employee
Stock Ownership Trust
By Alaska Trust Company
Its Trustee
By /s/ XXXXXXX X. XXXXXXXXXX
--------------------------------------
Its President and CEO
----------------------------------
PA&E:
PACIFIC AEROSPACE & ELECTRONICS, INC.
By /s/ XXXXXX X. XXXXXX
--------------------------------------
Xxxxxx X. Xxxxxx
Its President
34
Consent of Spouse
The undersigned spouse of Xxxx Xxxxxxxx hereby joins in, consents to and
agrees to be bound by the foregoing Stock Purchase Agreement, to the extent
necessary to bind the marital community.
Dated as of October 7, 1999.
/s/ XXXXX X. XXXXXXXX
-----------------------------------------
Please Print Name: Xxxxx X. Xxxxxxxx
----------------------
Confirmation
The undersigned Xxxx Xxxxxxxx hereby confirms, represents and warrants to
PA&E that he is not married.
Dated as of October 6, 1999.
/s/ XXXX XXXXXXXX
-----------------------------------------
Xxxx Xxxxxxxx
35
List of Exhibits and Schedules to the Stock Purchase Agreement
The following list briefly identifies the contents of all exhibits and schedules
to the Stock Purchase Agreement, dated October 11, 1999, between Pacific
Aerospace & Electronics, Inc. and the shareholders of Nova-Tech Engineering,
Inc. (the "Agreement"). All of the exhibits and schedules listed below are
omitted from the Agreement filed as Exhibit 2.1 to the foregoing quarterly
report on Form 10-Q, pursuant to Regulation S-K, item 601(b)(2). The registrant
agrees to furnish supplementally a copy of any of the omitted exhibits and
schedules to the Securities and Exchange Commission upon request.
Exhibits:
Exhibit A - Agreement Amendments
Exhibit B - Employment Agreements
Schedules:
Schedule 2.1.2 Capitalization
Schedule 2.1.3 Interests in Other Entities
Schedule 2.1.5(b) Absence of Undisclosed Liabilities
Schedule 2.1.5(c) Accounts Receivable
Schedule 2.1.6 Litigation
Schedule 2.1.7 Absence of Changes
Schedule 2.1.8 Taxes
Schedule 2.1.9 Compliance With Laws
Schedule 2.1.10 Contracts
Schedule 2.1.11 Intellectual Property
Schedule 2.1.12 Insurance Policies
Schedule 2.1.13 Environmental Matters
Schedule 2.1.14 Labor Matters
Schedule 2.1.15 Employee Benefit Matters
Schedule 2.1.16 Employee Matters
Schedule 2.1.17(a) Real Property
Schedule 2.1.17(c) Tangible Personal Property
Schedule 2.1.18 Permits and Licenses
Schedule 2.1.19 Certain Interests
Schedule 2.1.21 Consents and Approvals (Company)
Schedule 2.1.23 Warranties
Schedule 2.2.6 Consents and Approvals (PA&E)
